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As a follow up to my blog of two weeks ago, Camardas 1: CFP Board 0. Where Does the Board Go From Here?, about court rulings on a number of motions by Jay and Kim Camarda in their lawsuit against the CFP Board, I talked with advisory attorney Brian Hamburger. We discussed the case, and in particular my suggestion that the Board should settle with the Camardas, admit its mistakes and revamp its oversight of CFP’s use of the term “fee-only.”
(Yes, it would have been better to speak with Brian before I wrote my blog, but he’s a busy guy, and couldn’t talk until after my deadline. Besides, Brian’s also a loquacious guy, and his astute insights are more than enough to warrant their own space.)
Brian Hamburger is the founder of the New Jersey-based Hamburger Law Firm and its affiliate MarketCounsel, which offers RIA compliance services. “Legal or regulatory actions against an advisor can be very costly,” he told me about Market Counsel, years ago, “and frankly, we got tired of being called in to clean up the messes. So we designed an ongoing program to economically help advisors with compliance on the front end, so they can avoid costly issues down the road.”
Having worked in his father’s insurance and advisory firm for some years before heading to law school, and working at the SEC’s Enforcement division while getting his JD, Brian brings a unique perspective to advisor regulation: an understanding of the advisory business from the ground up and advisory enforcement from the top down.
Over the years I’ve known him, I’ve always found Brian’s candid observations about advisor regulation insightful and right to the heard of the matter. He didn’t disappoint in our discussion about the Camardas and the CFP Board.
Hamburger said that he wasn’t surprised by the Camarda suit. “For some time [the Board] has acted as judge and jury. They have been unaccountable to their CFPs and they have been ridiculously heavy handed and uncooperative. If they are going to restrain their members that way, you had to think there would come a time when someone would challenge them.”
Which brought us to the Camarda lawsuit. “This lawsuit is an accountability test: has the CFP Board’s oversight been misplaced?” he said. “It’s an antitrust issue. They are the only regulator of financial planners. Are they allowing some CFPs to use this quasi-regulator for anticompetitive behavior or unfair competition? In our experience with the CFP Board, it has seemed as if they handled advisors affiliated with firms that have deep pockets very differently than they did mom and pop advisory firms.”
With that said, Brian doesn’t think settling the lawsuit is a viable option: “I think the CFP board is all in,” he said. “By settling this case, they would be opening themselves up to ongoing challenges and possibly more lawsuits. You have a bunch of CFPs who think the Board has stepped far over the line of what they became CFPs for in the first place. They didn’t dream in a million years they would be dealing with the enforcement arm of the Board.”
In addition, Hamburger believes that the recent Court ruling—that CFP Board officers will have to testify and that it must turn over the files of past disciplinary actions—shifts the suit in favor of the Carmadas. “The Board is stuck in a difficult position,” he said. “I can’t see the CFP Board ‘winning’ as a result of this decision: winning in the court of public perception, that is. And the public perception of what’s happened is the most damning: will those documents reveal that some CFPs were denied due process, or treated unfairly?”
According to Hamburger, the Board may be “gambling with the future of the organization. If they lose, they lose a heck of lot of credibility; the advisory industry will begin to question the value of the CFP mark. The moment they start to feel that, advisors will start to drop their CFPs.”
A dire assessment, indeed. So dire, in fact, that to my mind, eating some crow and settling with the Carmardas and everyone else who has been wronged over their use of “fee-only” seems like a pretty attractive option for the Board.
However, Brian sees a different silver lining around the Camarda suit: “Until now, CFPs and those of us who represent their interests have been such a fragmented group that it’s been hard to hold the CFP Board accountable. If those documents reveal some of the Board’s less-than-evenhanded enforcement, that would be valuable to the industry. The legal system is a good way to even up the influence.”
That is, of course, assuming the Board is able to weather the storm.