More On Legal & Compliancefrom The Advisor's Professional Library
- Risk-Based Oversight of Investment Advisors Even if the SEC had a larger budget and more resources, it is doubtful that the Commission would have the resources to regularly examine all RIAs. Therefore, the SEC is likely to continue relying on risk-based oversight to fulfill its mission of protecting investors.
- Updating Form ADV and Form U4 When it comes to disclosure on Form ADV, RIAs should assume information would be material to investors. When in doubt, RIAs should disclose information rather than arguing later with securities regulators that it was not material.
The Certified Financial Planner Board of Standards sent a letter Wednesday to all 70,000 CFP certificants explaining a new investigative process the Board will take to identify certificants who inaccurately disclose their compensation methods on the Board website’s “Find a CFP” tool.
Board Chairman Ray Ferrara, CFP, said in an interview Wednesday that the investigation will begin with those who call themselves fee-only advisors “because that’s where there’s the biggest opportunity for confusion and potential abuse.”
The investigation will be conducted, said Ferrara, “on a risk-adjusted basis, randomly” selecting certificants who have ticked the “fee only” box on its website, then consulting information “in the public domain to make sure the compensation they’ve disclosed is what’s consistent with their actual business practices.” That information, said Ferrara, will start with an “informal check-in” with the certificant but will also include “social media, a website, a form ADV, anything else that we could Google” about the certificant.
CEO Kevin Keller said in the same interview that “our real objective is to help facilitate compliance. It’s not to play 'Gotcha!' or catch people doing things wrong but to help them comply with our standards.”
In the letter, the interview and in an op-ed in Investment News, Ferrara admitted that the Board “could have done a better job” in “rolling out our Find a CFP tool, especially when we added compensation as a choice.” He also said that “when we recognized there might be multiple people who did not have the proper box checked” concerning compensation on the site, “we made a decision and took down all 8,000 and sent out a notice, said these are our rules, double check and put yourselves back up in the proper box.” In addition, “at that time we said there would be additional steps taking place, and if we find anyone has still misrepresented their compensation we might open up an investigation.”
The issue with the CFP Board’s compensation came to light first with the departure of former CFP Board Chairman Alan Goldfarb and three other Board members following a sanction over their failure to comply with the Board’s fee-only definition, and most notably via a lawsuit filed by certificants Jeff and Kim Camarda of Camarda Wealth Advisory in Fleming Island, Florida, who also fell short of the Board’s fee-only strictures.
That lawsuit continues, and Ferrara said Tuesday that “with regards to the case … the Board has consistently said that we want to defend this lawsuit vigorously because it goes to the heart of who we are and what we stand for.” Specifically, he said the Board “provided the Camardas with a full and fair process, which was the same process that anyone who has allegations made against them” will receive. The Board’s disciplinary and ethics commission, and the appeals committee “made up of the board of directors agreed” in the Camardas' case “that the rules were broken and we won’t back down from the court case.”
In addition to its investigation of CFPs who call themselves fee only, the Board also announced in its letter that it is offering “any company, no matter how large or small, to contact us through their compliance officers” to report any CFPs at their firms who have listed themselves as fee only and are not. “They’ll be taken down, to keep inadvertent errors from occurring.”
Ferrara stressed that “CFP Board is compensation- and business-model neutral,” that “competent and ethical financial planning can be done regardless of business model,” and moreover “that it can be done with the fiduciary standard of care when practicing financial planning. Every professional at all times must put the needs of the clients ahead of his or her own.”
Check out How to Break Impasse Over CFP Board’s Comp Disclosure Rules by Michael Kitces on ThinkAdvisor.