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June 10, 2011 at 03:51 AM
While the number of certified financial planners (CFPs) misrepresenting themselves or the features of products they sell tops the list of disciplinary trends tracked by the CFP Board, bankruptcies among CFPs is the fastest growing category of misconduct, catching up quickly with misrepresentations.
Michael Shaw, managing director for professional standards and legal at CFP Board, gleaned that information from a review of the CFP Board’s disciplinary trends from 2008 to 2011. According to the CFP data, while there have been 30 public sanctions involving misrepresentations since 2008, with suspensions arising from those cases also experiencing an uptick, denying and revoking use of the CFP mark among certificants is down somewhat.
Common examples of “misrepresentation” include a CFP failing to accurately represent product features, suggesting experience or expertise in related areas they don’t actually have, and not coming clean with their firm or with a regulator when faced with investigatory questions.
The number of CFP certificants currently stands at 62,000, but Shaw says that number is increasing by 1,000 per year. All CFPs must adhere to the CFP Board’s Standards of Professional Conduct, which includes the Code of Ethics and Professional Responsibility, Rules of Conduct and Financial Planning Practice Standards.
“We are seeing an increase in the number of investigations we open each year,” says Shaw, referencing all disciplinary activity over the past few years. “The economy has something to do with it. When clients lose money, they complain,” he says. “Some [complaints] are legitimate, some are not.” The CFP Board “opened 1,500 investigations in 2010. The vast majority of those we closed; there’s no probable cause to support a rule violation. We dismissed 1,200 with no probable cause to support a rule violation, [and of the 300 left] 103 went to hearing.”
Shaw and Edward Mora, chairman of CFP Board’s Disciplinary and Ethics Commission, held a webinar recently in which they discussed bankruptcy situations and mitigating factors that might cause the CFP Board to step back from pursuing a disciplinary measure.
Two or more bankruptcies, they noted, are grounds for revocation or denial of certification, while medical bankruptcies are perceived more mildly than those bankruptcies arising from speculative real estate deals and other poor financial management situations.
