In case you missed it, financial planner Allan S. Roth told an interesting—and troubling—story about a CFP Board enforcement case in his Wall Street Journal blog “Total Return” on September 12. The piece was unfortunately titled “Is the Fiduciary Standard a Joke?” which apparently gave some readers (as evidenced by their comments) the impression that Mr. Roth thinks the standard is a joke, when in fact, he clearly was wondering whether the Board takes its own standard seriously, given the example he cites.
It seems that a new client (who had formerly been a client of another financial planner) came to Mr. Roth for a second opinion on his financial affairs. As a CFP, the client’s former advisor had held himself out as a “fiduciary.” Yet, in the client’s portfolio, Mr. Roth found an annuity upon which the other advisor had been “double dipping”: that is, charging a commission and an AUM fee, resulting in some 5.29% (yes, that’s right: 529 bps) in annual fees.
Once made aware of the situation, according to Roth, both the insurance company and BD involved made a generous settlement to the client. And both the client and Mr. Roth filed complaints with the CFP Board against the former advisor for having breached his fiduciary duty. “What was surprising was that not a word came from the CFP Board,” wrote Roth. “In following up with the Board, I was told they had lost the complaint that I had filed, and hadn’t yet gotten to the client’s complaint. Eventually, the client received a letter that no public action would be taken against this CFP.”
When contacted about Roth’s allegations, the CFP Board issued a written statement to me from CEO Kevin Keller that reads, in part:
Certified Financial Planner Board of Standards certainly doesn’t consider the fiduciary standard a joke. We take it very seriously; we believe that 67,000 CFP professionals do as well.
Unfortunately, Allan Roth, CFP, has used incorrect presumptions related to a case that he filed on behalf of a client to call into question CFP Board, our fiduciary standard and our enforcement process.
Mr. Roth is presuming that because there was no public sanction against a CFP professional – against whom he brought a breach of fiduciary duty claim – CFP Board’s enforcement process is flawed and we don’t uphold the fiduciary standard. What Mr. Roth fails to disclose (or perhaps understand) is that CFP Board did not require our CFP professionals to adhere to a fiduciary standard until July 1, 2008, which is about three years after the time of the alleged misconduct Mr. Roth wrote about. We also didn’t receive a complaint from either Mr. Roth or his client until November 2008.
Ah, the complaint, which Mr. Roth claimed the CFP Board lost. Let me remind you, this is the same CFP Board that purports to speak for the financial planning profession on the fiduciary debate—and during the writing of Dodd-Frank was angling to become the regulator for financial planners. Perhaps I’m uninformed, but I don’t ever remember hearing of even FINRA having the temerity to claim that they “lost” a client complaint.
According to Roth, he went on to talk to the Board’s managing director, Professional Standards & Legal, Michael Shaw, who said he couldn’t comment on specific cases, “but did note that while the CFP Board did not revoke or suspend the CFP’s license or even issue a public letter of admonition, it was possible that CFP received a private censure.” I’ll bet that really put his tail between his legs.
Then, according to Roth, Board CEO Kevin Keller invited him to serve as a volunteer panelist on the Board’s Disciplinary and Ethics Commission so he could “write about the process from the inside,” as sort of a “peace offering” (“bribe” would certainly be too strong, here). “But then I received an agreement to sign,” he wrote, “giving the CFP Board the right to review and approve the article I would write on the process before publication… … [which was] not open to negotiation. This agreement was acceptable to both the Wall Street Journal and me…”