Well, the results of the first round in the CFP Board v. Camardas are in, and all the judges are giving this one to the challengers: Jeff and Kim Camarda. The Camardas, you’ll remember, are the Fleming Island, Fla. CFPs who were disciplined by the CFP Board for allegedly misapplying the term “fee-only” to themselves and their firm, Camarda Wealth Advisors. They filed a lawsuit against the Board when it announced its intention to publicly publish a notice of their sanctions.
In the lawsuit, the CFP Board came out playing hardball, refusing to have its executives deposed, and declining to provide documentation of other similar disciplinary cases, as requested by the Camardas in the discovery phase of the trial. The Camardas responded with an appeal to judge, in the form of a motion to compel, and got the answers they were looking for last Sunday. The ruling appears to be a clean sweep for the Camardas, and a major blow to the CFP Board’s attempts to keep the focus of the trial on the Florida CFPs rather than on the Board’s disciplinary procedures—thereby raising the stakes for the Board, and raising questions about the wisdom of going forward with the Camarda suit.
Here’s what Judge Leon of the U.S. District Court in Washington, D.C. ruled in his six point “Minute Order” on Jan. 26:
- Denied the Board’s motion to quash the Camardas’ subpoenas to depose the Board’s executives and other witnesses, thereby forcing a number of the Board’s executives, including CEO Kevin Keller, Michael Shaw, head of legal and disciplinary matters, and Dan Drummund, head of media relations, to testify
- Required the Board to provide all requested documents on the disciplinary hearings of other CFPs;
- Allowed the Camardas to amend their original complaint to include anti-trust violations, and to seek monetary damages (as yet unspecified) from the Board.
Here’s what the CFP Board had to say about the ruling, and its resolve, in a statement issued last Monday: “Judge Leon issued some procedural rulings Sunday. There has been no decision on the merits. CFP Board will continue to vigorously defend this case.”
Yes, well, there are procedural rulings and there are procedural rulings. We’re not talking about where people are going to sit at the table here. If there’s really “no merit” to the Camardas’ case, as the Board has maintained from the start, why refuse to testify or provide documents? The Board has referred to these requests as an “onerous burden” in its filings, but to my mind the easiest way to show that the Camardas got nothin’ is to just show that they got nothin’.
Here’s the thing: we now know the Camardas actually got more than nothin’: a lot more. And the CFP Board knows it, too.
Back in September Financial Planning reporter Ann Marsh’s research revealed: “There are 486 advisors at the four wirehouses – and possibly hundreds more at smaller banks and at insurance companies – who hold CFPs and describe themselves as fee-only in their public profiles on the CFP Board website.” These brokers were guilty of the same violation of the Board’s rules as the Camardas, since their employer firms are commission-charging “related parties” That’s a problem for the Board, as its remedy in the brokers’ case was to shut down its website for two weeks while issuing notices to participating CFPs that they may want to rethink their compensation status.
No disciplinary hearings, no sanctions—public or otherwise.
That’s just one recent incident: There’s no telling what other uneven-handed rulings are contained in the CFP Board’s disciplinary files that it valiantly tried—and failed—to keep from the Court’s eyes. Which means Judge Leon’s “procedural rulings” put the Board in a difficult position.
If it goes ahead with its defense of the Camarda suit, allowing the discovery of what we can only surmise will be many instances of more lenient treatment of CFPs with “fee-only” violations, it hard to imagine the Judge could not find the Camardas were treated arbitrarily, and possibly, capriciously. Which could open the door to other lawsuits—or even a class action suit—by CFPs who also didn’t receive lenient treatment. On the other hand, if the Board settles with the Camardas, that, too, could lead to more legal challenges of its disciplinary past and future actions.
Is there a way out for the CFP Board? The best suggestion I’ve heard came from an industry friend of mine the other day who prefers to remain anonymous. He suggested that the Board just come clean about its whole “fee-only” mess: admit that it has woefully mishandled the enforcement of CFPs’ compensation descriptions, settle with the Camardas, redress other instances of uneven disciplinary actions—and come out with clear new rules and definitions for disclosing CFP compensation, and tighter guidelines for disciplining violators.
Painful, perhaps, but it’s the right thing to do—for the Camardas and all CFPs—and the best way for the CFP Board to regain its credibility and the credibility of the financial planning profession.