The latest filing in the U.S. District Court for the District of Columbia by the Certified Financial Planner Board of Standards asking Jeffrey and Kimberly Camarda, both CFPs, for their client list is raising some questions about privacy rules set out by the Securities and Exchange Commission’s Regulation S-P, and whether granting such a request could set a new precedent and allow the Board to make other such client requests from CFPs.
In the ongoing tussle between the CFP Board and Camardas of Camarda Wealth Advisory in Fleming Island, Florida, the CFP Board alleged that the Camardas violated the Board’s fee-only definition. The CFP Board issued an order in March 2012 finding that the Camardas had mispresented their fee-only compensation structure because they also owned a commission-based insurance agency.
The Camardas appealed the Board’s decision, but it was overturned, with the Board telling the Camardas that their penalty would be a public letter of admonition. The Camardas then filed a suit against the Board, placing a hold on the letter, and also citing antitrust and Lanham Act claims.
CFP Board spokesman Dan Drummond told ThinkAdvisor on Thursday that because the court “allowed the Camardas to pursue their antitrust and Lanham Act claims, it was clear that the parties would need to exchange confidential information.”
The CFP Board, Drummond said, “asked the court to issue a confidentiality order that provides special procedures for handling confidential or sensitive information (including procedures for filing documents with the court confidentially). CFP Board designated some of its documents as confidential under this Order and expects that the Camardas will do the same with their confidential documents.”
Brian Hamburger, founder of the New Jersey-based Hamburger Law Firm and its affiliate MarketCounsel, which offers RIA compliance services, told ThinkAdvisor in an email message that while the CFP Board’s request is “quite common in litigation,” granting the request “could empower the CFP Board to routinely make requests in similar cases and in more informal inquiries.”
Continued Hamburger: “By seeking this [client] information under court order, the CFP Board falls within the exception to Regulation S-P which permits financial advisors to share the information pursuant to a legal requirement.”
However, Hamburger added that the CFP Board “routinely makes such broad requests from its designees in more informal proceedings,” and that his firm has “long taken the position that these requests are impermissible” under Reg S-P absent the client’s consent.
“Yet, the CFP Board does not warn advisors of this and often induces them into furnishing private information without the requisite client consent.” Drummond said that “the identity and location of the Camardas’ clients is highly relevant to the claims the Camardas have made, including (but not limited to) the relevant market for their antitrust claims, the Camardas’ contention that the CFP professionals on the Hearing Panel that heard their case are ‘competitors of plaintiffs,’ and the Camardas’ claim that they ‘have suffered, and will continue to suffer, injuries to their good reputation, good will, established business relationships, income, business designations and certifications, and future business relationships.’”
The Camardas, Drummond said, “have raised claims that would affect CFP Board’s right to set and enforce professional standards that benefit the public. Certain of the Camardas’ claims implicate information about their clients.”
CFP Board “intends to defend itself vigorously but in a manner that safeguards confidential information relating to persons who are not themselves parties to this suit,” Drummond said.
Michael Kitces, director of research at Pinnacle Advisory Group, said that the “back-and-forth” nature of the legal suit between the Board and the Camardas highlights “the challenges that the CFP Board continues to face in trying to enforce its compensation disclosure rules.”
Says Kitces: “Since the CFP Board is not actually a regulatory body, it has no real ability to compel CFP certificant defendents to provide information – even just a list of clients who may have been harmed by an alleged action – and thus even in the context of this case has to rely on a court order, not to mention navigating the client privacy rules of other actual regulators.”
In May, the CFP Board sent a letter to all 70,000 CFP certificants saying that the Board would start a new investigative process 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 at the time that the investigation would begin with those who called themselves fee-only advisors “because that’s where there’s the biggest opportunity for confusion and potential abuse.”
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