I recently had an interesting email exchange with a reader (who prefers to remain anonymous) about the relative severity of three recent cases involving financial planners. While this may seem to some like a purely academic debate, to me, it raises serious issues about how the CFP Board oversees financial planners, and how planners should be—and want to be—disciplined.
The three cases that came up in our virtual discussion are: Ron Rhoades, who misunderstood the timing of the investment advisor requirement in Florida and took on new clients prematurely; Jeff and Kim Camarda, who represented their RIA firm as “fee-only,” while they also owned an insurance brokerage; and the hundreds of wirehouse brokers who listed themselves as “fee-only” on the CFP Board’s “find a financial planner” website.
I’ve written in this blog about all three cases, stating my opinion about each (for example, on the Camardas, see Has the CFP Board Overplayed Its Hand With the Camardas?. On ‘fee-ony’ wirehouse brokers, see A Commission-Only Crackdown? Really?).
My opinions? The Camardas were treated unfairly by the CFP Board; the Board’s virtual non-action against the brokers was inconsistent with its treatment of the Camardas; and Ron Rhoades committed a minor infraction (for which I’ve taken considerable criticism).
This discussion began with the advisor asking: “A few years ago, Ron Rhoades violated Florida state law. I understand that when Ron was made aware of his breach, he took corrective action, including repaying the clients for their fees. From what I understand, the Camardas’ contracts and ADV were correct representations, and they were willing to take the corrective action of removing the ‘fee-only’ tag from the website. Effectively, the same remedy.
I think that the former is a more serious offense. You simply do not represent yourself as something that you are not and take their money! There is no doubt that one directly solicited clients when they were not allowed to, while representing themselves as being allowed to. The other case involved general advertising without solicitation. Which is the more egregious? And why has the Board taken action against the Camardas, and ignored the Rhoades case?”
Me: My gauge of the severity of a violation of the law, and therefore the punishment warranted, is the harm caused or the potential to cause harm. (While driving 50 mph through a school zone at 8:00 A.M. may not result in any harm, the potential is so great as to warrant serious punishment).