On Oct. 10, Financial-Planning.com’s Ann Marsh posted a story titled “CFP Board Suspends Probe After Advisor Drops CFP” about veteran Los Angeles financial planner Nigel Taylor’s recent run-in with the CFP Board. In a case strikingly similar to the one that spawned the widely covered lawsuit by Florida financial planners Jeff and Kim Camarda, the CFP Board notified Taylor that it had opened an investigation into his use of the term “fee-only” to describe his RIA, Taylor & Associates.
Taylor responded that his RIA was in fact “fee-only.” On July 10, the Board sent a letter to Taylor, announcing its intention to move ahead with its investigation. Taylor wrote back that he was dropping his CFP certification, and on July 30, the Board announced it was suspending its investigation because his CFP was no longer current.
At the time of this writing, the CFP Board did not have a formal response to, or anyone to comment on, Taylor’s case or his white paper.
However, Dan Drummond, director of public relations for the CFP Board, was quoted by Marsh as saying, “Mr. Taylor is entitled to his opinion. In exchange for the right to use the CFP marks, CFP professionals agree to abide by the terms and conditions of CFP certification. These include an agreement to comply with our Standards of Professional Conduct and be subject to CFP Board’s disciplinary process for any alleged violation.”
“I didn’t make my decision lightly or recklessly,” wrote Taylor in comments on that article. “It was the most emotional thing I’ve done. [The Board's] thinking is flawed, their demands violate their own terms and conditions of licensing, and I cannot and will not sign on to this a moment longer.”
Although the Taylor case appears to be over for the time being, in a 2008 white paper called “A Layman Examination of CFP Certification and Renewal Terms and Conditions” that he updated and re-released in August, Taylor raised more troubling questions about the Board’s rules and enforcement of the use of the term “fee-only,” and about the contractual relationship between the Board and its CFPs.
Taylor’s recent case with the Board is similar to the Camardas’ case in that he’s a CFP who owns both a registered investment advisory firm and an insurance brokerage. What’s more, like the Camardas, Taylor has never claimed to be a “fee-only” advisor. But his RIA has—and there’s the rub.
“Personally, I am not fee-only and have always declared myself to be fee and commission,” Taylor wrote. “However, my firm cannot and does not accept commissions, and what CFP Board is missing in my case, the Camarda case […] and many other cases currently running, is [that the Board only regulates] individual CFP certificants […], not registered investment advisor firms, which are not CFP certificants and have not executed any kind of agreement with CFP Board.”
Consequently, it’s Taylor’s contention that not only does the Board lack the right to concern itself with his RIA, the disclosures in question would in fact violate the law. “To force me to change my RIA firm’s method of compensation to ‘fee and commission,’” he wrote, “would, in my opinion and the opinion of counsel, force me to make fraudulent and deceptive disclosures on my ADV Form Part II.”
What’s more, in his paper, Taylor appears to suggest that the Board is well-aware of its limitations regarding firms as opposed to individual CFPs. There have been “other failed initiatives that CFP Board tried to foist on stakeholders back in 1998-99,” he wrote. “One of them was the ‘CFP Accredited Firm’ filing. The idea behind this filing was to create a method of subjecting RIA firms to CFP Board’s rules. Had this initiative succeeded, they could have forced RIA firms to do whatever they said, including misstating their method of compensation under penalty of discipline. Thankfully, when [some] other initiatives were rescinded, so was this one, and CFP Board has no power or authority to force anyone to change how their RIA’s method of compensation is to be disclosed. […] CFP Board is blind to the fact that they don’t, despite their most fervent desires, regulate investment advisors … The SEC and states do.”
At best, it’s not clear that the CFP Board has any say about how a CFP’s advisory firm describes itself. This issue once again highlights the lack of forethought that went into writing the Board’s compensation disclosure rules. This situation is more complex than it might be as, under the Board’s rules, CFPs are required to be fiduciaries for their clients when acting as financial planners, but are allowed to take commissions, which renders CFPs non-fiduciaries when selling financial products. Consequently, CFPs like Taylor, who own or work at both RIAs and insurance or securities brokerages, can be placed in untenable situations when describing their compensation and affiliations under overly simplistic rules such as the Board’s.
In his white paper, Taylor described what he believes is an equally untenable situation that CFPs face under the “terms and conditions” agreement with the Board that they sign—or now, click on—each year. “My reading of the current terms and conditions had me questioning whether CFP Board actually believes in their own vision and whether stakeholders should risk complying with CFP Board mandatory standards of practice and its ‘financial planning process’ in the first place.”
The problem, he wrote in a comment on Financial-Planning.com, goes back to 2008. “I doubt if [CFPs] noticed that the terms and conditions of renewal grew from two paragraphs to almost three pages of very fine print in a tiny font back in 2008 when they went to online renewal.”
He continued, “If certificants did read what they were signing, they would conclude, as I did, that the potential cost and liability of certification nowhere near outweighs the meager benefit but even greater potential for harassment by the Board.”
Taylor has two main problems with the new, longer CFP terms and conditions agreement. In his paper, he first cited Renewal Subchapter G, called the Disclaimer of Warranty, which states: “The use of the certification marks are provided on an ‘as is’ basis. CFP Board disclaims any and all express or implied conditions, representations and warranties, including any implied warranty of merchantability, fitness for a particular purpose, course of dealing, […].”
As you might guess, Taylor takes issue with the Board first requiring that CFPs follow its practice standards, then disclaiming any responsibility for those standards. “CFP Board cleverly demands we voluntarily adopt and implement ‘mandatory’ standards of practice developed exclusively by them,” he wrote, “which modify and govern the methodology we employ in practicing financial planning.”
However, he continued, the CFP Board does not “stand behind the value of the marks, the fitness of their financial planning educational program, CFP-Board-mandated ideology, methodology and skill sets we must employ in our dealings with the public and our clients.”
Even worse, in Taylor’s eyes, is Subchapter L, which states that not only does the Board not have CFPs’ backs if problems arise, CFPs are required to have the Board’s back: “I further covenant and agree to defend, indemnify and hold harmless CFP Board and its directors, officers, employees and agents from and against any and all claims, demands, judgments, awards and expenses related thereto (including court costs and reasonable fees of attorneys and other professionals) brought or threatened by any third parties, including my clients, arising out of: (i) any breach by me […].”
The way Taylor reads this, which is hard to argue with, is that if a CFP is sued and the CFP Board is named as a co-defendant, the CFP is required to reimburse the Board for its entire defense costs out of “their own pockets.”
As you can see, Taylor is not only upset about the CFP Board’s expansion of its powers to include the disclosures of RIA firms, but also about its own disclosures regarding its relationship with CFPs. He puts it this way: “While I am no longer a stakeholder and I will continue to not be a stakeholder for as long as this current Board remains on their chosen course, I encourage each current stakeholder to perform the same due diligence on any contract they sign in the same way one would for a client.” Hard to argue with that.