In a lengthy and well-supported blog post on ThinkAdvisor on Dec. 30, Michael Kitces explores the question: “Should the CFP Board Settle Camarda Case?” You might remember Jay and Kim Camarda as the CFPs froim Fleming Island, Florida who back in September 2013, sued the CFP Board to prevent it from publicly posting an admonition in their hometown for advertising their firm as “fee-only,” after they had taken down the offending messages. 

In short, Kitces argues that the Board should settle the Camarda suit for two reasons: both involving the consequences of losing. First, he suggests the Board’s legal costs could run into the millions of dollars, and if the Camardas were awarded damages, they could reach tens of millions. Second, he wrote: “If the CFP Board loses, the door is open for virtually every other CFP certificant the CFP Board has ever brought before the [disciplinary committee] to question whether they, too, got a fair hearing with fair enforcement or not. Which means if the CFP Board loses, Camarda may just be the first of many (expensive) legal cases that could follow…” 

To get an insider’s perspective on how the CFP Board views the Camarda case and other recent events, I had a conversation with Folsom, California-based financial planner Tina Florence. You may remember Florence as one of the four CFP Board members who were forced to resign after the Camardas suggested in one of their court filings that they were also misleadingly describing themselves as “fee-only.”

As a former member of the Board’s discipline and ethics committee, Tina had some interesting insights into the Camarda case, Kitces’ contentions and recent turnover in the Board’s legal team that I suspect will be sobering to many CFPs. 

While Florence is prohibited from commenting on disciplinary actions by the CFP Board, she does agree with Kitces that losing a case like the Camardas’ could have a major impact on the Board’s past and future disciplinary process.

But perhaps even more important, she says that Michael is wrong about the financial impact of the cost of that lawsuit on the Board: “What Michael doesn’t take into account is that the CFP Board has liability insurance that covers their legal fees, and, although no Board member that I know has actually seen the policy, [it covers] probably any damages, except punitive damages. So the cost to the Board is only their deductible.” 

Got that? While the Camardas are probably shelling out into seven figures and climbing to sue the Board (by Kitces’ estimate), the Board’s costs are limited to a flat deductible. No wonder the Board has appeared little concerned about the Camardas’ suit and seems unconcerned that an adverse decision in the suit might lead to a flood of similar lawsuits.

Other challenges are likely to cost CFPs—likely with more limited resources—similar sums. Most CFPs, then, have virtually no recourse to any actions taken against them by the CFP Board. 

To make matters worse (yes, unfortunately, it can get worse), Tina Florence believes the recent departure of the CFP Board’s managing director for Professional Standards  & Legal, Michael Shaw, and its hiring of Leo Rydzewski (who was the lead attorney for the Board in the Camarda case) as general counsel is a further indication of the Board’s intent to play hardball with CFPs. 

“As we’ve seen recently in the press, the CFP Board’s disciplinary efforts have had some problems. Every time they turn around, they seem to make a mistake,” Florence told me. “The reason they can’t make a good decision is because they are building case law on the fly; making it up as they go along. There is no real process.

“Also, the enforcement folks are not financial advisors: so many times, the paralegals and lawyers didn’t know enough about financial services to understand what they were looking at. So what’s their solution? They get rid of Michael Shaw [who at least had enforcement experience], and they bring in someone else, in a slightly different position, a general counsel, with lots of experience. But not regulating experience: he’s an experienced litigator. What’s the message?  ‘I don’t care what the criticisms are. Here’s my hit man. Take your best shot.’” 

I have to admit, the hiring of Mr. Rydzewski does raise some questions. The two at the top of my mind: Why does the CFP Board need a big-time litigating attorney on staff; and whom do they plan on litigating against?

The CFP Board laid its cards on the table back in 2010, when it lobbied for Congressional support to be designated the regulator of financial planners during the drafting of the Dodd-Frank Act, and the Board’s subsequent decisions to “crack down” on CFPs (including the Camardas, Tina Florence and many others) over compensation disclosures.

As the Camardas have said, it’s one thing to be asked to change a questionable disclosure; it’s quite another to be publicly reprimanded.

If as Tina suggested, the Board’s hiring of a litigation attorney is an indication of more of that kind of “enforcement” to come, I suspect more CFPs will be asking whether the benefits of their designation still outweigh the risks.