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January 28, 2015 at 03:34 AM
Are you troubled by the lack of action by Congress and the SEC on the Dodd-Frank mandate to better protect financial consumers? If so, you’re not alone.
There seems to be a growing number of independent advisors who have lost faith in Federal financial regulation. One of them is Tampa, Florida financial planner Michael Zmistowski, who recently concluded his chairmanship of the Florida Council of the FPA, and he believes that he has the solution: state licensing of financial planners. “The public’s intuition to trust professionals is enhanced by the state’s ability to regulate them,” he wrote last fall in his Chairman’s Blog “Building the Profession of Financial Planning. “No other licensing, degree, designation, trademarks or initials after your name has the same high impact on the public’s trust of financial planners than state licensing. “
When the CFP Board of Standards was created back in 1985, I was a senior editor at Financial Planning magazine, which extensively covered the event. There was considerable discussion at the time about whether financial planners should be regulated by each state or by the newly created national Board. The “party line” coming from the committee that facilitated the Board’s formation (made up of representatives of the ICFP and the IAFP, forerunners of the FPA, NAPFA, and the College of Financial Planning) was that “having to be licensed in every state in which a CFP had clients would be overly burdensome, without offering any advantages.”
As this argument appeared to make sense, there was virtually no opposition to transferring the “ownership” of the CFP mark from the College to the new CFP Board, with expectation that the Board would eventually become theregulator of financial planners.
One of the sobering things about getting older is the haunting realization of how much more clear things become in hindsight, and the decision against state regulation of financial planners is one of them. The many problems at the CFP Board in recent years—most notably, heavy-handed and inconsistent discipline of CFPs, the conflicts inherent in expanding its “market” to include “part-time fiduciary” wirehouse brokers, and the unclear motives behind its multi-million-dollar “public awareness campaign”—certainly raise questions about the wisdom of the decision to forgo state licensing. According to Zmistowski, it would solve all these problems and provide better consumer protections as well.
“Of the three requirements [of a profession], licensing, university degrees, and a body of knowledge,” Michael wrote, “the one that encourages the public’s trust is government licensing… … The public’s intuition to trust professionals is enhanced by the state’s ability to regulate them. No other licensing, degree, designation, trademarks or initials after your name has the same high impact on the public’s trust of Financial Planners than state licensing.”
Of course, getting states to regulate a “new” profession such as financial planning isn’t a slam dunk. But according to Zmistowski, it does offer two advantages over the Feds: due to their often overworked small staffs, state regulators are much easier to approach, and there are usually far less politics involved. To approach Florida’s securities regulators with some professional credibility, he first had to organize the state’s local FPA chapters into the Florida FPA Council. (According to the FPA’s director of advocacy, Karen Nystrom, only Florida and California currently have state FPA councils. However, by my count on FPA.com, there are also 17 one-FPA-chapter states.)
