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CFP Board Weighs Monetary Penalties in Tougher Sanctions Plan

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What You Need to Know

  • Imposing monetary penalties is a behavior akin to that of a regulator — which, by law, the CFP Board is not, Michael Kitces says.
  • The CFP Board says the payment would be an administrative fee to help offset the cost of enforcement.
  • The Board reviewed its standards of conduct and other policies after a Wall Street Journal report in 2019.

The Certified Financial Planner Board of Standards is proposing to toughen the consequences for CFPs’ failure to timely report potential misconduct and ethical violations to CFP Board — including, for the first time, imposing monetary penalties, akin to a regulator.

The board is requesting comments by Sept. 21 on its proposed changes to its Sanction Guidelines and Procedural Rules.

The proposed changes, if adopted, will stiffen the consequences for failing to timely report potential misconduct to CFP Board and for providing an inaccurate Ethics Declaration.

The plan also introduces a streamlined option for accepting those consequences.

Kevin Keller, CFP Board’s CEO, said on a call with reporters that “throughout the last two years, CFP Board has enhanced its detection practices so that it no longer primarily relies on self-reporting by CFP professionals to detect potential misconduct. However, the public records we review have coverage gaps and may be subject to error. Therefore, fair and effective self-reporting remains an important feature of the enforcement program.”

In December, the CFP Board appointed former Securities and Exchange Commission official Thomas Sporkin to the newly created position of managing director of enforcement.

The proposed changes reflect the first set of recommendations from CFP Board’s Commission on Sanctions and Fitness, formed in February.

Public Censure

Under the current Sanction Guidelines, a “Failure to Timely Report Information to CFP Board” or submitting an “Inaccurate Ethics Declaration” results in a private censure.

The proposed changes “increase the sanction guidelines for these two conduct categories to a public censure.”

CFP Board explained that while it “concluded that a public censure is the most appropriate sanction, CFP Board is evaluating whether to impose an administrative fee on those who engage in self-reporting violations to help offset the costs of enforcement.”

The proposed sanction guidelines “include factors that might make the sanction higher or lower than a public censure, depending on the circumstances,” CFP Board said.

Also, the proposed guidelines include a policy note indicating that no violation will be found if the information was timely reported on Form U4 (Uniform Application for Securities Industry Registration or Transfer), CFP Board said.

Kitces’ Reaction

Michael Kitces, head of planning strategy for Buckingham Wealth Partners and co-founder of XY Planning Network, was quick to respond to the plan on Twitter, stating the new sanction guidelines “would turn failure or missreporting violations to CFP Board from a private censure to a public one. More significant, though, is a proposed ‘monetary sanction’ as well.”

As Kitces noted, the updates come in the aftermath of new CFP Board standards of conduct that took effect last year, and a July 2019 story by The Wall Street Journal that revealed “CFP certificants who had FINRA or SEC disclosures that weren’t reported to CFP Board.”

Kitces noted on Twitter that “ramping up the Sanctions for Failure To Report makes sense. @CFPBoard wants to create more pressure on CFP certificates to timely report, so CFP Board can report/act more quickly. And avoid another black eye for not knowing about them as occurred last time.

“The bigger deal, though,” Kitces continued, “is that @CFPBoard is considering a monetary sanction – an ‘administrative fee’ – for the violation. Nominally, this is to cover the cost of the investigation, and would be waived for those who accept guilt & censure without a hearing. (‘Pleading guilty’?)

In practice, though, imposing a monetary sanction “puts @CFPBoard into the realm of imposing fines for violations. Akin to an actual regulator. (Which legally CFP Board is not. It’s a 501c3 that licenses CFP marks as a trademark.)”

CFP Board Responds

Leo Rydzewski, CFP Board’s general counsel, told ThinkAdvisor in separate comments that CFP Board “currently does not impose monetary sanctions. CFP Board has a monetary administrative fee for Disciplinary and Ethics Commission hearings and appeals to the Code and Standards Enforcement Committee.”

Explained Rydzewski: “As the professional body for personal financial planners in the U.S., CFP Board has the authority to require that a CFP professional pay, as a condition of the CFP professional’s Certification and Trademark License, the fees, costs, or other amounts imposed on the CFP professional in connection with any investigation, Complaint, proceeding or sanction.”

Currently, he continued, the CFP Board “charges a monetary administrative fee for Disciplinary and Ethics Commission hearings and appeals to the Code and Standards Enforcement Committee. CFP Board also is considering charging a monetary administrative fee for ‘Failure to Timely Report Information to CFP Board’ and submitting an ‘Inaccurate Ethics Declaration.’”

CFP Board, he added, “would provide all CFP professionals with notice if CFP Board were to decide, in the future, to issue monetary sanctions.”

CFP Board considered whether the appropriate sanction should be a public censure or a monetary sanction, Rydzewski said.

CFP Board’s goal, he said, “is to have a credible enforcement program that benefits the public.”

Pictured: CFP Board CEO Kevin Keller