Great Moments in Self-Regulation: Financial Planners and CFP Board

If you’re the US Portland Cement Association, your mission may have a lot to do with research, government relations, and promotion of your industry. No problem; that sounds perfectly appropriate.

If, on the other hand, you’re the American Medical Association, society wants much more than industry self-promotion. We want to see a commitment to ethics and to the good of patients—not just doctors. And if your industry doesn’t show self-restraint, society will regulate you. (Most recent case: mortgage brokers).

Where does financial planning fall in this spectrum? Is it like cement, where we are pretty much OK with an agenda largely about industry self-promotion? Or is it like medicine, where we consider ethical and professional standards and a focus on end-users to be of high importance?

That’s been a debate for the Certified Financial Planner Board of Standards for several years now, culminating in a new set of ethical standards to take effect this July. To grossly over-summarize, the issue is the extent to which the CFP (Certified Financial Planner) designation is a credential (hence a marketing tool) or an indication of fiduciary responsibility (hence also an ethical and professional obligation). Read some fascinating and rich dialogue from the CFP Board’s open discussion on the significance of the CFP designation here.

Basically, the Board leaned further in the direction of fiduciary responsibility over time (“further” is of course a relative term, as we’ll see).

A small indication of this direction was the CFB Board’s unanimous decision to “increase safeguards to the public through clear accountability, increased transparency and public representation on the [Disciplinary and Ethics] Commission.” The DEC is a volunteer group of CFPs who hear disciplinary complaints brought against other CFPs. The proposal added some professional CFP Board staff to the disciplinary commission.

Well, I don’t know how you could have missed it, but that move brought down holy hell. Two days before the announcement, this headline appeared: Mass Resignation at CFP Board Unit . Five of nine Disciplinary and Ethics Commission members quit, saying the Board decision “compromised the peer review process.” One member likened it to seating the prosecutor on the judicial bench.

My goodness, sakes alive! Who knew such evil was afoot!

OK, now, for once, I’m going to insert some real data into this blog—not just opinion.

Four years ago, my financial planner lost track of some of my money. Long story short, I ended up suing him and filing a complaint with the CFP—which I’m assuming went to the aforesaid Disciplinary and Ethics Commission. The letter back said since I was suing him, they’d do nothing—which implied, to me at least, a court decision would carry some weight with them.

Three years later, my (by then ex-) planner was finally convicted of professional malpractice by a jury. I then sent a copy of the court decree to the CFP Board and asked them if his having been found guilty was a concern to them, and if so, what sanctions might apply?

After 6 weeks of silence, here’s what I received in the mail—in its entirety, minus the names:

Please be advised that the CFP Board carefully reviewed the grievance you filed. CFP Board has reviewed this matter according to the Disciplinary Rules and Procedures, and, in light of the Code of Ethics and Professional Responsibility and Financial Planning Practice Standards, it has taken appropriate action.

As you know, CFP Board is only able to discipline those individuals who have been found in violation of the Code of Ethics and Professional Responsibility, Financial Planning Practice Standards and/or Disciplinary Rules and Procedures. If violations are found, CFP certificant may receive any one of several forms of discipline ranging from a private censure, in the least serious cases, to permanent revocation of the CFP certificant’s right to use the CFP marks, in the most serious cases. CFP Board’s Disciplinary Rules and Procedures contains confidentiality provisions that limit the amount of information CFP Board can make public regarding private censures or cases that are dismissed. This letter contains all the public information available regarding your grievance.

CPF Board appreciates your bringing this matter to our attention. Because of the willingness of the public to provide CFP Board with this type of information, we are better able to protect the public. Thank you for the time and attention you gave to this matter.

[name ]
Paralegal, Professional Review

I kid you not about the paralegal signature. Take that, judge jury and court system. I, Paralegal, am telling you that we’ve got it all under control. Trust us. Contrary to any misunderstanding you may have entertained, we don’t answer to the courts—the courts’ rulings are subordinate to ours. And we don’t have to tell you what those rulings are; and we choose not to. But they were just. Trust me.

I suspect the same cement-head mentality behind that decision informed the thinking of those who resigned en masse at the “threat” of bringing in outsiders who might “taint” their process.

If the cops can handle civilian review boards;,if the US Army can handle reporters in the heat of battle;,don’t you think financial planners ought to be able to let a CFP Board professional staff person into a disciplinary committee hearing on ethics?

I applaud any effort by the leadership of the CFP Board to let some sunshine into this committee’s circle-the-wagons view of self-regulation. Throw some bleach in while you’re at it.

Beware any ethics group who says “just trust me” when it comes to decisions ostensibly made on your behalf. Sunshine is still the best disinfectant.

1 reply
  1. Bret Frohlich
    Bret Frohlich says:

    Great Post.

    Misappropriation of customer funds is one of the many reasons I have never used a financial planner.  This is a more common problem than many investors know. 

    It’s a shame the CFP Board doesn’t see the harm in this, both to members and to customers.


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