On Tuesday, June 20th, the CFP Board of Standards released a draft of proposed revisions to its Code of Ethics and Standards of Conduct for a 60-day public comment period. The draft and the pronouncements surrounding the release are merely the latest in the Board’s long history of feigning interest in consumer advocacy in order to advance the organization’s own ambition to seize control of the financial planning industry. Its actions serve as a sterling example of why the CFP Board should never be entrusted to be the standard bearer for the profession.
As explained in a five-minute, awkwardly scripted video “interview” between Senior CFP Board Ambassador Jill Schlesinger and the organization’s general counsel, Leo Rydzewski, the most substantive proposed change involves amending the Board’s current ethical standard that requires CFP certificants to act in a fiduciary capacity only when providing financial planning guidance to a new standard that requires CFPs to act in their clients’ best interests at all times. This revision is seen by some as closing a controversial, self-serving loophole that permits non-fiduciary commission-based brokerage registered representatives and insurance agents to obtain the CFP designation and use the CFP marks on their marketing materials, so long as they do not overtly state or imply that they actually provide financial planning guidance.
For many financial planners and industry observers, the current standard, which was instituted in 2009, never passed the “smell test.” While the existence of this loophole enabled the CFP Board to cast a broad membership net that provides the monetary fuel for its advertising and lobbying efforts, it is directly in conflict with, and hypocritical to, the “client-first” standards the Board so zealously purports to promote. On one hand, the Board is constantly preaching about the need for regulatory authorities to create stronger rules that place the interests of the client above those of the financial advisor, while on the other it has been encouraging non-fiduciary advisors to use the marks to gain credibility. Critics have rightly argued that this policy has added to confusion among consumers and has made it more difficult to differentiate between advisors who are held to the lower brokerage and insurance suitability standards that require only limited disclosure of commissions and conflicts of interest and advisors who must adhere to the strict client-first fiduciary standard that is applied to financial planners operating under the Investment Advisers Act.
Although the June 20th initiative has been lauded by some industry observers, the proposed standard of conduct revisions for CFPs comes on the heels of the Department of Labor’s legally mandated fiduciary standard for all financial advisors (including brokerage and insurance reps) who service retirement accounts. Far from taking a leadership role on the fiduciary issue, the Board’s proposal to expand the reach of its fiduciary standard comes after years of foot-dragging. To paraphrase a famous quip from Winston Churchill, the CFP Board can always be counted on to do the right thing…after it has exhausted all other possibilities.
Further, a close reading of the amendment finds that it is carefully and subjectively worded to allow commission-based reps to continue to use the marks and to allow the Board to continue unabated in its recruitment commission-based sales reps to the CFP ranks. The proposed new standard is being presented as an improvement insofar as it does indeed require commission-based certificants to disclose how they are paid, their obvious conflict of interest in selling commission-based products to prospects and customers, and to (subjectively) agree to place their clients’ interests first. What is conspicuously lacking in the proposal, however, is a specific requirement of upfront disclosure of how much (i.e., the dollar amount and/or % of commission) the advisor will receive on commission-based transactions.
Under the proposed amendment, a CFP advisor is not required to specifically disclose the amount of compensation he/she will receive from a client’s purchase of an annuity contract, life insurance policy, non-traded REIT, or other “alternative investment.” Commissions on these products are generally opaque to investors. Supporters of the SEC’s existing, stricter fiduciary standard would likely argue that this is very much material, relevant information that must be disclosed, but the Board’s amendment carefully tiptoes around this 800 lb. gorilla, presumably so as not to offend its legions of dues-paying, commission-based wirehouse brokers and insurance agents. Instead, the abstruse language of the amendment merely leaves it up to the CFP to determine if he/she is acting in the client’s best interest and is sufficiently disclosing material information. The absurdity of this approach is compounded by the fact that the CFP Board has no real capacity to enforce the new “tougher” fiduciary standard on its members until after a consumer complaint is made.
A pattern of misleading consumers
The inconvenient truth is that the CFP Board’s proposed new standard only creates the perception of closing the fiduciary standard loophole. Such duplicity is consistent with the CFP Boards’ modus operandi in advancing its agenda of increasing its influence over the financial planning profession by any means necessary. Another blatant example is found in the Board’s $40+ million “Let’s Make a Difference” television PR campaign to raise consumer awareness of the CFP marks. The unambiguous message of the commercials is that advisors who hold the CFP marks are more qualified and more trustworthy than non-CFP financial planners. For an organization that presents itself as a protector of consumer interests, the suggestion that certificants are necessarily more academically qualified than non-CFP financial planners is tantamount to misrepresentation, since CFP certificants who obtained their marks prior to 2008 were not even required to have a college degree. Even today, certificants are not required to have any prior academic background in finance or economics. Similarly, the implication that CFP holders are inherently more trustworthy is both misleading and ethically irresponsible, since there are many high profile examples of CFPs who used the marks to gain trust in order to defraud their clients (see supporting articles). Further, the CFP Board itself has been criticized over the years for being inexcusably slow to revoke the marks from certificants who have been convicted of fraud and/or misrepresentation.
Give the CFP Board an inch and it will want to be a ruler
At present, financial planners are regulated by the Securities Exchange Commission (SEC) under the Investment Advisers Act of 1940. The agency’s rulemaking and enforcement authority covers both traditional non-brokerage investment advisers and all financial planners whose services include investment guidance. Under current SEC rules, all financial planners are held to a strict fiduciary standard that is unambiguous in requiring the advance disclosure of ALL material potential conflicts of interests. All financial planners are also required to provide prospective clients with detailed plain English background disclosure information (SEC Form ADV Parts 2A & 2B) and to update and deliver these disclosure documents to clients at least annually.
The SEC’s fiduciary standard applies to all CFPs who fall under the SEC’s purview as investment advisory reps (IARs), but does not apply to CFPs who are traditional brokerage reps or insurance agents. To address this problem without offending its constituency, the Board’s proposed amendment requires this segment to provide a disclosure document that is “substantially similar” to SEC Form ADV to consumers. These advisors, however, would presumably remain beyond the reach of SEC regulation and enforcement.
In terms of its role in the financial services universe, the CFP Board of Standards owns the Certified Financial Planner designation, administers the CFP exam, and sets and enforces the standards for the use of the CFP marks by certificants. Although the organization currently has no regulatory authority over the financial planning profession outside of its membership base, its stated objective is to make the CFP designation a requirement for the entire financial planning profession. To advance this agenda, each year the Board spends millions of dollars on marketing campaigns to influence public perception of the CFP marks and on lobbying efforts to increase the Board’s influence with lawmakers. Funding for these efforts comes primarily from exam fees and membership dues. If the CFP Board is successful in lobbying lawmakers in Washington to make the CFP designation a required standard for financial planning, it would become the de facto regulator of all financial planners.
In sum, the CFP Board’s June 20th proposal is merely a watered-down duplication of existing Investment Advisory Act standards, and it is just the latest example of the organization disingenuously posturing on behalf of consumers while seeking to protect and advance its own financial and political interests. The financial planning profession (including existing CFPs) and lawmakers would do well to wake up to the Board’s subversive, power-grabbing agenda and to think carefully about the wisdom of granting further influence or authority to an organization that is so consistently duplicitous and hypocritical in its own conduct.
John H. Robinson is Founder/Owner of Financial Planning Hawaii and Co-founder and CEO of software maker Nest Egg Guru. He is a regular contributor to industry discourse on a broad range of financial planning topics and was recently named among the top 100 most influential advisors in the U.S. by Investopedia.
Supporting articles
Board to Death: Is the CFP Board’s New Fiduciary Standard Really Better Than No Standard at All? (Think Advisor 6/21/2017)
Consequently, the key question is whether this revised standard is, in fact, a real fiduciary standard, or yet another fake standard that is likely do more harm than good. In that regard, the recommendations should close the loopholes in the existing Standards of Conduct that allow CFPs to be part-time fiduciaries…Toward that end, the Board’s recommendations appear to be surprisingly comprehensive and on point. I say “appear” because, as I’ve learned, with any quasi-regulatory document, the practical application of the proposed changes can vary greatly from the way they appear at first blush and ultimately depends on a specific word here or a slightly unconventional definition there.
‘Just Say No’ to CFP Board’s New Standards (Think Advisor 7/11/2017)
The Board has done more harm to the fiduciary movement than any other organization. And given the absence of transparency and of good board governance, certificants need to understand that there is no self-correcting mechanism to drain the swamp.
Restoring Trust In The CFP Mark (Financial Advisor 4/6/2009)
It's important to remember that the requirement of a bachelor's degree was instated only for those credentialing after 2007, before which many planners could hit the pavement straight from high school or even beforehand.
A painful truth is that many financial practitioners are sales people masquerading as planners or advisors in an industry whose ethical practices have a shameful track record. Stockbrokers and insurance agents who earn commissions from buying and selling stocks, insurance and other financial products realize that a CFP credential will help grow the volume of their business or branch them into other related and lucrative products and services.
The Curious Case of the CFP Board and a Double-Dipping CFP (Think Advisor 9/24/2012)
In case you missed it, financial planner Allan S. Roth told an interesting—and troubling—story about a CFP Board enforcement case in his Wall Street Journal blog (See Is the Fiduciary Standard a Joke?)
Let me remind you, this is the same CFP Board that purports to speak for the financial planning profession on the fiduciary debate—and during the writing of Dodd-Frank was angling to become the regulator for financial planners.
When Your Financial Planner Doesn’t Tell All (Wall Street Journal 10/4/2013) The Wall Street Journal has identified at least 17 recent instances in which the CFP Board stripped a planner of the CFP title more than three years after serious allegations first appeared in the public record.
What’s Behind The CFP Board’s Big Fee Increase (RIA Biz 4/11/2011)
The organization has an annual budget of about $14 million, reserves of $28 million and a very nice office on K Street, the heart of Washington’s lobbying district. The organization’s board Friday approved a fee increase of $12 a month, which would amount to a revenue increase of $9 million a year for the organization.
The CFP Board has some critics, including the prominent advisor Ric Edelman, who publicly quit the Financial Planning Association when that group endorsed the CFP mark as a sign of quality. Edelman doesn’t hold a CFP, though many of the planners who work for him do.
“I do not believe the board, despite its name, properly sets the right standards for our profession,” he says. “It is little more than a self-serving entity operating under the guise of serving the public interest. The interests it actually serves are merely those of itself and its members.” – Ric Edelman
How the CFP Board is getting its $40 million's worth from its Advertising Campaign (RIA Biz 7/24/2014)
The campaign is not over and CFP Board will continue spending about $10 million annually and review that budgeting on an annual basis.
CFP is caught in the middle. It has some gravitas but in terms of the training required, it’s not nearly the amount off the CFA [Chartered Financial Analyst] or CPA, it’s just not that demanding. It is right in the middle. They’re desperately trying to separate themselves from that pack of others credentials because they want to be seen as more valuable and more serious.”
Is the CFP Fiduciary Promise for Real? (Financial Planning 10/29/2013)
"Just about anyone can use the term 'financial planner,' " the board's chief executive, Kevin Keller, said in a news release announcing the "Let's Make a Plan" campaign. "But only those individuals who have passed a rigorous set of criteria and meet our strict ethical qualifications can call themselves a CFP professional," he added. Yet the campaign may ultimately have the opposite effect, undermining the CFP description by making promises the board cannot fulfill.
"Simply put," says Ron Rhoades, a former NAPFA board member and head of the financial planning program at Alfred State College in Alfred, N.Y., "many consumers may be under the impression, as a result of the CFP Board's advertisements, that [its] certificants are trusted advisors when, in fact, many do not always practice in such fashion." Rhoades has accused the board repeatedly of perpetuating fraud against consumers by creating this impression.
Is the CFP Board Losing Credibility in the Eyes of Advisors? (Wealth Management 4/11/2014)
WealthManagement.com surveyed 321 CFP holders and found that one-third believe the recent scandals detract from the perceived value of the designation. Fifty-four percent said they don’t trust the advisor compensation disclosures on the CFP’s website.
“The CFP Board continues to insist that all is well and everything is OK and the compensation disclosure rules are clear,” said Michael Kitces, an industry blogger and advisor who holds a CFP. “And certainly it sounds like the implication from the survey is no, there are still certificants who are concerned about this.”
CFP Board chairman steps down amid ethics concerns (Reuters 11/2/2012)
The chairman of an organization that certifies and develops standards for financial planners has stepped down amid allegations that he may have violated the group's ethics rules…Alan Goldfarb, chairman of the Certified Financial Planner Board of Standards Inc, resigned along with two members of a disciplinary and ethics committee, the organization said in a statement on Friday.
Global Junkets Lavished On Directors Fuel CFP Board High Life (FA Magazine 4/3/2014)
Some suggest that the board subtly curries favor with CFP Board directors by dangling lavish perks in front of them. Topping the list is a long array of expensive international junkets offered to members of the board’s various international councils and others.
Did CFP Board Shorten Exams to Lure Certificants? (Think Advisor 1/17/2014)
Kitces’ blog sparks debate on whether new CFP Board exam regime is a watering down of the mark
Secret recording: A CFP at JPMorgan pushed high-priced products (Financial Planning 10/13/2016)
The recording raises questions about the CFP Board claim on its website and in its advertising campaign that all certificants are fiduciaries.
Many regrets for those lured by Bradford Bleidt (Boston Globe 1/20/2009)
Before there was Bernard Madoff, there was Bradford Bleidt. Bleidt worked his Ponzi scheme not at exclusive Florida country clubs but in red-brick Masonic halls north of Boston.
CFP BOARD CENSURES IMPROPER CFP® CERTIFICANT CONDUCT (CFP.net 1/1/2005)
CFP Board issued Bradford C. Bleidt an interim suspension, prohibiting him from using the CFP® certification marks, effective immediately. This disciplinary action was taken by the Board of Professional Review, a board of CFP® certificants that interprets and applies CFP Board's Code of Ethics and Professional Responsibility and Financial Planning Practice Standards as well as investigates, deliberates and takes appropriate action with respect to alleged violations of the Code of Ethics or Practice Standards by CFP certificants.
Fee-Only Pioneer Zabalaoui Sentenced To 8 Years (FA Magazine 8/6/2009)
During an emotional court case yesterday, a federal judge sentenced 71-year-old former planner Judith Zabalaoui to 97 months in prison for using a Ponzi scheme to embezzle millions from clients in the New Orleans area…Zabalaoui, a certified financial planner, was regarded as one of the pioneers of the financial advisory profession and among the first advisors to transition to a fee-only model in the early 1980s.
Read more articles by John H. Robinson