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The financial planning community was recently stunned by the unexpected announcement that Alan Goldfarb, chairman of the Board of Directors for the CFP Board, along with two unnamed members of the CFP Board's Disciplinary and Ethics Commission (DEC), had resigned amidst allegations that they had violated CFP Board's Standards of Professional Conduct. Critics of the CFP Board were quick to step forward and use the announcement as a moment of weakness and an opportunity to bash the organization. Nonetheless, it's still notable in a sign of strength that the CFP Board does have an enforcement process, and isn't afraid to use it - even to the point of ousting its own board chair and some DEC members.

In the long run, though, whether this proves to be a sign of strength or weakness for the CFP Board depends upon the transparency it uses in resolving the matter. While light on the details right now - it is, after all, an ongoing investigation - the real question is how much the CFP Board ultimately discloses about what the allegations were, the process of the investigation, the outcomes of that process, and how the matter was adjudicated - along with whatever steps it intends to take to ensure the problems, whatever they were, don't happen again. We can't ask for or expect any answers yet, but we can ask for and expect a commitment, now, for transparency at the end of the process to maintain the integrity of the organization.

The Facts As We Know Them

The press release issued by the CFP Board itself contains most of the details that are known at this point.

The CFP Board became aware of "broad" allegations that members of the Board of Directors and other volunteers may have violated provisions of the CFP Board's Standards of Professional Conduct. Given that the chair of the Board of Directors was involved in the allegations, the Board created a special committee compromised from their public/independent board members (i.e., those who have no internal ties to the financial services industry) to look into the matter. The special committee in turn retained outside counsel to investigate the allegations and report the findings directly back to the committee.

The conclusions of the investigation and the special committee was that there was "sufficient merit in the allegations against Mr. Goldfarb and the two members of the DEC to refer them for further proceedings under CFP Board's Disciplinary Rules and Procedures." When Goldfarb and the others were made aware of the committee results, they resigned from their positions (Goldfarb's October 30th resignation letter is publicly available). 

On October 31st, the Board of Directors held a special meeting to elect new leadership, and 2012 Chair-elect Nancy Kistner was chosen to fill the remainder of Goldfarb's term, in addition to filling her own previously-elected term as Chair through 2013. On November 2nd, the CFP Board issued the aforementioned public press release announcing the incident and the changes.

Still Lacking In Key Details

Unfortunately, though, little information has been released regarding many of the key details of the allegations themselves.

In an interview and e-mail correspondence between Goldfarb and Financial Planning magazine after the CFP Board announcement was made, Goldfarb stated "I can’t discuss much, since the process is confidential, but I can say that the alleged violation concerns representing my compensation as 'salary,’ which it is, as opposed to 'fee and commission,’ since I am also the principal of an [affiliated] M&A-based broker-dealer [Weaver Tidwell Capital LLC].” However, CFP Board CEO Kevin Keller responded to Financial Planning magazine in the same article "Alan Goldfarb’s description of the alleged violation that is being referred for further proceedings under our disciplinary rules and procedures is not correct," yet provided no further elaboration about what the allegations actually are.

In addition, no detail was provided in the CFP Board's announcements regarding the allegations against the two DEC members, nor even whether the allegations between the DEC members and Goldfarb are related (although it seems difficult to imagine they're purely coincidental). However, in a follow-up inquiry regarding this matter to the CFP Board, Keller did state regarding both Goldfarb and the DEC members that "the allegations related only to possible violations of the Standards of Professional Conduct and not their service on either the Board of Directors or the Disciplinary and Ethics Commission.”

Unfortunately, little further information beyond this is likely to be forthcoming soon. The CFP Board has indicated that they will not provide any substantive details regarding an ongoing investigation, which means at best there will be no further public resolution to the matter until the next meeting of the Disciplinary and Ethics Commission where the matter can be reviewed and adjudicated in/around March of 2013.

Furthermore, the CFP Board does not generally disclose disciplinary matters even after they are resolved, unless they actually result in a public disciplinary outcome like a suspension or revocation of the CFP marks, or a public letter of admonition; if the incident ultimately results in a private censure, or a finding of innocence, there would typically be no public discussion of the matter at all. Under the CFP Board's Sanction Guidelines, whether the incident at hand would lead to a public sanction depends on the nature of allegations; unfortunately, though, not knowing the allegations, there's little way to know whether the outcomes are likely to ever be made public.

CFP Board Strength or Weakness?

So what are we to make of all of this as financial planners?

On the plus side, this incident is an affirmation that the CFP Board, unlike many other designations, has not just Standards of Professional Conduct, but an enforcement process to apply them and keep its house in order - and that, for the integrity of the organization, it's not afraid to enforce, even if it means ousting its own Board chair and members of its Disciplinary and Ethics Commission. And the CFP Board appears to have taken all the steps one would expect in handling a delicate internal matter appropriately, including the fact that the Board committee to look into the matter was comprised solely of independent board members and that the investigation was conducted by outside counsel, not CFP Board staff.

Nonetheless, the CFP Board has a long and mired history of debacles of varying sorts, along with a troubling lack of transparency. As I wrote on this blog just a few months ago, the CFP Board appears in recent years to be a changed organization from what it was in the past, under positive new leadership and with a newfound focus on rebuilding its trust deficit and moving forward. But when a potentially scandalous incident like this hits an organization, constituents have some fundamental questions that deserve to be answered: What happened? How did it become known? What are the details of how it was handled? Who was actually guilty of what? Were the penalties and consequences appropriate? And how will you make sure it doesn't happen again?

These questions are especially pertinent given the sensitive nature of the positions that were involved in this particular incident. This wasn't merely a resignation of a board member; it was the chair of the organization. And this wasn't merely the resignation of two miscellaneous volunteers; it was the resignation of two members of the Disciplinary and Ethics Commissions responsible for adjudicating the CFP Board's Standards of Professional Conduct in the first place! Thus, while it's positive that the CFP Board appears to be proactive in dealing with the issue, the fact that both Board leadership and DEC members were involved nonetheless raises troubling images of conspiracies, coverups, and something rotten in the enforcement and adjudication process at the CFP Board itself.

What's Next From Here?

Unfortunately, there isn't likely to be much information forthcoming for many months now, until the next meeting of the DEC in March.

The bottom line to me is that while I can appreciate that the CFP Board needs some time to complete its investigation and allow its process to operate, an incident like this demands transparency at its conclusion. The potential that the results will be made public if and only if the parties in question are found guilty and receive a public sanction is not sufficient; in point of fact, it's a finding of not guilty that will probably raise the most questions (queue the coverup conspiracy theorists?), given the sensitive nature of the CFP Board positions being investigated!

Accordingly, I hope that the CFP Board will step forward with a commitment, now, to make public the allegations, the process of the investigation, the outcomes of that process, how the matter was adjudicated, and what steps are being taken to ensure it doesn't happen again, once the matter is brought to conclusion with the DEC. If there is a finding of guilt, then let it be known publicly (and/or simply take a Private Letter of Censure off the table as a potential sanction, given the nature of the roles of those involved in the allegation). If there is a finding of not guilty, then let that too be known publicly (presumably those found innocent would not object to a public statement of their innocence!?), and substantiate that finding as necessary to affirm that it was the conclusion of a fair process with integrity and not a conflicted coverup. Personally, I don't care if the names of the individuals involved are ever disclosed (although obviously Goldfarb's cannot be separated from the matter now, and any public sanction would bring the names of the DEC members to light as well); the point is not about who was accused or found guilty, but how the CFP Board as an institution maintains its integrity through allegations, investigations, and sanctions against its own leaders in crucial positions of responsibility.

As the saying goes, "Character is not made in a crisis, it is only exhibited." Let's hope the character of today's CFP Board really has turned a new leaf from its troubled past, and is capable of bringing a level of transparency to the process that allows it to maintain its integrity.

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  • Monday, July 8th, 2013
    After a sudden resignation last fall, Alan Goldfarb, the former Chair of the Board of Directors of the CFP Board, has been found to have ... Kitces | Nerd's Eye View

Michael E. Kitces

I write about financial planning strategies and practice management ideas, and have created several businesses to help people implement them.

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