On July 29, the Wall Street Journal published an article which reported that nearly 10% of the certificants included on the CFP Board’s “Let’s Make a Plan” website, which the CFP Board makes available to consumers to find a CFP professional, have material public disclosures listed on the FINRA BrokerCheck site (including several with felony charges!). Notably, though, exactly zero of those “red flag” disclosures are included on the CFP Board’s own website. Which raises the question: How effectively does the CFP Board ensure its own professional standards of conduct are really being upheld, especially as it trumpets a consumer public awareness campaign advocating that those with the CFP marks are the “Gold Standard” that consumers should look for?
In this episode of #OfficeHours with Michael Kitces, we discuss the main issues raised by the WSJ article (as well as the CFP Board’s response), how the CFP Board’s public awareness campaign has unwittingly amplified the issues, some potential challenges the CFP Board faces in addressing these challenges, and explore what it might take for the CFP Board to close the gap between what it promotes in its public awareness campaign and the standards its CFP professionals are actually meeting.
While the CFP Board promotes its “Let’s Make A Plan” site as the “go-to” resource for finding qualified financial planners, the WSJ report pointed out that they have failed to disclose important background details (which even FINRA discloses on its own BrokerCheck website) that would be relevant to a consumer seeking a trustworthy professional. To which the CFP Board was quick to respond, referencing limited staffing and budget resources (70 employees and a $30 million budget, compared to FINRA’s 3,000 employees and $1 billion budget) and non-profit status (meaning that they can only certify and set standards for its certificants, as opposed to a regulatory agency’s official authority to investigate allegations against advisors), as reasons that the WSJ shouldn’t necessarily hold their “Let’s Make A Plan” site to the same standard as a bona fide regulator like FINRA.
The CFP Board also maintained that it is not their policy to publish allegations of wrongdoing, especially if the CFP Board hasn’t investigated them itself, and will only publish disciplinary actions against prohibited activities fully investigated by the Board (as contrasted with FINRA, that sometimes will publish information about client complaints, even if there was no ultimate finding of wrongdoing). Yet historically, disciplinary action against a CFP certificant has been taken by the CFP Board only after another regulator has found them guilty. And ironically, other regulatory bodies generally have less stringent rules of conduct. Which means in essence, the CFP Board is claiming a higher standard of conduct, but often only taking enforcement action based on other regulators’ lower standards… raising the question of how exactly the CFP Board can ever ensure its CFP professionals actually will uphold its proclaimed higher standards?
Despite this, the CFP Board acknowledged it could do better, promptly established an independent task force to “strengthen and modernize enforcement”, and has pledged to begin checking third-party regulatory records (e.g., FINRA and the SEC) every time CFPs renew their certification, instead of conducting an initial one-time background check and relying on self-disclosure in subsequent years.
Still, though, the question remains of how can the CFP Board possibly enforce the higher standards they have been advocating for nearly the last decade with their $10 million annual awareness campaign, if the CFP Board doesn’t have the capacity or authority to fully investigate allegations made against CFP certificants?
Perhaps the most straightforward path is, to the extent that promotion of CFP Board’s higher standards and enforcement of those standards are inextricably linked, the CFP Board’s public awareness budget itself could be (partially) reallocated to support efforts to uphold and enforce CFP standards as well? Or alternatively, the CFP Board could also be more proactive about collecting information already available from third-party regulators, make it easier for fellow CFP professionals to identify peers who violate the Board’s Standards of Conduct, and devise an improved investigative process to actually be able to review complaints and disciplinary issues.
Ultimately, the key point is that the CFP Board needs a mechanism to enforce the high standards CFP professionals are required to follow and that the CFP Board is so proactively marketing to consumers through its own public awareness campaign. And the need for better enforcement mechanisms is especially critical with the new CFP Code of Ethics and Standards of Conduct going into effect in October, 2019, which will only increase the stakes further. Proactively reporting all disciplinary records and creating tools for consumers and CFPs to easily register complaints are simple steps, at least initially, towards improving oversight of financial advisors, until the new independent task force releases its recommendations for strengthening and modernizing enforcement of CFP standards.
(Michael’s Note: The video below was recorded using Periscope, and announced via Twitter. If you want to participate in the next #OfficeHours live, please download the Periscope app on your mobile device, and follow @MichaelKitces on Twitter, so you get the announcement when a new broadcast is starting! You can also submit your question in advance through our Contact page!)
#OfficeHours with @MichaelKitces Video Transcript
Well, welcome, everyone. Welcome to Office Hours with Michael Kitces.
So, for this week’s Office Hours, I want to talk about the big industry buzz that’s been all over for the past week, which is the article that came out from The Wall Street Journal regarding the CFP Board and its “Let’s Make a Plan” site that consumers use to find a CFP professional. Where The Wall Street Journal’s reporters found that out of about 72,000 CFP professionals listed on the website, 6,300 of them had material public disclosures listed on FINRA’s BrokerCheck tools, of which 5,000 were formal complaints from clients over recommendations or sales practices gone wrong, 324 were advisors who had already left a firm for allegations of misconduct, and 140 were CFP professionals who actually faced or were currently facing felony charges.
And the core issue was that, while the CFP Board makes the case in its public awareness campaign that the “Let’s Make a Plan” site is the place to find a CFP professional and that “certified” equals “qualified” to give financial planning advice, at no point did the CFP Board’s website point out that these CFP brokers had a history of misconduct, disciplinary actions, or a bunch of other material disclosures on BrokerCheck that even FINRA requires to be disclosed to consumers. Instead, the only red flags on the CFP Board’s website are bankruptcy disclosures in the past ten years or discipline that the CFP Board itself has doled out at some point in the past, such as public letters of admonition or suspensions, which according to the Journal’s analysis covered only 573 CFP certificants, leaving over 5,000 CFP brokers who had FINRA disclosures in BrokerCheck but no CFP Board disclosures. And thus, The Wall Street Journal’s article is aptly titled “Looking for a Financial Planner? The Go-To Website Often Omits Red Flags”. Ouch.
The Challenges Of CFP Board’s Ability To Enforce Its Own Standards [02:06]
Now, when the news about The Wall Street Journal article first broke, the CFP Board, not surprisingly, had a response out almost immediately, rightly acknowledging that the Journal’s article did highlight some important issues and concerns, but also taking issue with a few key aspects of the article. In particular, the CFP Board pointed out that FINRA is a government-sanctioned regulator with a $1 billion budget and over 3,000 employees, while the CFP Board is technically a 501(c)(3) nonprofit, not a regulator, simply an organization that certifies and sets standards for CFP certificants with an operating budget of about $30 million and a staff of 70.
And the key point here is not that FINRA is much, much, much larger of an organization than the CFP Board, literally 30x the size of employees and staff, but that because the CFP Board is not legally a regulator, it can’t subpoena people to testify when there’s a complaint against an advisor. It has limited ability to actually obtain information at the center of an advisor-client dispute due to all the privacy regulations of actual regulators. In fact, it was just back in 2011 when the CFP Board finally got a no-action letter from the SEC to affirm it was permissible for firms to share any level of background documents on a customer complaint with the CFP Board without violating Regulation S-P, and then a follow-up no-action letter in 2014 to slightly expand the information broker-dealers and RIAs could provide to the CFP Board when trying to do an investigation.
So in other words, ultimately, the CFP Board really only has direct authority over the CFP certificants themselves – not their firms, not their clients and client information – and is only able to use basically one piece of leverage to get the information that it wants, which is that the CFP Board can always say, “Cooperate with our investigation or we’ll suspend or revoke your CFP marks.” But even then, the information the CFP Board can get is very limited due to Regulation S-P. Which means that the CFP Board just cannot enforce with the depth of what FINRA does, not only because it doesn’t have the same level of 30X resources, but also because it doesn’t have the same level of legal authority to do so in the first place. That was part of the CFP Board’s response to the article.
And in addition to pointing out that they are not FINRA, the CFP Board also emphasized that sometimes when FINRA posts a customer complaint on BrokerCheck, it’s just that, it’s a complaint. In essence, it’s an allegation. And it may not even have been investigated yet. It may have been investigated and the advisor was found not guilty. Now, FINRA often allows the complaint allegation to remain publicly disclosed, but that’s challenging from the CFP Board’s perspective because an allegation is not proof of wrongdoing. And the CFP Board maintains that it does not have a policy of publishing allegations posted on third-party websites about its CFP certificants. It does publish actual disciplinary actions against CFP certificants, but disciplinary actions don’t occur until the CFP Board does its own investigation to affirm there was actual wrongdoing in the eyes of the CFP Board’s Disciplinary and Ethics Commission.
In other words, the CFP Board maintains that it was justified in not publishing all these complaints that were shown in FINRA BrokerCheck because at least many of them were just that, complaints, and may have been alleged wrongdoing, but there was no actual finding of wrongdoing by the CFP Board that merited publishing and disclosing it.
CFP Board’s Public Awareness Campaign Has Amplified The Enforcement Stakes [05:27]
Now, while I have sympathy for the CFP Board’s position on this, that it may not be appropriate to report mere allegations that weren’t even reported to the CFP Board in the first place when the CFP Board hasn’t done any investigation to determine wrongdoing, frankly, it’s also a bit of a cop-out. Because the CFP Board is effectively saying that it won’t publish allegations if they haven’t investigated and found any wrongdoing, and then at the exact same time emphasizing that they’re not a regulator and don’t have the authority and resources to do substantive investigations in the first place.
In fact, it’s basically the CFP Board’s attitude that got us here in the first place. The idea that the CFP Board is very limited in its investigative powers when the complaint occurs but won’t publish anything about and plug complaints until they have an investigative result is an impossible chicken and egg problem, and it leads to what The Wall Street Journal found, that the CFP Board website doesn’t disclose a wide range of these allegations against CFP certificants, but that the CFP Board wasn’t actively investigating these complaints either.
Now, furthermore, the problem with the CFP Board’s current approach is that, in essence, it will often only cite CFP certificants for wrongdoing after they’ve already been found guilty of wrongdoing by another regulator like FINRA, which is why if you actually look and see recent disciplinary actions from the CFP Board, it includes a very high frequency of, “So-and-so’s CFP certification is being suspended or revoked after entering into a letter of acceptance, waiver, and consent with FINRA, where the CFP certificant agreed to the findings that he did something bad with FINRA.” Which basically means a lot of CFP Board actions are nothing more than, “FINRA found this person did something really bad and suspended their license or barred them, so we’re going to suspend or revoke their CFP certification, too.”
And while I’m happy to see that at least that level of action is happening, as The Wall Street Journal noted, not all CFP certificants found guilty by FINRA are being sanctioned or disciplined by the CFP Board, since often the CFP Board was relying on them to self-disclose that they got in trouble in the first place. The reality is that just waiting until another regulator finds a CFP certificant guilty of wrongdoing just may not be enough, especially when you’re waiting for them to tell you that it happened.
Why Is Enforcement of the CFP Standards So Important? [07:29]
Now, the reason that all this matters is that the CFP Board now has spent more than $10 million a year for almost a decade promoting that the CFP marks are the “gold standard” when it comes to financial planning advice, and that “certified” equals “qualified” to give that advice. So, in essence, the CFP Board has maintained, and I think rightly so, that the minimum regulatory requirement to become a financial advisor is very low, and that pursuing CFP certification is a major step up, both in education and experience requirements from the minimum to just get your license, such that hiring a financial advisor with CFP certification, which is still barely over one in four advisors today, gives you almost, by definition, a top quartile advisor, at least with respect to their demonstrated knowledge and expertise. But it creates this really awkward contrast. Because the CFP Board is basically claiming to the public, “Our standards are higher than the low bar set by the regulator”, but then when it comes to enforcement, the CFP Board only takes action to disclose this wrongdoing when people violate the lower regulator bar and not the CFP Board’s higher bar.
And sadly, this was an entirely predictable problem. We actually wrote about this on the blog all the way back in 2012 as the CFP Board’s public awareness campaign was just getting underway, and CEO Kevin Keller was talking about the future growth of the marks and the challenge of promoting the quality of the marks when the CFP Board didn’t have effective enforcement. Because it was going to start raising questions about whether the CFP Board would be able to keep its house in order, or whether the CFP certificant base was going to increase and become filled with people who wanted the marks as good marketing cover, built on the back of the CFP Board’s public awareness campaign, and then use it as a basis to sell low-quality products.
In fact, even when we published that article, it was shortly after a Wall Street Journal article had also come out in 2012 entitled “Is the Fiduciary Standard a Joke?” highlighting an example of a CFP certificant who gave suitable advice but not fiduciary advice, and the CFP Board hadn’t taken action against them. And in turn, that’s precisely why, even when the CFP Board announced its new fiduciary standard back in 2017, the headline from our Nerd’s Eye View blog was “CFP Board Expands Fiduciary Duties, But Can It Enforce Them?”. Because if you think the CFP Board has had trouble enforcing its current standards, per The Wall Street Journal article, and their current standards had big loopholes when it came to brokers acting as CFP certificants but claiming they weren’t providing financial planning advice in order to avoid CFP Board’s old fiduciary duty, what is the CFP Board going to do when it’s new, even-higher-than-all-time fiduciary standard kicks in?
Simply put, if the CFP Board is going to maintain that its standards are higher than the ones set by the regulators, it has to be prepared to enforce the higher standards, which again, is a real issue when the CFP Board has limited investigative authority to do so in the first place. So I think, unfortunately, it was inevitable that this mismatch between what the CFP Board advertises as higher standards and how little the CFP Board enforces those higher standards was eventually going to come home to roost. That’s why we’ve been waving the red flag on this for literally seven years now. The public awareness campaign about standards makes an article about their lack of proper enforcement an inevitable reality.
So Where Should The CFP Board Go From Here? [10:44]
So where should the CFP Board go from here? To its credit, the CFP Board has already announced that it’s launching a new independent task force to strengthen and modernize enforcement, to be chaired by Denise Voigt Crawford, one of the public members of the CFP Board’s Board of Directors and a former 17-year Texas State Securities Commissioner. And already, the CFP Board has actually announced that they’re beginning to make a few changes, including now checking a CFP certificant’s BrokerCheck and IAPD records every time their CFP certification is renewed, rather than just vetting it once upfront and then relying on self-disclosure down the road.
And the CFP Board has already added links to BrokerCheck and IAPD directly from the search results for any planner that you find in the “Find a CFP Professional” search. Now, unfortunately, it doesn’t actually lead directly to the advisor’s profile on BrokerCheck or IAPD, but at least prompts consumers to go to the main page of those websites, type in their advisor or prospective advisor, and look them up and see. But ultimately, this solution still largely retains the burden on either FINRA and the SEC to actually find and investigate wrongdoing by CFP certificants, only holding them accountable when they violate the lower bar the regulators set and not the higher standard the CFP Board claims it has, which means there’s still no pathway for the CFP Board to really proactively investigate and enforce against CFP certificants who violate their new higher standards taking effect next year.
— Jason Zweig (@jasonzweigwsj) July 31, 2019
So what are the alternatives the CFP Board can consider? I think option one is to at least get much more proactive on collecting what information other regulators are gathering about CFP certificants and their wrongdoing. For instance, instead of just checking CFP certificants when they renew their certification every other year, why not have the CFP Board build an integration directly to the FINRA and IAPD databases to continuously monitor new regulatory actions against CFP certificants, and identify them immediately when they occur in real-time? If The Wall Street Journal’s data scientists can pull all the data from FINRA and cross-reference it against the CFP Board’s list to find all this underreporting of regulatory violations in the first place, surely the CFP Board can use the same data feeds themselves to monitor more proactively.
Better yet, I actually see an opportunity for the CFP Board to take leadership here and provide not just links out to BrokerCheck and IAPD, but to actually make a central database of all financial advisors and all their disciplinary records aggregated across the CFP Board, FINRA, and the SEC, and maybe even state insurance commissioners, and actually become a beacon for consumers looking for credible financial advisors who want to know all the relevant details about their prospective advisor’s disciplinary history. So in other words, instead of trying to do the minimum like, “We’ll at least include a link to BrokerCheck and IAPD” and still leave the burden on consumers, if CFP Board’s mission is really to protect consumers, how about actually pulling that information together and making it available to show them all at once, something akin to what BrightScope was trying to do five years ago but never fully finished?
Now, option number two is making it easier to find who’s not engaging in fiduciary behavior as a CFP professional in the first place. So, real-time checking of FINRA and SEC databases to identify those who have new complaints and who might merit an investigation is a good starting point. But again, the regulatory bar, especially for FINRA, is much lower than the CFP Board standard, so just waiting for something to post to BrokerCheck may be far too late for the consumers already being harmed, and still won’t identify those who meet FINRA’s low suitability standard but who are not meeting the CFP Board’s higher standard. Which means perhaps it’s time to make it easier and more visible for consumers to report complaints to the CFP Board in the first place.
Yeah, the CFP Board does have a “File a Complaint” page kind of buried on their website, but what about making it more visible? What about putting it on their homepage? What about adding a section to every single “Let’s Make a Plan” profile that makes it easy right there to both see a CFP professional’s regulatory history and a “File a Complaint” about them on the spot if you’re already working with them and have an issue? What about engaging in consumer PR efforts not only to encourage the use of CFP professionals, what the public awareness campaign does now, but also how to highlight for consumers the way to file a complaint against a CFP professional who isn’t meeting those standards in order to clean up our own ranks?
And what about making it easier to submit peer complaints? Because the truth is that for a lot of us as CFP professionals, we know who the other advisors in our area are, who are doing the questionable stuff, because we see their former clients when they come to us with recommendations that might not have been illegal, though had met the really low suitability bar, but were clearly not in the client’s best interest and would not have met the CFP Board’s fiduciary standard of care. In fact, there have been a large number of CFP Board critics who for years have complained how frustrating it is that we know there are CFP peers who aren’t meeting the CFP Board standards and there’s nothing we can do about it.
So in other words, going forward, I think the question for the CFP Board is, what can they do to make it easier for us to report our peers when we see client wrongdoing, protect us from backlash for reporting peers so that fellow CFP certificants are willing to report what they see in the first place, and expand its investigative capabilities so that when a fellow CFP does report a concern, the CFP Board can actually do something about it and not just say, “Oh, well, due to privacy laws, we actually can’t investigate complaints anyways, but thanks for letting us know”?
Which leads to option number three for the CFP Board, figuring out a better means of investigating complaints, including the ones that come in from consumers or other CFP certificants, and the increasing volume the CFP Board will probably find if they do start more of a live real-time cross-referencing against BrokerCheck and IAPD to spot advisors who have new disciplinary disclosures. Now, I’ll admit, I’m not an expert when it comes to navigating Regulation S-P and all the privacy rules that are involved, but fundamentally, if the CFP Board is going to maintain that it holds certificants to a higher standard, it has to come up with a way to investigate and determine whether those advisors are actually living up to the standard.
So maybe that means modifying the terms of conditions a CFP certification requires. If you’re going to use the marks, you must cooperate more proactively with CFP Board investigations. Maybe that even means firms have to agree to CFP Board investigations as an obligation to allow their CFP certificants to use their marks while working at the firm. Maybe it means working with the SEC to further expand what the CFP Board is empowered to get in an investigation, particularly if a client agrees. Since, after all, if the client is the one who files the complaint and asks for the investigation, the client should be able to demand the release of any and all information to the CFP Board pertaining to their complaint so that the CFP Board can investigate, since it’s all about that client in the first place.
Should Public Awareness Campaign Funds Pay for Efforts to Enforce CFP Standards? [17:30]
Now, it’s worth noting that if the CFP Board is going to get better on enforcement going forward, it’s likely going to need more resources to do so. Which means dollars from us as CFP certificants, because at the end of the day, we’re the ones who pay the certification fee to the CFP Board, that gives it the funds to operate as it does. But frankly, given that the CFP Board raised its dues by almost 85% a decade ago to launch this $10 million a year public awareness campaign and didn’t take any measurable hit on its growth for CFP certificants, I think there’s potentially at least a little room for a small further increase in the certification fee to fund real enforcement efforts to clean our ranks.
Now, as someone who pays the fee myself, I don’t love paying more money out of pocket when the CFP marks already have a substantial cost, but is it worth paying at least a little bit more to get proper enforcement of the standard, so that when I stand in a room full of CFP certificants I’m actually proud of all the people in the room I’m standing next to, and not just some of them? Because again, we all know there are some not very good CFP certificants standing in our midst. We’ve all seen them. We’ve all been frustrated by them. We’ve all seen the harm done to clients that came from them and we’ve all felt frustratingly powerless to do anything about it. So if you have to pay a little more to finally clean house, I think it’s a step worth considering.
But alternatively, I do think there’s also a case to be made that, instead of the CFP Board continuing to earmark that upwards of $10 million a year in public awareness campaign funds, maybe it should commit, say, 20% of those public awareness dollars, fees we’re already paying, to enforcement to make sure that the promises it’s making in the public awareness campaign are actually being delivered on. Otherwise, the public awareness campaign is the equivalent of the CFP Board’s mouth writing checks its enforcement body can’t cash, right?
Because, as we noted earlier, the reality is that conducting a public awareness campaign around the CFP Board standards being higher than anybody else’s inevitably is going to put a greater focus on those standards, and whether the CFP Board and the CFP certificants are living up to the brand promise with actual enforcement. Public awareness of standards and enforcement of the standards are inextricably linked together. The more the CFP Board markets, the more it has to commit to following through on the brand promise with enforcement.
So with almost a decade now of spending $10 million a year on public awareness and very little on enforcement, maybe it’s time for the CFP Board to consider reallocating that due surcharge a little bit. What if, instead of paying for more enforcement out of pocket, we take that $10 million and we carve it up differently? What if it was $8 million a year to public awareness and $2 million on standards enforcement, or $7 million to promote the standards and $3 million to enforce? Or maybe even $5 million for promotion and $5 million for enforcement, at least for a few years until we clean house? And who knows? Maybe better enforcing the CFP Board standards will generate some positive PR for them that helps with public awareness in a good way. Because, as The Wall Street Journal article highlighted, not enforcing your standards certainly generates some public awareness as well, but not necessarily the kind the CFP was looking for.
So I hope that helps a little as some food for thought. This is Office Hours with Michael Kitces. Thanks for joining us, everyone, and have a great day.