One of the most common complaints within the industry about the state of financial planning is that it is marred by so many practitioners who say they are financial advisors, but do not really do financial planning… or worse, do it badly, wrong, or outright deceitfully. Yet although so many planners state that they have come across such "bad" practitioners, virtually none state that they have ever reported a bad practitioner, either to regulatory authorities, or to the CFP Board if the individual holds the CFP marks but doesn’t do financial planning "right." Yet how will the financial planning industry be cleaned up of its inappropriate practitioners if we do not take a part in it? So there’s the question: what is – or should be – the responsibility of financial planners to report the wrong-doing of other people who hold themselves out to be financial planners?
The inspiration for today’s blog comes from a story in Financial Advisor magazine about the recent "No Action" letter issued from the SEC to the CFP Board that will allow SEC-registered advisors to provide client information to the CFP Board as a part of any CFP Board investigation of wrongdoing (or viewed another way, financial planners cannot refuse to provide the necessary information for an investigation to the CFP Board by claiming that the SEC requires they to maintain confidentiality of client information). The event appears to be a small but notable victory for the CFP Board as it seeks to further step up enforcement of its Standards of Professional Conduct to ensure those who hold the marks are practicing properly.
Yet in the end, the CFP Board can still only take enforcement action against those CFP certificants for whom a client complaint has been submitted, a regulatory action (e.g., from the SEC or FINRA) has occurred, and/or someone else reported something so that there is a reason to begin an investigation. Which means ultimately, enforcement can only be effective if alleged improprieties are reported in the first place; otherwise, the CFP Board and/or other regulators don’t know who to investigate.
Of course, the "really bad" stuff does eventually show up on the screens of the regulators, and the CFP Board does watch out for SEC and FINRA complaints against CFP certificants. But most planners would agree that there’s plenty of things that can be done "wrong" as a CFP practitioner, even if they’re not against FINRA regulations (including the fact that a recommendation may be legally suitable under FINRA guidance but not meet the CFP Board’s more fiduciary-centric code).
But unfortunately, the ones who perhaps know most about what is and isn’t appropriate – other financial planners – seem to be the group most reluctant to actually report wrong-doing. Does reporting other "bad" planners cross some line of professionalism that we don’t want to cross – even though most would probably say a "bad" planner doesn’t deserve the professional treatment anyway? Is this just a distant application of the rule many grow up with, "don’t be a tattletale?" Why do we have such a blocking point about taking proactive steps to clean up our own industry? After all, we’d just be reporting someone to be investigated for alleged wrong-doing; it’s still up to the CFP Board (or other regulators) to actually determine that there were improprieties and than sanctions are merited, so it’s not as though the practitioner is expected to be the judge and jury of the event. But someone still has to take the first step to start the process. Otherwise it’s just another conversation that goes something like this:
"I wish there weren’t so many bad financial planners out there who don’t really do financial planning and just confuse the public."
"Yeah, that’s really a problem that needs to change. Have you ever reported one of them for failing to properly apply the financial planning process with their clients, even though they’re a CFP certificant?"
"No, I wouldn’t do that."
"Then why would you expect anything to change?"
So what do you think? Have you ever reported another practitioner to be investigated for potential wrong-doing? Would you ever consider doing so? Do financial planners have a responsibility to be proactive in this area to help clean up their own industry? Or are the existing channels for catching improprieties – basically, customer clients that filter up to the CFP Board or a regulatory agency – sufficient to advance the cause?