False Ad­ver­tis­ing?

An ad­vi­sor ques­tions whether the CFP Board pri­or­i­tizes growth over up­hold­ing a fidu­ciary stan­dard.

Financial Planning - - Contents - BY AL­LAN S. ROTH

An ad­vi­sor ques­tions whether the CFP Board puts its own growth ahead of en­forc­ing its cer­ti­f­i­cants’ fidu­ciary stan­dards.

How does a line of work be­come a pro­fes­sion? For fi­nan­cial ad­vi­sors, its tied to en­forc­ing a fidu­ciary stan­dard.

The CFP Board says it wants to limit the CFP mark to pro­fes­sion­als, but talk is cheap. Let’s ex­am­ine ac­tions.

As a CFP cer­ti­f­i­cant, I pay my an­nual dues just like ev­ery­one else. How­ever, for the past sev­eral years I have timed my pay­ment with a writ­ten com­mu­ni­ca­tion to Kevin Keller, the CEO of the CFP Board.

I made two re­quests:

“Mr. Keller. I paid my dues to­day and again re­quest that the por­tion of my dues that would go to the ad­ver­tis­ing cam­paign go in­stead to en­forc­ing the fidu­ciary stan­dard. Fur­ther, I again re­quest that all CFP li­cense hold­ers be given this op­tion.”

While I am 100% in agree­ment with the stated mis­sion of the CFP Board, which is to “ben­e­fit the pub­lic by grant­ing the CFP cer­ti­fi­ca­tion and up­hold­ing it as the rec­og­nized stan­dard of ex­cel­lence for com­pe­tent and eth­i­cal per­sonal fi­nan­cial plan­ning,” I think it’s far more im­por­tant to en­force the higher stan­dard than to ad­ver­tise it.

First, let me ex­plain with some back­ground. Then I’ll show why I am dis­ap­pointed with the CFP Board. In short, I be­lieve that it does not put its mus­cle where its mouth is when it comes to en­force­ment.


Many years ago, I helped a client who was abused by a Cfp-hold­ing ad­vi­sor rep­re­sent­ing he had a fidu­ciary duty. You’d ex­pect the cer­ti­fi­ca­tion would guar­an­tee the ad­vi­sor act as a fidu­ciary and put the client’s in­ter­ests ahead of his own. I don’t be­lieve that was the case.

For one, the ad­vi­sor sold the client an an­nu­ity where he was tak­ing both com­mis­sions and an an­nual, on­go­ing fee based on AUM. By my es­ti­ma­tion, the client was pay­ing 5.29% in fees, year af­ter year. The facts were so ugly that the in­sur­ance com­pany and bro­ker-dealer paid the client a hand­some set­tle­ment, with­out any le­gal ac­tion.

The client filed com­plaints with fi­nan­cial reg­u­la­tors and the CFP Board. One year later, none of the fi­nan­cial reg­u­la­tors found any wrong­do­ing. Ul­ti­mately, the CFP Board took no pub­lic ac­tions against this CFP.

I wrote about this case in AARP the Mag­a­zine. When I later ran into Keller at a con­fer­ence, he told me that stan­dards were higher now

and in­vited me to be part of a CFP Board dis­ci­plinary panel — he said I could write about the ex­pe­ri­ence. I ac­cepted, and The Wall Street Jour­nal as­signed me the story, but I never wrote it. Just be­fore the panel, the CFP Board sent me a con­fi­den­tial­ity agree­ment that in­cluded the right to read and ap­prove the en­tire ar­ti­cle be­fore pub­lish­ing. Such agree­ments go against re­spon­si­ble me­dia guide­lines. I counter-of­fered that we change the agree­ment to al­low the CFP Board to ap­prove facts and names but not be per­mit­ted to ap­prove my opin­ion on the dis­ci­plinary process. The CFP Board said no.

A Higher Stan­dard?

This ex­pe­ri­ence com­pelled me to take a closer look at how the CFP Board con­ducts en­force­ment of those who ap­pear to break their fidu­ciary prom­ises. If the CFP Board truly en­forces a higher stan­dard, I thought, we should ex­pect that its pub­lic sanc­tions would come be­fore other reg­u­la­tors or courts.

Well, I ex­am­ined the pub­lic dis­ci­pline an­nounce­ment that came out on May 21 with ac­tions taken against 10 cur­rent or for­mer CFP cer­ti­f­i­cants. That’s 10 out of about 81,000. These cer­ti­f­i­cants re­ceived ei­ther let­ters of ad­mo­ni­tion, sus­pen­sions or re­vo­ca­tions.

I dug into to the back­grounds of the 10 cer­ti­f­i­cants. Here’s what I found:

• Eight had al­ready been fined, sus­pended or banned by fi­nan­cial reg­u­la­tors such as FINRA, the SEC or state reg­u­la­tors.

• One had lost a civil law­suit for mis­ap­pro­pri­at­ing trade se­crets from his firm.

• Only one had no prior reg­u­la­tory ac­tion I could find, and this per­son re­ceived a let­ter of ad­mo­ni­tion be­cause he listed his com­pen­sa­tion as “fee-only” when he ac­cepted com­mis­sions for in­sur­ance sales. Thus, by my count, nine of the 10 had al­ready been found to have bro­ken the law, so this wasn’t a higher stan­dard. The tenth, who falsely ad­ver­tised “fee-only” ser­vices, came only af­ter a 2013 ar­ti­cle in Fi­nan­cial Plan­ning not­ing hun­dreds of cer­ti­f­i­cants at wire­houses were listed as fee-only. That, and a very pub­lic law­suit, led to more con­sis­tent en­force­ment. So it could be ar­gued that this tenth case is only a re­sult of both le­gal ac­tion and me­dia sto­ries on lack of en­force­ment. A brief re­view of the 10 cer­ti­f­i­cants sanc­tioned in the Aug. 30 pub­lic dis­ci­pline an­nounce­ment showed sim­i­lar re­sults.

If the CFP Board truly en­forces a higher stan­dard, we should ex­pect its pub­lic sanc­tions to come be­fore other reg­u­la­tors. courts.

Look­ing to con­firm whether they agreed with my anal­y­sis, I asked the CFP Board the fol­low­ing ques­tion. I re­ceived an an­swer that didn’t seem to ad­dress my ques­tion:

Roth: “Do you con­cur with my anal­y­sis that in the most re­cent pub­lic dis­ci­plinary ac­tions taken by the CFP Board that eight came af­ter a reg­u­la­tor ac­tion, one af­ter a court ac­tion, and only one came be­fore a reg­u­la­tor or court — the mis­use of ‘fee-only?’”

CFP Board: “CFP Board con­ducts an in­ves­ti­ga­tion when it has in­for­ma­tion in­di­cat­ing that a CFP pro­fes­sional may have en­gaged in con­duct that presents grounds for dis­ci­pline. CFP Board re­ceives that in­for­ma­tion from mul­ti­ple sources. A CFP pro­fes­sional may self-dis­close the in­for­ma­tion, a con­sumer may file a griev­ance with CFP Board, a reg­u­la­tor may have taken ac­tion, a third party (such as an­other CFP pro­fes­sional) may no­tify CFP Board of the al­leged mis­con­duct, or CFP Board in­de­pen­dently may dis­cover the al­leged vi­o­la­tion. No mat­ter the source, CFP Board takes po­ten­tial vi­o­la­tions se­ri­ously, and en­forces its stan­dards through a trans­par­ent process pur­suant to which CFP pro­fes­sion­als are given no­tice of the po­ten­tial vi­o­la­tion and an op­por­tu­nity to be heard by a panel of other pro­fes­sion­als. CFP Board’s en­force­ment of its stan­dards is a fea­ture that

dis­tin­guishes CFP Board from the more than 180 fi­nan­cial ser­vices cer­ti­fi­ca­tions and des­ig­na­tions in the mar­ket­place. A vi­o­la­tion of CFP Board’s Stan­dards may sub­ject a CFP pro­fes­sional to dis­ci­pline. When CFP Board de­ter­mines that pub­lic dis­ci­pline is war­ranted, CFP Board pub­lishes the dis­ci­pline in a press re­lease and on CFP Board’s web­site, in ful­fill­ment of CFP Board’s pub­lic ser­vice mis­sion.”

I’ve re­ceived more trans­par­ent an­swers on far tougher ques­tions from wire­houses.

Can Any­one Hear Me?

What I have learned over the past few months has only hard­ened my be­lief that the CFP Board has a re­spon­si­bil­ity to spend more mem­ber dol­lars on en­force­ment, and less on mar­ket­ing its mark as the de­fin­i­tive last word in ad­vi­sor qual­i­fi­ca­tions. I have hoped my re­quests would be heard by the board of di­rec­tors, but it ap­pears that has not been the case.

Last year, when I sent in my CFP dues along with my now-stan­dard re­quest that my dues go to en­forc­ing the fidu­ciary stan­dard, Keller re­sponded. “It is not a pro­ce­dural or op­er­a­tional is­sue, but a direc­tive from our board,” he wrote in an email.

I asked why in an email and the CFP Board’s COO, El­iz­a­beth Ste­wart, called me. I asked her my ques­tions and she later re­sponded in an email: “The board es­tab­lished a new an­nual cer­ti­fi­ca­tion fee amount, and ded­i­cated $145 of that amount ex­clu­sively for fund­ing the pub­lic aware­ness cam­paign. The amount ear­marked for the cam­paign has been un­changed since its in­cep­tion more than eight years ago, and it can­not, has not, and will not be used for op­er­a­tions such as our en­force­ment ac­tiv­i­ties.”

Last month, CFP Board spokesman Dan Drum­mond said in an email that my mes­sage “has not gone to the board be­cause it is in con­flict with the stand­ing pol­icy of the board.”

While I wait and hope the board even­tu­ally sees my re­quest to use more of my dues for en­force­ment (and less for ad­ver­tis­ing), I de­cided I needed a gut check. I be­lieve my ca­reer needs strict en­force­ment of fidu­ciary stan­dards to be con­sid­ered a true pro­fes­sion. But am I ask­ing too much? So I reached out to an ex­pert.

“To be­come a pro­fes­sion, both ad­ver­tis­ing and en­force­ment of stan­dards are needed,” Deb­o­rah De­mott, the David F. Cavers pro­fes­sor

of law at Duke Univer­sity and an ex­pert in fidu­ciary obli­ga­tions, told me. “To be­come a pro­fes­sion, there must be a ro­bust de­bate on how to en­force stan­dards,” she added.

An Op­pos­ing Opin­ion

Michael Kitces, pub­lisher of the Nerd’s Eye View and a Fi­nan­cial Plan­ning con­trib­u­tor, notes that, since the CFP Board is not a reg­u­la­tor, they can’t just com­pel plan­ners to turn over client in­for­ma­tion and re­lated client com­mu­ni­ca­tion in an in­ves­ti­ga­tion as that would vi­o­late firms’ pri­vacy poli­cies. Their hands are some­what tied, Kitces told me, though he pointed out an SEC “no-ac­tion” let­ter that al­lows ad­vi­sors to hand over client in­for­ma­tion. He says that CFPS have a higher stan­dard yet agrees that they are not fully held to that higher stan­dard.

Kitces firmly dis­agreed with my re­quest to al­low CFPS to di­rect their $145 fee be ap­plied to en­force­ment. He stated that ac­count­ing sys­tems would have to be changed and con­tracts were likely signed with the mar­ket­ing firms com­mit­ting such funds, and that large or­ga­ni­za­tions have to man­age their re­sources holis­ti­cally.

CFP Growth

Keller’s bio notes he has in­creased mem­ber­ship by more than 30% to 72,000 cer­ti­f­i­cants. As of Au­gust, the CFP Board’s web­site said there were 82,260 cer­ti­f­i­cants, so that would be about a 46% in­crease. By my math, at a $355 fee per cer­ti­f­i­cant, that’s an an­nual rev­enue stream of $29.2 mil­lion, with about $11.9 mil­lion go­ing to ad­ver­tis­ing the mark. And, ac­cord­ing to the CFP Board’s 2016 IRS Form 990 dis­clo­sure, $681,000 was paid to Mar­ket­ing Gen­eral, whose trade­marked tag line is, “We grow mem­ber­ship.” In­deed, the CFP Board noted its mile­stone when it sur­passed 80,000 cer­ti­f­i­cants.

Kitces states that the num­ber of CFPS has grown, now com­pris­ing be­tween a quar­ter to a third of all fi­nan­cial plan­ners, while the FPA has shown mem­ber­ship de­clines. And the board ap­pears to have re­warded Keller with com­pen­sa­tion of more than $900,000 in 2016, which is from the lat­est Form 990 that’s avail­able. That’s more than twice the com­pen­sa­tion he re­ceived only seven years ear­lier. While growth is clearly good for the CFP Board, I don’t think a pro­fes­sion is about grow­ing; rather it’s about cre­at­ing pub­lic good. Though Keller’s com­pen­sa­tion is cor­re­lated pos­i­tively

with growth, as in in­vest­ing, cor­re­la­tion doesn’t mean cau­sa­tion.

Ad­ver­tis­ing vs. Ac­tion

Are CFPS held to a higher stan­dard? Clearly the mark is su­pe­rior to most of the 200 so-called fi­nan­cial des­ig­na­tions out there. I’ve writ­ten about some that can be ob­tained over a fun week­end in Las Ve­gas in that same AARP the Mag­a­zine ar­ti­cle. But based on my ex­am­i­na­tions of an­nounce­ments of dis­ci­plinary ac­tion and re­views of prior cases, I think the ev­i­dence demon­strates that the CFP Board typ­i­cally takes dis­ci­plinary ac­tion af­ter reg­u­la­tors or courts do so. The only ex­cep­tion I saw was the use of the term “fee-only,” which ar­guably is in re­sponse to a prior scan­dal.

Is Kitces cor­rect that the CFP Board’s hands are tied in that they can­not com­pel firms to hand over client in­for­ma­tion? One so­lu­tion could be that clients di­rect the plan­ner to turn over their in­for­ma­tion to the CFP Board. And is it re­ally such a sys­tems night­mare to up­date sys­tems to al­low cer­ti­f­i­cants to di­vert fees away from the ad­ver­tise­ment cam­paign? As a for­mer CFO of or­ga­ni­za­tions many times the size of the CFP Board, I think it would be fairly easy to do. As far as con­trac­tual com­mit­ments for ad­ver­tis­ing and mar­ket­ing, I’m not privy to those con­tracts, but good con­tract­ing would ar­gue for flex­i­bil­ity.

My view is that ad­ver­tis­ing some­thing that isn’t true will back­fire. Ad­ver­tis­ing a higher stan­dard and then not hold­ing cer­ti­f­i­cants to that higher stan­dard isn’t all that dif­fer­ent from TV ads from the big bro­ker­age firms try­ing to cre­ate a warm and fuzzy feel­ing with po­ten­tial clients and then sell­ing high-fee prod­ucts. But at least those firms aren’t ad­ver­tis­ing fidu­ciary duty.

Ad­ver­tis­ing a fidu­ciary stan­dard that isn’t en­forced dooms fi­nan­cial plan­ning to that of a sales vo­ca­tion.

How­ever, change may be com­ing. In just over a year, the CFP Board im­ple­ments new stan­dards. Jack Brod, a for­mer Van­guard ex­ec­u­tive, will be­come chair­man shortly there­after and has talked about sharp­en­ing the com­pli­ance fo­cus. But talk is cheap and, to date, I’ve seen more talk than ac­tion. The board must em­brace dis­cus­sion and dis­sent on en­force­ment of stan­dards if it wants the CFP mark to be the stan­dard el­e­vat­ing fi­nan­cial plan­ning as a pro­fes­sion.

The CFP Board has told me: “The board will con­sider the sep­a­ra­bil­ity of the pub­lic aware­ness cam­paign fees when it ap­proves the 2019 bud­get.” I hope this is a sign that it is get­ting se­ri­ous on en­force­ment.

In my view, ad­ver­tis­ing a fidu­ciary stan­dard that isn’t en­forced dooms fi­nan­cial plan­ning to that of a sales vo­ca­tion. Not a pro­fes­sion.

CFP Board CEO Kevin Keller (r.), with 2018 board chair­man Richard Sal­men and 2019 chair­woman Su­san John, has said that ad­vi­sors can­not spec­ify that their dues be spent on some ac­tiv­i­ties but not oth­ers.

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