I’ve held off on commenting about the Wall Street Journal revelations that the CFP Board gave the impression on its website that advisors had a clean record when SEC and FINRA websites showed otherwise. Like most of you, I wasn’t at all surprised that there were unscrupulous CFP advisors– I think we’ve all encountered a few.
What surprised me was the scope.
Approximately 6,300 advisors with disclosure events out of just over 70,000 CFP practitioners was more than I would have expected, and having 140 advisors touting their CFP credentials when they have major felonies on their record suggests that more than a few consumers have been harmed by advisors waving the CFP credential in their faces.
It's more than enough to make reasonable people want to carry torches and pitchforks into the streets, particularly those who have tried to warn the CFP Board about dirtbag CFP advisors in the past, and seen nothing happen. Some of us are still a bit angry over the fact that the Board allowed thousands of brokers to reclassify themselves from a misleading "fee-only" checkbox without consequence, so this just adds more fuel to the anger.
But before I piled on with yet another scathing article taking the CFP Board to task, I wanted to spend a little time thinking, not about what should have been, but what needs to be going forward. I’m not sure the CFP Board’s approach, so far, has been as terrible as the emotions we're all feeling regarding the embarrassing article.
From its inception, the CFP Board’s initial goals have logically been to gain scale for its mark. By “scale,” I mean three dimensions that all lead to ultimate credibility. You need enough financial resources to fight against anybody who decides to add “CFP” to their business card and claim that it means something like “Cute Friendly Planner,” and you absolutely have to be able to afford the legal expenses when somebody is legitimately ousted from the mark and decides to fight back.
You also need to get enough advisors to agree to meet reasonable but not-easy standards and obtain the mark, so that when (this is not a hypothetical example) the brokerage firms tell you to back off of fiduciary standard requirements, you can hold firm in the reasonable expectation that they (with thousands of their top brokers at stake) will blink first.
Finally, you need the public to recognize that there is something special about a financial planner who has the designation. The CFP Board definitely got over its skis on claims about its standards, but it was engaging in a necessary effort to promote the mark among consumers who need financial advice.
If you believe that the profession really does need to create a designation like the MD or CPA from the ground up, and that this has to happen before it can be a profession, then this is the crucial first set of goals. You cannot start enforcing standards when nobody cares. You will have trouble motivating people to achieve the mark when it’s only a small niche credential. You won't be able to stand up to the brokerage community if you haven't motivated many of its top people to become CFP advisors.
The CFP Board has only very recently reached this stage of its existence. This may actually be a year or two premature. The CFP Board was able to stand firm against the brokerage firms about implementing its new set of standards, and the brokerage firms had too many CFP advisors in their fold to feel comfortable about insisting that those advisors renounce the credential. But then the Financial Planning Association joined with SIFMA and the FSI to request that the Board delay implementation until after Reg BI goes into effect. Anybody who thinks the CFP Board is all-powerful should notice that it mustered a strategic retreat (and they will hate that I'm calling it that) in the face of this united opposition.
But now, the CFP Board has no choice but to embark on the second phase of its journey. It needs to more carefully vet the holders of the CFP mark and ensure that they meet professional standards. The question is how far it will go.
At a bare minimum, in the wake of the Journal’s revelations, the Board will have to scour public sources and require each advisor to post disclosure events. This sounds like a herculean task regarding 70,000 certificants. But it only takes 1-2 minutes to pull up the SEC and FINRA pages of any advisor. So we're talking about the cost of one diligent staff person’s annual salary to check everybody once a year, and the cost of somebody else who will have to inform recalcitrant advisors that they haven’t posted what is required. This is not a crushing financial commitment, and I think we can all agree, pitchforks raised in unison, that it should have been done before now.
But the Board needs to go further.
Over the years, a number of advisors have informed the CFP Board about firms that claim to be fee-only and clearly are not. If you read the discussion boards, you see that this was not exactly a satisfying endeavor for hundreds and perhaps thousands of concerned advisors. Going forward, the CFP Board will need to have the staff to follow up on those claims in a meaningful way.
This will not be a crushing financial burden either, since the tipster will have already done most of the leg-work. But it is important that the CFP Board change its policies about follow up to these messages. When the notifying advisor asks what the status of the investigation is, the CFP Board should give an answer, instead of hiding behind the bland “we don’t comment on investigations” response. If somebody goes to the trouble to help the CFP Board cleanse the mark, the least the CFP Board can do in return is provide a status update on the investigation. Otherwise the suspicion (the correct one, up to now) will be that the CFP Board simply ignored the tip-off for “lack of resources.”
Finally, every advisor should recognize that in this new phase of its existence, the CFP Board will become more active in prosecuting cases against suspected certificants. Anyone who complains that today’s CFP Board has too much power should stop and think about what a more aggressive, inquisitive CFP Board would look like. When the new standards go into effect, there will be more potential transgressions – and it’s certainly possible that the Board will ultimately determine that any sales activities represent a violation of the fiduciary standard. Some, like me, will cheer, but make no mistake: these new enforcement activities will further add to the Board's power.
Stepping into a more aggressive consumer protection posture shouldn’t require the CFP Board to divert funds from its marketing campaign. Some advisors are calling for the CFP Board to stop marketing the mark, because the marketing has been misleading about the standards CFP to which advisors are held. The solution is not to stop marketing, but to fully live up to the promises made in those advertisements.
The Wall Street Journal did us all a favor by giving the CFP Board a hard shove into a new and more effective stage of its existence. I give the Board a lot of credit for holding the line on the substance of its new standards, which go beyond anything the SEC has required. Once the new standards become effective, they will help raise the bar for the profession at large, and those who carry the torches and pitchforks should think twice about derailing that progress simply to punish the CFP Board for lack of oversight in the past.
Advisors are rightly worried that the CFP Board might become too powerful, but they should remember that the brokerage firms are now uttering exactly the same complaint. The key is that it do a much better job of using its power to benefit and protect financial planning consumers, and thereby strengthen the credibility of the mark. We should all be using this moment to hold the CFP Board accountable for taking that next step in its evolution, and I believe it will accept the challenge.
If it does not, we all know who to talk to at the Wall Street Journal.
Bob Veres' Inside Information service is the best practice management, marketing, client service resource for financial services professionals. Check out his blog at: www.bobveres.com. Or check out his Insider's Forum Conference (for 2019 in Nashville, TN) at www.insidersforum.com.
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At a bare minimum, in the wake of the Journal’s revelations, the Board will have to scour public sources and require each advisor to post disclosure events. This sounds like a herculean task regarding 70,000 certificants. But it only takes 1-2 minutes to pull up the SEC and FINRA pages of any advisor. So we're talking about the cost of one diligent staff person’s annual salary to check everybody once a year, and the cost of somebody else who will have to inform recalcitrant advisors that they haven’t posted what is required. This is not a crushing financial commitment, and I think we can all agree, pitchforks raised in unison, that it should have been done before now.