At the same time the CFP Board is contending with controversy over its decision to punish three of its former volunteers for compensation disclosure violations, it is allowing hundreds of similar transgressions to go unaddressed on its own website.
There are 486 advisors at the four wirehouses – and possibly hundreds more at smaller banks and at insurance companies – who hold CFPs and describe themselves as fee-only in their public profiles on the CFP Board website. It’s a violation of the board’s rules, which forbid advisors from using the descriptor if they are associated with any “related parties” that take commissions, including employers.
Wirehouses earn substantial revenues from commission sales of investment products.
Nationwide, advisors from Bank of America Merrill Lynch, Morgan Stanley, UBS Securities and Wells Fargo Advisors call their practices fee-only in their profiles in the board’s “Find a CFP Practitioner” search tool.
Financial Planning computed the number of wirehouse advisors who call themselves fee-only on the CFP Board website by looking at the online profiles of advisors at each of the major firms in all 50 states.
Asked how long advisors who typically earn commissions have been marketing themselves as fee-only on the board’s website, Bill Hayes, a member of the board’s disciplinary and ethics commission, says, “Forever.”
The profiles mislead consumers into equating brokers who can sell products for commissions with independent advisors who do the work of comprehensive planning, says Hayes, setting up a maddening situation in the marketplace.
“People think we are held to the same standard – and this is just not the case,” he says.
The board investigated and publicly sanctioned its own former chairman, Alan Goldfarb, for calling his practice fee-only on the FPAÂ’s website. Goldfarb, who had served in senior, unpaid positions on the board for more than 11 years, stepped down during the investigation. At the same time, he left his former employer, Weaver Wealth Management, which owns a broker-dealer in which he owned a 1% stake. After more than 40 years in practice, he opened a new firm.
'NO AUDIT OR EXAMINATION FUNCTIONÂ’
Asked if there is a double-standard to the board’s disciplinary process, CFP Board CEO Kevin Keller says there is not. “There is no double standard for enforcement. We expect all of our CFP professionals to adhere to our rules and our ethical standards,” he says.
As to why the board has not addressed the transgressions on its own site, Keller says, “We do investigate all of the cases that come to our attention. Our policy is that there is no audit or examination function. Upon receipt of a specific complaint, we would open an investigation.” He adds that no one has lodged a formal complaint.
However, the boardÂ’s disciplinary rules
“I would think that having information on their own website would satisfy the requirement that they have become aware of prima facie violations of their policy,” says CFP Tina Florence of the dually registered firm Lane Florence in Folsom, California. She is one of two
Malcolm Makin, one of the early architects of the CFP Board and a former chairman who helped write its code of ethics, says he thinks the board should contact the wirehouse advisors about the conflict.
"What I would have expected," says Makin, president of Professional Planning Group in Westerly, R.I., "would be for the board to go to those [advisors] and say, ‘Wait a minute. Check this out. This is serious. You have made this proclamation about yourself. [But] this is the standard. Please be sure that you fix this profile, otherwise you will be in violation of the code. ... I think the board then has a responsibility to enforce the requirements of the code.”
When asked about MakinÂ’s and FlorenceÂ’s comments, CFP Board spokesman Dan Drummond replied for Keller: "With the increased attention to our disclosure compensation rules ... we have been proactively educating CFP professionals about their obligations under our rules to facilitate understanding and full compliance. In addition, we will communicate and work with CFP professionals' employers, including wirehouse firms, about CFP professionals' obligations to fully and accurately disclose their compensation."
RAPID GROWTH
Since it was founded in 1985, the board has steadily increased in size to 68,000 certificate holders nationwide. With a limited staff, it works to improve enforcement. Although neither a governmental nor regulatory body, it controls which planners can use its CFP mark.
Still, the board is stretched – much as is the SEC in trying to regulate the country’s registered investment advisors – to police so many CFP holders. Its paid staff of 10 investigators gathers evidence about potential violations and presents its findings to the nine members of its disciplinary commission. All of the commissioners, as well as all of its board members except Keller, are unpaid. The commissioners meet just three times a year for two and a half days to hear cases.
Although the board has no power to enforce laws, it does stake out a moral high ground in an industry whose professionals can be tarnished by fraud and betrayal of client trust.
The board’s mission, according to its website, is “protect the public’s interest through the establishment and enforcement of rigorous financial planning ethical and practice standards.”
The board had a moral obligation to its certificate holders to announce and seek public input before it began to selectively exact punishments over compensation disclosures for the first time, according to Florence.
It didnÂ’t, she says, because the board was motivated by self-preservation in changing its tactics, Florence says. The board launched investigations into at least three of its own in order to avoid a lawsuit that two planners in Florida threatened to file against the board in 2011, she contends.
“I think they panicked at [the planners’] allegation that they were being singled out and [the board] rushed to create the appearance that they were being tough on anyone found to be misrepresenting their fees,” Florence says.
Board spokesman Drummond declined to comment on whether the board launched the investigations to avoid going to court. The CFP Board, he says via email, “cannot comment on any cases – whether initiated before or after the Goldfarb case – related to compensation disclosure that resulted in other than a public sanction.”
‘RULES DON'T APPLY’
Regarding the wirehouse advisors, representatives for Bank of America Merrill Lynch and Wells Fargo Advisors declined to comment on their advisorsÂ’ fee-only profiles after receiving a long list of questions and screen captures of profiles of some of their advisors. A spokeswoman for UBS did not respond.
James Wiggins, a spokesman for Morgan Stanley, also did not respond to questions about Morgan Stanley advisors, but did say that the firmÂ’s clients benefit by having the option of choosing services that are fee-based or priced by transaction.
“We strive for clear and accurate communication with the investing public about our services, and will continue to work with all interested parties toward that end,” Wiggins emailed.
Wirehouse advisors make up about 10,000 to 12,000 of the 68,000 CFPs in the country, according to Keller.
One of them, Merrill Lynch broker Jeffrey Slothower of New York, was asked via email if he was aware he was using the term fee-only in violation of the terms of his CFP certificate.
“That doesn't really apply to me at a wirehouse,” Slothower emailed back.
“That’s exactly what I’d expect him to say,” says Hayes, the disciplinary commissioner. “The wirehouses tell them [the rules] don’t apply to them.”
Yet a few days after the email exchange, Slothower switched the compensation description on his CFP Board profile to “commission and fee.” A spokeswoman for Merrill Lynch requested that this example not be published.
In general, wirehouse advisors are shielded from most disciplinary actions from the board, according to Hayes and numerous other current and former disciplinary commission members. When the CFP Board requests documents from the wirehouses for its investigations, the wirehouses typically refuse to provide them, citing client privacy concerns, he says.
A LARGER PROBLEM
“There is a lot of push back on the part of major [wirehouses] who hide behind the idea of privacy concerns and therefore do not allow the board the ability to pursue actions against those individuals,” Hayes says.
The fact that so many brokers call themselves fee-only on the board website was regular fodder for hallway conversation among commissioners when they gathered to hear disciplinary cases, according to Robert Fleming, a Tucson-based lawyer and elder law specialist. He served on the commission as the boardÂ’s first public, or non-CFP member, until last year.
“It was on my radar and, maybe more acutely, on others’ radars,” Fleming says, given that he is not a planner. “But there was nothing we could do about it individually” or as a disciplinary panel. In a general way, there is a frustration when you are on the disciplinary and ethics commission with brokerage houses saying, ‘We don’t have to give you anything.’ This is a larger problem that does not have only to do with fee-only disclosures.”
Both Keller and Michael Shaw, the boardÂ’s managing director of professional standards and legal matters, acknowledge that wirehouses routinely invoke privacy laws in declining to provide information about their advisors with the board, even on the most grievous disciplinary cases.
“We do run into that a fair amount,” Shaw says.
If there is a de facto insulation of wirehouse CFP holders and the board’s limited enforcement resources fall largely on independent advisors or those who work for smaller firms, Fleming says, “That is a terribly unfair outcome.”
He suggested the board should take a broad-based step to fix the problem, even at the potential risk of losing some of its members.
“If I were mayor of the city of Tucson,” Fleming says, “and if I knew there was one section of a street marked 30 miles per hours and I knew everyone went 60 mph there, I might reasonably decide that doing something systemic might be a better way to reduce the speed.”
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