Will details of dirty deeds deter bad behavior? CFP Board hopes so

The CFP Board is hoping that by releasing more details about what's landed financial advisors with disciplinary sanctions in hot water in the past, others will be deterred from making the same missteps.

The Certified Financial Planner Board of Standards, whose professional certification is generally considered the gold standard in the wealth management industry, embarked on a new policy Friday meant to shed further light on exactly what sorts of actions can lead to the loss of the CFP mark or other penalties. Before the change, the CFP Board had accompanied its announcements of temporary suspensions and similar disciplinary measures with a short paragraph outlining the basic facts of the underlying case.

Now those releases will contain a link to documents laying out the alleged misconduct in detail and explaining the reasoning behind whatever sanctions were imposed. Leo Rydzewski, the general counsel of the CFP Board, said in an interview Friday that the hope is the additional information will both deter other advisors from misconduct and show the public that the CFP takes its ethical standards seriously.

"What this will do is enable the reader of our press releases who would like to know more information about the misconduct and the sanction, to read that in real time and learn more information about the facts and circumstances that led to the decision," Rydzewski said.

As for what sorts of additional details will now be released, Rydzewski gave the example of an advisor who is alleged to have breached a fiduciary obligation by recommending investments that were inconsistent with a client's risk tolerances. 

Under the new policy, he said, "We would explain more about the products that were sold, more about the individual to whom they were sold, and more about the risk profile of that individual."

"When you're trying to provide in a press release a short description of it, you invariably leave out a lot of details about the facts that led to that conclusion," he added.

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Rydzewski said the additional information will also include explanations of how a particular sanction decision was reached. When the CFP Board's Disciplinary and Ethics Commission hands down a disciplinary decision, it usually takes into account various aggravating and mitigating factors that can make the ultimate punishment either more or less onerous. 

Rydzewski said an example of an aggravating factor is evidence that a particular action led to client harm. Mitigating factors include steps taken to prevent an unfortunate result from recurring.

The CFP Board's sanctions can range from private censure to the revocation of the CFP credential. If a CFP mark is suspended for more than a year, the former holder can't reobtain it without demonstrating fitness before the board.

Despite many reforms the CFP has made to its conduct standards and sanctions policies in recent years, some don't see it as enough. John Robinson, the founder of Honolulu-based Financial Planning Hawaii and a frequent critic of the board, said there are still too many advisors with lengthy complaint records who continue to bear the certification. 

Robinson worked with Wall Street Journal reporters on an article in 2019 calling attention to the fact that 6,300 CFP holders had a history of customer grievances, criminal complaints, bankruptcies and other matters. Those reputational dings were receiving no mention on the CFP's website, even though they were easily discoverable in the Financial Industry Regulatory Authority's online BrokerCheck database.

The CFP Board responded to the criticism by conducting more than 1,600 investigations into CFP holders. Sanctions were eventually imposed on 40 certification holders. 

Robinson said he thinks there are still a lot of "bad apples" who could be tossed out.

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"My perception is that they are probably making some strides," he said. "But a lot of it is cosmetic."

In one of the biggest changes following the Wall Street Journal article, the CFP Board ceased relying on advisors to self-report bankruptcies, criminal matters and customer complaints. The organization now independently consults BrokerCheck and other public databases for that sort of information.

The CFP Board has also added to its enforcement staff, bringing in Tom Sporkin, formerly of the Securities and Exchange Commission, in early 2021 to help it better police its members. 

It also regularly reviews and revises its sanctions and ethics guidelines and competency standards. The public now has until Dec. 3 to respond to an online survey seeking comment on the latest round of proposed modifications. 

Despite all that, Tim Welsh, the CEO of the industry consulting firm Nexus Strategy and a CFP holder, said he has reason to be skeptical of the CFP Board's enforcement claims. He said the organization is usually doing little more than responding to information brought to light by the SEC, FINRA or other regulators.

"For them to come in afterward and say, 'This person went bankrupt or this person was arrested' — what's the point?" Welsh said.

The point, according to Rydzewski, is to make sure the CFP certification remains a mark of quality to the public.

"When the CFP Board issues sanctions, our intent is for those sanctions to be meaningful, and to reflect the seriousness of the misconduct," he said. "Our sanctions at CFP Board benefit the public, advance the financial planning profession, hold a respondent accountable for misconduct, educate about conduct that will result in a violation, deter individuals from committing similar violations in the future and promote public confidence in CFP certification."