CFPs will lose the right to sue the board starting May 2 under a new mandatory arbitration clause, the board announced on Thursday.
Planners were not asked for input.
"I would have liked to have had a say in it," said CFP Delia Fernandez, of Fernandez Financial in Los Alamitos, Calif., "Arbitration can often, from a consumer standpoint, sound like a way for large companies to take the upper hand and prevent consumers from getting judgment in the court. So that is always my first response about mandatory arbitration: Who does this really serve and benefit?"
Under the revised terms, CFPs will not be able to join class action suits against the board.
BENEFITS
There are numerous benefits to the new arbitration requirement, the board said in a teleconference. For one, only arbitrators who have worked as state or federal judges would serve on the cases, which would be handled by the American Arbitration Association. Three judges will handle each case. The time limit for resolving disputes will be capped at nine months.
In addition, "if a CFP professional has a meritorious claim and prevails, the CFP board will pay for the full cost of the arbitration," said Leo Rydzewski, the board's new general counsel. That would include contributing $30,000 toward the certificant's legal costs.
"We believe that having former judges handle the cases is a strong and important provision," Rydzewki said, adding that all of the arbitrators will be independent.
CAMARDA CASE
When asked, during a press conference, if the board's ongoing legal battle with husband-and-wife planners Jeffrey and Kimberly Camarda in Florida, influenced its decision to mandate arbitration, Rydzewski said, "CFP Board clearly did consider its past."
The Camardas sued the board in 2013 to stop it from publicly sanctioning them for calling their firm fee-only while they also owned a small insurance agency that took commissions. The ensuing controversy led to the dismissal of the board's chairman.
A federal court threw out the case last year, claiming that the law doesn't permit the court to insert itself into the affairs of private nonprofits. (The planners have filed an appeal.) "Maybe the arbitrators aren't going to be bound by the [argument] that, 'We don't have jurisdiction here,' " says Rick Kahler, of Kahler Financial Group in Rapid City, S.D.
Kahler threatened to sue the board two years ago after it began investigating him in the wake of the Camardas' case, also for calling his firm fee-only. He and the board later settled their differences.
CONCERNS WITH ARBITRATION
The fact that arbitration is private will protect the identities of any CFPs with complaints, the board says.
The flip side, however, is that arbitration does not allow for outside scrutiny of the board's disciplinary process.
Arbitrators, for example, do not have to explain how or why they reach conclusions, according to Tom Hazen, a law professor and expert in nonprofit governance at the University of North Carolina at Chapel Hill.
Overall, arbitrators have a much "broader ability to basically do what they want and do what they think is fair," Hazen says.
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