Reversing a long-standing policy of reporting advisors’ bankruptcies on its website, the CFP Board now says it will review cases individually and may opt out of posting some.
The new rules are intended to “improve the process that governs those who are subject to CFP Board’s enforcement,” the board says.
Jeffrey Sauers
“A single bankruptcy may not reflect [an advisor’s] ability to manage their personal finances,” Leo Ryzdewski, the board’s general counsel, says. “We are now saying if someone has a single bankruptcy, that should go through a disciplinary process.”
Where mitigating factors exist, he says, a bankruptcy “should not be treated as an act of misconduct, but as a different matter.” The board did not immediately answer a question about whether dozens of advisors, whose profiles on the CFP Board’s website indicate a past bankruptcy, may have those cases reviewed and the disclosures removed. The board first began posting bankruptcies on its website in 2012 and they remain on advisors' profiles for a decade.
The board made the change last week, two months after the coronavirus forced much of the country to quarantine at home and after 40 million Americans filed for unemployment benefits. The board did not immediately respond to a question about whether global economic uncertainty played a role in the decision, nor did it forecast how many more planner bankruptcies it anticipates this year and next.
The board convened the task force after a The Wall Street Journal investigation found the board’s website still displayed profiles of CFPs with FINRA disciplinary histories without that information.
In a long-running advertising campaign, launched in 2011 and on which it has spent tens of millions of dollars, the board says CFPs adhere to higher ethical standards than other financial advisors. The Journal investigation revealed that the board’s omissions potentially had exposed members of the public to advisors with track records of client harm.
Earlier this year, the board removed fee disclosures from advisor profiles. The change eliminated the public’s ability to see whether a planner used a fee-only business model or instead charged commissions. The disclosure of fees has been a controversial topic and had embroiled the board in a multi-year lawsuit."
The new procedural rules are intended to “improve the process that governs those who are subject to CFP Board’s enforcement,” the board says in a statement. The CFP Board first released proposed procedural rules for public comment in November 2018, and a revised version was released for asecond public comment period in March of this year.
The new rules are “designed to be credible to the public,” Rydzewski says.
Changes are also intended to make regulations more understandable to CFPs, to consolidate previous rules and to expedite the process of reporting bankruptcies. They also provide that a CFP who is bound by a civil court decision also be bound by that decision with the board. And they require the board provide periodic status updates to those who file a complaint with the board against a CFP.
Within the next month, the board says it will have an update on how it is addressing the independent task force’s recommendations, the board’s CEO Kevin Keller said in an interview.
“These are really crazy times,” Keller said. “We have a survey out showing that more people are looking for a financial planner to help them through all the turmoil that they are experiencing. While the ethical obligations of a financial planner are always important, I would suggest that, in the middle of a pandemic, it’s paramount.”
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