Lawsuit Sends CFP Board ‘Fee-Only’ Debate to Court

A lawsuit brought by husband-and-wife planners in Florida against the CFP Board has brought the federal court system into the debate over “fee-only” labeling and consequences – a topic that the industry has been struggling to define.

Jeffrey and Kimberly Camardas’ legal complaint about an “unfair and capricious” disciplinary process by the CFP Board about the fee-only label also led to the recent sanction and resignation of former CFP Board Chairman Alan Goldfarb, as well as the abrupt departure of two of the board’s disciplinary and ethics commission members.

“The Camardas case and the Goldfarb case were intermingled,” says Sally Hurme, a lawyer with the AARP who is the sole non-CFP member of the group’s disciplinary and ethics panel. “Their case brought up the issue of the Goldfarb case.” Another former member of the nine-person disciplinary panel, Cameron Park, Calif., CFP Tina Florence, also confirmed that the lawsuit and the board shakeup were linked, as did several current and former commission members who asked not to be named.

The Camardas, of Fleming Island, Fla., are asking the U.S. District Court in the District of Columbia to stop the CFP Board before it sanctions them for allegedly misusing the term fee-only and, by doing so, causing “irreparable” and “permanent” harm to their businesses: a wealth management firm, Camarda Wealth Advisory Group, and an insurance agency, Camarda Consultants.

In addition to asking the court to block the posting of a public CFP Board letter admonishing the Camardas, the complaint also seeks a declaration from the court that the board failed to follow its own rules and took action against the Camardas without enough evidence.

CFP Board spokesman Dan Drummond said in a statement that the Camardas’ suit is without merit. He would not comment on issues raised about the ongoing litigation.

INITIAL INVESTIGATION

The case dates to 2011 when, according to the lawsuit, the board received a complaint and launched an investigation of the Camardas over their use of the fee-only descriptor. The Camardas say the board informed them of the investigation on March 8 of that year.

Although the Camardas both have management titles in both firms, they are separate corporations, according to Florida state records. The suit, which states that the wealth management firm is fee-only, also claims that the CFP Board has decided that the couple’s firms are “functionally one entity.”

The CFP Board said it intended to publish a public letter of admonition in January 2013, the lawsuit says, alleging the Camardas violated board rules by calling their investment firm fee-only. The board forbids advisors who have relationships with any “related parties” that take commission income, such as insurance companies, from calling themselves fee-only. The Camardas sued to block the letter in Florida state court in January; in June, they dropped that suit and filed in federal court Washington, D.C., because that is where the board is based.

No sanction has been delivered -- but if the board proceeds with such an action, the Camardas claim, their firms will be harmed in numerous ways. “We refuse to have our reputation impugned over an unfair and capricious process, one that was initiated on an anonymous, groundless, unsigned complaint that was not even investigated by CFP Board,” Jeffrey Camarda says in a statement. “As we got into the process, I was frankly amazed at how arbitrary, arrogant and patently unfair it was.”

The Camardas say they believe the anonymous complaint to the board came from a competitor. With a relatively small staff, the CFP Board's investigations often stem from individual complaints, according to several current and former disciplinary panel members. (In many instances, they say, the CFP board also follows up on cases from other enforcement bodies; although its disciplinary rules (see article 6.1) allow it to launch investigations only upon the receipt of information suggesting a violation of CFP members’ code of ethics.)

GOLDFARB DEPARTURE

Prompted by the investigation, a spokesman for the Camardas, Donald Hannaford, says the couple pointed out during the investigation that members of the board, including Goldfarb, had similar alleged conflicts of interest.

Hannaford, with Hadron Media Group in Greenwich, Conn., says members of the board then asked the Camardas to file complaints against those board members and disciplinary panel members. The CFP Board would not comment on the allegation. “We never had any desire to see anyone disciplined,” Hannaford said. “We did not file official complaints against any DEC or board members, and when they asked us to, we said, ‘No.’ We did some research on Google and provided specific examples of inconsistencies we found, and used these to demonstrate to [CFP Board] staff what we thought was wrong with the system, not only to defend ourselves but in hopes of fixing it.”

The board issued a press release last Nov. 2 saying it “became aware of broad allegations” against three officials who resigned. Goldfarb resigned from the board before he was publicly sanctioned. He had called himself a fee-only advisor on the FPA website and was also drawing a salary from his then-employer, Weaver Wealth Management, whose parent company also owns a broker-dealer in which Goldfarb owned a 1% stake.

The two disciplinary panel members who resigned were not named in the board’s press release. Both of their public records with the board remain clean.

It’s unclear if yet another departure is related to the issues raised by the suit. Rex Staples left his position as director of investigations for the certifying body after less than 19 months in the new role. Weeks after the board launched the Camardas investigation, Staples’ position was created to “ensure the speed, consistency, fairness and credibility of judgments made in disciplinary cases of CFP certificants.” Reached by phone, Staples, former general counsel for the North American Securities Administrators Association, declined to comment. In an email, Drummond said, "There is no connection between Mr. Staples’ decision to resign and the compensation disclosure issues or any other pending matters."

UNEVEN ENFORCEMENT ALLEGED

The definition of fee-only has long caused controversy, and as the industry changes, the associations that advisors have with multiple organizations make it hard to define proper use guidelines clearly. An Aug. 7 board web seminar aimed to clarify rules after the lawsuit and resignations.

The Camardas allege in their suit that the board’s rules were applied unfairly and inconsistently. In previous years, the CFP Board did not seek such harsh actions when questions were raised about planners who may have been using the fee-only label incorrectly, says Goldfarb, who did not participate in the judgment of the Camardas case when he was on the board.

When investigating complaints, he said the board used to ask, “ ‘Is this a bad apple? Is this hurting the public?’ ... If not, it was a slap on the wrist. It was private. That’s the attitude we had. I think that’s a healthier attitude. The new attitude seems to be it’s got to be public. That’s a much harder line and, frankly, I don’t think that is fair.”

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