A federal judge in Washington has dismissed a landmark lawsuit filed by two planners against the CFP Board regarding its authority to discipline planners, taking many in the industry by surprise and prompting calls for the judge to unseal his opinion.
"I'm shocked," the board's former chairman, Alan Goldfarb, whose own disciplinary case filed by the board played a central role in the dispute.
"It is a surprise," said longtime industry expert and Financial Planning columnist Bob Veres, who published a research paper in 2008 predicting that problems at the board could prompt planners to sue over its disciplinary policies.
U.S. District Court Judge Richard J. Leon said the details of ruling, which outlines his reasoning for the dismissal and was issued Monday, will remain sealed for 14 days. During that time, both sides will have the chance to persuade the court to keep the details sealed or to redact portions. (However, Leon wrote in his ruling that redaction is disfavored.")
Jeffrey Camarda, who sued the board in 2013 along with his wife Kimberly Camarda, says he has not yet decided whether he will appeal.
AFFIRMS THE BOARDS AUTHORITY
The CFP Board is very pleased that Judge Leon dismissed the case on the basis of deficient legal claims without the need for a trial," Marilyn Mohrman-Gillis, the board's managing director of public policy and communications, said in a statement. "This ruling affirms [the] CFP Board's authority to set and enforce its standards of professional conduct, which serve as critical consumer protections."
Questions about the fairness of the board's disciplinary policies were at the heart of the case.
The Camardas, of Camarda Financial Advisors on Fleming Island, Fla., threatened to sue after the board said it would publicly sanction them for using the term fee-only while they owned an insurance operation that takes commissions.
In response, the Camardas raised questions about many of the board's officials who also were using the term fee-only to market their work. The board then launched separate investigations into many of them, including Goldfarb, who was its chairman at the time.
In late 2012, the board delivered its first-ever pubic sanction against Goldfarb, who had been calling his practice fee-only against the board's rules. He resigned soon after.
The board then privately sanctioned two other officials, including a member of its disciplinary and ethics commission, Tina Florence.
Critics charged that all these investigations, and others that unfolded in private, were motivated by internal politics, given the threat of a looming lawsuit by the Camardas.
It was exactly the kind of scenario that Veres predicted in 2008 could arise after the board, under newly hired CEO Kevin Keller, took the disciplinary process away from the disciplinary and ethics commission and placed it in the hands of his own staff.
In response, a majority of the disciplinary and ethics commission members resigned in protest and, later, issued their own research paper outlining their concerns about the board's leadership.
"Those who feel like theyve been tried by a kangaroo court," Veres argued in his analysis, may need to "take their case to the courts and argue the fairness of these new policies."
Now that a decision has been rendered in the first such case, Veres and another expert urged Leon to unseal his decision.
"I hope indeed that it is released in its entirety," says Brian Hamburger, the founder of MarketCounsel, a New Jersey law firm that advises RIAs on compliance and other issues and who has represented clients in cases against the CFP Board. "What would be a shame would be if we engaged in this entire process and wouldn't gain anything in the rule of law as to how we can do better next time as an industry in handling these disputes."
'THE WHOLE STORY'
A full trial would have afforded the planning profession the chance to scrutinize how the board applied its disciplinary process in a closed-door proceeding, he and Veres say.
"I would have loved to have heard the whole story" behind the Camardas case, Veres says, "and now we are not going to get to."
Industry observers have noted that the board's disciplinary decisions in fee-only cases have varied wildly depending on the target of the investigation.
In September 2013, a Financial Planning investigation revealed that the board had been allowing hundreds of commission-based wirehouse advisors to misrepresent themselves as fee-only on the CFP Boards own website at the same time that it was punishing Goldfarb for the same thing.
The board then arrived at a custom compromise with prominent planner Rick Kahler after he threatened to sue. As a result, Kahler was allowed to keep calling his practice fee-only despite his relationship to his family's commission-earning real estate firm.
The board also backed off of a similar investigation into another former board official, Nigel Taylor, after he also threatened legal action and dropped his CFP designation.
"It's been all over the place," Hamburger says of the board's disciplinary process.
However, in its legal defense, the board successfully argued to the federal court that the Camardas failed to prove their claims of breach of contract, unfair competition and unfair advertising under a statute of law called the Lanham Act.
"Plaintiffs assert that the damage resulting from [punishing the Camardas] is enhanced by consumers' supposed reliance on [the] CFP Board's statement that it fairly enforces its rules," the board wrote in a filing. But the link between the Camardas' alleged injury and the CFP Board's "advertised fairness" on its website isn't strong enough to fall under the Lanham Act, the board argued.
It also argued that, "in reviewing a disciplinary action by a private organization, courts do not second-guess the organization's interpretation of its own rules or its evaluation of the evidence."
Further, the board said the Camardas "explicitly agreed that CFP Board has the absolute and unrestricted right to revoke, at its sole discretion," their use of the CFP designation, and to be subject to the boards discipline.
'WE DON'T KNOW HIS THEORY'
Hamburger speculated that the judge may not be saying that he doesnt buy [the Camardas'] argument, but he is saying even if he buys their facts, he's not in a position to hold the CFP board accountable. We don't know his theory," he adds.
"That's why it's really important to see the judge's ruling because if it really supports the notion which is a widespread industry belief that the CFP Board has free rein to enforce its rule without accountability, then it will only fuel those who are scared and are strongly reconsidering the value of retaining their CFP mark," Hamburger says.
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