After more than a month of mounting troubles surrounding its definition of fee-only planners, the CFP Board cracked down on long-standing misuse of the term, prompting calls for the board to revisit and possibly rescind past disciplinary actions.
The crackdown ultimately affected more than 20,000 wirehouse advisors after the two largest wirehouses, Morgan Stanley and Merrill Lynch, backed up the board by instructing their advisors not to call themselves fee-only. It also led to questions about the integrity of the board's "Let's Make a Plan" advertising campaign, which drove consumers to a website where advisors were misrepresenting themselves.
The surprise move came in late September just hours after Financial Planning revealed that the board, in violation of its rules, had tolerated hundreds of wirehouse advisors - and hundreds more at banks, insurance companies and other firms - calling themselves fee-only on the board's Find a CFP Professional online search tool. Within hours, the board swept all fee-only descriptions out of 8,000 profiles on its website. In their place, it inserted "none provided," making it temporarily impossible to definitively identify advisors based on their compensation.
The board then told all those advisors to reread its definition of the term - which forbids planners who work for commission from using it - and change their compensation disclosures.
The board also extended a broad amnesty to all advisors who had been breaking its rules.
The amnesty prompted calls for the board to reconsider punishments of a handful of planners, including its former chairman, Alan Goldfarb, who were not given this option before they were sanctioned or investigated.
Asked how long advisors who typically earn commissions have been marketing themselves as fee-only on the board's website, Bill Hayes, a member of the CFP Board's disciplinary and ethics commission, says, "Forever." The profiles misled consumers into equating brokers who can sell products for commissions with independent advisors whose income consists solely of fees paid by clients for planning advice, Hayes says.
NAPFA Chairwoman Linda Leitz says she supported the board's surprise move to force all planners to reconsider and reselect their fee-only disclosures, but is opposed to selective punishment.
"I would not want [the board] to pick out specific people and make an example of them," Leitz says. But forcing all self-described fee-only CFP holders to reconsider whether they are eligible to make that declaration is "very smart," she says. "I think that is a very good way to handle that. It's great to have a warning shot across the bow."
Resetting the profiles also insulated the board from the prospect that it might receive thousands of complaints about rule-breakers. The board says its policy has been to initiate investigations after it receives complaints about rule violators.
The definition is critical to advisors in part because the fee-only label is an effective marketing tool. Consumers are often advised to seek out fee-only planners to avoid the conflicts of interest that may arise when planners charge commissions for sales of products.
Before the amnesty, the board had punished at least three former officials - including Goldfarb - for compensation disclosure violations. Goldfarb, who had served in unpaid senior positions on the board for more than 11 years, stepped down while he was being investigated. About the same time, he left his former employer, Weaver Wealth Management, which owns a broker-dealer in which he owned a 1% stake. After more than 40 years in practice, he launched a new firm.
"His professional life has not been the same since," says Vickie Hampton, a friend of Goldfarb's and chairwoman of the personal financial planning department at Texas Tech University.
The sanctions raised the question of whether the board has been practicing a double standard by punishing some CFP holders from smaller firms for alleged compensation disclosure violations while granting amnesty to hundreds of others from large corporations. The CFP Board has grown rapidly in size in recent years, in part by increasing the number of CFPs at large firms, particularly wirehouses, insurance companies and banks.
"There is no double standard for enforcement," says Kevin Keller, chief executive of the CFP Board. "We expect all of our CFP professionals to adhere to our rules and our ethical standards."
The board does not audit its members; only complaints alleging violations are investigated, according to the board's spokesman, Dan Drummond. However, board bylaws permit investigations if information about violations arises.
Tina Florence - one of two former members of the board's disciplinary and ethics commission who resigned their positions at the same time Goldfarb did last year after the board began to investigate them - calls the board's differential treatment of planners unfair.
"If CFP Board is contacting the hundreds of CFPs [who] are clearly in violation and giving them the opportunity to change public information and not be investigated or disciplined, why didn't all of us ... get the same courtesy?" Florence asks. "Given the glaring inconsistency and disparate treatment, when will they vacate the cases against us, refund the costs associated with defending ourselves and issue an apology?"
Florence, of dually registered firm Lane Florence in Folsom, Calif., says the board privately sanctioned her over one sentence describing her compensation on her website, after vetting her for months and then inviting her to serve on its disciplinary panel. It also sanctioned another unnamed former member of the disciplinary commission.
The investigation and sanction process can last for months. Those who settle with the board to receive private sanctions may have to pay $1,500 in fees to convene hearings into their cases, Florence says.
According to its 2011 IRS filings for its tax-exempt status, the board says it "provides a fair disciplinary and investigative process." However, it was the threat of legal action over compensation disclosure from a pair of husband-and-wife planners in Florida in 2011 that prompted the board to investigate Goldfarb and the other two former officials, according to current and former members of the board's disciplinary and ethics commission. The couple, Jeffrey and Kimberly Camarda, sued the board in federal court in Washington in June.
Various industry leaders are calling for the board to reconsider this case and the others.
"I do believe revisiting those cases is appropriate," says Harold Evensky, widely considered a dean of the planning industry and a co-founder of Evensky & Katz Wealth Management, with offices in Lubbock, Texas, and Coral Gables, Fla.
Ron Rhoades, a former NAPFA board member and head of the financial planning program at Alfred State College in Alfred, N.Y., calls the widespread rule-breaking on the board's site "a dark stain upon the gold standard the CFP certification professes to be."
"I hope that the board of directors will review all of the actions taken, and sanctions handed down, in connection with compensation disclosures," he says.
Ann Marsh is a senior editor and the West Coast bureau chief at Financial Planning.