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CFP Board 'beefing up' disciplinary arm

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By Oct. 1, when the CFP Board's new code of ethics and standards of behavior take effect, the board expects to be tackling more disciplinary cases.

"We have been beefing up our disciplinary committees" and scheduling additional dates for disciplinary hearings, says Susan John, the board's new chairwoman. "We do expect that with the new standards there will be some new activity."

John, who runs her own firm, Financial Focus in Wolfeboro, New Hampshire, spent last year as chair-elect preparing to take her new role this year. (Current chair-elect, retired Vanguard executive Jack Brod, will replace her in 2020.)

The board recently expanded its fiduciary requirement for CFPs, mandating that they act in a client's best interest at all times when providing financial advice. The new standards were approved by the CFP Board's board of directors in March.

"This is kind of an exciting time to be involved in leadership in the profession, so many things are changing," John says.

With the new standards, she adds, "I think that we have kind of raised the bar here for financial planning, regardless of what business model someone may be practicing in."

While John, a former NAPFA leader, runs a fee-only practice, she says every planning model poses conflicts of interest. All NAPFA members are required to eschew commission income, only charging clients by fixed fees, to reduce potential conflicts.

Many fraud and criminal cases stem from instances in which planners sold clients investment products not for the client's financial well-being, but for the commission income the sales generated for the advisors.

The door has closed for public comments on the board’s propositions. While some industry heavyweights commended them, critics call out contradictions.
August 25

John says she wants to be part of the transition of the industry toward holistic planning.

"It really is about the client and it's about their expectations and there's such a change in the industry now — less of a focus on product sales and [more] on advice," she says. "I think the public has clearly spoken. … They want to trust the person advising them."

However, given that the board is not a regulator with subpoena power and largely run by volunteer officers, it can enforce its standards only up to a point, she says.

"We don't have the tools to do a deep dive into regulatory matters," she says, unless somebody reports a problem. "So it's a little bit different for us than if we had that regulatory authority."

To that end, the board has been forging relationships with some state regulators in the hopes of learning about new investigations more quickly than before, John says.

The board is also seeking comment on proposed changes to its disciplinary procedures to streamline the process.

In the past the board has not taken action in cases involving large firms, which have engaged in fiduciary breaches, in part because the board's own fiduciary rule wasn't as broad as the new one, John thinks.

For instance, the board apparently took no action against a JPMorgan Chase manager, who is also a CFP, for allegedly pressuring an advisor to push high-priced products on elderly clients. The bank admitted to breaching fiduciary responsibilities for similar behavior in the same time frame, in the largest SEC case of 2015.

"It may have been something that we could not do anything about," John, who was not on the board at time, says of the case.

But things might go differently in a similar instance after the new standards take effect, she says

"Which is why I am thrilled by our new standard," she says. "That is going to have a big effect on these firms, who are figuring out, 'How do we live into that standard?'"

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