© 2020 Arizent. All rights reserved.

New CFP Board background checks turn up concerns. 1,240 to be precise

Register now

Following revelations of serious shortcomings in its enforcement and governance, the CFP Board is substantially stepping up its vetting of CFPs.

The organization is spending $5 million to run rolling background checks on all CFPs starting this year. After running its first pass of the current ranks of 87,000, it has identified 1,240 CFPs who are now being subjected to further scrutiny, the board says.

“We are decisively moving away from [the] CFP Board’s reliance on self-disclosure by CFP professionals,” the board’s CEO, Kevin Keller, said in a press conference this week.

The actions mark a break from past procedure and come in response to a Wall Street Journal story that found the CFP Board was promoting more than 5,000 advisors as having unblemished records despite the fact that all had disciplinary red marks on regulatory websites.

Of 5,000 CFPs, at least 140 had been charged with felonies, according to the Journal.

An independent task force, convened by the board in response to the investigation, published a report in December that identified “systemic, longstanding, governance-level weaknesses” at the organization. Over the course of dozens of stories, Financial Planning’s reporting on the certifying organization found similar problems.

Based on the recommendations of the task force, “the board of directors is engaging in a comprehensive governance review” using a consulting firm, Jack Brod, chair of the organization’s board of directors and a retired Vanguard executive, said in the press conference. He did not name the consulting firm.

The board announced the changes less than a week before the June 30 deadline when its new standards of behavior and code of ethics become subject to enforcement.

As part of the review, Brod said, the board will be defining written policies and enforcement outcomes to “monitor [CEO Keller’s] performance” against new and heightened expectations.

The board expects to continue its investigations of the 1,240 CFPs into next year, and will inform them when and if the investigations necessite their responses to the inquiries, according to Brod.

“Nearly 40% of these investigations are from non-customer related actions like tax liens,” Keller said. “All 1,240 of these matters will be reviewed on a case-by-case basis.”

The board will issue a press release about any public sanctions to be placed on CFP profiles on the board’s website, Keller said.

The board has hired three new full-time employees and 20 additional “contingent or temporary attorneys and administrative staff” to conduct background checks of all CFPs and the investigations of the 1,240, who account for 1.4% of all CFPs, Keller said.

While the $5 million allocated to this work — expected to be completed next year — is considered a one-time cost, the board of directors’ ongoing review of the organization’s operations may result in recommendations for additional expenditures to maintain reviews, according to Keller.

The CFP Board has not yet determined if the increased costs will result in a higher annual fees for CFPs or impact other operating expenses, such as its $10 million annual advertising budget that promotes the CFP marks.

The board also says it will conduct a review of its enterprise risk management program by bringing in an outside consultant.

Going forward, the board will link CFPs’ profiles on its website to the consumer-facing databases run by the SEC and FINRA. It has also reduced the time frame in which CFPs must inform the board of legal or regulatory actions against them from two years to 30 days.

Going forward, the board also plans to:

  • Regularly review FINRA BrokerCheck and the SEC database for new disclosure information.
  • Create a database of state regulatory actions related to insurance and securities licensing for use when evaluating candidates for CFP certification. This includes a process for reviewing state regulatory websites on a regular basis to obtain recently reported information.
  • Review a national database to obtain reports that identify criminal records, tax lien filings, bankruptcy filings and civil lawsuit records about CFPs.
  • Redesign Letsmakeaplan.org and launch the updated version by Dec. 31.
  • Require CFPs to attest to their ethical obligations annually, as opposed to every other year. The questions that will be part of the attestation will be updated.
  • Begin sharing information about the board’s investigation into complaints about CFPs with the individuals who filed the complaints.
  • Strengthen sanctions for CFPs who fail to self report matters to the board.
For reprint and licensing requests for this article, click here.