CFP Board overhauls governance as part of ongoing changes

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Nearly a year after a task force uncovered “significant failures” in the CFP Board’s enforcement programs, it’s taking more steps that its chair says will modernize the organization’s governance.

The certifying organization for wealth management’s most prominent designation unveiled a raft of changes to its board on Oct. 1 that will alter director tenures, nominations and committees. It follows the board’s decision in June to start ongoing universal background checks and bulked-up regulatory oversight for its roughly 87,000 certificants.

Last year, The Wall Street Journal reported that the board’s consumer-facing website failed to include mention of serious compliance snafus and crimes involving the CFPs in its database. A task force set up in the wake of the revelations found that the “primary cause” for the shortcomings stemmed from “systemic, longstanding, governance-level weaknesses.”

The board’s new governance largely aligns with the task force’s recommendations, except with respect to the proposal that the board have more public members and particularly those with financial regulatory experience. The task force suggested that the organization’s board have a majority of public members or set up an enforcement committee with a majority. The board of director's membership varies from 11 to 19 and currently sits at 16. Public members are non-CFPs who don’t work in the financial services industry, other than consumer advocacy.

The changes won’t affect the current requirement that there be at least two public members. Directors may now serve up to two three-year terms, rather than the present limit of a single four-year term. Newly formalized nomination and transition processes, plus extra required training for directors, could help ensure there are no skill deficiencies on the board.

“Like any organization that is growing and thriving to some extent and becoming increasingly complex, organizational capabilities need to develop in parallel,” 2020 Chair Jack Brod said at a virtual press conference. CFPs should expect the board’s governance “to be up to date and fully capable in operation in executing against the responsibility that it has,” he added.

The board discussed and agreed to the new governance with help from external consultants, according to Brod, who said he couldn’t disclose the name of their firm. Four of the directors fit the National Commission for Certifying Agencies’ definition of a public member, including an ex-SEC commissioner and a former state securities regulator, he says.

“Having a substantial representation of CFPs continues to be very important for the ability of this board to operate,” he says. “We want to be able to target the types of backgrounds and experiences, based on what we think is going to be necessary in the years ahead.”

The board’s nominating committee will use a formal process to identify and fill the gaps in skill sets among directors. New training and onboarding with extra engagement can also boost continuity among members, according to the organization.

Three other committees are enlarging their scope, the board says. The appeals committee is becoming the code and standards enforcement committee. The audit committee is turning into the audit and risk committee. And the CEO oversight committee will expand to supervising all senior executive-level compensation as the CEO oversight and compensation committee.

Brod expects the organization to begin implementing the changes next year, following formal approval at the board of directors’ November meeting, he says. The board is also reviewing its enterprise risk management procedures and fitness standards and sanction guidelines ahead of more alterations to policies coming in the future.

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