The CFP Board is seeking input and guidance from planning professionals as it considers changing the way it currently investigates bankruptcies among planners.
Under the proposed change the board would stop investigating planners who’ve filed a single personal or business bankruptcy in the last five years in favor of posting notices of those bankruptcies for the public to see on the CFP website for ten years.
“We believe that this proposed change provides a better process, allowing for greater consumer protection since we will be disclosing bankruptcy filings for all CFP professionals,” said Mike Shaw, managing director of the board’s professional standards and legal departments.
Currently, the board investigates every instance of bankruptcy it learns of among planners, but it does not publicize notices about those that draw no disciplinary action from the board. Under the proposed changes, it would continue to investigate all bankruptcy cases in which it believes that members of the public may have been harmed, as well as those instances where bankruptcy cases involve additional accusation of misdeeds.
Since 2010, the number of bankruptcies the board has investigated has jumped precipitously, from eight or nine hearings in 2009 to 48 last year, according to Shaw. The jump is believed to be due to the economic downturn.
“We’ve come up with a process that we believe is fair and balanced,” Shaw said. “We think that it’s better to post the bankruptcy publicly on our website because a member of the public then has the information and can make a decision (about it) on their own.”
Because bankruptcies are public, investigating their causes is a relatively simple matter, Shaw pointed out.
From now until February 12, the board is soliciting comment on the proposal. Comments will be reviewed and posted on the board’s website. By March, final proposed amendments in the matter will be presented to the board of directors for review and approval.
However, if based on the comments received, the CFP Board determines that significant additional changes are needed to the proposed process for addressing and disclosing matters involving a bankruptcy filing, the board may distribute a revised proposal and schedule a second comment period.
When the board decides to take disciplinary action in cases involving a bankruptcy, Shaw said, the remedies can range from a private censure to a public sanction to revocation of a planner’s certification.
“The circumstances that lead one to file for bankruptcy are so varied,” Shaw said. For example, he said, the board often has chosen not to take any disciplinary measures upon discovering that a planner filed for bankruptcy protection due to a catastrophic medical crisis. In other cases, the board has revoked certifications for planners who failed to take action in the face of mounting liabilities while continuing to load on more debt.
Shaw said he looks forward to hearing from the planning community on this subject. “I anticipate that we will get some comment because this is a very different approach than we’ve followed in the past,” he said. “We’ll take those comments very seriously. Based on the number and the content of those comments we may decide it’s possible to modify this approach.”
Additional details of this proposed approach are available on CFP Board’s website.
Ann Marsh writes for Financial Planning.
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