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Early CFP Board Leader Says Future of Certification in Jeopardy

The CFP Board’s strategy of punishing some certificate holders over compensation disclosure issues in what critics charge is an arbitrary manner threatens the future of the CFP designation, according to one of the early leaders of the board who also chaired its disciplinary commission.

“If we make the holding of the [CFP] marks such a potential liability that, at any place and any time, someone could say, ‘Gotcha,’ and that is the end of your career … then, in my opinion, that will be the end of the designation. It will not be worth the risk to hold it,” says Malcolm Makin, president of Westerly, R.I.-based Professional Planning Group and Barron’s No. 1 advisor in Rhode Island for 2013, as well as the previous four years.

“We have a son who is in the process of starting his CFP studies. I’m not sure that’s a smart move for his career as a financial advisor,” Makin says.

It’s a startling statement from one of the financial planners who first banded together in the late ’70s and early ’80s to create organizations that preceded the formation of both the CFP Board and the FPA. The CFP Board did not respond to a request for comment on Makin’s statements.

Over the years, Makin, who runs a dually registered firm that clears through Raymond James, held many positions with the International Board of Standards and Practices for Certified Financial Planners, the board’s predecessor. His initial work with that body, which included six years of hearing cases, morphed from a focus on marketing to a broader quest to see the practice of holistic financial planning expand.

‘Eating Our Children’

For 25 years, until 2011, Makin remained involved, teaching an ethics course for the board. He has taught advisors about the board’s oft-misunderstood rules for use of the term fee-only.

What he sees as an overly broad rule, as well as the board’s decision to sanction its former chairman, Alan Goldfarb, publicly this spring and a recent, subsequent string of related private sanctions against the board’s officials have raised his concerns, Makin says.

“We are eating our own children,” he says.

Those sanctions came at a time when the board was allowing hundreds of advisors working for wirehouses, insurance companies, banks and independent broker-dealers to commit compensation disclosure violations with impunity on it own website.

Hours after Financial Planning disclosed the issue on Thursday, the board temporarily stripped all fee-only designations from its site. In an interview before that revelation, Makin says the board should have contacted all those advisors earlier to tell them they were in potential violation and ask them to change their designations. On Friday, the board sent a mass email asking thousands of advisors to update their profiles – an option that was not offered to the three who were punished.

In neither of the two cases that have become public – that of Goldfarb and of former CFP Board disciplinary official Tina Florence – has harm come to clients, the profession nor the CFP marks themselves, Makin says.

Florence, with the dually registered firm Lane Florence in Folsom, Calif., served as a commissioner on the board’s disciplinary and ethics commission. She says she was punished for one misleading sentence on her website. Despite the fact that her case was to remain private, she says the board effectively identified her by removing her name and that of another commission member from its public roster.

Goldfarb was sanctioned for calling his firm fee-only on the FPA’s website because the board said he could have received commissions, although it did not find that he ever had. Goldfarb owned a 1% ownership stake in a broker-dealer owned by his former firm, Weaver Wealth Management. Although his clients paid him fees, he also received a salary from Weaver. Goldfarb abruptly ended his 11 years as an official with the organization by resigning in the midst of the board’s investigation into him. Ultimately, he also left Weaver and started a new firm after more than 40 years in the profession.

Despite its claim that it treated Goldfarb no differently than other CFP holders, the board acknowledged last week that his was the first public sanction on this issue.

‘Crippling Careers’

“The Goldfarb case absolutely blows me over,” Makin says. “Here is a guy who is clearly a really good guy. He’s done an enormous amount for the profession. … I can tell you without question that, 20 years ago, Alan – and I don’t know Alan Goldfarb – if we had held a hearing [on the case] it might have risen to the level of a private sanction, but probably not.”

In all likelihood, Makin says, “The board would have said, ‘We think this could create a problem for you and for the profession and, so, don’t do this anymore.’ Had he persisted, then we would have taken action.”

Instead, he was punished publicly. “I think he was made an example of and it doesn’t serve any useful purpose,” Makin says. “The punishment doesn’t fit the crime. I know that if you were online, searching for a financial advisor in Westerly R.I., and you saw my name and then you saw an article about how I was publicly censured by the CFP Board … you would keep on reading and look for the next name. This is heavy, heavy, heavy duty stuff. You really are crippling peoples’ careers.”

Another Departure

Multiple sources who asked to remain anonymous out of fear of repercussions say concerns over the Goldfarb case and similar ones prompted the board’s former director of investigations, Rex Staples, to resign earlier this month.

Staples was hired for the newly created position less than 19 months ago in order to ensure the board’s investigative process was consistent, fair and credible, according to board statements at the time.

Unable to follow a policy that he could no longer support, the sources say, Staples felt compelled to leave. The board had released a statement saying Staples’ departure was unrelated to the disciplinary issues at the board. Reached by phone, Staples declined to comment on his departure.

Origins of Enforcement

During the six years in the ’80s and ’90s that he sat on an earlier version of the board’s disciplinary commission, Makin says it was clear to him and others that they held planners’ futures in their hands.

“Sometimes you’d get someone who was really bad and they just got what they deserved. There was no question that when there was a suspension or a revocation or a censure that had to be public that we had to make those hard decisions,” he says. “But you did it with the clear knowledge that you had someone’s career in your hands. You just didn’t do it lightly. … There was a deep sense of commitment that we all got it right.”

Yet some of the recent disciplinary decisions seem to have a different motive, he says.

“To me, this is way over the top, totally alien to how and why the [ethics] code was drafted to begin with,” he says. “The question I ask myself is, ‘Who is being served here? What is the purpose of this?’ ”

Inappropriate Definition?

The fault for these problems lies with a board that failed to anticipate the implications of an overly broad definition of fee-only, he thinks. That definition, among other things, forbids advisors to use the term if they associate with any “related parties” that take commission income

A strict interpretation of this rule could then dictate that none of the following advisors would be allowed to call themselves fee-only: RIAs who custody with firms like Schwab and Fidelity that have brokerage arms, NAPFA members who occasionally speak at conferences held by broker-dealers but have no dealings with those firms in their practice, and an advisor living in a community property state where her spouse is licensed to sell insurance or securities products (regardless of whether he does) because half of his income is considered hers.

Planners in each of these situations commonly call themselves fee-only without any fear of repercussion. But, they are now technically at risk and, Makin thinks, through no fault of their own.

“The core of the problem lies not with the individual CFP who is in violation,” he says, “it lies with the definition which is inappropriate and, therefore, individual planners may subject themselves to discipline because they don’t really understand how the definition applies to them and their practice.”

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