‘Significant failures’ in CFP Board enforcement and comms, task force finds

The CFP Board’s oversight of planners is due for an overhaul.

That is one of the key findings of a task force commissioned by the board to review oversight and enforcement procedures amid criticism that the certifying organization has fallen short in this regard.

The CFP Board, which oversees the industry’s most-used credential, has faced mounting scrutiny and been the subject of several news investigations, including a recent one by The Wall Street Journal, over alleged faults in its public representations of CFPs and its enforcement of ethics and standards. The Journal story said its LetsMakeAPlan.org website “doesn’t inform users about customer complaints, regulatory skirmishes and other problems.”

The task force — formed in July after the Journal’s story — found “significant failures in the execution of the CFP Board’s enforcement program and attendant communications to the public,” according to a 33-page report. These shortcomings were primarily due to “systemic, longstanding, governance-level weaknesses.”

While noting that some reforms are already underway, the task force urged the CFP Board to take additional measures which, if enacted, could affect more than 85,000 CFPs and the millions of clients they serve.

Among the task force’s multiple recommendations: The board should strengthen the role and authority of public members on the board of directors. The board should either require a majority of its directors be public members or assign responsibility for monitoring enforcement to a committee that has a majority of public members.

"We laud the CFP Board for commissioning this task force to issue a public report this critical," wrote Todd Cipperman, managing principal of Cipperman Compliance Services, in a note to clients. "However, this report will cause big problems for the CFP Board and the industry. The CFP Board must take action to create a credible enforcement program or risk a diminution of its public perception. The industry can now expect the involvement of yet another supervisory body that can conduct audits and impose penalties."

The task force also that some public members should have supervisory experience in enforcement at a regulator. The CFP Board ought also to require that its appeals committee have public members. Short tenures for directors and the chair are a handicap, the task force found.

“The board is foregoing the substantial benefits that come when directors serve for longer periods of time and gain a deeper understanding of the organization they oversee. The first year or two of a single four-year term is likely to be spent learning the board’s processes and procedures, leaving only a few years to be fully engaged in board of director matters,” the task force report says.

The CFP Board’s general counsel is also burdened with too many responsibilities, the task force says.

The report also faulted oversight of CFP Board promotion of the certified financial planner mark and the board’s LetsMakeAPlan.org website. “Promotional activities should be subject to independent evaluation by the board of directors’ public members and approval of a majority thereof,” the task force says.

To buttress the board’s enforcement program, the task force calls for stepped up resources and new procedures. For example, the CFP Board should receive reports on its program at every board meeting and it ought to “retain a seasoned director of enforcement… who should periodically report directly to the board of directors in executive session and who does not also serve as General Counsel.”

Jeffrey Sauers

A review of every CFP certificant should be conducted at least once each year, the task force says

For its part, the CFP Board said in a press release that it “disagrees with some of the assertions and characterizations made in the report.” But it is committed to making reforms, including: hire individuals with governance expertise to evaluate CFP Board’s governance structure; put in writing specific enforcement outcomes that the board of directors expects CFP Board staff to achieve; require annual ethics attestations; and to improve background checks on all CFP professionals.

The board says it will continue to mull the task force’s recommendations, some of which may require additional public comment.

In July, it said it would discontinue its practice of relying on planners to submit records of their own disciplinary histories. Instead, the board now checks with SEC and FINRA databases as part of the certification renewal process.