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The CFP Board should use 1% of budget for its own oversight

The CFP Board is selling its new code of ethics and standards, set to take effect in October, as one that will improve the fiduciary credibility of CFPs.

Don’t buy it.

Although the document is a slight improvement over the current rules, real change will only occur when CFPs give the board chairwoman a clear mandate to hire outside counsel to ensure that the board’s staff and directors hew to the same ethical standards they are imposing on certificants.

To do that, I propose that CFPs require that the board dedicate at least 1% of its budget annually to improve its governance and oversight.

The need for such an action is clear: For more than a decade, the board’s staff and directors have faced accusations from myself and others in the industry regarding conflicts of interest, self-dealing and other improper behavior. As a CFP, there’s an additional reason why you need to be concerned: Evidence of self dealing puts the board at risk of losing its IRS 501(c)(3) status. If this were to happen, the designation would be devalued and pilloried as another example of the industry’s inability to build trust.

Photo by Scott Wenger

The good news is that the time is ripe for change. Susan John, the current chairman, is the first in years to possess both integrity and guts. As a start, John needs to be given authority to hire independent, outside legal counsel. This will provide her with access to objective advice and the means to conduct investigations into alleged wrongdoing. (It should be noted that the hiring of independent counsel already is a best practice followed by major boards.)

But no leader— not even John— can affect meaningful change without a groundswell of support. She is going to meet with stiff resistance from staff and directors who, I believe, are fearful of investigations. It’s likely she’ll be denied the necessary budget to hire independent counsel. That’s where the 1% proposal comes in.

Besides the retention of independent legal counsel, there are other best practices the CFP Board needs to adopt. There should be open elections for directors; oversight for the Disciplinary and Ethics Commission needs to be taken out of the hands of the staff and given back to the DEC; and the board needs to start publishing its minutes and be more transparent about its proceedings.

A fiduciary standard is only as good as the staff and directors who administer it. If you care about the integrity and credibility of the redefined fiduciary standard for CFPs, you need to speak up and show your support for the 1% proposal.

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