Certified financial planners face new disciplinary rules

June 1, 2020. Print article

The Certified Financial Planner Board of Standards onFriday said it adopted sweeping new disciplinary enforcement rules, expanding the industry body’s access to information during investigations and treating regulatory settlements as evidence of wrongdoing.

The new rules, which become effective June 30, were approved over the objections of some professionals who argued certain changes were unfair, and that the COVID-19 pandemic warranted a postponement.

The changes have already gone through two rounds of public comment, and are intended to align with a revised Code of Ethics and Standard of Conduct for certified financial planners.

The disciplinary rule changes “outline a process designed to be credible to the public and fair to those whose conduct CFP Board is evaluating,” said Jack Brod, chairman of the CFP Board’s board of directors.

They also “clarify important information for CFP professionals and further strengthen CFP Board’s enforcement process,” he added.

Changes include allowing the industry body to question professionals subject to disciplinary proceedings through oral examination, as well as allowing the disclosure of confidential and investigative information to regulators, courts and employers.

Settlements with agencies such as the will also be treated under the new rules as grounds for a sanction by the CFP Board, unless a respondent can prove by a preponderance of evidence that the allegations are without merit. Such settlements usually do not constitute an admission of guilt by a party.

Staff initiating investigations will face a new time limit — typically, seven years after the alleged violation — and have less time to issue a complaint after launching an investigation. The rules further clarify the standard of review for appeals and require the board to periodically provide status updates. 

A newEnforcement Process Guide describes the board’s investigative, settlement and hearing processes.

The new publication consolidates enforcement-related information that was previously scattered across multiple documents and includes several “important changes,” according to the industry body.

Proposed rules garnered about 40 submissions in a second round of comments, between March 24 and April 24. TheFinancial Planning Association weighed in, as did theNational Association of Personal Financial Advisors and numerous individual CFPs. 

Some individual professionals questioned the industry body’s timing in adopting the new rules, given turmoil related to the current pandemic.

“Do you really think this is the best time to be doing this?” CFP Bradley Lester wrote the day that comments opened. “I have too much to think about with running a practice and keeping my employees without spending time on this.”

Others expressed disappointment about certain components of the new rules.

Craig Waugh, board president-elect of the Financial Planning Association of Greater Phoenix, said the final rules are mostly consistent with the version proposed to the field more than a year ago, before the world’s attention was focused on COVID-19.

He was concerned, however, with the CFP Board’s decision to treat settlements with agencies as proof of wrongdoing by a professional.

“It’s a pretty bedrock principle in litigation that a compromise is inadmissible to prove liability,” Waugh said. “We would like for the same principle to apply.”

Melissa Kemp, executive director of the Greater Phoenix FPA chapter, acknowledged the board’s “harsh reality” in needing to align the procedural rules with other standards at the same time as a global pandemic is unfolding.

“My hope, speaking as a CFP professional, is that the CFP Board of Standards will just keep an ear and an eye open to how these disciplinary processes are affected and, if needed, revisit this in the future,” she said.

The CFP Board delayed action on another proposed rule change to allow professionals to petition to remove disciplinary information from the industry group’s website pending review by a commission to be formed later this year.

The CFP Board sets and enforces requirements for meeting the Certified Financial Planner designation.