CFP Board Reviews Sanction Guidelines

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Writing recently in Wealth Management magazine, Patrick Donachie reported that a new commission established by the Certified Financial Planner Board of Standards (CFP) will reexamine the guidelines the Board has historically used to accept and sanction CFP professionals.

Strengthening Code of Ethics enforcement

The 15-member Commission on Sanctions and Fitness includes investor protection advocates, state securities regulators, and financial and wealth planning executives from across the industry.  In making the announcement, CFP Board CEO Kevin Keller says he expects the new commission will fundamentally strengthen enforcement protocols for the CFP’s new Code of Ethics and Standards of Conduct, which went into effect in June 2020.

In particular, the commission will review the sanction guidelines the CFP established to assist its Disciplinary and Ethics Commission (DEC) in deciding how to punish CFP members who break the rules. The current guidelines list several “aggravating or mitigating factors” that the DEC may consider in its deliberations. These include whether the professional had a prior sanction, whether they acknowledged the issues at stake and whether the Board found a pattern of misconduct.

What about a certified financial planner’s past performance?

In addition to addressing the issues of bad actors, the CFP fitness standards will apply to applicants. The goal is to “ensure that an individual’s prior conduct would not reflect adversely” on the reputation of the CFP certification. Moreover, applicants would be immediately barred for felony convictions for “theft, embezzlement or other financially-based crimes,” as well as tax-related crimes, among other things. According to the standards, an applicant with two or more personal or business bankruptcies would be “presumed to be unacceptable” for acceptance.

In his interview with WealthManagement.com, Keller said it was best to see the current review as the “third and final phase” of a total review of the Board’s enforcement process, beginning with the revised code of ethics and followed by last year’s overhaul of its procedural rules.

“It was a bit controversial in the beginning, like sentencing guidelines; judges aren’t always thrilled about sentencing guidelines,” he said.

But he added that the guidelines helped instill a fair system to certificants that also was credible to the public. Keller called the commission’s members “a broad cross selection” of industry participants.

The CFP’s public shaming option

While the Board may only go as far as revoking its certification from a professional (and cannot bar individuals from the industry), it does publicly announce many of its sanctions, which could have a large impact in a Google-searchable world.

Officially, the sanction guidelines are just that, guidelines, not prescribed punishments. Nonetheless, expectations are that the CFP Board and DEC will soon be reviewing a wave of potential enforcement cases for ‘CFP fiduciary violations,’ which can include issues spanning failure-to-disclose to bad advice to fraud.

Once the commission develops recommendations with input from the public and financial planners, it will release proposed revisions for one or more comment rounds before the final revisions are released, expected to be in 2022. The next step for the Board will be to host two virtual forums on Feb. 18, 2021, for comments.

Among the commission’s members are Andrea Sedit, the Ohio Securities Commissioner at the state’s Department of Commerce and chair of the North American Securities Administrators Association’s Regulation Best Interest Implementation Committee, and Elizabeth Jeter Hrubala, the president and owner of Jeter Hrubala Wealth Strategies. The commission also includes Envestnet MoneyGuide COO Joseph Miller, Demtra Sullivan, a vice president at Schwab, and Jeffrey Weekes, a vice president and financial advisor at Morgan Stanley.

How will CFPs adapt to the new commission guidelines?

As they always do. Most will be vigilant and focus on the fundamentals—controls, processes, and environments that impact financial recordkeeping and decision-making—and company-specific risks by conducting regular risk assessments. And that’s where Patrina comes in.

For more than 25 years, Patrina has helped compliance professionals stay on the “straight and narrow” efficiently and cost-effectively. So, let’s talk. Call 212-233-1155 to ask about Patrina’s cost-effective, designated third-party services, comprehensive, 8-module compliance solution, compliant data capture, file storage, and records archiving specifically designed for the financial services community. Be smart. Be covered. Let’s talk.

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