CFP Mandates Background Checks Of Its Approved Advisors

Earlier this month, the Certified Financial Planner Board gave notice that it would be enforcing an enhanced set of oversight actions after media scrutiny poked holes in its self-reporting model.

A Wall Street Journal article found that thousands of financial planners under the board’s jurisdiction did not have the sparkling reputation it led the public to believe.

The article revealed that many of the planners listed on letsmakeaplan.org, a site owned and operated by the CFP board, had criminal records, bankruptcies and other violations.

Facing media and public scrutiny, the board assembled a task force in late July to delve into potential holes in its enforcement of the Code and Standards.

The task force, which included a law professor, a fraud examiner, two public interest groups and a public CFP board member, examined the CFP Board’s policies and procedures on reporting and made recommendations to the board.

“We thank the Independent Task Force for their diligence in conducting their examination, especially under such tight time constraints. This process was an essential step that will help the Board strengthen CFP Board’s enforcement program, which will benefit all Americans and reinforce the confidence and security that comes from working with a CFP professional,” said Susan John, a financial planner and chair of CFP Board’s Board of Directors.

The task force concluded in its report:

The weaknesses identified by the Journal have previously been reported on, and external evaluations of the CFP Board’s enforcement program have previously resulted in recommendations regarding the same kinds of issues. Yet the same problems have recurred again and again. The most recent reporting reflects problems that are primarily systemic in nature, resulting from governance, strategic planning, and risk management weaknesses.

These weaknesses will inevitably result in a recurrence of the kind of events reported by the Journal unless the Board of Directors acts to implement reforms focused on these systemic causes as well as the necessary reforms to the enforcement program. In addition, directing the CEO to maintain a focus on enforcement in the future will be critical to assuring success.

Recommendations Revealed

To fix the ongoing issues, the task force made 12 recommendations to the CFP board.

Upon reading the report, the CFP board said in a statement that they disagreed with “some of the assertions and characterizations made in the report.” However, the board did include what actions it would be taking immediately:

• CFP board no longer relies primarily on the self-disclosure of CFP® professionals;
• CFP board has implemented annual background checks on all CFP® professionals, including reviews of FINRA’s BrokerCheck, the SEC’s IAPD, and other publicly available information;
• Those who are certified are required to make ongoing disclosures of an expanded category of information within 30 calendar days;
• CFP board now provides consumers with access to BrokerCheck and IAPD information on letsmakeaplan.org and CFP.net/verify; and
• CFP board staff have been continuously reviewing Broker Check for existing CFP® professionals and continue to monitor and follow up on regulatory actions by the federal government and self-regulatory agencies if CFP® professionals are named.

In the long-term, the board said it would take steps to make the following reforms:

• Retain individuals with governance expertise to evaluate CFP board’s governance structure, including with respect to Board of Director composition and board oversight of the enforcement of CFP Board’s Code and Standards.
• Define, in written policies, the specific enforcement outcomes that the Board of Directors expects CFP board staff to achieve and to monitor rigorously the CEO’s performance against those expectations.
• Make Enterprise Risk a CFP board priority that is subject to a board committee’s oversight. Enforcement and public awareness activities (including the letsmakeaplan.org website) to be included in the Enterprise Risk program.
• Require annual ethics attestation and improve the background checks on all CFP® professionals that includes access to and review of publicly available information according to the expanded due diligence process described in the above reforms.
• Strengthen the sanction for failing to self-report information to CFP board. CFP board will form a commission in 2020 to review and develop recommendations for revisions to the existing Fitness Standards and Sanction Guidelines, and this will be part of the commission’s mandate. CFP Board will invite public comment on any proposed changes to these Fitness Standards and Sanction Guidelines.

Cassie Miller is a contributing writer for AdvisorNews. She has spent nearly two years covering Finserv topics. She also has an extensive background in magazine writing, editing and design.