ETHICS
Putting Ethics at the Center of Our Profession
By Linda Leitz
NAPFA prides itself on being an organization of financial planners with high—some would argue the highest—standards. The CFP® certification is our cornerstone. And we can all be encouraged that CFP Board continues to raise the bar for all those who hold that designation. Growing the ranks of CFP® certificants to better serve the public while maintaining high standards is a balancing act. And consumers and the profession are well served as the balance is maintained through a mix of well-defined standards and enforcement.
The Profession
People describe our larger career community in two main ways: the financial planning profession or the financial planning industry. A “profession” is generally recognized to have education requirements—both initial education and ongoing education, certification or licensure, and standards, which have ongoing enforcement. An “industry” is generally seen as a broad subset of an economy. Given these definitions, our financial planning profession can be viewed as a part of the financial services industry. However, because a profession is held to higher standards than an industry, NAPFA and the NAPFA Advisor usually refer to our activity as a profession to distinguish it from the larger industry. In our field, ethics include a fiduciary standard.
CFP Board’s current Code of Ethics and Standards of Conduct took effect on Oct. 1, 2019. CFP Board General Counsel Leo G. Rydzewski, JD, CAE, says, “CFP Board’s Code and Standards have greatly impacted CFP® professionals and the financial advice community. With the Code and Standards, CFP Board elevated the profession by adopting a fiduciary standard that requires a CFP® professional to act as a fiduciary whenever providing financial advice to a client. This was an important step in the advancement of the financial planning profession.”
Many NAPFA members have been dismayed by the practice of financial planners doing “hat switching” between fiduciary and nonfiduciary roles. These folks would wear a fiduciary “hat” when preparing a financial plan, then put on a sales “hat” when recommending how to implement elements of the financial plan. That’s why the recent standards are a breakthrough: CFP® professionals must now act as fiduciaries at all times when giving financial advice, not just when preparing a financial plan. CFP Board provides guidance on how the current standards might best be applied in practice through case studies, checklists, and articles.
Enforcement
Ethical standards benefit from enforcement. CFP Board takes compliance with standards seriously and has recently increased staffing related to enforcement. When a complaint is filed with CFP Board about a CFP® professional, the process is investigated and, if the complaint appears valid, goes through an adjudication process with the Disciplinary and Ethics Commission (DEC). The outcomes may range from dismissal of the complaint to censure (public or private) to suspension of the credential to revocation, with the potential of a permanent bar against the individual holding the CFP® mark.
CFP Board Procedural Rules provide parameters for sanctions but also allow the DEC some discretion in determining the sanction. The Procedural Rules also contain anonymous case histories of past DEC rulings to assist in determining sanctions based on past determinations. CFP Board issued a report in June 2023 on ethics enforcement. This report has information on the number of complaints in 2022, the adjudication process, and some outcomes.
Rydzewski shares in an email that, “Effective Sept. 1 [2023], CFP Board has implemented revised Procedural Rules. Among other things, the revised Procedural Rules will transfer some administrative functions from the enforcement department to the adjudication department, expand the role of Disciplinary and Ethics Commission (DEC) counsel to make the adjudication process more efficient, eliminate settlement counteroffers, enable pre-investigation outreach and establish a process for admitting expert testimony.” This revision of the process is important, given the impact that a complaint to CFP Board can have on a financial planner’s professional career.
Conduct that Reflects on the Profession
We all have the responsibility to act in a way that reflects well on the profession. As Tom Sporkin, JD, managing director of enforcement for CFP Board, points out, provisions in the Code and Standards require that we do that, and they also require us to treat each other, clients, and prospects respectfully and with courtesy and dignity. Sporkin tells us, “To address instances when certificants violate these standards, CFP Board Enforcement staff have two courses of action available. They can either initiate a traditional investigation or take immediate action by seeking an interim suspension, where enforcement counsel can demonstrate to the DEC that a certificant’s conduct poses a significant threat to the public or significantly impinges upon the reputation of the profession or the CFP® certification marks.”
While most of us don’t want a credentialing body delving into the minutiae of our personal lives, there is some conduct for which we appreciate the CFP Board addressing actions that sully the profession. Some charges involve clear threats to consumers, such as wire fraud and sharing confidential client information. There are also sanctions for failing to report to CFP Board any issues that involve a certificant’s personal financial problems, such as a tax lien or bankruptcy. There are cases where CFP Board has sanctioned certificants for felony charges involving sexual exploitation of a minor, killing of a female because of her gender and obstruction of justice, and possession of child pornography.
One individual had his CFP® marks revoked after a former client complained to CFP Board after she asked if she could drop documents at his office rather than submitting them electronically. He told her that his time was “too valuable” to drive to the office for the documents. In an email string, he further said, “It is totally ridiculous to expect me to drive into town and waste a couple hours of $1,000 hourly time” and “I was only trying to help and your reactions tell me why your husband left you.” The enforcement committee found his interaction with her to be remorseless and uncivil.
Why Do We Care?
An argument is sometimes made that policing ethics is irrelevant. Ethical people will want to do the right thing. And people who don’t want to abide by an ethical standard will do what they can to find a way around guidelines.
Having standards defined by a certifying body or by a membership organization, such as NAPFA, establishes what an individual needs to do to be associated with that organization. It tells the public what they can expect from individuals with that certification or that organization. As the examples above show, a good enforcement process can find people who aren’t willing to hold themselves to those standards.
Some NAPFA members might believe that other business models in the financial advisory industry can’t uphold fiduciary standards, or they might feel that increased standards for all CFP® professionals dilute the competitive edge of NAPFA members. I disagree. Having more people—in all business models—subject to higher standards benefits those professionals. It also benefits the public. NAPFA members have a special reputation for the quality of our training and our high standards, and the standards set by CFP Board reinforce rather than compete with our message.
Linda Leitz is a NAPFA-Registered Financial Advisor in Colorado Springs, CO.
image credit: istock.com/Cecilie_Arcurs