Should the CFP Board police financial advisor “bad apples”? The debate continues! (Part Two)

In Part Two of our two part series on the CFP Board, the heated debate continues. We’ll discuss these questions:

• The CFP Board has specifically stated that it wants the CFP® mark to be a requirement for anyone who practices financial planning.  What is your opinion?
• What is the CFP Board’s role in enforcement, and do you believe it is effective? 
• What do you believe the CFP Board’s role should be in the future?
• Assuming we all agree that financial planning does not yet meet the standard for being considered a” profession”, what do you believe is required in order for that to happen?

• Robert Wright, CFP®, a financial consultant with Advocacy Wealth Management. Robert will be on the “for” team.
• John Robinson (“JR”), Founder of Financial Planning Hawaii, Inc. JR will be on the “against” team.
• Scott Salaske of Firstmetric. Scott will be on the “against” team.

And me! For those of you who are new to my blog, my name is Sara. I am a CFA® charterholder and financial advisor marketing consultant. I have a newsletter in which I talk about financial advisor lead generation topics which is best described as “fun and irreverent.” 

Get ready for a rumble, folks! The link to the podcast is at the top of this page; but if you’d like a glimpse of what went down, enjoy the clip below:

CFP Board debate

0:00:02.2 Grillo: The CFP Board has specifically stated that it wants the CFP® mark to be a requirement for anyone who practices financial planning. What is your opinion?

0:00:16.4 JR: So I usually hog up all the time, so maybe I’ll let that the other guys to go first and I’ll try to… I’ll try to be under control today…

Wright: No, you’re fine. I guess it depends, we could go in order of the cubes depending on how we wanna Brady Bunch this thing, but I guess I’ll start… So yeah, I guess one of the things that I do disagree with, because I don’t think that the CFP Board should be seeking like governmental regulatory approval, I honestly think we should be our own thing, and we should be our own organization of ethics and competency testing, a fraternal Hippocratic organization, for lack of better words, we should be concerned with our own fraternity of beings, and then we should kick people out as necessary, and then use our marks to be kind of that gold standard for competency and ethics. I don’t believe that the government has the ability to do that because they really don’t have the incentive structure to do that, so that’s kind of… In my opinion, so that’s one of the places where I would disagree, where partnering with regulatory at agencies to be the de facto is kind of more just a cronyistic play that I wouldn’t agree with personally…

0:01:27.6 Salaske: Yeah, I don’t agree with the CFP Board becoming any type of regulator whatsoever over financial advisors, financial planners, whatever you wanna call us in the advice space. So I think the bottom line is they haven’t proven themselves, certainly recently, but over the years that they have the ability to do that in an impartial way, so that’s my short version of… No, I don’t think they should be involved.

JR: In answering that question, I would say that the standard response from the CFP Board in my reading their press releases, in their commentary over the years, is that they say that they don’t want to be a regulator either, that they’re often critical of the regulatory agencies themselves, and what they say instead is that all they’re asking for is for this for the CFP® mark to be a requirement for anyone who practices financial planning. Now, if you think about that for a minute, what that really means is if they require anyone who is a financial planner right now, that would be anyone who is… All financial planners right now have to be registered with the SEC, so if you made it that anyone who uses the term financial planner or holds himself out as a financial planner has to have the CFP® mark that gives a CFP everything they want…

It makes them the de-facto regulator, it would eliminate basically competition from all other competing designations, and it would mean that no one can practice financial planning without getting the CFP® mark; it makes them the de facto regulator, without having to deal with all the other issues involved in being a regulatory agency, it allows them to continue to do what they’ve been doing, which is to piggy-back on the SEC’s regulatory standards, so like every CFP right now who gives advice regarding securities has to provide SEC form ADV, is regulated by the SEC and FINRA, if they’re dual registered, so basically what the CFP’s end game is it is to be the de facto regulator, not the du jour and make that a requirement. It’s kind of sneaky, but that’s the way it’s always been, and it’s their stated objective is to make that a requirement for all financial planners.

Wright: Well, and to respond to that, if I may. I guess one of the places that I’d like to start with that clarification is that I believe that John’s right in that, very critical of the regulatory agencies and their ability to really regulate this space, but I would say that the probably the clarification or the misunderstanding may be around the trade mark itself, and so does the CFP Board wanna be the de facto regulator or do they want a clarification around the trademark themselves so that people who go around calling themselves financial planners don’t actually represent the Board or a Standards or ethical standards, or competency testing standards, and so therefore asking for clarification around that trademark itself and the use of that trademark or the ability for people to call themselves by X trademark. I think it’s kind of more… They’re leaning towards than trying to replace the SEC with their organization, and I think that’s probably a little bit more of a fair analysis of it, and I don’t wanna call it editorializing, but that saying, Okay, well, you’re in kind, but not like trying to replace the SEC, I think is a little bit unfair to what the… I think the CFP Board is trying to accomplish.

Salaske: I don’t know, I think that they’ve already watered the mark down, they don’t enforce a lot of stuff against the mark, in fact, they ran their ads or just recently, the beginning of this year, it looks like you were produced in 1970 and they’re calling really kind of the CFP confusion and it was “confident forever plan”, so there’s a lot of confusion already on their part, so I’m not sure that they’re trying to enforce the mark, even though that might be what they’re trying to do.

Wright: Yeah, well, I think what they’re trying to do is say, if you wanna call yourself a financial planner, very specifically, this niche where we provide comprehensive planning, we look at things holistically, and we’re not brokering products specifically as a designation of our role, that may be kind of a sub-site thing of our role, but it’s not the primary purpose of our role, and that if you wanna call yourself that you should have to go through our trade, our organizational process in order to be able to use that trademark and then describe yourself and I think part of that is trying to avoid confusion, which is… There’s tons of confusion when it comes to titles in our industry, what’s a financial advisor consultant, planner, et cetera, all those things are kind of used interchangeably and add to the confusion as far as confidence and ethical testing, so I think that’s the majority of what they’re trying to accomplish, and I think that’s a good thing to try and add some clarity to the consumer.

Salaske: I’d be nice, if they were on the show, we could ask them…

Wright: Well, yeah, and again, I don’t represent the CFP Board, I’m just a happy citizen of the CFP Board doing my best to present the arguments the best that I can, and I would… I also teach CFP courses as well for the College of Financial Planning, so I kind of get some of their educational material as time goes on, but as far as the leadership and the CFP Board I would probably be safe to say that that’s kind of a little bit more what they’re trying to accomplish, but your it… Hopefully, we’ll be able to ask them personal,

JR: I actually take it just a sort of opposite position, I guess that’s why we’re both on the panel, Robert, but I actually think it’s the CFP Board that’s actually guilty of fostering consumer confusion. The advertisements that they produce that says that anyone can call themselves a CFP. It’s baffling to me because actually, the only people who can really do… [unintelligible] anyone can say they’re a financial planner? And that’s actually not true, it’s actually the term financial planner is specifically regulated by the SEC, SEC interpretive release 1092, the applicability of the Advisors Act to financial planners clearly states that. The confusion is with the CFP.

The CFP Board allows insurance agents to use the mark and call themselves financial planners, but operate outside the regulatory reach of the SEC, and that’s a problem. Basically, there’s the CFP Board and lately, the Financial Planning Association, the FPA has made a big deal about wanting to regulate the term financial planner, they say anyone can call themselves a planner, they can’t… The only people who are actually getting away with it are the CFPs who are insurance agents who aren’t securities registered. That’s where the confusion is coming from. At the same time, I also think the CFP Board does a dissatisfaction [a] disservice to consumers by fostering regulatory confusion with ads like the one that CFP General Counsel, Leo Rydewski. I’m probably mis-pronouncing his name, but he has a video he produced that says, the CFP stands for a higher standard, the highest regulatory standard, and in it there’s a pyramid that puts the CFP Board at the top of the regulatory platform. It says in many cases, where a higher standard in the regulatory agencies. That’s confusing to the consumers, and it’s actually just not true, there is… We can go over that, but it’s just they’re the ones fostering consumer confusion, not the regulators themselves.

0:09:16.3 Salaske: Yeah, I agree with that, 100%. JR. I think a lot of their actions, the ads that they put out, the fact that they don’t, again, police their own their own mark, they don’t police their own members, there’s a lot of confusion that they just bring on themselves.

0:09:39.2 Grillo: Assuming we all agree that financial planning does not yet meet the standard for being considered a profession, what to believe is required in order for that to happen.

0:09:58.5 JR: I had an interesting discussion a couple of years ago with Martin Seay, who was the president of the FPA at that time, and he had read some of my commentaries and just wanted to have a civil debate which was great. And one of the things you said was, I see you’re… Obviously, you’re often critical about the CFP Board and about regulating the financial planning profession, what do you offer as an alternative solution, and because the current regulatory… I would agree, financial planning is not a profession, so how do you advance to a profession… What I suggested at the time was that instead of giving the CFP de facto or du jour monopolistic control over the industry, that we should do, that ideally, in a perfect world, we would carve out a separate regulatory agency, much like FINRA does for the brokerage industry from the… It serves under the SEC as created by the SEC, do the same thing with comprehensive financial planning. I do believe it should be different regulated differently from portfolio management, which is the typical definition of the registered investment advisor, but that it shouldn’t be the CFP Board that is controlling the regulatory environment for financial planners.

0:11:11.3 JR: It actually does deserve to be its own separate self-regulatory agency, not unlike what the CPA community has in the AICPA or the ABA for the Bar Association. I think if you wanna get it closer to a standard, it does need to be regulated separately, so that was my… People have been critical for me for saying you don’t have an alternative solution, I actually think that that is the appropriate solution, eventually breaking it off, just not giving CFP Board control over regulation.

Wright: I think that… Here’s the thing, and I will give credit to you, John, that I don’t think that you need a solution in order to be able to point out a problem, I think it’s disingenuous when people do that, so I won’t attempt to do that to you right now in my opening statement, the main thing was, is just trying to understand where you’re coming from. I think the CFP Board should be better. Okay, well, in what way? And how would you implement that? If that’s the argument, but if you’re saying the CFP Board has a problem, it’s x, y and z, you don’t necessarily have to have a solution in order to be able to present that as a problem, I think that’s disingenuous type of argumentation, but seeing that you do kind of have a solution.

0:12:16.9 S2: I do wanna take the chance to argue towards that solution, because if we look at the SEC’s efficacy. I don’t think it’s great. And so I don’t think creating a subset of the SEC to regulate specifically financial planning as a profession and would provide the solution that we all want, and in general, I think it would probably be worse and that you would probably have more bad actors. One of the things that I did, if we… Maybe we wanna address this later, but I did wanna ask you that… I think I asked you privately in a message, is that of the broker check disclosures that exist that did not match what the CFP Board is trying to… Sorry, the disclosures from broker check the SEC has on file that aren’t being reflected in what the CFP Board is reporting, are they still practitioning? Because if that is the case, they’re still practitioning then technically the SEC is also not doing the job that you would want the CFP to do, does that make sense to…

JR: That kind of question makes sense. I’ll send you, if I get your email address, I just have never gotten it to you, but I’ll send you the list that…

0:13:33.4 JR: literally hundreds of CFS who are still practicing who have many, many disclosure events. We definitely could, and I agree, when you look at a practicing CFP who has 15, 20 major disclosure events on their record and is not just little sub, just lots of inappropriate recommendations, but all kinds of bad stuff. And when you see that, they’re on the… It’s a fair question to say at some point, at what point does FINRA… And because these FINRA is actually regulating these are all dual-registered advisors, at what point does FINRA say, you know, enough is enough, you’ve got too many disclosures on your… Your record, you maybe need to find another profession, but at the same time, there are…I do research, not just on this topic, but on advisor ethics and regulation, the profession anyway, it’s tricky to do that because you’ll actually see some instances where like the worst one I saw in looking at Hawaiir disclosure events, there are advisors in Hawaii who have five disclosure marks on their record for settlements of hundreds of thousands of dollars, like… How are these people practicing, and then you look at it and dig a little bit deeper and you say, Oh, these were all related to option rate securities and the brokerage firms threw them under the  bus. Option rate securities were…

0:14:54.9 JR: The advisors were as much the victims as their clients were, and the brokerage firm would say they were all inappropriate behavior, so they’re all disclosures. So it’s very difficult to do that. It is kind of a case by case thing. But I would say when you see how many and just how awful some of these disclosures are for both CFPs and non-CFPs who are still practicing that… Yeah, there should be… It should be easier to get some of the people out of the business, at the same time, it’s hard to be critical of the SEC because the CFP Board isn’t even making an effort to find these people. Tom Sporkin once said there was so much effort in time, are involved in getting the name and doing the investigations that the CFP Board simply couldn’t do it all. I’m like, I got the list with a couple of thousand bucks and just from a screen scraping firm in two weeks, it’s not hard to find these people. So I said, my point is, I don’t think the CFP Board does anything in terms of enforcement, they made a big deal earlier this year in Tom Sporkin was spearheaded they announced they had investigated 40 bad apples and expelled 20 of them from the industry when you look at the list, half of those people had already left the industry, and it was just a show, it was, And I…

0:16:07.6 JR: P That’s when Sporkin said, we can’t go investigate. You want the list, Tom, I’ll give it to you? I have it, you wanted to see who the bad actors or… I can show it to you. It’s not hard to find. So I think it’s fair to be critical of the regulators for not doing more to get bad apples out of the profession, but I don’t think the CFP Board does anything.

Salaske: Right, and picking up on that JR, I think part of the issue too is with the CFP Board, they personally have a financial interest in doing nothing, but the other thing is, again, this is not scientific, certainly not to the level you’ve done research so far, but just this morning, I just went to broker check and I went to the CFP Board, and as a simple exercise, not scientific at all, I just went to find an advisor, national search, put in the name of a company of a top national wirehouse in there, looked at the first four that came up, by the way, there’s a different order that come up every time, there’s not the same for any search criteria, looked at the top four, half of the top four, 50% have major disclosure issues under broker check, one even had a disclosure issue of over a million dollars settlement that the broker dealer paid out on some commercial paper transaction, and it’s just one of these things where it’s like…

0:17:18.3 Salaske: The disclosure is all across the board, but then the consumer, they go to the CFP Board website, they look for a CFP, and then the first thing that come up as these terms and service, terms and conditions, and then if you actually read through these things… One of them says that we’re not gonna list any disciplinary or any disclosure information unless the person has been disciplined publicly by the CFP Board, so they can have all kinds of disclosures on broker check, but if nothing has been done by the CFP Board, their disclosure section of their profile is actually blank, and then if you go on further to read their terms and conditions as a consumer to use, Find an advisor, find a CFP, they talk about not all CPS are actually included in the list, you can actually opt out of being on the list… So there’s all kinds of problems with, I think with CFP Board in their conflicts of interest and disclosures. And what their real motivations are.

Wright: I will say I do have to disagree a little bit with Scott on that, I do think that you shouldn’t just blast an advisor’s name publicly without full investigation and disclosure, especially since trust is 99.9% of our business.

0:18:34.5 Wright: At the end of the day, one of the reasons that the CFP Board is so successful is because that’s what they’re doing, they’re trying to build that trust.

Salaske: Right, they’re not doing…

Wright: Whether they do it or not, but that’s a 100% in other…

Salaske: When they’re disciplining 40 people a year they’re not doing anything.

Wright: Well, I don’t know if that’s entirely true. So if an accusation comes up and you’re just saying, Oh well, X person has an accusation in…

Salaske: No, these are settlements there. They weren’t just accusations. There’s actually, there’s the accusation is…

Wright: You were talking about their process, you’re criticizing their process, You bring up an important point that at least you bring up an important controversial point that everyone receives… What’s the due process, right? So guilty or innocent until proven guilty, just because an accusation comes up doesn’t mean we should drive that advisor’s name through the mud, and so I do agree with that process, I think that that should be internal, you shouldn’t expose the advisor until there’s more information and not to one, that you’re not doing a good job at that process, that everything’s internal, it’s in a dark room and therefore nobody receives any punishment whatsoever.

0:19:48.6 Wright: I can understand that being the argument. But as far as the process, I do agree with that due process process where we’re just not gonna drag an advisor’s name to the mud without having better information that…

Salaske: I have no issue with that, but the issue that I have is what I just did again, unscientific, look at the first four names that come up on the list, and then 50% of those have disclosure items under broker check. I mean, how is the CFP Board even going through a process of due diligence, again, innocent till proving guilty in the sense when they have all kinds of disclosures, but at the same time, they’re publicly reprimanding 40 people, 80 people, whatever the number is, in a given year, out of the tens of thousands. What do they have, 90000 plus CFPs? It seems a little bit odd to me.

JR: Yeah, I would actually say that in terms of the due process, Robert, you don’t actually get a disclosure mark on your registration from being accused of anything. What I see, I always find it battle, the CFP Board says that they need to do to process themselves, the disclosure mark comes after it’s been concluded, so there’s a settlement or a finding and then it gets on your disclosure.

0:21:01.2 JR: Now, there are also, I can tell you, there are certainly we can debate or what should be… How expungement should work and what should be allowed to be a disclosure or not… There’s one in Hawaii, I felt horrible for this guy, he has a felony conviction, a felony on his record, for he was accused of and tried of stealing tires, and it turned out it was just misidentification, but the mark never went away. He had been arrested and he clearly had done absolutely nothing wrong, and it’s still on his record, but once you’ve been arrested for a felony, it shows up on your record, but… I don’t think it takes a great deal. I think it’s for the CFP Board to say, Okay, we don’t think that the FINRA findings are legitimate. We need to do our own … our own discovery. Really…it’s pretty. I’m not sure that they need to do that, do that.

Wright: Well, I would just argue that it is their mark and we are trying to be separate, and when I invoke we… Not that I represent the Board, so I’m sorry.

JR: They can force it any way they want, and there’s nothing that is their right as the…

0:22:23.2 Wright: What I will agree with you though, is you could use SEC disclosures as a baseline for investigation, if someone has disclosures, it’s worth looking into, and if the argument is, Well, we have kind of this baseline in which we could derive information from and then better have an investigatory process, I can’t argue that that would be incorrect to do… I think you’re absolutely right, when it comes to that, John. What I would say is that I do think it should be separate because the SEC is just not particularly good, or what they’re going to do is have situations like that where someone’s completely innocent, but they just got run through the justice system. They were found innocent through the justice system, but they still were arrested for a felony and that’s just not fair, and so we do wanna make sure that we try and find those circumstances where advisors were treated unfairly in the due process.

Salaske: Let me ask you a question as far as that, I mean, at the end of the day, who do you think the onus should be on… Should the onus be on the CFP Board to police its own mark when they can gather this information from FINRA, SEC state regulators, and then have people on staff that actually go through this and just make determinations based on their disciplinary guidelines of whether they’re gonna pursue anything or just wait for the public to contact the CFP Board and file some formal complaint…

0:23:39.5 Wright: Yes, So yes, is the quick answer, the more convoluted answer would be that we should control internally… We’re a fraternity of ethics and competency testing that should be different from the SEC.

Salaske: Right, now. You don’t know that right now, what they’re doing basically… We don’t know what their process is. All we can, at least from my perspective, look from the outside and say, 40-80 disciplinary public actions that are taken just seems artificially low given what’s actually disclosed on broker check for a lot of the folks that are holding the CFP® mark and actually still practicing in some capacity out there. So it leads you to believe how much internal enforcement is actually going on, even just reviewing records, even if nothing publicly is happening.

Wright: Yeah, I think it’s fair to look at the SEC disclosures and be like, Hey, maybe there should be more disciplinary action, I don’t think that that’s like an unfair analysis, what i would say though, as far as the process and defending the process, we should be external from the SEC as by virtue of what we stand for versus what they stand for…

0:24:50.0 Wright: As far as whether they’re accomplishing that goal, that investigatory goal or whether that number is too small, I think that’s a fair enough argument that… I don’t know what the answer is to that, whether that is too small or whether it’s just a reflection of the people who do usually get the mark, usually are more passionate than people who aren’t generally speaking, that’s not conclusive obviously, so I would probably say that disclosures among CFPs would probably generally be less than disclosures among just anyone who has their 65…

JR: That’s actually a great read ’cause that’s actually… Was one of the interesting things that we and other researchers actually have been trying to find out, and I would say… And that’s actually getting back to the problem I have with the CFP Board is we can argue both with the SEC and CFP Board aren’t very good at enforcement efforts to get bad actors out of the profession. What is different though, is the CFP Board, it says it’s a high standard and says that his people are… Are thoroughly vetted, and it basically tells the consumers you can trust us more than you can trust the regulators, and that’s fostering confusion, and I think that…

0:26:01.8 JR: That’s just not cool. That’s not good for consumers. And at the end of the day, this should all be about putting the consumers interest first.

Wright: I would say that, I don’t think that it’s entirely misleading for the CFP to say that I would say the SEC is not great, they don’t have a great track record of helping the consumer, and so the CFP trying to distinguish itself as a higher standard, I think I think is completely accurate. I mean, just to give you some examples that I gave in obviously part one, but in the 2008 financial crisis, one of the largest studies that was done… Not largest study, sorry, one of the largest investigations that was done, I think it was even a CNN that reported this during the 2008 financial crisis, they found hundreds of thousands of hours of pornography on SEC executives’ work computers. Right, and it’s not to say I’m not trying to clutch pearls or trying to be conservative, that porn is bad, but obviously during the worst financial crisis that existed in human history, and we’ve just got the SEC that’s really not interested.

0:27:11.2 Wright: And the reality is, is they’re just not incentivized to do so. The CFP Board, whether you’re saying they’re accomplishing their goal or not, they at least have an incentive to their standard, they have an incentive, they have to have that consumer trust otherwise that people just aren’t going to buy into the Mark and people aren’t gonna buy into that being a higher ethical standard, so there’s a greater incentive for the CFP Board to behave ethically and to prosecute those who aren’t behaving ethically, then there exists for the SEC…

JR: Actually, I would argue the opposite, that they have a disincentive to throw out bad apples because they pay the membership dues, you can pioneer consumers through spending millions, basically 10 million a year on advertising to convince the consumers… I would argue to have a disincentive to throw out their members on the other thing, I just remember the thought I was trying to make… they’re actually… We had actually sought in research to figure out who is more likely to have disclosure events, financial planners who are CFPs or non-CFPs, securities registered, either hybrid brokerage or whatever, and interestingly, you really can’t make that assessment, what you can say is that…

0:28:27.2 JR: And then part of it is there’s just all kinds of confusion about, there are all sorts of people who have securities licenses but are nothing to do with our profession, they might be working for a hedge fund or an investment banking firm where they’re required to get the licenses, and there’s lots of CPS who aren’t practicing who might be teaching… You can’t really tell the actual number of people to make an apples to apples and say, Okay, 12% of CFPs have… Have disclosures, well, 13% or 15% or non CFPs isn’t actually… You can’t put a number on it… You just can’t… What you can say, however, I’m doing research in detail and gathering disclosure data on thousands and thousands of CFPs, I’ve done it in Hawaii and participated in studies that look at Florida and broader studies, what you can say is that there’s lots on both sides of the fence. That being a CFP doesn’t necessarily make you any more ethical or any more less likely than a non-CFP, you… Whatever the number is, Which one has fewer more… It’s not clear on what we can say is that in general, CFPs who are dual registered, hybrid registered and also carry insurance licenses are more likely to have disclosures than pure non-CFPs,  like Andy Panko, who I think you interviewed is a great guy of a rising star in the financial planning industry, Sarah, guys, he’s purely…

0:29:43.9 JR: Truly RIA pure, no, he doesn’t have any other licenses, people like that are less likely to have disclosures than people who are hybrid between… Hybrid advisors who are CFP and non CFP, you can’t tell, but the issue I have with the CFP Board is don’t go telling the public that your guys are better ’cause there isn’t… There just isn’t any conclusive evidence, basically, people like me, multi-registered financial planners, compared to CFPs who are hybrid registered or I’ll have some likelihood of having exposure events, you just can’t say which one is better, to tell the public that that’s the opposite of that. The CFPs are more ethical, less likely, is a mistake.

Wright: Well, asserting that they are more ethical or asserting that it’s a higher ethical standard, I guess, is probably where the distinguishment needs to be made because you could… You can say, we require our members to hold a higher ethical standard that could be just factual, but saying whether they are is not factual because anybody can misuse anything. Right, and I think that in part one, you had mentioned that there was specifically an advisor who got the CFP designation in order to do bad

0:30:57.8 Wright: Right, and you can kind of make that a disparaging argument for the mark, but I mean in the context of other examples, like if somebody were to go out and buy a gun and did something bad with a gun, that doesn’t necessarily make the gun manufacturer liable, especially if they didn’t know that was the intended purchase or the intended reason, so holding the gun manufacturer liable for something that somebody did would be equally absurd as holding the CFP Board liable for something bad that something did. And now the argument, the best argument that you do have is, Hey, it’s not necessarily to this guy try to shadow his evil behavior behind the halo effect of the CFP, it’s that they’re not enforcing, they’re not going after the people who are using the halo effect and getting rid of those bad apples, and that’s a much better argument than saying, Hey, people are going to get this in order to have that halo effect and do bad things, because you really can’t police that without some sort of minority report type of technology, you can’t completely police that, and I wouldn’t even say that that’s the SEC’s responsibility, I wouldn’t argue that that’s a place where the SEC…

0:32:06.1 Wright: But I would say that the SEC is not good at taking those bad apples and getting rid of them, and           that 90% of the time, they really have no incentive to do, what they want to do is they want settlements, and so they don’t provide justice when they are a regulatory agency, so the regulatory agency that’s supposed to provide justice, and what they’re doing is they’re settling… And when they do settle, they make it extremely difficult for clients to then go present a civil case, the CFP Board, because it separates that themselves and they don’t have to settle, they can easily just disbar someone and say, Hey, you’re no longer a part of us. Then that client can go take a civil case, whereas the SEC, they settle, they give the cash, that civil case becomes nearly impossible for the client, so in terms of what is better… What is a better alternative? I still have to argue in that regard.

0:33:07.9 Grillo: This is a little bit veering away from what you’re talking about, but I think for it to be more of a profession, when people enter, they have to go a professional route, which would mean keeping those younger advisors out of those wire house and brokerage training programs, which I do feel is going to direct them into practicing in ways that makes them more likely to be involved with the conflict of interest.

0:33:43.5 Wright: Oh, I don’t necessarily disagree with that. I think that one of the challenging things is that sales kinda has a dirty dirty name to it, right? Oh, well, you’re not really a financial planner, you’re a financial salesperson. Now, granted, I don’t think that that’s true. I think that we do need sales people to sell things, I think sales is just the expression of value, the expression and the communication of value. Right, and so we do kind of need those sales people because we can’t really do everything, a financial planner can’t be the everything for everyone, they are going to have to broker some of those services, but I will say that it does kind of… It does add confusion. Right, so if you’re working for a wire house and that’s your place, you’re gonna think sales, sales, sales, sales sales. And when you finally go through the board’s education requirements and you start ethics, ethics, ethics ethics… You start to feel like, Oh, well, maybe I did kind of treat every client as if this product was its entire solution, when that’s not really how I should be looking at a financial planning, so I definitely don’t disagree that some of these wire houses do present serious problems, especially for people young coming in the industry.

0:35:01.6 Grillo: Or also that there’s no salary when people first start out, and I know that… And you are essentially buying into entrepreneurship, and so any time you do that, there’s a hustle component to it, and you don’t wanna take that away, but at the same time, there is a very long sales cycle for this type of service, so what it does is it effectively puts people in position where they are more likely to be desperate or feel desperate, and I think that’s a huge problem, so I kinda trace it back to how people get into the industry, I think that has to be changed in order for it to be more of a profession.

0:35:43.2 JR: Well, one of the things that Robert, you mentioned last week, and I totally agree with, is that a problem with financial planning being regulated as it is today by the SEC, is that there is no educational requirement to become a financial planner. The Series 65 is not a difficult exam or 66 is designed to familiarize you with the rules, with the rules of the Advisor’s Act, and the difference between the state and federal regulation, all that, but I absolutely have no argument whatsoever with the CFP prep program being valid. For someone to be… For allowing someone to use the term financial planner, where we disagree, I think is that… And I’ve had this disagreement with in other forums, with other people taking the CFP Board side, but is that that just shouldn’t be the only educational requirement, there should be multiple paths to people to financial planning, to the profession, that to be a real profession, there has to be real educational standards. And to do that, I have no problem with the CFP prep program being it, but I also think that there should be an allowance for anyone who actually has a real academic background, so a degree in Economics, a degree in financial degree in accounting, all of those things I think would be sufficient academic training for someone to enter the financial planning profession, if it is a true profession, but as it is right now, Robert’s, right.

0:37:15.1 JR: There is no educational standard for someone to become a financial planner, although there’s not any evidence to suggest that financial planners like me are any less trained or less academically qualified, that we have to disclose our academic backgrounds and designations in our ADVs. So it’s not clear that there’s a major problem there, but it’s a fact you can’t be a profession without some academic standard or some education center right now, there is now a one…

Salaske: The questions that kind of have… It goes back to the original part of  how do you make it a profession? And to me, it stems back to the whole thing of what is a financial planner, what is a financial advisor, all the acronyms that are thrown out there is only a couple of my wealth advisor, investment advisor, investment counselor, you can go with the list goes on and  one, and at the end of the day, if you’re gonna have an educational requirement, if you’re gonna have a regulatory requirement, whatever it’s gonna be, whoever is gonna regulate anything, has to really define what is a financial planner, what is a financial advisor…

0:38:17.1 Salaske: What is an investment advisor? So I think that’s a lot of the confusion because people out there that are calling themselves financial planners today, people that are calling themselves financial advisors, they’re doing the same stuff, they’re involved in managing accounts they’re involved in providing financial planning to people, financial guidance, financial advice. There’s advice only, there’s fee only, it’s very confusing for the consumer, and so we’re sitting here talking about how do you make it into a profession, which I think is a long ways to go, but to me, the bedrock areas, how do you even define these terms and should all these terms even be used, we refer to a doctor as a doctor, and then you can start getting into, is this a specialist? Is this a PCP doctor? And then you can start getting into other acronyms bit right now, it’s the wild west out there. And people call themselves whatever you want, you go to people’s websites, some have services listed, some don’t, the ones that do have enlisted, they compare, they kinda cross over, but they’re calling themselves different things, so it’s confusing to the public.

Wright: And to that, I would say part of that is just because our industry is relatively new compared to medicine, medicine, centuries years old, financial planning really…

0:39:26.1 Wright: You could say post-Great Depression, but even that’s kind of a little bit of a stretch. And as far as financial planning itself, separate from the brokerage industry or the insurance industry, it’s very new, so I think part of that will come with time.

Salaske: Part of it’s regular… you got the SEC, you’ve got state regulators, you get self-governing regulatory bodies like FINRA, and then the CFP Board that wants to basically be a de facto regulator without being a regulator at some point. So when you have all these different parties, how can you have any consistency… I mean, you could ask any client, any consumer, they’re not gonna know whether they should go to the SEC website, the state website, FINRA CFP to look up anything on their advisor, and a good thing is some of these kinda cross over, but then it takes you to other websites, and it’s very confusing to the general public.

Wright: Yeah, yeah, I don’t disagree with that as far as it becoming a profession over the long run, I would say some of that’s gonna come with time, and some of that is going to be… And some of that’s going to be having these conversations and debating the clarifications and the need for those clarifications on…

0:40:35.1 JR: There have been a couple of interesting forums that I’ve sat in on where they’ve just… There’s been a description or a framework for what actually makes a profession and to its credit or to its own agenda perhaps, but the CFP Board has sort of followed that modeling, creating itself, structured itself to be treated as a true profession, modeling itself primarily, I think off the legal industry, or legal profession, and there are certain components. So you need a standard of conduct and code of ethics, you need some mechanism for enforcement, and there about seven or eight different things that are required to be a profession. And so the CPR has tried to position itself to take that role, and there’s nothing wrong with that, that’s just that… So if you look at their structure, it is sort of the model, you’ve got executive leadership, there’s all kinds of things that you have to have… They have it… What is overlooked sometimes is that the SEC in terms of regulating investment advisors, including financial planners, has a similar structure, there is a code of conduct, there is ethics, there is enforcement there, they have those frameworks in place, but the problem is

0:41:49.3 JR: Financial planning is lumped together with portfolio management, I do think in terms of financial planning to get to a true profession, I won’t say that it’s impossible, but there is so much bureaucracy and regulatory hoops to jump through that maybe get to accomplish through lobbying which the CFP Board has tried to do a number of times, but I think it’s hard for it to get there. What makes financial planning different, just investment advisors in general, different from the legal impression from the medical profession, is that it has to be… There has to be a regulatory component because securities are involved, securities require regulation, you’re dealing with other people’s money and handling their money, that requires regulation that doesn’t exist for medical profession, for accounting profession, for a legal person, there isn’t actually a product per se involved ever. So that’s fundamentally different, and it makes it harder for us to become a profession that it is, I think for those self-governing bodies…

Wright: Well, I guess the only caveat to medicine is when you get into pharmaceuticals.

0:42:56.2 Grillo: Next question. Well, we’ve kind of covered this already. What is the CFP Board’s role and enforcement, and do you believe it is effective… What you think it could be in the future?

0:43:10.9 Wright: I guess I’ll start with that one. So as I’ve kind of stated a couple of times, a fraternity of ethics and competency testing, and really shouldn’t be involved in any of the type of governmental regulatory agencies like the SEC and shouldn’t attempt to be a de facto. I also believe that there should be competing agencies as well that attempt to take that place, because in addition to obviously market forces that will hopefully drive down prices, there will also exist competition for competency testing. Right, so just kind of to give two examples, if there’s the CFP Board and then the American college’s chartered financial consultant, if those are two competing designations, then there’s a lot more incentive for them to try and build trust and to try and not compete with each other… And that’s just better for the consumer and for advisors as well, because it’ll also bring down prices, you can’t charge $1000 a year to an advisor to have the CFP® mark, if the chartered financial consultant holds just as much weight and only cost $500 a year, so there’s kind of that, that I hope for in the future. Yeah, but their role and enforcement should just be letting people be a part of the CFP Board or not be a part of the CFP Board and taking them out, and that’s the only role, and I believe that we should hold.

0:44:30.2 JR: As my opinion is that the CFP Board is duplicitous in the way it portrays enforcement. On the one hand, the CFP Board says it really doesn’t have the time or the resources to go and investigate all of its 92000 members, and I say it’s actually not that hard if you use the disclosure stuff as a baseline, but from the SEC and FINRA, but at the same time, they’re spending $10 million a year on advertising, promoting their brand. If you’ve got $10 million to spend to promote your brand, don’t you have $10 million to protect consumer interests on the other side. I think in terms of enforcement it would make… I would have more of a willingness to accept the CFP Board role and more, I guess I would be less hostile towards them if they actually did make a concerted effort to weed out the bad apples, I… Like I said, it’s easy to find them, they’re out there, they’re active there, people having no blemishes on their CFP Verification website, but they have all kinds of major disclosure events and it’s not hard to sort them out, but there is zero impetus to do that. Like there’s a lot of show is made about investigating 40 people, half of them would already left the industry, and then you say, I don’t have the time to time resources to investigate the thousands of others.

0:45:59.5 JR: To me, they’ve always just been disingenuous about enforcement and critical about the agencies, but do nothing in terms of protecting consumers who… Their scope is only limited to their members, they don’t have to… The SEC can police everyone else too, but it’s not that hard to police your own membership, and that should be… If you wanna be a profession, you really should be able to have greater control over that and to protect the consumers from bad apples within your ranks, my view…

Salaske: Yeah, I think my view is very similar to jars, I think at the end of the day, we kind of already kind of touched on a lot of the same stuff, which is they don’t do a good job at enforcement… The data’s out there, it’s easy to get just kind echoing the same things that JR just mentioned, and I think that they can do a better job of doing it, and I don’t think they have the incentive to do it, and also I don’t think at the end of the day that the Board, in some respects are not even really kinda created for the members… It’s a non-profit, but at the same time, I mean, just look at how their Board is made up, the Board is selected by the Board, so they have a nominating committee, you submit an application if you wanna be on their board, but the members are not voting on the board of directors that’s governing the non-profit entity, so in some instances, is kind of operating on its own and it does what it wants to do, and the incentive is to grow the executive branch, we talked about compensation and things on the first part of this podcast.

0:47:32.8 Salaske: But at the end of the day, it comes down to incentives, and if the incentives are to grow membership, then the incentive is not to police membership, and I think that they got to decide what they wanna do as an organization going forward, and there’s just a lot of confusion with what they put out publicly, whether it’s from ad advertising and the $10 million budget JR mentioned and trying to promote their brand versus also trying to police the mark that they’re saying in another press release as JR mentioned, 40 people give or take that and half of which left the industry already, that’s not a huge accomplishment of policing your members, and that’s just the big overall problem, I think, is just the disclosure and the fact that, again, people can choose not even… To be listed on the website, there should be standards for all members have to do X, Y, and Z, not if they want to do it or not want to do it, and so on and so forth. So I think that there’s just a lot of problems with the board, and if it wants to operate the way I want to operate, that’s fine, but don’t hold yourselves out there to be the gold standard.

0:48:39.4 Wright: Alright, well, let’s say not to be the dead horse, but if they ever do have a beard requirement where you can’t have a beer and be on the CFP Board, I will be complaining with you all…

0:48:51.3 Grillo: Alright, so JR Do you wanna go over your slides, if I just share them…

0:48:59.3 JR: These are my notes for the last discussion, so I guess there were just things that were there, but the first one is The Wall Street Journal front page article from 2018, in which Jason Zweig and Andrea Fuller showed that there were more than 6000 CFPs who had disclosure events on their FINRA broker check records that were not reported to the CFP Board, and they were showing up as clean on the verification site. As a response to that, the CFP Board admitted that it was a mistake to require self-disclosure of the standards of disclosure events to the board, which is still a requirement, and that they were now going to put FINRA broker check and SEC IAPD on the CFP verification websites so the consumers could look for themselves… Now, I think very few people ever would actually go to the CFP Board, consumers wouldn’t even go to the CFP Board website to find that, but that was their solution to that, rather than weed out the bad apples, just make it so that consumers could find it on the CFP Board website, and look up their CFP on the CFP Board website, so that was that…

0:50:23.1 JR: That article was a big deal, obviously, the CFP Board reacted to that in a number of ways, to spend a lot of money and try to basically, I think to CFP Board’s credit they are the masters of spin, actually, I think they spunt it into… The messaging afterwards was, this is a wake-up call to us. Now, we’re very serious about enforcement and we are now where we said we would be, which is we are all about ethics all the time, and so it was… But that was that, but that was that article, that’s the cover page. Okay, so this is a list I have. They’re literally hundreds of… Just part of doing research for papers that we’re writing on not just CFP board issues, but on advisor misconduct in general, and this is just this particular list is just a snippet of people who are registered as… Have the CFP designation, and whether they have CFP disciplinary history or not, bankruptcy history or not, and the registration type, and this in the column, you see it says DR, that’s dual registered, these are all hybrid, hybrid CFPs, the old brokerage, and probably 70% of them hold insurance licenses as well.

0:51:37.9 JR: And you can see where it says CFP status, active, inactive in the next set, CFP discipline or no discipline, so like the first one up there there the guy’s name is that my second one would be Cynthia. Cynthia has… Let’s see how many disclosure events next to her name… The first… the first one’s Michael, I think… He’s got 28 disclosure events. He’s active, actively market himself as a CFP, has no discipline. He does have a bankruptcy filing but 28 disclosure events is out there, and you go down the list, so you can see people who have… There are CFP board has disciplined some of them, and some of them they have not, and they all have pretty… When you read through those disclosure histories, the ones who have 10 or more, most of those are pretty objectively speaking or subjectively speaking, most of those look like there are people that… I don’t think you would wanna have your money invested with them, but I said there are hundreds and hundreds of people on that list, and that was the CFP list, there’s also… We have a list of other people who are non-CFP, but it does…

0:52:53.0 JR: It raises awareness of two problems, one, Robert, what you said is that their enforcement needs to be better, it’s just… When you see that many disclosure events, you have to ask yourself, How is this person still out there handling people’s money in public and public… The second question would be, how is the CFP Board not looking at these people when they are out there too, so like I said, maybe there on this list, I’ve actually been through each of these people individually, like I said there are some people like the auction rate securities issue, there are lots of people who look like bad apples, but they really got thrown under the bus for something that really wasn’t there doing that, maybe that should be different. But all the people on this list, I’ve looked at the individual one, I think you would agree, Robert, that there are people out there that you just… You wouldn’t want your money to be invested with them, and I don’t disagree with you in that we can’t…

Wright: It’s not like we can’t use the SEC’s disclosure information that’s available to us in order to start our investigatory process, I don’t disagree with that at all, but I do believe that our investigatory process does need to be separate, distinct and different than what the SEC does as to avoid dragging an advisor’s name through the mud when they just don’t deserve it.

0:54:03.4 JR: Totally agree, but what do you say would you agree with Tom Sporkin’s comment that it is so exhaustive and time consuming to do the due diligence, I honestly… When you look at those disclosure histories, so you can say, Oh yeah, I think this guy might have got a bad break, maybe let’s investigate this further, or, Wow, this guy has had multiple settlements for hundreds of thousands of dollars for misrepresenting the sale of variable annuity contracts, maybe we shouldn’t have this person, and to me, it doesn’t look like you need a three-week investigation for every person on that list.

Grillo: It’s ridiculous.

Wright: I wouldn’t say that… I wouldn’t necessarily agree with that. I would say a good portion of the budget should be… Should be put towards this investigatory process. I wouldn’t disagree with that.

I’m not agreeing with who you spoke to that said… Who did you quote that said that

JR: Tom Sporkin

Wright: Yeah, I wouldn’t necessarily agree with Tom now without obviously further looks into the budget and things like that. Yeah, I think you could probably make a pretty good argument that, Hey, maybe we shouldn’t have spend so much on advertising and maybe we spend a little bit more on enforcement so that our credibility doesn’t go down.

0:55:12.8 Wright: I think that’s not necessarily what I would say… I think that’s more of a business argument that it would be a term of ethical argument, because on the other hand, I can have… I could be missing information and they have tons of money that’s allocated towards investigatory processes that I’m just not aware of, but I would just say from a business perspective, yeah, you should spend as much in the investigation process so that the marks… are credible.

0:55:42.8 Grillo: Hold on, do we know the average number of disclosures that financial advisors have…

0:55:49.0 JR: No, no, we don’t know the average number of disclosures, and I’m not even sure that’s a meaningful number.

Wright: The only reason it would be meaningful is that you could… You could, I guess, derive from that, okay, well, if the average advisor has eight disclosures, anyone less than eight is probably more ethical than anyone, more than eight, you can kind of do that, but then the problem is that disclosures are very subjective, right? Someone has eight disclosures, but every single disclosure is unwarranted while they end up in the average, and it really doesn’t make much of a significant difference.

JR: Actually, it’s funny you measure… ’cause this is part of the reason I’m involved in is research, is that I actually find it to be completely fascinating. So when you were talking about it just probably we’re talking about, should someone have a disclosure event, even if it was just a single infraction or for something, and I go back and forth on this issue myself is what should be disclosed and what shouldn’t be, but one of the advisors that I was looking at in Honolulu has five disclosure events, but no settlements, and they were all involving inappropriate sales of variable annuities over a span of four or five years now.

0:56:59.7 JR: If there was no settlement and if it was just the issue went away because they were aggressive in fighting back the client who had raised it, then he would never have anything on his record, but those five collectively actually where their smoke, there’s fire. The firm simply refused to settle with five different people who had complaints, but… Yeah, I’m glad those disclosures are still on there and then let you got others where you feel bad for the person because it looked like it was just some honest mistake or just… Or they got thrown in with a bunch of other people…But the disclosure, looking at disclosure research, it’s very difficult for… Well, I’ll put it this way, I’ve seen instances where totally ethical, in my opinion, totally ethical, totally legit advisors have marks have a single disclosure event from just bad luck being the wrong place at the wrong time, supervising somebody or something like that. And you feel badly for them. In other cases, the most common is one, disclosure bank, and really, in most cases, there are…

0:58:04.8 JR: I’m sure you guys all know them, there are people who I wouldn’t want, I wouldn’t trust with my money, who I do don’t necessarily think are ethical who have no marks in the record, it’s hard to get a complaint, it’s hard to get a complaint, that goes that far… It was by far and away the most common. Probably the average is closer to one or two disclosure events, not eight or 10, it’s just hard to get a lot of disclosure, but you have to do… You have piss off a lot of people and get a lot of people complaining about you to get to that point.

0:58:28.6 Grillo: Or if you’ve been in the business a long time.

0:58:30.4 JR: Yeah, and the longer you’ve been in the business, and there was actually a research paper that is a famous paper, but I disagree with the premise, it’s like, well, the longer you are in the business the more likely, the longer you’re around, the more people you interact with, if you’ve only been in the business for a year, of course, you’re not gonna have a disclosure events, you haven’t gotten far enough down the pipeline to have people complain about you yet, so… It’s not that there’s a correlation between time in the business and a number of disclosure events it’s causality… That’s just the nature of the beast. If you’re around long enough, you may have somebody who gets angry at you and…

0:59:04.6 Grillo: I mean, this is baffling to me that just that there’s a list with hundreds and hundreds of people on it, with 40, 50, 30, 20 disclosure events, I

0:59:12.4 JR: Those aren’t disclosure events, that’s a scoring system. All the way at the right of yellow column is number of disclosure events.

0:59:26.9 Grillo: But that’s still big numbers. Maybe I’m just naive, but I have a handful of clients where I’m the CMO and then I have a podcast, and every time someone comes on the podcast, I look at their ADV and I look at FINRA and the IAPD. Right, and I don’t see that that commonly.

0:59:49.3 JR: It’s not. Like I said, it’s hard to get a complaint, I know lots of people I work… I’ve worked with large wire house firms are lots and lots of people working, a lot of advisors, and there are a lot of people… I wouldn’t do business that way. And they have no disclosure. It’s just hard. It’s hard to get a disclosure event… But anyway, we get one from bad luck.

1:00:08.1 Grillo: Yeah, there’s one guy I know that used a fake ID in college, and got arrested for it.

1:00:17.7 Wright: A, one of the criticisms that I have, the Wall Street Journal article is one of the very first ones they report is a guy who used the customers log in at their request, it’s stupid. But at the same time, if that’s the very first example you have, I was kind of unimpressed with that being an example of advisor malconduct. Obviously, they listed more eventually, but that was kind of the first one in the article that they listed, and I was like, That can’t be your first example of advisor malconduct. So even though it’s stupid, even though it is bad, it is a form of fraud because you’re logging in on behalf of somebody in placing trades in their name. I’m not trying to downplay that, but it’s also not like Bernie Madoff is blushing in his jail cell right now.

JR: That definitely is one that should be on the disclosure even though.

Wright: Don’t disagree, I don’t disagree with you. I just don’t think it’s… I just don’t think it’s the smoking gun that the Wall Street Journal place that is…

JR: Could you go on to the next slide? I’ll show you that ’cause that’s

1:01:21.6 JR: I never had their data.

Wright: So this is the screenshot of someone who works at Royal Alliance Associates. It’s funny that you redacted their name, but they still have their CRD, so I could literally just go look ’em up

…

Yeah, and that they don’t have any disciplinary history, but they have 28 disclosures that actually is…

JR: Yeah, p I wrote an article in January of 2018, in Financial Planning Magazine, highlighting an advisor who had five disclosure events and was presenting himself as a big wig CFP said he had his own private jet and to a client of mine and I go and I went and the client asked me to check him out, he’s like, Okay, this guy has three settlements of over $100000 a termination for cause, and a bankruptcy in the last 12 months, and he was totally clean on the CFP verification site, so…

1:02:44.0 JR: Yeah, it was just an anecdotal, an item, and I’d run into that too, to three times over the last few years and other advisors, and so I got put in touch with Jason’ Zweig and Jason… This is before they did the story, and he said, So do you think this is a pervasive problem in the industry? I said, I don’t know about anecdotally, I’ve run into enough guys, I’d say there are probably hundreds of guys like this who are promoting themselves as ethical, are using the CFP designation to market themselves, but are clean on the verification site. He said Really… You think there are hundreds? I’m like, I don’t know, I have no idea, but it just… I run into it enough that I think that probably… That’s probably true. He said, Well, I don’t know that high, but we’re looking at a study… We’re gonna do it. He called me back in April and said, You were totally wrong. We’re not hundreds, there were thousands, and that was the nature, that’s how that story came up came about, and you’re right now, some of those 6000, there are people probably who… They’re minor. There are people on there who shouldn’t have a disclosure event and there is a problem, I think, and it’s being addressed, but expungement should be easier in cases like that, where the disclosure event really isn’t either their fault or is simply not serious enough to be on there, I certainly wouldn’t harm the consumer by not having it on there, in the case that you just mentioned though, if you’re logging on as a client and you’re using their passwords, that’s a big no, no, that should…

1:04:05.3 Wright: I didn’t say it wasn’t, just unimpressed with that being the very first exams… Understand, now granted, that’s kind of my criticism of the Wall Street Journal article itself, and the other thing that I would say is my other criticism is I don’t think they used enough of your material, they basically had your criticism, your picture, and that was it. And I was like, Oh man, he has so much more to say, This is ridiculous.

JR: I’ve published a dozen papers on this, Advisor Perspectives has published a bunch of them. I had nothing to do with the story. I never saw their data and I had to go out and get my own screen scraping data, they included me as one of the people that I interviewed for it, and obviously I was instrumental at the beginning and helping them develop the story.

Salaske: I think part of the other challenge too is, is even if you have the data and even if the CFP Board was inclined to actually use that data and go make folks go through their disciplinary process, if you look at their disciplinary process and also the disciplinary items that they actually look at it.

1:05:15.7 Salaske: There’s only a handful of items on that long, long document that you actually can be stripped of the mark, the rest is just, again, you’re gonna be suspended for periods of time and this and that and so on, so it all gets back to… Again, you can have tons of marks on there, they could go out and police it, but if you’re not gonna take the mark permanently away from people for very severe disclosure events, then what’s the use of doing it… These events could have happened five years ago, and if the punishment is we’re gonna not have you used the mark for a month or six months or a year. Okay, they’re beyond that already. Five years have already passed. So that’s part of the challenge too, is that even if they were inclined to enforce it how are they going to enforce it, I guess in a fair way, when things happen, maybe very much historical, they weren’t more recent events,.

JR; And that criticism implies the SEC too, you look at that list and some people are fine, and some people just gotta protect the consumer at some point, if you’ve got 12 unrelated disciplinary events, at some point in time, the consumer would benefit from that person no longer being in the business.

1:06:24.3 Salaske: I’m not arguing. I’m just saying like, the process and then go through the thing, you know, there’s no real punishment and even come down for a lot of these things.

JR: It’s hard to get thrown out, it’s hard to get thrown out of the CFP membership and it’s hard to get thrown out of the SEC or FINRA.

Wright: And I would say that the SEC, I would be more critical because the SEC is an organization of justice, they should be prosecuting people.

JR: They should be protecting consumers, I don’t…

Wright: Protecting consumers is kind of a given, but also if they’re significant fraud, there should be a prosecutor, a process because they.are an agency of the executive branch. So if you’re an agency of the Executive Branch, you need in prosecuting people and there needs to be time for some of these crimes, not all of them obviously, but… That’s your role. And they just don’t do that, right? They settle, I remember reading a study that they settled 80% to 90% of the time they settle, and then the problem with those settlements is that the client can’t go take it to a civil court and try to get their money back or try and sue for liability, it’s just…

1:07:37.7 JR: That’s not actually the SEC… That’s actually FINRA, there was obviously a debate over whether mandatory arbitration …

Wright: Arabitration is for FINRA, but anything that goes that escalates to the SEC… The study was with SEC and FINRA arbitration settlements. But again, the SEC… Now, technically, FINRA, the reason it exists is to push things through arbitration, so that small kind of less criminal cases supposedly have a quicker process, but

JR: I actually don’t think that’s quite right. Well, FINRA exists because it’s a self-regulatory organization it used to be the National Association of Security Dealers, but it’s now it’s policing the brokerage industry, and I think if correct me if I’m wrong but I think the reason why arbitration is mandatory is that you have fear of frivolous litigation, so when you have mandatory arbitration, in theory, it’s supposed to be fair for the consumer and for the and for the firm, but you don’t have all the legal costs and the issues that you would have for that, that’s why mandatory arbitration exists

1:08:50.8 JR: In a lot of industries, and there is obviously a lot going on as to whether that should still apply to our industry or not, but I think that’s what the arbitration…

Wright: That’s one of the significant issues now, not necessarily, that arbitration is bad, I think arbitration a lot of times can be superior obviously because of those types of litigatory processes. But no, at the end of the day, the SEC makes it really difficult for clients to be able to hold any advisor accountable for their wrong doing, so that’s a challenge

1:09:30.3 JR: I’m writing a paper, hopefully, I’ll get it done sometime this year, but I’m just looking at… This is data, I paid a couple of thousand dollars and got all the SEC FINRA data and as much of the CFP Board data as I could for people living in Oahu, Honolulu County which is a population of a million people. So the problem with the data is that it’s a small sample size, but what the paper is about, and this isn’t anything necessarily truly CFP-oriented, it’s fascinating to look at the demographics of financial advisor misconduct. And I’ve read a number of journal papers on the topic and everybody takes a big picture, everybody wants to say CFPs are less likely or more likely than non-CFPs, but it’s much more interesting to go dig down into the data at a granular level, which is a small sample size like this allows you to do… To drive future research. So like I said, this is where when I was going to the data, I saw all these advisors who are… They jumped off the screen as having major disclosure events in major settlements, and they were all auction securities related, it wasn’t what you would think it would be.

1:10:48.3 JR: Right, and then you see advisors who have misconduct, the guy with a felony, the felony arrest. That was nothing… And that’s on there too. So when you dig deep down, the message we were trying to say is, you can use studies like this to drive further research to see whether this problem is pervasive on a larger level, because a lot of… When you look at it, and we have enough people here. So in this case, we had the total population of Hawaii there was 195 disclosure events, 34 were CFPs, 161 were non-CFPs. 17% of CFPs, 18% had disclosure events versus 13.4% for the total population and 12% for the non CFP… That data is meaningless. That doesn’t mean that CFPs are more likely to have disclosure events, than non-CFPs, that’s not the point I’m making. But it is the sample size, so it might actually be the reverse, you don’t know the sample size is simply too small, but when you go through and look at each of the individuals on there, if you look at each of the 34 CFPs for disclosure events, you can see what the misconduct was in many cases, not surprisingly, you’ll see the misconduct is tied to the sale of insurance products.

1:12:09.4 JR: And that’s true for both CFP and non-CFP. So it helps drive further research, if you understand, by looking at small samples like this and looking at dual-registered versus single-registered, and when you see what were the causes of misconduct, you kinda get a sense for how you might wanna research that in the larger studies and how the larger studies sort of mask some of that misconduct sometimes, so I just… Like I say, I find the research fascinating, and that’s why I’m doing it, and this is an example of what I’m working on now is looking at. I have all of the individual data for everyone in this area I am where there’s a million people now you’re to do this in New York City, for example, you get totally different results because everything gets muddied up with hedge fund managers who are on there as registered. You can’t really isolate the population the way you can in a smaller study here by advocating for more small studies or small regions around the country like this, and then collectively getting the data, trying conclusions from that rather than looking at just the national data or just the data from a single state.

1:13:11.8 Wright: And that’s important work.

JR: Yeah, it is. It’s Nascent, there isn’t really much research going on in that space at all… Yeah, we covered that. I think this was like, this was the most site they are anymore, but that was actually very… Well, a very clever ad, but the messaging is what I objected to there, and then these are just

Wright: I know a planner who looks just like the guy on the left, he does wear Polo, but he has that. I think that is a little in bad taste.

JR: And these are just some of the examples of the CFP Board, public marketing, and the one that bothers me the most these days is , and the FPA is making a big deal about too, is it says anyone can call themselves a financial planner, it’s simply not true, and it is the CFP Board that is fostering that confusion by allowing insurance agents who are outside the reach of the CFP to market themselves as financial planners, that’s where the problem is, but the CFP Board actively goes and recruits those people to get the membership, so that’s saying that it’s a regulatory problem is actually, they’re the ones creating the problem, the CFP Board is.

1:14:34.8 JR: This is just notes on just the difference between material conflicts of interest, which is this and the standard of conduct for the CFP Board versus the SEC standard of which is material facts, just subtle changes that make the CFP Board standard of conduct, more watered down than the SEC, but we talked about in the last show, but that was the deck. These are, these are my notes from the first podcast that we did, so a…

1:15:15.2 Wright: Well, I have to run gentlemen, Sara.

Grillo: Thank you, Robert.

1:15:23.9 Grillo: Well, I think that… I mean, what has it been now…an hour…and this is a long podcast here, so… Gentlemen, was there something you wanted to say in conclusion before I wrap it up?

1:15:39.4 Salaske: I think we said a lot already, the bottom line is, is that now, again, the CFP Board can improve a lot of what they’re doing, but it seems to be in conflict with whatever their mission is today, which is to grow the population of membership and not do the policing and raise fees and do advertising, and again, it’s just… It’s growth for growth sake. And again, it’s not helping the average investor public…

JR: Yeah, I guess I echo that my whole motivation as a zealot in this space is simply to raise awareness of how the CFP Board actually functions, and I try to look at everything from the perspective of the consumer, it’s not a matter of what’s best for financial advisors it is what is best for the consumers, what is best for the investing public, and is the investing public being protected by the CFP Board or is their messaging harming consumers, so that’s… The forums like this are great for raising that awareness, getting that debate out there, getting public awareness out of it, obviously, I don’t have $10 million a year to spend on a PR campaign. So this is the next best thing.

1:18:26.4 Grillo: Alright, guys. So everybody, thanks for listening. And please subscribe, rate and review the show.

Sara’s upshot on the CFP Board and enforcement

What’d ya think of my blog and podcast debate on whether or not the CFP Board stinks? Was this helpful?

If you enjoyed this, check out part one of the CFP Designation debate.

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See you in the next one!

-Sara G

Sources

Certified Financial Planner Board of Standards, Inc. (2020). Return of organization exempt from income tax [Form 990]. Public Disclosure Copy. City: Washington, DC. www.cfp.net

CFP Board. Code of Ethics and Standards of Conduct. https://www.cfp.net/ethics/code-of-ethics-and-standards-of-conduct

CFP Board. (2022, August 1). CFP® Professional Demographics. https://www.cfp.net/knowledge/reports-and-statistics/professional-demographics

U.S. Securities and Exchange Commission. (2013, March). Staff of the Investment Adviser Regulation Office. Division of Investment Management. Regulation of Investment Advisers by the U.S. Securities and Exchange Commission. https://www.sec.gov/about/offices/oia/oia_investman/rplaze-042012.pdf

Zweig, Jason, and Fuller, Andrea. (2019, July 30). Wall Street Journal. https://www.wsj.com/articles/looking-for-a-financial-planner-the-go-to-website-often-omits-red-flags-11564428708

About Robert Wright, CFP®

Robert Wright, CFP® serves as a Financial Consultant with over 10 years of experience in the financial planning and services industry. Robert works directly with settlement planners and the families they work with to develop comprehensive financial plans.

Prior to joining Advocacy Wealth Management in 2022, Robert served in a variety of positions at Fidelity Investments and Morgan Stanley as a Financial Consultant.

Robert completed His Undergraduate Degree at The University of Utah in Economics and his Master of Science in Advanced Personal Financial Planning at Kansas State University. In addition to his formal Education Robert Wright holds his FINRA Series 7 and 66 licenses, is a CERTIFIED FINANCIAL PLANNER™ Professional and holds Georgia Resident Life and Health Insurance. Robert is also an Instructor of CFP® Coursework for the College of Financial Planning Online and on Campus at Kennesaw State University.

Robert is the father of three amazing children: Macie, Liam, and Charlotte; and husband to Priscila Moraes-Wright since 2012. He and his family love to play baseball, swim and play at the Georgia lakes and beaches.

About Scott Salaske

Scott Salaske is the founder and CEO of Firstmetric, a flat fee financial advisor firm in Troy, Michigan. Ever since the beginning of his 20+ year long career, Scott has pursued his mission of delivering high quality financial advice in a low cost and unbiased way.

Early on in his entrepreneurial journey, Scott saw firsthand the inherent flaws and conflicts of interest in the traditional sales and product driven approach, as several family members had lost a significant portion of their hard-earned life savings to high-cost, commission-based investment products and inappropriate advice.

It was at that point Scott thought there had to be a better way for investors to obtain unbiased advice and low-cost access to the financial markets. That lead him to start Quest Asset Management, with the novel idea of putting investor interests first as a fiduciary, which was practically unheard of at the time. The idea centered on the concepts of simplicity, keeping total investment costs and taxes extremely low and developing a custom investment plan for each client using low-cost asset class and index funds.

A few years later Scott merged Quest with another local investment advisory firm, Portfolio Solutions, that shared the same investment principles at that time. Several years after the combined merger, Scott went on to grow the combined firm from advising approximately $60 million in client investment assets under management to more than $1.4 billion. In early 2015, Scott sold his ownership interest in the firm. He started Firstmetric a few years later.

At Firstmetric, Scott continues his mission of delivering low cost, unbiased advice to clients. Along his journey he has been quoted in the following publications: The Wall Street Journal, Investor’s Business Daily, Kiplinger’s Retirement Report, TheStreet.com, Cheddar.TV, Crain’s Detroit Business and MarketWatch.com; among others.

About John “JR” Robinson

John (J.R.) holds a degree in Economics from Williams College and has been a financial advisor since 1989.  Research papers he has written on a broad range of financial planning topics have been published in numerous peer-reviewed academic and professional journals.  Papers he co-authored on retirement income sustainability won the 2008 and 2010 Certified Financial Planning Board of Standards and International Foundation for Retirement Education Best Paper awards, respectively. His co-authored paper, The Determinants of Nest Egg Sustainability, was a Finalist in the Journal of Financial Planning’s 2016 Academic Research Competition and appeared in the May 2017 issue of that journal. 

John is recognized as a thought leader for the financial planning industry, particularly on ethical and regulatory issues facing the profession. His commentary regularly appears in the nationally syndicated news media. In 2019, he helped develop a front-page story in the Wall Street Journal that exposed how the CFP Board of Standards was promoting more than 6,000 CFPs with major regulatory disclosure events (including criminal conduct) while running a multi-million dollar advertising campaign telling consumers that its CFP members are thoroughly vetted and more trustworthy than non-CFP SEC-registered financial planners. John has twice been included on Investopedia’s list of the top 100 most influential financial advisors in the U.S.

He is also a co-founder of Nest Egg Guru, a maker of affordable, client-facing software for financial advisor websites.  Nest Egg Guru’s flagship app suite is designed to help engage and educate clients by stress-testing their retirement savings and spending strategies.  Nest Egg Guru has also rolled out a unique password management app and a separate secure file-sharing app that financial advisors may offer as a free service to their clients to build loyalty and strengthen relationships. Both of these apps are available for use by Financial Planning Hawaii clients as well.

Most importantly, John holds dear the loyal, lasting relationships he develops with clients.  He adamantly believes that the clients’ interests must come first and is constantly seeking new ways to add value to the families he serves.

Disclosures

Transcript may deviate from what was originally said in discussion.

Grillo Investment Management, LLC does not guarantee any specific level of performance, the success of any strategy that Grillo Investment Management, LLC may use or mention in any of its content, or the success of any program it may mention in any of its content. Grillo Investment Management, LLC will strive to maintain current information however it may become out of date. Grillo Investment Management, LLC is under no obligation to advise users of subsequent changes to statements or information contained herein. This information is general in nature; for specific advice applicable to your current situation please contact a consultant or advisor. I want to be clear that nothing in this podcast or blog can be interpreted as an investment recommendation of any type. The opinions expressed herein do not necessarily represent the views of Sara Grillo or Grillo Investment Management, LLC. Also, nothing in this podcast or blog can be interpreted as legal or compliance advice. For advise on such matters, contact a legal or compliance advisor. Any similarities to persons deceased or alive are entirely coincidental.