Learning From the CFP Board’s Latest Sanctions

While not a regulator, the Certified Financial Planner Board of Standards still keeps a close eye on its members’ conduct, and it has recently ordered sanctions against nearly two dozen advisory professionals for a variety of ethical failures.

The Certified Financial Planner (CFP) Board of Standards has published a list of its latest public sanctions, with 22 current or former CFP professionals or candidates for CFP certification facing discipline.

Public sanctions taken by the CFP Board, in order of increasing severity, are public censures, suspensions, temporary bars, permanent bars and revocations of the right to use the CFP marks. In many cases, the public sanctions are the result of “historical investigations” the board opened following background checks conducted on all CFP professionals. These checks are meant to detect potential misconduct that previously had not been reported to the CFP Board.

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Examples of relevant misconduct include regulatory actions, firm terminations, customer complaints, arbitrations and civil court litigation that involve professional conduct, criminal matters, bankruptcies, civil judgments and tax liens.

By way of background, as part of their certification, CFP professionals make a commitment to abide by the CFP Board’s Code of Ethics and Standards of Conduct. In turn, the CFP Board enforces its ethical standards by investigating alleged violations and, where there is probable cause to believe there are grounds for sanction, presenting a complaint containing the alleged violations to the CFP Board’s Disciplinary and Ethics Commission. The commission reviews all matters on a case-by-case basis, considering the details specific to an individual case, and, if it determines there are grounds for action, then it may impose a sanction.

While important in their own right, the details of the individual sanctions the CFP Board issues can also help other advisers avoid similar pitfalls in the future.

Tax Issues

In one case, the Disciplinary and Ethics Commission imposed a sanction after determining that an advisory professional did not timely file his federal taxes between 2013 and 2018, resulting in the IRS filing tax liens totaling $172,000, with accrued interest and penalties.

According to the CFP Board, although the adviser defaulted on a prior installment agreement with the IRS, he entered into a new installment agreement in 2019 and is currently is in compliance with it. Following its review of the matter, the Disciplinary and Ethics Commission determined that the professional’s conduct violated Rule 6.5 of the CFP Board’s Rules of Conduct, which provides that a certificate holder “shall not engage in conduct which reflects adversely on his integrity or fitness as a certificant, upon the CFP marks, or upon the profession.”

Accordingly, the Disciplinary and Ethics Commission determined to issue the professional a public censure.

Beneficiary Form Problem

In another case resulting in a public censure, a financial professional entered into a consent order after agreeing to findings that he failed to exercise reasonable and prudent professional judgment when providing professional services to a client when he, at the instructions of a client, allowed the client to sign an account form on which the beneficiary designation was blank.

The consent order states that the financial professional later filled in the beneficiary information as instructed by his client and presented it to his firm where it was notarized without witnessing the client’s signature. The consent order also states that, to correct this error, the financial professional improperly filled out a new beneficiary form, and upon confirming the beneficiary with the client, had the client sign the document when the client was in the hospital. The financial professional did so without anyone from his firm or a notary present.

The CFP Board determined these actions violated Rules 4.4, 5.1 and 6.5 of the Rules of Conduct, based upon the professional’s failure to follow his employer’s policy of properly filling out and notarizing required documentation, which ultimately contributed to protracted interfamily litigation after the client died. 

Improper Christmas Movie Investment Advice

Actions undertaken by another financial professional resulted in an outright suspension of his right to use the CFP certification marks for one year and one day. As recounted by the CFP Board, the financial professional in this instance put his interests ahead of his client when, while serving as an investment adviser to a child support trust, he introduced the trust to an investment in a “Christian Christmas movie” wherein he had personal financial interests in the movie himself as an investor and as executive producer.

This was a direct violation of the fiduciary duty described in his firm’s Form ADV. The professional also failed to disclose his personal financial interests in the movie and failed to fully disclose the conflict of interest between his role as investment adviser to the trust and his role as executive producer and as an investor prior to the trust’s investment. Further, the CFP Board said, given that the investment objective for the trust was income, the professional’s recommendation that the trust sell income-oriented investments and use cash to fund a highly speculative, risky and illiquid investment that could not provide income in early years was not suitable and reflects adversely on his integrity or fitness as a certificate holder—as well as upon the CFP marks and the profession.

The Disciplinary and Ethics Commission determined that the professionals’ conduct violated Rules 1.4, 2.1, 2.2B, 4.5, and 6.5 of the Rules of Conduct. 

Parcels of Gems

Another financial professional earned himself a temporary bar after offering or selling unregistered securities in the form of gemstones-investment “parcel” contracts, which he sold to at least four California residents. According to the CFP Board, he did so while making untrue statements of material facts, including that investors would receive a minimum of 30% profit in addition to their principal investment within 12 months of the sale of the jewelry parcels. The financial professional also inappropriately billed the investment as “low risk” and represented that investors could sell their jewelry parcels “at any time for fast liquidation.”

The Disciplinary and Ethics Commission determined that the professional’s conduct was not in compliance with applicable regulatory requirements governing professional services provided to clients, in violation of Rule 4.3 of the Rules of Conduct. Accordingly, the commission issued a temporary bar of four years, effective from October 4, 2021, until October 4, 2025.

Permanent Bar

Another professional received a permanent bar based on her failure to file an answer to the CFP Board’s complaint within the required time frame. In this instance, the CFP Board’s complaint alleged that the professional permitted an individual, who had been barred by the Financial Industry Regulatory Authority (FINRA) and statutorily disqualified under the Securities and Exchange Act of 1934, to conduct a securities business through a member firm.

The CFP Board’s complaint alleged that, in an attempt to facilitate the business of the statutorily disqualified and barred individual, the professional falsified new account forms, suitability forms, subscription agreements, investment disclosure forms and other account documents to conceal the fact that the statutorily disqualified and barred individual was meeting with customers, making recommendations, providing investment advice and otherwise acting as an associated person in a registered capacity. In addition, the CFP Board’s Complaint alleged the professional failed to inform customers that the individual was statutorily disqualified and barred; approved accounts the individual opened and transactions he recommended; and attempted to dissuade customers from cooperating with FINRA’s investigation.

Following an investigation of the matter, the professional failed to file an answer to the complaint to CFP Board within 30 calendar days of the date of service, as required by Article 3.2 of the Procedural Rules. In accordance with Article 4.2 of the Procedural Rules, based on the CFP Board’s determination of the seriousness, scope and harmfulness of the professional’s conduct, it issued an administrative order of permanent bar, effective as of February 4, 2021.

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