Executive Summary
This week, the controversial case between Jeff and Kim Camarda and the CFP Board came to a conclusion, with the judge granting the CFP Board’s motion for summary judgment to throw out the case altogether.
Yet within the CFP Board’s victory, numerous questions remain. The judge’s ruling itself has been sealed for 14 days, giving the CFP Board (and the Camardas) an opportunity to make the case for why it should remain private indefinitely… which means we may ultimately never know on what basis the CFP Board was declared victorious. Did the judge decide that the CFP Board really administered its disciplinary process appropriately, or ironically was the decision actually that the CFP Board isn’t accountable in a court of law at all… a win for the organization, but a frightening precedent for us as CFP certificants.
In any event, though, the conclusion to the lawsuit means that the CFP Board’s high-stakes gamble was avoided. And an end to the lawsuit – at least if it’s not appealed – finally gives the CFP Board an opportunity to update its still-problematic fee-only, commission-only, and overly expansive commission-and-fee compensation disclosure definitions… and hopefully in a manner that more constructively engages CFP stakeholders (unlike the CFP Board’s recent action to reduce the CFP experience requirement, which was implemented without any opportunity for public comment!).
Judge Grants CFP Board’s Motion For Summary Judgment
On Monday, U.S. District Judge Richard Leon granted the CFP Board’s long-standing motion for summary judgment. Judge Leon agreed with the CFP Board’s assertion that the ongoing lawsuit filed by Jeff and Kim Camarda was legally deficient its charges, bringing an end to the ordeal that has been in the courts for over 2 years and is estimated to have racked up more than $600,000 in legal fees for the organization.
Notably, though, the details of the Camarda case have been shrouded in secrecy for much of the past two years, as the CFP Board has repeatedly sought to keep much of the case details confidential. And now the details of the Judge’s opinion in the ruling have been sealed for 14 days, as both the CFP Board (and the Camardas) have the opportunity to show cause as to why the opinion should (or should not) remain partially or fully in secret indefinitely.
What The Favorable Ruling For The CFP Board Does And Does Not Mean
It’s important to recognize that while Judge Leon ruled favorably for the CFP Board on the issue of whether the Camarda’s legal claims were deficient, the conclusion to the case still does not necessarily speak to the legitimacy of the CFP Board’s compensation definitions or its disciplinary process.
After all, the reality is that whether the Camardas actually were appropriately using the “fee-only” definition or not was never really at issue in the legal matter. As was noted on this blog last year, the Camardas’ actual substantive legal complaint was that the CFP Board did not honor its own rules and guidelines for investigating and prosecuting the disciplinary matter, and that the organization did not provide due process and use fair procedures when making its decision. In other words, it’s wasn’t about whether the Camardas were fee-only or not, but whether the CFP Board enforced the rules against them in an appropriate manner.
Which means regardless of whether the Camardas were “right” or “wrong” in their use of fee-only, or the appropriateness of the fee-only definition itself, the lawsuit itself would never directly render judgment on that issue. At the most, the outcome simply would have spoken to whether the CFP Board executed its disciplinary process appropriately.
And strictly speaking, one of the key issues of the Camarda case was whether or to what extent the CFP Board is even obligated to fully follow due process and apply fair procedures to its CFP certificants, given that it is ultimately a private organization overseeing the use of its own trademarked designation. So while it’s possible that the CFP Board was victorious because Judge Leon’s view was that the CFP Board clearly executed its process appropriately, it’s also entirely possible that the only reason the CFP Board was victorious in its motion for summary judgment was because Judge Leon agreed that as a private organization, the CFP Board is not actually accountable to being “fair” and giving due process in its disciplinary proceedings in the first place!
A Good Or Bad Legal Precedent For The CFP Board In Judge Leon’s Decision?
Until Judge Leon’s ruling in the matter is released to the public, we won’t entirely know whether the judge’s decision was actually to uphold the CFP Board’s process, or to rule that the CFP Board simply wasn’t accountable for what may or may not have been mistakes in its process, or perhaps just to rule that the Camarda’s didn’t have legal standing to sue the CFP Board over the issue. Or for all we know, the decision drew on some other issue entirely.
In point of fact, if Judge Leon really did uphold the CFP Board’s disciplinary process, ostensibly the CFP Board itself would want that ruling to become public, as it becomes a legal precedent the CFP Board can cite the next time a certificant challenges the organization’s disciplinary process and execution.
On the other hand, if Judge Leon’s decision was actually that the CFP Board was victorious because it’s not actually legally accountable in court for its disciplinary process in the first place, the “win” may be a dangerous one for us as CFP stakeholders – as it would imply that CFP certificants have no legal recourse in disputes with the CFP Board and that the organization has limited accountability in a court of law!
Ultimately, while many of the case details may never come to light, hopefully Judge Leon’s ruling itself at least will become public in 14 days, if only so we know what precedent really has been set by the case.
Moving Forward On Fee-Only Definitions From Here?
Regardless of the details of Judge Leon’s ruling and whether it’s made public, though, the fact remains that the CFP Board’s compensation disclosure definitions – or at least, the CFP Board’s odd “3-bucket” interpretation of those rules – have continued to be problematic for several years now, leading to one embarrassment after the other for the organization. And at this point, the CFP Board’s definition of commission-and-fee in particular is so overly broad as to be almost meaningless to consumers.
Understandably, the CFP Board was reluctant to modify any of its disciplinary rules during a lawsuit, but hopefully the fact that the Camarda case has been dismissed (unless the Camardas appeal the decision, which remains a possibility) means that the CFP Board can finally revisit and update the rules. In point of fact, given that the last-and-current change to the rules was implemented all the way back in 2008, we’re arguably “due” anyway, as our emerging profession has evolved significantly since then.
Notably, though, updating the compensation definitions this time around may be more challenges. The recent controversies around the Camarda case (and more recently problems like CNBC’s highly questionable “Top Fee-Only Advisors” list) have made fee-only compensation disclosures a far more polarizing issue than it ever was the last time around… which means the rulemaking process may be “messier” than it was in the past.
I suspect that some will even raise the question of whether the CFP Board should be involved in overseeing advisor compensation disclosure in the first place, or “just” focus on overseeing the educational integrity of the CFP marks. Though personally, I actually hope that the CFP Board does stay involved in disciplining advisors, for inaccurate compensation disclosures and other infractions as well. But with a more relevant and robust set of compensation definitions that doesn’t include the egregious flaws of the current fee-only definition!
Hopefully, though, if and when the CFP Board begins a process to update its compensation definitions, it will do so in a manner that engages CFP stakeholders, unlike the recent decision to reduce the CFP Experience requirement that was done without any public comment period for stakeholders to engage in the process. If the CFP Board wants to regain some of the legitimacy it has lost in the eyes of CFP certificants, and not continue to act like an organization that lacks accountability, it’s time to re-engage us as stakeholders.
The CFP Board Gambled, Lost, And Won
Ultimately, the CFP Board is undoubtedly happy with its victory in the Camarda lawsuit, as the outcome could have been far worse. In fact, some – including yours truly – raised the question last year of whether the CFP Board was gambling too much in even taking the risk of losing on any counts of the lawsuit, which would have been a severe blow to its credibility and its ability to influence legislation and regulation for our emerging profession.
Fortunately, then, the CFP Board was victorious in its continued gamble, though notably not without a number of ‘casualties’ along the way. Estimates last year were that the CFP Board had already racked up over $600,000 in legal fees on the case, and that was before depositions and expert witness testimony that occurred last fall. It’s not hard to imagine that the CFP Board’s lawsuit ended out with well over $1,000,000 of legal fees (though much of the legal costs may have ultimately fallen to the CFP Board’s own insurance coverage and not the organization’s cash reserves). Regardless of the financial cost, though, along the way the CFP Board also lost its Director of Investigations Rex Staples, and its Managing Director of Professional Standards and Legal Michael Shaw departed too. And of course, the CFP Board paid a significant toll in lost focus as an organization, lost momentum on its regulatory and advocacy efforts, and damaged trust with CFP stakeholders.
Still, the bottom line is that while the stakes were high, and the CFP Board could have had a catastrophic moment of hubris for the organization, the terrible moment thankfully didn’t occur. Still, the problematic compensation disclosure definitions remain, and trust between the CFP Board and its stakeholders was severely damaged along the way. So the question now is what the CFP Board’s next step will be, and whether the organization is ready to begin updating its rules, re-engaging its CFP stakeholders with a public comment and engagement process, and begin rebuilding its relationship with CFP certificants. And what will the CFP Board be able to accomplish in the coming years now that this massive "distraction" for the organization is finally coming to a conclusion?
So what do you think? Are you glad the Camarda lawsuit is over? Do you think Judge Leon's opinion should be allowed to remain sealed or turned open to the public? Where should the CFP Board go from here?
If the court ruled that the CFP Board sa a private organization is immune from suit for “due process” that will very likely be appealed — as it is a straight (and difficult and controversial) legal question that deserves an answer. That might even have a tiny chance of making it to the Supreme Court. If summary judgment was granted on the substantive gounds that the Board has wide latitude in its procedures and that no reasonable jury could say that it was acting unreasonably, that is a more difficult appeal.
Steve,
I’m really not sure there’s any way for us to know what the court’s ruling was… beyond hoping that it’s fully unsealed and we all get to see it in another week and a half. I hope…
– Michael
I took the court’s order as a pretty strong implication that he wants it published.
Just read the court’s memorandum opinion. Had the DEC’s Order (footnote 4) been previously made public?
Nice analysis, Michael. We will see if the Certified Financial Planner Board will address the messy issue of clearly defining what fee-only is and isn’t, get out of defining the merits of compensation and focus on enforcing and broadening the issue fiduciary duty (maybe more messy for them than defining compensation), or pass on doing anything substantive and maintain the status quo of confusion.
Rick, CFP Board shouldn’t be defining fee-only in the first place… They were instrumental in ensuring that fee only was deemed a generic term in the first place… I’m convinced that this was part of a dirty back room deal to eventually do what they are doing now, it makes total sense… As we like to say in German “Es gilt die Unschuldsvermutung”, but nothing else makes sense based on the time line as I know it.
Great summary, Michael! It seems to me the root of the current problem goes back many decades to the CFP Board’s failure to establish clear procedures for proposing and adopting rules affecting certificants and candidates. I could cite numerous controversies where the Board took the CFP community by surprise in unveiling new initiatives or rule proposals, including CFP ‘Lite’ and a contract-oriented fiduciary standard as well as the compensation definitions. Some of these concepts had merit but provoked controversy by coming out of nowhere and ultimately crashed.
Federal agencies are generally required to follow statutory requirements (Administrative Procedure Act) in proposing and adopting changes to regulation. They sometimes go further, like the SEC, in publishing ‘concept releases’ that provide the public with advance notice of an area of interest and soliciting general comment before proposing a specific rule. As a private sector regulator overseeing registered marks, I don’t think the CFP Board needs to create its own APA, but adopting written procedures for any material changes to competency and ethical requirements would engender tremendous goodwill over time and help minimize some of the PR problems the Board has suffered over the years.
Duane,
Indeed. It’s worth noting that for at least some of these situations – including the current compensation definitions – there WAS a public comment/engagement process. But even then, the subsequent interpretation of those rules seems to have deviated from the original concept of the drafters (and the plain English definitions of the words in a dictionary!).
And sadly, it’s worth noting that even where the CFP Board HAS engaged in a “Public Comment” process, those comments are not actually available to the public. I have repeatedly asked for Public Comment details from prior CFP Board actions, and despite the fact that they’re supposed to be “public”, not a single one has been provided or otherwise made publicly available on the CFP Board’s website. :/
– Michael
Michael, there was a lengthy task force on disclosure process as well but we all knew it was smoke and mirrors… I certainly did, I was part of it and saw my arguments simply ignored over and over on this issue of fees and disclosure… Their policy of not disclosing anything they did was so bad I used to post everything I suggested or wrote about on my website just to get the message out there… There was a much more information and disclosure on my website than there ever was on CFP Board’s websites back then..
Duane, I’d be interest to know exactly which initiatives CFP Board tried to introduce back in the 90’s “had merit” for you… I can’t remember a single one that had merit. I personally know that CFP Certificants never knew the half of the hidden agenda and initiatives that CFP Board had in mind… Including, among other things, CFP Board “Gold Seal Stamp of Approval” software for the poor and middle class designed to replace us CFP Certificants with plan in a can robo advice… Working against the best interests of their own stakeholders they wanted to have software developed to do exactly that… Ask Harold Evensky, he signed the letter sent out to software manufacturers of that time… Copies of that 2 page letter were faxed to me as evidence during the lite scandal just in case I needed them. I also remember Harold was selling the fist module “Insurance Planning” right off his website back then as well.. You can find evidence of this by using organizations that historically archive websites for a living, it’s all available for those wanting to do the research… That was a real doozy too but these were just two of the initiatives…
The trademark filings including the “Accredited Firm” filings were designed to do what CFP Board is doing now illegally in my opinion, namely, force firms into agreements and then enforce their fee-only definition on firms not just Certificants. After losing the fight back then with me and others, they dropped that initiative as well, but after changing the rules to stop us from voting for the Board of Directors and making the Board smaller to ensure their dominance, the inbreds just changed their rules to try and include non-certificant “affiliates” into their rules… It’s complete crap and totally illegal IMHO but as we’ll soon discover, CFP Board can do what the hell they like with Certificant money because they are not subject to judicial oversight… The problem is you see, if you don’t like it you can leave is what the court will likely opine… at the same time the courts are opining the marks are famous and distinctive they are also saying they’re worthless… Stupid is as stupid does and anyone who gives this Board money is.. well you get the picture…
So, which initiatives did you “like” Duane?
I personally lobbied and fought all their initiatives including the major problem facing everyone now, namely, the oligarchic approach to governance that allows their incestuous and inbred approach to governance and prohibits stakeholders from voting for the Board of Directors. Part and parcel of the hidden initiatives that were introduced around the merger of ICFP and IAFP, which I also vehemently opposed… Of course, that merger worked like a lead balloon and nothing was gained, but much was lost as the FPA became the lapdog mouthpiece for CFP Board, instead of representing planner opinions to the Board. We see that from the total loss of membership since 2000.
It’s laughable that this organization can fool so many ostensibly intelligent people into signing their terms and conditions of renewal, which are asinine at the very least…
If there’s a requirement that should be dropped, it should be the requirement to have a college degree, NOT the experience requirement. My ancient degree in Russian adds to my CFP capabilities in exactly zero ways. My experience working in and with and under and among other financial planners has given me a wealth of useful experience and a fabulous information network.
I feel that way too. However, I have heard that an undergraduate degree is a requirement for the holding of a license to be considered a “profession.” Dentists, lawyers, physicians, etc. must have an underlying Bachelor’s degree. My dentist’s degree is in Art. It’s really not relevant to her work, but it does check the box of a requirement to be considered to be in a profession. An underlying Bachelor’s degree may be a requirement necessary for financial planners holding the CFP mark to be considered to be in a profession, vs. financial product salespeople, who would not be considered to be in a profession. Holding an underlying Bachelor’s degree, having specialized education, holding of a license, and being subject to discipline by the profession’s organization are some of the features of what I understand to be requirements to be a profession.
They didn’t have this requirement until about 2007. I don’t know if it strengthened the designation or not. Traditionally, when “professions” made these sorts of arbitrary requirements, they were a means to shut out the “wrong” sorts- the old problem of how to exclude people who qualified as officers but didn’t qualify as gentlemen. These days, when college degrees aren’t solely the provenance of the upper middle class, it doesn’t even do that (thank God.)
Michae and Duane:
i could not agree more, The mere number of comments here is evidence of the board’s continuing to be mired in controversy. I am amongst those who believe the board has no business defining what “fee only” means–after all, it is just a marketing term used by fee only fanatics. Leave it to them to define. Fair disclosure to individual clients (one at a time) is the only issue that falls within the board’s purview.
LFATopGun,
It’s one thing to say “fair disclosure” is the only issue.
But the issue here is that there are advisors stating as their upfront disclosure “I am fee only and accept no commissions” and then subsequently disclosing (or not) that they do in fact receive commissions.
That is contradictory disclosure, and I actually do think it’s fair territory for the CFP Board to enforce. For the exact reason that you note, disclosure falls within the CFP Board’s purview, which means misleading or contradictory disclosures does as well, unfortunately. :/
– Michael
I agree. But it is hard for me to believe anyone is really doing that–apparently, it only happens on the board’s own website. (I have not run across it elsewhere.)
Ray
Ray,
9 of the top 10 firms on CNBC’s “Top 100 Fee-Only Advisors” list actually fall into this category – labeled as fee-only, but actually receive (insurance) commissions as a part of their financial planning services. See https://www.kitces.com/blog/9-out-of-top-10-cnbc-fee-only-advisory-firms-not-actually-fee-only-according-to-cfp-board-compensation-disclosure-rules/
Granted, those firms were labeled by CNBC – they didn’t volunteer themselves that way – but with a 90% error rate from a top media publication, you can be certain the problem is more widespread.
In point of fact, if you look over the CFP Board’s recent disciplinary actions, there have been 1-3 advisors disciplined for this almost every quarterly announcement for the past year. And none of them – including Camarda, Goldfarb, and others – were ever disciplined for what was on the CFP Board’s website. It was all about the disclosures on the advisors’ OWN websites and marketing materials.
– Michael
If the case is appealed, won’t the judge’s opinions and legal findings become public? If the Camardas have come this far and are of the mind that they are in for a penny and in for a pound, we might find out what is within the sealed order.