Executive Summary
One of the most common complaints within the industry about the state of financial planning is that it is marred by so many practitioners who say they are financial advisors, but do not really do financial planning... or worse, do it badly, wrong, or outright deceitfully. Yet although so many planners state that they have come across such "bad" practitioners, virtually none state that they have ever reported a bad practitioner, either to regulatory authorities, or to the CFP Board if the individual holds the CFP marks but doesn't do financial planning "right." Yet how will the financial planning industry be cleaned up of its inappropriate practitioners if we do not take a part in it? So there's the question: what is - or should be - the responsibility of financial planners to report the wrong-doing of other people who hold themselves out to be financial planners?
The inspiration for today's blog comes from a story in Financial Advisor magazine about the recent "No Action" letter issued from the SEC to the CFP Board that will allow SEC-registered advisors to provide client information to the CFP Board as a part of any CFP Board investigation of wrongdoing (or viewed another way, financial planners cannot refuse to provide the necessary information for an investigation to the CFP Board by claiming that the SEC requires they to maintain confidentiality of client information). The event appears to be a small but notable victory for the CFP Board as it seeks to further step up enforcement of its Standards of Professional Conduct to ensure those who hold the marks are practicing properly.
Yet in the end, the CFP Board can still only take enforcement action against those CFP certificants for whom a client complaint has been submitted, a regulatory action (e.g., from the SEC or FINRA) has occurred, and/or someone else reported something so that there is a reason to begin an investigation. Which means ultimately, enforcement can only be effective if alleged improprieties are reported in the first place; otherwise, the CFP Board and/or other regulators don't know who to investigate.
Of course, the "really bad" stuff does eventually show up on the screens of the regulators, and the CFP Board does watch out for SEC and FINRA complaints against CFP certificants. But most planners would agree that there's plenty of things that can be done "wrong" as a CFP practitioner, even if they're not against FINRA regulations (including the fact that a recommendation may be legally suitable under FINRA guidance but not meet the CFP Board's more fiduciary-centric code).
But unfortunately, the ones who perhaps know most about what is and isn't appropriate - other financial planners - seem to be the group most reluctant to actually report wrong-doing. Does reporting other "bad" planners cross some line of professionalism that we don't want to cross - even though most would probably say a "bad" planner doesn't deserve the professional treatment anyway? Is this just a distant application of the rule many grow up with, "don't be a tattletale?" Why do we have such a blocking point about taking proactive steps to clean up our own industry? After all, we'd just be reporting someone to be investigated for alleged wrong-doing; it's still up to the CFP Board (or other regulators) to actually determine that there were improprieties and than sanctions are merited, so it's not as though the practitioner is expected to be the judge and jury of the event. But someone still has to take the first step to start the process. Otherwise it's just another conversation that goes something like this:
"I wish there weren't so many bad financial planners out there who don't really do financial planning and just confuse the public."
"Yeah, that's really a problem that needs to change. Have you ever reported one of them for failing to properly apply the financial planning process with their clients, even though they're a CFP certificant?"
"No, I wouldn't do that."
"Then why would you expect anything to change?"
So what do you think? Have you ever reported another practitioner to be investigated for potential wrong-doing? Would you ever consider doing so? Do financial planners have a responsibility to be proactive in this area to help clean up their own industry? Or are the existing channels for catching improprieties - basically, customer clients that filter up to the CFP Board or a regulatory agency - sufficient to advance the cause?
Great question! If you work for a company with a compliance department, you should bounce this question off them.
What does “really bad” mean? I imagine that it may be a poor practice or unethical, but not illegal or contrary to CFP standards. Please note, I’m not familiar with those standards.
Fantastic topic Michael!
I am a journalist. So I come to this with a different perspective than those in the financial planning field.
My guess is that most in the field would be very reluctant to turn in others in the field. It will make you enemies. It is far more likely to hurt you financially than to help you financially.
I would be highly reluctant to turn someone in to a government agency. There are too many gray areas in the law. I would have to see faked documents (as with Madoff) to do something like that. But I find fault with people’s analytical techniques all the time. To me it is second nature. It’s what journalists do: We try to hold people in positions of great power accountable.
People go nuts when I do this. They say: “No one questions Bogle.” Or “No one questions Bernstein.” Or whatever it happens to be.
Huh? If no one questions them, how are they ever going to learn what they have gotten wrong? Do we not want to help them out? Do they not want us to help them out?
I want people to help me out by pointing out my mistakes, so I make an effort to return the favor when I can. But I know from brutal experience that this is not the norm in this field. I have been surprised and amazed and astounded and taken aback to learn this. This is something that very, very, very much needs to change, in my assessment.
Rob
What I would describe as bad planners are the one’s who charge a very large fee and do little work that really helps the client.
Mostly this is camouflaged by lots of printouts and slick marketing pieces.
It involves drawing the clients attention to factoids that don’t matter and ignoring things that really do matter.
This is the really bad stuff that is impossible to report.
Doctors don’t turn each other in. Lawyers don’t turn each other in. Most professions seek to protect their members. In truth, all of us are going to make mistakes, overlook some aspect that we “should have known”. We cannot all be the best in the world. We CAN all be the best available to a person at a point in time. Define “bad”. When should we be good little Nazis and when should we try to protect our own? Many would argue that using something other than index funds is “bad”, that this type or that type of life insurance is “bad”, that incurring capital gains is “bad”. If I miss some point of tax law that say a CPA wouldn’t have, does that make me a “bad” planner? Should I be turned in for malpractice – after all, I cost my client money. Yet, What amazes me is that “Investment Professionals” (a.k.a index annuity salesmen) on the radio regularly mislead the public to their vast detriment (“bad”), and yet they seem to do so with impunity. Isn’t this more harmful to the public at large?
Great question and comments.
No one – *no one* – should ever be utterly beyond question, unimpeachable. We have seen hideous things happen in other walks of life where people in certain positions have been effectively beyond question.
There’s a sense we all have – which probably improves with experience and maturity – of when something is questionable / a slip and when something is egregiously out of line. That’s not easy to define; it’s an important distinction in order to decide to whistle-blow; it can’t be so momentous that no one will ever do it, though.
VG reminds us that some are apparently free to say what they like on TV etc, they may appear in the eyes of the public to give advice but they speak without some clear appropriate warnings. There shouldn’t be one rule for one and a different rule for another.
Lots of reasons:
1) From the angle of planner reviewing outside planners work, you don’t have all the facts / info that planner did. Maybe that planner is only an investment manager, and you have a more wholistic view. If it’s an outside opinion I think the best recommendation is to refer client to atty to deal with. I’ve seen a few bad things, but the client didn’t want to pursue.
2) Now, planner on the inside of the firm… who do you think is the bad planner? Most often if there is one bad seed or many it starts with the most successful. The boss. The boss doesn’t let bad seeds exist if they aren’t there too.
To that I say – Good luck friend. You can be blocked from ever getting a job again based on what your immoral boss puts on your record.
Do you realize that firms will or won’t place language on an individuals U5 b/c of slander. Whether or not anything happened, doesn’t matter. Regulation is a joke when all it is is a way to blackball good people from the industry.