Did A Mere Technicality Force The Resignation Of CFP Board Chair Alan Goldfarb And Two Disciplinary And Ethics Commission Members?

Friday, November 09, 2012 14:22
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Did A Mere Technicality Force The Resignation Of CFP Board Chair Alan Goldfarb And Two Disciplinary And Ethics Commission Members?

Tags: CFP Board

Chairman of the Board of Directors of CFP Board of Standards Inc., Alan Goldfarb, CFP, abruptly resigned last week. Two members of CFP Board’s most important committee, the Disciplinary and Ethics Commission (DEC) also stepped down.

 
Few details about Goldfarb’s alleged wrongdoing are public. Nothing about the allegations against the two former DEC members is public. CFP Board says it would be against its rules to say anything more than what’s already been disclosed.
 
What we do know is that three respected CFP practitioners — volunteers in the effort to advance the profession — were suddenly suspected of violating the very rules they were supposed to be enforcing.
 
Goldfarb Resignation Letter
A brief Halloween Eve resignation letter released publicly by the CFP Board on behalf of Goldfarb tells us an awful lot.
 
“Several days ago it was brought to my attention that I may not be in compliance with provisions of the Standards for Professional Conduct of the Certified Financial Planner Board of Standards,” Goldfarb says in the resignation letter.  “I am certain that this was a misunderstanding, and I welcome the opportunity to engage in good faith the CFP Board’s enforcement process consistent with its Disciplinary Rules and Procedures.”
 
In isolation, Goldfarb’s resignation is likely to leave you wondering what he might have done that was so wrong that it forced his resignation. What terrible offense is he suspected of having committed? My guess is Goldfarb didn’t do anything all that bad.
 

 
 
CFP Board said as much. Kevin Keller, CEO of CFP Board, who has declined my repeated requests for an interview for weeks, said in a statement issued last week that Goldfarb is not suspected of breaking any laws, just CFP Board Standards of Professional Conduct.  
 
My guess is that Goldfarb and the two DEC members are victims of the fiduciary debate, which is starting to look like a witch hunt.
 
Goldfarb is likely guilty of a technical violation of a CFP Board rule. He may have overstepped a new bright line being drawn about how dually registered advisors must disclose their compensation.
 
Why am I saying this?
 
First, to assume Goldfarb committed anything more than a technical infraction ignores Goldfarb’s history of serving the profession, the nine years he served on lower committees before ascending to the Board of Directors and being elected CFP Board chair. Moreover, it ignores the two other high-ranking CFP Board volunteers forced to resign along with Goldfarb.   
 
Three Resignations
As first reported here, the CFP Board’s website now shows that there are just seven members of the DEC, while a previous version of its site listed nine members. If you assume that the two missing members are the ones who resigned with Goldfarb, then the two DEC members who resigned are Christina Florence, CFP®, of Lane Florence LLC, in Folsom, CA. and Mary McFadden Hastings, CFP®, of Wells Fargo Advisors, Waltham, MA.
 
If Goldfarb alone had resigned, then it would be easy to jump to the conclusion that he may indeed have violated an important CFP Board rule.
 
However, with two members of the ethics committee resigning at the same time as Goldfarb, it is likely that they were all found to be violating some technicality.
 
Which has to make you wonder: What is going on at CFP Board?
 
CFP Board Ethics Crisis
Three practitioners who were fit to be appointed to their prestigious posts, and who presumably were vetted by their peers, were suddenly compelled to resign.
 
According to Goldfarb’s resignation letter to CFP Board’s board of directors, the issue that led him to step down was a “misunderstanding,” and Goldfarb  in an email he sent to Financial Planning and Investment News, Goldfarb said with confidence that he would be cleared.
 
“I can’t discuss much since the process is confidential,” he said in the email to the two magazines, “but I can say that the alleged violation concerns representing my compensation as ‘salary,’ which it is, as opposed to ‘fee and commission,’ since I am also the principal of an M&A-based broker-dealer."
 
CFP Board policy is not to comment on disciplinary matters under investigation. But CFP Board CEO Kevin Keller made a special exception and released a statement publicly correcting the way Goldfarb characterized the allegations against him to the two magazines.
 
“Alan Goldfarb's description of the alleged violation that is being referred for further proceedings under our Disciplinary Rules and Procedures is not correct,” Keller said in a statement released to the press. “The committee found sufficient merit in the allegations against Mr. Goldfarb and the two members of the DEC to refer them for further proceedings under CFP Board's disciplinary rules and procedures. When presented with the committee's findings, they decided to resign from their positions.”
 
Witch Hunt?
Goldfarb and the two DEC members are not the first leaders of the profession to resign over what is probably a technicality. Ron Rhoades, who was set to take the helm at NAPFA, stepped down after realizing that his firm had not registered in a state where it was required. While Rhoades would probably not have been sanctioned by regulators, he did not want his mistake to one day be used against NAPFA.
 
Since NAPFA and Rhoades are strong proponents of enforcing a fiduciary standard on financial advisors, Rhoades feared his mistake might somehow be used by opponents of the fiduciary standard to embarrass the movement.
 
Now, it is likely that three more leaders of the profession have been brought down because of relatively minor allegations. In this instance, since Goldfarb and the two DEC members are all affiliated with broker/dealers, my guess is that they somehow did not properly disclose their mode of compensation to CFP Board or in publicly filed documents. If that is indeed the case, it is sad.
 

CFP Board Crisis

The fiduciary debate is causing a schism among CFPs that it is bringing down leaders who are being judged based on ethical standards that are rapidly changing. We don’t know how the allegations of wrongdoing by these three individuals were brought to light. Neither Goldfarb nor the two members returned requests asking them for comment, and  CFP Board has declined my repeated requests in recent weeks for an interview with CEO Keller. It’s a shame.
 
It’s a shame that Keller declined my requests for an interview after I wrote a story exposing CFP Board’s rules saying CFPs are not fiduciaries when providing advice on a single subject and followed up with another post saying that’s CFP Board’s suggested disclosures by RIAs are misleading to consumers.
 
Even if Keller cannot discuss the Goldfarb and DEC-member resignations, he can address whatever issues in general may have led to their resignations. He can answer questions about whether CFP Board disclosures are misleading to consumers. He can explain why CFP Board has rules saying a CFP can be a fiduciary in one engagement and then not act as a fiduciary in another engagement.
 
Instead, the controversy swirls, and CFPs and bloggers like me are left to speculate about what is going on CFP Board, while the consumer financial press looks on and wonders about the crisis afflicting CFP Board’s leadership and its credibility with consumers.

 

Some questions:
 
  • Can anyone meet the ethical standards imposed on leaders of the profession?
  • Are the rules shifting so fast that even the people who wrote the standards of conduct to protect consumers from errant CFPs cannot keep up?
  • Can the profession afford to be so politically correct?
  • Is the fiduciary debate exacting too high a price?
  • Why can't the two sides in the debate -- fee-only and commissioned-based planners -- talk to each and work out their differences in a way that will benefit consumers in the long run? 

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