Alan Goldfarb was compelled to resign as CFP Board chairman on November 2. He reportedly came under investigation for misrepresenting his compensation on the FPA’s “find a planner” website. Below are screen shots of the Web page that are to have brought him down.
By “compelled,” incidentally, I am not saying he was forced by CFP Board to resign but that he likely chose to resign to spare himself and CFP Board further embarrassment.
Goldfarb has maintained that he did nothing wrong and that his resignation was the result of “a misunderstanding” over how he had disclosed his compensation. In an interview with Financial Advisor magazine, a spokesman for Goldfarb’s firm said Goldfarb’s resignation followed a review of the listing of Goldfarb’s services on FPA’s find a planner website.
As shown in the screen shots below, Goldfarb reported that he was compensated by salary rather than fees and commissions. He and his firm are affiliated with a BD and an RIA.
Here below is a larger shot of the "salary" disclosure by Goldfarb on the FPA's "find a planner site."
Did that misdeed merit an investigation that would compel him to resign?
Ron Rhoades, in a guest post yesterday, says, “yes,” Goldfarb did the right thing by resigning.
“The resignation was justified, in the current environment,” says Rhoades. “The issue presented to the leader who resigns is not whether the violation – if it occurred at all – was major or minor. Rather, the issue presented is whether the organization and its advocacy positions may be jeopardized by the leader not resigning.”
Rhoades, a leader in the movement to hold all financial advisors to a single fiduciary standard based on the Investment Advisers Act of 1940, speaks from personal experience. He was elected chairman of the National Association of Personal Financial Advisors but resigned just before his term was about to begin after learning that his RIA had inadvertently had failed to register in a state where it was required to do so.
When Rhoades stepped down, A4A wrote about how unfortunate it was. For a technical infraction that resulted in no public regulatory sanction to derail Rhoades from playing a leading role in the profession and cause him public embarrassment losing his chairmanship of NAPFA seemed like too high a price to pay.
Rhoades believed that NAPFA’s advocacy positions on important issues — such as the fiduciary standard — could have been damaged if he had not resigned. Having a leader guilty of an infraction – even a minor one — made resigning the post the right thing to do, he argues.
Now we have another leader of the profession who has been compelled to resign, CFP board chairman Goldfarb.
Goldfarb’s alleged wrongdoing is arguably more troubling than Rhoades’ issue. Rhoades, in failing to register his RIA in a state where it was required, was guilty of an act of omission, an oversight. Goldfarb’s spokesperson says he what he did wrong was incorrectly describe his compensation, which you might argue is a more deliberate act.
Misrepresenting your compensation on a consumer website is obviously not something you want from the chair of CFP Board. But is it plausible that someone as respected as Goldfarb, who has volunteered so much of his time to advance the profession and help create the CFP Board Standards of Conduct, would purposely misrepresent his compensation on the FPA find a planner website?
Did Goldfarb purposefully lie in his listing to try to get a few more leads from that FPA website? I doubt it. Goldfarb, by all accounts from those who came to know him during the last decade that he became active in CFP Board governance, is a good man with good intentions.
Assuming that the only thing Goldfarb did wrong was fill in an answer about his compensation that arguably is inaccurate, then he should not have been investigated and compelled to resign. If we continue to judge leaders so harshly, who will be left to lead?
Our greatest heroes, history teaches us, are fallible, imperfect, and exercise poor judgment at some time in their lives. The widening scandal ensnaring General David Patraeus and other military leaders today is further reminder that none of us is perfect, always ethical, and always makes the right decisions — as much as we might strive for these lofty goals.
With the fiduciary issue causing a schism among CFPs and dividing the financial advice business from the financial advice profession, both sides on the debate must realize that neither of them has cornered the market on morality. We must stop judging each other so harshly.
Is the commission model more likely to seduce bad conduct? Yes. But the fee-only model, as we have seen over the last few years from the string of scandals enveloping RIAs with no broker-dealer affiliation, is not perfect either.
Rather than digging in their heels and claiming the higher moral ground, leaders of the fiduciary movement should think about compromise and alowing the ultimate solution unfold in an evolutionary process rather than a revolutionary one. Likewise, the leaders of the broker-dealers and pro-commission advisors should concede the flaws in their model and seek a mode of compensation that supports serving consumers in a more ethical manner.