If you’re watching the world of finance closely, you’re probably already aware of the recent stern measures taken by the Certified Financial Planner Board of Standards (CFP Board). This non-profit organization is tasked with enforcing the ethical and professional standards for financial planning – and they mean serious business. Let me break down what’s been happening, shedding light on the sectors’ realities, and explaining why this should matter to you as an investor.
The Severity of Allegations
This year, the CFP Board has handed down a series of grave sanctions against several financial planners with CFP certifications. Their actions range from public reprimands to the outright revocation of the right to hold CFP certification marks. Here’s what you need to know:
- Revocation: This is where the board completely takes away a professional’s authority to use the CFP certification marks. A revoked individual can no longer stand as a Certified Financial Planner, it’s typically for significant violations of its Code of Ethics and Conduct.
- Permanent Bar: This action further stops an individual from ever applying for or receiving the CFP certification in the future. Generally applied in grave or repetitive misconduct incident, it’s a lifetime ban on the certification process.
These kind of strict measures are necessary to ensure the credibility and trustworthiness of the financial planning profession. Their goal is to ensure that individuals entrusted with your life savings are held to the highest ethical standards.
Take for example, Andrew C. Grezlak, a Pennsylvania-based financial planner. After seeming lack of co-operation with inquiries from the Financial Industry Regulatory Authority (FINRA), he was given a permanent bar from associating with any FINRA member firm.
In addition, the CFP Board also permanently removed his certification. As someone with substantial knowledge of securities law regulations, I can tell you that these actions are neither light nor ordinary. It underlines the magnitude of Grezlak’s misconduct and shows the CFP Board’s deep commitment to ethical standards in financial planning.
In another case, Elaine M. Zito, who was previously affiliated to Newbridge Securities, was permanently barred from obtaining the CFP certification after being negligent and breaching her fiduciary duty by recommending risky investments.
Backing Tracks: Financial Advisors and Broker Dealers
Zito has reportedly faced seven customer disputes at the time of her barring. From my years of experience in the industry, a track record of customer disputes is generally a red flag for investors. This one fact can help you steer clear of indiscriminate financial planning advice.
When it comes to brokerage firms, there are broader responsibilities at stake. Broker-dealers have an obligation to properly supervise their employees and devise systems to prevent misconduct. Failure to do so can lead to the firm being held liable for investment losses resulting from employee wrongdoings. Every investor should keep this fact in mind. As Charles Schwab once said, “The investor of today does not profit from yesterday’s growth.”
Understanding FINRA Rules
FINRA is an agency that oversees the conduct of 629,112 brokers across the US. Their objective is to protect investors and maintain the integrity of the markets. If your broker has contravened securities laws, such as making unsuitable investments on your behalf, you may be eligible to file a FINRA claim against their brokerage firm. Be wary, though, these arbitration proceedings can be quite intricate, and are best navigated with professional guidance.
Consequences and Lessons Learned
The sanctions by the CFP Board unequivocally demonstrate that violation of ethical and professional standards can have severe consequences for financial planners. However, there are valuable lessons here for investors too.
The most crucial takeaway is — always do your research. Consider the track record of your potential advisors, their affiliations, and any past complaints or actions against them. You can verify such facts using the advisor’s FINRA CRM number provided by FINRA’s BrokerCheck service.
In closing, be mindful that the “education” you receive outside the classroom often teaches you the most. Investor education is no different. Due diligence, fact-checking, and staying informed are your best defenses against poor financial advice.
