- The CFP Board of Standards was recently featured in The Wall Street Journal for not disclosing the disciplinary history of financial advisors featured on its LetsMakeAPlan.org site.
- Profiles of more than 6,300 financial advisors featured on the CFP Board’s site showed no sign of problems — even though those advisors disclosed consumer complaints and more to the Financial Industry Regulatory Authority, the WSJ found.
- Hiring an advisor? Perform your own due diligence first.
The CFP Board of Standards, the group overseeing the Certified Financial Planner credential, will overhaul its practices, making it easier for investors to spot financial advisors with a questionable past.
In a Tuesday afternoon phone call, the group announced it would establish an independent task force to review its enforcement practices.
Denise Voigt Crawford, a securities consultant and former Texas Securities Commissioner, will chair this task force and come up with recommendations for the Board.
The change comes a day after The Wall Street Journal reported that the Board was not disclosing the disciplinary history of CFP practitioners on its consumer-facing website LetsMakeAPlan.org.
The site is a directory that prospective clients use to find CFP professionals in their area.
In its analysis, the Journal found that more than 6,300 financial advisors had no mention of their disciplinary track record on the website — even though those advisors disclosed their problems to the Financial Industry Regulatory Authority, a self-regulatory organization.
In all, the Journal studied more than 72,000 profiles on LetsMakeAPlan.org.
"We are already moving forward with a variety of measures that strengthen the enforcement program so that all Americans can have the confidence and security from working with a CFP professional," said Kevin Keller, CEO of the CFP Board, on the phone call.
Users of the website are now able to pull up the certification status of a financial advisor, his or her disciplinary history with the board and whether he's had a bankruptcy disclosure in the last 10 years.
However, to find out whether your advisor has faced customer complaints, criminal charges or regulatory enforcement, you'd have to check him out on FINRA's BrokerCheck site or on the Securities and Exchange Commission's Investment Advisor Public Disclosure Site.
While new candidates for the certification are subject to detailed background checks, including review of any disclosed disciplinary issues, the organization has relied on CFP practitioners to disclose their own disciplinary actions and other problems.
Now, the Board says it will no longer rely on self-disclosure.
It will also expand the scope of its background checks to include reviews of BrokerCheck and the SEC's advisor site during the certificate renewal process.
Finally, the Board said it will provide consumers access to planners' BrokerCheck and SEC data on LetsMakeAPlan.org and CFP.net/verify.
"They made a big mistake by relying on self-reporting after the initial vetting process, and they've taken steps to address that shortcoming in their process" said Barbara Roper, director of investor protection at the Consumer Federation of America.
Investors should be ready to do their own legwork as they vet financial advisors.
"I think people need to remember that the CFP database is all part of one equation," said Andrew Stoltmann, a plaintiffs' attorney in Chicago. "Don't treat one source of information as the gospel truth."
Here's where to begin:
Do a background check: Pull your advisor's details on FINRA's BrokerCheck site and the SEC' investment advisor public disclosure page. Here, you'll find the details on customer disputes, disciplinary action, years of experience and the states in which your advisor can sell investments.,
Confirm whether he's a fiduciary: Get your financial advisor to confirm in writing that he is placing your best interests over his own.
Know how your advisor is paid: How your advisor makes money matters. Are you paying an hourly or subscription fee? Do they charge you a percentage of the assets they manage for you? Find out whether your advisor gets paid a commission for selling insurance, annuities and investments.
Be aware of where your money is held: Broker-dealer firms can hold your assets in custody if you keep an account with them. Meanwhile, independent fee-only advisors might hold your money at a custodian, such as Charles Schwab or TD Ameritrade.