The recent court ruling to dismiss the lawsuit filed against Certified Financial Planner Board of Standards Inc. by Jeffrey and Kimberly Camarda marks a significant victory for the CFP certification, CFP professionals and, most importantly, the American public they serve.
At issue in this lawsuit was whether two CFP professionals would be held accountable for what two separate groups of their peers — the Disciplinary and Ethics Commission (DEC) and the appeals committee of the Board of Directors — unanimously determined were violations of CFP Board's Standards of Professional Conduct.
In dismissing the lawsuit in its entirety, Judge Leon's decision affirms the integrity of the process by which CFP Board enforces its standards. The decision ensures that CFP certification continues to represent the highest standard for financial advisers, assuring the public that a CFP professional has agreed to deliver planning services ethically and with fiduciary accountability, transparency and competency. And finally, the decision benefits the tens of thousands of CFP professionals who diligently comply with our standards and recognize the importance of preserving the certification's reputation and integrity.
CFP Board's
disciplinary process – which Judge Leon found was followed in this case — is fair and transparent, and has effectively served the public, and the CFP professional community, for decades. The process is accredited by the National Commission for Certifying Agencies and closely resembles the processes of a court or administrative agency.
While CFP Board has maintained strict confidentiality of the facts and decision in this case (consistent with its obligation to keep its disciplinary processes confidential for the protection of CFP professionals), the court's opinion — which is now public — outlines some of the relevant facts upon which the DEC based its recommendation that a public letter of admonition be issued.
Based on the evidence, the DEC found that Camarda Financial Advisors (CFA) and Camarda Consultants (CC) “are functionally one organization providing clients with a wide range of investment services, some of which are commission-based.” It also found that both of the Camardas' companies “share clients, employees and a website” and that they “represented that CC was created solely to provide CFA clients with more 'one-stop' offerings.”
Based on this and other evidence, which is not public at this time, the DEC determined and the appeals committee of the Board of Directors confirmed that the Camardas made the following misrepresentations:
• “[D]ue to the mutual referral fee arrangement between CFA by CC, [Camardas] misrepresented that CFA is a 'fee-only' investment adviser.”
• “[B]ecause CFA and CC are functionally one organization providing services to clients, [Camardas] misrepresented CFA as 'fee-only' because CC receives insurance commissions.”
The DEC and appeals committee members, comprised of CFP professionals and members of the public, unanimously agreed that CFP Board's standards were violated and a public letter of admonition was appropriate and justified. That public letter has not been issued, pending the final resolution of the lawsuit.
When CFP Board opens an investigation of a possible violation, the CFP professional is notified and asked for a response. More often than not, CFP Board staff is able to dismiss the case after the CFP professional submits the response and supporting documents. In the event that CFP Board issues a complaint, the CFP professional is provided a clear statement of the alleged rule(s) violation and is given a full opportunity to present a defense, including the right to legal counsel; the ability to obtain discovery, submit documents and file motions; and the right to an evidentiary hearing on the record, together with the right to produce and cross-examine witnesses.
Evidentiary hearings are conducted before a three-person hearing panel of the DEC, two of whom must be CFP professionals, who consider the evidence and report their findings and recommendations to the full DEC. The DEC independently and collectively decides, after careful deliberation, whether there has been a violation of CFP Board's rules and, if so, what sanction is appropriate.
Each CFP professional has the right to appeal an adverse decision for review by an appeals panel and then by the appeals committee of the Board of Directors — both of which are also composed of CFP professionals and members of the public. No discipline is imposed unless and until both the DEC and the appeals committee have determined, after considering all of the evidence, the sanction guidelines and the sanctions previously imposed in comparable cases, that a sanction is the appropriate result. At no time in the process is any decision made by CFP Board staff or management.
The Camardas' real complaint is not that CFP Board's disciplinary process is unfair, but rather that they disagree with the DEC's decision. In his ruling, Judge Leon declined to second-guess CFP Board's interpretation of its rules or the DEC's evaluation of the evidence against the Camardas.
There is no reason to believe that a judge who is not a CFP professional is better able to interpret CFP Board's rules and evaluate the evidence than the several groups of CFP professionals (and members of the public) who do so as part of CFP Board's disciplinary process. Furthermore, it would undermine the very purpose of private standards-setting organizations such as CFP Board if every one of their disciplinary decisions were subject to costly and time-consuming “do-overs” in federal court.
It is wrong to suggest that Judge Leon's decision places CFP Board above the law and may embolden CFP Board to enforce its standards in an over-zealous manner. Courts do not place private organizations above the law; rather, they recognize situations where it makes no sense for them to second-guess decisions made by an organization through a fair process. Moreover, CFP Board's disciplinary process, which includes independent decisions by two separate groups of their peers, protects against disciplinary decisions being imposed in an over-zealous manner.
From the outset, some have questioned CFP Board's decision to undertake the cost of defending this lawsuit. My response is simple: The costs of not defending our right to set and enforce our professional and ethical standards are far greater — in both reputation and potential harm to the public the CFP Board is charged to benefit. As my predecessor, Ray Ferrara, pointed out more than a year ago, the very integrity of the CFP certification was at stake in this lawsuit.
The overwhelming majority of CFP professionals comply with CFP Board's standards, which were developed in consultation with CFP professionals — including a public notice and comment period — and adopted by the Board of Directors. They choose the CFP certification in large part because of its reputation and integrity, which depend on enforcement of those standards. The court's decision vindicates CFP Board's ability to enforce its standards through a fair, transparent, peer-review process, ensuring benefits and protections for the public and CFP professionals, now and for years to come.
Richard P. Rojeck is the 2015 chairman of CFP Board's Board of Directors
