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In Focus #70: June 9, 2009


Financial Advisers in Motion; A Primer On the Employment Issues Facing Those in Transition


Retirement Income: Repairing the Damage to Assure the Flow


Train Wrecks of Estate Planning


A Complex Game: The Life Settlement Process
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CFP Designation Imposes Responsibilities, Including the Duty to Blow the Whistle on Improprieties


s more and more brokers obtain the designation of Certified Financial Planner (CFP), it is wise to remember that that the CFP Board of Standards has adopted a Code of Ethics and Professional Responsibility (the "Code"). The Code consists of two parts. Part 1 contains Principles, which are guidelines and "aspirational in character". On the other hand, Part 2 contains Rules, which "set forth the standards of ethical and professionally responsible conduct expected to be followed in particular situations".

The Principles relate to seven areas: integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence. The Rules relate to each of these seven principles. The CFP Board of Standards enforces the Rules by way of disciplinary actions, ranging from private censure to permanent revocation of the CFP designee's right to use the CFP mark.

CFP designees who witness improper conduct ought to examine the 600 series of the Rules, which relate to Professionalism. Preliminarily, Rule 602 establishes the duty to engage in fair and honorable competitive practices. But it further states that collegiality among CFP designees shall not impede enforcement of the Code.

Rules 603, 604 and 605 set forth the duties of the whistleblower. Rule 603 addresses violations of the Code and provides: A CFP designee who has knowledge, which is not required to be kept confidential under this Code, that another CFP designee has committed a violation of this Code which raises substantial questions as to the Designee's honesty, trustworthiness or fitness as a CFP designee in other respects, shall promptly notify the CFP Board ... For purposes of this Rule, knowledge means no substantial doubt.

Likewise, Rule 604 more generally addresses the areas of unprofessional, fraudulent or illegal conduct. Note that this conduct covers behavior not only by CFP designees but also by any other "financial professional". Rule 604 states:

A CFP designee who has knowledge, which is not required under this Code to be kept confidential, and which raises a substantial question of unprofessional, fraudulent, or illegal conduct by a CFP designee or other financial professional, shall promptly inform the appropriate regulatory and/or professional disciplinary body... For purposes of this Rule, knowledge means no substantial doubt.

As one can see, the test for prompt reporting to the CFP Board, appropriate regulatory and/or professional disciplinary body, is "no substantial doubt". That raises the following question. What if the CFP designee just suspects impropriety? Rule 605 answers that question, providing:

A CFP designee who has reason to suspect illegal conduct within the CFP designee's organization shall make timely disclosure of the available evidence to the CFP designee's immediate supervisor and/or partners or co-owners. If the CFP designee is convinced that illegal conduct exists within the CFP designee's organization, and that appropriate measures are not taken to remedy the situation, the CFP designee shall, where appropriate, alert the regulatory authorities including the CFP Board in a timely manner.

To safeguard against excessive whistle blowing, CFP designees ought to know Rule 611. That Rule cautions:

A CFP designee shall not bring or threaten to bring a disciplinary proceeding under this Code, or report or threaten to report information to the CFP Board pursuant to Rules 603 and/or 604, or make or threaten to make use of this Code for no substantial purpose other than to harass, maliciously injure, embarrass and/or unfairly burden another CFP designee.

CFPs are well advised to pay attention to these rules and to consult an attorney whenever they believe that they might be in a position to know or just suspect improper behavior.





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