Get In Trouble with the SEC — You’re In Trouble with CFP Board

CFP® Certificants in the News

CFP® certificants licensed to sell securities are subject to SEC’s Regulation Best Interest (Reg BI) if they make recommendations to retail customers. This article illustrates the reach of Reg BI into potential CFP Board discipline. Here’s the game plan:

  • Identify key terms,
  • Disclose SEC involvement in a Reg BI violation, and
  • Demonstrate how SEC discipline can incur CFP Board discipline.

Key Terms

Recommendations

According to the SEC, “Regulation Best Interest expressly applies to account recommendations including recommendations of securities account types generally (e.g., to open an IRA or other brokerage account, or an advisory account), as well as recommendations to roll over or transfer assets from one type of account to another (e.g., from a workplace retirement plan account to an IRA).”

The SEC further advises that “Account recommendations will almost always involve a securities transaction (such as a securities purchase, sale or exchange), and thus would generally be subject to Regulation Best Interest…”

Retail Customer

The SEC defines a retail customer as a natural person, or the legal representative of such natural person, who:

  • Receives a recommendation of any securities transaction or investment strategy involving securities from a broker-dealer, and
  • Uses the recommendation primarily for personal, family, or household purposes.

SEC Allegation

The SEC — in its first-ever major Reg BI regulatory action — charged a certificant and others licensed to sell securities with violating Reg BI. The defendants allegedly recommended and sold over $13 million in highly speculative L Bonds1 to retail investors, thus placing the defendants squarely in the cross hairs of Reg BI enforcement. The certificant and other defendants violated the “care obligation” requirement under Reg BI according to the SEC. The SEC charge asks for permanent injunctions, disgorgement of profits, prejudgment interest, and civil penalties against the defendants.

CFP Board Discipline

According to an article written by John Padalka and published in The Financial Advisor,2The Certified Financial Planner Board of Standards says it has suspended a veteran financial advisor charged earlier this month with violations of the Securities and Exchange Commission’s Regulation Best Interest. CFP Board says it issued an interim suspension on the certificant effective as of June 21. During the interim suspension, [the certificant] is barred from using his CFP certification or suggesting that he’s a CFP professional, according to the Board. The interim suspension stays in place until the Board’s disciplinary and ethics commission issues a final order, or, in case of an appeal, a final order from the CFP Board's appeals commission, CFP Board says.”

The Moral of the Story

Regulatory actions from any other professional regulatory body can have ripple effects that threaten a CFP® certificant’s right to display the CFP® mark. No matter the regulation, as long as our moral compass points to “do unto others as you would have them do unto you,” a certificant adds to the honor and respect accorded to the CFP® certification rather than fighting misconduct allegations.

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Disclaimer

The information presented herein is provided purely for educational purposes and to raise awareness of these issues; it is not meant to provide and should not be used to provide compliance, investment, tax, estate, insurance, or retirement planning advice of any kind. An experienced and credentialed professional should advise with respect to the issues discussed herein. There are variations, alternatives, and exceptions to this material that could not be covered within the scope of this article.

1 L Bonds are considered high risk because they are illiquid, unregistered securities used to fund the purchase and subsequent premium payments of life insurance contracts.

2 Retrieved from https://financialadvisoriq.com/c/3659114/468574/board_suspends_charged_with_violations?referrer_module=emailMorningNews&module_order=8&login=1&ode=WW5KMVkyVnpkR0Z5YTNOQVozSmxaVzVsWTI5dWMzVnNkSE11WTI5dExDQTVNekl6T0RjekxDQXhNVFkwTmpNNU5qQTM