Journal of Financial Planning: May 2012
Dan Moisand, CFP®, has been a practicing financial planner since 1991. He is a principal at Moisand Fitzgerald Tamayo LLC in Melbourne, Florida, and former president of the Financial Planning Association.
You may get ripped off by overpaying for a souvenir in the everything-is-negotiable world of a Chinese market, but you need not fear getting mugged. While in China last summer, we learned of the punishment for a man arrested a mere 10 days earlier for petty theft from a few cars in a parking garage. He was executed.
Back home, less than a month later, we in Central Florida played host to the circus that was the Casey Anthony trial. As the whole world knows, she walks free today while many people believe she murdered her own daughter, put duct tape over the little girl’s mouth, and dumped the child’s body in the woods down the street.
The contrast between how the two cultures addressed these crimes is striking. Neither stands out as exemplary. With the Anthony case, did “innocent until proven guilty” push aside common sense? With the execution, was due process adequate?
Delaying Accountability
In February of this year, a friend of mine was relaying the case of a CFP® certificant in his area who finally had been hit with sanctions by a regulator. My friend had known “Mr. Offender” for a long time and was absolutely sure the guy was a lowlife. In late 2009, a complaint was filed to FINRA against the man, and my friend felt obligated to inform CFP Board, but nothing happened.
Finally, after all these years, my friend thought Mr. Offender would be held accountable and no longer be able to hold the same credentials as he and the thousands of other ethical CFP certificants. He was aggravated by the thought that such action would not happen very quickly.
CFP Board routinely gets updates from regulators such as FINRA, and when an issue like this arises, CFP Board usually will investigate the matter after the regulator’s process concludes. I have always had mixed feelings about this. On one hand it feels like CFP Board is skipping out by deferring to other groups. On the other, I have seen many firms settle FINRA matters in ways that effectively throw the rep under the bus, as they say. By investigating separately, the certificant’s behavior can be evaluated through the lens of financial planning standards, not brokerage industry standards, mostly by financial planning peers.
In this case, it took 15 months for FINRA to finish, and now the process is just beginning at CFP Board. A major problem is, as my friend put it, “What if just one person went to the CFP Board website and checked on Mr. Offender between then and now and got [victimized]?”
An excellent question with no easy solution.
Like my friend, over the years I too have been frustrated with different local advisers whose business practices were suspect. I’ve written several times about how many clients won’t do anything about a bad adviser’s conduct either because they lack the stomach or the means (lawyer) to see the process through.
The easy thing to say is that CFP Board should reconsider its policy to wait or streamline its process. I agree with those suggestions, but having been a part of the process as a hearing panelist and later chair of the Discipline and Ethics Commission, I know that the task of streamlining is challenging. There is a conflict between the desire for expediency and the need for adequate fair process. Simply blaming CFP Board is inadequate to me also because it feels a little hypocritical to say CFP Board shouldn’t be skipping out by deferring to other groups—then defer responsibility for the profession to CFP Board.
So, I offer up another angle that may have helped in the case of Mr. Offender, but would almost surely help any practitioner do a better job for his or her clients. I believe the time has come for independent peer review to become a reality within the profession. Regardless of whether it is voluntary, mandatory, or has any regulatory tie, the profession and the public could benefit.
Benefits of Peer Review
If a mandatory peer-review process had been in place for Mr. Offender, chances are better his practices would have been exposed earlier and corrected. If peer review were voluntary, it is reasonable to assume he would have opted out, but if a peer-review function was known to the public, the public may have favored a practitioner who did submit to the process. Maybe.
What I am certain of is that any practitioner submitting to a good peer-review process will be a better financial planner for having gone through it. I believe this because I have direct experience with peer review and have benefitted greatly from it.
Almost 20 years ago, my then employer, American Express, began a peer-judged Quality of Advice competition. I was fortunate to win two years in a row. In order to be competitive, I had to really think through every aspect of what I was delivering to clients. I think it is no coincidence that I subsequently was named “Financial Advisor of the Year for Client Satisfaction” for the Orlando/Jacksonville area based on anonymous client satisfaction surveys.
American Express saw that the peer-review process improved quality and satisfaction so much that they created their National Quality of Advice Case Review Team. I was appointed to that group, led by future chair of the Board of Professional Review (BOPR), Dan Candura, now CEO of PennyTree Advisors LLC. Readers are likely familiar with Dan through taking one of his CFP ethics courses.
We would randomly pull files of the advice given to clients through financial planning engagements. To give consistent, actionable feedback, a set of standards had to be in place, and evaluators had to “calibrate” their ratings to ensure they were consistently applied. Knowing what constituted high-quality advice makes it easier to provide it, and I improved my own work.
A couple of years later CFP Board began the process of creating the Practice Standards we adhere to today, and good fortune came my way when the Institute of Certified Financial Planners nominated me for a slot. Creating these standards was not peer review per se, but again, I was tasked with deep consideration of the financial planning process. I worked directly with and became friends with some of the finest planners in the country: Elaine Bedel, Eleanor Blayney, Rick Adkins, and Marilyn Dimitroff. The quality of my work again improved.
A couple of years later, I got to serve on hearing panels now known as the Discipline and Ethics Commission (DEC). I was judging peers from a different angle, yet many similarities existed to prior review processes. There must be ascertainable standards and a good process in place. The standards and the process were excellent, and again I went home and improved the quality of my work.
A few years later, in 2008, several members of the DEC, including the chair, resigned in protest largely about governance issues. CFP Board wanted someone familiar with the rules, standards, and processes but not currently tied to CFP Board to fill in for the chair. I had spent much of the last three years on the FPA board complaining about CFP Board and its CEO, and advocating against several of her initiatives such as the “opt-out” fiduciary standard. Someone over there thought I might be able to help get the DEC back on track and I was recruited for the chair role. Because I love the profession, I agreed over protests from my wife who feared it would take as much time and energy as the FPA board did.
When I got into the matters, I found a communications and interpersonal mess. Knowing most of the people who resigned, and having great respect for everyone else involved, I had no problem telling CFP Board that those who left had some legitimate points. I did what I could to mend things. The one thing I didn’t need to fix was the hearing process itself. The DEC members that resigned had improved it, and anyone going through the process got a fair hearing. And again, by participating in the process, I improved the quality of my work.
Today, I get what peer review I can internally at my firm and externally through my study groups. I am a member of two study groups. In one, I am the youngest. In the other, I am the oldest.
I share this personal history because peer review is very personal. Our work is judged every day by clients and the marketplace at large, but it can be terrifying to have a peer look at our work. I described a peer-review function in my paper “My Final Exam” published in the November 2004 Journal, but it doesn’t have to be a regulatory function to be worthwhile. I know many of my peers are dedicated to, if not obsessed by, lifelong learning and continual improvement. Peer review would help with that. Peer review is not new or even new to financial planning, but I think it could help practitioners improve their work, help clients improve their lives, and help the profession improve its standing. Are you ready for it?