CFP Board Introduces Mandatory Arbitration Plan

Posted on April 29th, 2016 at 9:52 AM
CFP Board Introduces Mandatory Arbitration Plan

From the Desk of Jim Eccleston at Eccleston Law LLC:

Recently, the CFP Board announced that it would make revisions to its Terms and Conditions of Certification agreement with CFPs. The changes have focused primarily on a new provision for mandatory arbitration for claims by CFPs against the Board. The Board has not made any changes to its Terms and Conditions in nearly eight years and has some wondering why it has decided to take action now. The question is even more salient as FINRA’s mandatory arbitration plan has faced increasing criticism and scrutiny.

Melanie Waddell thinks that the answer to the question of “Why Now?” can be found in its ongoing legal battle with Camarda Wealth Advisory. On March 24 she wrote in a story for ThinkAdvisor that, “the changes come as the CFP Board remains embroiled in a lengthy legal battle with Camarda Wealth Advisory, over the firm violating CFP Board’s fee-only definition.” According to court documents, the Camardas sued the CFP Board in federal court in 2013 and they appealed in August 2015 after a U.S. District Court judge dismissed their case.

Because the changes to the Terms and Conditions agreement would not apply to the Camarda case which will remain in courts pending appeal, industry experts have estimated that the costs to defend the Camarda case has reached $600,000. Additionally, Leo Rydzewski, CFP Board general counsel, said that the case is still far from over.

It is clear then that the CFP Board has a vested interest in avoiding future costly legal engagements, and mandatory arbitration seems to be the best solution. Moreover, the Board has a responsibility to CFPs and the public to avoid repeats of the Camarda-like cases that require the diversion of resources and staff. Yet, the timing of the implementation of the mandatory arbitration program makes it subject to comparison to FINRA’s program. But upon review, it looks as if the CFP Board has learned from FINRA’s mistakes and has developed a successful, effective program.

In the first place, each instance of disciplinary dispute is reviewed by the CFP Board’s Counsel, its Disciplinary and Ethics Commission, and the Appeals Committee of its Board of Directors. After those reviews, the Board will use a panel of three independent arbitrators who each have more than 5 years’ experience who will be provided by the American Arbitrators Association. The arbitrators will be chosen with input from the CFP professional and the CFP Board. This marks the first major distinction from FINRA’s arbitrators who are screened, trained and chosen by FINRA alone. Many leading securities litigation professionals prefer the professionalism and fairness of AAA arbitrators.

Another positive in the Board’s new program is independent review of disciplinary decisions by AAA arbitrators prior to public announcement. Sharron Ash of MarketCounsel wrote, “perhaps most significant, this change appears to finally give CFPs access to outside independent review of the Board’s disciplinary findings before any potential public announcement.” Before the new system was implemented, a decision could be made at the conclusion of internal proceedings.

To further benefit the CFP professionals and in contrast to FINRA’s program, the Board’s release on March 24th read, “In the event that a CFP professional prevails, CFP Board will pay for the full costs of the arbitration as well as up to $30,000 in attorney’s fees and costs. Otherwise, arbitration costs will be split between the parties, with each side paying its own attorney’s fees.”

While the Board’s new program has made significant improvements in comparison to other mandatory arbitration plans, it is not without reservations. Concern has arisen surrounding modifications to Section Q (Limitation of Liability). The modifications keep the outcome of the dispute confidential even if ruled against the Board. That changed coupled with a pre-existing rule that limits and CFP Board liability to no more than $1,000 means that the CFP Board has very little accountability or transparency in disputes with CFP professionals.

Industry professionals are convinced that transparency is an essential element for ensuring fairness in self-regulatory situations. While the CFP Board’s new program has taken big steps to increase the fairness, a lack of transparency can cast doubt on the program. Most hope that at the very least the Board provides access to collective outcome data in order to provide the context to evaluate the fairness of its new system similar to the annual reports the FINRA provides.

 The attorneys of Eccleston Law LLC represent investors and advisers nationwide in securities and employment matters. Our attorneys draw on a combined experience of nearly 65 years in delivering the highest quality legal services. If you are in need of legal services, contact us to schedule a one-on-one consultation today.

Related Attorneys: James J. Eccleston

Tags: Eccleston, Eccleston Law, Eccleston Law LLC, James Eccleston,

Return to Archive

TESTIMONIALS

Previous
Next

Hiring Eccleston Law has been one of the best career decisions I have made and this "investment" to maintain my sterling regulatory record has been returned many times over.  If you are in a situation where you've been unfairly accused, don't hesitate to talk with Eccleston Law. They are the best.

Thomas C.

LATEST NEWS AND ARTICLES

August 8, 2022
SEC Files Suit Against Georgia Advisor Over Misappropriation of Client Funds

The Securities and Exchange Commission (SEC) is filing suit against a Georgia-based advisor, Christopher Burns, who allegedly misappropriated client funds.

August 5, 2022
SEC Fines RIA $5.8 Million Over 12b-1 Fee Infractions Tied to Wrap Accounts

The Securities and Exchange Commission (SEC) has imposed a $5.8 million fine against Private Advisor Group over 12b-1 fee violations tied to its wrap fee program. 

August 4, 2022
North Dakota Regulators Seek to Close Down Advisory Firm Selling Crypto and Weed Products

The North Dakota Securities Commissioner’s office is seeking to shut down a small West Fargo-based registered investment adviser (RIA) after its owner allegedly violated state securities laws and improperly took custody of $17.8 million in client funds beginning in 2017.