New procedural rules announced last week by the CFP Board, set to take effect May 23, aim to accelerate the application review for prospective CFPs who have reported a single bankruptcy or multiple alcohol- or drug-related misdemeanors.
Currently, CFP applicants who report prior misconduct must file a “petition for fitness” to the CFP Board’s Disciplinary and Ethics Commission (DEC), asking that the commission review and certify their “ethical fitness.” Filing can be time intensive and costly, though the $2,500 review fee can be refunded if the petition is granted.
The new rules will create a free, expedited process for CFP hopefuls who have had a single bankruptcy filing or multiple alcohol- or drug-related misdemeanor offenses. Applicants who opt for this expedited pathway forgo the chance for a DEC hearing, a feature of the $2,500 petition for fitness review.
Codifying an opaque standard
The new procedural rules will also work to “codify the DEC’s evaluation of bankruptcies that have occurred in the past,” CFP Board general counsel Leo Rydzewski said in an email.
Under these fitness standards, applicants allowed to move forward with the certification process may receive either public or private notices from the CFP Board regarding the review of their past offenses and resulting decisions.
Applicants who filed for bankruptcy 10 or more years prior to their CFP application, and who were not providing professional financial services at the time of the filing, can receive a notice of “caution” — a private record of their previous offenses — from the board.
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If an applicant was providing professional financial services at the time of their bankruptcy filing, the board can still deliver a private notice of caution, so long as the bankruptcy filing occurred 15 or more years before submitting their CFP application.
Applicants with two or more alcohol- or drug-related convictions can also receive a private notice of caution as long as the most recent offense was seven or more years before the applicant’s CFP application.
In certain circumstances, the board will also allow an applicant to move forward with a more recent bankruptcy filing on their record.
This includes when an applicant, who was not providing professional financial services at the time, filed for bankruptcy less than 10 years before their CFP application. It also includes instances in which an applicant was providing financial services at the time of their bankruptcy filing, so long as the filing was more than 10 and less than 15 years before their CFP application.
In these instances, the CFP Board will issue a public notice for the applicant. “When an applicant receives a public notice, the information that caused CFP Board to issue the public notice will appear in a CFP Board news release and on CFP Board’s website,” Rydzewski said.
Support, opposition and plenty of confusion — CFPs react to the change
Public comments on the rule change that the CFP Board received earlier this year show that reactions among CFPs were decidedly mixed.
Numerous other CFPs offered support for the change, arguing that aspiring CFPs should have a chance to put their past behind them.
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“Maintaining overly punitive or stigmatizing policies around bankruptcy reinforces outdated ideas about financial failure and deters transparency,” said Rosalyn Brown, a CFP and founder of consulting firm SowInclusive. “By loosening these restrictions, the Board would align more closely with its mission to uphold ethical standards while recognizing the diverse lived experiences that make financial planners more relatable, trustworthy and effective.”
On both sides of the debate, many CFPs seemed to be simply confused about what exactly they were being asked to comment on.
“You are presenting very technical language for us to comment on without explaining the bottom line before and after conditions in plain language,” said Alan Ray, founder of Square Peg Financial Advisory Services in Columbus, Ohio. “I’ve been through a number of changes to the Code of Ethics and Practice Standards over 20 years and never seen anything like this. If you want to know what we think about bankruptcy and substance abuse as disqualifiers for certification, ask us in plain language.”
Many CFPs left comments concerning the organization’s fitness standards around bankruptcies and misdemeanors, confused by the CFP Board’s language in its request for comments. However, the CFP Board clarified that the rule change does not affect any such standards and only concerns the adoption of the new, faster procedural rule.
“The Fitness Standards will continue to govern CFP Board’s review of an applicant’s fitness for CFP certification,” said Rydzewski. “The revised Procedural Rules language generally captures how CFP Board has evaluated bankruptcies that have occurred in the past and provides an expedited process for resolving Fitness Petitions filed by applicants who have a prior bankruptcy matter, without requiring a hearing before the Disciplinary and Ethics Commission.”
Streamlining a review process
The CFP Board said its new expedited process will help reduce the volume of cases that the ethics commission is required to handle. Rydzewski said that the number of applicants with a bankruptcy or multiple alcohol- or drug-related misdemeanors is more than expected, but could not provide an exact figure.
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“These changes are expected to allow CFP Board to resolve dozens of Fitness Petitions without requiring DEC review,” he said.
Some CFPs were skeptical of the push to speed up the review process, suggesting that it was more concerned with reducing the CFP Board’s workload than enforcing ethical standards.
“I understand the Board is trying to streamline the process for certain individuals, but if there are that many folks with these issues in their background trying to become CFPs, that’s an issue in and of itself,” said Amber Collier, a financial advisor at Merrill in Tulsa, Oklahoma. “It feels like there shouldn’t actually be that many of these cases, and the DEC just doesn’t want to take the time to fully review them.”
