CFP Board Imposes Mandatory Arbitration to Resolve Disputes

CFP Board Imposes Mandatory Arbitration to Resolve Disputes

The Certified Financial Planner Board of Standards is moving to force advisors who hold the certified financial planner designation to arbitrate all future disputes with the organization.

The CFP’s board of directors on Thursday announced revisions to its terms of membership, including a provision that would force all current and future CFP holders to waive the right to sue the board in civil court. The changes are scheduled to go into effect on May 2, 2016.

“Arbitration is private, quicker and may be less costly than litigation,” Leo G. Rydzewski, general counsel for the CFP Board, said Thursday during a call with the press.

This was the first time in more than a decade that the CFP Board has updated its terms of membership, according to Rydzewski. The changes will go into effect without any feedback from current CFP holders outside of the Board of Directors. Rydzewski said this was not uncommon as these types of updates have not been issued in the past as public proposals.

The move comes months after the CFP Board concluded a two-year ordeal defending a lawsuit filed by plaintiffs Jeffrey and Kimberly Camarda. The married advisors sued the board, claiming they were unjustly punished after the board accused them of improperly describing their practice as “fee-only” on their website. A federal judge threw out the Camarda case in July. 

It’s not surprising the CFP Board would take this step, said Michael Kitces, director of financial planning research at Pinnacle Advisory and a CFP holder, said Thursday.

“But it’s actually a pretty fair arbitration process,” he said, noting the process includes third-party judges, reasonable reimbursement if the CFP professional prevails, and a reasonable timeline. “This is a much fairer and impartial arbitration process than FINRA arbitration by a long shot.”

But he added that the new updates may have been more palatable for current CFP holders if they had been included in the process. “No one like being dictated to,” he adds. 

“The legal reality is CFP certificants are signing a licensing agreement with the CFP Board for the right to use their CFP trademark as part of their certification,” Kitces says. “So they’re signing a contract with the CFP Board; the CFP Board has a right to modify its contract. If you don’t like the contract, you can do what every other person who doesn’t like the contract they get from a business does—you can walk away.”

Yet it’s a “very awkward situation” for the CFP Board because the organization has been so successful in its public awareness campaign and growing the CFP mark to the point where it’s a “quasi-monopoly,” he says.

“You don’t really have a lot of choices as a CFP certificant at this point. There’s no alternative leading designation out there that you can go and switch to,” he says. “And in essence, the public awareness campaign is essentially saying, if you walk away from the mark because you don’t like our terms and conditions, we’re going to tell the public that you’re not qualified to serve them.”

The arbitration would only take place after a professional had exhausted all the remedies through the CFP Board’s enforcement, disciplinary review and appeals process. Currently, when there is alleged misconduct by a CFP professional, the organization’s staff initially reviews the claims and determines if there is probable cause.

If there is probable cause, the CFP’s disciplinary and ethics commission initiates a peer review of the allegations and evidence. If the CFP professional at fault wants to appeal, they can do so through the Board of Directors’ appeals committee.

The new mandatory arbitration would kick in if a CFP professional wanted to challenge a final decision by the appeals committee.

Elaine E. Bedel, former chair of the CFP Board of Standards, said Thursday the switch to mandatory arbitration seemed more efficient. “Having this provision provides an agreed-upon process for airing disagreements without the cost and time required to go through our legal system,” she said.

“Since most investment management agreements utilized by certificants with their clients include an arbitration provision, it also seems reasonable that we, as CFP certificants, agree to the same provision with the CFP Board,” Bedel added.

Under the revised terms, CFP professionals seeking arbitration are required to complete the case within nine months. Rydzewski said Thursday the organization had elected to work with the American Arbitration Association, in which three independent arbitrators, all former judges, would preside over the hearings.

Should the arbitrators find in favor of a CFP professional, the terms note that the CFP Board will pay for the full costs of the arbitration, as well as up to $30,000 of the CFP professional’s attorney’s fees and costs. Should the organization prevail in the appeal, the arbitration costs will be split between the parties, with each side responsible for their own attorney’s fees. 

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