Bankruptcy among holders of the Certified Financial Planner designation has been rising at a startling rate in the past four years. The number of cases that the CFP Board of Standards reviews has risen from just one in 2008 to eight in 2009, 20 in 2010, 49 in 2011, and 37 in the first quarter of this year.
The CFP Board thinks investors should know about it. Under new rules announced today, it will issue press releases on the bankruptcies, making such cases available to investors who surf the Internet to search an advisor’s name. At the same time, the board will drop bankruptcy as a cause for disciplinary action in many cases.
Effective July 1, the board will note such filings on the certificant’s posting on the CFP’s website, and report on the bankruptcy filings in press releases that will come out at least four times a year. The board also said it will discontinue its practice of investigating certificants in bankruptcy—when such cases aren’t accompanied by allegations of other bad practices—and forwarding such cases to its Disciplinary and Ethics Commission.
The current practice results in cases where some certificants’ bankruptcy histories were outed by the board, while others were not as a result of gaps in the process. Certificants must notify the board of any bankruptcy in the past five years.
In the past, the board has not disclosed bankruptcy filings by certificants in cases where the filing was beyond the control of the advisor, said Michael Shaw, the CFP’s managing director for professional standards—including cases involving medical issues, the loss of a spouse’s job, or a drop in the value of the advisor’s house, for example.
The growth in bankruptcies results from the poor national economy and from the growth in the number of CFP holders, agency officials said during a conference call today. About 65,000 people hold CFPs.
“One thing we’ve learned about these bankruptcies is, no two are alike,” Shaw said.
Proposals on bankruptcy disclosure drew mixed responses from certificants in recent months, officials said. Forty-eight percent favored disclosure, while 42 percent favored the current process. About 10 percent were neutral or not in favor of either process.