REPOST: When Your Financial Planner Doesn’t Tell All

What do you do when you suspect your financial planner has violated the profession’s ethical standards? The Wall Street Journal‘s  Jason Zweig discusses how the Certified Financial Planner Board of Standards addresses rogue financial planners.

Image source: wsj.com

Who’s watching your financial planner?

The Certified Financial Planner Board of Standards says it is. The organization, which has awarded the coveted CFP certification to nearly 69,000 financial planners, launches an investigation whenever it suspects a planner might have violated the profession’s ethical standards.

Of course, most CFPs have never been disciplined by a regulator nor had a client lodge a formal complaint against them. But does the CFP Board move fast enough to punish alleged wrongdoers?

In 2011, the CFP Board opened 1,569 investigations, up substantially from 1,324 in 2003. But the number of CFP holders went up even faster, to 64,232 in 2011 from 42,973—so the rate at which CFPs were investigated fell to 2.4% from 3.1%. New investigations fell to 866 last year as the CFP Board worked off the backlog of cases that had built up, says Michael Shaw, who is in charge of professional standards there.

The Wall Street Journal has identified at least 17 recent instances in which the CFP Board stripped a planner of the CFP title more than three years after serious allegations first appeared in the public record. There isn’t any evidence that the public has been harmed by the relatively slow pace of the board’s disciplinary actions.

But these findings are a reminder that financial planners aren’t policed as closely as brokers and investment advisers are, since no government entity specializes in regulating them—and that investors can’t count on someone else to do their due diligence.

“We’re always looking for opportunities to become more efficient and effective,” Mr. Shaw says. “But the more important consideration is that [any CFP being investigated] has the opportunity to have a full and fair hearing.”

Unlike state securities departments, the Financial Industry Regulatory Authority or the Securities and Exchange Commission, the CFP Board isn’t a regulator. As a certifying body, it has no subpoena power.

Nevertheless, “we don’t rubber-stamp any regulatory action,” Mr. Shaw says. “We conduct our own investigations here.” He says the board also shares information with state and national regulators.

In 2012, the board invoked the right to suspend CFPs automatically if one of their financial licenses is revoked or they are convicted of a felony or certain misdemeanors.

But the CFP Board has only six investigators, counting Mr. Shaw, or less than one for every 11,000 CFPs. They have a lot of ground to cover.

Consider the case of David Disraeli, who runs a financial-advice firm called The Personal CFO in Austin, Texas.

In November 2002, the Texas securities board issued a cease-and-desist order against Mr. Disraeli, alleging that he owed more than $39,000 in federal income taxes, had told investors he was an investment adviser when he wasn’t registered and was offering securities that weren’t approved for sale in Texas.

Without admitting or denying the claims, Mr. Disraeli consented to the order in April 2003.

In December 2007, the Securities and Exchange Commission found that Mr. Disraeli had borrowed $84,300 from his clients’ investments in his firm—and used much of the money to pay his back taxes and expenditures on “coffee, ice cream, groceries, restaurants and videos.” The agency barred Mr. Disraeli from working at a brokerage or investment-advisory firm and ordered him to pay more than $194,000 in penalties and other sanctions.

Texas denied Mr. Disraeli’s application as an investment adviser in February 2008, citing multiple instances of what the state called “fraudulent business practice.”

On Aug. 13, 2010, citing the SEC bar, the board revoked Mr. Disraeli’s CFP certification.

That didn’t stop Mr. Disraeli from using his CFP credential, however. Although he no longer manages money for outside clients, he sells insurance and offers advice on business transactions and financial planning. His primary website features a 5-by-7-inch replica of his CFP diploma; the “about me” section on his blog, where he posted most recently last November, says he is a “Certified Financial Planner”; a May 27 post on his business-finance site identifies him as “David Disraeli, CFP.”

“I’m not still using it knowingly,” Mr. Disraeli says. “If it shows up and I haven’t taken it down, that’s something I need to do.”

The SEC “never proved that I misappropriated anything,” he says. “I don’t feel I did anything wrong. Maybe my accounting wasn’t the best, but none of my clients asked for their money back.” As to the Texas allegations, “I denied it then and I deny it now,” Mr. Disraeli says. “That whole thing was a circus.”

Mr. Disraeli unsuccessfully appealed the SEC decision and the CFP revocation. His final court appeal, to the U.S. Supreme Court, wasn’t denied until 2010. Those hearings, says Mr. Shaw, explain why the CFP Board—which doesn’t take disciplinary action until appeals are resolved—didn’t act sooner.

Mr. Shaw says the board is “not aware of” any CFPs who have been suspended or revoked who are still using the title. He says the board regularly monitors defrocked CFPs to prevent them from using the credential.

“They haven’t said a word about that,” says Mr. Disraeli, although the board did admonish him in 2009 that he must always add the ® trademark symbol when using the CFP letters next to his name.

In 2011, the CFP board found that Steve Rice, a financial planner in Los Gatos, Calif. and former mayor of that town, had provided faulty insurance advice to several clients. The board suspended his CFP certification until November 2014.

This week, however, Mr. Rice was identifying himself on at least three websites, including SteveRiceCFP.com, as “Steve Rice CFP.”

Mr. Rice didn’t respond to requests for comment; his appeal of the CFP Board’s ruling was denied by a board committee. Mr. Rice’s public record on brokercheck.finra.org shows one insurance dispute that he settled personally; the client withdrew the complaint after Mr. Rice paid $5,000.

Or consider Louis Mohlman Jr., of Mohlman Asset Management in Fort Wayne, Ind. This past week, Mr. Mohlman’s biography on his website read: “Throughout his career he has continued education and specialty training to hold designations of Certified Financial Planner,” among other titles.

In June 2009, Mr. Mohlman consented to a Finra order without admitting or denying the findings. According to Finra, he had offered to pay a bank employee $500 to obtain confidential account information for several of the bank’s customers. He paid a $10,000 fine and was suspended for three months. In April 1993, the state of Indiana fined Mr. Mohlman $1,000 for allegedly misrepresenting the risks of a unit investment trust; around the same time, he paid $10,000 to settle a customer complaint over a limited partnership.

In March 2010, citing the Finra case, the CFP Board revoked Mr. Mohlman’s certification; according to the board, he didn’t reply to its inquiry.

When I asked about the biography on his website, Mr. Mohlman replied by email, “Thank you for alerting us to this typo.” He didn’t respond to requests for further comment.

I’m Dana Ray Reynolds, an independent financial planner. There are three things that I tell my clients: that I work professionally, efficiently, and effectively. Follow me on Facebook for more discussion on smart money management.

REPOST: 7 financial decisions made in your 30s that may haunt you in your 50s

Life is a long-term numbers game that favors both those that act tactfully and those that plan ahead. Forbes.com’s Nancy Anderson discusses the ramifications of the decisions adults make that will have an impact on their lives in the future.

Young women at Miami Beach, Florida. Image source: flickr.com

People often say “life is short” as a justification to do or buy something immediately rather than waiting. But the truth is, life is not short. Life is long. The average life expectancy for an American male is 76.2 years, and 81 years for a female. A thirty-year-old discussing a short life may actually be looking at another 50 long years.

This is good news! And, financially speaking, a long outlook on life is important, because the decisions we make early on have a significant impact on the remainder of our lives. Specifically, these decisions can make or break our retirement plans.

Here are seven important financial decisions 30-year-olds make that could come back to haunt them in their 50s:

The company you work for.

There are many things to consider when choosing a job, but the retirement benefits offered are vital to wealth-building in the long term. A 30-year-old who doesn’t carefully research his or her benefits and chooses to work for a company with no company match or retirement contribution could be way behind someone who works for a company with robust benefits. For example, a 30-year-old making $75,000 a year who saves 10% of his or her income in a 401(k) and earns an 8% average return would have a balance of just under $600,000 at age 55. Compare that to a 30-year-old who saves 10% at a company that matches 5% and adds a profit sharing contribution that averages 5% a year. He or she would have almost $1.2 million in their retirement account—double our first example’s amount—at age 55.

Your starting salary.

Even a slightly higher starting salary can jump start your earning potential. A study by George Mason University and Temple University showed that employees who negotiated their starting salaries averaged a $5,000 increase compared to those who didn’t negotiate. Due to the effects of compounding, the researchers estimate that an employee who starts his or her career with a salary of $55,000 instead of $50,000 (with 5% increases each year) would earn over $600,000 more in income over a 40-year career.

Your choice of a partner.

Who you marry is one of the most important financial decisions you can make. I’m not advocating you marry for money—quite the contrary. Marrying for love and staying together is a smart financial move. Whether the 50% divorce rate is an accurate statistic or not, we can all agree that when it happens to you, it is devastating both emotionally and financially. The divorce itself can be expensive and dividing financial assets unravels your financial planning. Just ask Robin Williams, who is returning to television after two expensive divorces!

Your choice of a mate isn’t only about love and commitment; it’s also about financial compatibility. If you and your partner are compatible money-wise and commit to setting up a financial plan to save, invest and build your future, you can enjoy life and create financial security at the same time.

When you have children.

Americans are delaying having children. In fact, according to National Health Statistics Report, more than one in three college-educated women will have children after the age of 30. In the past few decades, the average age of American first-time mothers has increased by four years, and first-time fathers are aging at the same rate. Since the recession in 2008, the only age group that has continued to have more babies than in years past is the “over 40” group.

In Sheryl Sandberg’s book, “Lean In,” she encourages women not to pass up promotions because of plans to have children. If you have plenty of support at home, this can be a great idea. Another way to look at it is, if you plan on having children, don’t wait because you are focusing on your career or waiting for financial security. There are advantages to having children earlier.

One reason has to do with timing of kids’ expenses. Consider a couple that has children when they are 25 years old. Before they hit their 50s, their kids are past the very expensive college years. These parents, still young themselves, have 15 years to focus on their own retirement savings if they plan to retire at 65. Couples that have children when they are 35 years old may not see the light at the end of the “empty nest” tunnel until they are 60—much closer to retirement age.

How you invest.

Investing in high-cost managed accounts can take a heavy toll on investment returns over time. According to Forbes contributor Rick Ferri, founder of Portfolio Solutions, those fees can add up to 40% of your return each year. Rick shares an example of how, with annual mutual fund management fees of 1.1% and an additional advisor fee of 1% (on the first $1 million of your assets), an investor trying to squeak out a return of 5.3% (the expected return) of a portfolio of 60% global stocks/40% U.S. bonds could actually pay 40% of that return in fees. Make sure you weigh the long-term impact of fees when investing; consider choosing low-cost mutual funds or index funds for retirement savings.

Whether you rent or buy a house.

There are instances when it is better to rent than to buy a house. If you need mobility, don’t plan on staying in your area for long or aren’t interested in potentially being a long-distance landlord, you may be better off renting. However, in the long term, owning your home can be a coup for pre-retirees. Without even taking home equity into account, a homeowner with a fixed-rate mortgage won’t have to worry about a rent increase. Having a fixed housing cost is increasingly important as you get older, since rents can increase with inflation and you are attempting to estimate future expenses. As a homeowner, the mortgage will eventually be paid off and your housing budget will only have to cover taxes and repairs, so there may be more money to enjoy during your retirement.

How you pay attention to your dollars.

If I could take back what I spent in the past twenty years on coffee, clothes I bought on sale but rarely wore and my “guilty pleasure” books, I’d be a wealthy woman. Tracking expenses to see where your money is going which you can do with your bank, Quicken, or in the LearnVest Money Center (*disclosure – I work for LearnVest Planning Services) and identifying blind spots can help you save more and spend less. First of all, when you are tracking expenses, you have a heightened awareness of your money and subsequently are more reluctant to part with your dollars. I hear clients exclaim all the time, “I had no idea I spend $600 a month on restaurants (or $800 a month on shopping). I am shocked!” When tracking, you can more easily identify areas for cost savings and put those savings toward your financial goals.

Mickey Mantle said, “If I knew I was going to live this long, I’d have taken better care of myself.” I suggest that if 30-year-olds knew just how young they’d feel in their 50s and how much life is left to live, they’d take much better care of their finances.

Life is long. Make decisions accordingly.

I’m Dana Ray Reynolds, and I work as a financial planner. Get updates on other related matters on my Twitter page.