Last November, Alan Goldfarb, the then CFP Board chairman, was asked to resign, after the Board informed him that he was under investigation for improperly disclosing his compensation. At the time, I criticized the Board (AdvisorOne blog on Nov. 7, 2012, "Clear as Mud: The CFP Board's Blackbox Oversight Process on Ethics") for not being more forthcoming about the nature of Goldfarb's alleged infraction. Now, more details about the case have come to light, revealing what can only be described as a curious ruling by the Board—with-far reaching consequences for the advisory profession.
While the Board still hasn't broken its silence over the case, on Tuesday Goldfarb issued a four-page statement on the matter and granted interviews with reporters including yours truly, in which he said he expects the Board to "issue a public admonition letter next Monday." His infraction: failing to accurately describe his compensation on the FPA's website.
According to Goldfarb, these are the facts of the case:
— He was employed by his former firm Weaver Wealth Management, in Dallas as a financial advisor, and compensated in the form of a salary, which was based on AUM fees collected from his clients.
— His firm was owned by Weaver LLP, an accounting firm that also owned brokerage and insurance subsidiaries.
— As "the only person at the accounting firm with a securities principal's license," he served as president of brokerage firm, and was given a 1% "non-compensating" equity stake in both the brokerage and the insurance subsidiaries.
— He fully disclosed these relationships, and "any conflicts arising from them," he told me, "on his form ADV, the client engagement letter, other disclosure documents, in oral communications with his clients and prospective clients, and on the firm's website."
— When filling out his profile on the FPA's advisor search website, he was presented with four compensation boxes from which to choose: fee-only, salary, commission, and fee and commission. He chose "fee-only," and later changed it to "salary," as he "felt that was more descriptive. There was no place on the form for explanation or qualification, and since I wasn't paid any commissions, and they seemed the only reasonable choices," he said.
However, "The CFP Board felt that listing his compensation as both 'fee-only' and then 'salary' on the FPA's website was misleading," according to Goldfarb. He begs to differ: "At worst, it should have been dismissed with a caution. I still don't think I did anything wrong."
Goldfarb believes that the Board reached the wrong conclusion for two reasons. First, it "totally ignored all the conflicts and compensation disclosures that all prospective clients received," he wrote. "More importantly, the CFP Board's [case is based on the misperception that] because the broker-dealer and the insurance company charged commissions, [my] salary paid by the accounting firm came from revenues and profits of those entities."
As I said, it's a curious ruling, on many levels. Given Goldfarb's disclosure everywhere else, and the limited choices on the FPA's website, it seems as if it was, at worst, an honest mistake; appropriately remedied by a private request that he change his FPA listing. Yet even that raises the question of whether Goldfarb violated any rules in the first place.
