The Financial Planning Association will no longer require adherence to its code of ethics as a requirement of membership.
On Tuesday, the FPA alerted members that its Standard of Care and Code of Ethics will “transition from a requirement of FPA membership to an official, organizational policy.”
Observers say the move bows to the reality that the FPA wasn’t enforcing its standards all along.
In an e-mail to members, FPA president Pamela Sandy said that the FPA faced “legal and resource issues … in developing and enforcing standards effectively.”
Sandy noted that the CFP Board, the Securities and Exchange Commission and the Financial Industry Regulatory Authority “all set standards to ensure that those affiliated or bearing their marks are abiding by those standards” and that the FPA will use disciplinary decisions from those certification and regulatory bodies to determine continued membership in the FPA.
“With our limited resources, we have to look  at where our dollars are spent to be most effective,” said Sandy in an interview. Enforcement “was way down on the list” of FPA member desires, she said, compared with demand for professional-development programs.
FPA members can still claim to adhere to the group’s standards, “you just can’t say it’s a requirement to be a member,” Sandy said.
"It was a change they needed to make," said Michael Kitces, well-known industry blogger and partner at the Pinnacle Advisory Group Inc., since the FPA does not have the capability to enforce a code of behavior.
The enforcement issue is a challenge for all advisor organizations, not just the FPA. The CFP Board is the only body with an investigative and enforcement capability.
But even the CFP Board has taken flack for its enforcement efforts, most notably from its 2012 disciplinary proceeding against its then board chairman Alan Goldfarb over compensation disclosure. In a controversial decision, the board's disciplinary panel in 2013 issued a public letter of admonishment to Goldfarb, saying he had misrepresented his compensation as “fee-only” since he was also part owner of a broker-dealer that could receive commissions.