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Madoff Ponzi Scheme Prompts Calls to Regulate Financial Planners

Apr 30, 2009 | Parker Waichman LLP In the wake of the Bernard Madoff Ponzi scheme debacle, a group of financial planning organizations is calling for stricter oversight of money managers.  The coalition, made up of the National Association of Personal Financial Advisors, the Financial Planning Association and the Certified Financial Planner Board of Standards Inc., is advocating for the formation of a national oversight board to set standards and enforce fiduciary duty for financial planners.

Madoff pleaded guilty to 11 fraud counts on March 12. The former chairman of the Nasdaq stock exchange ran an investment advisory business for decades that was, in reality, a Ponzi scheme. Last November, Madoff told his investors that his fund held more than $64 million, but in reality, he only had a fraction of that amount.

The Madoff scandal, along with some smaller Ponzi schemes and the global banking meltdown, has  hurt the reputation of financial planners, the coalition said.  The group also pointed out that the current patchwork regulation of financial advisers and lack of clarity around the qualifications of financial advisers creates confusion for investors.

According to The Wall Street Journal, the group, which goes by the moniker the Financial Planning Coalition, said they've been holding exploratory meetings with lawmakers, regulators and consumer organizations. They're aiming to influence decisions about financial industry reform, the Journal said.

The regulatory organization the coalition seeks would set ethical and competency standards for financial planners. It would also create rules requiring financial planners to put their clients' interests first.  As proposed by the coalition, the regulatory board would oversee individuals who provide financial planning services - not financial planning firms.  The organization would be overseen by the Securities and Exchange Commission (SEC), and it would not replace existing regulators, such as states and the SEC, the Journal said.

According to, the group is trying to prevent the Financial Industry Regulatory Authority (FINRA), a non- governmental body that oversees almost 5,000 brokerage firms, from taking on the oversight of financial planners.  The group points out that because FINRA is charged with weighing  suitability of financial products, it has inherent conflicts of interest because brokers sell products.

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