By Robert P. Goss, J.D., CFP
President, Certified Financial Planner Board of Standards

To protect consumers against unethical planners, the CFP Board, a professional regulatory organization, investigates complaints against planners who are licensed by the Board to use the Certified Financial Planner and CFP designations, and suspends or revokes a planner's right to use the CFP designation if he or she is found guilty of unethical behavior. As part of its regulatory oversight of CFP licensees, the CFP Board frequently sees cases that do not involve unethical practice on the part of the planner, but rather occur due to a misunderstanding or difference of opinion between a planner and client over how a recommendation is being handled. The CFP Board initiated the mediation program to allow consumers and their planners the opportunity to work through their disputes at the earliest stage possible to protect the existing relationship or obtain a satisfactory solution in a timely and affordable manner.

What Mediation Is

Mediation is a voluntary process whereby disputing parties can work out their differences with the help of a neutral facilitator. To ensure the process is impartial, the CFP Board selected the American Arbitration Associ-ation (AAA), a 70-year old independent, nonprofit arbitration and mediation organization, to administer the new financial planning mediation program. So that all consumers can benefit from the program, the CFP Board made it available to all financial planning relationships, whether or not the planner involved is a CFP licensee.

Mediation was selected as an effective method of alternative dispute resolution for financial planning disagreements because it provides consumers complete privacy, flexibility and control over the negotiations. Unlike binding arbitration, mediation is a voluntary process. If the disputing parties do not arrive at a mutually satisfying solution, they are free to pursue other remedies, including arbitration or court litigation.

How Mediation Works

A consumer who has had a good relationship with a financial planner, even for many years, can sometimes get into a dispute over the cost, suitability or performance of a particular set of financial planning recommendations. If efforts to reach an agreement fail, the client or planner can call the CFP Board or one of the 38 local AAA offices and request the help of a neutral facilitator to initiate the mediation process. Consumers can also ask the planner to write an "agreement to mediate" clause into the initial contract or engagement letter. By so doing, both parties are assured that if a dispute occurs, mediation will be the first option visited.

If the disputing parties agree to mediation, they will typically split a $300 filing fee and the mediator's fee, which can range from $125-$250 an hour -- costs that are far less than the expense involved in a lawsuit.

Parties can specify the type of mediator they wish to have handle the case. The AAA's 14,000 facilitators include attorneys, retired judges, and experts in various professions and businesses who have been trained in mediation. The mediator's role is that of an objective third party who listens impartially and helps facilitate creative solutions that are mutually agreeable to both sides.

The mediator meets with the client and planner at their convenience, explores the facts of the case, points out strengths and weaknesses in each argument, and suggests possible solutions. The process can be completed in a matter of days or weeks, compared with months or years often spent in lawsuits. Because the process is voluntary and non-binding, the parties can agree on whatever creative solution works best for them; if an agreement isn't reached, either party can terminate the process and seek satisfaction through arbitration or the courts.

An Established Track Record

Although new to the financial planning profession, mediation is well-established in many others, including law, medicine and accounting. In 1995, more than 62,000 cases were filed with the AAA in areas that include finance, health care, real estate, insurance, construction and accounting. Mediation has been enormously successful in all of these fields, with a settlement rate of about 85-90 percent, according to Charles Cooper, a senior vice president at AAA. "Sometimes the mere fact of sitting down with a neutral facilitator can clear up what might be a problem of miscommunication," Mr. Cooper says. "In my opinion, it can work for virtually any type of dispute."

For more information on mediation for financial planning disputes, contact your local AAA office. Or, contact the CFP Board at (888) CFP-MARK or through its web site, www.cfp.net/default.asp.

The CFP Board is a nonprofit professional regulatory organization that benefits and protects the public by establishing and enforcing education, examination, experience and ethics requirements for Certified Financial Planner licensees. The Board owns the federally-registered CFP certification mark and CFP® and Certified Financial Planner® marks and licenses individuals who meet its standards to use them.

The financial planning mediation program is also sponsored by the Institute of Certified Financial Planners (ICFP), the International Association for Financial Planning (IAFP) and the National Association for Personal Financial Advisors (NAPFA).

Benefits of Mediation

• Mediation is a private, voluntary process.

• Mediation is faster and less expensive than arbitration or court litigation.

• Since disputing parties control the outcome, creative solutions can be part of the settlement.

• Mediation can resolve misunderstandings before they destroy a productive relationship.