CFP Board Suspends Topeka Financial Adviser Mark Schneider

By Michael Hooper

The Certified Financial Planner Board of Standards recently imposed an interim suspension of Mark A. Schneider's CFP certification, effective Oct. 19, 2017.

                                 Mark A. Schneider

For many years, Mark Schneider has operated Plan Professionals in the Columbian Building, at 6th and Kansas, Topeka.

The CFP Board's action, announced on Oct. 31, 2017, came as a result of finding out about the Kansas Securities Commissioner's order in 2015 requiring Schneider to pay $94,720.60 to a client for losses incurred by using nontraditional Exchange Traded Funds. Schneider also had to pay a fine for $25,000 for violating Kansas securities law.

The CFP Board said it imposed an automatic interim suspension after discovering that Schneider entered into a consent order with the Kansas Securities Commissioner without admitting or denying the following findings by KSC: 

1) Schneider’s firm charged clients an assets under management fee on accounts that held funds solely in a money market account; 

2) Schneider failed to manage clients’ accounts in accordance with the clients’ investment objectives and utilized investment strategies that could not offer returns sufficient to cover the fees charged by Schneider’s firm;

3) Schneider’s firm failed to maintain a positive net worth and failed to notify the Kansas Securities Commissioner of its negative net worth in a timely fashion;

4) Schneider failed to update his Form U4 to disclose two customer complaints, two civil judgments, a Notice of Intent filed by the Kansas Securities Commissioner and the final order arising out of the Notice of Intent. 

Under the terms of the consent order, The Kansas Securities Commissioner revoked Schneider’s firm’s registration as an investment adviser; and permanently barred Schneider and his firm’s registration as, or any association with, a broker-dealer or investment adviser in Kansas.

Under the CFP's automatic interim suspension order, Schneider’s right to use the CFP certification is suspended pending CFP Board’s completed investigation and possible further disciplinary proceedings.

This morning, Schneider's LinkedIn account still listed his CFP certification under "Certifications."

There is a lot of detail about Schneider's problems in the Kansas Securities Commissioner's order. 

The order says that a couple in Topeka were longtime clients of Schneider. For many years, their investments were largely conservative, with cash and large cap mutual funds.

The husband was dying from a disease he had been coping with for a long time. Schneider advised the couple to take out substantial life insurance policies. When the husband died in 2010, the wife collected $1.2 million in insurance proceeds.

In May 2010, Schneider developed a plan for her. She wasn't working and still had kids in school, so she needed income. He determined that she had insufficient assets for her long term income needs and needed to grow her assets. Shortly thereafter, Schneider liquidated her positions and invested her portfolio in leverage and inverse Exchange Traded Funds, also known as non-traditional ETFs. He put stop losses on the ETFs, added more stop losses and then lifted the stop losses altogether. In some cases, he held these nontraditional ETFs for over 100 days, but the ETFs were typically for sophisticated investors trading and holding only one day.

FINRA said in 2009 nontraditional ETFs may be useful in some sophisticated trading strategies, they are highly complex financial instruments and are unsuitable for retail clients who plan to hold them more than one trading session, particularly in volatile markets.

Schneider said there was no difference in the level of care needed for nontraditional ETFs than other products. He believes the risk from the product came from the market, not the product. Nonetheless, Schneider placed all of his 160 retail clients in nontraditional ETFs.

Jack Duval, an expert witness, testified at his hearing that nontraditional ETFs are not suitable for investors who need income and growth. Holding non traditional ETFs for more than a day would constitute a breach in the fiduciary duty of the investment adviser, Duval said. Schneider was asked if he knew what was a "constant leverage trap." At first he wouldn't answer, then he said, "no." During the hearing, Schneider appeared arrogant and made no recognition that he might have been wrong in using nontraditional ETFs, the state's order said.

Leveraged ETFs are exchange traded funds that borrow money, with the hope of enhancing returns for clients. Leverage will increase the risk of the fund because the fund has to pay interest on the borrowed money and has to pay it back. 

An inverse ETF works in the opposite direction of a traditional ETF. For example, QQQ is a popular ETF that tracks the Nasdaq. PSQ is an inverse ETF that bets on QQQ declining. PSQ suffered a 65% loss over the past five years.

Bears have gotten slaughtered in recent years as the S&P 500 has tripled in value since 2009. The Nasdaq is up 400% since 2009.