1 CFP Ethics & Standards Flashcards
CFP Code of Ethics
A CFP® professional must:
1. Act with honesty, integrity, competence, and diligence.
2. Act in the client’s best interests.
3. Exercise due care.
4. Avoid or disclose and manage conflicts of interest.
5. Maintain the confidentiality and protect the privacy of client information.
6. Act in a manner that reflects positively on the financial planning profession and CFP® certification.
Activity And Exercise Avoids Many Ailments
Fiduciary Duty
1. Duty of Loyalty (see 3 components below)
2. Duty of Care - act w/ care, skill, prudence, and diligence that a prudent professional would exercise in light of the Client’s goals, risk tolerance, objectives, and financial and personal circumstances.
3. Duty to Follow Client Instructions: …comply with all objectives, policies, restrictions, and other terms of the Engagement and all reasonable and lawful directions of the Client.
Duty of Loyalty includes:
1. Place the interests of the client above you and your firm
2. Avoid Conflicts of Interest or fully disclose Material Conflicts of Interest to the Client, obtain the Client’s informed consent, and properly manage the conflict; and
3. Act without regard to the financial or other interests of you, your firm, or anyone other than the Client, which means that you acting under a Conflict of Interest continue to have a duty to act in the best interests of the Client and place the Client’s interests above your own.
Duties Owed to Clients
Section A:
2. 1. Fiduciary Duty
2. Integrity
3. Competence
4. Diligence
5. Disclose and Manage Conflicts of Interest
6. Sound and Objective Professional Judgment
7. Professionalism
8. Comply with the Law
9. Confidentiality and Privacy
10. Provide Information to a Client
11. Duties When Communicating with a Client
12. Duties When Representing Compensation Method
13. Duties When Recommending, Engaging, and Working with Additional Persons
14. Duties When Selecting, Using, and Recommending Technology
15. Refrain from Borrowing or Lending Money and Commingling Financial Assets
If a CFP® professional otherwise must comply with the Practice Standards, but the Client does not agree to engage the CFP® professional to provide Financial Planning, the CFP® professional must either:
- Not engage;
- Limit the engagement (and explain how);
- Still perform the requested services after informing the Client they’ll be limited (now you don’t have to comply with the Practice Standards); or
- Terminate the engagement.
Practice Standards for the Financial Planning Process
- Understand the Client’s Personal and Financial Circumstances
- Identify and Select Goals
- Analyze the Client’s Current Course of Action and Potential Alternative Course(s) of Action
- Develop the Financial Planning Recommendation(s)
- Present the Financial Planning Recommendation(s)
- Implement the Financial Planning Recommendation(s)
- Monitor Progress and Update
Code of Ethics & Standards of Conduct Section C
“PRACTICE STANDARDS FOR THE FINANCIAL PLANNING PROCESS”
When does fiduciary duty apply?
When you give financial advice (or planning)
When do the practice standards apply?
When the client agrees to financial planning.
Fee-Based
You can use this term if you earn any sales-related compensation, but you can’t be misleading with it. You CANNOT use the term “Fee-Only”.
Definition of Financial Planning
Financial planning is a collaborative process that helps maximize a Client’s potential for meeting life goals through Financial Advice that integrates relevant elements of the Client’s financial and personal circumstances.
Duties to Firms & Subordinates?
- Use Reasonable Care When
Supervising - Comply with Lawful Objectives
of CFP® Professional’s Firm - Provide Notice of Public Discipline
What qualifies as financial advice?
A) A communicate that could be perceived as a rec to do something regarding:
* A financial plan
* Investing
* The selection and retention of other persons to provide financial or Professional Services to the Client; or
B) Discretionary authority over the Client’s assets
What are you required to disclose when providing financial advice?
What are you required to disclose when providing financial planning?
Sales-Related Compensation
Sales-Related Compensation is more than a de minimis economic benefit from from…
1. a Client purchasing or selling Financial Assets
2. a Client holding Financial Assets for purposes other than receiving Financial Advice
3. the referral of a Client to any person or entity other than the CFP® Professional’s Firm.
Sales-Related Compensation includes, for example:
1. commissions
2. trailing commissions
3. 12b-1 fees
4. spreads
5. transaction fees
6. revenue sharing
7. referral or solicitor fees
8. etc
Sales-Related Compensation does not include:
1. Soft dollars (any research or other benefits received in connection with Client brokerage that qualifies for the “safe harbor” of Section 28(e) of the Securities Exchange Act of 1934);
2. Reasonable and customary fees for custodial or similar administrative services if the fee or amount of the fee is not determined based on the amount or value of Client transactions;
3. Non-monetary benefits provided by another service provider, including a custodian, that benefit the CFP® professional’s Clients by improving the CFP® professional’s delivery of Professional Services, and that are not determined based on the amount or value of Client transactions;
4. Reasonable and customary fees for Professional Services, other than for solicitations and referrals, the CFP® professional or CFP® Professional’s Firm provides to a Client that are collected and distributed by another service provider, including under a Turnkey Asset Management Platform; or
5. A fee the Related Party solictor receives for soliciting clients for the CFP® professional/firm.
factors that CFP Board will weigh in determining whether a CFP® professional has agreed to provide or provided Financial Advice that Requires Financial Planning
Include:
1. The number of relevant elements of the Client’s personal and financial circumstances that the Financial Advice may affect;
2. The portion and amount of the Client’s Financial Assets that the Financial Advice may affect;
3. The length of time the Client’s personal and financial circumstances may be affected by the Financial Advice;
4. The effect on the Client’s overall exposure to risk if the Client implements the Financial Advice; and
5. The barriers to modifying the actions taken to implement the Financial Advice.
