1 The 15 Standards of Conduct "Duties Owed to Clients"

Question 1

Fiduciary Duty

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Answer 1

1. Duty of Loyalty (place Client’s interests above yours; avoid or disclose/manage conflicts of interest; and act without regard to interests other than the Client’s’s)
2. Duty of Care (act with care, skill, prudence, and diligence in light of the Client’s goals, circumstances, etc)
3. Duty to Follow Client Instructions (comply with terms of the Engagement and all reasonable and lawful directions of the
   Client)

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Question 2

Integrity

Answer 2

• Demands honesty & candor
• Allowance may be made for innocent error and legitimate differences of opinion, but integrity cannot co-exist with deceit or subordination of principle
• Don’t (i) defraud, (2) lie or mislead, (3) “Engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person”

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Question 3

Competence

Answer 3

If you’re “not sufficiently competent in a particular area to provide the Professional Services required under the Engagement”, you must either:
1. Gain competence;
2. Obtain the assistance of a competent professional;
3. Limit or terminate the Engagement; and/or
4. Refer the Client to a competent professional.

Also: You must describe to the Client any requested Professional Services that you won’tbe providing.

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Question 4

Diligence

Answer 4

“A CFP® professional must provide Professional Services, including responding to reasonable Client inquiries, in a timely and thorough manner.”

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Question 5

Disclose and Manage Conflicts of Interest

Answer 5

Disclose Conflicts. A sincere belief that you’re acting in your client’s best interest isn’t good enough.

• Gain the client’s consent (consent to conflicts doesn’t need to be written)
• Ambiguity in the disclosure provided to the Client will be interpreted in favor of the Client.
• Evidence of disclosure will be judged … “as CFP Board deems appropriate”. Written consent is not required.

Manage Conflicts. “A CFP® professional must adopt and follow business practices reasonably designed to prevent Material Conflicts of Interest from compromising the CFP® professional’s ability to act in the Client’s best interests.”

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Question 6

SOUND AND OBJECTIVE PROFESSIONAL JUDGMENT

Answer 6

• Exercise professional judgment on behalf of the Client that is not subordinated to yours or others’ interests.
• Don’t solicit or accept any gift, gratuity, entertainment, non-cash compensation, etc. that could reasonably be expected to compromise your objectivity

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Question 7

PROFESSIONALISM

Answer 7

“A CFP® professional must treat Clients, prospective Clients, fellow professionals, and others with dignity, courtesy, and respect.”

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Question 8

COMPLY WITH THE LAW

Answer 8

A. [Follow the law]
B. Don’t “intentionally or recklessly participate or assist in another person’s violation of these Standards or the laws, rules, or regulations governing Professional Services.”

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Question 9

CONFIDENTIALITY AND PRIVACY

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Answer 9

**A. **Don’t disclose any non-public personal info (NPII) about any prospective, current, or former client except for…
1. For ordinary business purpose
2. For legal and enforcement purposes

**B. **Don’t use NPPI for your direct personal benefit (unless client consents)

**C. **Protect NPPI

**D. ** Implement policies (directly or through your firm) re/ the “protection, handling, and sharing” of a client’s NPPI and provide a client with written notice of those policies at the time of the Engagement. If your policies changed or you disclose NPII without a client’s consent, you must share them “at least once in any 12-month period”

E. Complying with Regulation S-P (or substantially equivalent federal or state laws or rules) is good enough to satisfy this section

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Question 10

PROVIDE INFORMATION TO A CLIENT

Answer 10

A. When providing financial advice (that doesn’t require planning), provide the following before/at Engagement (Doesn’t have to be in writing.) and document that you provided it:
1. A description of the services and products to be provided;
2. How the Client pays for the products and services, and other costs that may occur
3. How you’re compensated
4. Any public discipline or bankruptcy info (and any public websites about it)
5. The info required under Section A.5.a. (Conflict of Interest Disclosure)
6. The info required under Section A.9.d. (Written Notice Regarding Non-Public Personal Information);
7. The info required under Section A.13.a.ii. (Disclosure of Economic Benefit for Referral or Engagement of Additional Persons); and
8. Any other material info about you or your firm that might be relevant to engaging

B. When Providing Financial Planning. For financial planning, you must provide the following (now in written docs and at/before engagement):
1. The information required to be provided above (for advice).
2. Terms of engagement, scope, limitations, timeframe, Client’s responsibilities (you’re responsible for implement, monitor, update unless specifically excluded)

C. Updating Information… Provide any material changes OR disciplinary updates/bankruptcy within ninety (90) days (with links!).

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Question 11

DUTIES WHEN COMMUNICATING WITH A CLIENT

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Answer 11

“A CFP® professional must provide a Client with accurate information, in accordance with the Engagement, and in response to reasonable Client requests, in a manner and format that a Client reasonably may be expected to understand.”

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Question 12

DUTIES WHEN REPRESENTING COMPENSATION METHOD

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Answer 12

Fee-only means:
1. YOU receive no Sales-Related Comp; and
2. Related Parties receive no Sales-Related Comp in connection with any Professional Services you/your firm provides.

Fee-Based: If you say “fee-based” or something similar, you:
1. Can’t make it sound like you’re fee-only; and
2. Must clearly state that you or your firm earns fees and commissions OR that y’all are not fee-only.

B: Sales-related compensation “is a more than de minimis economic benefit you receive from Client doing things per your advice… and has some exceptions
C: Related parties are anyone a reasonable CFP would view as such and is presumed to include family members & business entities
D: Sales-Related Compensation received by a Related Party is “in connection with any Professional Services” if it results, directly or indirectly, from Client transactions referred or facilitated by YOU or the YOUR FIRM
E: Safe Harbor for Related Parties if you take measures to prevent recommending them
F: If you control your firm, you can’t let it misrepresent compensation methods; if you don’t, you have to at least correct your firm when you talk to clients

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Question 13

DUTIES WHEN RECOMMENDING, ENGAGING, AND WORKING WITH ADDITIONAL PERSONS

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Answer 13

When you refer someone, you must:
1. Have a reasonable basis to do so
2. Disclose any comp arranagements [conflicts of interest]
3. Exercise care to protect the client’s interests

When working with another pro, you must:
1. Inform client of their scope
2. Inform client “in a timely manner” if they’re sucking

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Question 14

DUTIES WHEN SELECTING, USING, AND RECOMMENDING TECHNOLOGY

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Answer 14

1. Exercise care & judgment with recommending tech
2. Have a reasonable understanding of its assumptions & outcomes
3. Reasonably believe it produces reliable, objective, appropriate outcomes

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Question 15

REFRAIN FROM BORROWING OR LENDING MONEY AND COMMINGLING FINANCIAL ASSETS

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Answer 15

1. Don’t borrow/lend with clients unless (a) they’re family or (b) the lender (whether you or Client) is in the lending biz
2. Don’t comingle Client assets with your or Firm assets

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