A.1 CFP Board’s Code of Ethics and Standards of Conduct

Question 1

According to the CFP Board’s Standards of Professional Conduct, which of the following is NOT a duty owed to clients by a CFP professional?A) Duty of careB) Duty of loyaltyC) Duty of confidentialityD) Duty of impartiality

Answer 1

Duty of impartialityExplanation: The CFP Board’s Standards of Professional Conduct require CFP professionals to provide a duty of care, loyalty, and confidentiality to their clients. The duty of impartiality is not explicitly listed as a duty owed to clients.

Question 2

According to the CFP Board’s Standards of Professional Conduct, which of the following is an example of a potential conflict of interest that a CFP professional should disclose to a client?A) Owning shares of a mutual fund that the client is considering investing inB) Belonging to a different political party than the clientC) Disliking the client’s spouseD) Living in a different state than the client

Answer 2

Owning shares of a mutual fund that the client is considering investing inExplanation: The CFP Board’s Standards of Professional Conduct require CFP professionals to disclose any potential conflicts of interest to their clients, including owning shares of a security that the client is considering investing in.

Question 3

According to the CFP Board’s Standards of Professional Conduct, which of the following is a requirement for a CFP professional who provides financial planning services?A) The professional must have a fiduciary relationship with the clientB) The professional must guarantee that the client will achieve their financial goalsC) The professional must only provide advice on investmentsD) The professional must charge the same fee for all clients

Answer 3

The professional must have a fiduciary relationship with the clientExplanation: The CFP Board’s Standards of Professional Conduct require CFP professionals who provide financial planning services to act as fiduciaries, meaning they must act in the best interests of their clients.

Question 4

According to the CFP Board’s Standards of Professional Conduct, what is the minimum requirement for disclosing conflicts of interest to a client?A) The disclosure must be made orallyB) The disclosure must be made in writingC) The disclosure must be made in personD) The disclosure is not required

Answer 4

The disclosure must be made in writingExplanation: The CFP Board’s Standards of Professional Conduct require CFP professionals to disclose any potential conflicts of interest to their clients in writing.

Question 5

According to the CFP Board’s Standards of Professional Conduct, which of the following is a requirement for a CFP professional who provides investment advice?A) The professional must have a fiduciary relationship with the clientB) The professional must guarantee a specific rate of return on investmentsC) The professional must only recommend investments that they personally ownD) The professional must provide investment advice for free

Answer 5

The professional must have a fiduciary relationship with the client Explanation: The CFP Board’s Standards of Professional Conduct require CFP professionals who provide investment advice to act as fiduciaries, meaning they must act in the best interests of their clients.

Question 6

According to the CFP Board’s Standards of Professional Conduct, which of the following is NOT a principle of ethical behavior for CFP professionals?A) IntegrityB) ObjectivityC) CompetenceD) Extravagance

Answer 6

ExtravaganceExplanation: The CFP Board’s Standards of Professional Conduct require CFP professionals to adhere to principles of ethical behavior, including integrity, objectivity, and competence. Extravagance is not a principle of ethical behavior.

Question 7

According to the CFP Board’s Standards of Professional Conduct, what is the maximum amount of compensation that a CFP professional may receive for recommending a particular product or service to a client?A) There is no limit on compensationB) The compensation must be reasonable and not excessiveC) The compensation must be less than 1% of the total investmentD) The compensation must be disclosed to the client, but there is no limit

Answer 7

The compensation must be reasonable and not excessiveExplanation: The CFP Board’s Standards of Professional Conduct require CFP professionals to disclose any compensation they receive for recommending a particular product or service to a client, and the compensation must be reasonable and not excessive.

Question 8

According to the CFP Board’s Standards of Professional Conduct, what is the minimum requirement for maintaining client confidentiality?A) Confidentiality must be maintained at all times, unless the client gives explicit permission to disclose informationB) Confidentiality must be maintained unless required by law to disclose informationC)Confidentiality must be maintained unless the information is already publicly availableD) Confidentiality is not required

Answer 8

Confidentiality must be maintained unless required by law to disclose informationExplanation: The CFP Board’s Standards of Professional Conduct require CFP professionals to maintain client confidentiality, unless required by law to disclose information.

Question 9

According to the CFP Board’s Standards of Professional Conduct, what is the minimum requirement for providing clear and accurate communication to clients?A) Communication must be provided in writingB) Communication must be provided in personC) Communication must be provided in a manner that the client can understandD) Communication is not required

Answer 9

Communication must be provided in a manner that the client can understandExplanation: The CFP Board’s Standards of Professional Conduct require CFP professionals to provide clear and accurate communication to clients, in a manner that the client can understand.

Question 10

According to the CFP Board’s Standards of Professional Conduct, which of the following is required for a CFP professional providing financial planning services?A) The professional must have a fiduciary relationship with the clientB) The professional must guarantee that the client will achieve their financial goalsC) The professional must only provide advice on investmentsD) The professional must charge the same fee for all clients

Answer 10

The professional must have a fiduciary relationship with the client Explanation: The CFP Board’s Standards of Professional Conduct require CFP professionals who provide financial planning services to act as fiduciaries, meaning they must act in the best interests of their clients.

Question 11

Lisa, a CFP professional, has been working with a client for several months to develop a comprehensive financial plan. During a recent meeting, the client reveals that they have a terminal illness and may not live long enough to see the plan through. What should Lisa do?A) Recommend the client to seek a second opinionB) Inform the client that the plan can no longer be executedC) Review the plan with the client to ensure that their wishes are reflected in itD) Ignore the client’s revelation and continue with the financial planning process.

Answer 11

Review the plan with the client to ensure that their wishes are reflected in it Explanation: Lisa should prioritize the client’s immediate needs and revise the plan accordingly. The CFP Board’s Standards of Professional Conduct require CFP professionals to act in the best interests of their clients, and in this case, the client’s health needs have become the priority. Lisa should revise the financial plan to reflect the client’s current situation and help the client make any necessary changes to ensure their affairs are in order before passing.

Question 12

John, a CFP professional, has been approached by a wealthy client who is interested in investing a large sum of money in a high-risk, high-return investment opportunity. John knows that the investment is risky and may not be suitable for the client’s financial goals, but he also stands to earn a large commission on the sale. What should John do?A) Disclose the risks associated with the investment and recommend alternative options that align with the client’s financial goalsB) Sell the investment to the client, as it could earn John a large commissionC) Persuade the client to invest in the opportunity, as it could provide a quick return on investmentD) Consult with other professionals in the industry to get their opinion on the investment opportunity.

Answer 12

Disclose the risks associated with the investment and recommend alternative options that align with the client’s financial goals Explanation: John should recommend an investment that is suitable for the client’s financial goals, risk tolerance, and investment horizon, rather than solely considering his commission. The CFP Board’s Standards of Professional Conduct require CFP professionals to put their clients’ interests ahead of their own, which means recommending investments that are suitable and in the client’s best interest. John should disclose any potential conflicts of interest and recommend alternative investments that are better suited to the client’s needs.

Question 13

Sarah, a CFP professional, has a client who has expressed interest in investing in a new startup that they believe has the potential to be very profitable. Sarah is aware that investing in startups is high-risk and speculative, and that the client may lose all of their money. What should Sarah do?A) Advise the client against investing in the startup due to the high risk and speculative nature of startup investments.B) Encourage the client to invest in the startup, but only a small amount of money.C) Conduct thorough research on the startup before advising the client on whether or not to invest.D) Provide the client with a list of other investment opportunities that are less risky than startup investments.

Answer 13

Conduct thorough research on the startup before advising the client on whether or not to investExplanation: As a CFP professional, Sarah has a fiduciary duty to act in the best interest of her client. Therefore, it is important for her to conduct thorough research on the startup to assess the potential risks and rewards associated with the investment. This will allow her to provide her client with informed advice on whether or not to invest in the startup. Simply advising against investing or providing a list of other investment opportunities may not be sufficient, as the client may still be interested in pursuing the startup investment. Encouraging the client to invest a small amount of money may not be appropriate either, as this could still result in a significant loss for the client.

Question 14

Which of the following is the role of the CFP Board’s Standards of Professional Conduct?A) Provide guidelines for marketing financial productsB) Set ethical principles and rules of conduct for CFP professionalsC) Provide investment advice to clientsD) Set minimum education requirements for financial professionals

Answer 14

Set ethical principles and rules of conduct for CFP professionals

Question 15

What are the consequences of violating the CFP Board’s Standards of Professional Conduct?A) Suspension of certification for a period of timeB) Revocation of certificationC) Legal actionD) All of the above

Answer 15

All of the above

Question 16

Which of the following actions is a violation of the CFP Board’s Standards of Professional Conduct?A) Recommending a product that is suitable for a client, but not the best option availableB) Providing investment advice based on a client’s best interestsC) Disclosing all relevant conflicts of interest to a clientD) None of the above

Answer 16

Recommending a product that is suitable for a client, but not the best option available

Question 17

Which of the following is a requirement of the CFP Board’s Standards of Professional Conduct?A) Providing a guarantee of investment returns to clientsB) Providing ongoing monitoring of client investmentsC) Acting with integrity and professionalismD) Providing tax advice to clients

Answer 17

Acting with integrity and professionalism

Question 18

Which of the following is a potential consequence of a CFP professional engaging in fraudulent behavior?A) Revocation of certificationB) Suspension of certificationC) Legal actionD) All of the above

Answer 18

All of the above

Question 19

Which of the following is a requirement of the CFP Board’s Code of Ethics?A) Providing investment returns that exceed market benchmarksB) Disclosing all potential conflicts of interest to clientsC) Providing a guarantee of investment returns to clientsD) Maximizing profits for a financial institution

Answer 19

Disclosing all potential conflicts of interest to clients Explanation: This is a requirement under the CFP Board’s Code of Ethics and Standards of Conduct to ensure transparency and to avoid potential conflicts of interest that could negatively impact clients.

Question 20

Which of the following is a requirement of the CFP Board’s Code of Ethics?A) Providing investment returns that exceed market benchmarksB) Disclosing all potential conflicts of interest to clientsC) Providing a guarantee of investment returns to clientsD) Maximizing profits for a financial institution

Answer 20

Disclosing all potential conflicts of interest to clients Explanation: This is a requirement under the CFP Board’s Code of Ethics and Standards of Conduct to ensure transparency and to avoid potential conflicts of interest that could negatively impact clients.

Question 21

Jason is a CFP professional who is also a member of a country club where many of his clients are also members. One of his clients recently asked him to help them get a membership at the club. What should Jason do?A) Help the client get a membership as it is a reasonable requestB) Disclose to the client that he is a member of the club and that he will not be able to provide any special treatmentC) Decline the request as it creates a potential conflict of interestD) Ask the client to recommend him to other potential clients

Answer 21

Disclose to the client that he is a member of the club and that he will not be able to provide any special treatment Explanation: Jason should disclose the potential conflict of interest to his client to ensure transparency and avoid any perceived favoritism.

Question 22

Michael is a CFP professional who has recently discovered that one of his clients has been committing tax fraud. What should Michael do?A) Ignore the situation as it is not his responsibilityB) Report the client to the authorities as it is illegalC) Advise the client to stop committing tax fraudD) Discuss the situation with the client and suggest they consult with a tax attorney

Answer 22

Discuss the situation with the client and suggest they consult with a tax attorney Explanation: Michael should work to understand the situation and advise his client on the appropriate next steps, which may include seeking legal counsel.

Question 23

Jennifer is a CFP professional who has been working with a client for several years. The client has recently expressed interest in investing in a company that Jennifer has invested in herself. What should Jennifer do?A) Recommend the investment to the client as it is a good opportunityB) Disclose the potential conflict of interest to the client and seek their consent before investingC) Decline to discuss the investment with the clientD) Sell her own investment to avoid any potential conflict of interest

Answer 23

Disclose the potential conflict of interest to the client and seek their consent before investingExplanation: Jennifer should disclose the potential conflict of interest to her client and seek their consent before investing, to ensure transparency and avoid any perceived favoritism.

Question 24

Sarah is a CFP professional who has been working with a client for several years. The client has recently asked Sarah to provide investment advice on a company that Sarah used to work for. What should Sarah do?A) Provide investment advice to the client as she is knowledgeable about the companyB) Decline to provide investment advice on the company as it creates a potential conflict of interestC) Provide investment advice on the company, but disclose her previous employment to the clientD) Ask the client to recommend her services to other potential clients

Answer 24

Provide investment advice on the company, but disclose her previous employment to the client Explanation: Sarah should provide investment advice to the client, but disclose her previous employment to the client to ensure transparency and avoid any perceived conflict of interest.

Question 25

Which of the following is an example of prohibited conduct for financial planners? A) Providing a client with a disclosure statementB) Failing to renew a license on timeC) Insider tradingD) Recommending an investment that is not suitable for the client

Answer 25

Insider tradingIt is illegal for financial planners to engage in insider trading, which involves trading on informatino that is not available to the public.

Question 26

What does the CFP Board’s Code of Ethics require of CFP® professionals?A) To only act in the interest of the plannerB) To act in the client’s best interest with honesty, integrity, competence, and diligenceC) To charge the highest possible fee for their serviceD) To always refer clients to other professionals

Answer 26

To act in the client’s best interest with honesty, integrity, competence, and diligenceExplanation: The CFP Board’s Code of Ethics requires that CFP® professionals act in the client’s best interest, demonstrating honesty, integrity, competence, and diligence.

Question 27

The CFP Board’s Code of Ethics requires that CFP® professionals act in the client’s best interest, demonstrating honesty, integrity, competence, and diligence.A) Ms. Meyers has limited experience.B) Ms. Meyers did not disclose her brother’s involvement in the project.C) Mr. Green received a large inheritance.D) The real estate project failed.

Answer 27

Ms. Meyers did not disclose her brother’s involvement in the projectExplanation: While there are various elements in the story, the primary ethical issue is the failure to disclose the conflict of interest.

Question 28

Case Study: The Case of Ms. Clara MeyersBackground:Ms. Clara Meyers is a Certified Financial Planner (CFP) with over 20 years of experience in the industry. She operates a solo practice and has built a strong reputation in her community. Over the years, she has managed to attract a sizeable clientele, many of whom are high-net-worth individuals.Situation:In early 2023, Ms. Meyers was approached by a new client, Mr. Samuel Green, who had recently received an inheritance of $2 million. Mr. Green was relatively inexperienced in financial matters and sought guidance on how to best invest and manage his newfound wealth.After an initial discussion, Ms. Meyers recommended a diversified portfolio. She also suggested investing a portion of the inheritance in a real estate development project which she believed had promising returns. Ms. Meyers failed to disclose, however, that her brother was one of the main developers of the project.A year later, the real estate project ran into unforeseen complications. The project faced legal challenges and subsequent delays, jeopardizing the investments. As the value of Mr. Green’s investment diminished, he began to research the project and discovered the connection between Ms. Meyers’s brother and the development.Mr. Green felt betrayed and filed a complaint against Ms. Meyers, accusing her of a conflict of interest.Question: Which CFP Standard of Professional Conduct did Ms. Meyers most likely violate? A) Duty of CareB) Duty of LoyaltyC) Duty of DisclosureD) Duty of Confidentiality

Answer 28

Duty of DisclosureExplanation:Ms. Meyers failed to disclose her personal relationship to the real estate development project, which represents a conflict of interest.