Austin Ethics and Practice Standards Flashcards
Client vs Advisor Perception
CFP Board Rules about Perception:
1. if the client perceives that he has entered into a financial planning agreement with the CFP then the CFP must follow practice standards
2. The CFP’s perception DOES NOT MATTER… only if the client believes that they are in a planning arrangement
Required Disclosured BEFORE providing financial advice
- How CFP and firm is compensated for providing products/ services
- How client pays for products, services, surrender, sales loads, etc
- Referral fees or arrangements where advisor benefits from 3rd party not related to engagement
- Any information about CFP or firm that is material for a client to engage with CFP (oral OR in writing)
- existence of any bankruptcies of CFP
- Disclosure of economic benefit for referral or engagement of additional persons
- Terms of any engagement and any limits
- Description of services and products provided
- disclose any third parties that will be used during the engagement
Always vs Presumptive Bar
Conduct that will ALWAYS bar CFP:
1. Felony of Tax Fraud or Tax Related Crime
2. Felony of Murder or Rape
3. Felony of ANY violent crime in last 5 years
4. Revocation of financial professional license
Presumptive Bar (Presumed to be Unacceptable):
1. 2 or more personal bankruptcies
2. Revocation of a NON-FINANCIAL professional license
3. Felony Conviction of violent or nonviolent crime (unless rape or murder which is ALWAYS Bar)
The Disciplinary and Ethics Commission’s decision regarding a petition CAN BE APPEALED (Appeals committee of Board of Directors)
Disclosing and Reporting Bankruptcies
- Bankruptcy must ALWAYS be disclosed to the CFP Board so they can investigate in writing within 30 days
- Bankruptcy must be disclosed to clients when providing financial advice
- 2 or more bankruptcy is PRESUMPTIVE bar (a single bankruptcy IS NOT presumptive bar)
- IRS Liens MUST be disclosed to the board within 30 days
CFPs Relationship with other CFPs
Differences in opinion/ Recommendations
1. Significant differences in recommendations between planners are acceptable, as long as the recommendations reasonably meet the client’s goals, needs and priorities.
**If Clients Previous CFP made mistakes: **
1. First, you must discuss services….do not do anything until that person has entered into an arrangement
2. If the person is a client, inform the client of the situation
Disallowed Actions/ Terminology
Advisor CANNOT borrow from clients or lend to clients UNLESS:
1. If client is a family memebr of the CFP
2. Client is a financial institution
Terms:
1. CANNOT use term “Fee Contingent”
2. Client-Advisor Privilege is NOT A THING. if client ask, explain that it is not a real thing
Actions:
1. Cannot use CFP in URL or EMAIL address
2. Cannot add RIA after name
Limit the scope of the engagement
When to limit scope of engagement:
1. if CFP and client cannot agree on assumptions made in planning proccess
2. If client is not willing to provide necessary information for plan
If the client is completely unwilling to provide NECESSARY information, Shake hands and say that it may not be a good fit
When Monitoring Client’s Plan
- CFP should be aware that goals and goal attainment will change over time
- If client goals are no longer attainable; revisit and explore additional opportunities
- If CFP suspects dimentia; CONTACT CLIENT’S ATTORNEY
RIA to Prospects
- CFP MUST deliver brochure/ Copy of ADV to prospects
- Should deliver form ADV BEFORE engagement and include as part of the financial planning engagement disclosures
- SEC regulates the form ADV
CFP Mark Revoked or Suspended
- CFP must notify Employer
- CFP must notify Clients
NO NEED to notify the SEC
Reasons a CFP CAN reveal client information
People that CFP can disclose client information to:
1. To Carry out a transaction for the client
2. to comply with legal requirements
3. to defend the CFP in a CIVIL dispute with client
4. To Defent the CFP agains charges of wrongdoing
5. To people within the CFP Firms or to that persons attorney; accountants; or other professionals brought into relationship
Power of Attorney:
1. A CFP may disclose personal and private financial information to a documented power of attorney
2. Can disclose to someone acting in a representative capacity on behalf of client
Developing Rapport (are CFP and Prospect a good fit?)
Rapport MUST be established before a prospect and client begin working together
Rapport Requires:
1. Unconditional positive regard
2. ability to align moral values (CFP should not feel like they are setting aside morals)
If CFP feels that they CANNOT establish a good working relationship, best to recommend a different planner that is better fit
Functions of the CFP Board Code of Ethics
- Benefit customers/ clients
- prescribe a standard of conduct to be provided
- to establish a fiduciary standard
Implementation of Code of Ethics and Standards of Conduct:
1. Firms that employ CFPs ARE NOT required to abide by the standards
2. If CFP is starting a new practice and concerned with liability; the answer is ALWAYS ACT IN ACCORDANCE WITH FIDUCIARY STANDARD!
3. If ALWAYS act in a fiduciary is not available; CHOOSE FINANCIAL ADVICE!
What MUST be in writing (Financial Advice vs Financial Plan)
Financial Advice Relationship:
1. Privcy Policy
Financial Planning Relationship:
1. Privacy Policy
2. Disclosure of Compensation; How the client pays/ all types of compensation
3. Duration of Engagement
4. terms of the engagement
Conflicts of Interest
Definition of Conflict of Interest:
1. A conflict that could impact advice given by the CFP® professional or cause potential harm.
2. Material: Could cause harm or impact potential advice
General
1. Conflicts of Interest MUST be disclosed, but can be done orally or in writing
2. Conflicts of Interest must be disclosed before providing services and as material conflicts occur
3. must be disclosed immediately as they arise in the planning or advising relationship
4. CONFLICTS OF INTEREST ARE OK!!!! BUT MUST BE DISCLOSED
Examples:
1. Referring a client to the services of a current client of yours
