CFP Board Flash Docs Flashcards
Code of Ethics – A CFP® professional MUST:
– Honesty, Integrity, Competence, and DILIGENCE
– Client BEST INTEREST
– DUE CARE
– CONFLICT OF INTEREST (management, avoidance, disclosure)
– PROTECT client privacy and confidence
_ Act in a manner that reflects positively on the profession
Fiduciary Duty =
DUTY OF LOYALTY + DUTY OF CARE = DUTY TO FOLLOW CLIENT INSTRUCTIONS
When does the Fiduciary Duty apply?
When providing advice.
When does the fiduciary duty NOT apply?
When NOT providing financial advice, BUT the CODE OF ETHICS and OTHER STANDARDS applies.
What is Financial Advice?
A communication that is viewed as a recommendation that a client take or not take a course of action.
- Development/implementation of a Financlial Plan
- Advising on assets
- Selection, retention, or referral to other professionals
Exercise of discretional authority
What is NOT financial advice?
Communications that are NOT recommendations
Responses to directed orders (e.g., send tax returns to my accountant, unsolicitied trades)
If contextually not advice:
- Marketing Materials
- General Financial Education
- General Financial Communications
What is a financial planning engagement?
- Providing financial planning
- Integration of client personal life and financial factors in order to act in the client’s best interests
- If the client believes you are providing or will provide financial planning
What do you do if the client doesn’t agree to engage you for Financial Planning?
– Don’t enter into an engagement
OR
– Limit the Scope of Engagement to services that do not apply to
– the Practice Standards for the Financial Planning Process AND
– describe the services that will/will not be performing AND
– provide those services
OR
– Terminate the engagement
Practice Standards for the Financial Planning Process (the cycle)
- Understand the Client’s Personal and Financial Circumstances
- Identify and Select Goals
- Analyze the Client’s CURRENT course of action AND potential ALTERNATIVE course of action
- Develop the Fiancial Plan Recommendations
- Present/communication the Financial Plan Recommendation
- Implement the Financial Planning Recommentations
- Monitor Progress and update
… back to step 1.
*** WHEN IN DOUBT, DOCUMENT DOCUMENT DOCUMENT ***
Acceptable Documentation
Options include:
- CRM software
- Handwritten notes
- emails
Duty to Provide Information related to:
Financial ADVICE
IN WRITING:
– Privacy Policy
ORALLY OR in writing:
- Material Conflicts of Interest
- Services and Products
- How the client pays
- How the advisor, firm and related parties are compensated
- Public Discipline and Bankruptcy
- Referral Comp Arrangements
- Other Material information
Duty to Provide Information related to:
Financial PLANNING
ORALLY OR in writing:
– Privacy Policy
in WRITING:
- Material Conflicts of Interest
- Services and Products
- How the client pays
- How the advisor, firm and related parties are compensated
- Public Discipline and Bankruptcy
- Referral Comp Arrangements
- TERMS OF ENGATEMENT (Implement, Monitor, Update, etc UNLESS explicitly excluded
- Other Material information
Step 1: Understanding Personal and Financial Circumstances
- Obtain qualitative and quantitative info
- Analyze Information
- Address incomplete information
Qualitative/Subjective Information
Health Life expectancy
Family cirucmstances
Values Attitudes Expectations
Earnings potential
Risk tolerance
Goals, needs and priorities
Current Course of Action
Quantitative/Objective Information
Age, Dependents
Other professionals
Income/Expenses
Cash flow/Savings
Assets/Liabilities
Available Resources
Liquidity Taxes
Employee Benefits
Governement Benefits
Insurance Coverage
Estate Plans
Capacity for Risk
Education and retirement accounts and benefits
Step 2: Identify and Select Goals
- Review assessment of personal and financial information
- Develop and aggree on reasonable assumptions and estimates
- Life expectancy,
- Inflation rates,
- tax rates,
- investment returns
- review and priortize goals
Step 3: Analyze Current Course of Action and Potential Alternatives
1 Current Course
Advantages and disadvantages
Ability to meet goals
2 Alternatives
Advantages and disadvantages
How relevant
Note: Alternatives do not become a recommendation until Step 4
Step 4: Develop Financial Planning Recommendations
One or more recommendations designed to maximize the potential for meeting the client goals.
Use assumptions
Clarify basis, timing and priority
Clarify interdepndencies with other recommendations.
Step 5: Present the Financial Planning Recommendations
May be Orally, In writing, in person, over the phone or other.
Step 6: Implementation
Establish roles and reponsibilities for client and planner
Step 7: Monitory progress and Update (unless specifically excluded from scope of engagement)
# Define client and planner roles and responsibilties Update Qualitative, quantitative, goals, recommndations,
When Can a CFP release client information?
- Ordinary business purposes
- Client’s consent in force
- Planner’s Attironeys, accountants, and auditors
- To a client representative - For legal and enforcement purposes
- for defense
- when asked to by law enforcement
