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Professional Conduct and Regulation > CFP Board's Code of Ethics and Professional Responsibility and Rules of Conduct > Flashcards

CFP Board's Code of Ethics and Professional Responsibility and Rules of Conduct Flashcards

1
Q

Who are the Fitness Standards for?

A
  • For candidates for CFP certification AND
  • Former CFP professionals seeking reinstatement whose certification has not been suspended
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2
Q

What are the three categories of adverse conduct relevant to fitness?

A
  1. Conduct that is unacceptable
  2. Conduct that is presumed to be unacceptable
  3. Other conduct that may reflect adversely upon the individual’s integrity or fitness, the profession, or the CFP marks
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3
Q

Conduct that is deemed unacceptable

A
  • Permanently barred from becoming certified
  • Will ALWAYS bar someone from becoming certified
    • Felonly conviction for theft, embezzelment, or other finanical-related crimes
    • Felony conviction for tax fraud or other tax-related crimes
    • Revocation of a finanical professional license (registered rep, broker/dealer, accountant, investment adviser, financial planner, insurance, etc.)
      • Unless it’s admin in nature (such as not paying required fees for renewing)
    • Felonly conviction for any degree of murder or rape
    • Felony conviction for any other VIOLENT crime WITHIN last 5 years
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4
Q

Conduct presumed to be unacceptable

A
  • Will bar an individual UNLESS person petitions the DEC for a fitness determination in accordance with CFP Board’s Procedural Rules AND the DEC grants the petition or permits the individual to reapply for certification at a later date
    • Individual may NOT petition for fitness determination UNTIL AFTER the person has successfully completed the educaiton, exam, and experience requirements for certification.
  • Following conduct is presumed to be unacceptable
    • Two or more personal bankruptcies
    • Revocation or suspension of a NON-FINANCIAL professional license (attorney, real estaet, etc)
      • Unless it is administrative in nature by not paying required fees
    • Suspension of FINANCIAL profesional license (unless admin fees)
    • Felony conviction for NON VIOLENT crimes WITHIN past five years
    • Felony conviction for VIOLENT crimes other than murder or rape that occurrerd MORE than five years ago
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5
Q

Other conduct that may reflect adversely upon the individual’s integrity or fitness, the profession, or the CFP certification marks

A
  • Will bar an individual UNLESS person petitions the DEC for a fitness determination in accordance with CFP Board’s Procedural Rules AND the DEC grants the petition or permits the individual to reapply for certification at a later date
    • Individual may NOT petition for fitness determination UNTIL AFTER the person has successfully completed the educaiton, exam, and experience requirements for certification.
  • Following conduct is under this:
    • Customer complaints
    • Abritrations and other civil proceedings
    • Felony convictions for NON VIOLENT crimes that occurred MORE than five years ago
    • Misdemeanor convictions
    • Employer investigations and terminations
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6
Q

What are the Code of Ethics and Standards of Conduct

A
  • It is the commitment that all CFP professionals make to high standards of competency and ethics
  • Ethics Code and Standards:
    • Benefits and protects the public
    • Provides standards for delivering financial planning
    • Advances the financial planning professional as a distinct profession and valuable
  • Violations of The Code and Standards may subject a CFP professional to discipline
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7
Q

Seven Principles of Code of Ethics

A
  • A CFP professional must:
    • Act with honesty, integrity, competence, and diligence (HICD)
    • Act in the client’s best interest
    • Excerise due care
    • Avoid or disclosre and manage conflicts of interest
    • Maintain the confidentiality and protect privacy of client info
    • Act in a manner that reflects positively on the financial planning profession and CFP certification
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8
Q

Standard of Conduct

Duties owed to clients

Fudiciary Duty

A
  • Fiduciary duty must be present at ALL TIMES when:
    • Providing Financial Advice to a Client
  • Following duties must be fulfilled:
    • Duty of loyalty
      • place interests of client above interest of CFP pro and CFP pro’s firm
      • avoid conflict of interest, or fully disclose them to client, obtain the client’s informed consent, and properly manage the conflict
      • act without regard to the financial or other interest of the CFP pro, the CFP pro’s firm, or any other individual/entity other than the client.. even when CFP is acting under a conflict of interst.. must continue to act in best interest of client
    • Duty of care
      • Must act with care, skill, prudence, and diligence that a prudent pro would exercise in light of a client’s goals, risk tolerance, objectives, and financial/personal circumstances
    • Duty to follow client instructions
      • Must comply with all objectives, policies, restrictions, and other terms of the Engagement and all reasonsable and lawful directions of the client
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9
Q

Standard of Conduct

Duties owed to clients

Integrity

A
  • Integrity demands honesty and candor, which may not be subordinated to personal gain or advantage.
  • Allowance may be made for INNOCENT ERROR or LEGITIMATE differences of opinion, but integry CANNOT coexist with deceit
  • CFP pro may not, directly, or indirectly
    • Employ anything to defraud
    • Make any untrue statement of a material fact or omit to state a material fact necessary in order to maek the statements made, not misleading
    • Engage in any act, practice, or course of buiness which operates or would operate as a fraud or deceit upon any person
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10
Q

Standard of Conduct

Duties owed to clients

Competence

A
  • Must provide services with relevant knowledge and skill to apply that knowledge
  • If CFP doesn’t have expertise is something, must:
    • Gain competence
    • obtain assistance of competent professional
    • limit/terminate the engagement
    • and/or refer client to a competent pro
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11
Q

Standard of Conduct

Duties owed to clients

Diligence

A
  • Must provide professional services, including responding to reasonable client inquiries, in a timely and thorough manner
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12
Q

Standard of Conduct

Duties owed to clients

Disclose and Manage Conflicts of Interest

A
  • Disclose conflicts
    • When providing financial advice:
      • CFP must make full disclosure of all materical conflicts of interest with the client that could affect the professional relationship.
        • Client must understand and give informed consent or reject it.
    • Must make disclosures AND obtain informed consent BEFORE providing any financial advice
    • CFP board will look to see if a reaonsable client was given sufficient facts about material conflicts of interest
      • Will favor client in the interpretation aspect
    • ORAL disclosure is REQUIRED, although WRITTEN is not required for financial advice
  • Manage conflicts
    • Must adopt and follow business practices reasonably designed to prevent materical conflicts of interest from compromising the CFP pro’s ability to act in client’s best interest
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13
Q

Standard of Conduct

Duties owed to clients

Sound and Objective Professional Judgement

A
  • CFP pro must exercise professional judgement on behalf of the client that is not subordinated to the interest of the CFP pro or others
  • CFP may not solicit or accept any gift, gratuity, entertainment, non-cash compensation, or other consideration that reasonably could be expected to compromise the CFP professional’s objectivity
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14
Q

Standard of Conduct

Duties owed to clients

Professionalism

A
  • CFP must treat clients, prospective clients, fellow professoinals, and others with dignity, respect, and courtesy
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15
Q

Standard of Conduct

Duties owed to clients

Comply with the Law

A
  • CFP must comply with laws, rules, and regulations governing Professional services
  • CFP may NOT intentionally or recklessly particpate or assist in another person’s violation of these Standards or laws, rules, or regulations governing Professional Services
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16
Q

Standard of Conduct

Duties owed to clients

Confidentiality and Privacy

A
  • CFP must keep confidential and may NOT disclose any NON PUBLIC personal info about any prospective, current, or former client, EXCEPT that the CFP may disclose info:
    • For ordinary business purposes
      • with client’s consent
      • To a CFP’s firm or other persons with whom the CFP pro is providing services to or for the client, when necessary to perform those services
      • As necessary to provide info to the CFP pro’s attorneys, accountants, and auditors; AND
      • to a person acting in a REPRESENTATIVE capacity on behalf of client
    • For legal and enforcement purposes
      • to law enforcement authorities concernign suspected unlawful activities, to the extent permitted by the law
      • as required to comply with federal, state, or local law
      • as required to comply with a properly authorized civil, criminal, or regulatory investigation or examination, or subpoena or summons, by a governmental authority
      • as necessary to defend against allegations of wrongdoing made by a governmental authority
      • as necessary to present a civil claim against, or defend against a civil claim raised by, a client
      • as required to comply with a request from CFP Board concerning an investigation or adjudication; AND
      • as necessary to provide info to professional organizations that are assessing the CFP professional’s compliance wiht professional standards
  • A CFP pro may not use nonpublic info about client for his/her direct or indirect personal benefit, whether or not it causes detriment to the client, UNLESS CLIENT CONSENTS
  • CFP must take reasonable steps to protect security of nonpublic info about any client (such as storage)
  • CFP must adopt and implement policies (or through CFP’s firm) regarding protection, handling, and sharing of a client’s nonpublic personal information and must provide client with WRITTEN NOTICE of these policies at the time of the Engagement and thereafter NOT LESS THAN ANNUALLY (at least once every 12 month period)
    • UNLESS CFP pro’s policies have not changed since the last notice sent to the client OR if CFP needs client’s consent every time before disclosing their nonpublic info
  • CFP is deemed to comply with this section if the CFP’s firm is subject to and the CFP pro complies with, Regulation SP or substantially equivalent federal or state laws/rules.
17
Q

Standard of Conduct

Duties owed to clients

Provide Info to a Client - When providing financial advice

A
  • When providing or agreeing to provide financial advice that does NOT require financial planning in accordance with the Practice Standards, CFP must provide the following info BEFORE or AT TIME OF engagement, and document that the info has been provided to the client:
    • a description of the services and products to be provided
    • how the client pays for products/services, and a description of the additional types of costs the client may incur, including product management fees, surrender charges, and sales loads
    • how the CFP pro, their firm, and any related party are compensated for providing the products/services
    • the existence of any public discipline or bankruptcy and the locations (if any) of the webpages of all releveant public websites of any government authority, SRO, or professional organization that sets for the CFP’s public disciplinary history or any personal bankruptcy or business bankruptcy where the CFP was a control person
    • Confilict of interest disclsoure
    • written notice regarding non public personal information
    • disclosure of ecnomic benefit for referral or engagement of additional persons
    • any other info required under the CFP or his firm that is material to a client’s decision to engage or continue to engage the CFP or his firm
18
Q

Standard of Conduct

Duties owed to clients

Provide Info to a Client - When providing financial planning

A
  • When providing or required to provide financial planning in accordance with the Practice Standards, CFP pro must provide the following info to the client BEFORE or AT TIME of engagement, in one or more WRITTEN documents;
    • Everything in the financial advice section (besides conflict of interest disclosure, which can be ORAL)
    • Terms of engagement between client and CFP pro or his firm, including scope of engagement and any limitiations, periods during which the services will be provided, and the client’s responsibilities
      • A CFP is responsible for implementing, monitoring, and updating the financial planning recommendation(s) UNLESS specifically exlcuded from scope of engagement
19
Q

Standard of Conduct

Duties owed to clients

Provide Info to a Client - Updaing info

A
  • CFP has obligation to provide to the client any information that is a MATERIAL change or update to the information required to be provided to the client.
  • Material changes and updates to PUBLIC disciplinary history informaiton MSUT be disoclsed to the client:
    • WITHIN 90 DAYS with the location of relevant webpages
20
Q

Standard of Conduct

Duties owed to clients

Duties when communicating with a client

A
  • CFP must provide client with accurate information, in accordance with the engagement, and in response to reasonable client request, in a manner that a client reasonably may be expected to understand.
21
Q

Standard of Conduct

Duties owed to clients

Duties when representing compensation method

A
  • CFP must not make any false/misleading representations regarding the CFP or firm’s method of compensation
22
Q

Refrain from borrowing or lending money and commingling financial assets

A
  • CPF may NOT, directly or indirectly, borrow money from or lend money to a client UNLESS:
    • The client is a member of the CFP’s professional family OR
    • The lender is in a business organization or legal entity in the business of lending money
  • CFP may NOT commingle client’s finanical assets with financial assets of the CFP professional of CFP’s firm
23
Q

Financial planning definition

A
  • A collaborative process that helps MAXIMIZE a client’s potential for meeting life goals through Financial Advice that intregrates relevant elements of the client’s personal and finanicial circumstances
24
Q

Relevant elements of client’s person/financial circumstances - Examples

A
  • Client’s need or desire for:
    • Developing goals
    • Managing assets and liablities
    • Cash flow
    • Managing risk
    • Educational needs
    • Etc
25
Q

When must a CFP comply with the Practice Standards?

A
  • When the CFP professional agrees to provide or provides:
    • Financial planning OR
    • Financial advice that requires financial planning (relevant elements)
  • OR when the client has a reasonable belief that the CFP has been or is going to provide finanicla planning
26
Q

What are among the factors that CFP Board will weigh in determining whether a CFP professional has agreed to provide or provided Financial Advice that requires financial planning?

A
  • Number of relevant elements of client’s personal/financial circumstances that Financial Advice may affect
  • Portion and amount of Client’s Financial Assets that the FInancial Advice may affect
  • Length of time the client’s personal/fianncial circumstances may be affected by the Financial Advice
  • Effect on the Client’s overall risk exposure to risk if the Client implements the finanical advice
  • Barriers to modifying the actions taken to implement FInancial Advice

Professional Conduct and Regulation (2 decks)

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