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CFP > CFP Code of Ethics and Standard of Conduct > Flashcards

CFP Code of Ethics and Standard of Conduct Flashcards

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1
Q

What is the cornerstone of the Code and Standards?

A

A CFP’s professional duty to act as a fiduciary, and therefore act in the best interest of the client at all times when providing financial advice

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2
Q

According to the Code of Ethics there are 6 standards a CFP MUST abide by, what are they?

A
  1. Act w/ honesty, integrity, competence, & diligence
  2. Act in the clients best interest
  3. Exercise due care
  4. Avoid or disclose and manage conflicts of interest
  5. Maintain confidentiality and protect the privacy of client info
  6. Act in a manner that reflects positively on the financial planning profession and the CFP certification
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3
Q

What are the duties owed to clients at all times?

A
  1. Integrity
  2. Competence
  3. Diligence
  4. Sound & professional judgement
  5. Professionalism
  6. Comply w/ the law
  7. Confidentiality & privacy
  8. Duties when communicating w/ a client
  9. Duties when representing compensation method
  10. Duties when selecting, using, and recommending technology
  11. Refrain from borrowing, lending, or commingling financial assets
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4
Q

What are the duties owed to clients when providing financial advice?

A
  1. The duties that apply at all times
  2. Fiduciary duty
  3. Disclose and manage conflicts of interest
  4. Provide info to the client
  5. Duties when recommending, engaging, and working w/ additional professionals
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5
Q

What are the duties owed to clients when providing financial planning?

A
  1. The duties that apply when providing financial advice
  2. The practice standards for the financial planning process
  3. Info to client in writing
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6
Q

What does it mean to act as a fiduciary and, therefore, act in the best interests of the Client?

A

The Fiduciary duty is comprised of the duty of loyalty, duty of care, and duty to follow client instructions

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7
Q

According to the duty of loyalty, a CFP professional must:

A
  1. Place the interest of the client above the CFP professional and their firm
  2. Avoid or fully disclose and manage conflicts of interest
  3. Act w/ out regard to the financial or other interests of the CFP professional and their firm
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8
Q

According to the duty of care, a CFP professional must:

A

Act with the care, skill, prudence, and diligence that a prudent professional would exercise in light of the client’s goals, risk tolerance, objectives, and financial and personal circumstances.

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9
Q

According to the duty to follow client instructions, a CFP professional must:

A

Comply with the terms of the client engagement and follow all instructions from the client that are reasonable and lawful

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10
Q

What is considered financial advice?

A

A communication that based on its content, context, and presentation would be viewed as a recommendation that the client take or refrain from taking a particular course of action when it comes to:
- The development or implementation of a financial plan
- Management of financial assets
- Value or advisability of investments
- Selection and retention of other financial professionals
- Any exercise of discretionary authority

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11
Q

What is not considered financial advice?

A
  • A communication that based on its content, context, and presentation would not reasonably be viewed as a recommendation
  • Responses to direct orders
  • General financial education, communication, or marketing materials
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12
Q

What is a general rule of thumb to determine if financial advice has been provided?

A

The more individually tailored the communication is to the client the more likely the communication will be viewed as financial advice.

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13
Q

What do you do if the Client doesn’t agree to engage you for Financial Planning?

A
  • Not enter into the engagement
  • Limit the Scope of the Engagement to services that do not require application of the Practice Standards for the Financial Planning Process, and describe to the client the services that the Client requests that the CFP professional will not be performing
  • Provide the requested services after informing the Client how Financial Planning will benefit the Client and how the decision to not enter into a Financial Planning engagment may limit the Financial Advice
  • Terminate the Engagement
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14
Q

What are the 7 Steps in the Financial Planning Process

A
  1. Understand the clients current financial and personal circumstances
  2. Identify and select goals
  3. Analyze the clients current course of action and potential alternatives
  4. Develop Financial Planning Recommendations
  5. Present Financial Planning Recommendations
  6. Implement Financial Planning Recommendations
  7. Monitor progress and update the Plan

Ukeleles In A Dive bar Playing Iron Maiden

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15
Q

When providing Financial Advice, what document is required to be provided in writing?

A

The Privacy Policy

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16
Q

When providing Financial Advice, what may be provided orally or in writing?

A
  • Material Conflicts of Interest
  • Services and Products
  • How the Client Pays
  • How you and your Firm are Compensated
  • Public Discipline and Bankruptcy
  • Referral Compensation Agreements
  • Other Material Information
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17
Q

When providing Financial Planning, what documents are required in writing?

A
  • Privacy policy
  • Services and products
  • How the client pays
  • How you and your firm are compensated
  • Public disciplinary and bankruptcy
  • Referral compensation agreements
  • Terms of engagement
  • Other material info
18
Q

When providing Financial Planning, what may be provided orally OR in writing?

A
  • Material conflicts of interest
19
Q

Which documents satisfy the information that needs to be provided to Clients in all Financial Advice Engagements?

A
  • Form ADV Part 2(A): Item 4;
  • Engagement Letter or Agreement;
  • Investment Advisory Agreement;
  • Bank Trust Instrument and related documents
    required under state trust law;
  • Disclosure documents required by federal
    banking regulators;
  • Brokerage Agreement;
  • Offering Documents;
  • Prospectus;
  • Insurance Illustration(s); and
  • Form ADV, Part 3: Form CRS: Item 2.
20
Q

When must the information be provided to the client?

A

Initially: Prior to or at the time of the
Engagement. This information is typically
provided at the first or second meeting
with the Client.

21
Q

When must Disciplinary and Bankruptcy Updates be made?

A

Within 90 days of any Material changes
and updates to public disciplinary history
or bankruptcy information.

22
Q

When must material conflicts of interest be shared?

A

Initially: Before or when providing any
Financial Advice regarding which the CFP®
professional has a Material Conflict
of Interest.

23
Q

What are some examples of qualitative research that must be done in step one of the financial planning process?

A
  • Health
  • Life Expectancy
  • Family Circumstances
  • Values
  • Attitudes
  • Goals, needs, priorities
  • Risk tolerance
  • Expectations
  • Earnings potential
24
Q

What are some examples of quantitative research that must be done in step one of the financial planning process?

A
  • Age
  • Dependents
  • Income
  • Expenses
  • Cash Flow
  • Savings
  • Assets
  • Liabilities
  • Liquidity
  • Taxes
  • Employee benefits
  • Insurance
  • Capacity for risk
  • Retirement accoutns
25
Q

In step two of the financial planning process, what are examples of assumptions and estimates that must be made?

A
  • Life expectancy
  • Inflation rates
  • Tax rates
  • Investment returns
26
Q

In step four of the financial planning process, what must you consider when developing recommendations?

A
  • The assumptions and estimates used to develop the recommendation
  • The basis for making the recommendation including how the recommendation is designed to maximize the potential to meet the clients goals and the anticipated effects of the recommendation as well as how it integrates relevant elements of the clients personal and financial circumstances
  • The timing and priority of the recommendation
  • Whether the recommendation is independent or must be implemented with another recommendation
27
Q

In step six of the financial planning process, if you have implementation responsibilities, you must:

A

Identify, analyze, and select actions, products, and services designed to implement the recommendations

28
Q

What must you ensure before ending step six of the financial planning process?

A

Implementation responsibilities were clearly defined

29
Q

If you have monitoring responsibilities, what must you continuously do?

A

Collaborate with the client in an attempt to obtain current qualitative and quantitate information concerning the clients personal and financial circumstances

30
Q

What are your duties when communicating with a client?

A

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

31
Q

When can you represent as Fee Only?

A
  1. The CFP professional and the CFP professionals firm receive no sales-related compensation
  2. Related Parties receive no Sales-Related Compensation in connection with any professional services provided by the CFP professional or their firm
32
Q

What are examples of sales related compensation?

A

12b-1 fees, spreads, transaction fees, revenue sharing, referral or solicitor fees

33
Q

What does it mean to have a duty of loyalty to a client?

A
  • Place the interests of a the client above the interest of the CFP professional the CFP professionals firm
  • Avoid or fully disclose and manage conflicts of interest
  • Act without regard to the financial or other interests of the CFP professional and their firm
34
Q

What does it mean to perform professional services with integrity?

A

Integrity demands honesty and candor, which may not be subordinated to personal gain or advantage. Allowance may be made for innocent error and legitimate differences of opinion, but integrity cannot co-exist with deceit or subordination of principle.

35
Q

What does it mean to perform services with competence?

A

You must have the relevant knowledge and skill to apply the knowledge

36
Q

What happens if you are not sufficiently knowledgeable in a particular subject matter?

A

The CFP must gain competence, obtain assistance of a competent professional, limit the scope of engagement, and/or refer services to a competent professional

37
Q

How will the CFP board determine whether the disclosure about a material conflict of interest is sufficient?

A

The CFP board will evaluate whether a reasonable client receiving the disclosure would have understood the conflict and how it could affect the advise the client will receive from the CFP professional

38
Q

Is written consent to a conflict of interest required?

A

No

39
Q

When can a CFP professional disclose information on a client?

A
  • For ordinary business purposes with the consent of a client, with the CFPs firm when necessary to perform services for client, as necessary to the CFPs attorneys, accountants, and auditors, and to a person acting in a representative capacity on behalf of the client
  • For legal enforcement purposes to comply with the law, the CFP board, or regulatory investigation
40
Q
A

CFP (10 decks)

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