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CFP Course Prep 1 > CFP Ethics and Conduct > Flashcards

CFP Ethics and Conduct Flashcards

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CFP® flashcards
1
Q

What are the principles of Its Code of Ethics and Standards or Conduct?

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

What are the Standards of Its Code of Ethics and Standards or Conduct?

A

Duties Owed to Clients
Financial Planning and Application of the Practice Standards for the Financial Planning Process
Practice Standards for the Financial Planning Process
Duties Owed to Firms and Subordinates
Duties Owed to CFP® Board
Prohibition on Circumvention

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3
Q

What is Considered Financial Advice?

A

The development or implementation of a Financial Plan;
The value of or the advisability of investing in, purchasing, holding, gifting, or selling Financial Assets;
Investment policies or strategies, portfolio composition, the management of Financial Assets, or other financial matters; or
The selection and retention of other persons.

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4
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 directed orders; and
The following, if a reasonable CFP® professional would not view it as Financial Advice: 1. Marketing Materials; 2. General Financial Education; and 3. General Financial Communications.

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5
Q

If disclosure is provided on an annual basis, is that sufficient to meet requirements of this Standard of Conduct?

A

No, Disclosure is not always a one-time event.

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6
Q

What is the definition of Fiduciary Duty?

A

At all times when providing Financial Advice to a Client, a CFP® professional must act as a fiduciary, and therefore, act in the best interests of the Client.

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7
Q

What Fiduciary Duties must be fulfilled?

A

Duty of Loyalty
Duty of Care
Duty to follow client Instructions

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8
Q

Financial Planning Definition:

A

Financial Planning is a collaborative process that helps maximize a Client’s potential for meeting life goals through Financial Advice that integrates relevant elements of the Client’s personal and financial circumstances.

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9
Q

Any entity on behalf of which a CFP® professional provides Professional Services to a Client, and that has the authority to exercise control over the CFP® professional’s activities, including the CFP® professional’s employer, broker-dealer, registered investment adviser, insurance company, and insurance agency.

A

CFP® Professional’s Firm(s)

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10
Q

Any person, including a natural person, business organization, or legal entity, to whom the CFP® professional provides or agrees to provide Professional Services pursuant to an Engagement.

A

Client

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11
Q

Conflict of Interest is…

A

When a CFP® professional’s interests (including the interests of the CFP® Professional’s Firm) are adverse to the CFP® professional’s duties to a Client, or
b. When a CFP® professional has duties to one Client that are adverse to another Client.

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12
Q

The power, directly or indirectly, to direct the management or policies of the entity at the relevant time, through ownership, by contract, or otherwise.

A

Control

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13
Q

A person who has Control

A

Control Person

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14
Q

An oral or written agreement, arrangement, or understanding.

A

Engagement

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15
Q

Who is considered Family?

A

Grandparent, parent, stepparent, father-in-law/mother-in-law, uncle/aunt, spouse, former spouse, spousal equivalent, domestic partner, brother/sister, stepsibling, brother-in-law/sister-in-law, cousin, son/daughter, stepchild, son-in-law/daughter-in law, nephew/niece, grandchild, and any other person the CFP® professional, directly or indirectly, supports financially to a material extent.

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16
Q

What is considered Finacial Advice?

A

Communication that, based on its content, context, and presentation, would reasonably be viewed as a recommendation that the Client take or refrain from taking a particular course of action or The exercise of discretionary authority over the Financial Assets of a Client.

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17
Q

What are Financial Assets?

A

Securities, insurance products, real estate, bank instruments, commodities contracts, derivative contracts, collectibles, or other financial products.

18
Q

Information is _____ when a reasonable Client or prospective Client would consider the information important in making a decision

A

material

19
Q

What is considered Professional Services?

A

Financial Advice and related activities and services that are offered or provided, including, but not limited to, Financial Planning, legal, accounting, or business planning services.

20
Q

A person or business entity (including a trust) whose receipt of Sales-Related Compensation a reasonable CFP® professional would view as benefiting the CFP® professional or the CFP® Professional’s Firm, including, for example, as a result of the CFP® professional’s ownership stake in the business entity.

A

A Related Party

Included Business entities and family

21
Q

The Professional Services to be provided pursuant to an Engagement.

A

Scope of Engagment

22
Q

Application of Practice Standards- Section B

A

Must comply when The CFP® professional agrees to provide or provides: Financial Planning; or
Financial Advice that requires integration of relevant elements of the Client’s personal and/or financial circumstances in order to act in the Client’s best interests (“Financial Advice that Requires Financial Planning”); or
The Client has a reasonable basis to believe the CFP® professional will provide or has provided Financial Planning.

23
Q

What are the determining factors whether a CFP® professional has agreed to provide or provided Financial Advice that Requires Financial Planning?

A
  1. The number of relevant elements of the Client’s personal and financial circumstances that the Financial Advice may affect;
  2. The portion and amount of the Client’s Financial Assets that the Financial Advice may affect;
  3. The length of time the Client’s personal and financial circumstances may be affected by the Financial Advice;
  4. The effect on the Client’s overall exposure to risk if the Client implements the Financial Advice; and
  5. The barriers to modifying the actions taken to implement the Financial Advice.
24
Q

If a CFP® Professional otherwise must comply with the Practice Standards, but the Client does not agree to engage the CFP® Professional to provide Financial Planning, the CFP® Professional must:

A
  1. Not enter into the Engagement;
  2. Limit the Scope of Engagement to services that do not require application of the Practice Standards, and describe to the Client the services the Client requests that the CFP® Professional will not be performing;
  3. Provide the requested services after informing the Client how Financial Planning would benefit the Client and how the decision not to engage the CFP® Professional to provide Financial Planning may limit the CFP® Professional’s Financial Advice, in which case the CFP® Professional is not required to comply with the Practice Standards; or
  4. Terminate the Engagement.
25
Q

What are the duties owed to subordinates or other firms? - Section D

A

A CFP® professional must exercise reasonable care when supervising persons acting under the CFP® professional’s direction, including employees and other persons over whom the CFP® professional has responsibility, with a view toward preventing violations of applicable laws, rules, regulations, and these Standards.
2. Comply with Lawful Objectives of CFP® Professional’s Firm
3. Provide Notice of Public Discipline

25
Q

What are the Duties Owed to the CFP Board? - Section E

A
  1. Refrain from Adverse Conduct.
  2. Reporting. A CFP® professional must provide written notice to CFP Board within thirty (30) calendar days after the CFP® professional, or an entity over which the CFP® professional was a Control Person, has done specific things (see notes)
  3. Provide Narrative Statement.
  4. Cooperation
  5. Compliance with Terms and Conditions of Certification and Trademark License.
26
Q

PROHIBITION ON CIRCUMVENTION is…

A

A CFP® professional may not do indirectly, or through or by another person or entity, any act or thing that the Code and Standards prohibit the CFP® professional from doing directly.

26
Q

Felony-

A

A felony offense, or for jurisdictions that do not differentiate between a felony and a
misdemeanor, an offense punishable by a sentence of at least one-year imprisonment or a fine of at
least $1,000.

27
Q

Relevant Misdemeanor-

A

A criminal offense, that is not a Felony, for conduct involving fraud, theft,
misrepresentation, other dishonest conduct, crimes of moral turpitude, violence, or a second (or
more) alcohol and/or drug-related offense.

28
Q

Regulatory Investigation-

A

An investigation initiated by a federal, state, local, or foreign governmental
agency, self-regulatory organization, or other regulatory authority. A Regulatory Investigation does
not include preliminary or routine regulatory inquiries or requests for information, deficiency letters,
“blue sheet” requests or other trading questionnaires, or examinations.

29
Q

Regulatory Action-

A

An action initiated by a federal, state, local, or foreign governmental agency, selfregulatory organization, or other regulatory authority.

29
Q

Civil Action-

A

A lawsuit or arbitration.

30
Q

Finding-

A

A finding includes an adverse final action and a consent decree in which the finding
is neither admitted nor denied, but does not include a deficiency letter, examination report,
memorandum of understanding, or similar informal resolution of a matter.

31
Q

Minor Rule Violation-

A

A violation of a self-regulatory organization rule designated as a minor rule
violation under a plan approved by the U.S. Securities and Exchange Commission. A rule violation
may be designated as “minor” under a plan if the sanction imposed consists of a fine of $2,500 or
less, and if the sanctioned person does not contest the fine.

32
Q

Sales-Related Compensation-

A

is more than a de minimis economic benefit, including any bonus or portion of compensation, resulting from a Client purchasing or selling Financial Assets, from a Client holding Financial Assets for purposes other than receiving Financial Advice, or from the referral of a Client to any person or entity other than the CFP® Professional’s Firm.

33
Q

What are the duties owed to clients and potential clients? - Section A of Standards of Conduct

A
  • Fiduciary Duty * Integrity * Competence * Diligence * Conflicts of Interest * Sound and Objective Professional Judgement * Professionalism * Comply with the Law * Confidentiality and Privacy * Provide Information to a Client * Duties When Communicating with a Client * Duties When Representing Compensation Method * Duties When Recommending, Engaging and Working with Additional Persons * Duties when Selecting Using and Recommending Technology * Refrain from Borrowing or Lending Money and Commingling Financial Assets
34
Q

Duty of Loyalty

A

Place client interests above your own and that of your firm
Avoid conflicts of interest and fully disclose where a client may perceive one
Act without regard to the financial (or any other) interests of yourself or of your firm

35
Q

Duty of Care

A

Act with the care, skill, prudence and diligence that a prudent professional would use in light
of the client’s goals and objectives

36
Q

Duty to Follow Client’s Instructions

A

Must comply with all reasonable and lawful instructions from the client

37
Q

What are the 5 Sections of Standard of Conduct?

A

Duties Owed to Clients- Section A
Financial Planning and Application of the Practice Standards for the Financial Planning Process - Section B
Practice Standards for the Financial Planning Process - Section C
Duties Owed to Firms and Subordinates - Section D
Duties Owed to CFP® Board - Section E

38
Q

Defining the relationship with the prospective client or client- Section C

A
  1. Understand the Client’s Personal and Financial Circumstances
  2. Identify and Select Goals
  3. Analyze the Client’s Course of Action and Potential Alternative Course(s) of Action
  4. Develop the Financial Planning Recommendations
  5. Present the Financial Planning Recommendations
  6. Implement the Financial Planning Recommendations
  7. Monitor Progress and Update as Necessary

CFP Course Prep 1 (15 decks)

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