Code and Standards Flashcards
Code of Ethics
- ) Act with honest, integrity, competence, and diligence
- ) Act in the clients best interests
- ) Exercise due care
- ) Avoid or disclose and manage conflicts of interest
- ) Maintain the confidentiality and protect the privacy of client information
- ) Act in a manner that reflects positively on the financial planning profession and CFP certification
A. Duty Owed to Clients - Owed at all times
- integrity
- competence
- diligence
- sound and objective professional judgement
- professionalism
- comply with the law
- confidentiality and privacy
- duties when communicating with a client
- duties when representing compensation method
- duties when selecting, using, and recommending technology
- refrain from borrowing or lending money and commingling Financial Assets
Standards of Conduct - Financial Advice
- the duties that apply at all times
- FIDUCIARY DUTY
- disclose and manage conflicts of interest
- provide information to a client
- duties when recommending, engaging, and working with additional persons
Standards of Conduct - Financial Planning
- the duties that apply when providing financial advice
- THE PRACTICE STANDARDS FOR THE FINANCIAL PLANNING PROCESS
- information to a client in writing
Fiduciary Duty Keys
Must act as a fiduciary at all times while providing Financial Advice
Duty of loyalty + Duty of care + Duty to follow client instructions
- Fiduciary Duty
a. ) Loyalty
i. ) client interests above CFP professionals
ii. ) avoid conflicts of interest, fully disclose conflicts, manage conflicts (can be done verbally)
iii. ) act without regard of financial interests and continue to put clients interest above CFP Professional
- Fiduciary Duty
b. ) Duty of care
CFP professional must act with care, skill, prudence, and diligence
- ) Fiduciary Duty
c. ) Duty to follow client instructions
must follow all lawful instructions
2.) Integrity
a. ) act with integrity, honest and candor
b. ) CFP may not:
i. ) employ device to defraud or scheme
ii. ) make untrue statements or omit fact
iii. ) engage in practice that would fraud or deceit
3.) Competence
Must provide services with competence which means relevant knowledge. If not CFP must gain competence, obtain assistance, limit scope, or terminate engagement
4.) Diligence
responding to reasonable client inquiries in a timely and thorough manner
5.) Disclose and manage conflicts of interest
a. ) Disclose conflicts - provide oral disclosure (written s not required
b. ) Manage conflicts
6.) Sound and objective professional judgement
Must exercise professional judgement. May not solicit or accept gifts, entertainment, non cash compensation, or other consideration that could compromise professional objectivity.
7.) Professionalism
Must treat clients, prospects, professionals, and others with dignity, courtesy, and respect
8.) Comply with the law
a. ) comply with laws, rules, and regulations
b. ) may not intentionally participate in another persons violation of the code of standards
9.) Confidentiality and Privacy
- must not disclose information
- exceptions are for ordinary business purposes, CFP professional at firm when necessary to perform those services, for legal purposes, and enforcement purposes
- information can be stored physically or electronically
- must implement polices for non public information and disclose written notice of those policies at time of engagement and every year thereafter
10.) Provide information to a client
a. ) When providing financial advice - at or prior to client engagement
- costs, how CFP is compensated, public discipline or bankruptcy
b. ) When providing financial planning - provided at time of engagement in one or more written documents
- terms of engagement, info in above section
NOTE: material changes and updates to public disciplinary history or bankruptcy must be disclosed to CLIENT within 90 days
11.) Duties when communicating with a client
Provide client with accurate information and in a manner where client will understand
12.) Duties when representing compensation method
Fee Only - receives no sales related compensation
Fee Based - fee and commission
Sales Related compensation includes: commissions, trailing commissions, 12b-1 fees, spreads, transactions fees, revenue sharing, referral or solicitor fees.
Does not include: soft dollars, fees for administration, custodian benefits
Related parties: family members, CFP ownership in stake in business entity, etc.
13.) Duties when recommending, engaging, and working with additional persons
- have reasonable basis for recommendation
- disclose at time or prior any arrangement by which someone who is not the client will compensate or provide some other material benefit to CFP professional
- communicate with other professionals their scope and inform client if services were not performed in accordance to that scope
14.) Duties when selecting, using, and recommending technology
- reasonable care when selecting, using, and recommending technology
15.) Refrain from borrowing or lending money and commingling financial assets
a. ) A CFP may not, borrow or lend money to a client unless
- the client is a family member
- the client is a lender in the business of lending money
b.) a CFP may not commingle a client’s financial assets with the financial assets of the CFP professional or the CFP professional’s firm
Financial Advice - disclosures
Written - Private Policy
Oral - Everything Else
(private policy is always written, material conflicts is always oral)
Financial Planning - disclosures
Written - Everything but conflicts of interest
Oral - conflicts of interest
(private policy is always written, material conflicts is always oral)
Duties Owed to Firms and Subordinates
- ) use reasonable care when supervising
- ) comply with lawful objectives of firm
- ) provide notice of public discipline - CFP must promptly advice the firm IN WRITING of any public discipline by CFP board
Duties Owed to CFP Board - definitions
Definitions:
Felony - fine of 1,000 or 1 year in jail
Relevant misdemeanor - not a felony but involves fraud, theft, violence, dishonest conduct, or second or more alcohol and drug related offense
Regulatory investigation - does not include preliminary inquiries or requests for information, deficiency letters, or blue sheet requests
Regulatory Action - action by federal, state, or local law
Civil Action - A lawsuit or arbitration **
Finding - adverse final action
Minor rule violation - 2,500 and doesn’t contest fine
convictions (30 days)
Duties Owed to CFP Board - Refrain from adverse conduct
- a personal bankruptcy (90 days) or one where CFP is a control person
- a federal tax lien on property owned by CFP
Duties Owed to CFP Board - Reporting
- Provide written notice to CFP board within 30 calendar days
- been charged or convicted of felony or misdemeanor
- settlement for more than 15,000
- sales practice violations and claim for 5,000 or more
