Code and Standards

Question 1

Code of Ethics

Answer 1

1. ) Act with honest, integrity, competence, and diligence
2. ) Act in the clients 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

Question 2

A. Duty Owed to Clients - Owed at all times

Answer 2

• 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

Question 3

Standards of Conduct - Financial Advice

Answer 3

• 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

Question 4

Standards of Conduct - Financial Planning

Answer 4

• the duties that apply when providing financial advice
• THE PRACTICE STANDARDS FOR THE FINANCIAL PLANNING PROCESS
• information to a client in writing

Question 5

Fiduciary Duty Keys

Answer 5

Must act as a fiduciary at all times while providing Financial Advice

Duty of loyalty + Duty of care + Duty to follow client instructions

Question 6

1. Fiduciary Duty

a. ) Loyalty

Answer 6

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

Question 7

1. Fiduciary Duty

b. ) Duty of care

Answer 7

CFP professional must act with care, skill, prudence, and diligence

Question 8

1. ) Fiduciary Duty

c. ) Duty to follow client instructions

Answer 8

must follow all lawful instructions

Question 9

2.) Integrity

Answer 9

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

Question 10

3.) Competence

Answer 10

Must provide services with competence which means relevant knowledge. If not CFP must gain competence, obtain assistance, limit scope, or terminate engagement

Question 11

4.) Diligence

Answer 11

responding to reasonable client inquiries in a timely and thorough manner

Question 12

5.) Disclose and manage conflicts of interest

Answer 12

a. ) Disclose conflicts - provide oral disclosure (written s not required
b. ) Manage conflicts

Question 13

6.) Sound and objective professional judgement

Answer 13

Must exercise professional judgement. May not solicit or accept gifts, entertainment, non cash compensation, or other consideration that could compromise professional objectivity.

Question 14

7.) Professionalism

Answer 14

Must treat clients, prospects, professionals, and others with dignity, courtesy, and respect

Question 15

8.) Comply with the law

Answer 15

a. ) comply with laws, rules, and regulations

b. ) may not intentionally participate in another persons violation of the code of standards

Question 16

9.) Confidentiality and Privacy

Answer 16

• 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

Question 17

10.) Provide information to a client

Answer 17

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

Question 18

11.) Duties when communicating with a client

Answer 18

Provide client with accurate information and in a manner where client will understand

Question 19

12.) Duties when representing compensation method

Answer 19

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.

Question 20

13.) Duties when recommending, engaging, and working with additional persons

Answer 20

• 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

Question 21

14.) Duties when selecting, using, and recommending technology

Answer 21

• reasonable care when selecting, using, and recommending technology

Question 22

15.) Refrain from borrowing or lending money and commingling financial assets

Answer 22

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

Question 23

Financial Advice - disclosures

Answer 23

Written - Private Policy

Oral - Everything Else

(private policy is always written, material conflicts is always oral)

Question 24

Financial Planning - disclosures

Answer 24

Written - Everything but conflicts of interest

Oral - conflicts of interest

(private policy is always written, material conflicts is always oral)

Question 25

Duties Owed to Firms and Subordinates

Answer 25

1. ) use reasonable care when supervising
2. ) comply with lawful objectives of firm
3. ) provide notice of public discipline - CFP must promptly advice the firm IN WRITING of any public discipline by CFP board

Question 26

Duties Owed to CFP Board - definitions

Answer 26

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)

Question 27

Duties Owed to CFP Board - Refrain from adverse conduct

Answer 27

• a personal bankruptcy (90 days) or one where CFP is a control person
• a federal tax lien on property owned by CFP

Question 28

Duties Owed to CFP Board - Reporting

Answer 28

• 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