Code of Ethics Flashcards
A client is involved in a potentially litigious matter and asks to confide legally sensitive information to a CFP® professional under the protection of advisor-client privilege. This information may affect another one of the CFP® professional’s clients, who happens to be a business partner of the first client. How should the CFP® professional respond to this situation (CFP® Certification Examination, released 8/2012)?
A) Ensure that the client signs the required Privacy Policy before having any discussions.
B) Caution the client that there is no such thing as advisor-client privilege.
C) Document the information and, as required by CFP Board’s fiduciary standard, debrief the second client on the details that pertain to her.
D) Document the information as required by CFP Board’s Rule on Reciprocal Disclosure
Solution: The correct answer is B.
A CFP® Professional’s duties to clients, confidentiality and privacy (rule 9) provides examples of when a CFP® may be compelled to share information without the active consent of the client including a civil, criminal, exam, subpoena or summons. The CFP® may be pulled into a civil disclosure and should share as much at the onset of a relationship. A is incorrect because a CFP® professional will be required to disclose information that may impact another client or disengage the client. C is incorrect because debriefing the second client would not be in the best interest of the first client D is incorrect because there is no such rule as Reciprocal Disclosure
What would likely rise to the standard of a material conflict of interest, and need to be disclosed by a CFP® professional?
- That the CFP® professional recommended his personal accountant who gives the CFP® professional discounted accounting services.
- The CFP® professional received an undisclosed fee for a referral to a municipal bond broker.
- A client who is an attorney bought him a $50 fruit basket as a thank you for the referral.
- The CFP® professional gave the name of his lawyer (also a high revenue client of the CFP® professional) to one of his clients who was wishing to divorce his wife.
Solution: The correct answer is D.
Referring one client to another is rife with potential conflicts of interest. Especially if both clients provide active revenue for the CFP® professional. A is not the best answer, a discounted accounting service is a conflict of interest but not likely material. B is incorrect a fee paid by a broker is a conflict of interest, but not immediately material as the CFP® professional is a fiduciary. C is not material.
Which of the following are included in the first step of the financial planning process (Understanding the Client’s Personal and Financial Circumstances)
- Identifying Potential Goals
- Obtaining Qualitative and Quantitative Information
- Analyzing Information
- Addressing Incomplete Information
II, III and IV only.
I, II and IV only.
II and IV only.
I, II, III and IV.
Solution: The correct answer is A.
Elements II, III and IV are required in the first step of the financial planning process. Step 1 included analyzing information, not to be confused with Step 3, Analyzing the Client’s Current Course of Action. Element I – Identifying Potential Goals, should occur in the second step of the planning process (Identifying and Selecting Goals)
Thomas, a CFP® certificant, is employed by a registered investment advisor that is under common ownership with a broker-dealer. How should Thomas describe his relationship with the broker-dealer?
- Unaffiliated organization
- Fiduciary partner
- Disinterested third party
- Related party
Related Party
A young married couple, who both work, recently had a baby. What should be their primary financial concern?
- To purchase life insurance
- To save up 3 months of cash reserves
- To prepare a long-term retirement plan
- To create an education fund for their child
Solution: The correct answer is A.
Since both parents work, there is likely a need for both incomes. The fact pattern does not state they have insurance. Keep in mind the CFP Board is conservative in nature and believes the most disastrous issues should be solved first. The biggest financial risk that they face is likely premature death of one of the wage earners, therefore purchasing life insurance is likely the primary financial concern. The emergency fund would be the second issue, then retirement and education. Time frame wise you may believe education should come before retirement, but you can get loans for education, not retirement.
Which of the following would constitute a material conflict of interest?
- The client specifically asks about it.
- It is reasonably expected to be permanent.
- It could cause harm or impact potential advice.
- It has the potential to cost the client more money.
It could cause harm or impact potential advice.
Sorel Parks, CFP®, met with Dorian and Griffin, Dorian’s father. During the meeting, Sorel entered into an oral agreement with Dorian to manage Griffin’s financial affairs. Sorel did not complete a client profile of Griffin. Sorel offered to review and make recommendations on Griffin’s then-current living trust. Sorel prepared a Last Will, Revocable Trust and Durable Power of Attorney for management of Property and Personal Affairs, and charged Griffin $400 per hour for preparing the documents. Griffin had not requested such documents. Griffin asked Sorel to provide him with all the documents pertaining to his investments. As of the hearing date with the Disciplinary and Ethics Commission, Sorel had not provided the requested documents to Griffin. The Commission issued an Order to Revoke Permanently Sorel’s right to use the CFP®, CERTIFIED FINANCIAL PLANNER™ and certification marks. The Commission ordered Sorel to verify that he was not using the marks by submitting copies of letterhead and business cards within 30 days of the Order. To comply with the Code of Ethics, before providing any services to Griffin, Sorel was required to take all of the following steps, Except:
- Review implementation responsibilities with Griffin.
It is important to understand the steps in order and identify what step they are currently in; the step that comes before and after the step that comes after. The question asked what should have happened before providing services (implementation). Remember the acronym UIADPIM. The plan should have been presented to the client and next steps/responsibilities addressed.
A prospective client comes to you and he wants you to do some financial planning for him, but he is unwilling to disclose relevant information. What should you do?
- Refer the prospective client to another planner.
- Have the client sign a waiver.
- Ask the client for more information or terminate the engagement.
- Limit the scope of the engagement and work with the information provided.
Solution: The correct answer is C.
In this situation, the appropriate response is to ask the client for the relevant information; if the information is not provided, then terminate the engagement. A planner must gather all relevant data and would be unable to provide appropriate recommendations without all relevant data, which makes “D” incorrect
Becca applied for CFP® Certification and was denied. Her prior conduct falls under the “presumed” list and she wants to appeal. All of the following are true regarding the review process EXCEPT:
- She must submit a written petition for reconsideration to Professional Review staff and sign a form agreeing to CFP Board’s jurisdiction.
- A fee will be charged to all candidates submitting a reconsideration request.
- Staff will review the request to ensure the transgression falls within the “always” bar list.
- She may appeal this decision to the Appeals Committee of the Board.
Solution: The correct answer is C.
All other statements are true. Staff will review the request to ensure the transgression falls within the “presumed” list. The “always” bar list cannot be petitioned unless the revocation of a license is vacated or a felony conviction is overturned
