Duties Owed to Clients Flashcards
Fiduciary Duty
Keywords (3) Test Tips (3)
Keywords: Loyalty, Care, Instructions
- Any recommendations must be made as a fiduciary.
- Client needs > Financial Planner Interests
- All compensation and business models
Integrity
Keywords 3 Test Tips (2)
Honesty, Upstanding, Candor
- Allows for innocent mistakes and differences of opinion
- Do not commit fraud, deceive or violate the spirit of the rules.
Competence
-Keywords 1 phrase -Test Tips - 3
Relevantly Apply Knowledge
- A CFP Professional does not have to master all areas of planning.
- Gain competence, obtain assistance, limit the engagement or refer if competence is lacking
Diligence
Keywords (2) Test Tips
Timely, Thorough
- Timely is not instant. Timely allows for the normal course of doing business on the part of the CFP professional
Disclose & Manage Conflicts of Interest
Keywords (5) Test Tips (4)
Active Consent, Disclosure, Manage, Material Conflict, Ambiguity
- Consent does not need to be in writing
- Larger potential for harm, greater the need for disclosure 3. Ambiguity on the side of the client.
- Assume financial conflicts are material
Sound & Objective Professional Judgment
Keywords 1 phrase 2 Tips
Exercise judgement, not subordinated.
1. Do not accept or solicit gifts that could influence judgment 2. Fruit basket yes; Ferrari, no.
Professionalism
Keywords (3) Test Tip
Dignity, Courtesy & Respect
- Applies to Clients, Potential Clients, and other Financial Professionals
Comply with the law
Keywords 4 Test Tips 3
Laws, Rules, Regulations, Standards
- Avoid intentionally or recklessly violating laws, rules, regulations or standards
- Recklessly can apply to making poor referrals
Confidentiality & Privacy
Keywords 4 Test Tips 6
Consent, Ordinary Business, Legal & Enforcement Purposes, Policies
- Client consent does not need to be in writing
- No absolute confidentiality
- “Ordinary Business” requires consent
- “Legal & Enforcement purposes” does not require consent
- Must have policies and process to protect Confidentiality, deliver in writing at or before engagement and every 12 months if they change.
- Carve out on policy delivery for Regulation S-P; B/D, Federal Covered RIA’s
Provide Information to a Client
Keywords 2 Test Tips 3
Financial Advice, Financial Planning
- Financial Advice requires seven elements (Description, Pay, Compensation, Bankruptcies/Regulatory Events, Conflicts of Interest, Economic Benefit of Referrals, Other Material Information)
- Financial Planning all of the above and Scope of Engagement, Limitations and Responsibilities.
- Monitoring is assumed unless excluded from the scope of engagement.
Communicating with a Client
- Keywords - 3
- Test tips - 2
Keywords - Reasonable, Expected to Understand, Avoid Complexity
- Ensure client understanding
- Consider multiple forms of communication
Duties when Representing Compensation
- Keywords - 6
- Test tips
Keywords - Fee-only, Fee-based, Sales Related Compensation, Soft Dollars, Non-Monetary Benefits, Related Party
- Fee-Only generally means direct fees charged to clients or as a percentage of financial assets
- $.01 of Sales Related Compensation eliminates the ability to use “Fee-Only”
- 12b-1 Fees are specifically stated as Sales Related Compensation
- Control & compensation from a related party earning Sales Related Compensation eliminates the ability to use “Fee-Only” with a few carve outs.
- “Fee Based” = Fees & Sales Related Compensation
- Soft Dollars (research or speaking services supplied by an investment company or B/D) are not sales related compensation
Recommending, Engaging or Working with Additional Persons
Keywords - 6
Test Tips - 3
- Keywords - Reasonable Basis, Reputation, Experience Qualifications, Disclosure, Reasonable Care
- This standard requires referring on the basis of reputation experience and qualifications
- Provide disclosure if paid a referral fee or given a substantial economic benefit.
- Fruit basket = No; $1,000 check = Yes
Selecting and using Technology
- Keywords - 2
- Test Tips - 3
- Keywords: Reasonable Care & Judgment, Level of Understanding
- Understand calculations and assumptions
- Understand Monte Carlo simulation
- Be able to change assumptions
Refrain from Borrowing or Lending Money & Commingling
- Keywords - 4
- Test Tips - 3
- Keywords - Commingle, Client Assets, Borrow, Lend
- Client lending/borrowing generally prohibited
- Exception family members, businesses who lend/borrow
- CFP Professional or their employer cannot commingle with client assets.
Providing Information to a Client
When providing Financial Advice, but not Financial Planning, what must be provided to client prior to or at the time of engagement, and documented that information has been provided to the client? (8 items)
- Description of services & products to be provided
- How the Client pays for all products & services, & description of the additional types of costs that the Client may incur, including product management fees, surrender charge, and sales loads.
- How CFP / Firm are compensated
- Existence of public discipline or bankruptcy, relevant webpages, websites, etc.
- Information under Section A.5.a (Conflict of interest disclosure)
- Information under Section A.9.d (Written Notice Regard Non-Public Personal Information)
- The information required under Section A.13.a.ii (Disclosure of Economic benefit for Referral or Engagement of Additional Persons);
- Any other material information about CFP / Firm
- The information required under Section A.13.a.ii (Disclosure of Economic benefit for Referral or Engagement of Additional Persons);
When Providing Financial Planning
Additional information above & beyond providing Financial Analysis
Terms of the Engagement between the Client & CFP professional or the CFP Professional’s Firm, including the Scope of Engagement and any limitations, the period(s) during which the services will be provided, and the Client’s responsibilities. A CFP professional is responsible for implementing, monitoring & updating the Financial Planning recommendations unless specifically excluded from the Scope of Engagement
*Disciplinary items & bankruptcies must be disclosed to the client within 90 days.
