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CFP Exam > Ethics > Flashcards

Ethics Flashcards

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CFP® flashcards
1
Q

Standards of Conduct

A

A. Duties Owed to the Client
B. Financial Planning and Application of The Practice Standards for the Financial Planning Process
C. Practice Standards for the Financial Planning Process
D. Duties Owed to the Firms and Subordinates
E. Duties Owed to CFP Board
F. Prohibition on Circumvention

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2
Q

Prohibition on Circumvention

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

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3
Q

Code of Ethics

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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4
Q

A. Duties Owed to Clients (15 items)

A

A.1. Fiduciary Duty
A.2. Integrity
A.3. Competence
A.4. Diligence
A.5. Disclose Conflicts of Interest
A.6. Sound and Objective Professional Judgement
A.7. Professionalism
A.8. Comply with the Law
A.9. Confidentiality and Privacy (for ordinary business and for legal and enforcement purposes)
A.10. Provide Information to a Client
A.11. Duties When Communicating with a Client
A.12. Duties When Representing Compensation Method
A.13. Duties When Recommending, Engaging, and Working with Additional Persons
A.14. Duties When Selecting, Using, and Recommending Technology
A.15. Refrain from Borrowing or Lending Money and Commingling Financial Assets (exception for family members or legal entity in the business of loans)

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5
Q

Financial Advice

A

(A) A communication that based on its content, context, and presentation, would be reasonably viewed as a recommendation that the client take or refrain from taking a particular course of action with respect to:

  • 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,
  • the selection and retention of other persons to provide financial or professional services to the client

(B) The exercise of discretionary authority over the financial assets of a client.

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6
Q

What is NOT considered financial advice?

A
  • general information

- educational materials

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7
Q

A.1. 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. The following duties must be fulfilled:

  • duty of loyalty
  • duty of care
  • duty to follow client instructions
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8
Q

Client

A

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.

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9
Q

Conflict of Interest

A

(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

(B) When a CFP professional has duties to one client that are adverse to another client (ex: divorce, business dealings)

NOTE: Oral disclosures of conflicts of interest is okay. Written consent is not required.

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10
Q

Fee-Only

A

no sales-related compensation, only a flat fee, hourly fee, or AUM fee

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11
Q

Fee-Based

A

combination of fee-only and sales-related compensation

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12
Q

Sales-Related Compensation

A

client is charged based on transactions (trailers, 12b-1 fees, spreads, referral bonus)

NOTE: sales-related compensation does NOT include soft dollars

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13
Q

Related Party

A

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. There is a rebuttable presumption that a Related Party includes family members and business entities.

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14
Q

Financial Planning

A

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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15
Q

The Financial Planning Process

A
  1. Understanding the Client’s Personal and Financial Circumstances
  2. Identifying and Selecting Goals
  3. Analyzing the Client’s Current Course of Action and Potential Alternative Courses of Action
  4. Developing the Financial Planning Recommendations
  5. Presenting the Financial Planning Recommendations
  6. Implementing the Financial Planning Recommendations
  7. Monitoring Progress and Updating

(Uber Is A Drunk Person’s Immediate Motor vehicle)

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16
Q

The Financial Planning Process - step 1

A
  1. Understanding the Client’s Personal and Financial Circumstances
  • obtaining qualitative and quantitative information
  • analyzing information
  • addressing incomplete information
17
Q

The Financial Planning Process - step 2

A
  1. Identifying and Selecting Goals
  • identifying potential goals
  • selecting and prioritizing goals
  • determine assumptions to be made (inflation rates, investment returns, life expectancy, etc.)
18
Q

The Financial Planning Process - step 3

A
  1. Analyzing the Client’s Current Course of Action and Potential Alternative Courses of Action
  • advantages and disadvantages of current and potential courses of action
  • want to maximize potential to achieve client goals
19
Q

The Financial Planning Process - step 4

A
  1. Developing the Financial Planning Recommendations
  • assumptions and estimates used to develop the recommendations
  • basis for making recommendations
  • timing and priority of the recommendations
  • whether the recommendation is independent or must be implemented with another recommendation
20
Q

The Financial Planning Process - step 5

A
  1. Presenting the Financial Planning Recommendations
  • present recommendations and information that was required to be considered when developing recommendations
  • can be represented orally, in written, over the phone, or in any way that can be properly understood by the client (may want to consider client’s learning style)
21
Q

The Financial Planning Process - step 6

A
  1. Implementing the Financial Planning Recommendations
  • addressing implementation responsibilities
  • identifying, analyzing, and selecting actions, products, and services
  • recommending actions, products, and services for implementation
  • selecting and implementing actions, products, or services
22
Q

The Financial Planning Process - step 7

A
  1. Monitoring Progress and Updating
  • monitor the client’s progress
  • obtaining current qualitative and quantitative information
  • updating goals, recommendations, implementation decisions

NOTE: unless specifically excluded in scope of engagement, monitoring is expected

23
Q

Felony

A

an offense punishable by a sentence of at least 1 year imprisonment or a fine of at least $1,000

24
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

25
Q

Regulatory Investigation

A

an investigation initiated by a federal, state, local, or foreign governmental agency, self-regulatory organization, or other regulatory authority

does not include preliminary or routine regulatory inquiries or requests for information, deficiency letters, blue sheet requests, or other trading questionnaires or examinations

26
Q

Regulatory Action

A

an action initiated by a federal, state, local, or foreign governmental agency, self-regulatory organization, or other regulatory authority

27
Q

Civil Action

A

a lawsuit or arbitration

28
Q

Finding

A

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

29
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 SEC

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

30
Q

Private Censure

A

unpublished written reproach mailed by the Commission to a censured CFP professional

31
Q

Public Censure (Public Letter of Admonition)

A

publishable written reproach of the CFP professional

32
Q

Suspension

A

period of no less than 90 days and no more than 5 years where during this time the CFP professional remains subject to the Terms and Condition of Certification and Trademark License but is not permitted to use the marks

33
Q

Revocation

A

the permanent removal of a CFP professional’s right to use the marks

34
Q

Conduct Deemed Unacceptable

A

This conduct will ALWAYS bar an individual from becoming certified. Examples include:

  • felony conviction for theft, embezzlement, or other financially based crimes
  • felony conviction for tax fraud or other tax-related crimes
  • revocation of a financial professional license, unless administrative in nature
  • felony conviction for any degree of rape or murder
  • felony conviction for any other violent crime within the last 5 years
35
Q

Conduct Presumed to be Unacceptable

A

This conduct is deemed a presumptive bar and is PRESUMED to be unacceptable. Examples include:

  • two or more personal or business bankruptcies
  • revocation or suspension of a non financial professional license, unless administrative in nature
  • suspension of a financial professional license, unless administrative in nature
  • felony conviction for nonviolent crimes (including perjury) within the last 5 years
  • felony conviction for violent crimes other than rape or murder that occurred more than 5 years ago
36
Q

Other Adverse Conduct

A

This is conduct that may reflect poorly on the individual’s integrity or fitness, the profession, or the CFP certification marks. Examples include:

  • customer complaints
  • arbitrations and other civil proceedings
  • felony convictions for nonviolent crimes that occurred more than 5 years ago
  • misdemeanor convictions
  • employer investigations and terminations

CFP Exam (24 decks)

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