Ethics Flashcards
What are the duties of the fiduciary duty
Duty of loyalty
Duty of care
Duty to follow clients instructions
What is the duty of care?
Act with care, skill, prudence, and filling ends that a prudent professional would exercise in light of clients goals, risk tolerance, but objectives, and financial and personal circumstances
Definition of a client
Any person (natural person, business organization, legal entity) to whom the CFP professional provides professional services pursuant to an engagement
For financial planning what is the only thing that can be provided orally or in writing?
Material conflicts of interest
For financial advice what is the only thing that must be provided in writing
Privacy policy
What must you do to address incomplete information
If unable to obtain info necessary to fulfill scope of engagement, limit it to the services you are able to provide or terminate the engagement
What is the difference between qualitative and quantitative?
Qualitative- subjective information
Quantitative- objective information
What does the code of standards section state in regard to implementation of recommendations?
You are responsible for implementing the clients financial planning recommendations unless specifically excluded from the scope of engagement
What does the code or standards state about monitoring clients recommendations?
You are responsible for monitoring and updating the clients financial planning recommendations unless specifically excluded from the scope of engagement
Define the fiduciary duty
At all times when providing financial advice to a client, a CFP professional must act as a fiduciary and act in the best interest of the client
What is the duty of loyalty
- place interests of client above my and my firms interests
- avoid or fully disclose conflicts of interest and obtain consent from client
- act without regard to interests of myself and my firm
What is the duty of care
- act with the care, skill, prudence, and diligence that a prudent professional would exercise in light of clients goals, risk tolerance, objectives, and financial and personal circumstances
- comply with all objectives, policies, restrictions and other terms of engagement
Is capacity for risk a qualitative or quantitative example and why?
Quantitative
This describes how much risk a client NEEDS to take to reach their goals
CFP Code of ethics
- act with honesty, integrity, competence and diligence
- act in the clients best interest
- 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
What is the duty to follow the clients instructions
CFP professional must comply with the terms of the client engagement and follow all directions of the client that are reasonable and lawful
What is not considered financial advice?
- communication that would not be viewed as a recommendation
- responses to direct orders
- marketing materials
- general financial education and communications
Is the determination of whether financial advice has been provided objective or subjective?
Objective
What is acceptable documentation
CRM software
Handwritten notes
Emails
Standards of conduct
- duties owed to clients
- financial planning and application of the practice standards for the financial planning process
- practice standards for financial planning process
- duties owed to firms and subordinates
- duties to the CFP board
- prohibition on circumvention
What is prohibition on circumvention
CFP professional may not do indirectly or through or by another person or entity any act or thing that the code of standards prohibits the CFP from doing
Define CFP professional firms
Any entity on behalf of which a CFP professional provides professional services to a client that has the authority to exercise control over the CFP professionals activities
Define conflict of interest
-when a CFP professionals interests are adverse to the CFP professionals duties to a client
Or
-when a CFP professional has duties to one client that are adverse to another client
Define control
The power, directly or indirectly, to direct the management or policies of the entity at the relevant time, through ownership, by contract, or otherwise
Define engagement
An oral or in writing, arrangement, or understanding
Define financial planning
A collaborative process that helps maximize a clients potential for meeting life goals through financial advice that integrates relevant elements of the clients personal and financial circumstances
Define material
Information is material when a reasonable client or prospective client would consider the information important in make a decision
Define professional services
Financial advice and related activities and services that are offered or provided including but not limited to financial planning, legal, accounting or business planning services
What are the types of related parties
Family members
Business entities
What are the duties owed to a client
- fiduciary duty
- integrity
- competence
- diligence
- disclose/manage conflicts of interest
- sound/objective professional judgement
- professionalism
- comply with the law
- confidentiality/privacy
- provide info to a client
- duties when communicating with a client
- duties when representing compensation
- duties when recommending an additional person
- duties when recommending technology
- refrain from borrowing, lending, commingling assets
Duties owed to firm and subordinates
Use reasonable care when supervising
Comply with lawful objectives of CFP professionals firm
Provide notice of public discipline
Duties owed to CFP board
Definitions
Refrain from adverse conduct
Reporting
Provide narrative statement
Cooperation
Compliance with terms and conditions
What is a narrative statement
Written notice that accurately and completely describes the material facts and the outcome or status of a reportable matter
When is a rule violation designated as minor
When sanction imposed is a fine of $2,500 or less and the sanctioned person does not contest the fine
What is a relevant misdemeanor?
Criminal offense, that is not a felony, for conduct involving:
Fraud, theft, misrepresentation, or other dishonest conduct, crimes of moral turpitude, violence or a second or more alcohol/drug offense
What is a felony
A felony offense, or for jurisdictions that do not differentiate between a felony and a misdemeanor of an offense punishable by:
One year of imprisonment or
Fine at least $1,000
What is the expectation in regard to updating material information/change
Material changes and updates to public disciplinary history or bankruptcy must be disclosed to the client within 90 days with relevant webpages
Are you required to comply with the practice standards for financial planning process if the client does not agree to engage?
No
When must the CFP act as a fiduciary?
When providing financial advice
Do you need to give your client a copy of form ADV?
Yes, during the first step of the financial planning process
