ethics, law, and code of ethics Flashcards by Toria Baker

What is the Code of Ethics?

a CFP professional must:
- act with honesty, integrity, competence, and diligence
- act in the client’s best interests
- 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 and CFP certification

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What duties are owed to the client?

fiduciary duty
integrity
competence
diligence
disclose and manage conflicts of interest
sound and objective professional judgement
professionalism
comply with the law
confidentiality and privacy
provide information to a client
communicating with a client
duties when representing compensation
recommending, engaging and working with additional persons
selecting and using technology
refrain from borrowing or leading money and commingling

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What is financial advice?

requires 7 elements:
- description
- pay
- compensation
- bankruptcies/regulatory events
- conflicts of interest
- economic benefit of referrals
- other material information

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What is financial planning?

Includes financial advice (aka description, pay, compensation, bankruptcies/regulatory events, conflicts of interest, economic benefit of materials, other material information)

AND

Scope of Engagement
Limitations
and
Responsibilities

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Define fee-only

receive no Sales - Related compensation

direct fee charged to client or related to financial assets

ex: hourly fees, flat fees, subscription fees, AUM fees, custodial platform fees, salary or bonus not related to sales or production goals

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Define fee-based

receives both fee AND Sales-Related Compensation

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Sales Related Compensation includes:

commissions, fees, or compensation received as a result of selling or recommending a financial asset

commissions
trailing commissions
12b-1 fees
spreads
transaction fees
revenue sharing
referral or solicitor fees

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Sales Related Compensation does NOT include:

soft dollars

reasonable and customary fees for custodial or similar administrative services if the fee or amount of the fee is not determined based on the amount or value of client transactions

non-monetary benefits provided by another service provider

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What is the financial planning process:

understanding the clients personal and financial circumstances
identifying and selecting goals
analyzing the client’s current course of action and potential alternative courses of action
developing the financial planning recommendation
presenting the financial planning recommendation
implementing the financial planning recommendations
monitoring progress and updating

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What is the financial planning process:

Uber is a drunk person’s immediate motor vehicle

understanding the clients personal and financial circumstances
identifying and selecting goals
analyzing the client’s current course of action and potential alternative courses of action
developing the financial planning recommendation
presenting the financial planning recommendation
implementing the financial planning recommendations
monitoring progress and updating

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Reporting to the CFP board must take place:

30 days after the CFP Professional is named, charged, convicted, settled, adversely mentioned in the action, arbitration or civil event

(30 days include the weekends and holidays)

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What are the exceptions to reporting to the CFP Board?

claims of arbitration compensations for $5k or less and violations settled for $15k or less

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How does the CFP Board define a felony?

an offense punishable by one year or more in jail or over a $1000 fine

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How can the CFP mark be used?

Toria Baker, CFP
For business cards, letter or email closing:
Toria Baker
CERTIFIED FINANCIAL PLANNER TM

the CFP Mark can only be followed by 6 approved nouns: professional, practitioner, mark, certificant, certification or exam

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What is ALWAYS bared from an individual from becoming certified?

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

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What conduct is deemed a Presumptive Bar and is PRESUMED to be unacceptable?

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

What is part of the Fiduciary Duty?

duty of loyalty
duty of care
follow instructions

Can you orally disclose the conflict of interests with your clients?

YES - written consent is not required

What must we disclose in WRITING when we are providing Financial Advice?

What must we disclose ORALLY or IN WRITING when providing Financial Advice?

material conflicts of interest
services and products
how the client pays
how you, your Firm and Related Parties are Compensated
Public Discipline and Bankruptcy
Referral Compensation and Arrangements
Other Material Information

What must we disclose in WRITING when we are providing Financial Planning?

Privacy policy
services and products
how the client pays
ho wyou, your firm and related parties are compensated
public discipline and bankruptcy
referral compensation arrangements
terms of engagement (implementing, monitoring and updating is required unless explicitly excluded)
other material information

What must we disclose ORALLY or IN WRITING when providing Financial Planning?

Material Conflicts of Interest

What is the definition of Financial Planning?

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

What is involved in step 1 of the financial planning process?

Understanding the client’s personal and financial circumstances

obtaining qualitative and quantitative information
analyzing information (do we have all of the documentation we need?)
addressing incomplete information
(either limit the scope or terminate the relationship if they don’t provide all of the information)

What is involved in step 2 of the financial planning process?

2. Identifying and selecting goals - identifying potential goals - selecting and prioritizing goals

What is involved in step 3 of the financial planning process?

3. Analyzing the client's current course of action and potential alternative course(s) of action - analyzing the current course of action - analyze potential alternative courses of action

What is involved in step 4 of the financial planning process?

4. Developing the financial planning recommendations - the assumptions and estimates used to develop that recommendations the basis for making the recommendation, including how the recommendation is designed to maximized the potential to meet the client's goals, the anticipated material effects of the recommendation on the client's financial and personal circumstances, and how the recommendation integrates relevant elements of the client's personal and financial circumstances - timing and priority of the recommendations - whether the recommendation is independent or must be implemented with another recommendation

What is involved in step 5 of the financial planning process?

5. Presenting the financial planning recommendations - a CFP professional must present to the Client the selected recommendations and the information that was required to be considered when developing the recommendation(s)

What is involved in step 6 of the financial planning process?

6. Implementing the Financial Planning Recommendation(s) - addressing implementation responsibilities - identifying, analyzing and selecting actions, products, and services - recommending actions, product and services for implementation - selecting and implementing actions, products or services

What is involved in step 7 of the financial planning process?

7. monitoring progress and updating - monitoring and updating responsibilities - monitoring the client's progress - obtaining current qualitative and quantitative information - updating goals, recommendations, implementation decisions

Definition of a felony

an offense punishable by a sentence of at least one-year imprisonment or a fine of at least $1000

Definition of a relevant misdemeanor

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

Definition of a Regulatory Investigation

an investigation initiated by a federal, state, local or foreign governmental agency, self-regulatory organization, or other regulatory authority it does not include preliminary or routine regulatory inquiries or requests for information, deficiency letters, "blue sheet" requests or other trading questionnaires, or examinations

Definition of a regulatory action

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

definition of a civil action

a lawsuit or arbitration

definition of a finding

a finding 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

definition of a minor rule violation

a violation of a self regulatory organization rule designated as a minor rule violation under a plan approved by the US SEC. a rule violation maybe 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