Ethics, Laws, and Code of Ethics (Lesson 1) Flashcards
What does the CFP Boards Code and Standards do?
- Benefits and protects the public
- provides standards for delivering financial planning
- advances financial planning as a distinct and valuable profession
Code of Ethics: CFP professional must: A A E A M A
- Act with honesty, integrity, competence, and diligence
- Act in the clients 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 certification
Standards of Conduct (What is Fiduciary Duty?)
Duty of loyalty, duty of care, and follow client instructions
Confidentiality and Privacy (When is Client Consent needed?)
Ordinary business - requires client consent
Legal and Enforcement Purposes - does not require consent
When providing Financial Advice that does not require finanical planning a CFP must provide the following seven elements prior to or at the time of the engagement:
D C C B C E O
- Description of Services
- Costs of products
- Compensation
- Bankruptcies/Regulatory Events
- Conflicts of Interest
- Economic Benefit of Referrals
- Other Material Information
Fee Only means
- direct fees charged to clients or as a percentage of financial assets
- Hourly fees, flat fees, subscription fees, AUM, custodial platform fees, salary or bonus not related to sales or production goals, travel to custodian or research conference
Fee Based means
Fees and sales related compensation
Soft Dollar fees are
research or speaking services supplied by an investment company and are not sales related compensation
Standards of Conduct (What is Integrity)
CFP professional should be honest and upstanding
Standards of Conduct (What is Competence)
- Provide professional services with relevant knowledge and skill to apply that knowledge
- When not competent in an area CFP must gain competence, obtain the assistance of a competent professional, limit or terminate the engagement, or refer to another CFP professional
- CPE 30 hours every two years and two hours are ethics
Standards of Conduct (What is Diligence)
Respond to client inquiries in a timely and thorough manner
Standards of Conduct (What is Disclose and Manage Conflicts of Interest)
- Full disclosure of material conflicts of interest and provide the client with sufficiently specific facts so that a reasonable client would be able to understand
- Written consent to a conflict is not required
Standards of Conduct (How does a CFP keep Sound and Objective Professional Judgement)
CFP professional may not solicit or accept any gift, gratuity, entertainment, non cash compensation, or other consideration that reasonably could be expected to compromise the CFP professional objectivity
Standards of Conduct (What is Professionalism)
treat clients, fellow clients, and others with dignity, courtesy and respect
Standards of Conduct (Comply with the Law)
Comply with laws, rules, and regulations governing Professional services
Standards of Conduct (Confidentiality and Privacy)
Ordinary business
- with client consent
- To a CFP professionals firm or other persons with whom the CFP professional is providing services to or for the client, when necessary to preform those services
Legal and enforcement purposes
- to law enforcement authorities concerning suspected unlawful activities to the extent permitted by the law
Standards of Conduct (Providing Information to a Client)
Providing financial Advice
- does not require a financial planning in accordance with the practice standards Providing Financial Planning
- must be provided with accordance with the financial planning standards updating information
- material changes and updates to public disciplinary history or bankruptcy information must be disclosed to the client within 90 days
Standards of Conduct (Duties when Communicating with a Client)
Provide accurate information and respond to client requests in a manner they will understand
Standards of Conduct (Duties when representing compensation method)
Cannot mislead the client in terms of compensation
- Fee Only
- Fee-Based
- Sales related compensation (Soft dollar, 12b-1 fees, transaction fees, etc.)
Sales related compensation
Front load, back load, 12b-1 fees, insurance product commissions, sales based non cash travel incentives, salary or bonus based related to sales or production goals
Standards of Conduct (Duties when recommending engaging and working with additional persons)
- reasonable basis for the recommendation
- disclose compensation levels
- exercise reasonable care to protect clients interests
Standards of Conduct (Duties when selecting, using, and recommending technology)
- reasonable care and judgement when selecting software
- reasonable understanding of the assumptions
- reasonable basis for believing that the technology produces reliable, objective, and appropriate outcomes
Standards of Conduct (Refrain from Borrowing or lending money and commingling financial assets)
Can’t borrow money from client unless:
- client is a member of the CFP’s family or
- lender is a business organization that is in the business of lending money
Financial Planning Definition
- 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
Integrating Factors (Factors that the CFP board will weigh in determining whether a CFP professional has agreed to provide or provided financial Adivce)
- Number of relevant elements the financial advice may affect
- portion and amount of the clients financial assets that the advice may affect
- length of time
- effect on the clients exposure to risk
- barriers to modifying the actions taken
What is the Financial planning process
- Understanding the clients Personal and financial circumstances
- Identifying and selecting goals
- Analyzing the clients current course of action and potential alternative courses of action
- Developing the financial planning recommendation
- Presenting the financial planning recommendation
- Implementing the financial planning recommendation
- Monitoring Progress and Updating
Qualitative Data
Clients health, life expectancy, family circumstances, values, attitudes, expectations
Quantitative Data
Income, expenses, cash flow, savings, assets
Duties owed to firms and Subordinates
- Use reasonable care when supervising
- Comply with Lawful objectives of CFP professionals firm
- Providing notice of Public discipline (Need to provide employer with notice of suspension in writing that is it, no additional paper work need)
Felony under CFP board
offense punishable by a sentence of at least one year or a fine of at least $1,000
Relevant Misdemeanor under CFP Board
Criminal offense that is not a Felony for conduct involving fraud, theft, misrepresentation, other dishonest conduct, violence, a second (or more) alcohol and/or drug related offense
Minor Rule Violation
$2,500 or less fine by SEC and sanctioned person does not contest the fine
How soon must a CFP report that they have been named, charged, convicted, settled, adversely mentioned in an action, arbitration or civil event
30 Days
- report both the initial charge or investigation as well as its outcome
- Exceptions arbitration compensation for $5,000 or less and violations settled for $15,000 or less
CFP Mark can only be followed by 6 approved nouns
- professional
- practitioner
- mark
- certificant
- certification
- exam
The Disciplinary and Ethics commission has jurisdiction over
complaints that do not meet the criteria for interim Suspension
The Disciplinary and Ethics commission will
- give written notice to the Respondent the they are under investigation
- Respondent as 30 calendar days to file a written response to the allegations with the CFP Board if no response after a second notice (30 days) CFP will be considered in Default
What happens during a Interim Suspension
-cannot use the CFP marks
How long does a CFP have to respond about the notice of intern suspension order
14 Days
When will a interim suspension immediately be issued without a hearing from the CFP board?
- Felony criminal conviction or misdemeanor criminal conviction for fraud theft, misrepresentation, violence or crimes of moral turpitude
- Engaged in fraud, theft, misrepresentation, violence
- Revocation of a financial professional license
How long to responded to Notice of investigation and consequence of missed deadline
30 Calendar days, and second notice
How long to respond to the Second Notice of Investigation and consequence of missed deadline
30 Calendar days, and Default
How long to respond to request for documentation and consequence of missed deadline
30 Calendar Days, and Second request is sent
How long to respond to second request for documents
14 calendar days, and Constitutes grounds for sanction
How long to respond to motion for interim suspension
14 calendar days
How long can the suspension of use of CFP marks last
90 days to 5 years
How long can the revocation of use of CFP marks last
Permanent
How long do you have to provide evidence to CFP board that certificant receiving suspension or revocation has stopped using the marks?
45 calendar days
How long do you have to notify CFP board of change of mailing address or email address?
30 Calendar days
What is a Private Censure?
Unpublished written reproach mailed by the Commission to a censored CFP Professional
What is a Public Censure?
Publishable written reproach of the CFP professional
What is a Suspension and how long can it last?
Period no less than 90 days and no more than 5 years
What is a revocation?
permanent removal of a CFP professional’s right to use the marks
CFP Board has identified three categories of adverse conduct relevant to fitness
- Conduct that is unacceptable
- Conduct that is presumed to unacceptable
- Other conduct that may reflect adversely upon the individual, profession, or CFP marks
(Candidate Fitness Standards)
Felony conviction for theft, embezzlement, or other financial based cirmes
Barred from becoming CFP
(Candidate Fitness Standards)
Felony Conviction for tax fraud or other tax related crimes
Barred from becoming CFP
(Candidate Fitness Standards)
Revocation of a finanical professional license unless the revocation is administrative in nature
Barred from becoming CFP
(Candidate Fitness Standards)
Felony conviction for any degree of murder or rape
Barred from becoming CFP
(Candidate Fitness Standards)
Felony conviction for any other violent crime within the last 5 years
Barred from becoming CFP
(Candidate Fitness Standards)
Two or more personal or business bankruptcies
Presumed to be unacceptable
(Candidate Fitness Standards)
Revocation or suspension of a nonfinancial professional liscense unless revocation is administrative
Presumed to be unacceptable
(Candidate Fitness Standards)
Suspension of a financial professional liscense unless the suspension is adminstrative in nature
Presumed to be unacceptable
(Candidate Fitness Standards)
Felony conviction for non violent crimes (including perjury) within the last 5 years
Presumed to be unacceptable
(Candidate Fitness Standards)
Felony conviction for violent crimes other than murder and rape that occured more than 5 years ago
Presumed to be unacceptable
One Bankruptcy
Report to CFP board within _____
Report to Client within _____
Type of Adjudication
30 Days CFP Board
90 Days Client
Public censure without incurring a hearing fee
or
pay a hearing fee and follow a streamlined adjuduction procedure
Two Bankruptcy
Report to CFP board within _____
Report to Client within _____
Type of Adjudication
30 calendar days CFP Board
90 Days Client
Adjudication: Follow normal disciplinary procedure for adjudication complaints
Review process for Transgressions that fall under the Presumption list
- Submit written petition to Professional Review Staff and sign form agreeing to CFP Board jurisdiction to consider the matter
- Fee will be charged to all canadidates
- Staff will review the request to make sure it falls under the presumed list
- If yes, all relevant information will be provided to the Disciplinary and Ethics Commission for a determination
The Disciplinary and Ethics commission desicion can be appled to the ____
Appeals Committe of the Board of Directors
What are the 6 Standards of Conduct?
D F P D D P
- Duties owed to the client
- Financial Planning and Application of the Practice Standards for the Financial planning process
- Practice standards for the financial planning process
- Duties owed to the firms and subordinates
- Duties owed to CFP Board
- Prohibition on Circumvention
