FP511 Module 5

Question 1

Financial Planning

Answer 1

defined in the Code and Standards as “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.”

Question 2

financial advice

Answer 2

The Code and Standards defines Financial Advice as
a communication that, based on its content, context, and presentation, would reasonably be viewed as a recommendation that the Client take or refrain from taking a particular course of action

Items that are NOT Financial Advice include the following
A communication that, based on its content, context, and presentation, would not reasonably be viewed as a recommendation

Responses to directed orders „

The following, if a reasonable CFP® professional would not view it as Financial Advice:
Marketing materials
General financial education
General financial communications

Question 3

relevant elements of financial planning

Answer 3

The relevant elements of financial planning are incorporated into the financial planning process when financial planning takes place.

According to the Code and Standards, relevant elements can include
developing client goals

managing assets and liabilities

managing cash flow

identifying and managing risks

identifying and managing the
financial effect of health considerations

providing for educational needs

achieving financial security

preserving or increasing wealth

identifying tax considerations

preparing for retirement

pursuing philanthropic interests

addressing estate and legacy matters.

Question 4

integration factors

Answer 4

variables that weigh in determining whether Financial Advice requires Financial Planning.

“The number of relevant elements of the client’s personal and financial circumstances that the Financial Advice may affect”

“The portion and amount of the client’s Financial Assets that the Financial Advice may affect”

“The length of time the client’s personal and financial circumstances may be affected by the Financial Advice”

“The effect on the client’s overall exposure to risk if the client implements the Financial Advice”

“The barriers to modifying the actions taken to implement the Financial Advice”

Question 5

CFP Board’s Code of Ethics (6 principles)

Answer 5

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.

Question 6

CFB Boards Standards of Conduct

Answer 6

The Standards of Conduct (Standards) is a section of the Code and Standards that articulates professional duties that CFP® professionals must uphold

6 subsections:

1. Duties owed to clients
2. Financial Planning and Application of the Practice Standards for the Financial Planning Process
3. Practice Standards for the Financial Planning Process
4. Duties Owed to Firms and Subordinates
5. Duties Owed to CFP Board
6. Prohibition on Circumvention

Question 7

Duties Owed to Clients (Standards of Conduct)

Answer 7

15 duties:
Duty of Loyalty & Care
Follow Client Instructions
Integrity
Competence
Diligence
Conflicts of interest
Professional judgment
Professionalism
Comply with law
Confidentiality and privacy
Provide information to client
Compensation method
Engaging with additional persons
Recommending and using technology
Refrain From Borrowing or Lending Money and Commingling Financial Assets

Question 8

Practice Standards for the Financial Planning Process (standards of conduct)

Answer 8

set forth the level of professional practice expected of CFP® professionals engaged in financial planning

Question 9

Duties Owed to Firms and Subordinates (standards of conduct)

Answer 9

Use reasonable care when supervising.

Comply with lawful objectives of the CFP® professional’s firm.

Provide notice of any public discipline enacted by CFP Board

Question 10

Duties Owed to CFP Board (standards of conduct)

Answer 10

Avoid any adverse conduct.

Report incidents involving adverse conduct to CFP Board within 30 days.

Provide a narrative statement to CFP Board on reportable matters.

Cooperation with CFP Board throughout investigations and disciplinary proceedings.

Compliance with the Terms and Conditions of Certification and License (Terms).

Question 11

Prohibition on Circumvention (standards of conduct)

Answer 11

CFP® certificants are prohibited from using a third party to conduct business that violates the Code and Standards.

Question 12

Fiduciary duty

Answer 12

an ethical duty to make recommendations that are best for you, rather than their own financial benefit

Question 13

Department of Labor (DOL) fiduciary standard (fiduciary duty)

Answer 13

The highest fiduciary standard
applied to advice given to qualified retirement accounts such as defined benefit and defined contribution plans

Overturned by court of appeals in June 2018.

Question 14

Registered investment advisor (RIA) fiduciary standard (fiduciary duty)

Answer 14

This ruling found that Section 206 of the Advisors Act imposed a fiduciary duty on all RIAs. Under this standard, RIAs must act in the best interests of their clients.

Disclosure of compensation and conflicts of interest must be made in writing, and a contract is required.

RIAs must abide by the brochure rule, which requires providing every client and potential client with a copy of the firm’s Form ADV Part 2.

Question 15

Registered representatives (RRs) and agents suitability standard

Answer 15

The standard that registered representatives and insurance agents are held to, is the suitability standard.

This is a more lenient standard in that an investment can be suitable but not necessarily in the best interests of the client.

While the vast majority of advisors under the suitability standard always do their best to put the client’s best interests first, the standard itself allows the opportunity for advisors to offer a suitable product that may be more in the advisor’s best interests rather than the client’s.

Question 16

rules-based approach to a fiduciary standard

Answer 16

a series of rules and guidelines—essentially a checklist of dos and don’ts.

Having numerous rules increases complexity, creates opportunities for possible loopholes, and leads to enforcement issues.

Question 17

Principle-based approach to fiduciary standard

Answer 17

The principle-based approach is more aspirational in nature and is the current approach instituted by RIAs and CFP® professionals.

Question 18

Duty of Loyalty (fiduciary duty)

Answer 18

A CFP® professional must place the interests of the client above the interests of the CFP® professional and the CFP® professional’s firm. A CFP® professional also must avoid conflicts of interest, or fully disclose material conflicts of interest to the client, obtain the client’s informed consent, and manage the conflict.

A.1 from Code and Standards

Question 19

Duty of Care (fiduciary duty)

Answer 19

A CFP® professional must act with the care, skill, prudence, and diligence that a prudent professional would exercise in light of the client’s goals, risk tolerance, objectives, and financial and personal circumstances.

A.1 from Code and Standards

Question 20

Duty to Follow Client Instructions (fiduciary duty)

Answer 20

A CFP® professional must comply with the terms of the client engagement and follow all directions of the client that are reasonable and lawful.

A.1 from Code and Standards

Question 21

Duty of Loyalty

Answer 21

the obligation to look first to the client’s best interests is the fundamental duty owed to the client. It is referred to as the duty of loyalty and requires that the client’s interests be put ahead of one’s own, and that all actions be made solely for the benefit of the client.

Question 22

Duty of care

Answer 22

duty of care requires the fiduciary to have the competency to give fiduciary advice. This requires a certain level of knowledge and skill to know what is in the best interests of someone setting up a retirement plan or in the best interests of a retirement plan participant.

Question 23

Uniform Prudent Investor Act

Answer 23

This act supersedes and modifies the prior common law rule in significant ways, primarily by placing focus on the total return of a portfolio rather than individual investment choices.

changed from analyzing each investment individually (which led to very skewed portfolios) and instead updated the prudent investor to focus more on the total portfolio and its risk/opportunity compared to the clients needs.

Question 24

Duty to disclose

Answer 24

The duty to disclose all material facts and all conflicts of interest

Question 25

Duty to diagnose

Answer 25

The obligations to know your customer and to investigate the suitability of any products recommended as investments are complementary and fall within the ethical duty to diagnose.

Question 26

duty to consult

Answer 26

If you are deciding between two retirement account plans and only remember the details about one clearly so you recommend that to the client is a failure of your duty to consult with others who have specialized knowledge of the issue

Question 27

duty to keep current

Answer 27

Because tax laws, product offerings, and the fortunes of individual securities issuers—and, indeed, entire industries—change over time, anyone operating as a professional in the financial services industry has an ethical duty to keep current with those developments that affect their clients.

Question 28

CFP Board’s Fitness Standards

Answer 28

character and fitness standards for individuals seeking to obtain CFP® certification

Applies to both
Candidates for CFP® certification
Professional eligible for reinstatement (PER)

Does not apply to active CFP certificants

Question 29

Respondent

Answer 29

any person who has agreed to the CFP Board’s Terms and Conditions of Certification and Trademark License or CFP® Certification Candidate Agreement

Question 30

CFP Board Counsel

Answer 30

It has “the authority to investigate and issue a Complaint against a Respondent for alleged violations of (a) the Code of Ethics and Standards of Conduct

Question 31

Hearing Panel

Answer 31

When a formal complaint is filed, a hearing takes place before a panel of a minimum of three individuals. At least one member of every hearing panel is a member of the Disciplinary and Ethics Commission (DEC), and at least two members must be CERTIFIED FINANCIAL PLANNER™ professionals.

Question 32

Disciplinary and Ethics Commission (DEC)

Answer 32

The hearing panel submits its findings for review to the DEC for review consideration. The DEC is “composed primarily of CFP® professionals, has the authority to enter a final order that finds facts, determines whether a violation has occurred and, where appropriate, imposes discipline.”

Question 33

Appeals Committee

Answer 33

The “CFP Board Counsel or Respondent may appeal a final order to CFP Board’s Appeals Committee of the Board of Directors (‘Appeals Committee’). The Appeals Committee is composed primarily of CFP® professionals and has the authority to issue CFP Board’s final decision.”

Question 34

Interim Suspension

Answer 34

A suspension to a CFP certificant while investigation is underway.

Question 36

Public Censure

Answer 36

A published written reproach of the certificant’s behavior.

Question 37

Suspension

Answer 37

A suspension is a period of time in which Respondent remains subject to the Terms and Conditions of Certification and Trademark License but is not Certified or Licensed and is prohibited from using the CFP® certification marks, stating or suggesting that Respondent is a CFP® professional, or holding out to the public as being certified by CFP Board.

Question 38

Revocation.

Answer 38

A permanent revocation of the right to use the CFP® marks—this is a permanent denial of all rights associated with use of the marks. Revocations normally are published.

Question 39

Temporary Bar

Answer 39

A temporary bar is a period of time in which a Respondent who currently is not a CFP® professional is prohibited from applying for or obtaining CFP® certification.

Question 40

Permanent Bar

Answer 40

A permanent bar is a permanent prohibition on the ability of a Respondent who currently is not a CFP® professional to apply for or obtain CFP® certification.