FUND CH16 Ethics Flashcards
Certified Financial Planner Board of
Standards, Inc. 5 different categories:
o Code of Ethics and Professional Responsibility (“Code of Ethics”)
o Rules of Conduct
o Practice Standards
o Disciplinary Rules
o Candidate Fitness Standards
Certified Financial Planner Board of
Standards, Inc.
The CFP Board has placed the highest ethical and
professional standards upon CFP® certificants and
Professionals Eligible for Reinstatement* (formerly
registrants).
• * An individual not currently certified, has been certified by CFP Board in the past and has an entitlement to potentially use the CFP® marks.
CFP Licensee Duties and Responsibilities
4 Categorie
- To the Profession
- to the Employer
- To the Clients
- To Prospective Clients
Principles
“I can obtain CFP Designation”
- I - Integrity
- C - Competence
- O - Objectivity
- C - Confidentiality
- F - Fairness
- P - Professionalism
- D- Diligence
Integrity
Integrity demands honesty and candor which must not be subordinated to personal gain and advantage
Objectivity
- Objectivity requires intellectual honesty and impartiality.
- Certificants should protect the integrity of their work,
maintain objectivity and avoid subordination of their
judgment.
Competence
Maintain the knowledge and skill necessary to provide professional services competently (not expert level)
- Competence means attaining and maintaining an adequate level of knowledge and skill, and application of that knowledge and skill in providing services to clients.
- Competence also includes the wisdom to recognize the limitations.(ex. bring attorney for complex estate planning)
Fairness
• Be fair and reasonable in all professional relationships.
Disclose conflicts of interest
• Fairness requires impartiality, intellectual honesty and disclosure of material conflicts of interest.
Confidentiality
• Protect the confidentiality of all client information.
Professionalism
- Act in a manner that demonstrates exemplary professional conduct.
- Certificants cooperate with fellow certificants to enhance and maintain the profession’s public image and improve the quality of services.
o Use marks appropriately
— CFP®, CERTIFIED FINANCIAL PLANNER™ (ALL
CAPS)
— Followed by: professional, certificant or practitioner
—Do NOT use as part of email or website address
Diligence
- Provide professional services diligently.
- Provide services in a reasonably prompt and thorough manner.
Rules of Conduct six different categories:
o Defining the relationship with a prospective client or client
o Information disclosed to prospective clients and clients
o Prospective client and client information and property
o Obligations to prospective clients and clients
o Obligation to employers
o Obligations to CFP Board
Keys Points
- Distinguish Financial Planning from more limited engagement
- Understand the effect on (higher) Duty of Care and Disclosures
- Understand the Practice Standards for Financial
Planning engagements
Rules of Conduct Definition of ‘Financial Planning’
o Providing material elements of the financial planning process (the 6 steps in the Practice Standards)
o The process of determining whether and how an individual can meet life goals through the proper management of financial resources
o Both the duty of care and disclosure requirements are more stringent for financial planning engagements than for limited engagements
o When in doubt, embrace the fiduciary standard of care and comply with the written disclosure requirements
- Must consider the total client relationship
- May be Financial Planning even if only one subject area (ex. comprehensive retirement plan)
- 4 considerations to determine financial planning
Four Considerations to determine if Financial Planning:
- The client’s understanding and intent in engaging the certificant.
- The degree to which multiple financial planning subject areas are involved (generally, two or more).
- The comprehensiveness of data gathering.
- The breadth and depth of recommendations.
Defining the Relationship with the Prospective Client or Client
- 1.1 mutually agree upon the services
- 1.2 prior to entering into an agreement, (oral or written PRIOR)
a. The obligations and responsibilities of each party
b. Compensation that any party any legal affiliate
c. Terms …offer proprietary products.
d. Terms …use other entities
• 1.3 Financial planning? WRITTEN agreement
PTSD parties, termination terms, services, date, duration, Form ADV
• 1.4 Fiduciary if Financial Planning - interest of client first at all times, best available options, proprietary product limitation must be disclosed in writing
Summary of Distinctions
Not Financial Planning
duty of care- clients interest first
disclosure- compensation, conflicts, material info, contact info, ORAL OR WRITTEN
if Financial Planning
duty of care- FIDUCIARY- BEST interest of client , Practice Standard
disclosure- compensation, conflicts, material info, contact info, WRITTEN (PTSD)
- Information Disclosed To Prospective Clients and Clients
- 2.1 do not lie! abt professional qualifications or services, benefits of products, or omit facts
- 2.2 a. disclose compensation (certificant and/or employer and other sources of compensation)
dollar amount does not have to be disclosed (unless requested by the client), but the sources and calculation of compensation are required.
b. conflicts of interest
c. personal info (ex. bankruptcys)
d. contact info
e. if financial planning
- Prospective Client and Client Information and Property
- 3.1 A confidential except: legal process (ex. subpoena), employer or partners, defend charges of wrongdoing or civil dispute, needed to perform the services
- 3.2 phsical and electronic info
- 3.3 obtain info necessary and inform if there are material deficiencey for assesment - and modify agreement accordingly
- 3.4 A identify and supervise assets, keep complete records
- 3.6 borrower nor lender be…to client - exception is immediate family, institution
- 3.8/9 Do not commingle client property with self/employer other clients property - unless permitted by law or written permission (ex. hedge funds do that all the time) keep track! sufficient record keeping
- 3.10 return client property in timely manner- or agreed time frame
- Obligations to Prospective Clients and Clients
- 4.1 A treat prospective clients and clients fairly and provide professional services with integrity and objectivity.
- 4.2 offer advice only in those areas in which competent and maintain competence
- 4.3 compliance with applicable regulatory requirements
- 4.4 A reasonable and prudent professional judgment
- 4.5 suitable recommendations
- 4.6 supervision to subordinate third party
- 4.7 advise of any certification suspension or revocation from CFP board
- Obligations To Employers
- 5.1 dedication to the lawful objectives of the employer/principal and in accordance with CFP Board’s Code of Ethics.
- 5.2 advise his or her current employer/principal of any certification suspension or revocation he or she receives from CFP Board.
- Obligations to CFP Board
• 6.1 abide by the terms of all agreements with
CFP Board, using the CFP® marks, trademark and
professional review operations and requirements.
- 6.2 continuing education requirements-30 hours every two years, including 2 hours of ethics
- 6.3 contact info , address within 45 days
- 6.4 convictions of a crime , suspensions within 30 days
- 6.5 conduct (ex. facebook)
Description of Practice Standards
level of professional practice expected
mandatory
• The purpose of the practice standards is to:
o Establish the level
o Advance professionalism
o Enhance the value
Candidate Fitness Standards and
Unacceptable conduct that will Always Bar an individual from becoming certified
ensure specific character and fitness standards as to an individual’s conduct before certification
ALWAYS BAR:
o Felony conviction for theft, embezzlement or other financially based crimes, tax fraud or other tax-related crimes, murder or rape,__violent crime within the last five years (ex. DUI)
o Revocation of a financial professional license, unless revocation was administrative in nature
Presumption List
The list of Presumed Unacceptable conduct requiring a petition
o Two or more personal or business bankruptcies
o Revocation or suspension of a non-financial professional license, unless the revocation is administrative in nature
o Suspension of a financial professional license unless the
suspension is administrative in nature
o Felony conviction for nonviolent crimes, including perjury,
within the last five years, violent crimes (other than murder or rape)
that occurred more than five years ago
Petitions for Consideration Process
- A written petition must be submitted
- Professional staff ensures within the
“presumption list.”
• Professional staff notify the individual if the transgression falls
within the “presumption list” or the “always bar list.”
- review staff will request all relevant documentation from the individual
- All relevant information will be provided to the Disciplinary
and Ethics Commission (DEC) for determination. The DEC
may either grant the petition or deny the petition
• Petitioner may file an appeal within 30 days
Disciplinary Rules and Procedures
Private Censure- unpublished written reproach
Public Letter of Admonition- publishable written reproach.
Suspension- The Commission may also order suspension for up to five years.
Revocation- is permanent
CFP Board Disciplinary Rules and Procedures
Interim Suspension -of right to use the marks; If convicted of a serious crime, or the subject of a professional suspension, or has converted property or funds, engaged in conduct which poses an immediate threat to the public, or engaged in conduct the gravity of which impinges upon the stature and reputation of the marks.
CFP Board may issue an Order to Show Cause why the CFP® professional’s right to use the marks should not be suspended during the pendency of the proceedings. If the certificant does not respond within 20 calendar days, the allegations are deemed admitted.
Suspension may occur without a hearing for felonies, some misdemeanor’s (financial related) and revocation of financial license.
Normal Complaint Investigation Procedure…
DEC sends written notice- 30 days to respond, No response …second notice within 20 days, No response to second notice deemed admitted by default
Then Formal Complaint written notice, written answer within 20 days, Hearing Panel disciplinary action determined - 30 days for appeal
Summary of Compensation Definitions
IF MONEY CHANGES HANDS YOU OR COMPANY
Commission- Compensation from a transaction (percentage)received by an agent or broker. Includes 12b-1 fees, trailing commissions, surrender charges & contingent deferred sales charges
Fee Only- exclusively from the client -fixed, flat, hourly, percentage or performance-based fees (AUM %)
Ex. A CFP® professional may work for an investment advisor that charges only fees for the CFP® professional’s professional activities
Commission and Fee- If receiving both, must disclose compensation as “Commission and Fee” (includes firm)
Salary- CFP Board does not define, CFP® professional must describe compensation so that clients understand how to pay
Note: Compensation Disclosure – CFP® professional and any related party. And any non-trivial economic benefit received or entitled to receive.
Financial Planning Process
what is required and how do you do it and other specific issues -
- mutual this mutual that
- recurring, ongoing disclosure (at that time- is a theme)
100- Scope Mutually defined
Identify services, required disclosures, duration, and scope specifics
200- Qualitative Gathering Data for Goals , Needs Priorities, Objectives assist in recognizing unrealistic goals
200-2 Quantitative Gathering Data, complete and accurate- if insufficient then restrict or terminate, communicate limitations effect on recommendations
300- Analyzing and evaluating, current course of action meet goals? Forecasting with reasonable assumptions - mutually agreed personal and economic, determine strengths and weakness- Ongoing!
400- 1 sufficient relevant alternative CHOICES (don’t just use one thing that you do, personalize it), legal or regulatory issues
400- 2 Recommendations consistent in scope, goals, Quantitative data, personal and economic assumpions, current, alternatives, continue current or modify goals
400- 3 Present - help them understand current situation, and recommendation, and impact on goals needs and priorities AVOID opinion as fact, communicate factors : personal and economic assumpions, Interdependence of recommendations, advantages and disadvantages, risks, time sensitivity and conflicts of interest ONGOING DISCLOSURE
500- Implementing - MUTUALLY AGREE on responsibilities (delegate), DISCLOSE Conflicts of Interest, Compensation, referrals
500-2 Selecting Products consistent , investigate products, must be suitable
600- Monitor expectations in alignment, what, frequency, communication method, modify scope
