FUND CH16 Ethics

Question 1

Certified Financial Planner Board of

Standards, Inc. 5 different categories:

Answer 1

o Code of Ethics and Professional Responsibility (“Code of Ethics”)

o Rules of Conduct

o Practice Standards

o Disciplinary Rules

o Candidate Fitness Standards

Question 2

Certified Financial Planner Board of

Standards, Inc.

Answer 2

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.

Question 3

CFP Licensee Duties and Responsibilities

4 Categorie

Answer 3

1. To the Profession
2. to the Employer
3. To the Clients
4. To Prospective Clients

Question 4

Principles

Answer 4

“I can obtain CFP Designation”

• I - Integrity
• C - Competence
• O - Objectivity
• C - Confidentiality
• F - Fairness
• P - Professionalism
• D- Diligence

Question 5

Integrity

Answer 5

Integrity demands honesty and candor which must not be subordinated to personal gain and advantage

Question 6

Objectivity

Answer 6

• Objectivity requires intellectual honesty and impartiality.
• Certificants should protect the integrity of their work,

maintain objectivity and avoid subordination of their

judgment.

Question 7

Competence

Answer 7

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)

Question 8

Fairness

Answer 8

• Be fair and reasonable in all professional relationships.

Disclose conflicts of interest

• Fairness requires impartiality, intellectual honesty and disclosure of material conflicts of interest.

Question 9

Confidentiality

Answer 9

• Protect the confidentiality of all client information.

Question 10

Professionalism

Answer 10

• 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

Question 11

Diligence

Answer 11

• Provide professional services diligently.
• Provide services in a reasonably prompt and thorough manner.

Question 12

Rules of Conduct six different categories:

Answer 12

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

Question 13

Keys Points

Answer 13

• 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

Question 14

Rules of Conduct Definition of ‘Financial Planning’

Answer 14

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

Question 15

Four Considerations to determine if Financial Planning:

Answer 15

1. The client’s understanding and intent in engaging the certificant.
2. The degree to which multiple financial planning subject areas are involved (generally, two or more).
3. The comprehensiveness of data gathering.
4. The breadth and depth of recommendations.

Question 16

Defining the Relationship with the Prospective Client or Client

Answer 16

• 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

Question 17

Summary of Distinctions

Answer 17

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)

Question 18

2. Information Disclosed To Prospective Clients and Clients

Answer 18

• 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

Question 19

3. Prospective Client and Client Information and Property

Answer 19

• 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

Question 20

4. Obligations to Prospective Clients and Clients

Answer 20

• 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

Question 21

5. Obligations To Employers

Answer 21

• 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.

Question 22

6. Obligations to CFP Board

Answer 22

• 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)

Question 23

Description of Practice Standards

Answer 23

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

Question 24

Candidate Fitness Standards and

Unacceptable conduct that will Always Bar an individual from becoming certified

Answer 24

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

Question 25

Presumption List

The list of Presumed Unacceptable conduct requiring a petition

Answer 25

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

Question 26

Petitions for Consideration Process

Answer 26

• 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

Question 27

Disciplinary Rules and Procedures

Answer 27

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

Question 28

CFP Board Disciplinary Rules and Procedures

Answer 28

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

Question 29

Summary of Compensation Definitions

Answer 29

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.

Question 30

Financial Planning Process

Answer 30

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