Fundamentals & Insurance | Lesson 1: Ethics, Laws, & Code of Ethics Flashcards
Which of the following is not an element of the CFP Board Code of Ethics?
a) Exercise due care.
b) Manage conflicts of interest.
c) Maintain confidentiality.
d) Act with knowledge and skill.
Answer: D
CFP® professional’s Duties Owed to Clients states to make recommendations with skill and care. This is not an element of the Code of Ethics.
Which of the following is not an element of the CFP Board requirement of Fiduciary Duty?
a) Duty of Diligence
b) Duty of Loyalty
c) Duty of Care
d) Duty to Follow Client Instructions
Answer: A
The duty of Diligence requires a CFP® professional to provide services to their clients in a timely and thorough manner. Diligence is not a required element of Fiduciary Duty.
Amber applied for CFP® certification and was denied. Her prior conduct falls under the “presumed list” and
she wants to appeal. Which of the following is true regarding the review process?
a) She must call the Professional Review staff within 15 days and tell them that she plans to submit to the
review process.
b) A fee will be charged.
c) A final decision whether to deny or grant the petition will be made within 120 days of application.
d) The Disciplinary and Ethics Commission’s decision regarding a petition for consideration is final and
may never be appealed.
Answer: B
There is no requirement to call, nor is there any set day on which a decision must be made. A written petition
for reconsideration must be submitted. A decision may be appealed if relevant professional revocation or suspension is vacated or the relevant felony conviction is overturned.
Which of the following may rarely result in the delay or denial of certification?
- Customer complaints
- Misdemeanor convictions
- Employer investigations and terminations
a) 1 only
b) 2 only
c) 1 and 3
d) 1, 2, and 3
Answer: D
All of these may rarely result in the delay or denial of certification.
Which body of the CFP Board is responsible for reviewing and making final decisions regarding a petition
for reconsideration under the Candidate Fitness Standards?
a) Board of Governors
b) Disciplinary and Ethics Commission
c) Board of Professional Review
d) Candidate Fitness Commission
Answer: B
The Disciplinary and Ethics Commission has been tasked with reviewing petitions for reconsideration.
Note: Board of Professional Review is responsible for interpreting and applying the Code of Ethics.
Ralph, a CFP® professional, was the financial advisor for Sue and her husband Bob, who had recently passed away. Bob’s assets included an IRA with Sue as the named beneficiary. Ralph advised Sue that she could disclaim her interest as beneficiary of the IRA, which would allow its value to pass to her two children. However, Ralph did not notify the custodian issuer of the IRA that Sue had disclaimed her interest in the IRA. Ralph acknowledged during his hearing with the Disciplinary and Ethics Commission that he could have annuitized the existing annuity in the IRA, which would have been less costly for Sue than purchasing a new annuity for each of her children. The Commission determined that annuitizing the existing annuity would have avoided early withdrawal penalties and the effects on taxable income on Sue’s children, and issued a Public Letter of Admonition to Ralph. The Commission ordered Ralph to complete, in addition to the 30 hours of continuing education for renewal, 12 hours of continuing education, including four hours each in estate planning, investments and estate distributions. Ralph violated all of the following provisions of the Code of Ethics EXCEPT?
a) Failed to exercise reasonable and prudent professional judgment in providing professional services
b) Failed to act in the best interest of the Client
c) Failed to modify the scope of the agreement and to bring in an estate planning attorney
d) Failed to make and/or implement only recommendations that were suitable for the Client
Answer: C
Ralph failed to apply knowledge and skill in Bob’s passing. Ralph did not act as a fiduciary nor recommend options to maximize the potential of meeting client goals. The fact pattern does not indicate Ralph failed to identify and select goals.
For many years, Samuel has been employed as a financial representative at a leading brokerage firm where he conducts suitability reviews and makes investment recommendations for his clients. He recently obtained his CFP® certification and has just signed an agreement with Thomas, a new client, for a comprehensive financial plan. According to the Code of Ethics and Standards of Conduct, which of the following represents an additional requirement for Samuel in his engagement with Thomas compared with his other clients?
a) Samuel must understand the new client’s personal and financial circumstances by gathering qualitative and quantitative information.
b) Samuel must Identify and prioritize goals through the financial planning process.
c) Thomas must receive a written disclaimer identifying Samuel’s sources of compensation.
d) Thomas must receive a written notice of confidentiality policies at the time of engagement.
Answer: C
A CFP® professional engaged for Financial Planning must clearly describe and provide clients with their compensation methods in writing.
