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(old) Fundamentals and Insurance > Fundamentals/New Supplement/Ethics Law and Code of Ethics > Flashcards

Fundamentals/New Supplement/Ethics Law and Code of Ethics Flashcards

replaces lesson 1 in book

1
Q

What does the CFP boards Code of Ethics (Code) and Standards of Conduct (Standards) reflect?

A

The commitment that all CFP professionals make to high standards of competency and ethics.

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2
Q

Who does the Code and Standards benefit? How?

A

The public; provides standards for delivering FP and advances FP as a distinct and valuable profession.

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3
Q

What comprises the Code?

A

A CFP must:

  1. Act with honesty, integrity, competence and diligence
  2. Act in the client’s best interest
  3. Exercise due care
  4. Avoid or disclose and manage conflicts of interest
  5. Maintain confidentiality and protect the privacy of client information
  6. Act in a manner that reflects positively on the FP profession and CFP certification
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4
Q

What is intended by the code? What does it help?

A

A1: To require a fiduciary duty of care when working with clients.

A2: Break that duty of care into distinct elements, obligations and actions CFPs owe

1) their clients,
2) their employers and
3) the CFP Board

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5
Q

Is the code specifically defined?

A

No, remains aspirational and leads to more detailed rules and obligations through the planning process.

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6
Q

Under the Standards of Conduct, what are the duties owed to the client?

A
  1. Fiduciary Duty
  2. Integrity
  3. Competence
  4. Diligence
  5. Disclose/Manage COI
  6. Sound and Objective Judgment
  7. Professionalism
  8. Comply with the Law
  9. Confidentiality and Privacy
  10. Provide Information to a Client
  11. Communicating with a client
  12. Duties when Representing Compensation
  13. Recommending, Engaging or Working with additional persons
  14. Selecting and using Technology
  15. Refrain from Borrowing or Lending Money and Commingling
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7
Q

What are the key words for Fiduciary Duty?

A

Duty of Loyalty:

  • Place client interests above CFP/Firm;
  • Avoid COI, or full disclose, obtain Client’s informed consent, properly manage the conflict; and
  • put the client first above CFP/Firm while acting under COI

Duty of Care

  • act in a manner that a prudent professional would exercise in light of Client’s goals, risk tolerance, objectives, and financial/personal circumstances

Follow Instructions

  • Terms of Engagment and all reasonable and lawful directions of the Client
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8
Q

What are the test tips for Fiduciary Duty?

A
  • Any recommendations regarding financial assets must be made as a fiduciary.
  • Client Needs > Financial Planner Interests
  • All compensation and business models
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9
Q

What are the key words for Integrity?

A

Honesty, Upstanding, Candor

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10
Q

What are the test tips for Integrity?

A

Allows for innocent mistakes and differences of opinion

Do not commit fraud, deceive or violate the spirit of the rules

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11
Q

What are the key words for Competence?

A

Relevantly Apply Knowledge

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12
Q

What are the test tips for Competence?

A

A CFP® Professional does not have to master all areas of planning.

Gain competence, obtain assistance, limit the engagement or refer if competence is lacking

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13
Q

What are the key words for Diligence?

A

Timely, Thorough

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14
Q

What are the test tips for Diligence?

A

Timely is not instant. Timely allows for the normal course of doing business on the part of the CFP® professional

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15
Q

What are the key words for Disclose and Manage Conflicts of Interest

A

Active Consent, Disclosure, Manage, Material Conflict, Ambiguity, Evidence of Informed Consent

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16
Q

What are the test tips for Disclose and Manage Conflicts of Interest?

A
  • Consent does not need to be in writing
  • Larger potential for harm, greater the need for disclosure
  • Ambiguity on the side of the client
  • Assume financial conflicts are material
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17
Q

What are the key words for Sound and Objective Professional Judgment?

A

Exercise judgment, not subordinated

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18
Q

What are the test tips for Sound and Objective Professional Judgment?

A

Do not accept or solicit gifts that could influence judgment

Fruit Basket Yes; Ferrari No

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19
Q

What are the key words for Professionalism?

A

Dignity, Courtesy, Respect

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20
Q

What are the test tips for Professionalism?

A

Applies to Clients, Potential Clients and other Financial Professionals

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21
Q

What are the key words for Comply with the Law?

A

Laws, Rules, Regulations, Standards

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22
Q

What are the test tips for Comply with the Law?

A

Avoid intentionally or recklessly violating laws, rules, regulations or standards

Recklessly can apply to making poor referrals

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23
Q

What are the key words for Confidentiality and Privacy?

A

Consent, Ordinary Business, Legal and Enforcement Purposes, Policies

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24
Q

What are the test tips for Confidentiality and Privacy?

A

Client consent does not need to be in writing

No absolute confidentiality

“Ordinary Business” requires consent

“Legal and Enforcement Purposes” does not require consent

Must have policies and process to protect Confidentiality, deliver in writing at or before engagement and every 12 months if they change

Carve out on policy delivery for Regulation S-P; B/D, Federal Covered RIAs

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25
Q

What are the key words for Provide Information to a Client?

A

Financial Advice, Financial Planning

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26
Q

What are the test tips for Provide Information to a Client?

A
  • Financial Advice requires seven elements (Description of Services, How the Client Pays, Compensation for the CFP/Firm/Related Party, Bankruptcies/Regulatory Events, Conflicts of Interest, Privacy, Economic Benefit of Referrals, Other Material Information); document that the info has been provided to the Client
  • Financial Planning all of the above and Scope of Engagement, Limitations and Responsibilities. Implementing/Monitoring/Updating is assumed unless excluded from the scope of engagement.
  • Material Changes/Updates to public disciplinary history or bankruptcy info disclosed within 90 days
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27
Q

What are the key words for Communicating with a Client?

A

Reasonable, Expected to Understand, Avoid Complexity

28
Q

What are the test tips for Communicating with a Client?

A

Ensure Client Understanding

Consider multiple forms of communication

29
Q

What are the key words for Duties when Representing Compensation?

A

Fee-only, Fee-Based, Sales Related Compensation, Soft Dollars, Non-Monetary Benefits, Related Pary

30
Q

What are the test tips for Duties when Representing Compensation?

A
  • Fee-Only generally means direct fees charged to clients or as a percentage of financial assets (Trip: education elements can be paid for by RIA custodian but can’t be based on sales/performance of assets)
  • $.01 of Sales Related Compensation eliminates the ability to use “Fee-Only”
  • 12b-1 Fees are specifically stated as Sales Related Compensation
  • Control and compensation from a related party earning Sales Related Compensation eliminates the ability to use “Fee-Only” with a few carve outs.
  • “Fee Based” = Fees & Sales Related Compensation (Trip: may/may not have education elements, can be paid for by a b/d, ins co; can be contigent on sales/performance, must be disclosed to clietn)
  • Soft Dollars (research or speaking services supplied by an investment company or B/D) are not sales related compensation
31
Q

What are the key words for Duties when Recommending, Engaging or Working with Additional Persons?

A

Reasonable Basis, Reputation, Experience, Qualifications, Disclosure, Reasonable Care

32
Q

What are the test tips for Duties when Recommending, Engaging or Working with Additional Persons?

A
  • This standard requires referring on the basis of reputation, experience and qualifications.
  • Exercise reasonable care to protect Client’s interest
  • Provide disclosure if paid a referral fee or given a substantial economic benefit.
  • Fruit Basket = No. $1,000 Check = Yes
33
Q

What are the key words for Selecting and using Technology?

A

Reasonable Care and Judgment, Level of Understanding

34
Q

What are the test tips for Selecting and using Technology?

A
  • Understand calculations and assumptions
  • Understand Monte Carlo simulation
  • Be able to change assumptions
35
Q

What are the key words for Refrain from Borrowing or Lending Money and Commingling?

A

Commingle, Client Assets, Borrow, Lend

36
Q

What are the test tips for Refrain from Borrowing or Lending Money and Commingling?

A
  • Client lending/borrowing generally prohibited
  • Exception family members, businesses who lend/borrow
  • CFP® Professional or their employer cannot commingle with client assets
37
Q

What is the definition of Financial Planning?

A

FP is a collaborative process that helps maximize a Client’s potential for meeting life goals through Financial Advice that integrates relevevant elements of the Client’s personal and financial circumstances.

“a process to help a client meet goals using elements of their personal and financial circumstances”

38
Q

When does a CFP have to compy with Practice Standards?

A
  1. When the CFP agrees to or provides:
    1. Financial Planning; or
    2. Financial Advice with integration of client’s personal/financial circumstances to act in their best interest; or
  2. Client has a “reasonable basis” to believe CFP will or has provided FP
39
Q

How does CFP board determine if a CFP has provided financial advice the requires FP?

A
  1. Number of elements of Client’s personal/financial circumstances affected
  2. Amount of Client’s assets involved
  3. Length of time Client’s affected by advice
  4. Effect on risk exposure if Client implements advice
  5. Barriers to changing the actions taken to implement advice
40
Q

What should a CFP do if a Client does not agree to engage the CFP to provide FP?

A

Must either:

  1. Not enter into the Engagement
  2. Limit Scope to services that dont require Practice Standards, and describe to client what WILL NOT be performed
  3. Provide services after informing client of FP benefit and that decision to not engage may limit CFP’s financial advice.
  4. Terminate the Engagagement
41
Q

What are circumstances that are likely FP?

A
  • Creating a balance sheet, cash flow statement or financial ratio
  • Client has financial goals beyond a simple transaction

CFP, regardless of business model or compensation strategy, should defer tgowards considering engagements FP unless certain engagement is transactional and does not involve qualitative or quantitative analysis.

42
Q

What are two examples of transactional relationships?

A
  • Buying compulsory property/casualty insurance without other consultation
    • Client requires collision and other than collision auto insurance and there is no fact finding
  • Real estate transaction without analysis or planning: a CFP/realtor can help client purchase property without financial analysis

STILL MUST ABIDE BY CODE OF ETHICS

43
Q

What are the Practice Standards for the Financial Planning Process?

A
  1. Understanding the Client’s Personal and Financial Circumstances
  2. Identifying and Selecting Goals
  3. Analyzing the Clients current course of action and potential alternative course(s) of action
  4. Developing the Financial Planning Recommendaiton(s)
  5. Presenting the Financial Planning Recommendation(s)
  6. Implementing the Financial Planning Recommendations
  7. Monitoring Progress and Updating
44
Q

What are the keywords for Step 1 of FP Process?

A

Qualitative and Quantitative Information, Analyze Information, Scope of Engagement

45
Q

What are the test tips for Step 1 of FP Process?

A
  • Both Quantitative (objective “quantity”) and Qualitative (subjective) information is equally important
  • Restrict scope of engagement if necessary information is not provided or available; or terminate the engagement
  • CFP must describe needed info to collaborate with Client
46
Q

What are the key words for Step 2 of FP Process?

A

Identify Goals, Effects on other Goals, Prioritize Goals

47
Q

What are the test tips for Step 2 of FP Process?

A
  • Discuss with client to Identify and Prioritize Goals, and the Effects selecting goals have on other Goals
  • Discuss with Client reasonable assumptions and estimates
    • life expectancy, inflation rates, tax rates, investment returns, other material assumptions and estimates
  • Discuss any goals the Client has selected that FP believes are unrealistic
48
Q

What are key words for Step 3 of FP Process?

A

Analyzing the Client’s Current Course of Action and Potential Alternative Course(s) of Action

49
Q

What are the test tips for Step 3 of FP Process?

A
  • Objectively analyze the good and the bad of current and proposed actions
  • Products and strategies are not favored or recommended by CFP Board, only process. Keep personal bias in check on the exam.
50
Q

What are key words for Step 4 of FP Process?

A

Assumptions, Maximize Potential to Meet Goals, Basis for Making Recommendation,
Timing, Priority, Independent or in Concert

51
Q

What are the test tips for Step 4 of FP Process?

A

Select recommendations that maximize potential to meet goals (consider cost, liquidity, risk)

Transactions stand as independent recommendations; Financial Planning most often requires goals to work together

52
Q

What are key words for Step 5 of FP Process?

A

Information, Developing

53
Q

What are the test tips for Step 5 of FP Process?

A

Present recommendations and discuss with the client before acting on them.

Process > Product

54
Q

What are key words for Step 6 of FP Process?

A

Responsibilities, Identify, Analyze, Advantages, Disadvantages

55
Q

What are the test tips for Step 6 of FP Process?

A

Different business models put different levels of responsibility on clients and the planner

Consider stand alone goals (buying P&C coverage) and those that have to be implemented together (estate planning)

Process > Product

56
Q

What are the test tips for Step 7 of FP Process?

A

Monitoring Responsibility, Progress, Collaborate, Update

57
Q

What are the test tips for Step 7 of FP Process?

A
  • Must establish monitoring duties, but not necessarily monitor (if excluded from the scope).
  • CFP Board does not state how frequently monitoring or progress updates must take place (states appropriate intervals)
  • A CFP® professional must specifically state they are not monitoring, otherwise monitoring is assumed
58
Q

Under Duties Owed to CFP Board, define the following:

  1. Felony
  2. Relevant Misdemeanor
  3. Minor Rule Violation
A
  1. Felony: felony offense with a sentence of at least one-year in prison or a file of at least $1000
  2. Relevant Misdemeanor: conduct involving fraud (including tax), theft, misrepresentation, other dishonest conduct, crimes of moral turpitude, violence, or a 2nd (or more) alcohol and/or dtug-related offense
  3. Minor Rule Violation: SRO Violation if sanction is less than $2500 and person does not contest fine
59
Q

How do the Standards define Adverse Conduct?

A

No conduct that adversely affects CFP, or CFP mark

  • Felony or Relavent Misdemeanor conviction (or deferment)
  • Finding in Regulatory or Civil Action of fraud, theft, misrepresentation, dishonest conduct
  • Personal/Business Bankruptcy, unless can rebut presumption
  • Federal Tax Lien, unless can rebut
  • Non-Federal Tax lien, judgment lien or civil judgment not satisfied in reasonable amount of time, unless can rebut
60
Q

What are the Standards for reporting Adverse Conduct?

A

Within 30 calendar days

  • When a CFP is named, charged, convicted, settled, adversely mentioned in an action, arbitration or civil event
  • Report both initial charge/rebuttal/investigation and outcome

EXCEPTIONS:

  • Arbitration less than $5000
  • Violations settled for less than $15,000
61
Q

What may cause on interim suspension of the right to use CFP marks?

A

conduct poses immediate threat to public, gravity of conduct

Also:

Order to Show Cause may be issued, prove why suspension during pendency of proceedings; no response in 20 days = admitting allegations

62
Q

What is an interim suspension immediately issued without a hearing?

A

CFP Board receives info on:

  1. Felony conviction for any crime
  2. Misdemeanor for fraud, misrepresentation or crimes of moral turpitude, or
  3. Revocation of a financial professional license, unless administrative
63
Q

What is the Complaint Investigation Procedure for complaints that do not meet the criteria for interim suspension?

A

Disciplinary and Ethics Commission (DEC) has jurisdiction

  • DEC gives written notice of allegations
  • 30 days to respond (if no response, 2nd notice issued. Failure to respond in 20 days may be deemed admission of allegations)
  • If Formal Complaint issued, written answer within due 20 calendar days
  • Hearing Panel convened, recommend disciplinary action (if any), then submtted to DEC for review
  • If DEC issues an order, 30 days to file an appeal
64
Q

What are the forms of discipline the DEC can issue?

A
  • Private Censure
  • Public Letter of Admonition
  • Suspension
  • Revocation
65
Q

What are the required actions for a suspension of CFP?

A

If < 1 year, reinstatement is automatic

If > 1 year, CFP must petition, failure to petition = permanently barred; if denied reinstatement, CFP must wait 2 years to petion again; 2nd petition is last chance

Order of suspension/Consent to suspension: provide evidence CFP has ceased using marks within 30 days; failure to provide results in automatic issuance of revocation

(old) Fundamentals and Insurance (14 decks)

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