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CFP Coursework > General Financial Planning - FP511 - Module 5 > Flashcards

General Financial Planning - FP511 - Module 5 Flashcards

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1
Q

T/F: The determination of whether Financial Advice has been provided is an objective inquiry.

A

TRUE
The more customized a planner’s communication are to a client’s individual situation, the greater the likelihood that Financial Advice is being provided.

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2
Q

What 3 questions serve as a check to verify that a planner and client are involved in a Financial Planning engagement?

A

1- Has the planner agreed to provide Financial Planning?
2- Does the client have a reasonable basis to believe the planner will provide Financial Planning?
3- Does the Financial Advice require integration of relevant elements and integration factors?

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3
Q

Define: Integration Factors

A

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

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4
Q

Integration factors include:

A
  • number of relevant elements
  • portion and amount of client’s financial assets affected
  • length of time client may be affected
  • effect on client’s overall risk exposure
  • barriers to modifying the actions taken
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5
Q

After determining that the Financial Advice requires Financial Planning, if the client does not agree to move forward with the Financial Planning services, what options does a planner have?

A
  • provide requested services after informing the client of benefits of Financial Planning and how not entering into the agreement will limit Financial Advice
  • not enter into the engagement
  • limit the scope of the engagement to services that do not require Financial Planning
  • terminate the engagement
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6
Q

As a CFP professional, when must the Code of Ethics be upheld?

A

In all instances and encounters with clients

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7
Q

When must a CFP professional adhere to Fiduciary Duty?

A

In any instance where it’s been determined that Financial Advice or Financial Planning has occurred.

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8
Q

When must a CFP professional adhere to the Practice Standards?

A
  • CFP agrees to provide Financial Planning
  • CFP agrees to provide Financial Advice that requires integration of relevant elements
  • client has reasonable basis to believe CFP will provide Financial Planning
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9
Q

What standards apply when providing Financial Advice?

A
  • Code of Ethics
  • Standards of Conduct
  • Fiduciary Duty
  • Managing conflicts of interest
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10
Q

What standards apply when providing Financial Advice that requires Financial Planning and the client engages?

A
  • Code of Ethics
  • Standards of Conduct
  • Fiduciary Duty
  • Managing conflicts of interest
  • Practice Standards for the Financial Planning Process
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11
Q

What is the Disciplinary and Ethics Commission responsible for?

A

Investigating, reviewing, considering recommendations, and issuing a final decision in the instances of allegations of Code and Standard violations and/or noncompliance.

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12
Q

What are the 6 principles set forth in the Code of Ethics?

A

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 privacy
6- Act in a manner that positively reflects on financial planning profession/CFP certification

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13
Q

What are the 6 subsections of the Standards of Conduct?

A

1- Duties owed to clients
2- Financial planning and application of the Practice Standards
3- Practice Standards for the FP Process
4- Duties owed to firms and subordinates 5- Duties owed to CFP Board
6- Prohibition on circumvention

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14
Q

How many duties are owed to clients?

A

15

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15
Q

To uphold the fiduciary standard, the CFP professional is generally required to fulfill the following 3 duties:

A

1- duty of loyalty
2- duty of care
3- duty to follow client instructions

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16
Q

Fiduciary Duty (Standard A.1)

A

At all times when providing Financial Advice to a client, a CFP professional must act as a fiduciary, and, therefore, act in the best interests of the client.

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17
Q

Integrity (Standard A.2)

A
  • A CFP professional must perform professional services with integrity.
  • The standard also contains standard anti-fraud language.
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18
Q

Competence (Standard A.3)

A
  • A CFP professional must provide professional services with competence, which means with relevant knowledge and skills to apply that knowledge.
  • If not sufficiently competent, the CFP must gain competence, obtain assistance of a competent professional, limit or terminate the engagement, and/or refer the client to a competent professional.
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19
Q

Diligence (Standard A.4)

A

A CFP professional must provide professional services, including responding to reasonable client inquiries, in a timely manner.

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20
Q

Disclose and Manage Conflicts of Interest (Standard A.5)

A

A CFP professional must:
- avoid or fully disclose conflicts
- obtain informed consent
- manage the conflict

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21
Q

T/F: A material conflict of interest does not need to be disclosed if the CFP believes they are acting in the client’s best interest.

A

FALSE

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22
Q

Sound and Objective Professional Judgment (Standard A.6)

A

CFP professionals must act objectively to serve the interests of clients, rather than themselves, their firms, or anyone else.

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23
Q

Professionalism (Standard A.7)

A

CFP professionals are required to treat others with dignity, courtesy, and respect.

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24
Q

Comply with the Law (Standard A.8)

A

A CFP professional is required to comply with the laws, rules, and regulations of the governing professional services.

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25
Q

Confidentiality and Privacy (Standard A.9)

A

CFP professionals are required to uphold clients’ confidentiality and privacy.

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26
Q

What are the 2 exceptions to the Confidentiality and Privacy standard?

A

1- Information used for ordinary business purposes
2- Information transferred for legal and compliance purposes

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27
Q

Provide Information to a Client (Standard A.10)

A

A CFP professional must provide accurate information to clients, in an understandable manner and format.

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28
Q

Duties When Communicating with a Client (Standard A.11)

A
  • Provide the client with accurate information in a manner and format that can be reasonably understood
  • Provide the info in accordance with the terms of the engagement
  • Respond to reasonable client requests
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29
Q

Duties When Representing Compensation Method (Standard A.12)

A

Establishes the criteria for determining the appropriate compensation method to disclose to clients.

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30
Q

What are the 2 ways that CFP professionals may disclose their compensation?

A

1- fee only (only a planning fee)
2- fee based (planning fee + sales related compensation)

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31
Q

Duties When Recommending, Engaging, and Working with Additional Persons (Standard A.13)

A

A CFP must
- have reasonable basis for recommendations or engagements
- disclose any arrangements by which someone other than the client will handle compensation
- communicate with other professionals about services to be provided
- inform the client of any issues in a timely manner

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32
Q

Duties When Selecting, Using, and Recommending Technology (Standard A.14)

A

A CFP must
- have reasonable basis to believe the tech produces reliable, objective, and appropriate outcomes
- exercise reasonable care and judgment when selecting tech
- have reasonable understanding of the tech’s assumptions and outcomes

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33
Q

Refrain from Borrowing or Lending Mondy and Commingling Financial Assets (Standard A.15)

A
  • A CFP must refrain from borrowing or lending money
  • Commingling is prohibited
  • Indirect borrowing is explicitly prohibited
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34
Q

In what instance is borrowing or lending allowed for a CFP professional?

A
  • If the client is a member of the CFP professional’s family
  • If the lender is a business organization or legal entity in the business of lending money
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35
Q

What is established in the Financial Planning and Application of the Practice Standards for the Financial Planning Process?

A
  • the definition of financial planning
  • guidelines for determining when financial planning is required
  • relevant elements and integration factors are defined
36
Q

Duties Owed to Firms and Subordinates

A
  • use reasonable care when supervising
  • comply with lawful objectives of the CFP professionals’ firm
  • provide notice of any public discipline enacted by the CFP board
37
Q

Duties Owed to the CFP Board

A
  • avoid adverse conduct
  • report incidents involving adverse conduct within 30 days
  • provide narrative statements to the Board
  • cooperate with the board during investigations and disciplinary proceedings
  • comply with the terms and conditions
38
Q

Prohibition of Circumvention

A

CFPs are prohibited from using a third party to conduct business that violates the Code and Standards

39
Q

What are the 3 types of fiduciary standards related to investment and retirement advice?

A

1- Department of Labor fiduciary standard
2- Registered investment advisor fiduciary standard
3- Registered representatives and agents suitability standards

40
Q

T/F: The highest standard is the suitability standard.

A

FALSE
The highest standard is the fiduciary standard.

41
Q

Define: Rules-Based Approach

A
  • a series of rules and guidelines
  • essentially a checklist of dos and don’ts
42
Q

Define: Principal-Based Approach

A
  • more aspirational in nature
  • is the current approach used by RIAs and CFP professionals
43
Q

When does a fiduciary relationship exist?

A

Any time one person trusts in or relies on another.

44
Q

What Act wrote into law the fiduciary duty owed by investment advisors to their clints?

A

The Investment Advisors Act of 1940

45
Q

Define: Investment Advisor

A

Any person who, for compensation,
- engages in the business of advising others, either directly or through publications or writing, as to the value of securities or as to the advisability of investing in, purchasing, or selling securities, or
- as part of a regular business, issues or promulgates analyses or reports concerning securities.

46
Q

Regardless of their specialization within the financial services industry, what 6 duties of loyalty are owed to all clients?

A
  • duty of loyalty
  • duty of care
  • duty to disclose
  • duty to diagnose
  • duty to consult
  • duty to keep current
47
Q

Define: Duty of Loyalty

A
  • the obligation to look first to the client’s best interests
  • all actions be made solely for the benefit of the client
48
Q

Define: Duty of Care

A

Requires the fiduciary to have the competency to give fiduciary advice, and know when to delegate or consult with others.

49
Q

Define: Duty to Disclose

A
  • all material facts and all conflicts of interest must be disclosed
  • disclosure isn’t enough, client’s interest must still always come first
50
Q

T/F: Conflicts of interest are unethical only when they are not disclosed to all parties involved.

A

TRUE

51
Q

Define: Duty to Diagnose

A
  • obligation to know your client
  • obligation to investigate suitability of any products recommended
52
Q

Define: Duty to Consult

A

If a professional has doubts concerning an issue that goes beyond their personal competence, an expert in that area should be consulted.

53
Q

Define: Duty to Keep Current

A

Anyone operating in the financial services industry has the ethical duty to keep current with developments that affect their clients.

54
Q

T/F: If a fiduciary duty is violated, a court will typically be okay if the client signed ahead of time to nullify the duties.

A

FALSE
Courts tend to be cautious of enforcing overly broad exculpatory language, especially when one party holds itself out as an expert.

55
Q

What do the Fitness Standards establish?

A

Character and fitness standards for individuals seeking to obtain CFP certification

56
Q

T/F: Revocation of a financial professional licensure, if administrative in nature, will not bar someone from certification.

A

TRUE

57
Q

What felony convictions will always result in an individual being barred from certification?

A
  • theft, embezzlement, or other financially-based crimes
  • tax fraud or other tax-related crimes
  • any degree of murder or rape
  • any violent crime in the last 5 years
58
Q

T/F: Felony conviction for non-violent crimes or felony convictions for violent crimes (other than murder or rape) that occurred more than 5 years ago can be reviewed by the DEC and possibly allow certification.

A

TRUE
These are on the presumptive bar list.

59
Q

Other than felony convictions, what other transgressions are on the presumptive bar list?

A
  • 2+ personal or business bankruptcies
  • revocation or suspension of non-financial professional license
  • suspension of financial professional license, unless administrative
60
Q

Following the review by the DEC of a petition for reconsideration of a transgression on the presumptive bar list, what actions may be taken?

A
  • grant the petition
  • deny the petition
  • deny but allow the individual to reapply
61
Q

The DEC’s decision regarding a petition for consideration may be appealed to the _____________.

A

Appeals Committee of the Board of Directors

62
Q

Define: Respondent

A

Any person who has agreed to the CFP Board’s Terms and Conditions or Pathway to the CFP Certification Agreement.

63
Q

What is the purpose of the Enforcement Council?

A

It has the authority to investigate and issue a complaint against a respondent for alleged violations of:
- the Code and Standards
- the CFP Certification Candidate Agreement
- the Terms and Conditions

64
Q

What is the purpose of the Hearing Panel, and who is it comprised of?

A
  • Hear formal complaints filed against respondents
  • Comprised of 3 individuals
    1. a member of the DEC
    2. at least 2 CFP professionals
65
Q

What is the purpose of the Disciplinary and Ethics Commission, and who is it comprised of?

A
  • the hearing panel submits its findings to the DEC for review, and has the authority to enter a final order that finds facts, determines if a violation has occurred, and impose discipline.
  • a peer review body comprised primarily of CFP professionals
66
Q

What is the purpose of the Appeals Committee, and who is it comprised of?

A
  • has the authority to issue the CFP Board’s final decision
  • composed primarily of CFP professionals, up to 4 members, at least 2 of whom are first-year board members
67
Q

The ____________ outline investigation commencement and procedures that the Enforcement Council follows.

A

Procedural Rules

68
Q

After investigating a given matter, if the Enforcement Council finds probable cause, the must take one of these actions-

A
  1. Letter of caution- dismiss the investigation
  2. Settlement offer- present an offer to the DEC
  3. Complaint- deliver a complaint against the respondent
69
Q

Upon receiving a Petition for Interim Suspension, what is expected of the respondent?

A
  • cannot use CFP Board marks
  • cannot suggest or hold out to the public as being a CFP
  • within 45 days, must deliver evidence of compliance with the order
70
Q

If a settlement is reached, how long do the parties have to file the Notice of Settlement Offer with the DEC?

A

2 business days

71
Q

What is required in the formatting of a complaint delivered to a respondent?

A
  • numbered paragraphs setting forth the grounds for sanction
  • include a detailed description of the conduct
  • include a specific statement of the alleged violations
72
Q

Timeline: Respondent acknowledges receipt of Notice of Investigation from Enforcement Council

A

14 calendar days

73
Q

Timeline: Respondent delivers documents/info in response to a Request for Production or Request for Information.

A

14 calendar days

74
Q

Timeline: Respondent responds to a Request for Admission

A

14 calendar days

75
Q

Timeline: Respondent answers to Petition for Interim Suspension and indicates whether Respondent requests a hearing

A

14 days

76
Q

Timeline: Respondent provides written answers to complaint

A

30 calendar days

77
Q

Timeline: Respondent provides written answers to Amended Complaint

A

14 calendar days

78
Q

Timeline: Response to Complaint for Single Bankruptcy

A

30 calendar days

79
Q

Timeline: Respondent must deliver to Enforcement Counsel evidence of compliance with Interim Suspension

A

45 calendar days

80
Q

Timeline: Respondent subject of a public sanction provides written evidence

A

45 calendar days

81
Q

Timeline: Respondent to notify CFP board of any changes to mailing or email addresses

A

Promptly

82
Q

What are some of the common sanctions imposed by the DEC?

A
  • public or private censure
  • suspension
  • interim suspension
  • revocation
  • temporary bar
  • permanent bar
  • continuing education or other undertakings
83
Q

How long can a suspension last if imposed by the DEC?

A

No less than 90 calendar days or greater than 5 years.

84
Q

If a respondent was suspended for one year or less, when may they file a motion to reinstate eligibility?

A
  • no earlier than 30 days prior to the last day of suspension
  • no later than 5 years from first day of suspension
85
Q

T/F: The Fitness Standards apply to current CFP professionals.

A

FALSE
The Fitness Standards apply to individuals seeking certification or reinstatement.

86
Q
A

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