Intro to FP Flashcards
Code and Standards
Provide specific planning information that must be included and considered in the dev of a modular (limited in scope) FP or comprehensive FP
Code of Ethics
ethical principles that guide CFP behavior & set forth 6 directives
Standard of Conduct
duties CFP owes to clients, firms, subordinates, CFP board
Practice Standards for the FP Process
7 step process - advance professionalism and enhance value
CFP Procedural Rules enforce what
Enforce the CODE of ethics, STANDARDS of conduct, and PRACTICE standards.
4 E’s
Education
Examination
Experience
Ethics
3 Duties
Duty of Loyalty, Duty of Care, Duty to Follow Client instructions
Using CFP
Certification marks are trademarks
CFP is always capitalized and the r is preferred but tm is acceptable
CERTIFIED FINANCIAL PLANNER always has tm
CFP Approved nouns
certificant
certification
professional
practitioner
mark
4 Es Education
bachelors or higher - acquire knowledge to deliver professional, competent and ethical planning services
4 Es Examination
assess ability to apply planning knowledge in an integrated format to financial planning solutions
4 Es Experience
3 years of exp in planning
OR 2 yrs personal delivery experience that meets addtl requirements
4 Es Ethics
adhere to standards outlined in Code of Standards and acknowledge cfp board right to enforce
Financial Planning as defined by CFP Board
A COLLABORATIVE 🤝 process that helps MAXIMIZE ⬆️ a clients POTENTIAL for meeting LIFE GOALS 👶 through financial advice that integrates relevant elements of the clients, personal and financial circumstances.
Are there a minimum number of a clients “relevant elements” to be considered in a plan?
No. A financial plan may exist even when only one relevant element is involved
Development of a FP involves
analyzing, evaluating and integrating, current and future financial assets, liabilities and resources, incorporating personal client information adhering to client goals and applying economic projections to the recommendations
What if you lack competency?
Obtain comptence, obtain assistance, limit or terminate engagement or refer to a competent professional
Does Financial Planning require Financial Advice?
Yes, you provide planning through financial advice.
Does financial advice require planning?
No.
If you provide financial advice to a client what duty applies?
Fiduciary Duty
When do practice standards apply?
-if the advice provided REQUIRES PLANNING 📄 &
-the client agrees to engage 🤝
What is NOT advice
- A communication that would not be viewed as a recommendation
- Responses to direct orders
- Marketing materials, general education materials
When do you define the scope of the engagement?
⏰Prior to providing any financial advice
Who defines the scope of the engagement?
The practitioner and client mutually
5 Integration factors
(what do you need to make a plan)
- # of RELEVANT ELEMENTS 👩🔬
- Portion & Amt of ASSETS 💶
- Length of time ⏰
- Exposure to risk 😬
- Barriers to implementing advice
NOT relevant elements of planning
- Opening an account or completing an application 📝
- Fact finding for regulatory requirements like KYC 👨💼
- Solely providing brokerage 📈or insurance products/services
- Acting as Mortgage Broker 🏡
- Teaching a financial class or continuing ed 👩🏫
Engagement Letter
provided to client to establish the contractual relationship
Included in Engagement Letter
- Terms of engagement client/CFP/firm
- Scope of engagement & any limitations
- Period during which service provided
- Clients responsibilities
Docs that may contain engagement information
Form ADV pt2A items 10,12,14
Bank 🏦 trust agrmt & related docs
Brokerage agrmt 📈
Responsible for implementing, monitoring, & updating plan unless
It is specifically excluded from the scope of engagement
Fiduciary Duty
must act as fiduciary at all times when providing advice - disclose Con of Int.
Integrity
services must be performed w/integrity, honesty, candor - can’t make untrue statements or attempt to defraud
Competence
competent services with relevant knowledge and skill - if lacking - gain, acquire, refer, terminate
Diligence
services must be performed in a timely ⏰and thorough manner
Disclose and Manage Conflicts of Int.
Fully disclose all CoI that could affect relationship - adopt and follow practices that prevent CoI
Sound and Objective Professional Judgement (can’t accept what)
must exercise professional judgement and NOT SOLICIT or ACCEPT GIFT or NON CASH COMP. that would compromise objectivity
Professionalism means treating others how
with dignity, courtesy, and respect
Comply with the Law
laws rules and regulations governing Professional Services
Confidentiality and Privacy
not disclose any NPCI, NPCI must be protected
Code of Ethics
-honesty, integrity, competence, diligence
- act in client best interest
- exercise due care
- avoid or disclose CoI
- Maintain confidentiality
- Act manner that reflects positively on CFP
Provide info to Client
what info provided to client when providing advice and planning
Duties when Communicating
Accurate and easily understood info
Duty when Representing Compensation
never provide false or misleading info - must clearly explain FEE-BASED, FEE-ONLY, and SALES RELATED comp.
Duty when working/recommending/engaging with other person
have reasonable basis for recommending, disclose any comp arrangement, communicate w/other professional on behalf of client
Duty when selecting/using Tech
reasonable care must be used
Refrain from borrowing/commingling assets
may not borrow from or lend money to client unless certain exceptions apply
Reasonable care when Supervising
when supervising persons acting under your direction 👨💼, employees, prevent violations of laws, rules, regs
Comply with Lawful objectives of Firm
subject to discipline from CFP board for violations of your firm, not if firm rules conflict with CFP standards
Provide Notice of Public Disclipline
must advise your firm in writing of discipline by CFP board
Refrain from Adverse Conduct
not engage in activity that reflects adversely on your integrity or fitness as CFP professional
Reporting
provide written notice to board within 30 days of after certain conduct occurs
Provide Narrative Statement
narrative statement that describes reportable event
Cooperation
not make false or misleading statements to CFP board
LIIVES (financial problems)
- Lack of liquidity
- Inadequate resources
- Inflation
- Value
- Excessive Taxes
- Special needs and other issues
Lack of liquidity
inability to quickly turn invested capital into spendable cash w/o incurring unreasonable cost
Inadequate resources
insufficient capital or income in the event of death, disability, college, special needs
Improper disposition of assets
leaving wrong asset to wrong person at wrong time in the wrong manner
value
stabilize and maximize the financial security of value of the client’s business or other assets
excessive taxes
add to the cost of an investment and slow the progress toward objectives
special needs or other issues
desire beyond quantifiable goals
counting on inheritance is a bad idea why
parents are living much longer so won’t receive $ until later
3 general options if you can’t meet goals
- refuce lifestyle currenty and/or during retirement
- modify investment strategy to yield higher return
- retire later
Financial Planning Report Should Cover
- Analysis: where are you now
- Objectives: where you want to be
- Strategy: how to get there
When presenting - liberal use of
graphs and checklists
Standard of living objective analyzes what and recommends what ratio?
analyze required spending - food and housing costs & discretionary
NO MORE THAN 80% OF GROSS INCOME
Savings Objective recommends how many months of savings?
recommend at least 3 months of of expenses
Protection objective
life, health, disability, property and liability insurance
Accumulation objective (investment)
-future buildup of capital for diverse needs
-difficult to define and set priorities
-variety of needs and long timeframe
Financial independence (retirement) objective
-should break down into subgoals
-typically most important accumulation objective
-may have financial independence and still work enjoyable occupation
Estate planning objective
-preservation and distribution of wealth after death
-having a will most fundamental part
-avoidance or minimize estate tax
- trusts, gifts, proper titling of assets
Duties to client when providing financial advice
-Fiduciary Duty
- Disclose & Manage Conflict of Interest
- Provide information to a client
- Working with other persons
Duties owed to clients
- Integrity
- Competence
- Diligence
- Sound & Objective Judgment
- Porfessionalism
- Comply with the law
- Confidentiality and privacy
- When communicating
- representing Comp
- technology
- borrowing or loaning money
Payment method that does not need to be disclosed?
Soft dollars
Do you have to come up with new courses of action for the client?
No the recommendation may be to continue the current course of action
Not comingling funds would fall under what ethical principle?
Integrity
EGADIM
-Establish and define relationship
-Gathering client data
-Analyze and evaluate client financial status
-Developing and presenting recommendations
-Implementing the recommendations
-Monitoring
Establish the client relationship
IDDDEP
Identify services to be provided
Disclose conflicts of interest
Disclose Compensation
Determine client and cfp responsibilities
Establish duration of engagement
Provide info to define or limit scope
Digence has to do with what
being timely and thorough
Sound and objective judgement has to do with what
not accepting gifts or non cash compensation
When could you potentially disclose NPPI?
With clients consent for ordinary business purposes
Say you have client consent to disclose NPPI, who could you potentially disclose to?
-your firm
-clients attorney, accountant, auditor
-someone acting in representative capacity for the client
Besides ordinary business purposes when when else might you disclose NPPI
-to law enforcement
-to comply with federal state or local law
-to defend against allegations of wrongdoing made by govt
-civil suit
-to CFP board
-compliance organizations
What is the language you need to undetake to protect client NPPI
“take reasonable steps” to protect NPPI
When do you provide notice about NPPI
at the time of engagement and annually
What regulation under fed securities law deals with NPPI
reg S-P
What can you NOT do regarding compensation
Make false or misleading comments
Fee only means
-you and your firm receive NO sales related comp
-related parties receive NO sales related comp
Fee based means
“fee and comission”
means you receive fee and sales related comp
-have to clearly state you are not fee only and that you receive fees and comissions
Sales related compensation
any bonus or portion of compensation resulting from a client PURCHASING or SELLING financial assets, from clients holding assets, or FROM REFERRALS
Sales related comp does not include
-SOFT DOLLARS
-fees for CUSTODIAL or ADMIN services
-NON-MONETARY provided by another service provider
-fees for PROFESSIONAL SERVICES other than solicitations and referrals
-fee a RELATED PARTY receives
