LO 1.1.4: Apply the principles outlined in the CFP Board Code of Ethics and Standards of Conduct to the elements of financial palnning and professional engagements of CFP certificants

Question 1

What are the six subsections of the Standards of Conduct

Answer 1

• 1. Duties Owed to Clients (p. 33)
• 2. Financial Planning and the Application of the Practice Standards for the Financial Planning Process (p. 23-26)
• 3. Practice Standards for the Financial Planning Process (p. 36)
• 4. Duties Owed to Firms and Subordinates (p. 37)
• 5. Duties Owed to CFP Board (p. 38)
• 6. Prohibition on Circumvention (p. 38)

Question 2

What are the Duties Owed to Clients

Answer 2

1st of the 6 subsections of Standards of Conduct, identifies 15 duties that financial planners owe to clients.

Question 3

What is the 1st duty owed to clients

Answer 3

Fiduciary Duty (Standard A.1). At all times, when providing Financial Advice to a Client, a CFP professional must act as a fiduciary and therefore, act in the best interest of the Client.

Question 4

What is required to uphold the fiduciary standard

Answer 4

• Duty of loyalty,
• Duty of care,
• Duty to follow client instructions.

Question 5

What is the duty of loyalty (fiduciary standard)

Answer 5

• Placing client’s interest ahead of CFP professional, firm, and any other entity; includes
• Avoiding, fully disclosing, obtaining consent, and managing conflicts of interest.

Question 6

What is the duty of care (fiduciary standard)

Answer 6

Obligated to adhere to terms of engagement and follow “reasonable and lawful” client instructions.

Question 7

When must the financial planner uphold the fiduciary standard

Answer 7

when providing financial advice, or engaged in financial planning for a client.

Question 8

What is Integrity (Standards of Conduct)

Answer 8

2nd duty owed to clients in Standards of Conduct. Integrity (Standard A.2), CFP pro must:

• 1. Perform professional services with integrity.
• 2. Integrity demands honesty and candor, which may not be subordinated to personal gain or advantage.
• 3. Antifraud language also included that exists in law and regulation.

Question 9

What is Competence (Standards of Conduct)

Answer 9

3rd duty owed to clients in Standards of Conduct. Competence (Standard A.3), CFP pro must:
* provide professional services with competence, which means with relevant knowledge and skill to apply that knowledge.

Question 10

What happens when CFP pro is not sufficiently competent in a particular area to provide professional services

Answer 10

Then CFP pro must:

• 1. gain competence,
• 2. obtain the assistance of a competent professional,
• 3. limit or terminate the engagement, and/or
• 4. refer the client to a competent professional.

Question 11

What is Diligence (Standards of Conduct)

Answer 11

4th duty owed to clients in Standards of Conduct. Diligence (Standard A.4), CFP pro must:
* respond to reasonable client inquiries, in a timely and thorough manner.

Question 12

What is Disclose and Manage Conflicts of Interest (Standards of Conduct)

Answer 12

5th duty owed to clients in Standards of Conduct. Disclose and Manage Conflicts of Interest (Standard A.5), CFP pro must:

• 1. Avoid or fully disclose material conflicts of interest by providing sufficiently specific facts.
• 2. Obtain informed consent.
• 3. Manage the conflict of interest.
• • Material conflicts that affect professional relationship must be disclosed;
• • Must even be disclosed if CFP pro believes acting in client’s best interest.

Question 13

What is Sound and Objective Professional Judgment (Standards of Conduct)

Answer 13

6th duty owed to clients in Standards of Conduct. Sound and Objective Professional Judgment (Standard A.6), when exercising professional judgment, CFP pro must:

• act objectively to serve client’s interest, rather than themselves, firms, or anyone else.
• may not solicit or accept any gift or consideration reasonably expected to compromise objectivity.

Question 14

What is Professionalism (Standards of Conduct)

Answer 14

7th duty owed to clients in Standards of Conduct. Professionalism (Standard A.7): this requires CFP professionals to treat others with dignity, courtesy, and respect.

Question 15

Who does the duty to act with professionalism apply to (Standards of Conduct)

Answer 15

The duty to act with professionalism applies to

• 1. clients,
• 2. prospective clients,
• 3. fellow professionals,
• 4. and others.

Question 16

What is Comply with the Law (Standards of Conduct)

Answer 16

8th duty owed to clients in Standards of Conduct. Comply with the Law (Standard A.8), CFP pro is:

• required to comply with the laws, rules, and regulations governing professional services
• prohibited from intentionally or wirelessly participating -or- assisting another person’s violation of the Standards or the laws, rules, or regulations governing professional services.

Question 17

What is Confidentiality and Privacy (Standards of Conduct)

Answer 17

9th duty owed to clients in Standards of Conduct. Confidentiality and Privacy (Standard A.9): CFP pros are required to uphold confidentiality and privacy. There are 2 exceptions:

• 1. Info used for ordinary business purposes
• 2. Info transferred for legal and compliance purposes

Question 18

What is Provide Information to a Client (Standards of Conduct)

Answer 18

10th duty owed to clients in Standards of Conduct. Provide Information to a Client (Standard A.10): CFP pro must provide accurate information to clients, in an understandable manner and format.

Question 19

What are Duties When Communicating with a Client (Standards of Conduct)

Answer 19

11th duty owed to clients in Standards of Conduct. Duties When Communicating with a Client (Standard A.11):

• 1. provide client with accurate info in a manner and format client is reasonably expected to understand.
• 2. the info must be provided in accordance with terms of engagement and in response to reasonable client requests.

Question 20

What does “terms of the engagement” mean

Answer 20

the oral or written agreement, arrangement, or understanding between the CFP professional and the client.

Question 21

What are Duties When Representing Compensation Method (Standards of Conduct)

Answer 21

12th duty owed to clients in Standards of Conduct. Duties When Representing Compensation Method (Standard A.12):
* Establishes criteria for determining the appropriate compensation method to disclose to clients.

Question 22

What does “specific representations” mean when representing compensation

Answer 22

CFP pros may only represent their comp in one of two ways:

• fee only -or-
• fee based.

Question 23

What is fee only compensation

Answer 23

only planning fees (no sales-related compensation).

Question 24

What is fee based compensation

Answer 24

planning fees + sales-related compensation.

Question 25

What is sales-related compensation

Answer 25

Defined separately in Standard A.12 and includes:

• commissions
• trailing commissions
• 12b-1 fees
• spreads
• transaction fees
• revenue sharing
• referral or solicitor fees, or similar consideration.

Question 26

What are Duties When Recommending, Engaging, and Working With Additional Persons (Standards of Conduct)

Answer 26

13th duty owed to clients in Standards of Conduct. Duties When Recommending, Engaging, and Working With Additional Persons (Standard A.13): sets forth requirements for CFP pros who recommend, engage, and work with additional persons.

Question 27

What must a CFP pro do when engaging or recommending another professional

Answer 27

• 1. have a reasonable basis for the recommendation/engagement based on the other professional’s reputation, experience, and qualifications; and
• 2. disclose any arrangement by which someone other than the client will compensate the CFP pro, the CFP pro’s firm, or a related party for the engagement/recommendation.

Question 28

For engagements, what must a CFP Professional take reasonable steps to do

Answer 28

For engagements, the CFP professional must take reasonable steps to protect client interests.

Question 29

What must the CFP pro do when working with another pro on a client’s behalf

Answer 29

• 1. communicate with the other professional about the services each will provide and their respective responsibilities; and
• 2. inform the client in a timely manner if the other professional did not perform the services (in accordance w/scope of services to be provided and allocation of responsibilities).

Question 30

What are the Duties When Selecting, Using, and Recommending Technology (Standards of Conduct)

Answer 30

14th duty owed to clients in Standards of Conduct. Duties When Selecting, Using, and Recommending Technology (Standard A.14), CFP certificant must:

• 1. have a reasonable basis for believing the tech provides reliable, objective, and appropriate outcomes;
• 2. exercise reasonable care and judgment when selecting, using, or recommending tech; and
• 3. have a reasonable level of understanding the tech’s assumptions and outcomes.

Question 31

What is Refrain From Borrowing or Lending Money and Commingling Financial Assets (Standards of Conduct)

Answer 31

15th duty owed to clients in Standards of Conduct. Refrain From Borrowing or Lending Money and Commingling Financial Assets (Standard A.15):

• refrain from borrowing or lending money
• commingling assets is prohibited
• borrowing and lending is allowed if client is family or lender is an org or entity in business of lending money
• this standard explicitly prohibits indirect borrowing.

Question 32

What does refrain from borrowing mean (Standards of Conduct)

Answer 32

CFP pros must refrain from borrowing money, explicitly prohibits indirect borrowing. Exception: Unless the client is a family member.

Question 33

What does refrain from lending mean (Standards of Conduct)

Answer 33

CFP pros must refrain from lending money. Exception: Lending is allowed if client is an immediate family member or if lender is an org or entity in business of lending money.

Question 34

What does refrain from commingling financial assets mean (Standards of Conduct)

Answer 34

Commingling of financial assets is prohibited.

Question 35

What are the Financial Planning and Application of the Practice Standards for the Financial Planning Process (Standards of Conduct)

Answer 35

The Financial Planning and Application of the Practice Standards for the Financial Planning Process are the 2nd subsection of the Standards of Conduct.

• Defines financial planning
• Guidelines for determining when financial planning is required
• Defines relevant elements and integration factors.

Question 36

What are the Practice Standards for the Financial Planning Process (Standards of Conduct)

Answer 36

3rd subsection of the Standards of Conduct. The Practice Standards are statements describing the elements of the financial planning process, an ongoing process; 7 steps:

• 1. UNDERSTAND- gather quantitative and qualitative data to understand client’s personal and financial circumstances, address incomplete info.
• 2. IDENTIFY- potential goals, select and prioritize goals.
• 3. ANALYZE- current course and potential alternatives.
• 4. DEVELOP- financial planning recommendations.
• 5. PRESENT- financial planning recommendations.
• 6. IMPLEMENT- financial planning recommendations.
• 7. MONITOR- the process, the client’s progress, and update the goals and recommendations.

Question 37

What are Duties Owed to Firms and Subordinates

Answer 37

4th subsection of the Standards of Conduct:

• 1. Use Reasonable Care When Supervising
• 2. Comply with Lawful Objectives of CFP Professional’s Firm
• 3. Provide Notice of Public Discipline

Question 38

What are Duties Owed to CFP Board

Answer 38

5th subsection of the Standards of Conduct

• 1. Avoid any adverse conduct.
• 2. Report incidents involving adverse conduct to CFP Board within 30 days.
• 3. Provide a narrative statement to CFP Board on reportable matters.
• 4. Cooperation with CFP Board throughout investigations and disciplinary proceedings.
• 5. Compliance with the Terms and Conditions of Certification and License (Terms).

Question 39

What is Prohibition on Circumvention

Answer 39

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