Module 6: Professional Conduct and Fiduciary Responsibility Flashcards
What is financial planning?
A collaborative process that helps maximize a clients potential for meeting life goals through financial advice that integrate relevant elements of a client’s personal and financial circumstances
What are the two parts of financial advice we pay attention to that make it financial planning?
Relevant elements and Integration Factors
What are the integration factors?
- number of relevant elements
- portion and amount of a client’s financial assets that the advice may affect
- the length of time the client’s personal and financial circumstances may be affected by the Advice
- The effect on the clients overall exposure to risk if the client implemented the advice
- The barriers to modifying the actions taken to implement the advice
What guidelines to clients-planner relationships follow at all times?
Code of Ethics and Standards of Conduct
What guidelines do client-planner relationships follow when providing financial advice
code of ethics, standards of conduct, fiduciary duty and managing conflicts of interest
What guidelines do planners follow when providing financial planning?
code of ethics, standards of conduct, fiduciary duty, managing conflicts of interest and practice standards for the financial planning process
Code of Ethics (6 parts)
- Act with honesty, integrity, competence, and diligence
- Act in the clients best interest
- Exercise due care
- avoid or disclose and manage conflicts on interest
- Maintian the confidentiality and protect the privacy of client information
- Act in a manner that reflects positively on the financial planning profession and CFP certification
Standards of Conduct (6 subsections)
- Duties owed to clients
- Financial Planning and Application of the Practice Standards for the Financial Planning Process
- Practice Standards for the Financial Planning Process
- Duties Owed to Firms and Subordinates
- Duties owed to CFP board
- Prohibition of Circumvention
Duties Owed to Clients (15)
- Fiduciary Standard
- Integrity
- Competence
- Diligence
- Disclose and Manage conflicts of interest
- Sound and Objective Professional Judgement
- Professionalism
- Comply with the Law
- Confidentiality and Privacy
- Provide information to a client
- Duties when communicating with a client
- Duties When representing compensation method
- Duties when recommending, Engaging, and Working with Additional Persons
- Duties When Selecting, Using, and Recommending Technology
- Refrain from Borrowing or Lending Money and Commingling Funds
Financial Planning and Application of the Practice Standards for the Financial Planning Process
Relevant Elements, integration factors, and then following the Practice Standards when determing that it is financial planning
Duties Owed to Firms and Subordinates
- Use reasonable care when supervising
- Comply with lawful objectives of the firm
- Provide any notice of any public discipline enacted by the CFP board
Duties Owed to the CFP Board
- Avoid any adverse conduct
- report any incidents involving adverse conduct to the CFP Board within 30 days
- Provide a narrative statement to CFP Board on reportable matters
- Cooperation with CFP Board throughout investigations and disciplinary proceedings
- Compliance with the Terms and Conditions of Certification and License
Prohibition on Circumvention
Do not try and circumvent any of the standards of conduct or code of ethics
Three different Fiduciary Standards
- Department of Labor
- RIA Fiduciary Standard
- Suitability Standard
DOL Fiduciary Standard
- Applied to advice given on qualified retirement accounts, the highest level
RIA Fiduciary Standard
Developed by Supreme Court Case SEC v. Capital Gains Research Bureau in 1963, the fiduciary standard must apply to all RIA’s
Suitability Standard
Registered Rep, doesn’t mean it has to be in clients best interest, it can just be a suitable investment.
Code and Standards Fiduciary Standard
- Duty of Loyalty
- Duty of Care
- Duty to Follow Client Instuctions
Duty of Loyalty
Must place the interest of the client above all else
Duty of Care
Must act with care, skill, prudence and diligence that a prudent professional would exercise in the light of a client’s goals, risk tolerance, objectives and financial and personal circumstances
Duty to Follow Client Instructions
Must comply with the terms of the client engagement and follow all directions of the client that are reasonable and lawful
Other duties applied to fiduciaries
Duty to disclose
Duty to diagnose
Duty to consult
Duty to keep current
Two types of CFP Board Conduct
Unnacceptable Conduct and Presumed Bar Conduct
Unacceptable Conduct (5)
- Felony conviction for theft, embezzlement or other financially-based crimes
- Felony conviction for tax fraud or other tax-related crimes
- Revocation of a cinancial professional license, unless the recovation was of admin nature
- Felony conviction for any degree of murder or rape
- Felony conviction for any other violent crime within the last five year
Presumed Bar
- Two or more personal or business bankruptcies
- Revocation or suspension of a non-financial professional license, unless in admin nature
- Suspension of a financial professional license unless in admin nature
- Felony conviction for non-violent crimes within last five years
- Felony conviction for violent crimes other than murder or rape that occured more than five years ago
Petition a presumed Bar
The DEC will either:
- Grant the petition
- Deny the petition
- Deny the petition but allow the individual to reapply
Parties involved in the disciplinary and appeals process
- Respondent
- CFP Board counsel
- Hearing Panel
- Disciplinary and Ethic Commission (DEC)
- Appeals Committee
Respondent
This is any person who has agreed to the CFP Board’s Terms and Conditions of Certification and must comply with the guidelines
CFP Board Counsel
Has the authority to investigate and issue a complaint against a respondent for alleged violations of the code of ethics and standards of conduct
Hearing Panel
Minimum three individuals who hear the case brought by the CFP Board counsel, at least one member is from the DEC and at least 2 are CFP Professionals
DEC
The DEC is composed of primarily CFP professionals and has the authority to enter a final order that finds facts, determines whether a violation has occured, and when appriopriate, imposes discipline
Appeals Committee
Composed of primarily CFP professionals and has the authority to issue CFP Board’s final decision. Four members of the board of directors, and at least two of whome are first year members of the board. May not be members of the DEC
