Professional Conduct Flashcards
The Financial Planning Process - step 5
2 sub parts
- Presenting the Financial Planning Recommendations
- present recommendations and information that was required to be considered when developing recommendations
- can be represented orally, in written, over the phone, or in any way that can be properly understood by the client (may want to consider client’s learning style)
Question from book- after preparing the financial plan, what’s the next step?
communicate it
If you are providing financial advice to a client BUT the advice does NOT require financial planning, does the fiduciary duty apply? Is the advisor required to apply the practice standards for the financial planning process or provide information the client in writing?
THE FIDUCIARY DUTY APPLIES, BUT A CFP®
PROFESSIONAL IS NOT REQUIRED TO APPLY THE
PRACTICE STANDARDS FOR THE FINANCIAL PLANNING
PROCESS, PROVIDE FINANCIAL PLANNING, OR PROVIDE
INFORMATION TO THE CLIENT IN WRITING.
The Financial Planning Process - step 4
4 subparts
- Developing the Financial Planning Recommendations
- assumptions and estimates used to develop the recommendations
- basis for making recommendations
- timing and priority of the recommendations
- whether the recommendation is independent or must be implemented with another recommendation
The Financial Planning Process - step 3
2 subparts
- Analyzing the Client’s Current Course of Action and Potential Alternative Courses of Action
- advantages and disadvantages of current and potential courses of action
- want to maximize potential to achieve client goals
WHAT IS NOT FINANCIAL ADVICE?
A communication that, based on its content, context,
and presentation, would not reasonably be viewed as
a recommendation;
• Responses to directed orders; and
• The following, if a reasonable CFP® professional
would not view it as Financial Advice:
- Marketing Materials;
- General Financial Education; and
- General Financial Communications.
Duty of Loyalty (part 1 of fiduciary duty)
A CFP® professional must: 1. Place the interests of the Client above the interests of the CFP® professional and the CFP® Professional’s Firm; 2. Avoid Conflicts of Interest, or fully disclose Material Conflicts of Interest to the Client, obtain the Client’s informed consent, and properly manage the conflict; and 3. Act without regard to the financial or other interests of the CFP® professional, the CFP® Professional’s Firm, or any individual or entity other than the Client, which means that a CFP® professional acting under a Conflict of Interest continues to have a duty to act in the best interests of the Client and place the Client’s interests above the CFP® professional’s.
The Financial Planning Process - step 2
3 subparts
- Identifying and Selecting Goals
- identifying potential goals
- selecting and prioritizing goals
- determine assumptions to be made (inflation rates, investment returns, life expectancy, etc.)
Duty to follow client instructions (Part 3 of fiduciary duty)
A CFP® professional must comply with the terms of the Client engagement and follow all directions of the Client that are reasonable and lawful.
When does an advisor need to document communication? What do they consider?
A CFP® professional must act prudently in documenting information, as the facts and circumstances require, taking into account: • The significance of the information; • The need to preserve the information in writing; • The obligation to act in the Client’s best interest; and • The Firm’s policies and procedures.
If the client comes to you and says their objective is something clearly illegal (like sheltering taxes offshore…) what should you do?
Terminate the relationship
Just automatically think of this
If you are providing financial ADVICE does the fiduciary duty apply?
THE FIDUCIARY DUTY DOES NOT
APPLY, BUT A CFP® PROFESSIONAL
MUST ABIDE BY THE CODE OF
ETHICS AND OTHER STANDARDS.
The Financial Planning Process - step 1
three 3 subparts
- Understanding the Client’s Personal and Financial Circumstances
- obtaining qualitative and quantitative information
- analyzing information
- addressing incomplete information
Duty of Care (Part 2 of fiduciary duty)
A CFP® professional must act with the care, skill, prudence, and diligence that a prudent professional would exercise in light of the Client’s goals, risk tolerance, objectives, and financial and personal circumstances.
What is financial advice?
A communication that, based on its content, context,
and presentation, would reasonably be viewed as a
recommendation that the Client take or refrain from
taking a particular course of action with respect to:
- The development or implementation of a
Financial Plan;
- The value of or the advisability of investing
in, purchasing, holding, gifting, or selling
Financial Assets;
- Investment policies or strategies, portfolio
composition, the management of Financial
Assets, or other financial matters; or
- The selection and retention of other persons
to provide financial or Professional Services to
the Client; or
• The exercise of discretionary authority over the
Financial Assets of a Client.
