Professional Conduct Flashcards
What is the Code of Ethics?
a. Act with honesty, integrity, competence, and diligence
b. Act in the client’s best interests
c. Exercise due care
d. Avoid or disclose and manage conflicts of interest
e. Maintain confidentiality and protect the privacy of client information
f. Act in a manner that reflects positively on the financial planning profession and CFP® certification
Code Of Standards:
a. Duties Owed to Clients
b. Financial Planning and Application of the Practice Standards for the Financial Planning Process
c. Practice Standards for the Financial Planning Process
d. Duties Owed to Firms and Subordinates
e. Duties Owed to CFP Board f. Prohibition on Circumvention
Standards of Conduct: Duties Owed to clients
- Duties Owned to Firms and Subordinates
- Duties owed to CFP board
- Prohibition Circumvention
Duties owed to firms and subordinates
a. Use reasonable care when supervising
b. Comply with lawful objectives of CFP® professional’s firm
c. Provide notice of any public discipline enacted by the CFP Board
Duties owed to CFP Board
a. Avoid any adverse conduct
b. Report incidents involving adverse conduct to the CFP Board within 30 days
c. Provide a narrative statement to the CFP Board on reportable matters
d. Cooperate with CFP Board throughout investigations and disciplinary proceedings
e. Comply with the Terms and Conditions of Certification and License
Prohibition on circumvention
a. CFP® certificants are prohibited from using a third party to conduct business that violates the Code and Standards
Duties Owed to Clients:
- Fiduciary Duty (Standard A.1)
At all times when providing Financial Advice to a Client, a CFP® interests of the Client.” To uphold the fiduciary standard, the CFP® is required to fulfill the following three duties:
a. ) Duty of Loyalty. Involves placing the Client’s interests ahead of the CFP® professional, the CFP® professional’s firm, or any other entity. Includes avoiding, fully disclosing, obtaining consent or managing Material Conflicts of Interest.
b. ) Duty of Care. The CFP® professional must engage the Client with care, skill, prudence, and diligence. Fulfillment of this duty requires consider-ation of the Client’s goals, risk tolerance, objectives, and circumstances
c. ) Duty to Follow Client Instructions. CFP® professionals are obligated to adhere to the Terms of the Engagement and must follow “reasonable and lawful” Client instructions.
Duties Owed to Clients:
2.) Integrity (Standard A.2)
A CFP® professional must perform professional services with integrity. Integrity demands honesty and candor, which may not be subordinated to personal gain or advantage.
Duties Owed to Clients:
- Competence (Standard A.3)
A CFP® professional must provide professional services with competence, which means with relevant knowledge and skill to apply that knowledge. When the CFP® professional is not sufficiently competent in a particular area to provide the professional services, the CFP® professional must gain competence, obtain the assistance of a competent professional, limit or terminate the Engagement, and/or refer the Client to a competent professional.
Duties Owed to Clients:
4.) Diligence (Standard A.4)
A CFP® professional must provide professional services, including responding to reasonable client inquiries, in a timely and thorough manner.
Duties Owed to Clients:
5.) Disclose and Manage Conflicts of Interest (Standard A.5)
A CFP® professional must either:
a. ) avoid the Conflict of Interest, or
b. ) fully disclose Material Conflicts of Interest by providing sufficiently specific facts; obtaining informed consent; and managing the Conflict of Interest.
Material Conflicts of Interest that could affect the professional relationship must be disclosed to the Client. A Material Conflict of Interest must be disclosed even if the CFP® professional believes he is acting in the best interest of the Client.
Duties Owed to Clients:
6.) Sound and Objective Professional Judgement (Standard A.6)
When exercising professional judgment, a CFP® professional must act objectively to serve the interests of clients, rather than themselves, their firms, or anyone else. CFP® professionals may not solicit or accept any gift, gratuity, entertainment, non-cash compensation, or other consideration that could reasonably be expected to compromise their objectivity.
Duties Owed to Clients:
7.) Professionalism (Standard A.7)
This requires CFP® professionals to treat others with dignity, courtesy, and respect. The duty to act with Professionalism applies to clients, prospective clients, fellow professionals, and others.
Duties Owed to Clients:
8.) Comply With the Law (Standard A.8)
A CFP® professional is required to comply with the laws, rules, and regulations governing professional services. CFP® professionals are prohibited from intentionally or recklessly participating or assisting another person’s violation of the Standards or the laws, rules, or regulations governing Professional Services.
Duties Owed to Clients:
9.) Confidentiality and Privacy (Standard A.9)
CFP® professionals are required to uphold client confidentiality and privacy. There are two exceptions:
a. ) Information used for ordinary business purposes (e.g., personal informa-tion necessary for an estate planning attorney to draft a will)
b. ) Information transferred for legal and compliance purposes (e.g., subpoenas)
Duties Owed to Clients:
10.) Provide Information to a Client (Standard A.10)
A CFP® professional must provide accurate information to clients, in an understandable manner and format
Duties Owed to Clients:
11.) Duties When Communicating With a Client (Standard A.11)
A CFP® professional must provide a client with accurate information in a manner and format that a client reasonably could be expected to understand. The information must be provided in accordance with the terms of the Engagement (the oral or written agreement, arrangement, or understanding between the CFP® professional and the client) and in response to reasonable client requests.
Duties Owed to Clients:
12.) Duties When Representing Compensation Method (Standard A.12)
This standard establishes criteria for determining the appropriate compensation method to disclose to clients. Fee-only, fee-based, and sales-related compensation categories are defined. Specific Representations—CFP® professionals may only represent their compensation in one of the following ways:
a. ) Fee-only—Only planning fees. No sales-related compensation.
b. ) Fee-based—Planning fees + sales-related compensation.
Sales-related compensation
a.) Sales-related compensation is separately defined in Standard A.12 and includes commissions, trailing commissions, 12b-1 fees, spreads, transaction fees, revenue sharing, referral or solicitor fees, or similar consideration.
