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Codes and Standards > Standards of Conduct > Flashcards

Standards of Conduct Flashcards

1
Q

A. Duties Owed to Clients #1-4

A
  1. Fiduciary Duty
  2. Integrity
  3. Competence
  4. Diligence
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2
Q

Fiduciary Duty

A
  • standards of conduct #1
  • act in best interest of client
  • duty of loyalty
  • duty of care
  • duty to follow client instructions
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3
Q

Duty of Loyalty

A

i. Place interests of client above interests of CFP
ii. Avoid conflicts of interest or fully disclose material conflicts of interest, obtain clients informed consent, properly manage conflict
iii. Act without regard to CFP, other than client

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4
Q

Duty of Care

A

CFP must act with the care, skill, prudence, and diligence that a prudent professional would

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5
Q

Duty to Follow Client Instructions

A

CFP must comply with objectives, policies, restrictions, and other terms of the Engagement and all reasonable and lawful directions of the client

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6
Q

Integrity

A
  • standards of conduct #2
    a. CFP must perform services with integrity. Honesty, candor, not subordinated for personal gain
  • allowance may be made for innocent error or difference in opinion, not for deceit
    b. CFP may not directly or indirectly
  • employ a device, scheme, to defraud
  • make any untrue statement of a material fact or omit
  • engage in any act, practice, or business which operates as a fraud or deceit
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7
Q

Competence

A
  • standards of conduct #3
    Must provide services with competence, with relevant skills and knowledge
  • if not sufficient must…
  • gain competence
  • obtain assistance of competent professional
  • limit or terminate Engagement
  • refer to other professional
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8
Q

Diligence

A
  • standards of conduct #4
  • must respond to reasonable client inquiries in a timely and thorough manner
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9
Q

A. Duties Owed to Clients #5-8

A
  1. Disclose and Manage Conflicts of Interest
  2. Sound and Objective Professional Judgement
  3. Professionalism
  4. Comply with the Law
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10
Q

Disclose and Manage Conflicts of Interest

A
  • Duties Owed to Clients #5
  • Disclose Conflicts
  • Manage Conflicts
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11
Q

Disclose Conflicts

A
  • make a full disclosure of all material conflicts of interest that could affect the relationship
  • give all facts so client can understand conflict and give informed consent or reject them
    i. CFP must make full disclosure and obtain consent
    ii. would a reasonable client understand conflict. Ambiguity of disclosure will be in favor of client
    iii. oral disclosure will be given weight as CFP board deems. Written consent not required.
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12
Q

Manage Conflicts

A
  • CFP must adopt and follow business practices reasonably designed to prevent conflicts of interest from compromising CFP’s ability to act in clients best interest
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13
Q

Sound and Objective Professional Judgement

A

Duties Owed to Clients #6
- CFP must exercise professional judgment on behalf of client that is not subordinated by interest of CFP
- CFP cant accept any gift, gratuity, entertainment, non-cash comp, that could compromise CFP’s objectivity

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14
Q

Professionalism

A

Duties Owed to Clients #7
- must treat clients, prospective clients, fellow professionals, and others with dignity, courtesy, and respect

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15
Q

Comply with the Law

A

Duties Owed to Clients #8
- CFP must comply with laws, rules, regulations
- CFP may not intentionally or recklessly participate or assist in another persons violation of these standards or laws

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16
Q

Duties Owed to Clients #9-12

A
  1. Confidentiality and Privacy
  2. Provide Information to a Client
  3. Duties when Communication with a Client
  4. Duties when Representing Compensation Method
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17
Q

Confidentiality and Privacy

A

Duties Owed to Clients #9
a. CFP must keep confidential any non-public personal info… except
i. for ordinary business purpose
- with clients consent
- with firm
- attorneys. CPAs, auditors
-clients representative
ii. for legal and enforcement purposes
- law enforcement concerning unlawful activities
- as required to comply with federal, state, local law
- as required to comply with authorized civil, criminal, regulatory
- to defend against allegations of wrongdoing
- to present a civil claim against or defend
- to comply with CFP Board
- to CFP’s compliance
b. CFP cant disclose non-public personal info unless client consents
c. CFP must take reasonable steps to protect client info
d. must adopt policies of protection, handling, sharing non public personal info and must provide written instructions at time of engagement and annually (unless policies didn’t change)
e. CFP deemed to comply with this if CFP complies with Regulation S-P under federal securities laws

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18
Q

Provide Information to a Client

A

Duties Owed to Clients #10
- when providing financial advice
- when providing financial planning
- updating information

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19
Q

When Providing Financial Advice

A
  • must provide following information to client, prior to or at the time of the engagement
    i. description of services and products
    ii. how the client pays, additional costs
    iii. how CFP and firm are compensated
    iv. existence of public discipline or bankruptcy, location of webpages
    v. information under section A.5.a (conflict of interest disclosure)
    vi. information under section A.9.d (written notice regarding non-public personal information
    vii. information under section A.13.a.ii ( disclosure of economic benefit for referral or engagement of additional persons
    viii. other information about CFP that is material
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20
Q

When Providing Financial Planning

A

-must provide following information to client, prior to or at the time of the engagement in one or more written documents
i. information in section A.10.a.i-iv and vi-viii
ii. terms of engagement between client and CFP, including Scope, limitations, period of service

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21
Q

Updating Information

A
  • provide information that is material change or update to information
  • material change must be disclosed to client within 90 days, with location of webpages
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22
Q

Duties when Communication with a Client

A

Duties Owed to Clients #11
- CFP must provide client with accurate information and respond to reasonable requests, that a client can understand

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23
Q

A. Duties Owed to Clients #12-15

A
  1. duties when representing compensation method
  2. duties when recommending, engaging, and working with additional persons
  3. duties when selecting, using, and recommending technology
  4. refrain from borrowing or lending money and commingling financial assets
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24
Q

Duties when Representing Compensation Method

A

A. Duties Owed to Clients #12
- specific representations
- sales related compensation
- related party
- in connection with any professional services
- safe harbor for related parties
- misrepresentations by a CFPs firm

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25
Q

Specific Representations

A

A.12.a
i. Fee only
- professional and firm receive no sales related compensation
- related parties receive no sales related compensation in connection with services CFP provides
ii. Fee-Based
- receive both fees and sales related compensation
- may not suggest they are fee only
- must clearly state they receive fees and commission or that they are not fee only

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26
Q

Sales- Related Compensation

A

A.12.b
- commissions, 12b-fee, spreads, transaction fees, revenue sharing, solicitor fees
- it does not include
i. Soft dollars
ii. custodial or admin fees not based on AUM
iii. non monetary benefits provided by another service provider
iv. reasonable and customary fees
v. fee related party received for soliciting clients

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27
Q

Related Party

A

A.12.c
- person or business entity receiving sales related compensation benefiting the CFP
i. Family members
ii. Business entity - cfp controls

28
Q

In Connection with any Professional Services

A

A.12.d
- sales related compensation received by a related party is “in connection” if it results from client transactions referred or facilitated by CFP

29
Q

Safe Harbor for Related Parties

A

A.12.e
- sales related compensation received by a related party is not “in connection” if CFP has policies to prevent CFP from recommending client purchase assets

30
Q

Misrepresentations by a CFP Professionals Firm

A

A.12.f
- cannot make false or misleading representations
- must correct and accurately represent

31
Q

Duties when Recommending, Engaging, and Working with Additional Persons

A

A. Duties Owed to Clients #13
a. when engaging or recommending the selection of additional persons a CFP must
i. have reasonable basis for recommendation based on reputation, experience, and qualifications
ii. disclose to client any arrangement someone who is not the client will compensate the CFP
iii. exercise reasonable care to protect clients interests
b. when working with another professional on behalf of client, CFP must
i. communicate with other provider about the scope o f their services and responsibility between them
ii. inform the client in a timely manner if CFP has belief the providers services were not performed in accordance with the scope and responsibilities

32
Q

Duties when Selecting, Using, and Recommending Technology

A

A. Duties Owed to Clients #14
- CFP must exercise reasonable care and judgement when selecting tech for client
- CFP must have reasonable level of understanding tech
- CFP must have reasonable basis for believing that the technology produces, reliable, objective, and appropriate outcomes

33
Q

Refrain from Borrowing or Lending Money and Commingling Financial Assets

A

A. Duties Owed to Clients #15
-a. CFP may not borrow money or lend unless
i. client is a member of the CFP’s family
ii. lender is a business org or legal entity in the business of lending money
b. CFP must not commingle clients assets with CFP

34
Q

B. Financial Planning and Application of the Practice Standards for the Financial Planning Process #1-6

A
  1. Financial planning definition
  2. Examples of relevant elements of the clients personal and financial circumstances
  3. Application of practice standards
  4. Integration factors
  5. CFP board evaluation
  6. No client agreement to engage for financial planning
35
Q

Financial Planning Definition

A

B.1
- FP is 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

36
Q

Examples of Relevant Elements of the Clients Personal and Financial Circumstances

A

B.2
- vary from client to client
- include need to: develop goals, manage assets and liabilities, manage cash flow, identify and manage risks, health, tax, retirement, philanthropic interests, estate and legacy

37
Q

Application of the Practice Standards

A

B.3
- CFP must comply with practice standards when
a. CFP agrees to provide
i. financial planning
ii. financial advice that requires integration of relevant elements (financial advice that requires financial planning)
b. client has reasonable basis to believe CFP will provide or has provides financial planning

38
Q

Integration Factors

A

B.4
- Factors CFP board will determine whether CFP has agreed to provide or provided financial advice that requires financial planning
a. number of relevant elements that financial advice may affect
b. portion of clients assets financial advice may affect
c. length of time clients circumstances may be affected by financial advice
d. effect on clients overall exposure to risk if client implements financial advice
e. barriers to modifying the actions taken to implement the financial advice

39
Q

CFP Board Evaluation

A

B.5
- in a disciplinary proceeding in which CFP denies allegation that they were supposed to comply with the practice standards, CFP must demonstrate that compliance of standards was not required

40
Q

No Client Agreement to Engage for Financial Planning

A

B.6
- if CFP must otherwise comply with standards but client does not agree to engage CFP to provide financial planning, CFP must
a. not enter in the engagement
b. limit the scope to services that don’t require standards
c. provide the requested services after informing the client how financial planning would benefit client and how decision not to may limit advice
d. terminate the engagement

41
Q

C. Practice Standards for the Financial Planning Process #1-4

A
  1. Understanding the clients personal and financial circumstances
  2. Identifying and selecting goals
  3. Analyzing the clients current course of action and potential alternative courses of action
  4. Developing the financial planning recommendations
42
Q

Understanding the Clients Personal and Financial Circumstances

A

C.1
a. obtaining qualitative and quantitative information
i. qualitative - clients health, life expectancy, family circumstances, values, attitudes, expectations, earnings potential, risk tolerance, goals, needs, priorities, current course of action
ii. quantitative - age, dependents, other advisors, income, expenses, cash flow, savings, assets, liabilities, taxes, benefits, insurance, estate plans, retirement benefits, risk

b. analyzing information
c. addressing incomplete information
- without all the facts, limit scope, or terminate

43
Q

Identifying and Selecting Goals

A

C.2
a. Identifying Potential Goals
- CFP discuss clients circumstances to help them identify goals noting the effect of selecting one over the other. CFP discuss reasonable assumptions and estimates: life expectancy, inflation rates, tax rates, investment returns
b. Selecting and prioritizing goals
- help them select
- discuss with client any goals the client has selected the CFP believes are not realistic

44
Q

Analyzing the Clients Current Course of Action and Potential Alternative Courses of Action

A

C.3
a. Analyzing Current Course of Action
- CFP analyzes current course and whether it maximizes the potential for meeting goals
b. Analyzing Potential Alternative Courses of Action
- CFP identify advantage and disadvantage of each alternative

45
Q

Developing the Financial Planning Recommendations

A

C.4
- CFP selects one or more recommendations designed to maximize potential for meeting goals
- for each recommendation CFP must consider
a. assumptions and estimates used to develop recommendation
b. basis for making recommendation and how it maximizes potential to meet goals
c. timing and priority of recommendation
d. whether recommendation is independent or implemented with another

46
Q

C. Practice Standards for the Financial Planning Process #5-7

A
  1. Presenting the financial planning recommendations
  2. Implementing the financial planning recommendations
  3. Monitoring Progress and Updating
47
Q

Presenting the Financial Planning Recommendations

A

C.5
- CFP must present to client the selected recommendations and information that was required to be considered when developing the recommendations

48
Q

Implementing the Financial Planning Recommendations

A

C.6
a. Addressing Implementation Responsibilities
- CFP must establish with client whether CFP has implementation responsibilities. If so, CFP must communicate with client the recommendations being implemented and responsibilities of CFP and third party

b. Identifying, analyzing, and selecting actions, products, and services
- CFP with implementation responsibilities must identify and analyze actions, products, and services designed to implement recommendations. CFP must consider
i. how action, product, service is designed to implement recommendation
ii. advantages and disadvantages of the action, product, service relative to available alternatives

c. Recommending actions, products, and services for implementation
- CFP with implementation responsibilities must recommend one or more actions, products, and services to client with basis, timing, priority

d. selecting and implementing actions, products, or services
- CFP with implementation responsibilities must help client select and implement the actions, products, and services

49
Q

Monitoring Progress and Updating

A

C.7
a. monitoring and updating responsibilities
- CFP must establish whether they have monitoring and updating responsibilities. if so they must communicate to the client
i. which actions, products, and services are subject to CFP monitoring
ii. how and when CFP will monitor
iii. clients responsibility to inform CFP of material change to info
iv. CFPs responsibility to update recommendations
v. how and when CFP will update recommendations
b. monitoring the clients progress
- CFP with monitoring responsibilities must analyze progress toward achieving goals
c. Obtaining current qualitative and quantitative information
- CFP with monitoring responsibilities must collaborate with client in attempt to obtain data
d. Updating goals, recommendations, or implementation decisions
- CFP with updating responsibilities and changes to circumstances change, CFP must update as appropriate

50
Q

D. Duties Owed to Firms and Subordinates

A
  1. Use reasonable care when supervising
    - CFP must use care when supervising employees, others
  2. Comply with Lawful Objectives of CFP Professionals Firm
    a. CFP will be subject to discipline by CFP board for violating policies and procedures that do not conflict with standards
    b. CFP will not be subject to discipline for violating policies and procedures that conflict with standards
  3. Provide Notice of Public Discipline
    - CFP must promptly advise firm in writing of any public discipline imposed by Board
51
Q

E. Duties Owed to CFP Board #1-6

A
  1. Definitions
  2. Refrain from adverse conduct
  3. Reporting
  4. Provide narrative statement
  5. Cooperation
  6. Compliance with terms and conditions of certification and trademark license
52
Q

E. Duties Owed to CFP Board - Definitions

A

a. felony
b. relevant misdemeanor
c. regulatory investigation
d. regulatory action
e. civil actions
f. finding
g. minor rule violation

53
Q

Felony

A

E.1.a
- a felony offense, or for jurisdictions that do not differentiate between a felony and a misdemeanor, an offense punishable by a sentence of at least one year imprisonment or a fine of at least $1,000

54
Q

Relevant Misdemeanor

A

E.1.b
- a criminal offense, that is not a felony, for conduct involving fraud, theft, misrepresentation, other dishonest conduct, crimes of moral turpitude, violence, or a second (or more) alcohol and/or drug related offense

55
Q

Regulatory Investigation

A

E.1.c
- an investigation initiated by a federal, state, local, or foreign governmental agency, self-regulatory organization, or other regulatory authority. A regulatory investigation does not include preliminary or routine regulatory inquiries or requests for information, deficiency letters, blue sheet requests, or other trading questionnaires or examinations

56
Q

Regulatory Action

A

E.1.d
- an action initiated by a federal, state, local, or foreign governmental agency, self-regulatory organization, or other regulatory authority

57
Q

Civil Action

A

E.1.e
- a lawsuit or arbitration

58
Q

Finding

A

E.1.f
- a finding includes an adverse final action and a consent decree in which the finding is neither admitted nor denied, but does not include a deficiency letter, examination report, memorandum of understanding, or similar informal resolution of a matter

59
Q

Minor Rule Violation

A

E.1.g
- a violation of a self-regulatory organization rule designed as a minor rule violation under a plan approved by the US Securities and Exchange Commission. A rule violation may be designated as “minor” under a plan if the sanction imposed consists of a fine of $2,500 or less, and if the sanctioned person does not contest the fine

60
Q

E. Duties Owed to CFP Board - #2 Refrain from Adverse Conduct

A
  • CFP must not engage in conduct that reflects adversely
    a. Felony or misdemeanor conviction or admission into a program that defers or withholds entry of a judgement of conviction
    b. Finding CFP engaged in fraud, theft, misrepresentation, dishonest conduct
    c. Personal or business bankruptcy where CFP was control person unless can rebut
    d. Federal tax lien on property owned by CFP unless can rebut
    e. Non federal tax lien, judgement lien, civil judgement not satisfied within a reasonable time unless can rebut
61
Q

E. Duties Owed to CFP Board - #3 Reporting

A
  • CFP must provide written notice to CFP within 30 days after CFP
    a. Been charged with, convicted, admitted into program that defers or withholds entry of judgement or conviction
    b. Been names subject of or whose conduct is mentioned adversely in action alleging failure to comply with law
    c. Had conduct mentioned adversely involving failure to comply with laws
    d. Had conduct mentioned adversely in civil action alleging failure to comply with law
    e. Become aware of adverse arbitration award or civil judgement where CfP was control person and settlement less than 15k
    f. Had conduct mentioned adversely in civil action alleging fraud, theft, misrepresentation
    g. Been subject of finding of fraud, theft, misrepresentation
    h. Become aware of adverse arbitration award or civil judgment where CFP was mentioned adversely
    i. Had professional license revoked/ restricted
    j. Been terminated involved allegations
    k. Been named subject in forgery, theft, misappropriation, sales practice violation for comp more than 5k, sales violation with settlement of 15k or more
    l. Filed for bankruptcy
    m. Received notice of federal tax lien
    n. Failed to satisfy non federal tax lien within one year
62
Q

E. Duties Owed to CFP Board - #4 Provide Narrative Statement

A
  • written notice must include a narrative statement that accurately and completely describes the material facts and outcomes or status
63
Q

E. Duties Owed to CFP Board - #5 Cooperation

A
  • CFP must not make false or misleading representations to CFP board or obstruct duties
  • CFP must satisfy cooperation requirements
64
Q

E. Duties Owed to CFP Board - #6 Compliance with Terms and Conditions of Certification and Trademark License

A
  • CFP must comply with the Terms and Conditions of Certification and Trademark License
65
Q

F. Prohibition on Circumvention

A
  • CFP may not indirectly or through another person any act or thing that the code and standards prohibit the CFP from doing directly

Codes and Standards (2 decks)

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