Standards of Professional Conduct

Question 1

CFP Board

Answer 1

Certified Financial Planner Board of Standards, Inc.

Question 2

Candidate for CFP Certification

Answer 2

Applicant to CFP Board to take CFP Certification Examination, but who has not yet met all of CFP Board’s certification requirements

Question 3

Certificant

Answer 3

Denotes an individual who is currently certified by CFP Board

Question 4

Certificant’s Employer

Answer 4

any person or entity that employs a certificant or PER to provide services to a third party on behalf of the employer, including certificants and PERs who are retained as independent contracts or agents

Question 5

Client

Answer 5

Denotes a person, persons, entity who engages a certificant and for whom professional services are rendered. Where the services of the certificant are provided to an entity (corporation, trust, partnership, estate, etc.), the client is the entity acting through its legally authorized representative

Question 6

Commission

Answer 6

Denotes the compensation generated from a transaction involving a product or service and received by an agent or broker, usually calculated as a percentage on the amount of his or her sales or purchase transactions. This includes:

• 12(b)(1) fees
  
  • A 12b-1 fee is an annual marketing or distribution fee on a mutual fund. The 12b-1 fee is considered to be an operational expense and, as such, is included in a fund’s expense ratio. It is generally between 0.25% and 0.75% (the maximum allowed) of a fund’s net assets. The fee gets its name from a section of the Investment Company Act of 1940.
• trailing commissions
  
  • Very simply, a trailing commission is money you pay an advisor each year that you own an investment. The purpose of the fee is to provide incentive for the advisor to review his clients’ holdings and to provide advice. But when it comes down to it, it is essentially a reward for keeping you loyal to a particular stock or fund.
  • Incidentally, fees vary depending upon the investment. However, it is not uncommon for the costs to range between 0.25% to 0.50% of the total investment per annum. That is huge! And remember that as the asset grows in value over time, it means that the advisor that initially sold the investment to you is making even more and more money.
• Surrender Charges
  
  • For annuities and life insurance, the surrender fee often starts at 10 percent if you cash in your investment in year one. It goes down to 1 percent if you cash it in during year nine and no surrender fees in year 10 or longer.
  • The surrender charge is usually waived if the insured party informs the insurer in advance of the cancellation of their policy, and then continues to pay for a period of time before canceling the policy.
  • Also, most investments that carry a surrender charge, such as B-share mutual funds, annuities, and whole life insurance, pay upfront commissions to the salespeople who sell them. The issuing company then recoups the commission through internal fees it charges in the investment. However, if an investment is sold before enough years pass, those internal fees will not be enough to cover the commission costs, which results in the issuing company losing money. Surrender charges protect against these types of losses.
• Contingent Deferred Sales Charges
  
  • This fee is also known as a “back-end load” or “sales charge.” For mutual funds with share classes that determine when investors pay the fund’s load or sales charge, Class-B shares carry a contingent deferred sales charge during a five- to 10-year holding period calculated from the time of the initial investment.
  • If a mutual fund investor were to buy and hold Class-B fund shares until the end of the specified hold period, they could avoid paying this type of fund’s sales charge, thereby enhancing their investment return. Unfortunately, fund research indicates that mutual fund investors are holding their funds, on average, for less than five years, which often triggers the application of a back-end sales charge in a Class-B share fund investment.

Question 7

Compensation

Answer 7

any non-trivial economic benefit, whether monetary or non-monetary, that a certificant or related party receives or is entitled to receive for providing professional activities

Question 8

Conflict of Interest

Answer 8

Certificant’s financial, business, property and/or personal interests, relationships or circumstances reasonable may impair his/her ability to offer objective advice, recommendations or services

Question 9

Fee-Only

Answer 9

A certificant may describe his or her practice as “fee-only” if, and only if, all of the certificant’s compensation from all of his or her client work comes exclusively from the clients in the form of

1. fixed,
2. flat,
3. hourly,
4. percentage or
5. performance-based fees.

Question 10

Fiduciary

Answer 10

One who acts in the utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client

Question 11

Financial Planning Engagement

Answer 11

Exists when a certificant performs any type of mutually agreed-upon financial planning service for a client

Question 12

Financial Planning Practioner

Answer 12

a person who provides financial planning services to clients

Question 13

Personal Financial Planning or Financial Planning

Answer 13

Denotes the process of determining whether and how an individual can meet life goals through the proper management of financial resources.

Financial Planning integrates the financial planning process with the financial planning subject areas.

In determining whether the certificant is provided financial planning or material elements of financial planning, factors that may be considered include, but are NOT limited to:

1. The client’s understanding and intent in engaging the certificant
2. The degree to which multiple financial planning subject areas are involved
3. The comprehensiveness of data gathering; and
4. The breadth and depth of recommendations

Financial Planning may occur even if the material elements are not provided to a client simultaneously, are delivered over a period of time, or are delivered as a distinct subject area. It is not necessary to provide a written financial plan to engage in financial planning.

Personal Financial Planning Process or Financial Planning Process Denotes the process which typiclly includes, but is not limited to some or all of the six steps “EGADIM”

1. Establish client-planner relationship
2. Gathering Client Data including goals
3. Analyzing and Evaluating the client’s financial status
4. Developing and presenting recommendations and/or alternatives
5. Implementing the recommendations; and
6. Monitoring the recommendations

Personal Financial Planning Subject Areas denotes the basic subject fields covered in the financial planning process which typically include, but are not limited to:

1. Financial Statement Preparation and Analysis, including cash flow analysis/planning and budgeting
2. Insurance planning and risk management
3. Employee benefits planning
4. Investment planning
5. Income tax planning
6. Retirement planning
7. Estate planning
   1.

Question 14

Professional Eligible for Reinstatement

Answer 14

Denotes an individual who is not currently certified but has been certified by CFP Board in the past and has an entitlement, direct or indirect, to use the CFP marks.

This includes individuals who have relinquished their certification and who are eligible for reinstatement without being required to pass the current CFP Certification Examination.

The Standards of Professional Conduct apply to PERs when the conduct at issue occurred at a time when the PER was certified; CFP Board has jurisdiction to investigate such conduct.

Question 15

Integrity - Principle 1 of Code of Ethics and Professional Responsibility

Answer 15

1. Honesty
2. Candor
3. must NOT be subordinated to personal gain and advantage

Allowed

1. Innocent error and legitimate differences of opinion

Not Allowed

1. Cannot coexist with deceit or subordination of one’s principles

Question 16

Objectivity - Principle 2 of Code of Ethics and Professional Responsibility

Answer 16

1. Intellectual honesty
2. Impartiality

Regardless of the particular service rendered or the capacity in which a certificant functions, certificants should protect the integrity of their work, maintain objectivity and avoid subordination of their judgment

Question 17

Competence - Principle 3 of Code of Ethics and Professional Responsibility

Answer 17

Attaining and Maintaining Adequate level of knowledge and skill. Make a continuing commitment to learning and professional improvement.

ALSO:

1. wisdom to recognize the limitations of that knowledge and
2. when consultation with other professionals is appropriate or referral to other professionals necessary

Question 18

Fairness - Principle 4 of Code of Ethics and Professional Responsibility

Answer 18

Fairness requires:

1. Impartiality
2. Intellectual Honesty
3. Disclosure of Material Conflicts of Interest

It involves a subordination of one’s own feelings, prejudices, and desires so as to achieve a proper balance of conflicting interests. Fairness is treating others in some fashion that you would want to be treated.

Question 19

Confidentiality - Principle 5 of the Code of Ethics and Professional Responsibility

Answer 19

Confidentiality means ensuring that information is accessible only to those authorized to have access.

A relationship of trust and confidence with the client can only be built upon the understanding that the client’s information will remain confidential.

Question 20

Professionalism - Principle 6 of the Code of Ethics and Professional Responsibility

Answer 20

Dignity and Courtesy

To who?

Clients, fellow professionals, and other business-related activities

Certificants cooperate with fellow certificants to enhance and maintain the profession’s public image and improve the quality of services.

Question 21

Diligence - Principle 7 of Code of Ethics and Professional Responsibility

Answer 21

Diligence is the provision of services in a reasonably prompt and thorough manner, including the proper planning for, and supervision of, the rendering of professional services.

Question 22

At All Times to Clients - Roadmap for Code and Standards

Answer 22

1. Integrity - Principle 1
2. Competence - Principle 3
3. Diligence - Principle 7
4. Sound and Objective Professional Judgment - Principle 2
5. Professionalism - Principle 6
6. Comply with the Law
7. Confidentiality and Privacy - Principle 5
8. Duties When Communicating with a Client
9. Duties When Representing Compensation Method
10. Duties When Selecting, Using, and Recommending Technology
11. Refrain from Borrowing or Lending Money and Commingling Financial Assets

Question 23

At All Times to Firms and Subordinates - Roadmap for Code and Standards

Answer 23

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

Question 24

At All Times to CFP Board - Roadmap for Code and Standards

Answer 24

1. Refrain from Adverse Conduct
2. Reporting
3. Provide Narrative Statement
4. Cooperation
5. Compliance with Terms and Conditions of Certification and Trademark License

Question 25

Financial Advice to Clients - Roadmap for Code and Standards

Answer 25

The Duties That Apply At All Times To Clients (see prior card)

Fiduciary Duty

1. Duty of Loyalty
   
   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.
2. Duty of Care
   
   1. ​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.
3. Duty to follow Client Instructions
   
   1. A CFP® professional must comply with the terms of the Client engagement and follow all directions of the Client that are reasonable and lawful​

Disclose and Manage Conflicts of Interest

Provide Information to a Client

Duties When Recommending, Engaging, and Working with Additional Persons

Question 26

Financial Planning to Clients - Roadmap for Code and Standards

Answer 26

1. The Duties That Apply When Providing Financial Advice (see above)
2. The Practice Standards for the Financial Planning Process
3. Information to a Client in Writing

Question 27

Financial Advice vs Non-Financial Advice

Answer 27

The determination of whether Financial Advice has been provided is an objective rather than subjective inquiry. The more individually tailored the communication is to the Client, the more likely the communication will be viewed as Financial Advice.

Financial Advice

1. 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:
   
   1. The development or implementation of a Financial Plan;
   2. The value of or the advisability of investing in, purchasing, holding, gifting, or selling Financial Assets;
   3. Investment policies or strategies, portfolio composition, the management of Financial Assets, or other financial matters; or
   4. The selection and retention of other persons to provide financial or Professional Services to the Client; or
2. The exercise of discretionary authority over the Financial Assets of a Client.

NON-Financial Advice

1. A communication that, based on its content, context, and presentation, would not reasonably be viewed as a recommendation;
2. Responses to directed orders; and
3. The following, if a reasonable CFP® professional would not view it as Financial Advice:
   
   1. Marketing Materials;
   2. General Financial Education; and
   3. General Financial Communications

Question 28

If Financial Planning Engagement, and you must comply with the Practice Standards for the Financial Planning Process.

If Financial Advice does not require Financial Planning, and you are not required to comply with the Practice Standards for the Financial Planning Process.

What do you do if the Client doesn’t agree to engage you for Financial Planning?

Answer 28

Does the Financial Advice I agreed to provide require integration of relevant elements of the Client’s personal and/or financial circumstances in order to act in the Client’s best interests, taking into account the Integration Factors set forth below:

1. The number of relevant elements of the Client’s personal and financial circumstances that the Financial Advice may affect;
2. The portion and amount of the Client’s Financial Assets that the Financial Advice may affect;
3. The length of time the Client’s personal and financial circumstances may be affected by the Financial Advice;
4. The effect on the Client’s overall exposure to risk if the Client implements the Financial Advice; and
5. The barriers to modifying the actions taken to implement the Financial Advice.

What do you do if the Client doesn’t agree to engage you for Financial Planning?

PICK ONE

1. Not enter into the Engagement; or
2. Limit the Scope of Engagement to services that do not require application of the Practice Standards for the Financial Planning Process, and describe to the Client the services the Client requests that the CFP® professional will not be performing; or
3. Provide the requested services after informing the Client how Financial Planning will benefit the Client and how the decision not to enter into a Financial Planning engagement may limit the Financial Advice; or
4. Terminate the Engagement.

Question 29

When to Document and Acceptable Documentation

When (Advice vs. Planning) and What information must be disclosed in Writing vs. in Writing OR Orally?

Answer 29

A CFP® professional must act prudently in documenting information, as the facts and circumstances require, taking into account:

1. The significance of the information;
2. The need to preserve the information in writing;
3. The obligation to act in the Client’s best interest; and
4. The Firm’s policies and procedures.

Acceptable Documentation: Options include using:

1. CRM software;
2. Handwritten notes; or
3. Emails.

Set forth below is a brief summary of the categories of information that must be shared with the Client, and whether the information must be provided orally or in writing.

FINANCIAL ADVICE

1. Provide One or More Written Documents
   
   1. Privacy Policy
2. Provide Orally OR in Writing
   
   1. Material Conflicts of Interest
   2. Services and Products
   3. How the Client Pays
   4. How you, your Firm, and Related Parties are Compensated
   5. Public Discipline and Bankruptcy
   6. Referral Compensation Arrangements
   7. Other Material Information

FINANCIAL PLANNING

1. Provide One or More Written Documents
   
   1. Privacy Policy
   2. Services and Products
   3. How the Client Pays
   4. How you, your Firm, and Related Parties are Compensated
   5. Public Discipline and Bankruptcy
   6. Referral Compensation Arrangements
   7. Terms of Engagement (Implementing, Monitoring, and Updating is Required Unless Explicitly Excluded)
      
      1. Not addressed in solely Financial Advice
   8. Other Material Information
2. Provide Orally OR in Writing
   
   1. Material Conflicts of Interest

Question 30

Rule 1.1

Defining the Relationship with the Prospective Client or Client

Answer 30

The certificant and the prospective client or client shall mutually agree upon the services to be provided by the certificant.

Question 31

Rule 1.2

Defining the Relationship with the Prospective Client or Client

Answer 31

If the certificant’s services include financial planning or material elements of financial planning, prior to entering into an agreement, the certificant shall provide written information or discuss with the prospective client or client the following:

1. The obligations and responsibilities of each party under the agreement with respect to EGADIM:
   
   1. Defining goals, needs and objectives,
   2. Gathering and providing appropriate data,
   3. Examining the result of the current course of action without changes,
   4. The formulation of any recommended actions,
   5. Implementation responsibilities, and
   6. Monitoring responsibilities.
2. Compensation
   
   1. Any party to the agreement or any legal affiliate to a party to the agreement will or could receive under the terms of the agreement; and factors or terms that determine costs, how decisions benefit the certificant and the relative benefit to the certificant
3. Proprietary Products
   
   1. Terms under which the agreement permits the certificant to offer proprietary products.
4. Other Entities
   
   1. Terms under which the certificant will use other entities to meet any of the agreement’s obligations.

IF IN WRITING - Note - it doesn’t have to be in writing

1. If the certificant provides the above information in writing, the certificant shall encourage the prospective client or client to review the information and offer to answer any questions that the prospective client or client may have.

Question 32

Rule 1.3

Defining the Relationship with the Prospective Client or Client

Answer 32

If the services include financial planning or material elements of financial planning, the certificant or the certificant’s employer shall enter into a written agreement governing the financial planning services (“Agreement”).

NOTE = Things from 1.2 must be disclosed prior to entering into an agreement. Once they have been disclosed, certificant (or employer) shall enter into a written agreement governing the financial planning services.

The WRITTEN Agreement shall specify

1. The parties to the Agreement,
2. The date of the Agreement and its duration,
3. How and on what terms each party can terminate the Agreement, and
4. The services to be provided as part of the Agreement.

The Agreement may consist of multiple written documents. Written documentation that includes the items above and is used by a certificant or certificant’s employer in compliance with state or federal law, or the rules or regulations of any applicable self-regulatory organization, such as the Securities and Exchange Commission’s Form ADV or other disclosure documents, shall satisfy the requirements of this Rule.

Question 33

Rule 1.4

Defining the Relationship with the Prospective Client or Client

Answer 33

A certificant shall at all times place the interest of the client ahead of his or her own. When the certificant provides financial planning or material elements of financial planning, the certificant owes to the client the duty of care of a fiduciary as defined by CFP Board

Question 34

Rule 2.1

Information Disclosed to Prospective Clients and Clients

Answer 34

A certificant shall not communicate, directly or indirectly, to clients or prospective clients any false or misleading information directly or indirectly related to the certificant’s professional qualifications or services.

A certificant shall not mislead any parties about the potential benefits of the certificant’s service. A certificant shall not fail to disclose or otherwise omit facts where that disclosure is necessary to avoid misleading clients.

Question 35

Rule 2.2

Information Disclosed to Prospective Clients and Clients

Answer 35

A certificant shall disclose to a prospective client or client the following information:

1. An accurate and understandable description of the compensation arrangements being offered. This description must include:
   
   1. Information related to costs and compensation to the certificant and/or the certificant’s employer, and
   2. Terms under which the certificant and/ or the certificant’s employer may receive any other sources of compensation, and if so, what the sources of these payments are and on what they are based.
2. A general summary of likely conflicts of interest between the client and the certificant, the certificant’s employer or any affiliates or third parties, including, but not limited to, information about any familial, contractual or agency relationship of the certificant or the certificant’s employer that has a potential to materially affect the relationship.
3. Any information about the certificant or the certificant’s employer that could reasonably be expected to materially affect the client’s decision to engage the certificant that the client might reasonably want to know in establishing the scope and nature of the relationship, including but not limited to information about the certificant’s areas of expertise
4. Contact information for the certificant and, if applicable, the certificant’s employer
5. If the services include financial planning or material elements of financial planning, these disclosures must be in writing. The written disclosures may consist of multiple written documents. Written disclosures used by a certificant or certificant’s employer that includes the items listed above, and are used in compliance with state or federal laws, or the rules or requirements of any applicable self-regulatory organization, such as the Securities and Exchange Commission’s Form ADV or other disclosure documents, shall satisfy the requirements of this Rule.

The certificant shall timely disclose to the client any material changes to the above information.

Question 36

Rule 3.1

Prospective Client and Client Information and Property

Answer 36

A certificant shall treat information as confidential except

1. as required in response to proper legal process;
2. as necessitated by obligations to a certificant’s employer or partners;
3. as required to defend against charges of wrongdoing; in connection with a civil dispute; or
4. as needed to perform the services.

Question 37

Rule 3.2

Prospective Client and Client Information and Property

Answer 37

A certificant shall take prudent steps to protect the security of information and property, including the security of stored information, whether physically or electronically, that is within the certificant’s control.

Question 38

Rule 3.3

Prospective Client and Client Information and Property

Answer 38

A certificant shall obtain the information necessary to fulfill his or her obligations. If a certificant cannot obtain the necessary information, the certificant shall inform the prospective client or client of any and all material deficiencies.

Question 39

Rule 3.4

Prospective Client and Client Information and Property

Answer 39

A certificant shall clearly identify the assets, if any, over which the certificant will take custody, exercise investment discretion, or exercise supervision.

Question 40

Rule 3.5

Prospective Client and Client Information and Property

Answer 40

A certificant shall identify and keep complete records of all funds or other property of a client in the custody, or under the discretionary authority, of the certificant.

Question 41

Rule 3.6

Prospective Client and Client Information and Property

Answer 41

A certificant shall not borrow money from a client.

Exceptions to this Rule include:

A. The client is a member of the certificant’s immediate family, or

B. The client is an institution in the business of lending money and the borrowing is unrelated to the professional services performed by the certificant.

Question 42

Rule 3.7

Prospective Client and Client Information and Property

Answer 42

A certificant shall not lend money to a client.

Exceptions to this Rule include:

A. The client is a member of the certificant’s immediate family, or

B. The certificant is an employee of an institution in the business of lending money and the money lent is that of the institution, not the certificant

Question 43

Rule 3.8

Prospective Client and Client Information and Property

Answer 43

A certificant shall not commingle a client’s property with the property of the certificant or the certificant’s employer, unless

1. the commingling is permitted by law or
2. is explicitly authorized and defined in a written agreement between the parties.

Question 44

Rule 3.9

Prospective Client and Client Information and Property

Answer 44

A certificant shall not commingle a client’s property with other clients’ property unless

1. the commingling is permitted by law or
2. the certificant has both explicit written authorization to do so from each client involved and sufficient recordkeeping to track each client’s assets accurately.

Question 45

Rule 3.10

Prospective Client and Client Information and Property

Answer 45

A certificant shall return a client’s property to the client upon request as soon as practicable or consistent with a time frame specified in an agreement with the client.

Question 46

Rule 4.1

Obligations to Prospective Clients and Clients

Answer 46

A certificant shall treat prospective clients and clients fairly and provide professional services with integrity and objectivity.

Question 47

Rule 4.2

Obligations to Prospective Clients and Clients

Answer 47

A certificant shall offer advice only in those areas in which he or she is competent to do so and shall maintain competence in all areas in which he or she is engaged to provide professional services.

Question 48

Rule 4.3

Obligations to Prospective Clients and Clients

Answer 48

A certificant shall be in compliance with applicable regulatory requirements governing professional services provided to the client.

Question 49

4.4

Obligations to Prospective Clients and Clients

Answer 49

A certificant shall exercise reasonable and prudent professional judgment in providing professional services to clients.

Question 50

4.5

Obligations to Prospective Clients and Clients

Answer 50

In addition to the requirements of Rule 1.4, a certificant shall make and/or implement only recommendations that are suitable for the client.

Question 51

4.6

Obligations to Prospective Clients and Clients

Answer 51

A certificant shall provide reasonable and prudent professional supervision or direction to any subordinate or third party to whom the certificant assigns responsibility for any client services.

Question 52

4.7

Obligations to Prospective Clients and Clients

Answer 52

A certificant shall advise his or her current clients of any certification suspension or revocation he or she receives from CFP Board

Question 53

Rule 5.1

Obligations to Employers

Answer 53

A certificant who is an employee/agent shall perform professional services with dedication to the lawful objectives of the employer/principal and in accordance with CFP Board’s Code of Ethics

Question 54

Rule 5.2

Obligations to Employers

Answer 54

A certificant who is an employee/agent shall advise his or her current employer/principal of any certification suspension or revocation he or she receives from CFP Board.

Question 55

Rule 6.1

Obligations to CFP Board

Answer 55

A certificant shall abide by the terms of all agreements with CFP Board, including, but not limited to, using the CFP® marks properly and cooperating fully with CFP Board’s trademark and professional review operations and requirements.

Question 56

Rule 6.2

Obligations to CFP Board

Answer 56

A certificant shall meet all CFP Board requirements, including continuing education requirements, to retain the right to use the CFP® marks

Question 57

Rule 6.3

Obligations to CFP Board

Answer 57

A certificant shall notify CFP Board of changes to contact information, including, but not limited to, e-mail address, telephone number(s) and physical address, within forty five (45) days

Question 58

Rule 6.4

Obligations to CFP Board

Answer 58

A certificant shall notify CFP Board in writing of any conviction of a crime, except misdemeanor traffic offenses or traffic ordinance violations unless such offense involves the use of alcohol or drugs, or of any professional suspension or bar within ten (10) calendar days after the date on which the certificant is notified of the conviction, suspension or bar.

Question 59

Rule 6.5

Obligations to CFP Board

Answer 59

A certificant shall not engage in conduct which reflects adversely on his or her integrity or fitness as a certificant, upon the CFP® marks, or upon the profession.

Question 60

The intent of Practice Standards

Description of Practice Standards

Answer 60

These Practice Standards are intended to:

1. Assure that the practice of financial planning by CERTIFIED FINANCIAL PLANNER™ professionals is based on established norms of practice;
2. Advance professionalism in financial planning; and
3. Enhance the value of the financial planning process.

Description of Practice Standards

1. A Practice Standard establishes the level of professional practice that is expected of certificants engaged in financial planning.
2. The Practice Standards apply to certificants in performing the tasks of financial planning regardless of the person’s title, job position, type of employment or method of compensation. Compliance with the Practice Standards is mandatory for certificants whose services include financial planning or material elements of financial planning, but all financial planning professionals are encouraged to use the Practice Standards when performing financial planning tasks or activities addressed by a Practice Standard.
3. The Practice Standards are designed to provide certificants with a framework for the professional practice of financial planning. Similar to the Rules of Conduct, the Practice Standards are not designed to be a basis for legal liability to any third party.

Each Practice Standard is a statement regarding one of the steps of the financial planning process. It is followed by an explanation of the Practice Standard, its relationship to the Code of Ethics and Rules of Conduct, and its expected impact on the public, the profession and the practitioner.

The Explanation accompanying each Practice Standard explains and illustrates the meaning and purpose of the Practice Standard. The text of each Practice Standard is authoritative and directive. The related Explanation is a guide to interpretation and application of the Practice Standard based, where indicated, on a standard of reasonableness, a recurring theme throughout the Practice Standard. The Explanation is not intended to establish a professional standard or duty beyond what is contained in the Practice Standard itself.

Question 61

Definition of Financial Planning Process

Answer 61

EGADIM

1. Establish and Defining the Relationship with a Client
   
   1. 100-1
2. Gathering Client Data
   
   1. 200-1
3. Analyzing and Evaluating the Client’s Financial Status
   
   1. 300-1
4. Developing and Presenting Financial Planning Recommendations
   
   1. 400-1
5. Implementing the Financial Planning Recommendations
   
   1. 500-1
6. Monitoring
   
   1. 600-1

Question 62

100-1: Defining the Scope of the Engagement

Establishing and defining the relationship with a client

The financial planning practitioner and the client shall mutually define the scope of the engagement before any financial planning service is provided.

Answer 62

The process of “mutually-defining” is essential in determining what activities may be necessary to proceed with the engagement.

This process is accomplished in financial planning engagements by:

1. Identifying the service(s) to be provided;
2. Disclosing the practitioner’s material conflict(s) of interest;
3. Disclosing the practitioner’s compensation arrangement(s);
4. Determining the client’s and the practitioner’s responsibilities;
5. Establishing the duration of the engagement; and
6. Providing any additional information necessary to define or limit the scope.

The scope of the engagement may include one or more financial planning subject areas. It is acceptable to mutually define engagements in which the scope is limited to specific activities. Mutually defining the scope of the engagement serves to establish realistic expectations for both the client and the practitioner.

Interconnection between 100-1 and Code of Ethics and Rules of Conduct

1. Principle 4 - Fairness
2. Principle 7 - Diligence
3. Rule 1.1
4. Rule 1.2
5. Rule 1.3
6. Rule 2.2

Impact on Public

• The public is served when the relationship is based upon a mutual understanding of the engagement. Clarity of the scope of the engagement enhances the likelihood of achieving client expectations.

Impact on the Financial Planning Profession

• The profession benefits when clients are satisfied. This is more likely to take place when clients have expectations of the process, which are both realistic and clear, before services are provided.

Impact on Financial Planning Practitioner

• A mutually defined scope of the engagement provides a framework for financial planning by focusing both the client and the practitioner on the agreed-upon tasks. This Practice Standard enhances the potential for positive results

Question 63

200-1 Determining a Client’s Personal and Financial Goals, Needs and Priorities

Gathering Client Data

The financial planning practitioner and the client shall mutually define the client’s personal and financial goals, needs and priorities that are relevant to the scope of the engagement before any recommendation is made and/or implemented.

Answer 63

Prior to making recommendations to the client, the financial planning practitioner and the client shall mutually define the client’s personal and financial goals, needs and priorities. The process of “mutually-defining” is essential in determining what activities may be necessary to proceed with the client engagement. In order to arrive at such a definition, the practitioner will need to explore the client’s

1. values,
2. attitudes,
3. expectations, and
4. time horizons as

they affect the client’s

1. goals,
2. needs and
3. priorities

• Personal values and attitudes shape the client’s goals and objectives and the priority placed on them. Accordingly, these goals and objectives must be consistent with the client’s values and attitudes in order for the client to make the commitment necessary to accomplish them
• Goals and objectives provide focus, purpose, vision and direction for the financial planning process. It is important to determine clear, and measurable objectives that are relevant to the scope of the engagement. The role of the practitioner is to facilitate the goal-setting process in order to clarify, with the client, goals and objectives. When appropriate, the practitioner shall try to assist clients in recognizing the implications of unrealistic goals and objectives.
• This Practice Standard addresses only the tasks of determining the client’s personal and financial goals, needs and priorities; assessing the client’s values, attitudes and expectations; and determining the client’s time horizons. These areas are subjective and the practitioner’s interpretation is limited by what the client reveals.

Interconnection Between 200-1 and Code of Ethics and Rules of Conducts

1. Principle 7 - Diligence
2. Rule 3.3
3. Rule 4.4
4. Rule 4.5

Impact Upon the Public

• The public is served when the relationship is based upon mutually defined goals, needs and priorities. This Practice Standard reinforces the practice of putting the client’s interests first which is intended to increase the likelihood of achieving the client’s goals and objectives.

Impact Upon the Financial Planning Profession

• Compliance with this Practice Standard emphasizes to the public that the client’s goals, needs and priorities are the focus of financial planning. This encourages the public to seek out the services of a financial planning practitioner who uses such an approach.

Impact Upon the Financial Planning Practitioner

• The client’s goals, needs and priorities help determine the direction of financial planning. This focuses the practitioner on the specific tasks that need to be accomplished. Ultimately, this will facilitate the development of appropriate recommendations.

Question 64

2002-2 Obtaining Quantitative Information and Documents

Gathering Client Data

The financial planning practitioner shall obtain sufficient quantitative information and documents about a client relevant to the scope of the engagement before any recommendation is made and/or implemented.

Answer 64

Prior to making recommendations to the client and depending on the scope of the engagement, the financial planning practitioner shall determine what quantitative information and documents are sufficient and relevant.

The practitioner shall obtain sufficient and relevant quantitative information and documents pertaining to the client’s

1. financial resources,
2. obligations and
3. personal situation.

This information may be obtained directly from the client or other sources such as interview(s), questionnaire(s), client records and documents.

The practitioner shall communicate to the client a reliance on the completeness and accuracy of the information provided and that incomplete or inaccurate information will impact conclusions and recommendations.

If the practitioner is unable to obtain sufficient and relevant quantitative information and documents to form a basis for recommendations, the practitioner shall either:

1. Restrict the scope of the engagement to those matters for which sufficient and relevant information is available; or
2. Terminate the engagement.

The practitioner shall communicate to the client any limitations on the scope of the engagement, as well as the fact that this limitation could affect the conclusions and recommendations.

Interconnection Between 200-2 and Code of Ethics and Rules of Conduct

1. Principle 7 - Diligence
2. Rule 3.3
3. 4.4
4. 4.5

Impact Upon the Public

• The public is served when financial planning recommendations are based upon sufficient and relevant quantitative information and documents. This Practice Standard is intended to increase the likelihood of achieving the client’s goals and objectives.

Impact Upon the Financial Planning Profession

• Financial planning requires that recommendations be made based on sufficient and relevant quantitative data. Therefore, compliance with this Practice Standard encourages the public to seek financial planning practitioners who use financial planning.

Impact Upon the Financial Planning Practitioner

• Sufficient and relevant quantitative information and documents provide the foundation for analysis. Ultimately, this will facilitate the development of appropriate recommendations.

Question 65

300-1 Analyzing and Evaluating the Client’s Information

Analyzing and Evaluating the Client’s Financial Status

A financial planning practitioner shall analyze the information to gain an understanding of the client’s financial situation and then evaluate to what extent the client’s goals, needs and priorities can be met by the client’s resources and current course of action.

Answer 65

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