Code of Ethics and Standards Flashcards
Code of Ethics
- Honesty, integrity, competence and diligence
- Act in client’s best interests
- Exercise due care
- Avoid or disclose and manage conflicts of interest
- Confidentiality and privacy
- Act in a manner that reflects positively on financial planning profession
Standards of Conduct
- Duties owed to clients
A. Fiduciary Duty
i. Duty of loyalty: place clients’ interest above yours and the firm’s, avoid conflicts of interest and act without regard to the financial or other interests of CFP professional.
ii. Duty of care: act with care, skill, prudence and diligence.
iii. Duty to follow client instructions.B. Integrity: honest and candorC. CompetenceD. DiligenceE. Disclose manage conflicts of interestF. Sounds and objective professional judgement: can’t accept gift, gratuity, non-cash compensationG. ProfessionalismH. Comply with LawI. Confidentiality and privacyJ. Provide info to clientK. Communicating with client: clearlyL. CompensationM. Recommending additional persons to work withN. Selecting recommending technologyO. Refrain from borrowing - Financial planning application processA. Integration factors and elements and engagement memo
- Financial planning processA. The 7 steps go here
- Duties to firms and subordinatesA. Use of reasonable care when supervising: employeesB. Comply with lawful objectiveC. Provide notice of public discipline in writing
- Duties owed to CFP boardA. Refrain from adverse conductB. Reporting: in writing within 30 days of any unlawful act, customer complaint, personal or business bankruptcy, federal tax lien
- Prohibition of circumvention
Steps of Financial planning process
- Understand clients personal and financial circumstances
- Identifying and selecting goals
- Analyzing client’s current course of action and potential alternatives
- Developing the financial planning recommendations
- Presenting recommendations
- Implementing recommendations
- Monitoring and progress and updating
What is financial advice
A communication that based on its content and presentation would reasonably be viewed as a recommendation
NOT consider advice:
Communication that based of its content would not be viewed as a recommendation, responses to directed orders and marketing materials or education.
What is financial planning
A collaborative process that helps maximize a client’s potential life goals through financial advice that integrates relevant elements of personal and financial circumstances.
Relevant Elements
Need to develop goals
Manage assets
Manage cash flow
Identify and manage risks
Educational needs
Financial security
Identify tax considerations
Philanthropic goals
Legal matter
Integration Factors
Number of relevant elements
Amount of money
Length of time
Overall exposure to risk
Information to client
Financial advice: WRITTEN: privacy policy; everything else can be orally or in writing
Financial planning: ONLY ALLOWED ORALLY: Material conflicts of interest; EVERYTHING ELSE IN WRITING
If client doesn’t agree to financial planning then:
- Don’t enter into the engagement
- Limit scope of engagement
- Provide the requested services after informing client how financial planning will benefit client and how their decision not to enter engagement may limit the financial advice
- Terminate engagement
Financial Advice vs planning framework
Yes to financial advice, no to financial planning: fiduciary duty applies but not requires to apply practice standards of planning process
Yes to financial advice and planning: fiduciary duty and all practice standards apply
Qualitative info
Subjective info like:
Health
Life expectancy
Values
Expectations
Risk tolerance
Goals
Quantitative info
Objective info like
Age
Dependents
Income
Cash flow
Assets
Taxes
Employee benefits
Estate plan
Capacity for risk
