Code of Ethics and Practice Standards

Question 1

What are the six core principles of the CFP® Code of Ethics?

Answer 1

Honesty, integrity, competence, diligence, client’s best interests, confidentiality, and positive reflection on the profession.

Question 2

What is a fiduciary duty?

Answer 2

Acting in the client’s best interests with loyalty, care, and by following client instructions.

Question 3

What does the duty of loyalty require?

Answer 3

Place the client’s interests above your own or your firm’s and avoid conflicts of interest.

Question 4

What is the duty of care?

Answer 4

Act with care, skill, prudence, and diligence at all times.

Question 5

What is the duty to follow client instructions?

Answer 5

Comply with all client objectives, policies, restrictions, and lawful directions.

Question 6

How is a “client” defined?

Answer 6

Any person, organization, or entity receiving professional services under an engagement.

Question 7

What constitutes financial advice?

Answer 7

Any communication reasonably viewed as a recommendation to take or not take a financial action.

Question 8

What is NOT financial advice?

Answer 8

General statements or definitions about financial products, without specific recommendations.

Question 9

What are the 15 duties owed to the client?

Answer 9

Fiduciary, Integrity, Competence, Diligence, Disclose conflicts of interest, Sound and objective professional judgement, Professionalism, Comply with the Law, Confidentiality and Privacy, Provide Information to client, Clear Communication, Specific Representations, Due Diligence when recommending other professionals, Selecting appropriate technology, and refrain form borrowing or lending money and commingling assets.

Question 10

What does integrity mean for a CFP® professional?

Answer 10

Acting honestly and with strong moral principles.

Question 11

What does competence require?

Answer 11

Providing services with relevant knowledge and skill.

Question 12

What is diligence?

Answer 12

Providing services in a timely and thorough manner.

Question 13

When must conflicts of interest be disclosed?

Answer 13

When your interests or your firm’s interests are adverse to the client or between clients.

As soon as possible but not immediately

Question 14

What is required for sound and objective professional judgment?

Answer 14

Avoid being influenced by conflicts, bias, or outside pressure.

Question 15

What does professionalism require?

Answer 15

Treating clients and others with dignity and respect.

Question 16

What is the duty to comply with the law?

Answer 16

Follow all applicable regulatory requirements. (SEC, FINRA, insurance, state, etc.)

Question 17

What are the rules for confidentiality and privacy?

Answer 17

Protect client information, have a written privacy policy, and disclose only in specific circumstances (client consent, business necessity, legal requirements, audits, or to representatives).

Question 18

What information must be provided to clients?

Answer 18

Required disclosures when giving financial advice or planning, and updates about material changes.

Question 19

What are the requirements for client communications?

Answer 19

Ensure all communications are clear, accurate, and understandable.

Question 20

What is the difference between fee-only and fee-based?

Answer 20

Fee-only: Only fees, no sales-related compensation. Fee-based: Fees plus sales-related compensation.

Question 21

What is sales-related compensation?

Answer 21

Bonuses or compensation for product transactions (e.g., 12b-1 fees, referral fees), but not soft dollars.

Question 22

Who is a related party?

Answer 22

Any person or entity whose receipt of sales-related compensation would benefit the CFP® professional or their firm, including family and controlled businesses.

Question 23

Why does related party status matter?

Answer 23

If a related party receives sales-related compensation, you cannot claim “fee-only” status.

Question 24

What is required when recommending or working with other professionals?

Answer 24

Exercise due diligence.

Question 25

What are the duties when selecting or recommending technology?

Answer 25

Ensure it is appropriate, secure, and reliable.

Question 26

What are the rules on borrowing/lending and commingling assets?

Answer 26

Do not borrow from or lend to clients, or commingle assets.

Question 27

What is financial planning according to the CFP Board

Answer 27

A collaborative process to maximize a client’s potential for meeting life goals through integrated financial advice.

Question 28

What are examples of relevant elements in financial planning?

Answer 28

Goals, assets, liabilities, cash flow, insurance, health, education, security, wealth, tax, retirement, philanthropy, estate.

Question 29

When must the Practice Standards be followed?

Answer 29

When the client agrees to financial planning, advice requires integration, or the client reasonably believes planning is provided.

Question 30

What are integration factors?

Answer 30

Number of relevant elements affected, portion of assets affected, duration of impact, effect on risk exposure, and barriers to modifying actions.

Question 31

What if there’s no formal agreement for financial planning?

Answer 31

Practice Standards still apply if advice integrates relevant elements or the client believes planning is provided.

Question 32

What are the 7 steps of the Financial Planning Process?

Answer 32

Understand client’s personal and financial circumstances, Identify and select goals, Analyze current and alternative courses of action, Develop financial planning recommendations, Present recommendations, Implement recommendations, Monitor progress and update

Question 33

What is required when supervising others?

Answer 33

Exercise reasonable care to prevent violations of laws and standards.

Question 34

What if your firm's objectives conflict with CFP Board standards?

Answer 34

CFP Board's Code and Standards take precedence. The CFP will not punish you for breaking firm standards unless they are also standards of the CFP Board.

Question 35

What must you do if publicly disciplined by the CFP Board?

Answer 35

Notify your employer or firm within 30 days.

Question 36

What are CFP Candidates prohibited from doing?

Answer 36

Engaging in adverse conduct (felony, relevant misdemeanor, bankruptcy, tax liens). A second drig/alcohol related offense is prohibited, but a first offense will not trigger condemnation by the board.

Question 37

What must you do if subject to investigation or discipline?

Answer 37

Provide a narrative statement and cooperate with the Board.

Question 38

Can you circumvent CFP Board rules?

Answer 38

No-cannot do or assist in anything prohibited by the Board.