Ethics and Standards of Conduct Flashcards
CODE OF ETHICS
A CFP® professional must:
1. Act with honesty, integrity, competence, and diligence.
2. Act in the client’s best interests.
3. Exercise due care.
4. Avoid or disclose and manage conflicts of interest.
5. Maintain the confidentiality and protect the privacy of client information.
6. Act in a manner that reflects positively on the financial planning profession and CFP® certification.
DUTIES OWED TO CLIENTS
- FIDUCIARY DUTY
At all times when providing Financial Advice to a Client, a CFP® professional must act as a fiduciary, and
therefore, act in the best interests of the Client. The following duties must be fulfilled:
a. Duty of Loyalty. A CFP® professional must:
i. Place the interests of the Client above the interests of the CFP® professional and the CFP®
Professional’s Firm;
ii. 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
iii. 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.
b. Duty of Care. 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.
c. Duty to Follow Client Instructions. A CFP® professional must comply with all objectives, policies,
restrictions, and other terms of the Engagement and all reasonable and lawful directions of the
Client.
INTEGRITY
a. A CFP® professional must perform Professional Services with integrity. Integrity demands honesty
and candor, which may not be subordinated to personal gain or advantage. Allowance may be made
for innocent error and legitimate differences of opinion, but integrity cannot co-exist with deceit or
subordination of principle.
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b. A CFP® professional may not, directly or indirectly, in the conduct of Professional Services:
i. Employ any device, scheme, or artifice to defraud;
ii. Make any untrue statement of a material fact or omit to state a material fact necessary in order
to make the statements made, in the light of the circumstances under which they were made, not
misleading; or
iii. Engage in any act, practice, or course of business which operates or would operate as a fraud or
deceit upon any person
COMPETENCE
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 required under the Engagement, 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. The CFP® professional
shall describe to the Client any requested Professional Services that the CFP® professional will not be
providing.
DILIGENCE
A CFP® professional must provide Professional Services, including responding to reasonable Client
inquiries, in a timely and thorough manner.
DISCLOSE AND MANAGE CONFLICTS OF INTEREST
a. Disclose Conflicts. When providing Financial Advice, a CFP® professional must make full
disclosure of all Material Conflicts of Interest with the CFP® professional’s Client that could affect
the professional relationship. This obligation requires the CFP® professional to provide the Client
with sufficiently specific facts so that a reasonable Client would be able to understand the CFP®
professional’s Material Conflicts of Interest and the business practices that give rise to the conflicts,
and give informed consent to such conflicts or reject them. A sincere belief by a CFP® professional
with a Material Conflict of Interest that he or she is acting in the best interests of the Client is
insufficient to excuse failure to make full disclosure.
i. A CFP® professional must make full disclosure and obtain the consent of the Client before
providing any Financial Advice regarding which the CFP® professional has a Material Conflict of
Interest.
ii. In determining whether the disclosure about a Material Conflict of Interest provided to the Client
was sufficient to infer that a Client has consented to a Material Conflict of Interest, CFP Board will
evaluate whether a reasonable Client receiving the disclosure would have understood the conflict
and how it could affect the advice the Client will receive from the CFP® professional. The greater
the potential harm the conflict presents to the Client, and the more significantly a business
practice that gives rise to the conflict departs from commonly accepted practices among CFP®
professionals, the less likely it is that CFP Board will infer informed consent absent clear evidence
of informed consent. Ambiguity in the disclosure provided to the Client will be interpreted in favor
of the Client.
iii. Evidence of oral disclosure of a conflict will be given such weight as CFP Board in its judgment
deems appropriate. Written consent to a conflict is not required.
b. Manage Conflicts. A CFP® professional must adopt and follow business practices reasonably
designed to prevent Material Conflicts of Interest from compromising the CFP® professional’s ability
to act in the Client’s best interests.
SOUND AND OBJECTIVE PROFESSIONAL JUDGMENT
A CFP® professional must exercise professional judgment on behalf of the Client that is not subordinated
to the interest of the CFP® professional or others. A CFP® professional may not solicit or accept any
gift, gratuity, entertainment, non-cash compensation, or other consideration that reasonably could be
expected to compromise the CFP® professional’s objectivity.
PROFESSIONALISM
A CFP® professional must treat Clients, prospective Clients, fellow professionals, and others with dignity, courtesy, and respect.
COMPLY WITH THE LAW
a. A CFP® professional must comply with the laws, rules, and regulations governing Professional
Services.
b. A CFP® professional may not intentionally or recklessly participate or assist in another person’s
violation of these Standards or the laws, rules, or regulations governing Professional Services.
CONFIDENTIALITY AND PRIVACY
a. A CFP® professional must keep confidential and may not disclose any non-public personal
information about any prospective, current, or former Client (“client”), except that the CFP®
professional may disclose information:
i. For ordinary business purposes:
a) With the client’s consent, so long as the client has not withdrawn the consent;
b) To a CFP® Professional’s Firm or other persons with whom the CFP® professional is providing
services to or for the client, when necessary to perform those services;
c) As necessary to provide information to the CFP® professional’s attorneys, accountants, and
auditors; and
d) To a person acting in a representative capacity on behalf of the client;
ii. For legal and enforcement purposes:
a) To law enforcement authorities concerning suspected unlawful activities, to the extent
permitted by the law;
b) As required to comply with federal, state, or local law;
c) As required to comply with a properly authorized civil, criminal, or regulatory investigation or
examination, or subpoena or summons, by a governmental authority;
d) As necessary to defend against allegations of wrongdoing made by a governmental authority;
e) As necessary to present a civil claim against, or defend against a civil claim raised by, a client;
f) As required to comply with a request from CFP Board concerning an investigation or
adjudication; and
g) As necessary to provide information to professional organizations that are assessing the CFP®
professional’s compliance with professional standards.
b. A CFP® professional may not use any non-public personal information about a client for his or her
direct or indirect personal benefit, whether or not it causes detriment to the client, unless the client
consents.
c. A CFP® professional, either directly or through the CFP® Professional’s Firm, must take reasonable
steps to protect the security of non-public personal information about any client, including the
security of information stored physically or electronically, from unauthorized access that could result
in harm or inconvenience to the client.
d. A CFP® professional, either directly or through the CFP® Professional’s Firm, must adopt and
implement policies regarding the protection, handling, and sharing of a client’s non-public personal
information and must provide a client with written notice of those policies at the time of the
Engagement and thereafter not less than annually (at least once in any 12-month period) unless (i)
the CFP® professional’s policies have not changed since the last notice sent to a client; and (ii) the
CFP® professional does not disclose non-public personal information other than as permitted without
a client’s consent.
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e. A CFP® professional shall be deemed to comply with this Section if the CFP® Professional’s Firm is
subject to, and the CFP® professional complies with, Regulation S-P under the federal securities laws
or substantially equivalent federal or state laws or rules.
PROVIDE INFORMATION TO A CLIENT
a. When Providing Financial Advice. When providing or agreeing to provide Financial Advice that
does not require Financial Planning in accordance with the Practice Standards, a CFP® professional
must provide the following information to the Client, prior to or at the time of the Engagement, and
document that the information has been provided to the Client:
i. A description of the services and products to be provided;
ii. How the Client pays for the products and services, and a description of the additional types of
costs that the Client may incur, including product management fees, surrender charges, and sales
loads;
iii. How the CFP® professional, the CFP® Professional’s Firm, and any Related Party are compensated
for providing the products and services;
iv. The existence of any public discipline or bankruptcy, and the location(s), if any, of the webpages
of all relevant public websites of any governmental authority, self-regulatory organization, or
professional organization that sets forth the CFP® professional’s public disciplinary history or any
personal bankruptcy or business bankruptcy where the CFP® professional was a Control Person;
v. The information required under Section A.5.a. (Conflict of Interest Disclosure);
vi. The information required under Section A.9.d. (Written Notice Regarding Non-Public Personal
Information);
vii. The information required under Section A.13.a.ii. (Disclosure of Economic Benefit for Referral or
Engagement of Additional Persons); and
viii.Any other information about the CFP® professional or the CFP® Professional’s Firm that is
Material to a Client’s decision to engage or continue to engage the CFP® professional or the CFP®
Professional’s Firm.
b. When Providing Financial Planning. When providing or required to provide Financial Planning in
accordance with the Practice Standards, a CFP® professional must provide the following information
to the Client, prior to or at the time of the Engagement, in one or more written documents:
i. The information required to be provided in Sections A.10.a.i.-iv. and vi. -viii.; and
ii. The terms of the Engagement between the Client and the CFP® professional or the CFP®
Professional’s Firm, including the Scope of Engagement and any limitations, the period(s)
during which the services will be provided, and the Client’s responsibilities. A CFP®
professional is responsible for implementing, monitoring, and updating the Financial Planning
recommendation(s) unless specifically excluded from the Scope of Engagement.
c. Updating Information. A CFP® professional has an ongoing obligation to provide to the Client any
information that is a Material change or update to the information required to be provided to the
Client. Material changes and updates to public disciplinary history or bankruptcy information must
be disclosed to the Client within ninety (90) days, together with the location(s) of the relevant
webpages.
DUTIES WHEN COMMUNICATING WITH A CLIENT
A CFP® professional must provide a Client with accurate information, in accordance with the
Engagement, and in response to reasonable Client requests, in a manner and format that a Client
reasonably may be expected to understand.
DUTIES WHEN REPRESENTING COMPENSATION METHOD
A CFP® professional may not make false or misleading representations regarding the CFP® professional’s
or the CFP® Professional’s Firm’s method(s) of compensation.
a. Specific Representations
i. Fee-Only. A CFP® professional may represent his or her or the CFP® Professional’s Firm’s
compensation method as “fee-only” only if:
a) The CFP® professional and the CFP® Professional’s Firm receive no Sales-Related
Compensation; and
b) Related Parties receive no Sales-Related Compensation in connection with any Professional
Services the CFP® professional or the CFP® Professional’s Firm provides to Clients.
ii. Fee-Based. CFP Board uses the term “fee and commission” to describe the compensation
method of those who receive both fees and Sales-Related Compensation. A CFP® professional
who represents that his or her or the CFP® Professional’s Firm’s compensation method is “feebased” or any other similar term that is not fee-only:
a) May not use the term in a manner that suggests the CFP® professional or the CFP®
Professional’s Firm is fee-only; and
b) Must clearly state that either the CFP® professional or the CFP® Professional’s Firm earns fees
and commissions, or that the CFP® professional or the CFP® Professional’s Firm are not feeonly.
b. Sales-Related Compensation. Sales-Related Compensation is more than a de minimis economic
benefit, including any bonus or portion of compensation, resulting from a Client purchasing or selling
Financial Assets, from a Client holding Financial Assets for purposes other than receiving Financial
Advice, or from the referral of a Client to any person or entity other than the CFP® Professional’s
Firm. Sales-Related Compensation includes, for example, commissions, trailing commissions, 12b-1
fees, spreads, transaction fees, revenue sharing, referral or solicitor fees, or similar consideration.
Sales-Related Compensation does not include:
i. Soft dollars (any research or other benefits received in connection with Client brokerage that
qualifies for the “safe harbor” of Section 28(e) of the Securities Exchange Act of 1934);
ii. Reasonable and customary fees for custodial or similar administrative services if the fee or
amount of the fee is not determined based on the amount or value of Client transactions;
iii. Non-monetary benefits provided by another service provider, including a custodian, that benefit
the CFP® professional’s Clients by improving the CFP® professional’s delivery of Professional
Services, and that are not determined based on the amount or value of Client transactions;
iv. Reasonable and customary fees for Professional Services, other than for solicitations and referrals,
the CFP® professional or CFP® Professional’s Firm provides to a Client that are collected and
distributed by another service provider, including under a Turnkey Asset Management Platform; or
v. A fee the Related Party solicitor receives for soliciting clients for the CFP® professional or the
CFP® Professional’s Firm.
c. Related Party. A person or business entity (including a trust) whose receipt of Sales-Related
Compensation a reasonable CFP® professional would view as directly or indirectly benefiting the
CFP® professional or the CFP® Professional’s Firm, including, for example, as a result of the CFP®
professional’s ownership stake in the business entity. There is a rebuttable presumption that a
Related Party includes:
i. Family Members. A member of the CFP® professional’s Family and any business entity that the
Family or members of the Family Control; and
ii. Business Entities. A business entity that the CFP® professional or the CFP® Professional’s Firm
Controls, or that is Controlled by or is under common Control with, the CFP® Professional’s Firm.
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d. In Connection with any Professional Services. Sales-Related Compensation received by a Related
Party is “in connection with any Professional Services” if it results, directly or indirectly, from Client
transactions referred or facilitated by the CFP® professional or the CFP® Professional’s Firm.
e. Safe Harbor for Related Parties. Sales-Related Compensation received by a Related Party is not
“in connection with any Professional Services” if the CFP® professional or the CFP® Professional’s
Firm adopts and implements policies and procedures reasonably designed to prevent the CFP®
professional or the CFP® Professional’s Firm from recommending that any Client purchase Financial
Assets from or through, or refer any Clients to, the Related Party.
f. Misrepresentations by a CFP® Professional’s Firm. A CFP® professional who Controls the CFP®
Professional’s Firm may not allow the CFP® Professional’s Firm to make a representation of
compensation method that would be false or misleading if made by the CFP® professional. A CFP®
professional who does not Control the CFP® Professional’s Firm must correct a CFP® Professional’s
Firm’s misrepresentations of compensation method by accurately representing the CFP®
professional’s compensation method to the CFP® professional’s Clients.
DUTIES WHEN RECOMMENDING, ENGAGING, AND WORKING WITH ADDITIONAL PERSONS
a. When engaging or recommending the selection or retention of additional persons to provide
financial or Professional Services for a Client, a CFP® professional must:
i. Have a reasonable basis for the recommendation or Engagement based on the person’s
reputation, experience, and qualifications;
ii. Disclose to the Client, at the time of the recommendation or prior to the Engagement, any
arrangement by which someone who is not the Client will compensate or provide some other
material economic benefit to the CFP® professional, the CFP® Professional’s Firm, or a Related
Party for the recommendation or Engagement; and
iii. When engaging a person to provide services for a Client, exercise reasonable care to protect the
Client’s interests.
b. When working with another financial or Professional Services provider on behalf of a Client, a CFP®
professional must:
i. Communicate with the other provider about the scope of their respective services and the
allocation of responsibility between them; and
ii. Inform the Client in a timely manner if the CFP® professional has a reasonable belief that the other
provider’s services were not performed in accordance with the scope of services to be provided
and the allocation of responsibilities.
DUTIES WHEN SELECTING, USING, AND RECOMMENDING TECHNOLOGY
a. A CFP® professional must exercise reasonable care and judgment when selecting, using, or
recommending any software, digital advice tool, or other technology while providing Professional
Services to a Client.
b. A CFP® professional must have a reasonable level of understanding of the assumptions and
outcomes of the technology employed.
c. A CFP® professional must have a reasonable basis for believing that the technology produces
reliable, objective, and appropriate outcomes.
