Ethics - Practice Standards

Question 1

what are the standards

Answer 1

each series fits with each step of the process
Process Practice Standards (steps)
1 Establish Relationship 100 - Define engagement scope
2 Gather data 200 Gather
3 Analyze/ evaluate 300
4 Develop/ present 400
5 Implement plan 500
6 Monitor 600

Question 2

What do the Practice standards do

Answer 2

1 establish a level of expected professionalism
2 advance professionalism in the planning practice
3 enhance the value of personal financial planning
4 reduce liability exposure by following the code of ethics and the practice standards
in sum, establish guidelines for a financial planning engagement

Question 3

First process - Establish and define the client relationship
first standard = Define the scope of the engagement
what happens here?

Answer 3

1 Identify services provided (and what is NOT provided)
2 Conflicts of interest are disclosed (if material)
3 Compensation arrangements disclosed
4 Client definition (individual, couple, business…)
where does our duty of loyalty apply?
if retirement plan, seems like employer, but, individual employee duty applies too
5 Capability GAPS - bring in other pros or farm it out
6 MUTUALLY Define scope and limit
(both client AND planner)

Question 4

2nd Process - Gathering Client Data

2 Standards- First standard = 200-1 - Determining Client’s personal financial Goals, Needs and Priorities

Answer 4

• the client’s personal and financial goals, needs and priorities that are relevant to the scope MUST be defined BEFORE recommendations are made or implemented.
• Plan most include 4 components:
  1 Financial Statements
  2 Risk Management Assessment
  3 Needs assessments fro education and retirement
  4 compliance with income and estate taxation
• Ok to have a LIMITED engagement, but, may still need other info (e.g. retirement assets, risk assessment, income…)
• Actively Listen and be engaged with the client

*

Question 5

2nd Process - Gathering Client Data
2 Standards- Second standard = 200-2 - Obtain QUANTITATIVE info and docs relevant to scope BEFORE any recommendations are made

Answer 5

Must gather info on 4 areas:
   1 Assets and Liabilities
   2 Dollar values
   3 Ownership titling 
   4 Contracts

Specific info includes names of owners, date of account creation, beneficiaries, contract terms….

COMMUNICATE reliance on complete/ accurate data - if incomplete or inaccurate, may have to Restrict Scope or Disengage…
To decide this, determine if you are missing material - eg missing balance sheet, that’s material, disengage, BUT, if cant find document about beneficiary, may just restrict scope rather than fully disengaging

Question 6

3rd Process - Analyzing and evaluation client’s financial status….
Standard 300-1 Analyzing and Evaluating Client’s information

Answer 6

analyze and evaluate to determine if client’s goals, needs and priorities are met by client’s resources and current course of action.

Use mutually agreed assumptions - may have to compromise, but, come to agreement

Objective analysis and eval of client helps provide:
1 Foundation for planner’s recommendation
2 Add value to the planners services
3 increases efficiency and appropriateness of recommendations
4 Protects planner from future liability issues

3 key areas to address on all engagements:
1 - Adequacy of Emergency Fund
2 - Debt Management history
3 - Risk Management analysis

Question 7

4th process = Developing and presenting financial planning recommendations
400-1 Practice Standard - Identifying and Evaluating planning alternative(s)

Answer 7

After analyzing and evaluating and prior to developing and presenting recommendations, the client must identify alternative actions and evaluate the effectiveness.

Evaluation may consider multiple assumptions and may consult other professionals… Process may result in single, multiple or no alternatives to current course

Question 8

4th process = Developing and presenting financial planning recommendations
400-2 Practice Standard - Developing the Financial Planning Recommendations

Answer 8

When evaluating which course of action to recommend, the planner should consider:

• Likely impact of most likely outcome
• Confidence/ uncertainty of the estimated outcome
• quality of evidence supporting recommendation(s)
• risk that other factors could affect expected outcome

May be necessary to recommend MODIFYING goal

Recommendations can be different, but, still MUST reasonably meet client’s goals, needs and priorities.

Question 9

4th process = Developing and presenting financial planning recommendations
400-3 Practice Standard - Presenting the financial planning recommendations

Answer 9

Purpose is to educate and persuade client to act to increase probability of achieving goals. should do 5 things:
1 Review the goals and connect to recommendations
2 review assumptions and disclose all assumptions
3 review major observations and findings
4 discuss alternatives and why less desirable than primary recommendation
5 explain why primary recommendation best matches client’s time horizon, risk tolerance, attitudes and financial situation
BE SURE WE ARE PRESENTING as OPINION, NOT FACT
might also share what would impact the recommendations - eg changes in lifestyle or economy
Should also get mutual agreement again on plan
Should also redisclose conflicts of interest