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Flashcards in (old) Code of Ethics and Standards of Conduct Deck (28)
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What is Financial Advice?

  • Communication reasonably viewed as a recommendation that the Client take, or refrain from taking. a course of action, like:
    • Develop or Implement a Financial Plan
    • Advising to invest (buy, sell, hold, gift) Financial Assets
    • Manage Financial Assets, IPS, portfolio mgmt
    • select Other Persons to provide financial or professional services to Client, OR
  • Exercise discretionary authority over Client's financial assets


What is Financial Planning?

  • a COLLABORATIVE process that helps MAXIMIZE a Client's POTENTIAL FOR MEETING LIFE'S GOALS through FINANCIAL ADVICE that integrates relavent elements of the Client's PERSONAL AND FINANCIAL circumstances


What are the continuing education requirements?

  • 30 hours every two years, including 2 hours of ethics
    • Practice what you know, refer what you don't know
    • Know your limitations


What is the appropriate use of the CFP marks?

  • CFP®
    • followed by: professional, certificant, practitioner, certification, mark, exam
    • do not use as part of email or website address


What are the Standards of Conduct?

A. Duties Owed to the Client

B. FP and application of The Practice Standards for the FP process

C. Practice Standards for the FP Process

D. Duties owed to the Firms and Subordinates

E. Duties Owed to the CFP Board

F. Prohibition of Circumvention


What is A1 under Standards of Conduct?

  • Fiduciary Duty
    • FD = Duty of Loyalty + Duty of Care + Duty to follow instrucitons


What is Duty of Loyalty?

  1. Place client interests above CFP and CFP Firm
  2. Avoid or disclose conflicts of interest, obtain Client's informed consent, manage conflict, and
  3. Act without regard to the interests of the CFP and CFP firm or anybody other than the Client


What is the Duty of Care?

  • Prudent Man
  • Act with care, skill, and diligence in light of client's goals, risk tolerance and objectives and financial and personal circumstances


What document must always be provided to the Client in writing?

Privacy Policy


What document can be oral or in writing?

Conflicts of interst


What has to be given in writing vs. orally/in writing for Financial Advice?

  • Writing:
    • Privacy Policy
  • Orally or in Writing
    • COI
    • Services Products
    • How you, your firm and related parties aare compensated
    • public discipline and bankruptcy
    • Referral Compensation Arrangements
    • Other material info


What has to be given in writing vs. orally/in writing for Financial Planning?

In one or more written documents:


  • Privacy Policy
  • Services Products

  • How the Client Pays

  • How you, your Firm and related parties are compensated

  • Public Discipline and Bankruptcy

  • Referral Compensation Arrangements


    • Implementing, Monitoring and Updated is required unless explicitly excluded

  • Other Material Info

Orally or in Writing

  • Material Conflicts of Interest


What type of compensation is a fee-only advisor NOT allowed to receive?

  • 12b-1 fees
  • Transaction fees
  • Revenue sharing
  • Referral Fees


What are the Practice Standards for the FP Process?

Uber Is A Drunk Person's Immediate Motor vehicle

  1. Understanding the Client's Personal and Financial Circumstances
  2. Identifying and Selecting Goals
  3. Analyze the client's current course of action and potential alternative courses of action
  4. Developing and Presenting the FP recommendations
  5. Presenting the FP recommendations
  6. Implementing the FP recs
  7. Monitoring the Plan


What are the key words for Fiduciary Duty?


What are the test tips?

Duty of Loyalty, Duty of Care, Follow Instructions


  • Tips:
    • Any recommendations regarding financial assets must be made as a fiduciary.
    • Client Needs > Financial Planner Interests
    • All compensation and business models


What are the key words for Integrity?


What are the test tips?

Honesty, Upstanding, Candor
Test Tips:
  • Allows for innocent mistakes and differences of opinion
  • Do not commit fraud, deceive or violate the spirit of the rules


What are the key words for Competence?


What are the test tips?

Relevantly Apply Knowledge
  • Test Tips
    • A CFP® Professional does not have to master all areas of planning.
    • Gain competence, obtain assistance, limit the engagement or refer if competence is lacking


What are the key words for Diligence?


What are the test tips?

Active Consent, Disclosure, Manage, Material Conflict, Ambiguity
Test Tips
  • Consent does not need to be in writing
  • Larger potential for harm, greater the need for disclosure
  • Ambiguity on the side of the client
  • Assume financial conflicts are material


What are the key words for Sound and Objective Professional Judgment?


What are the test tips?

Exercise judgment, not subordinated


Test Tips

  • Do not accept or solicit gifts that could influence judgment
  • Fruit Basket Yes; Ferrari No


What are the key words for Professionalism?


What are the test tips?

Dignity, Courtesy and Respect
Test tips:
  • Applies to Clients, Potential Clients and other Financial Pro-fessionals



What are the key words for Comply with the Law?


What are the test tips?

Laws, Rules, Regulations, Standards


Test Tips:

  • Avoid intentionally or recklessly violating laws, rules, regulations or standards
  • Recklessly can apply to making poor referrals


What are the key words for Confidentiality and Privacy?


What are the test tips?

Consent, Ordinary Business, Legal and Enforcement Purposes, Policies
Test Tips
  • Client consent does not need to be in writing
  • No absolute confidentiality
  • “Ordinary Business” requires consent
  • “Legal and Enforcement Purposes” does not require consent
  • Must have policies and process to protect Confidentiality, deliver in writing at or before engagement and every 12 months if they change
  • Carve out on policy delivery for Regulation S-P; B/D, Fed-eral Covered RIAs


What are the key words for Provide Information to a Client?


What are the test tips?

Financial Advice, Financial Planning


Test Tips:

  • Financial Advice requires seven elements (Description, Pay, Compensation, Bankruptcies/Regulatory Events, Conflicts of Interest, Economic Benefit ofReferrals, Other Material Information)
  • Financial Planning all of the above and Scope ofEngage-ment, Limitations and Responsibilities.
  • Monitoring is assumed unless excluded from the scope of engagement.


What are the key words for Communicating with a Client?


What are the test tips?

Reasonable, Expected to Understand, Avoid Complexity


Test Tips:

  • Ensure Client Understanding
  • Consider multiple forms of communication


What are the key words Duties when Representing Compensation?


What are the test tips?

Fee-Only, Fee-Based, Sales Related Compensation, Soft Dollars, Non-Monetary Benefits, Related Party
Test Tips
  • Fee-Only generally means direct fees charged to clients or as a percentage of financial assets
  • $.01 ofSales Related Compensation eliminates the ability to use “Fee-Only”
  • 12b-1 Fees are specifically stated as Sales Related Compensation
  • Control and compensation from a related party earning Sales Related Compensation eliminates the ability to use “Fee-Only” with a few carve outs.
  • “Fee Based” = Fees & Sales Related Compensation
  • Soft Dollars (research or speaking services supplied by an investment company or B/D) are not sales related compensation


What are the key words Recommending, Engaging or Working with Additional Persons?


What are the test tips?

Reasonable Basis, Reputation, Experience, Qualifications, Disclosure, Reasonable Care


Test Tips:

  • This standard requires referring on the basis of reputation, experience and qualifications.
  • Provide disclosure ifpaid a referral fee or given a substan-tial economic benefit.
  • Fruit Basket = No. $1,000 Check = Yes


What are the key words for Selecting and using Technology?


What are the test tips?

Reasonable Care and Judgment, Level of Understanding


Test Tips:

  • Understand calculations and assumptions
  • Understand Monte Carlo simulation
  • Be able to change assumptions


What are the key words for Refrain from Borrowing or Lending Money and Commingling?


What are the test tips?

Commingle, Client Assets, Borrow, Lend


Test Tips:

  • Client lending/borrowing generally prohibited
  • Exception family members, businesses who lend/borrow
  • CFP® Professional or their employer cannot commingle with client assets