Topic 76

CFP Board’s Code of Ethics and Professional

Responsibilities and Rules of Conduct

Topic 76: CFP Board’s Code of Ethics and Professional Responsibilities and Rules of Conduct

• Learning Objectives – Explain the Fitness Standards for Candidates and

Registrants, as revised . [See Topic 77] – Explain the seven principles of the Code of Ethics

and Professional Responsibility, which are ethical and professional ideals of CFP® professionals.

– Discuss the fiduciary standard and its importance to the planner-client relationship.

– Apply the Rules of Conduct as they relate to being a CFP® professional.

Topic 76: CFP Board’s Standards of Professional Conduct

• 5 sections of the Standards of Professional Conduct: – Code of Ethics and Professional Responsibility – Rules of Conduct – Financial Planning Practice Standards (Topic 77) – Disciplinary Rules and Procedures (Topic 78) – Candidate Fitness Standards (Topic 77)

Topic 76: Code of Ethics and Professional Responsibility

• The Code applies to all who have been authorized to use the marks CFP® and CERTIFIED FINANCIAL PLANNERTM – It also applies to those who are registered as

candidates for the CFP® and CERTIFIED FINANCIAL PLANNERTM designation

• The Code has seven basic Principles • The Rules are designed to make the general

Principles more specific

Topic 76: Principles

• Integrity – No misleading advertising or promotions, and no indications of more

than actual competency, no indication of speaking for Board • Objectivity

– Requires altruism and disclosure of conflicts of interest • Competence

– Keep up to date, C.E. mandatory, and advise only in areas of competence

• Fairness – Disclose information about the firm and its people, planner’s

compensation system, provide accounting for funds, no commingling with planner’s funds, and recommend only what is suitable

Topic 76: Principles (cont.)

• Confidentiality – Client information is confidential except where disclosure is

required by legal authority or for planner’s self-defense • Professionalism

– Use designation only in approved ways, show respect for other professionals, report unprofessional or illegal conduct of others to appropriate authorities, and do not use initials, RIA

• Diligence – Give your best service, make only suitable recommendations,

supervise the rendering of professional service

Topic 76: Principles • Trick to remember the Principles – I Can Obtain CFP® Designation • The first letter of each word

– I = Integrity – C = Competency – O = Objectivity – C = Confidentiality – F = Fairness – P = Professionalism – D = Diligence

Topic 76: Commingling of Client Funds

• Commingling is only permitted with written authorization and accurate records

Topic 76: Confidential Information

• Confidential information obtained from a client can be disclosed only when: – The client consents – Disclosure is compelled by a legal process – The CFP® certificant is required to make a

disclosure to defend against an accusation of wrongdoing

– A civil suit arises between the client and the CFP® certificant

Topic 76: Rule 1.3

• If the services include financial planning or the material elements of the financial planning process, the certificant or the certificant’s employer shall enter into a written agreement governing the financial planning services (“Agreement”). The Agreement shall specify: – The parties to the Agreement – The date of the Agreement and its duration – How and on what terms each party can terminate the

Agreement – The services to be provided as part of the Agreement

Topic 76: Factors Used to Determine if a Planner is Practicing Financial Planning

• Four factors used to determine if a planner is practicing financial planning or the material elements of financial planning – Client’s understanding and intent – Comprehensiveness of data-gathering – Breadth and depth of recommendations – Degree to which multiple subject areas are

involved

Topic 76: Rule 2.2 • A certificant shall disclose to a prospective client or client the

following information: – Description of compensation, including the terms under which the

certificant or certificant’s employer may receive any other sources of compensation and what those payments are based on

– Conflicts of interest – Material information that could reasonably be expected to affect

the client’s decision to engage the certificant, including information about the certificant’s areas of expertise

– Contact information for certificant and employer – If the services include financial planning or the material elements

of financial planning, these disclosures must be in writing • The certificant shall disclose to the client any material

changes to the above information in a timely manner

Topic 76: Disclosing Compensation • Compensation is “any non-trivial economic benefit, whether

monetary or non-monetary, that a certificant or related party receives or is entitled to receive for providing professional activities.” – Including first year commissions, renewal commissions in subsequent

years, 12b-1 fees, and compensation that may result from a client referral agreement.

• Acceptable descriptions of compensation include “fee only”, “commission only”, or “fee and commission” – “fee-base” and “salary” are not considered accurate descriptions – Commission includes: 12b-1 fees, trailing commissions, surrender

charges, contingent deferred sales charges, and compensation that may result from a client referral agreement

– If the CFP® certificant or employer is entitled (has the ability) to receive commission of any form, the term “fee only” may not be used

Topic 76: Duty of Care

• CFP Board's base-line duty of care requires that all CFP® certificants place the interest of the client ahead of his or her own.

• If the engagement falls into the definition of practicing financial planning or the material elements of financial planning, the CFP® certificant is held to the duty of care of a fiduciary as defined by CFP Board – “One who acts in utmost good faith, in a manner he or she

reasonably believes to be in the best interest of the client.”

Topic 76: Understanding the Rules • Are you practicing financial planning or the material elements of financial

planning? NO YES

• A written agreement is not A written agreement is required • required (Rule 1.3) and must include:

1. The parties to the Agreement • 2. Date and duration of the Agreement • 3. How and on what terms the

Agreement can be terminated • 4. Services to be provided (Rule 1.3) • Disclosures may be made orally Disclosures must be in writing• or in writing (Rule 2.2) (Rule 2.2) • Duty to place client interest ahead Duty of fiduciary as defined by CFP• of certificant’s own (Rule 1.4) Board (Rule 1.4)

End of Topic 76