Professional Conduct and Fiduciary Responsibility

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.

Duty to Follow Client Instructions

A CFP® professional must comply with the terms of the client engagement and follow all directions of the client that are reasonable and lawful.

Examples of Relative Elements

Developing client goals Managing assets and liabilities Managing cash flow Identifying and managing risks

The 3 Duties of fiduciary responsibility

I. Duty of Loyalty II. Duty of Care III. Duty to Follow

The 3 different standards of fiduciary duty

1. Department of Labor (DOL) fiduciary standard 2. Registered investment advisor (RIA) fiduciary standard 3. Registered representatives (RRs) and agents suitability standard

Duty of Loyalty

A CFP® professional must place the interests of the client above the interests of the CFP® professional and the CFP® professional's firm. A CFP® professional also must avoid conflicts of interest, or fully disclose material conflicts of interest to the client, obtain the client's informed consent, and manage the conflict.

6. Which of the following correctly states the duty of care that a CFP® certificant owes clients according to Standard A.1, Fiduciary Duty? A. The CFP® certificant must always do what is suitable for the client based upon thoroughly gathering relevant data from the client. B. A CFP® certificant shall at all times place the interests of the client ahead of his or her own. When the CFP® certificant provides financial planning or material elements of financial planning, the certificant owes to the client the duty of care of a fiduciary as defined by the CFP Board. C. The CFP® certificant and the prospective client or client shall mutually agree upon the services to be provided. D. A CFP® certificant owes to the client the duty of care of a fiduciary as defined by the CFP Board at all times.

B The answer is the certificant shall at all times place the interests of the client ahead of his or her own. When the certificant provides financial planning or material elements of financial planning, the certificant owes to the client the duty of care of a fiduciary as defined by the CFP Board. According to Standard A.1 (Fiduciary Duty), 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.

7. Identify the transgressions that are presumed to be unacceptable according to the CFP Board's Fitness Standards. I. Felony conviction for tax fraud or other tax-related crimes II. Felony conviction for nonviolent crimes (including perjury) within the last five years III. Revocation of a financial professional license that is administrative in nature IV. Two or more personal or business bankruptcies A. I and II B. I and III C. II and IV D. I, II, and IV

C The answer is II and IV. Statement I and Statement III are incorrect. Fitness Standards are set in two categories: (1) conduct that is unacceptable and will always bar an individual from being certified, and (2) conduct that is presumed unacceptable and will bar the individual unless the individual petitions the Disciplinary and Ethics Commission for reconsideration. Conduct that will always bar an individual includes felony convictions for theft, embezzlement, or tax fraud; revocation of a financial professional license (other than revocation for failure to pay fees); or felony conviction for murder, rape, or any violent crime within the last five years. Conduct deemed to be a presumptive bar includes a felony conviction for nonviolent crimes within the past five years or two or more personal or business bankruptcies (regardless of the timeframe). Felony conviction for tax fraud or other tax-related crimes is considered unacceptable conduct and will always bar an individual from becoming certified. Revocation of a financial professional license that is administrative in nature does not impact an individual's certification prospects.

Select the subgroup of the board of directors that is responsible for reviewing an appeal. A) Appeals committee B) Hearing and appeals panel C) Disciplinary and Ethics Commission D) CFP Board counsel

The answer is Appeals Committee. The Appeals Committee of the Board of Directors will review all appeals. CFP Board must identify the Appeals Committee members in the Notice of Appeal Hearing. 6.2.2

Identify the group responsible for reviewing petitions for consideration for a presumptive bar determination. A) Disciplinary and Ethics Commission B) Hearing Panel C) CFP Board Counsel D) Appeals Committee

The answer is Disciplinary and Ethics Commission. The Disciplinary and Ethics Commission is responsible for reviewing petitions for consideration submitted for individuals receiving a presumptive bar. 6.2.1

After delivering a Notice of Investigation and conducting an investigation, if CFP Board Counsel finds probable cause, CFP Board Counsel must take any one of the following actions EXCEPT A) Evidence of Compliance B) Settlement Offer C) Letter of Dismissal D) Complaint

The answer is Evidence of Compliance. If CFP Board Counsel finds probable cause, CFP Board Counsel must take one of the following actions: 1. Letter of Dismissal 2. Settlement Offer 3. Complaint 6.2.2

Select the Standard that CFP Board has identified as the "cornerstone of the Code and Standards." A) Professionalism B) Integrity C) Diligence D) Fiduciary Duty

The answer is Fiduciary Duty. The cornerstone of the Code and Standards is the 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. 6.1.3

Identify the form(s) of unacceptable conduct that will always bar an individual from becoming certified, according to CFP Board's Fitness Standards. I. Felony conviction for tax fraud or other tax-related crimes II. Felony conviction for any violent crime within the last five years III. Revocation of a financial professional license that is administrative in nature IV. Two or more personal or business bankruptcies A) I and III B) I and II C) II and IV D) II only

The answer is I and II. Felony conviction for tax fraud, tax-related crimes, or violent crime within the last five years is considered unacceptable conduct and will always bar an individual from becoming certified. Statement III is incorrect; revocation of a financial professional license that is administrative in nature does not impact an individual's certification prospects. Statement IV is incorrect; the conduct of CFP® candidates with two or more personal or business bankruptcies is presumed to be unacceptable, and thus bar certification, unless the Disciplinary and Ethics Commission (the Commission) reconsiders and makes a different determination after a review. 6.2.1

Identify the Integration Factors that indicate a Financial Planning Engagement is occurring. I. The number of relevant elements of the Client's personal and financial circumstances that the Financial Advice may affect II. The portion and amount of the Client's Financial Assets that the Financial Advice may affect III. The compensation structure to which the Client has agreed IV. The frequency at which Client meetings occur A) I and II B) I only C) I, II, III, and IV D) III and IV

The answer is I and II. The number of relevant elements of the Client's personal and financial circumstances that the Financial Advice may affect and the portion/amount of the Client's Financial Assets that the Financial Advice may affect are variables that help to determine whether Financial Planning is occurring. 6.1.1

The CFP Board Code of Ethics and Standards of Conduct prohibits a CFP® certificant from doing which of the following activities? I.Commingling client funds with funds of the financial planning firm II.Misleading a client III. Accepting any consideration (e.g., gift, gratuity) that might compromise the planner's objectivity IV.Using the initials RIA after his or her name A)I and IV B)I, II, and IV C)II and III D)I, II, III, and IV

The answer is I, II, III, and IV. A CFP® certificant may not commingle client funds with the funds of the financial planning firm and may not mislead a client. The CFP Board Standards of Conduct, Duties Owed to Clients, Standard A.6 (Sound and Objective Professional Judgement) prohibits accepting any consideration that might compromise the planner's objectivity. The use of the initials RIA after one's name is governed (and prohibited) by the SEC and by CFP Board. 6.1.2

Select the components of Standard A.15, Refrain from Borrowing or Lending Money and Commingling Financial Assets. I. Commingling of financial assets is prohibited. II. Borrowing and lending is allowed if the client is a family member. III. Borrowing and lending is allowed if the lender is an organization or entity in the business of lending money. IV. This standard limits indirect borrowing to family members and lending organizations. A) I, II, and III B) I, II, III, and IV C) II and III D) I and IV

The answer is I, II, and III. According to Standard A.15, CFP® professionals must refrain from borrowing or lending money. Commingling of financial assets is prohibited. Borrowing and lending is allowed if the client is a family member or if the lender is an organization or entity in the business of lending money. Statement IV is incorrect; this standard explicitly prohibits indirect borrowing. 6.1.2

The Code and Standards defines Financial Advice as "communication that would reasonably be viewed as a recommendation that the Client take or refrain from taking a particular course of action with" based on its I. content. II. context. III. concept. IV. presentation. A) I and IV B) I, II, and IV C) III and IV D) I, II, III, and IV

The answer is I, II, and IV. The Glossary of the Code and Standards defines Financial Advice as "communication that, based on its content, context, and presentation, would reasonably be viewed as a recommendation that the Client take or refrain from taking a particular course of action with." 6.1.1

Select the categories of conduct defined in the Fitness Standards. I. Conduct Deemed a Temporary Bar II. Conduct Deemed a Presumptive Bar III. Conduct Deemed Unacceptable IV. Conduct Deemed Adverse A) I and II B) II and III C) I and III D) II and IV

The answer is II and III. Conduct Deemed Unacceptable and Conduct Deemed a Presumptive Bar are the categories of conduct defined in the Fitness Standards. 6.2.1

Identify instances stated in the Procedural Rules when the CFP Board may disclose confidential information. I. To any governmental request II. If the Respondent has waived confidentiality III. Upon request of other CFP® professionals and their firms IV. In Publication of CFP Board‒imposed public discipline A) II only B) I and IV C) I, II, III, and IV D) II and IV

The answer is II and IV. Statements I and III are incorrect; CFP Board may disclose confidential information to a governmental agency or industry self-regulatory organization having appropriate jurisdiction. Other CFP® professionals and their firms are not able to access confidential information, unless the Respondent has specifically waived confidentiality. 6.2.2

Steven Winston, a CFP® certificant, is a registered investment adviser and a registered representative. He receives funds from his client to purchase XYZ Stock when the stock's price reaches a low of $13. With regard to the CFP Board's Code of Ethics and Standards of Conduct, can Steven accept these funds? A)Steven may not accept these funds, but he may allocate them to make the purchase immediately. B)Steven may accept the funds, but they cannot be commingled with the planning firm's general accounts. C)Steven may accept these funds, and he can place them in his account at the local bank, giving a receipt to his client. D)Steven may not accept these funds, and he should instruct his client that the purchase must be made by the client's stockbroker. E)Steven may accept these funds, but he must make the purchase within six months of receipt.

The answer is Steven may accept the funds, but they cannot be commingled with the planning firm's general accounts. According to the CFP Board's Standards of Conduct, a CFP® certificant who is a registered representative may accept funds from the client to perform such a transaction, but the planner must not commingle the funds with the firm's general accounts per Standard A.15 (Refrain From Borrowing or Lending Money and Commingling Financial Assets). 6.1.1

Select the sanction that is a period of time in which Respondent remains subject to the Terms and Conditions of Certification and Trademark License but is not Certified or Licensed and is prohibited from using the CFP® certification marks. A) Private Censure B) Suspension C) Public Censure D) Temporary Bar

The answer is Suspension. A Suspension is a period of time during which the Respondent remains subject to the Terms and Conditions of Certification and Trademark License but is not Certified or Licensed and is prohibited from using the CFP® certification marks. 6.2.2

Select the sanction that is a period of time in which a Respondent who currently is not a CFP® professional is prohibited from applying for or obtaining CFP® certification. A) Suspension B) Private Censure C) Public Censure D) Temporary Bar

The answer is Temporary Bar. A Temporary Bar is a period during which a Respondent who currently is not a CFP® professional is prohibited from applying for or obtaining CFP® certification. 6.2.2

According to CFP Board's Standards of Professional Conduct, which one of the following is not expected to be disclosed in writing to a client at the time a client-planner relationship is established? A)A statement of all sources of income for the CFP® certificant B)A statement of the basic philosophy of the CFP® certificant (or firm) in working with clients C)Resumes of principals and employees of a firm who are likely to provide financial planning services to the client D)A statement as to the method of compensation for the CFP® certificant

The answer is a statement of all sources of income for the CFP® certificant. A CFP® certificant is expected to provide a substantial amount of information to clients; however, all sources of income are not relevant to the relationship. A planner receiving dividends or interest, alimony or child support payments, is under no obligation to disclose that information to clients. A statement of compensation related to the planning practice is appropriate and expected. 6.2.1

CFP Board releases _________________ to summarize decisions pertaining to violation of the Code and Standards. A) disciplinary memoranda B) anonymous case histories C) practice assessments D) certification rulings

The answer is anonymous case histories. Anonymous case histories summarize decisions pertaining to violation of the Code and Standards. 6.1.2

Select the exception(s) to the Confidentiality and Privacy guidelines (Standard A.9) of the Standards of Conduct. I. Information used for ordinary business purposes (e.g., personal information necessary for an estate planning attorney to draft a will) II. Information transferred for legal and compliance purposes (e.g., subpoenas) A) I only B) Neither I nor II C) Both I and II D) II only

The answer is both I and II. Both of these are correct. A CFP® professional is required to keep confidential and protect the security of personal nonpublic information about clients; however, the Code and Standards sets forth the circumstances when confidential information may be disclosed for 1) ordinary business purposes, or for 2) legal and enforcement purposes. 6.1.2

In order to proceed with a petition for reinstatement, a Respondent must have completed all of the following except A) provided a written certification that the Respondent has read, understands, and will comply with the Code and Standards. B) paid the reinstatement fee and any outstanding costs owed to CFP Board. C) completed the suspension. D) completed a CFP Board verified Ethics continuing education (CE) course.

The answer is completed a CFP Board verified Ethics continuing education (CE) course. The Respondent's Petition must not proceed unless the Respondent has completed the suspension; provided a properly completed CFP Board Ethics Disclosure Questionnaire; provided a written certification that the Respondent has read, understands, and will comply with the Code and Standards; paid the reinstatement fee and any outstanding costs owed to CFP Board; and otherwise satisfied CFP Board's certification requirements. 6.2.2

Guy has just come into your office. He is 80 years old and has been a client for over 15 years. Guy's wife Virginia passed away about 10 years ago, and at the time you changed the beneficiaries on his life insurance policies, totaling over $2 million, to his two adult children, Anne and Allan. Today Guy is telling you that he wants to change the beneficiary on his policies to his 25-year-old fiancé, Tally. However, as Guy has been sitting in your office, he has been displaying some signs that lead you to suspect there may be some mental health issues or possibly issues of dementia. As a CFP® professional, and as Guy's planner, what should you do? A)Make the change that Guy has requested. B)Contact Guy's other advisers to determine whether any of them have seen any similar indications that might lead to a question regarding Guy's competence. C)Discreetly tell Guy that you are going to speak to his physician to ascertain his competence prior to making the requested change of beneficiary. D)Notify Guy's children prior to making any changes since they are the existing beneficiaries.

The answer is make the change that Guy has requested. In a practice one might be tempted to step in and assist in what appears to be a case of misguided beneficiary assignment and all the while act with Guy's best interest in mind. However, any of the actions other than carrying out the requested beneficiary change would constitute a breach of confidentiality as indicated in the principles of the Code of Ethics and provisions set forth in the Standards of Conduct. 6.1.1

Justin is a CFP® certificant working at a large financial planning firm. After attending a professional function with an open bar, Justin began driving home. A police officer pulled him over almost immediately and arrested him for driving under the influence. Justin did not reveal the incident to anyone when he returned to work on Monday. Did Justin violate any Rules of Conduct? A)Yes, a certificant must notify the board in writing of any offense involving alcohol or drugs within 30 calendar days after the date of the offense. B)Yes, a certificant must notify his employer, clients, and the board in writing of any offense involving alcohol or drugs within 30 calendar days after the date of the offense. C)No, Justin has not been convicted of the offense and is presumed innocent until proven guilty. D)No, a DUI is not an offense that involves dishonesty and therefore there is no obligation to report the incident.

The answer is no, Justin has not been convicted of the offense and is presumed innocent until proven guilty. According to Rule 6.4, "a certificant shall notify CFP Board in writing of any conviction of a crime, except misdemeanor traffic offenses or traffic ordinance violations unless such offense involves the use of alcohol or drugs, or of any professional suspension or bar within ten (10) calendar days after the date on which the certificant is notified of the conviction, suspension or bar." This rule is repeated in Article 12.2 of the Disciplinary Rules and Procedures. 6.2.1

CFP Board's Fitness Standards apply to all of the following except A) practicing CFP® professionals. B) individuals who are eligible to reinstate their certification without being required to pass the current CFP® Certification Examination. C) individuals who are not currently certified but have been certified by CFP Board in the past. D) CFP® candidates.

The answer is practicing CFP® professionals. The Fitness Standards apply to CFP® candidates and Professionals Eligible for Reinstatement (PER). PER includes both individuals who are not currently certified but have been certified by CFP Board in the past and individuals who are eligible to reinstate their certification without being required to pass the current CFP® Certification Examination. 6.2.1

If CFP Board Counsel finds no probable cause following an investigation, CFP Board Counsel must do all of the following except A) provide a settlement offer. B) dismiss the investigation. C) indicate that the matter requires no further action at this time. D) reserve the right to reopen the investigation in the future.

The answer is provide a settlement offer. If CFP Board Counsel finds no probable cause, CFP Board Counsel must dismiss the investigation as not warranting further action at this time, while reserving the right to reopen the investigation in the future. A settlement offer is an option only if probable cause exists. 6.2.2

John is newly certified by the Certified Financial Planner Board of Standards and is reviewing the Standards of Professional Conduct. Which one of the following is required of CFP®certificants under the CFP Board's Standards of Professional Conduct? A)To provide timely notice to their employers and clients in the event of a promotion B)To avoid relationships that compromise their objectivity or independence C)To provide timely notice to their employers and clients in the event of resignation D)To refrain from providing references of former or current clients to prospective clients

The answer is to provide timely notice to their employers and clients in the event of resignation. The CFP Board's Standards of Professional Conduct require CFP® certificants to provide timely notice to their employers and clients in the event of their resignation. The Standards of Professional Conduct require CFP® certificants to give written notice to clients of any relationships that may compromise their objectivity and integrity, but there is not the requirement to avoid such relationships (it might be a good idea, but it is not a requirement of the Standards of Professional Conduct). CFP® certificants are permitted to use client references, with permission, for recruitment purposes and are not required to register with FINRA unless otherwise subject to securities regulation. 6.2.1

Per the Fitness Standards, identify the conduct under which an individual is eligible to submit a petition for consideration. A) Felony conviction for any other violent crime within the last five years B) Revocation of a financial professional license C) Two or more personal or business bankruptcies D) Felony conviction for tax fraud or other tax-related crimes

The answer is two or more personal or business bankruptcies. An individual with two or more personal or business bankruptcies would receive a presumptive bar, according to the guidelines of the Fitness Standards. Conduct leading to a presumptive bar is eligible for a petition for consideration. 6.2.1

Integration Factors

Variables that determine wether financial advice requires financial planning Ex: Number of relative elements involved Portion/Amount of financial assets affected Length of time the clients circumstances may be affected The effect of client's overall exposure to risk The barriers to modifying actions taken