©2015, College for Financial Planning, all rights reserved.

Session 3Code of EthicsRules of ConductFiduciary RelationshipsDisciplinary Procedures

CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMFinancial Planning Process & Insurance

Session Details

Module 2

Chapter(s)

2

LOs 2-3 Analyze ethical issues that affect financial planners.

3-2

The CFP Board comprehensive exam tests heavily on ethics and the financial planning process. Be sure that you are completely familiar with this material.

Purpose of the CFP Board’s Code of Ethics

• Standards for professional conduct in the financial services industry.

• Designed to protect the public against fraudulent or unethical practices.

• Not rules of law, though they are based in the rule of law.

• Express ethical and professional ideals expected from participants in professional activities.

3-3

CFP Board’s Code of Ethics & Professional Responsibility

Principles of the Code:• Integrity• Objectivity• Competence• Fairness• Confidentiality• Professionalism• Diligence

3-4

Purpose of the CFP Board’s Rules of Conduct

• The Rules of Conduct describe the level of professionalism required.

• The Rules of Conduct delineate the standard of professional behavior expected.

• Some rules may not be applicable to a certificant’s specific activity.

• Violations of the Rules of Conduct may subject a certificant or registrant to discipline.

• The rules are not designed to be a basis for legal liability to any third party.

3-5

CFP Board’s Rules of Conduct

What are the Rules of Conduct?

• defining the relationship with the prospective client or clients

• information disclosed to prospective client and clients

• prospective client and client information and property

• obligations to prospective clients and clients

• obligations to employers

• obligations to CFP Board

3-6

CFP Board Defines Fiduciary

The CFP Board has set forth a definition of themeaning of fiduciary as follows:

• Financial planning services should be delivered to the public with fiduciary accountability and transparency.

• Serving the client's best interest first and always.Certificants owe clients the duty of care of afiduciary as defined by CFP Board (Rules of Conduct 1.4).

3-7

Fiduciary Duties of CFP Professionals

• Certificants providing material elements of financial planning owe the clients a fiduciary duty.

• Financial planners have a fiduciary relationship with clients, and there is no greater level of fiscal responsibility.

• As a fiduciary, if improper or inappropriate advice is given, the client may recover damages in legal action.

• CFP Board Rules of Conduct in defining “fiduciary” specific to CFP professionals seek to remove potential legal action.

3-8

Discipline: Process & Procedures

The disciplinary procedures ensure a fair and reasonable process for those against whomallegations of Code of Ethics violations and/orPractice Standards non-compliance are

brought.• Request for Investigation • Investigation• Probable Cause Determination• Hearing Panel• Disciplinary and Ethics Commission• Appeals Committee

3-9

Grounds for Discipline

Misconduct by a CFP® professional, including the following acts oromissions, constitutes grounds for discipline:

• violates the CFP Board’s Code of Ethics and Professional Responsibility

• fails to comply with CFP Board’s Financial Planning Practice Standards

• violates the criminal laws of the U.S. or any state

• any act as the basis for suspension of a professional license

• violates CFP Board's Disciplinary Rules & Procedures

• failure to respond to a request by the Disciplinary and Ethics Commission without good cause

• obstruction of the Disciplinary and Ethics Commission’s performance of its duties

• any false or misleading statement made to CFP Board

3-10

Forms of Discipline

• Private written censure—unpublished written reproach mailed to the certificant

• Public letter of admonition—a published written reproach of the certificant’s behavior

• Suspension of the right to use the CFP® marks for a specified period of time, not to exceed five years—used with certificants the Board deems can be rehabilitated

• Permanent revocation of the right to use the CFP® marks—this is a permanent denial of all rights associated with the marks, normally published

3-11

Question 1

Gary and Gabriella Gordon recently moved to your area and are meeting you for the first time. They’ve expressed a desire to have adequate funds set aside for their son’s college education in 15 years. They have a plan in place for Gilbert’s college fund established with their previous planner, a CFP® professional, and they’ve told you, as they had told him, they want to keep the money in the college fund under their control. At your second meeting, when they bring in the plan document for Gilbert’s college fund, you notice the plan their previous planner set up for them is an UGMA. What principle of the CFP Board Code of Ethics has the Gordons’ previous planner violated?

a. competenceb. fairnessc. objectivityd. confidentiality 3-12

Question 2

You have been working with this client for many years. The client calls and seems to be confused. She asks you to perform a trade that just yesterday she said not to do. She wants the proceeds transferred to the account that her caretaker has access to. When you ask her why, she just says the caretaker told her that account needs more money. What can you do?

a.contact one of the grown children and express concern

b.place the trade but call her attorney

c.do not place the trade and call her doctor

d.place the trade and contact the state department and report suspected abuse

e.wait until the next day and call the client to reconfirm

3-13

Question 3Harry Harris, CFP, owns a planning firm with $8 million under management. CFP Board recently told Harry his rights to use the CFP® marks were suspended for six months. Harry immediately removed the marks from his stationery, business cards, and website. Thirty calendar days before the suspension was over, Harry filed an affidavit with the Board stating that he had fully complied with the terms of the suspension, then immediately added the marks back. Did Harry violate any Rules of Conduct?

a. No, he immediately removed the marks from all aspects of his business.

b. Yes, Harry must wait for written confirmation that the suspension has ended before adding the marks back to his business.

c. Yes, Harry did not notify his employees that his right to use the marks had been suspended.

d. Yes, Harry did not notify his existing clients that his right to use the marks had been suspended.

3-14

Question 4

Which of the following is the primary reason that CFP Board simply doesn’t say that all CFP® professionals are fiduciaries?a. CFP Board recognizes different definitions of

fiduciary responsibility among financial planning services.

b. Some CFP® professionals are not involved in providing financial planning services to clients.

c. Though all financial planning services are of a fiduciary nature, some firms do not wish their representatives to take on the title of fiduciary.

d. Not all financial planning services require a high duty of care.

3-15

Question 5

Bernie made off with 5% of his clients’ accounts and was convicted for the act. At a hearing with the CFP Board’s Hearing Panel, Bernie makes a $100,000 settlement offer. Bernie’s settlement offer details his embezzlement, his admission that he did indeed commit the crime in question, and an apology. Bernie proposes that the Board suspend his marks for one year instead of revoking his right to use the credentials. Which of the following is not allowable in response to Bernie’s offer?

a. The Commission rejects Bernie’s offer and revokes Bernie’s right to use the CFP® marks.

b. The Commission accepts Bernie’s offer.

c. Subject to final approval by the Commission, the Hearing Panel counters, offering to suspend Bernie’s right to use the mark for 10 years instead of the one year Bernie proposed.

d. The Hearing Panel makes a counteroffer: Bernie must pay a fine of $200,000 and the suspension will run for one year. 3-16

©2015, College for Financial Planning, all rights reserved.

Session 3End of Slides

CERTIFIED FINANCIAL PLANNER CERTIFICATION PROFESSIONAL EDUCATION PROGRAMFinancial Planning Process & Insurance