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
• A written agreement is not
• required (Rule 1.3)
•
•
•
•
•
•
•
Disclosures may be made orally
or in writing (Rule 2.2)
Duty to place client interest ahead
of certificant’s own (Rule 1.4)
YES
A written agreement is required
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 must be in writing
(Rule 2.2)
Duty of fiduciary as defined by CFP
Board (Rule 1.4)
End of Topic 76