UNIT 1:
PRINCIPLES AND PRACTICES OF
FINANCIAL PLANNING
Chapter 1-3, South African Financial Planning Handbook,
2021
Learning outcome for this Unit
By the end of this unit, the learner must be able to:
1. Explain the meaning of the term ‘financial planning’.
2. Demonstrate and apply the professional attributes and skills expected from a
financial planner.
3. Discuss the importance of financial planning to a client.
4. Discuss the importance of the financial planning practice standards, in relation
to the 6-step financial planning process, as recommended by the Financial
Planning Standards Board Ltd.
5. Design the framework of a financial plan for a client, in terms of the 6-step
financial planning process and the financial planning practice standards.
6. Discuss the meaning and importance of ethics in the financial services
environment.
7. Evaluate and analyse what would be considered ethical behaviour in a financial
planning context.
8. List and describe the different codes of conduct that are relevant to the financial
planner.
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
1
Commonly used acronyms in the financial services industry:
Acronym
ADR
AI
ASISA
CISA
CO
CPD
FAIS
FIA
FICA
FISOS
FPI
FPSB
FSCA
FSP
General Code
of Conduct
KI
MLCO
MLRO
POCA
POCDATARA
PPR
RE
RDR
RI
TCF
Full description
Alternative dispute resolution
Accountable Institution
Association for Savings and Investment South Africa
Compliance Institute Southern Africa
Compliance Officer
Continuous professional development
Financial Advisory and Intermediary Services Act 37 of 2002
Financial Intermediaries Association
Financial Intelligence Centre Act 38 of 2001
Financial Services Ombud Schemes Act 37 of 2004
Financial Planning Institute of Southern Africa
Financial Planning Standards Board
Financial Services Conduct Authority
Financial Services Provider
Board Notice 80 of 2003: General code of conduct for authorised
financial services providers and their representatives
Key Individual
Money Laundering Control Officer
Money Laundering Reporting Officer
Prevention of Organised Crime Act 121 of 1998
Protection of Constitutional Democracy Against Terrorist and
Related Activities Act 33 of 2004
Policyholder Protection Rules
Regulatory examinations
Retail Distribution Review
Reporting Institution
Treating Customers Fairly
Introduction
Most of the learning outcomes in Unit 1 are designed to give some context to what it
means to be a financial planning professional, as well as the meaning of financial
planning and the financial planning process.
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
2
1.
1.1
Explain the meaning of the term ‘financial planning’
Summary
It is important to understand the meaning of ‘financial planning’, as it defines the
objectives of carrying out financial planning for clients and prevents the financial
planner from doing work in areas that are not specifically related to financial planning.
An explanation of the term also assists in clearly defining the various possible
outcomes of financial planning.
Various entities have defined financial planning. The entities with their definitions have
been listed below.
Entity
Financial Planning
Standards Board
(FPSB) 1
International
Organization for
Standardization 2
Financial Planning
Institute of Southern
Africa 3
Definition
The process of developing strategies to assist clients in managing
their financial affairs to meet life goals.
A process designed to enable a consumer to achieve his/her/their
personal financial goals.
Financial planning is the process of developing strategies to assist
clients in managing their financial affairs to meet life and financial
goals. The process of financial planning involves reviewing all the
relevant aspects of the client’s current situation and comparing them
with the client’s desired situation and designing a plan to assist the
client on this journey of financial independence.
Although the above descriptions are not identical, it represents the main elements of
financial planning:
•
•
•
•
•
Financial planning is a process that occurs throughout the lifetime of a client; it is
not a once-off event. Once the initial financial plan is in place, reviews must be
conducted on a regular basis. Should the circumstances of the client change, it is
possible that the financial planning goals of the client will also need to be
reconsidered;
Financial planning takes into account short, medium and long-term scenarios;
Each of the scenarios take into account the personal circumstances, financial
circumstances, risk profile and lifestyle goals of the client;
The process of financial planning culminates in the drafting of a financial plan, which
makes recommendations, taking into account applicable scenarios and includes
supporting explanations of why these recommendations have been made; and
The process includes the collection of relevant information, investigation and
analysis, before making the recommendations to the client with regard to the
personal financial management, asset management, risk management (including
health planning), tax planning, retirement planning and estate planning.
There is no definition of “financial planning” in the South African law. Many financial
advisors refer to themselves as financial planners even though their services do not
1
2
3
https://www.fpsb.org/about-financial-planning/
International Organization for Standardization, Reference Number ISO 22222 2005(E).
The FPI Code of Ethics and Practice Standards Incorporating the FPI Rules of Professional Conduct
are available on the FPI website.
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
3
meet the FPI description, they may have various types of relationships with product
suppliers, or their services may or may not include a recommendation to purchase a
financial product.
The FSCA, in the Retail Distribution Review 2014 document 4, refers to financial
planning. It is recommended that you read paragraph 2.2.2 of the document to
understand the context in which the FSCA views financial planning. The document was
followed with updates in December 2016 5, June 2018 6 and December 2019 7. The
December 2019 update also included a Discussion Document on Categorisation of
Financial Advisers and Related Matters 8 inviting comments on the proposals therein
from the industry.
The current FAIS regulatory framework does not recognise financial planning as an
activity distinct from the giving of advice or rendering of intermediary services with
regards to a financial product. Financial planning typically includes the development of
a financial plan for a client, together with periodic reviews and possible adjustments of
that plan, to ensure it remains suitable to the client’s financial needs and
circumstances. As such, financial planning activities are conceptually independent of
the product life cycle 9. Although, a lot of the proposals in the RDR document will impact
financial planning and financial planners, the following proposals refer specifically to
financial planning services and financial planners:
Proposal A: Forms of advice (financial planning, up-front product advice, ongoing
product advice) defined, with related conduct standards
Original proposal:
Definitions of “financial planning”, “up-front product advice” and “ongoing product advice”
will be included in the regulatory framework. The definitions will be used to set conduct
standards regarding the provision of each of these forms of advice, including the
circumstances in which these terms may be used to describe services provided, and the
way in which these services must be disclosed and explained to customers. Specific fit and
proper standards will also be set for entities or individuals providing each of these forms of
advice.
December 2016 status update:
The FSB is no longer proposing formal separate definitions of up-front & ongoing product
advice, but standards will be set for the provision of ongoing advice.
4https://www.fsca.co.za/Regulatory%20Frameworks/Documents%20for%20Consultation/FSB%20Reta
il%20Distribution%20Review%202014.pdf
5https://www.fsca.co.za/Regulatory%20Frameworks/Temp/FSB%20Retail%20Distribution%20Review
%20Status%20as%20at%20December%202016.pdf
6https://www.fsca.co.za/Regulatory%20Frameworks/Temp/FSCA%20Retail%20Distribution%20Revie
w%20Status%20Update%20June%202018%20.pdf
7https://www.fsca.co.za/Regulatory%20Frameworks/Temp/RDR%20General%20Status%20Update%2
0December%202019.pdf
8https://www.fsca.co.za/regulatory%20frameworks/temp/forms/allitems.aspx?p%252525252525255FS
ortBehavior=0&p%252525252525255FYear=&p%252525252525255FRANK=&p%252525252525255
FID=904&View=%7Bde94d64b%2D0ec8%2D4bb9%2D8137%2D14ef49e65057%7D&SortField=Cate
gory&SortDir=Desc
9FSCA RDR 2014 par 2.2.2
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
4
June 2018 status update:
Except for financial planning, different forms of advice will not be formally defined. Where
appropriate, standards relating to advice generally will include requirements where advice
is provided on an ongoing basis or up-front.
December 2019 status update:
Different forms of advice will not be formally defined. Where appropriate, standards relating
to advice generally will include requirements where advice is provided on an ongoing basis
or up-front. Exception: Financial planning will be defined (see proposals T and U).
Proposal T: Criteria for financial planners
Original proposal:
The regulatory framework will set conduct standards for the provision of financial planning
services, including:
•
•
•
Fit and proper standards for the provision of financial planning services. These will
include competency standards in relation to the financial planning process as well as
the types of financial planning solutions recommended through the planning process.
Such standards may be set with reference to membership of, or qualifications provided
by appropriate professional associations, or may vary depending on such membership
or qualification, which may be recognised for these purposes.
Standards on the level and extent of financial product knowledge required to provide
financial planning services. Although financial planning does not necessarily entail the
provision of advice relating to any particular financial product, adequate knowledge of
the classes or types of financial product that are likely to underpin a proposed solution
would nevertheless be important.
Standards for financial planners that are also multi-tied or tied advisers – particularly
with a view to ensuring that the restrictions in relation to product advice they may provide
does not conflict with or compromise the quality of the financial planning service.
December 2016 status update:
The FSCA is considering a two-tier model of advisor categorisation. Two main categories
of financial adviser are now proposed, namely:
1. Product Supplier Agents (PSAs) will not be licensed in their own right to provide financial
advice. Instead, they will provide advice as agents of a financial institution that provides
financial products. That product supplier will in turn be licensed to provide advice, over
and above any other licence it holds to issue financial products.
2. Registered Financial Advisers (RFAs) will be licensed in their own right to provide
financial advice. An RFA may be either a natural person (a sole proprietor) or a legal
entity (an RFA firm). An RFA firm will in turn appoint financial advisers to provide advice
on its behalf and will be responsible for the advice provided by those representatives.
The RFA licensing model is therefore similar to the current Financial Services Provider
licensing model under the FAIS Act, except that RFA’s will not also be product suppliers.
No financial adviser may act as both a PSA and an RFA (or representative of an RFA). 10
An individual adviser (Registered Financial Advisor or Product Supplier Agent) will be
permitted to use the additional designation “financial planner” if the adviser has met specific
10
Status Update: Retail Distribution Review status as at December 2016, paragraph 3.1
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
5
standards. Accordingly, they propose that a financial adviser will be permitted to describe
themselves as a “financial planner” provided the adviser meets all requirements for such
designation set by a Professional Body recognised by the South African Qualifications
Authority (SAQA) and is a member in good standing of such Professional Body. It follows
therefore that the use of the descriptor “financial planner” will in effect be reserved for
financial advisers who meet the professional competency and professional conduct
standards set by the relevant Professional Body for such a designation.
Currently only the Financial Planning Institute (FPI) and its Certified Financial Planner (CFP)
designation meet this requirement in relation to financial planning. It is however open to
other associations to apply to SAQA for the necessary approvals. Recognition of foreign
equivalents will also be considered, in consultation with SAQA and relevant Professional
Bodies. In the initial RDR discussion document the FSCA indicated that, in the short-term
insurance sector, the activity of “risk planning” by financial advisers was a potential
equivalent of “financial planning” in the long-term insurance and investments space. Their
subsequent consultations and analysis have however not presented a clear case for
recognising short-term insurance “risk planning” as a form of financial advice distinct from
short-term insurance product advice. They have invited further input on the feasibility of
formally recognising an equivalent of “financial planning” (with approved professional
designations through a recognised professional body) outside the long-term insurance and
investments environment. More broadly, as part of the ongoing work on refining the
competency framework and enhancing professionalism for financial advice, the FSCA also
intends to continue to actively work with SAQA and its structures – and relevant industry
participants - as they develop frameworks for various levels of qualifications and
designations in the financial sector. 11
June 2018 status update:
The proposed approach is that financial planning will not be a separate adviser licence
category, but rather that the descriptor / designation “financial planner” or “financial
planning” will be reserved for advisers meeting prescribed professional body criteria.
December 2019 status update (RDR Discussion Document on Adviser Categorisation and
Related Matters)
Section 5. Use of the designation “financial planner”
As noted in the initial RDR paper, one of the desired outcomes of our RDR reforms is to
enhance standards of professionalism in financial advice and intermediary services to build
consumer confidence and trust. To this end, the FSCA confirms our intent to acknowledge
the professional status of qualified financial planners by reserving the use of the designation
“financial planner” for those holding a formal professional designation in this discipline.
Persons designated as a CFP™ professional, who therefore meet the standards and
requirements set by the Financial Planning Standards Board (FSPB), would meet this
criterion. Note that this includes persons meeting the FSPB standards as adapted by
organisations that have licensing and affiliation agreements in place with the FPSB to
operate the CFP™ certification program in their territory. In South Africa, the relevant
organisation is the Financial Planning Institute, which is also recognised by the South
African Qualifications Authority as the professional body for the financial planning
profession in South Africa.
The point has been raised that advisers that are not formally designated as CFPs, in
performing customer needs analyses and formulating financial recommendations, may
11 Status Update: Retail Distribution Review status as at December 2016, paragraph 3.1(c) and
Annexure A
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
6
nevertheless follow processes and methods similar to those followed by their professionally
qualified counterparts. This raises the question whether non-CFP advisers should be
permitted to describe their services as “financial planning” and / or to describe their
recommendations as a “financial plan”. A suggestion was made that non-CFPs should still
be able to use the “financial planner / plan / planning” terminology where they perform these
activities, but should be distinguished from CFPs by applying the additional term “certified”
financial planner or “accredited” financial planner (or similar) in the case of CFPs.
The FSCA has considered these arguments, but we believe that allowing this type of
language to be used by advisers that are not professionally qualified in financial planning
will undermine the effectiveness of reserving the “financial planner” designation for
professionals. Our proposal therefore is that not only the designation “financial planner”, but
also the terms “financial plan”, “financial planning” or other derivatives be reserved for use
by qualified CFPs. Non-CFP advisers will need to use appropriate alternative terms to
describe their services and recommendations. It also follows that distribution channels
describing themselves as, for example, the “financial planning division” of an entity, will not
be permitted to do so unless all advisers operating in that channel are in fact duly qualified.
The FSCA also received a limited number of comments that the term “financial planner”
was not appropriate to advisers operating in PSA / tied advice models, in view of the
potential restrictions on the scope of their recommendations. We disagree. PSA advisers
holding a CFP qualification are entitled to describe themselves as financial planners. There
are adequate existing FAIS measures and planned RDR measures to ensure that financial
customers are able to understand and make informed decisions on the type of adviser they
wish to be served by.
The FSCA requested stakeholders to provider their views on the proposal to disallow
advisers who do not hold a professional financial planning designation (and who therefore
will not be permitted to use the designation “financial planner”) from describing their services
as “financial planning” and describing their recommendations as a “financial plan”.
Proposal U: Status disclosures to be made by financial planners
Original proposal:
Conduct standards will be set requiring a financial planner to disclose the following matters
to customers at appropriate times:
•
•
That the adviser is a financial planner and an explanation (which may be standardised)
of what this means, as well as details of whether or not the financial planner is a member
of, or holds a qualification issued by a relevant professional organisation.
Appropriate details of the scope and purpose of the financial plan, including any
limitations in this regard.
December 2016 status update:
Disclosure standards will be introduced together with implementation of the final standards
for financial planning. 12
June 2018 status update:
Refer to Proposal T.
12 Status Update: Retail Distribution Review status as at December 2016, paragraph 3.1(c) and
Annexure A
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
7
December 2019 status update:
Refer to Proposal T.
Proposal II: Standards for financial planning / risk planning fees
Original proposal:
Conduct standards will be set in relation to:
•
•
•
•
The requirement to obtain explicit customer consent to a planning fee before any
financial or risk planning is carried out, where consent must relate to the quantum of the
fee, the fee calculation basis, the manner of payment and the scope of planning service
to be rendered, including any ongoing financial planning services.
Regulatory reporting obligations in relation to fees earned.
Related disclosure obligations.
Product supplier obligations to monitor planning fees charged by tied advisers and the
scope and quality of the planning services provided by tied advisers.
In addition, the regulator may publish benchmark guidelines in relation to planning fees,
together with requirements to monitor and / or report on adherence or deviations from such
guidelines and enable comparability of such fees.
December 2016 status update:
These standards are to be developed together with standards under Proposal T and
broader standards for advice fees under Proposal JJ. These standards will be developed
as the various RDR remuneration models are finalised. 13
June 2018 status update:
Standards will be developed in parallel with standards for Proposal T.
December 2019 status update:
Standards will be developed in parallel with standards for Proposal T.
Also see detail in the RDR Discussion Document on Adviser Categorisation and
Related Matters, regarding use of the terms “financial planner” and “financial planning”.
Note that these proposals are still under discussion and development between the industry and the
FSCA, and it may be amended, as result of these discussions.
Resources
In order to complete this learning outcome, study the following:
1. SAFPHB Chapter 1
Additional reading:
Please note that the following material is not prescribed reading. It has been
included to provide you with additional information to assist you to understand the
subject matter better and may prove to be useful in your daily activities as a
financial planner.
1 Rossini L & Maree J, The business of financial advice, Juta (2015) Chapter 1
13 Status Update: Retail Distribution Review status as at December 2016, paragraph 3.1(c) and
Annexure A
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
8
1.2
Tasks
1.2.1
Task 1
Discuss the benefits of financial planning
Unfortunately, many clients associate the process of financial planning with the sale of
products and as a result, they fail to see the benefits of the financial planning process. It
is the responsibility of the financial planner to explain to the client what the potential
benefits of the financial planning process are, early on in the client engagement.
Other benefits for the client include:
•
•
•
•
•
•
•
Assisting the client in maximising their wealth during their lifetime;
Enabling clients to reach their short, medium and long-term objectives;
Providing for emergencies;
Making sure everything is in order in the event of death or a life changing event;
Enabling clients to manage their finances on a daily basis;
Empowering the client to make the right financial choices;
Building trust in the relationship with a financial planner and the financial services
industry as a whole.
1.2.2
Task 2
Briefly explain the role of the financial planner
The role of the financial planner is to facilitate the process of assisting clients to identify
and achieve their life goals and objectives through the planning of their finances. After
collecting and analysing the client’s information, the financial planner drafts a financial
plan that recommends an appropriate action plan to assist the client in achieving their
goals. The financial planner drafts a financial plan that recommends an appropriate
course of action to achieve their goal. Although the process does not exclude the sale
of a financial product, this should not be the main focus of the financial planner. The
financial planner plays a vitally important public interest role. Educating clients with
regard to how to manage their finances and ensuring that they provide for their
retirement and other contingencies will ensure that members of our society are in a
position to live independently from the state.
1.2.3
Task 3
Although the term ‘financial planning’ appears to refer only to the financial
circumstances of the client, it also has a significant impact on the lifestyle aspects of a
client.
Discuss the importance of this statement.
The degree to which a client actively manages their finances will have a significant
bearing on whether the client is in a position to achieve their lifestyle goals. For example,
if the client wants to go overseas on an expensive trip in two years’ time, this must be
taken into account in their financial planning. If the client does not plan for these goals,
they are unlikely to happen. Likewise, the lifestyle of the client will have an impact on
their financial planning, as a client may choose to live a lifestyle that is inappropriate
considering their financial situation. According to George Kinder, the founder of Lifestyle
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
9
Planning, the financial planning process offers clients the most comprehensive
opportunity to discover and integrate a financial life plan that melds together with the
meaning of money. No other profession or process assists the client in unveiling his or
her most profound life goals and dreams, and then puts together a financial strategy that
will assist the implementation and review of the strategy, in order to achieve those goals
and dreams.
2.
2.1
Demonstrate and apply the professional attributes and skills expected
from a financial planner
Summary
In the context of financial planning, an attribute is regarded as a characteristic quality
assigned to a person, whereas a skill can be described as ability, expertise, experience
and/or proficiency. This leads to the important question: what are the professional
attributes and skills expected from a financial planner? There are obvious skills
required, such as sufficient legal and technical knowledge, an understanding of the
economy and the markets, an understanding of the products offered, effective
communication and presentation skills, good research skills, effective report writing
skills and being able to develop relationships with other professionals. In addition,
many of the skills required are dictated by the legislation and the standards set by the
various professional bodies.
The less obvious question revolves more around what attributes and skills make an
effective and successful financial planner. Although the skills mentioned above are
essential requirements, there are certain attributes or qualities that can be expected
from a financial planner. The most important attribute is a sound personal code of
conduct, based on strong ethical and moral values. This creates the foundation on
which the financial planner strives to put the interests of their clients first, and to make
a positive difference in their lives, by building sound relationships, based on trust and
integrity. Other attributes include: 14
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Strength of character
Ability to leading both a personal, as well as a business capacity
Ability to communicate well and positively influence people
Credibility (easy to believe and trust)
Ability to offer vision and direction
Excellent listening skills
Ability to challenge and encourage
Ability to get the best out of people by empowering them
Ability to work through and overcome difficulties
Ability to solve problems creatively
Capacity for empathy
Organizational and business skills
Passion for what they do
Being open to continuous learning
The FPSB defines a financial planner as ‘a professional who uses the financial
planning process to provide a client with integrated strategies to achieve financial and
life goals and who has demonstrated the abilities, skills and knowledge outlined in the
14
M Botha et al, Fundamentals of Financial Planning, LexisNexis (2010), p2.
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
10
FPSB Financial Planner Competency Profile’.
The FPSB Financial Planner Competency Profile has been detailed in a document
issued by the FPSB. There are three main sections to the profile, financial planning
knowledge, professional skills and social competence 15. It is recommended that you
read this document to understand the competencies you will need as a financial
planner.
Principle 5 of the FPI Code of Ethics, addresses competence and provides guidance
as to the minimum requirements FPI members must meet 16. The FPI has also
published a document called the Financial Advisor Competency Profile and Curriculum
that describes the abilities, skills, attitudes, judgements and knowledge that a financial
advisor draws on when rendering financial services and/or other professional
services. 17
Although the above lists may appear daunting, both skills and attributes can be
acquired over time. The most important thing is to be self-aware and to work on those
areas that may need improving.
Resources
In order to complete this learning outcome, study the following:
1.
2.
3.
4.
SAFPHB Chapter 1
FPSB Financial Planner Competency Profile (available on www.fpsb.org)
FPI Code of Ethics: Principle 5 (available on www.fpi.co.za)
FPI Financial Advisor Competency Profile and Curriculum (available on
www.fpi.co.za)
5. FPI Continuous Professional Development (CPD) Policy (available on
www.fpi.co.za)
2.2
2.2.1
Tasks
Task 1
Briefly describe what you think important skills and attributes for a successful financial
planner are.
Comment on why you have chosen these particular skills and attributes.
Ben and Sue Graham come in to see you for the first time.
You have been extremely busy working on a large investment for another client and
are unprepared for the appointment. Ben Graham has an intense dislike for financial
planners, as he has previously had a bad experience where he lost a lot of money. As
he is telling you about it, your mind is wandering to the large investment. He then tells
you that he has inherited R3 million and would like advice on what to do with it. This
15https://www.fpsb.org/wp-content/uploads/2016/01/151027_doc_CompetencyProfile_FINAL-2.pdf
16
https://www.fpi.co.za/documents/Code%20of%20Ethics%20and%20Professional%20Responsibility.pd
f
17 https://www.fpi.co.za/documents/Financial_Advisor_Competency_Profile_and_Curriculum.pdf
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
11
fact immediately piques your interest. Without finding out much about his personal
circumstances (which include large amounts of debt), you begin to give him ideas on
the best possible investment products.
Briefly describe the skills and attributes you should be demonstrating in these
circumstances, and comment on why they are important in building a relationship of
trust with Ben and Sue Graham.
There are a number of different skills and attributes any financial planner should be
demonstrating in the situation described above:
•
•
•
•
•
•
Being organised and prepared, to see new clients is essential.
It is important to listen to the client and to deal empathetically with any issues the
client may raise.
Explain the importance of the financial planning process to the client.
Explain what services the client can expect from you and your business in order to
reduce unmet expectations.
Pay attention and focus on the client so that you obtain sufficient information from
the them.
Explain to the client that you need to complete the six steps of financial planning,
before being in a position to advise the client where to place his inheritance.
By carrying out the above steps, you are in a stronger position to build a relationship of
trust with Ben. It is important to make sure that he does not have the same experience
with you that he had with a previous financial planner. You have an opportunity to do
things the right way and to show him that there are many credible and skilled financial
planning professionals in the industry.
3.
3.1
Discuss the importance of financial planning to a client
Summary
It is essential for a financial planner to have a sound understanding of why financial
planning is important to the client. This understanding enables the financial planner to
explain the compelling reasons for doing financial planning to the client. Even though
it may be perfectly obvious to the financial planner why a client should engage with the
financial planning process, many clients exhibit resistance to the process even though
it may be in their best interests. A financial planner must be in a position to deal with
this resistance and to show the client the benefits and importance of engaging with the
financial planning process.
The importance of the financial planning process (to a client) can be summarised as
follows:
•
•
•
•
•
Increases awareness and education around financial issues.
The client has an understanding of how personal financial management impacts
on lifestyle goals and objectives.
It enables the client to engage with, and take responsibility for, their own personal
financial management and freedom.
It enables the client to achieve financial and lifestyle goals.
The process results in a financial plan which enables the achievement of future
goals and objectives.
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
12
•
It minimises risks, maximises growth, and reduces the payment of taxation by
appropriately structuring the assets and liabilities of the client, in accordance with
their personal circumstances.
Clients often do not see the importance of financial planning for a number of reasons.
In many cases, clients have not been educated about the link between financial
planning and achieving their own personal and financial objectives. Both bad
experiences and/or negative stories in the media also contribute to a negative
impression of financial planners and the financial services industry in general.
Resources
In order to complete this learning outcome, study the following:
1. SAFPHB Chapter 1
Additional reading
Please note that the following material is not prescribed reading. It has been
included to provide you with additional information, to assist you to understand the
subject matter better and may prove to be useful in your daily activities as a
financial planner.
1. Rossini L & Maree J, The business of financial advice, Juta (2015) Chapter 2
3.2
3.2.1
Tasks
Task 1
List the benefits of encouraging clients to be engaged in the process of financial
planning:
•
•
•
•
•
•
•
•
•
•
•
3.2.2
Maintaining a balance of capital and income;
Protection against financial risk via long- or short-term insurance;
Maintaining the value and purchasing power of capital;
Legitimately minimising taxation;
Achieving an acceptable level of investment return in relation to the risk taken;
Achieving financial independence at retirement;
Achieving an appropriate structure of liabilities and debt reduction;
Providing security for the family;
Balancing the timing of cash outflows and inflows;
Balancing a current lifestyle with a future lifestyle; and
Establishing regular and clearly defined reviews of the financial plan, which should
also take place after unplanned or unexpected events.
Task 2
Briefly discuss the reasons why members of the public are resistant to the idea of
financial planning.
•
Not understanding that financial planning is not only about purchasing or investing
in financial products, but it is also about the development of a financial plan, which
will assist them in achieving their financial and lifestyle goals;
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
13
•
•
•
•
•
•
3.2.3
People are often ignorant of the reasons for the need to engage in ongoing financial
planning through a process of monitoring and review;
Many people are facing mounting debt, and do not think financial planning can assist
them. However, this situation can be better managed by putting together a debt
management plan which forms part of the financial plan;
Financial planning is a low priority for many people as they do not understand the
benefits it can bring;
Previous negative experiences with financial planners and product suppliers;
The purchase of inappropriate financial products as a result of insufficient analysis
of the client’s situation, and the poor identification of needs and objectives by the
financial planner;
The perception of the industry being sales-driven, and not solutions- and servicedriven.
Task 3
Describe the importance of educating clients about the financial planning process.
It is the responsibility of the financial planner to explain their role to the client, as well as
to educate them about the financial planning process. If this does not happen, the client
may blame the financial planner for anything that he does not understand at a later stage.
The financial planner does not necessarily have to be guilty of wrongdoing for this to
happen. For example, the client may not understand how the markets work, and when
the value of their investments falls because of the markets, the client may blame the
financial planner for the loss. Situations such as these should be avoided by explaining
the financial planning process to the client. It must be stressed to the client that the
financial planner has no control over the markets. The role of the financial planner is to
advise the client about structuring their investment portfolio, taking into account their risk
profile, as well as their financial and personal circumstances. During the process, the
financial planner must continue to educate the client about what is happening in the
markets and why.
3.2.4
Task 4
Describe the negative consequences that may arise should clients and members of
the public fail to plan their finances adequately.
•
•
•
•
•
Clients may not have sufficient capital and income on which to retire. They would
have to continue working past retirement age or they may become a burden to their
families.
The state may become overburdened as too many people will depend on the state
system at retirement.
Clients will not be in a position to achieve their lifestyle goals and dreams.
Levels of debt may rise to unmanageable levels.
The health of clients may be affected, as they become more and more stressed
because their finances are completely out of control.
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
14
4.
4.1
Discuss the importance of the financial planning practice standards, in
relation to the 6-step financial planning process, as recommended by the
Financial Planning Standards Board
Summary
The FPSB established the 6-step process of financial planning for financial planners
to follow in the form of the Financial Planning Practice Standards for Certified Financial
Planners. Any financial planner who holds the CFP® designation is obliged to follow
the 6-step process.
The 6-step process provides a holistic approach to assessing where the client is
financially, where they want to be and what actions must be taken to get them there.
The FPI is a South African Qualifications Authority recognised professional body for
financial planners in South Africa. The FPI is a non-profit professional body and
founding and affiliate member of the FPSB. It is the only institution in South Africa to
offer the CFP® certification. The 6-step process has also been incorporated into the
FPI Code of Ethics and Practice Standards.
Resources
In order to complete this learning outcome, study the following:
1.
2.
3.
4.
SAFPHB Chapter 1
FPSB Financial Planning Practice Standards (available on www.fpsb.org)
FPSB Financial Planner Competency Profile (available on www.fpsb.org)
FPI Code of Ethics and Practice Standards incorporating the FPI Rules of
Professional Conduct (available on www.fpi.co.za)
5. FPI Financial Advisor Competency Profile and Curriculum (available on
www.fpi.co.za)
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
15
4.2
4.2.1
Tasks
Task 1
Describe the benefits of following the 6-step financial planning process.
According to the FPSB, the 6-step financial planning process, together with the practice
standards, defines the standard of performance expected from financial planners by:
•
•
•
•
4.2.2
Establishing the level of practice expected of a financial planning professional,
engaged in the delivery of financial planning to a client;
Establishing norms of professional practice, and allowing for the consistent delivery
of financial planning by financial planning professionals;
Clarifying the respective roles and responsibilities of financial planning professionals
and their clients in financial planning engagements; and
Enhancing the value of the financial planning process.
Task 2
List and briefly describe the 6-step financial planning process.
•
•
•
•
•
•
5.
5.1
Step 1: Establish and define the professional relationship with the client. Inform the
client about the financial planning process and the financial planning professional’s
competencies, determine whether the financial planning professional can meet the
client’s needs and define the scope of the engagement.
Step 2: Collect client information. Identify the client’s personal and financial
objectives, needs and priorities, collect quantitative information and documents and
collect qualitative information.
Step 3: Analyse and assess the client’s financial status. Analyse the client’s
information and assess the client’s objectives, needs and priorities.
Step 4: Develop the financial planning recommendations and present them to the
client. Identify and evaluate financial planning strategies, develop the financial
planning recommendations and present the financial planning recommendations to
the client.
Step 5: Implement the client’s financial planning recommendations. Agree on
implementation responsibilities and identify and present product(s) and service(s)
for implementation.
Step 6: Review the client’s situation. Agree on responsibilities and terms for review
of the client’s situation and review and re-evaluate the client’s situation.
Design the framework of a financial plan for a client, in terms of the 6-step
financial planning process and the financial planning practice standards
Summary
Step 3 of the financial planning process highlights an important aspect of the 6-step
financial planning process. It includes the ability to take all the information gathered
from the client, analyse it and make recommendations. This must be written up in a
financial plan that is readable, understandable and enables the client to make an
informed decision, based on the information and recommendations it contains.
Although there is no standard method of drafting a comprehensive financial plan
(dealing with all aspects of the client’s finances and personal circumstances), there are
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
16
guidelines that may be followed to meet the above requirements for a good financial
plan:
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Title page
Contents page
Introduction
Provide a brief summary of the personal circumstances of the client.
Give a brief summary of the risk profile of the client.
State the objectives of the financial plan.
State any assumptions made about the recommendations and calculations
included in the financial plan.
Clearly outline the goals and objectives of the client (these are obtained from the
client and discussed in the client meetings).
Address each of the following areas in the financial plan (see the following section
for detailed breakdown): Personal financial management, Investment planning,
Risk management, Tax planning, Retirement planning, Estate planning, Business
financial planning and Analysing existing products.
Based on your analysis of the financial and personal circumstances of the client,
make recommendations in each of the areas mentioned above. Depending on the
recommendations made, it could be extremely useful to the client to provide them
with one or two scenarios.
Any recommendations made must be supported by an explanation of why you
think the recommendation made is in the best interests of the client.
Include an action plan, which details the actions that must be taken, who will be
responsible, and where possible, a date by when each action should be completed.
At the end of the financial plan, include a date for review of the financial plan. Make
mention that in the event of any change in circumstances, the client must contact
you as the financial plan may need to be updated.
Annexures – include complex calculations as annexures rather than including them
in the body of the financial plan.
In addition to the drafting of a financial plan, in terms of Step 3 of the financial planning
process, the General Code of Conduct, established under FAIS, requires all FSP’s and
representatives to keep a Record of Advice 18, which must reflect the basis on which
the advice was given, as well as other important aspects of the financial advice given.
A copy of the Record of Advice must be given to the client, in writing.
Resources
In order to complete this learning outcome, study the following:
1. SAFPHB Chapter 1
2. FPSB Financial Planning Practice Standards (available on www.fpsb.org)
3. FPSB Financial Planner Competency Profile (available on www.fpsb.org)
4. FPI Code of Ethics and Practice Standards incorporating the FPI Rules of
Professional Conduct (available on www.fpi.co.za)
Additional reading:
1. Kinder G and Galvan S, Lighting the Torch – The Kinder Method of Life
Planning, FPA Press (2006) and Kinder G, Seven Stages of Money Maturity,
Delacorte Press (1999).
18
Section 9 of Board Notice 80 of 2003: General code of conduct for authorised financial services
providers and their representatives
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
17
5.2
Tasks
5.2.1
Task 1
Describe the ‘Record of Advice’, as required by the General Code of Conduct.
Section 9 of the General Code of Conduct states that over and above the record keeping
duties of FSP’s and representatives, a record of advice must be kept. The record of
advice must reflect the basis on which the advice was given and must include:
•
•
•
A brief summary of the information and material on which the advice was based.
The financial product/s that were considered.
The financial product/s recommended, with an explanation of why the product/s
selected will most likely satisfy the client’s identified needs and objectives.
Where the product/s recommended, is/are to replace an existing product/s (i.e. is a
replacement product), a comparison between fees, charges, special terms and
conditions, exclusions of liability, waiting periods, loadings, penalties, excesses,
restrictions or circumstances in which benefits will not be provided, must be made
between the terminated product and the replacement product. The record of advice must
also include the reasons why the replacement product was considered to be more
suitable in meeting the identified needs of the client than retaining or modifying the
terminated product.
The client must be provided with a copy of the record of advice, in writing.
6.
6.1
Discuss the meaning and importance of ethics in the financial services
environment
Summary
Ethics can be defined as ‘moral principles in human conduct’. It is concerned with what
is good or right in human interaction, or the conducting of an activity. According to
Deon Rossouw 19, an expert on the subject of ethics, ethical behaviour results when a
person does not merely consider what is only good for them, but also considers what
is good for others. Therefore, the concept of ethics consists of three essential aspects,
being goodness, self and others.
To develop and retain an ethical culture in the financial services industry, it is essential
to understand both the meaning and importance of ethics. An ethical culture and ethical
conduct come about, because of the values, principles, and behaviour of the
individuals (goodness, self and others) who participate in the industry. Given the
intangible nature of financial products and services, as well as the low levels of financial
literacy in South Africa, a strong ethical culture is the foundation of a successful
financial services industry. Every unethical or dishonest action that occurs creates
reputational risk for the individuals, businesses, and industry, as a whole. The topic of
ethics is extremely broad, and it is up to the individual to take responsibility for their
own ethical behaviour.
19
Rossouw D and van Vuuren L, Business Ethics, Oxford (2007)
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
18
Resources
In order to complete this learning outcome, study the following:
1. SAFPHB Chapter 2
2. Ethics and Financial Planning Advice: The Final Frontier (Dr June Smith) –
https://www.adviservoice.com.au/2011/01/ethics-and-financial-advice-thefinal-frontier/
Additional reading:
Please note that the following material is not prescribed reading. It has been
included to provide you with additional information, to assist you to understand the
subject matter better and may prove to be useful in your daily activities as a
financial planner.
1. Rossouw D with van Vuuren L, Business Ethics, Oxford (2007)
2. Rossini L & Maree J, The business of financial advice, Juta (2015) par 1.3
6.2
Tasks
6.2.1
Task 1
Briefly describe the similarities and differences between ethics and the law.
Both ethics and the law are concerned with what is right and good in human interaction
and society. However, the mechanism of how this occurs, differs significantly between
the two. The law attempts to achieve what is right and good, through a public and political
process. The power of the state and its various arms are used to ensure that all members
of the society abide by the law. Ethics emanates from personal values, what feels is the
most appropriate, good, or right manner in which to behave. It becomes obvious that
ethics is based on a sense of obligation to do what is right, which is internally driven, as
opposed to doing what is right, due to an external pressure exerted by the law and the
fear of the consequences of not complying with that law.
6.2.2
Task 2
Unlike other products which can easily be judged on appearance or result, financial
products cannot be seen or touched. In the context of this statement, discuss the
reasons why it is so important to have a high standard of ethical behaviour in the
financial services industry.
Financial products differ from most other products and services for a number of
reasons. As financial products are intangible, it makes it difficult for consumers to
ascertain quality, value for money and appropriateness of the product purchased.
This means that a high standard of ethical behaviour is required in the financial
services industry for the following reasons: 20
•
•
•
•
20
Financial products are not purchased frequently. Therefore, the consumer
has little opportunity to learn from experience.
The consumer often lacks confidence in making financial decisions.
Although legislation demands transparency, there is a certain lack of
transparency, making it difficult to verify the claims of the product supplier.
The consumer frequently requires advice when making purchasing decisions
See Bamber, Falkena, Llewellyn, Store, Financial Regulation in South Africa, SA Financial Sector
Forum (2001)
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
19
•
•
•
•
•
•
•
•
6.2.3
about financial products.
A financial planner can conceal certain information (even though full
disclosure is required by legislation).
It is difficult to detect misrepresentation at the time of purchase.
The financial product cannot be judged or tested before making the purchase.
The value of purchasing the product is not always clear at the time of
purchase.
The consumer’s future financial well-being often depends on the performance
of the financial product: a faulty product can be replaced, but a bad financial
product cannot be easily surrendered or changed, other than at substantial
cost.
There are usually no guarantees attached to the financial product.
It often takes years before consumers become aware of problems with the
financial product. This limits the power of reputation as an assurance of good
products. Furthermore, even if the reputation of the product supplier or
financial planner is damaged by bad behaviour, in the long run, consumer
wealth will have suffered.
If the business becomes insolvent during the term of the financial product,
the consumer will lose their investment.
Task 3
Briefly discuss the different ethical levels in society.
Personal or
individual ethics
Professional
ethics
Business ethics
Societal ethics
6.2.4
A personal ethical code of conduct when dealing with others.
Standards that outline appropriate conduct in a given profession.
The values and principles that a business or an organisation has
chosen that guide behaviour of people in the business or organisation
and/or what stakeholders expect from the business or organisation.
Principles and standards that guide members of society in day-to-day
interaction with one another.
Task 4
List five core personal ethical principles.
Although there are numerous ethical principles or values, the following list relates
directly to the financial services professional:
•
•
•
•
•
•
•
•
•
•
•
Integrity
Responsibility
Justice
Fairness
Forgiveness
Generosity
Compassion
Self-discipline
Wisdom
Courage
Care for all living things and the environment
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
20
6.2.5
Task 5
List five core ethical principles or values that apply specifically in the financial services
industry.
•
•
•
•
•
•
•
6.2.6
Integrity
Honesty
Fairness
Respect for others
Personal accountability
Good citizenship
Keeping promises
Task 6
List 5 factors that contribute towards unethical behaviour in the financial services
industry.
•
•
•
•
•
6.2.7
Self-interest
Some people do not prioritise unethical behaviour
The intangible nature of financial products and services means that clients
are not able to assess the products and services before making the purchase
Linked to the intangible nature of financial products and services is the
inherent power imbalance between the client, financial planner and product
supplier.
A lack of competency that manifests as inadequate knowledge or skills on
the part of the financial planner can also lead to inadvertent unethical
behaviour.
Task 7
List 5 examples of unethical behaviour by financial advisors.
•
•
•
•
•
•
•
•
7.
7.1
Fraud
Forging documents
Tax evasion
False insurance claims
Inappropriate advice
Mis-selling of products
Misrepresentation of information
Misuse of client funds
Evaluate and analyse what would be considered ethical behaviour in a
financial planning context
Summary
As mentioned in the previous outcome, ethical standards and culture forms the
foundation of any successful financial services industry. To uphold the ethical
standards and culture of the industry means that all participants in the industry must
behave in an ethical manner. Although ethical behaviour can be prescribed by various
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
21
codes of conduct and enforced via legal mechanisms, in order for an ethical culture to
really take hold and become embedded in the industry, individuals must behave in an
ethical fashion, as well as take responsibility for their ethical behaviour.
Although it is important to evaluate and analyse what values, principles, and behaviour
are considered ethical at an individual level, actually deciding what makes up ethical
behaviour is difficult, as what may be ethical to one person, may not be ethical to
another. The best understanding is to view the ethics of financial professionals ‘as a
value worth practising as a goal in itself, a necessary condition of personal and
professional excellence’ (Dobson 1997). 21 When faced with a choice between an
ethical versus an unethical course of action, the question ‘What should I do?’ must be
embedded into the far greater question of ‘What sort of person should I be?’ (Maclagan
1998) 22. If the values and principles of the financial planner are ethical, by answering
the second question, the answer to the first question is immediately apparent. In most
cases, people prefer to take the ethical route in both their personal and professional
lives.
Resources
In order to complete this learning outcome, study the following:
1. SAFPHB Chapter 2
2. Ethics and Financial Planning Advice: The Final Frontier (Dr June Smith) –
https://www.adviservoice.com.au/2011/01/ethics-and-financial-advice-thefinal-frontier/
7.2
Tasks
7.2.1
Task 1
Briefly describe how you make ethical decisions when faced with an ethical dilemma.
There is a recognised ethical decision-making process that can be followed in the event of
an ethical dilemma. If the most ethical decision is not immediately apparent, use the
following model to aid you in making the correct decision:
Step 1: Define the problem
Step 2: Identify available alternative solutions to the problem
Step 3: Evaluate the identified alternatives
Step 4: Make the decision
Step 5: Implement the decision
Step 6: Evaluate the decision
7.2.2
Task 2
Sam Brown directs a large amount of business to a particular product supplier when
making product recommendations to his clients. In return for all the business, the
product supplier offers him and his wife an all-expenses paid trip overseas. He accepts
the trip but does not tell his employer. Discuss the ethical issues in this scenario.
21
22
Dobson, ‘Ethics in Finance’, Financial Analysts Journal, Vol 53.
Maclagan, Man and Morality: A Developmental Perspective, Sage (1998)
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
22
It would be unethical for Sam to accept the trip, as it will affect his independence and
objectivity. It will be difficult for Sam to justify the recommendations made to purchase
products with a particular product supplier to clients, if he is merely favouring the product
supplier in order to receive gifts from them. Recommendations with regard to purchasing
products from product suppliers must be made in the best interests of the clients, and
not because of the potential benefits to Sam. It is also unethical of Sam not to tell his
employer about the trip. Although the General Code of Conduct does deal with conflicts
of interests, it is important to try to avoid, as far as possible, from being placed in a
situation where the interests of the client and the financial planner are in conflict.
7.2.3
Task 3
Jim meets with one of his clients who needs to make some important decisions, with
regard to the allocation of certain assets. Jim knows that these changes must be made
before the end of the tax year. However, Jim does not get around to making the
requested changes, as there is not likely to be any financial reward in doing the work.
He does not return the client’s calls nor respond to his emails. As a result of not making
the changes, the tax consequences for the client are disastrous. Discuss the ethical
issues that arise from the above scenario.
All financial planners are faced with work that they would rather avoid. They would want
to avoid the work for a number of reasons: the work may be outside of their area of
expertise, they will not be earning any money for doing the work, or they are busy with a
far more lucrative case. Even if this is the case, it does not mean that the work should not
be attended to timeously. By failing to carry out the work, Jim has, by omission, acted in a
manner that is harmful to the best interests of the client. Jim must ensure that his business
model takes into account administrative work that is not fee or commission generating. His
business must also have the operational ability to deal with this type of work. His omission
has resulted in a financial loss for the client, and he may be liable for the losses should
the client decide to sue.
7.2.4
Task 4
Sureshnee is a partner in a financial planning business that deals primarily in the life
and short-term insurance market. She assures a prospective client, who has just
inherited R2 000 000, that the business can provide investment services. Given the
focus of the business on the life and short-term market, none of the partners has the
skills or knowledge to advise the client on how to invest this amount in a manner that
is most beneficial to the client. Discuss the ethical issues that arise from this scenario.
Sureshnee has been unethical by misrepresenting the services the business can perform
for the client. It is important to give the prospective client the correct information with
regard to the skills and knowledge available in the business, so that the client is in a
position to make an informed decision about whether to use the services of the business
or not. Sureshnee must limit herself to describing the services that the business can
provide. She can offer to help the client to find the necessary advice and services that
her business cannot provide. Is Sureshnee offering to invest the money on behalf of the
client because of the commission payable? This is the type of question that will be asked,
should Sureshnee invest the money in an unsuitable investment. If this is the case, it
calls into question whether Sureshnee is acting in the best interests of her clients. She
is also holding herself and her business out to be skilled in investing, when in fact they
are not. This is unprofessional and unethical behaviour. In addition, provisions in FAIS,
the General Code of Conduct, as well as the FPI Code of Ethics and Practice Standards
Incorporating the FPI Rules of Professional Conduct are being contravened.
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
23
8.
List and describe the different codes of conduct that are relevant to the
financial planner
8.1
Summary
A code of conduct can be loosely described as ‘a document or agreement that
stipulates morally acceptable behaviour’. 23 There are a number of different codes of
conduct within the financial services industry:
•
The most important of the codes are the legislated codes. The FAIS Act provides
guidelines for the construction of the codes of conduct, with respect to the principles
that must be included in the code for the various categories of FSP’s. The General
Code of Conduct for Authorised Financial Services Providers and Representatives
(FAIS Code of Conduct), is the most commonly known code of conduct. Failure to
act in accordance with the prescribed standards and behaviours in a legislated
code of conduct may lead to debarment, fines, penalties, and in certain
circumstances, imprisonment.
Most businesses or organizations have an internal code of conduct. This code
clearly states what acceptable behaviour is, and what unacceptable behaviour in
the work environment is. These codes also list the consequences for failing to
adhere to the standards required in terms of the code.
Most professional bodies have their own codes of conduct. These codes of conduct
are designed to set professional standards and guidelines of behaviour which
members are expected to act in accordance with. Failure to do so may result in a
termination of membership from the professional body for not meeting the agreedupon standards.
•
•
Resources
In order to complete this learning outcome, study the following:
1. SAFPHB Chapter 2
2. FPI Code of Ethics and Practice Standards Incorporating the FPI Rules of
Professional Conduct (available on www.fpi.co.za)
3. FPSB Financial Planner Code of Ethics and Professional Responsibility
(available on www.fpsb.org)
8.2
Tasks
8.2.1
Task 1
Describe the objectives of a code of conduct.
The objectives of any code of conduct are:
•
•
•
•
•
23
To create a benchmark of acceptable ethical behaviour.
To give the public confidence that a certain profession is committed to acting in
accordance with the highest ethical standards.
To assure a certain level of competency.
To aim for all the members of a certain profession to connect around the same set
of values and standards of behaviour, thereby creating cohesion amongst the
members.
To provide guidelines for the resolving of ethical dilemmas.
Rossouw D with van Vuuren L, Business Ethics, Oxford (2007)
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
24
8.2.2
1.
2.
3.
4.
5.
6.
7.
8.
1.
2.
3.
4.
5.
6.
7.
8.
8.2.3
Task 2
Is the following conduct ethical?
Yes No
Misleading clients about the exact nature of the investment their funds are
being invested into.
Selling a policy to a client that they do not need.
Refusing to sell products to clients that promise a higher-than-normal rate
of commission for the financial planner.
Telling friends, after a round of golf, about the financial circumstances of a
new client.
Continuously reading and attending presentations and courses, to keep
up to date.
Not returning phone calls and emails from the client.
Only recommending products that pay the highest commission.
Giving clients investment advice, when only qualified to provide advice on
short and long-term insurance.
Is the following conduct ethical?
Yes No
Misleading clients about the exact nature of the investment their funds are
P2
being invested into.
Selling a policy to a client that they do not need.
P1
Refusing to sell products to clients that promise a higher-than-normal rate P3
of commission for the financial planner.
Telling friends, after a round of golf, about the financial circumstances of a
P7
new client.
Continuously reading and attending presentations and courses, to keep P5
up to date.
Not returning phone calls and emails from the client.
P8
Only recommending products that pay the highest commission.
P4
Giving clients investment advice, when only qualified to provide advice on
P6
short and long-term insurance.
Task 3
Read and name the principles and practice standards, as prescribed in the FPI Code
of Ethics and Practice Standards Incorporating the FPI Rules of Professional Conduct.
FPI Code of Ethics and Practice Standards
Incorporating the FPI Rules of Professional
Conduct
Principle 1 – Client First
Place the client’s interests first.
Principle 2 – Integrity
Provide professional services with integrity.
Principle 3 – Objectivity
Provide objective professional services.
Principle 4 – Fairness
Be fair and reasonable in all professional
relationships.
Disclose and manage conflicts of interest.
Principle 5 – Competence
Maintain the abilities, skills and knowledge
necessary to provide competent professional
services.
Practice Standards
1. Client engagement
2. Collecting the client’s information
3. Analyse and assess the client’s
financial status
4. Identify suitable financial
planning strategies and develop
the financial planning
recommendations and solutions
5. Implement recommendations
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING
25
Principle 6 – Confidentiality
Protect the confidentiality of all client information.
Principle 7 – Diligence
Provide professional services diligently.
Principle 8 – Professionalism
Act in a manner that demonstrates exemplary
professional conduct.
6. Review the client’s situation
LFPE5800: Unit 1 – PRINCIPLES AND PRACTICES OF FINANCIAL PLANNING