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 PLANNER TM – It also applies to those who are registered as candidates for the CFP® and CERTIFIED FINANCIAL PLANNER TM designation The Code has seven basic Principles The Rules are designed to make the general Principles more specific

Topic 76: Principles Integrity – No misleading advertising or promotions, and no indications of more than actual competency, no indication of speaking for Board Objectivity – Requires altruism and disclosure of conflicts of interest Competence – Keep up to date, C.E. mandatory, and advise only in areas of competence Fairness – Disclose information about the firm and its people, planner’s compensation system, provide accounting for funds, no commingling with planner’s funds, and recommend only what is suitable

Topic 76: Principles (cont.) Confidentiality – Client information is confidential except where disclosure is required by legal authority or for planner’s self-defense Professionalism – Use designation only in approved ways, show respect for other professionals, report unprofessional or illegal conduct of others to appropriate authorities, and do not use initials, RIA Diligence – Give your best service, make only suitable recommendations, supervise the rendering of professional service

Topic 76: Principles Trick to remember the Principles – I Can Obtain CFP® Designation The first letter of each word – I = Integrity – C = Competency – O = Objectivity – C = Confidentiality – F = Fairness – P = Professionalism – D = Diligence

Topic 76: Commingling of Client Funds Commingling is only permitted with written authorization and accurate records

Topic 76: Confidential Information Confidential information obtained from a client can be disclosed only when: – The client consents – Disclosure is compelled by a legal process – The CFP® certificant is required to make a disclosure to defend against an accusation of wrongdoing – A civil suit arises between the client and the CFP® certificant

Topic 76: Rule 1.3 If the services include financial planning or the material elements of the financial planning process, the certificant or the certificant’s employer shall enter into a written agreement governing the financial planning services (“Agreement”). The Agreement shall specify: – The parties to the Agreement – The date of the Agreement and its duration – How and on what terms each party can terminate the Agreement – The services to be provided as part of the Agreement

Topic 76: Factors Used to Determine if a Planner is Practicing Financial Planning Four factors used to determine if a planner is practicing financial planning or the material elements of financial planning – Client’s understanding and intent – Comprehensiveness of data-gathering – Breadth and depth of recommendations – Degree to which multiple subject areas are involved

Topic 76: Rule 2.2 A certificant shall disclose to a prospective client or client the following information: – Description of compensation, including the terms under which the certificant or certificant’s employer may receive any other sources of compensation and what those payments are based on – Conflicts of interest – Material information that could reasonably be expected to affect the client’s decision to engage the certificant, including information about the certificant’s areas of expertise – Contact information for certificant and employer – If the services include financial planning or the material elements of financial planning, these disclosures must be in writing The certificant shall disclose to the client any material changes to the above information in a timely manner

Topic 76: Disclosing Compensation Compensation is “any non-trivial economic benefit, whether monetary or non-monetary, that a certificant or related party receives or is entitled to receive for providing professional activities.” – Including first year commissions, renewal commissions in subsequent years, 12b-1 fees, and compensation that may result from a client referral agreement. Acceptable descriptions of compensation include “fee only”, “commission only”, or “fee and commission” – “fee-base” and “salary” are not considered accurate descriptions – Commission includes: 12b-1 fees, trailing commissions, surrender charges, contingent deferred sales charges, and compensation that may result from a client referral agreement – If the CFP® certificant or employer is entitled (has the ability) to receive commission of any form, the term “fee only” may not be used

Topic 76: Duty of Care CFP Board's base-line duty of care requires that all CFP® certificants place the interest of the client ahead of his or her own. If the engagement falls into the definition of practicing financial planning or the material elements of financial planning, the CFP® certificant is held to the duty of care of a fiduciary as defined by CFP Board – “One who acts in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client.”

Topic 76: Understanding the Rules Are you practicing financial planning or the material elements of financial planning? NO YES A written agreement is not A written agreement is required required (Rule 1.3) and must include: 1. The parties to the Agreement 2. Date and duration of the Agreement 3. How and on what terms the Agreement can be terminated 4. Services to be provided (Rule 1.3) Disclosures may be made orally Disclosures must be in writing or in writing (Rule 2.2) (Rule 2.2) Duty to place client interest ahead Duty of fiduciary as defined by CFP of certificant’s own (Rule 1.4) Board (Rule 1.4)

End of Topic 76