ETHICS CE: CFP BOARD'S REVISED CODE AND STANDARDS - StarChapter

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ETHICS CE: CFP BOARD’SREVISED CODE ANDSTANDARDSELEVATING THE PROFESSIONFinancial Planning AssociationOctober 20181DisclaimerThe content of this program is based on CFP Board’sCode of Ethics and Standards of Conduct (Code andStandards), which is effective on October 1, 2019.CFP Board created and provided this slide deck to theCE Sponsor for presentation. The presenter’s opinionsdo not necessarily represent those of CFP Board.All material associated with this program is the propertyof CFP Board and may not be resold, republished orcopied without the prior written consent of CFP Board.Copyright 2018 Certified Financial Planner Board of Standards, Inc.All rights reserved. Reproduced with permission.2

Learning Objectives1. Identify the structure and content of the revised Codeand Standards, including significant changes and howthe changes affect CFP professionals.2. Act in accordance with CFP Board's fiduciary duty.3. Apply the Practice Standards when providingFinancial Planning.4. Recognize situations when specific information mustbe provided to a Client.5. Recognize and avoid, or fully disclose and manage,Material Conflicts of Interest.3STRUCTURE, CONTENTAND SIGNIFICANT CHANGESLEARNING OBJECTIVE 1

The Revised Code And Standards Significant Changes to Content The New Structure and Organization Duties to:o Clientso Firms and Subordinateso CFP Board5Most Significant Changes To ContentExpandedApplication ofFiduciary DutyUpdated Dutiesto ClientsRevisedDefinition ofFinancialPlanningModernizedPracticeStandardsNew Processfor BankruptcyEnhancedRequirementsfor Reporting6

The Structure Has ChangedCurrent StandardsRevised Standards(Effective Until September 30, 2019)(Effective October 1, 2019)IntroductionPreambleCode of Ethics andProfessional ResponsibilityCode of EthicsRules of ConductStandards of ConductFinancial Planning PracticeStandardsPractice Standards for theFinancial Planning ProcessTerminologyGlossary7Code Of EthicsA CFP professional must:1.2.3.4.5.Act with honesty, integrity, competence, and diligence.Act in the client’s best interests.Exercise due care.Avoid or disclose and manage conflicts of interest.Maintain the confidentiality and protect the privacy ofclient information.6. Act in a manner that reflects positively on the financial planningprofession and CFP certification.8

Standards Of ConductSix Sections:1Duties Owed to Clients4Circumvention2Financial Planningand Applicationof Practice Standards5Duties Owed to Firmsand Subordinates3Practice Standards6Duties Owed to CFP Board9Integrity, Competence, DiligenceIntegrity Honesty and candor that is not subordinated to personal gainor advantage Standard anti-fraud languageCompetence Relevant knowledge and skill Gain competence, obtain assistance, limit or terminateengagement, and/or refer the ClientDiligence Timely and thorough10

Objectivity, Professionalism,CommunicationsSound and Objective Professional Judgment Exercise professional judgment that is not subordinated. Avoid considerations that could compromise objectivity.Professionalism Treat Clients and others with dignity, courtesy, and respect.Client Communications Provide accurate information in an understandable mannerand format.Comply With the Law11Confidentiality/Privacy & TechnologyConfidentiality/Privacy Applies to non-public personal information (NPPI)Exceptions for ordinary business (four) and legal/enforcement (seven)Can’t benefit from NPPIMust protect security and adopt, implement, and share written policiesSafe Harbor for Reg S-P (or equivalent)Technology Use reasonable care in selecting, using and recommending Have a reasonable understanding of assumptions and outcomes Have a reasonable basis for believing outcomes will be reliable,objective, and appropriateRefrain from Borrowing, Lending, and ComminglingFinancial Assets12

Representation ofCompensation MethodKey Terms and Concepts:Duties Owedto ClientsSales-RelatedCompensationRelated PartyCompensationRepresentationsby a CFP Professional’sFirm13Fee-Only ApplicationEarningSales-RelatedCompensation?How aboutyour Firm?Any "RelatedParty" earningSales-RelatedCompensation?If so, is theRelated Partycompensation "inconnection with"?14

Working With Additional PersonsDuties When Engaging or Recommending Develop reasonable basis Disclose compensation arrangementsDuties When Engaging Exercise reasonable careDuties When Working With Communicate about services and responsibilities Inform client if the other provider did not perform oruphold responsibilities15Duties Owed to Firms & Subordinates Use Reasonable Care When Supervising Comply with Lawful Objectives of Firm Provide Notice of Public Discipline16

Duties Owed to CFP Board Avoid Adverse Conduct Report Incidents of Apparent Adverse Conduct WithinThirty Days Provide a Narrative Statement Cooperate with CFP Board Comply with the Terms and Conditions of Certificationand License17Quick Review New Structure and Organization Duties to: Clients Firms and Subordinates CFP Board18

Real Life ScenarioMeet Chris Does not want any ofhis assets to go toprobate when he diesWorking with BarbMeet Barb CFP professionalChris is her clientSuggests Chrisestablish a living trustfor his assets andrefers Chris to MattMeet Matt Prominent Trusts andEstates AttorneyHas a writtenagreement with Barbthat if she refers a clientto him, he must refer aclient to herSITUATION: Chris dies six months later and his family discovers that the assetsBarb was not managing never were placed in the living trust. Neither Barb or Mattre-registered the assets. As a result Chris’ assets did not avoid probate.19Real Life ScenarioDiscussion: Which of the following statements aboutthis situation are true?Which of the followingstatements about this situationare true?A. Barb complied with the Duties When Recommending, Engaging,and Working with Additional Persons.B. Barb was not required to disclose to Sally the mutual-referralagreement she had with Matt because Matt offers services at abelow-market rate.C. Barb failed to communicate with Matt and Chris about the scopeof their respective services and the allocation of financialresponsibility between them.D. Barb failed to communicate with Matt about the scope of theirrespective services and the allocation of responsibilitybetween them.20

Test Your KnowledgeTrue or False:The Code and Standards contains new Duties to Clients when Selecting,Using, and Recommending Technology, and when Recommending,Engaging, and Working With Additional Persons.A CFP Professional may use the term “fee-based” to describe his or hercompensation method only if the CFP Professional satisfies the standardfor being “fee-only.”There has been no change in the reporting that a CFP Professional mustmake to CFP Board concerning events that may reflect a violation of theCode and Standards.21CFP BOARD’SFIDUCIARY DUTYLEARNING OBJECTIVE 2

The Fiduciary Duty Includes a Duty of Loyalty, a Duty of Care,and a Duty to Follow Client InstructionsApplies to all Financial Advice to a ClientDefines Financial Advice Broadly23Act in the Client’s Best InterestsDuty of Loyalty Place Client’s interests ahead of your ownConflicts: avoid or fully disclose, obtain consent, andproperly manageAct without regard to interests of othersDuty of Care Act with care, skill, prudence, and diligenceConsider Client’s goals, risk tolerance, objectives,and circumstancesDuty to Follow Client’s Instructions Comply with Terms of EngagementFollow Client’s reasonable and lawful directions24

Applies to All Financial AdviceApplication “At all times when providing Financial Advice to a Client”More expansive than when providing Financial PlanningWho is a “Client”? Any person, including a natural person,business organization or legal entityTo whom the CFP professionalprovides or agrees to provide“Professional Services”Pursuant to an “Engagement”25Financial Advice Broadly DefinedFinancial Advice:A. A communication that, based on its content, context, andpresentation, would reasonably be viewed as a recommendationthat the Client take a particular course of action with respect to:1. The development or implementation of a financial plan2. The value of or the advisability of investing in,purchasing, holding, or selling Financial Assets3. Investment policies or strategies, portfolio composition,or asset management4. The selection and retention of other persons to providefinancial or Professional Services to the Client, orB. The exercise of discretionary authority over Financial Assets.26

Quick Review Duty of LoyaltyDuty of CareDuty to Follow Client InstructionsFiduciary Duty Applies to All Financial AdviceFinancial Advice Broadly Defined27Real Life ScenarioMeet Allison CFP professionalMeet Peter Allison’s client who prefers topurchase individual stocksSITUATION: Peter recently came to Allison with a specific stock and asked what she“thought” about the stock. Allison responds to Peter, stating that she thinks it is agood company and that the stock is undervalued at its current price. Peter directsAllison to purchase the stock.28

Real Life ScenarioDiscussion: Which of the following statements aboutthis situation are true?A. Allison does not owe Peter a fiduciary duty because Peterselected the specific stock.B. Allison owes Peter a fiduciary duty because she providedFinancial Advice when she communicated with Peter regardingthe advisability of purchasing the stock.C. Allison does not owe Peter a fiduciary duty because Peterultimately directed Allison to purchase the stock after Allisonprovided her opinion on the stock.D. Allison owes Peter a fiduciary duty because she purchased thestock for Peter.29Test Your KnowledgeTrue or False:Under the Code and Standards, whether a CFP Professional has afiduciary duty depends on whether the CFP Professional is providing“Financial Planning.” A CFP Professional may provide Financial Advicewithout owing a Fiduciary Duty.In order for there to be Financial Advice, there must be compensation.A CFP Professional who provides marketing materials and generalfinancial education materials is “Providing Financial Advice.”The Duty to Follow Client Instructions is absolute. There are no exceptions.30

APPLYING THEPRACTICE STANDARDSLEARNING OBJECTIVE 3Updated Practice Standards Updated Financial Planning DefinitionA Revised Standard for DeterminingWhether the Practice Standards ApplyOptions When Required to Comply withthe Practice Standards but the ClientDoes Not Want Financial PlanningDocumentationUpdates to Steps in the FinancialPlanning Process32

An Updated Financial Planning DefinitionCurrent StandardsRevised Standards(Effective Until September 30, 2019)(Effective October 1, 2019)“Personal financial planning” or“financial planning” denotes theprocess of determining whetherand how an individual can meetlife goals through the propermanagement of financialresources. Financial planningintegrates the financial planningprocess with the financialplanning subject areas.Financial Planning is acollaborative process that helpsmaximize a Client’s potential formeeting life goals throughFinancial Advice that integratesrelevant elements of the Client’spersonal and financialcircumstances.33Application of the Practice StandardsThe Practice Standards Apply When:The CFP professional agrees toprovide or providesFinancial PlanningThe CFP professionalagrees to provide orprovides FinancialAdvice that requiresintegration of relevantelements to act inClient’s best interestsThe Client has areasonable basis tobelieve the CFP professional will provideor has providedFinancial Planning34

When Integration Is RequiredThe Integration Factors: Number of relevant elements Portion and amount of theClient’s assets affected Length of time the Client’scircumstances may be affected Effect on exposure to risk Barriers to modification ofFinancial Advice35CFP Board Evaluation If CFP Board alleges a Practice Standards violationAnd the CFP professional denies the allegationsThen the CFP professional has the burden of demonstrating thatFinancial Planning was not required36

Clients Who Do Not WantFinancial PlanningIf a CFP professional otherwise must comply with thePractice Standards, but the Client does not agree toengage for Financial Planning, a CFP professionalmust either: Not enter into the Engagement Limit the scope to services thatdo not require Financial Planning Provide the requested service butexplain the benefits of Financial Planningand limitations on services Terminate the Engagement37Documentation RequirementIf required to comply with the Practice Standards, aCFP professional must act prudently in documentinginformation, taking into account: The significance of the informationThe need to preserve the information in writingThe obligation to act in the Client’s best interests andThe CFP Professional’s Firm’s policies and procedures38

Current Practice Standards(Effective Until September 30, 2019)New Practice Standards(Effective October 1, 2019)1. Establishing and Defining the Relationshipwith the ClientMoved to Section A.10: Provide Informationto a Client2. Gathering Client Data1. Understanding the Client’s Personal andFinancial Circumstances2. Identifying and Selecting Goals3. Analyzing and Evaluating the Client’sFinancial Status4. Developing and Presenting the FinancialPlanning Recommendations (Identifying andEvaluating Alternatives)3. Analyzing the Client’s Current Course ofAction and Potential Alternative Course(s) ofAction4. Developing and Presenting FinancialPlanning Recommendations (DevelopingRecommendations)4. Developing the Financial PlanningRecommendation(s)4. Developing and Presenting FinancialPlanning Recommendations (PresentingRecommendations)5. Presenting the Financial PlanningRecommendation(s)5. Implementing the Financial PlanningRecommendations6. Implementing the Financial PlanningRecommendation(s)6. Monitoring7. Monitoring Progress and Updating39Circumstances, Goals, OptionsStep 1: Understanding Personal and FinancialCircumstances Obtaining Qualitative and Quantitative Information Analyzing Information Addressing Incomplete InformationStep 2: Identifying and Selecting Goals Identifying Potential Goals Selecting and Prioritizing GoalsStep 3: Analyzing the Client’s Current and PotentialAlternative Course(s) of Action Analyzing Current Course of Action Analyzing Potential Alternative Course(s) of Action3840

Developing and PresentingStep 4: Developing the Financial PlanningRecommendation(s) Select recommendation(s) to maximize Client potential formeeting goals For each recommendation, consider:ooooAssumptions and EstimatesBasis for RecommendationTiming/PriorityInterdependency of RecommendationStep 5: Presenting the Financial PlanningRecommendation(s) Present recommendations Present information considered in developing the recommendation(s)41Implementing and MonitoringStep 6: Implementing the Financial PlanningRecommendation(s) Address implementation responsibilitiesIdentify, analyze and select actions, products and servicesRecommend actions, products, and services for implementationSelect and implementStep 7: Monitoring Progress and Updating Monitoring and updating responsibilitiesMonitor the Client’s progressObtain current qualitative and quantitative informationUpdate goals, recommendations or implementation decisions42

Quick Review Updated Definition - Financial Planning Revised Standard - Determining Whetherthe Practice Standards Apply Updated Steps - Financial Planning Process43Real Life ScenarioMeet Susan Leaves her investment managerbecause of fees and performanceMeet Blaine A CFP professional, who reviews herinformationSITUATION: Susan requests the following services: investment management, insurance planning, andretirement planning.Blaine tells Susan that these areas affect almost all her assets, and that he would need toprovide Financial Planning to provide these services.Susan refuses to pay the extra costs or enter into a Financial Planning Engagement.Blaine concludes that he can avoid providing Financial Planning by limiting the Scope ofEngagement to cover only investment management.44

Real Life ScenarioWhich is the best course of action?A.Blaine should do what Susan wants and provide investmentmanagement, insurance planning, and retirement planning.B.Blaine should have Susan sign a waiver granting him permission toprovide investment management, insurance planning, and retirementplanning, but not Financial Planning, and then provide the threeservices.C.Blaine should provide investment management, insurance planning,and retirement planning after informing Susan how Financial Planningwould benefit Susan and how the decision not to engage Blaine toprovide Financial Planning may limit Blaine’s Financial Advice.D.Blaine should provide the investment management, insurance planningand retirement planning after informing Susan in writing how FinancialPlanning would benefit Susan and that Blaine will not be providingSusan with Financial Planning.45Test Your KnowledgeTrue or False:A CFP professional providing Financial Planning must document all communicationswith the Client.There are seven steps in the Financial Planning process.If a Client does not want to enter into a Financial Planning Engagement, but a CFP professional believes that the scope of the work requested requires the CFP professional to comply with the Practice Standards, the CFP professional may limitthe scope of the Engagement to services that do not require application of thePractice Standards.The effect of the Financial Advice on the Client’s exposure to risk is what determineswhether a CFP professional is required to provide Financial Planning.46

INFORMATION THATMUST BE PROVIDEDTO THE CLIENTLEARNING OBJECTIVE 4Providing Information to a Client Timing, delivery, andupdating requirements Eight categories of informationmust be provided Additional requirements whenproviding Financial Planning48

Timing, Delivery, and UpdatingTiming: Prior to or at the time of the EngagementDelivery: Financial Advice: No written requirement, but must document Financial Planning: Provide in one or more written documents Conflicts of Interest: Not required to be provided in writing, butevidence of oral disclosure will be given such weightUpdating: Ongoing duty to provide Client with a Material change or update Updates to disciplinary history or bankruptcies within 90 days49The Information That Must Be ProvidedA description of the services and products to be providedHow the Client pays for the products and services, and a description of theadditional types of costs the Client may incurHow the CFP professional, the CFP Professional’s Firm, and any RelatedParty are compensated for providing the products and servicesRelevant websites that have information about disciplinary actions andbankruptciesOther information that is Material to a Client’s decision to engage orcontinue to engageFull disclosure of all Material Conflicts of InterestPolicies regarding the protection, handling, and sharing of non-publicpersonal informationInformation required under the Engagement and in response to reasonableClient requests50

Terms of EngagementWhen Providing Financial PlanningThe Terms of the Engagement include:a) the Scope of the Engagement and any limitations,b) when the services will be provided, andc) the Client’s Responsibilities51Quick Review Information provided to Clients Timing, Delivery, and Updating52

Real Life ScenarioMeet Carlos Is a CFP professional with nobankruptcy or disciplinary historyMeet Jayla A prospect, meets with Carlos andhires him for Financial Advice notrequiring Financial Planning.SITUATION: Carlos orally discloses all Material Conflicts of Interest.Both sign a written Engagement describing the services and products to be provided, howJayla pays for them, the additional types of costs Jayla may incur, and how Carlos, his firm,and Related Parties are compensated for providing the products and services.The agreement makes Jayla responsible for implementation, monitoring, and updating. Carlosprovides another document describing his firm’s policies regarding the protection, handling,and sharing of Jayla’s non-public personal information.53Real Life ScenarioHas Carlos provided the required information to Jayla?A.Carlos has provided the required information set forth in the revisedCode and Standards.B.Carlos has not provided the required information to Jayla because hecannot say that a Client is responsible for implementation, monitoring, andupdating.C.Carlos has not provided the required information to Jayla because theagreement does not include a written disclosure of all Material Conflicts ofInterest.D.Carlos has not provided all required information to Jayla because shefailed to provide her with the location of the webpages where anygovernmental authority, self-regulatory organization, or professionalorganization that may set forth any public disciplinary history or personalbankruptcy or business bankruptcy where the CFP professional was aControl Person.54

RECOGNIZE AND AVOIDOR DISCLOSE ANDMANAGE CONFLICTSLEARNING OBJECTIVE 5Conflict of Interest ObligationsMaterial Conflictof Interest Avoid Material Conflicts of Interest For Material Conflicts that are not avoided:o Provide Full Disclosureo Obtain Informed Consento Manage the Conflict in the Client’s Best Interests56

Duty to Fully Disclose Material ConflictsMaterial Conflictof InterestDiscloseDisclosure Obligation: Fully disclose all Material Conflicts of Interest that could affect theprofessional relationshipConflict of Interest Defined: When interests of CFP professional (and firm) are adverse to the CFP professional’s duties to the Client,or When CFP professional has duties to one Client that are adverse toanother ClientMaterial: When a reasonable Client or prospective Client would consider the Conflictof Interest important in making a decision57Full Disclosure and Informed ConsentMaterial Conflictof InterestDiscloseInformedConsentDisclose “Sufficiently Specific Facts” Would a reasonable Client understand the conflict and how it couldaffect the advice?Ambiguity interpreted in favor of the ClientDelivery: Written disclosure is not requiredOral disclosure weighed as CFP Board deems appropriateObtain Informed Consent Written consent is not requiredWhen will consent be inferred?58

Must Also Manage ConflictsMaterial Conflictof InterestDiscloseInformedConsentManageManagement of Conflicts Must adopt and follow business practices reasonably designed toprevent Material Conflicts from compromising the CFP professional’sability to act in the Client’s best interests59Quick Review Disclose Material Conflicts of Interest Obtain Informed Consent Manage the Conflicts60

Real Life ScenarioMeet Aisha A CFP professional who wants to represent Ultra High Net Worth Clients anddetermines that one hallmark of these Clients is their propensity towardphilanthropy.Aisha is a board member of a local community foundation, a large nonprofithospital, and her church.Through her various philanthropic roles, Aisha meets several Clients who wanther to provide them with financial planning, including assisting them with makingchoices regarding their philanthropic giving.Depending on the circumstances, Aisha may consider recommending that Clientsgive to an organization for which she serves as a board member.61Real Life ScenarioDiscussion: Is there a Material Conflict of Interest?If yes, how could Aisha manage these conflicts?A.Yes, there is a Material Conflict of Interest. Aisha should disclose herboard membership, and notify her Clients of the Conflict of Interest thatthe membership presents to her when assisting Clients with theirphilanthropic giving. Aisha also should put into place businesspractices that will prevent her work with these organizations fromcompromising her ability to act in her Client’s best interests.B.Yes, there is a Material Conflict of Interest. Aisha should decline toenter into an agreement with prospective Clients and terminate anyagreements with existing Clients who intend to make philanthropic gifts.C.No, there is not a Material Conflict of Interest because her boardmembership will add to the value of the advice Aisha provides toher Clients.62

Test Your KnowledgeTrue or False:A Conflict of Interest is present when the interests of the CFP professionaland the interests of the Client are adverse.Ambiguity in a Conflict of Interest disclosure provided to a Client will beinterpreted in favor of the Client.A sincere belief by a CFP professional with a Material Conflict of Interestthat he or she is acting in the best interests of the Client is sufficient toexcuse the CFP professional’s failure to make full disclosure of theMaterial Conflict of Interest.63Recommended Resources www.CFP.net Full version new Code and Standards Commentary on the new Code andStandards64

THANK YOU65

Code of Ethics and Professional Responsibility Code of Ethics Rules of Conduct Standards of Conduct Financial Planning Practice Standards Practice Standards for the Financial Planning Process Terminology Glossary Code Of Ethics 8 A CFP professional must: 1. Act with honesty, integrity, competence, and diligence. 2. Act in the client's best .

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