CFP Board Ethics Workshopsouthfloridafpa.org/.../2017/04/Handout-CFP-Ethics-Ross.pdf · Program...

CFP Board’s Code of Ethics Program

CFP Board Ethics

Workshop

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Table of Contents Workshop Information iii

Introduction iv Presentation Slides

What’s Covered (Slide 2) 1

I. CFP Board: 2016 Learning Objectives (Slides 3-6) 1

II. Why Study Ethics? (Slides 7-14) 2

III. CFP Board’s Code of Ethics and Professional Responsibility (Slides 15-30) 3

IV. Financial Planning Practice Standards (Slides 31-77) 6

Appendix Fact Patterns (Practice situations illustrating the Practice Standards) 14

“Is This Financial Planning?” Scenarios 23

Sample CFP® Certificant Disclosure Forms 24

Form FPD 24

Form FPDA 26

Form OPS 28 29 Financial Worksheets (Life Values, Financial Goals)

Terminology from the Standards of Professional Conduct 31

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51A Middle St Newburyport MA 01950 Phone: 800-588-7039 Fax: 877-902-4284

[email protected] www.bhfe.com

Workshop Information Date: 4/28/2017

Hosting organization: FPA of South Florida

Location: Renaissance Boca Raton Hotel Boca Raton, FL

Program Title: CFP Board Ethics Workshop CFP Board program I.D. number: 224259 Type of program: Live Presentation Program duration: 100 minutes (per CFP Board requirements)

Number of continuing education credit hours awarded for this program: 2 CFP Board subject code: G; CFP Board Code of Ethics This course is approved by CFP Board for the Code of Ethics and Practice Standards. Level of Complexity: Intermediate.Beacon Hill Financial Educators is CFP Board sponsor number 1008.

Instructor(s): Michael Ross, CFP® Program materials: CFP Board Ethics Workshop Power Point presentation, handout–©2016 Beacon Hill Financial Educators. Content Developers: by Renee Porter-Medley, CFP® Practitioner, Christine Cargnoni CFP® Professional.

Program Learning Objectives: See page 1, slides 3-6.

Instructions for attending this program and receiving CFP Board Ethics CE credit: Sign-in on the roster (electronic or paper).

o Accuracy is important–we use this information for reporting your credits to CFP Board.o We must have the last four digits of your social security number and/or your CFP

Board I.D. number in order to report your credits. At the conclusion of the workshop, you will be given a certificate of completion. As always, we welcome your feedback on this workshop or on our service. An evaluation

form will be provided for this purpose.

About Beacon Hill Financial Educators Beacon Hill Financial Educators is a continuing education provider of self-study and live-seminar programs for professionals in the financial services field. We are an approved CE sponsor for the Certified Financial Planner Board of Standards, National Association of State Boards of Accountancy, and the Internal Revenue Service. For more information on our programs, please visit at www.bhfe.com or call us at 800-588-7039.

mailto:[email protected]

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CFP Bo ar d Et h i c s Wor k shop ™

Introduction Beacon Hill Financial Educators is pleased to present the CFP Board Ethics Workshop to CFP Board certificants. Our goal is to help you understand the minimum standards of ethical and professional conduct that are expected of all CFP Board certificants, in accordance with the directives established by CFP Board. The value of the CFP® marks is directly tied to the Code of Ethics and Professional Responsibility and CFP Board’s enforcement of this Code. CFP Board has provided CFP® certificants with very clear guidelines to follow in their practices and their professions to ensure that they uphold the high ethical standards incorporated into the Code of Ethics and the Financial Planning Practice Standards.

Questions concerning the Code of Ethics and Professional Responsibility can be directed to: Certified Financial Planner Board of Standards, Inc.

1425 K St NW, Ste 800

Washington, DC 20005

Telephone: (800) 487-1497

E-mail: [email protected] Web site: www.CFP.net

While the materials for the course have been approved by CFP Board as meeting the established standards for continuing education, CFP Board does not review the method or means of presentation and, therefore, makes no representation concerning the delivery of this information to the CFP® certificant.

Disclaimer: CFP Board’s Code of Ethics and Professional Responsibility, Financial Planning Practice Standards, Anonymous Case History and Advisory Opinions are the property of CFP Board and may not be resold, republished or copied without the prior consent of CFP Board. Copyright Notice: “Copyright ©2016 Certified Financial Planner Board of Standards, Inc. All rights reserved. Reproduced with permission.”

David H. FreedDavid H. Freed President Beacon Hill Financial Educators January 1, 2016

B e a c o n H i l l F i n a n c i a l E d u c a t o r s 5 1 A M i d d l e S t N e w b u r y p o r t , M A 0 1 9 5 0 Phone: 800-588-7039 Fax: 877-902-4284 [email protected] www.bhfe.com

mailto:[email protected]

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Presents

CFP Board Ethics Workshop

What’s Covered?

I. CFP Board: 2016 Learning Objectives

II. Why Study Ethics?

III. CFP Board’s Code of Ethics andProfessional Responsibility

IV. The Six-Step Financial PlanningProcess and the Financial PlanningPractice Standards

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I. CFP Board: 2016Learning Objectives

1. Define and discuss a financialplanning engagement, materialelements of financial planning, andthe financial planning process.

2. Analyze specific fact patterns todetermine if a financial planningrelationship exists.

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3. Differentiate between the standardsof care set forth in Rules 1.4 and 4.5of the Rules of Conduct, and applyeach standard of care to specificfactual situations.

4. Apply each Practice Standard setforth in the Financial PlanningPractice Standards to a hypotheticalfinancial planning engagement.

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5. Identify the information that must bedisclosed to the client in writing by aCFP® professional who is engagedin a financial planning relationshipor providing material elements offinancial planning.

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6. Define the required information thatmust be disclosed to clients andprospective clients, when thatinformation must be disclosed, andapply each disclosure requirementto specific factual situations.

(This includes but is not limited to the compensation and conflict-of-interest disclosure requirements set forth in Rule 2.2 of the Rules of Conduct and

Practice Standards 100-1, 400-3, 500-1.)6

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II. Why Study Ethics?• Ethics deals with well-based

standards of how people ought to act.

• Ethics does not describe the way people do act—it deals with the way people should act, and it is prescriptive, not descriptive.

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The value of the CFP® marks is directly tied to the Code of Ethics and CFP Board’s enforcement of this Code.

Protect the CFP® Marks, Protect the Public

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• Comply with laws/regulations

• Comply with CFP Board’s Code of Ethics

• Act in an ethical and responsible manner in their professional activities to serve in the interests of the public.

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All CFP® Certificants have agreed to:

Financial planners must often play the role of coach, counselor, or life planner when issues raised by clients involve human drama and frailties.

Financial Planning: Fertile Ground for Ethical Dilemmas

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“Do you ever engage in non-financial coaching and counseling?”

“Do you ever work with distraught clients?”

The Emerging Role of CFP® Practitioners

(Show of hands):

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“Have you ever dealt with a suicidal client?”

. . . Even in the most emotional situations . . . (Show of hands):

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Just because you can discuss an issue,should you?• Rule 4.2: “A certificant shall offer

advice only in those areas in whichhe or she is competent to do so.”

• Survey: Respondents who hadreceived training in personalcoaching and/or life planning . . .

-Journal of Financial Planning: Sussman and Dubofsky, 2009)13

Today’s financial planners navigate through ethical dilemmas by calling on:

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• Ethical values that are grounded inpersonal ethical principles

• Knowledge of the principles andrules established by the profession

• The ability to use reasoning andjudgment

III. CFP Board’sCode of Ethics and Professional Responsibility

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• Principles serve as a framework inwhich rules can be interpreted andfollowed.

• Rules are a prescribed guide forconduct or action.

• Judgment is needed to interpret andfollow the rules within the frameworkof the principles, as called for by thesituation.

Using Principles, Rules, and Judgment

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• Between one’s own principles

• Between one’s own principles andthose of others

• Between one’s own principles andthose of one’s profession.

But principles can be the source of ethical conflict:

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• Rules cannot take into account allpossible cases

• Rules make use of terms thatrequire interpretation

• It is difficult to interpret rules unlesswe know their intent (from principles)

Rules can also be the source of ethical conflict:

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And if principles or rules aren’t clear or don’t exist, the logical path to take may be unclear.

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• Ethical and professional idealscertificants are expected to display

• Aspirational in character

• Provide a source of guidance

The Principles of theCFP Board Code of Ethics

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INTEGRITYOBJECTIVITYCOMPETENCEFAIRNESSCONFIDENTIALITYPROFESSIONALISMDILIGENCE

The Seven Principles form the basis of CFP Board’s Rules of Conduct, Practice Standards, and Disciplinary Rules.

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The first Principle is

Integrity:“Provide professional services with integrity.”

- “Integrity demands honestyand candor . . .”

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The second Principle is

Objectivity:“Provide professional services objectively.”

- “Intellectual honestyand impartiality.”

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The third Principle is

Competence:“Maintain the knowledge and skill necessary to provide professional services competently.”

- “Attaining and maintainingadequate level of knowledgeand skill.”

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The fourth Principle is

Fairness:“Be fair and reasonable in all professional relationships. Disclose conflicts of interest.”

- “. . . requires impartiality, intellectual honesty . . .”

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The fifth Principle is

Confidentiality:“Protect the confidentiality of all client information.”

- “. . . ensuring that information is accessible only to those authorized to have access. . .”

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The sixth Principle is

Professionalism:“ Act in a manner that

demonstrates exemplary professional conduct.”

- “ . . . behaving with dignity andcourtesy to clients, fellow professionals, and others . . .”

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The seventh Principle is

Diligence:“Provide professional services diligently.”

- “. . . provision of services in a prompt and thorough manner.”

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• “Establish the high standards expected of certificants.”

• “Describe the level of professionalism required of certificants.”

• “Are binding on all certificants.”

CFP Board’s Rules of Conduct:

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Furrow:

“In order to make good decisions, it is not enough to simply know what rules we should follow. We have to know how to adapt those rules to our circumstances, and to do that effectively we must know why certain moral norms are justified. This is a philosophical question.”

Some Rules may not apply to a specific activity

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Part IV.The Financial Planning Practice Standards

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The Practice Standards• “Establish the level of professional

practice that is expected of certificants engaged in financial planning.”

• “Compliance with the Practice Standards is mandatory for certificants whose services include financial planning or material elements of the financial planning process.”

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Six Steps in the Financial Planning Process:

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Establishing/defining the client-planner

relationship

Gathering client data & goals

Analyzing, evaluating

client’s current financial status

Developing & presenting

recommendations

Implementing recommendations

Monitoring recommendations

Step 1 2 3 4 5 6in theFinancial Planning Process:Establishing and Defining the Relationship with the Client

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Practice Standard 100-1:

Defining the Scope of the Engagement

“The financial planning practitioner and the client shall mutually define the scope of the engagement before any financial planning service is provided.”

Step 1 2 3 4 5 6 in the Financial Planning Process:Establishing and Defining the Relationship with the Client

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(PS 100-1 Scope of Engagement )

Principles: Fairness, Diligence

Rules of Conduct:• Mutually agree on services to be provided (1.1)

• Provide necessary information to client verbally or in writing as required (1.2, 1.3)

• Provide required disclosures (2.2)

Step 1 2 3 4 5 6 in the Financial Planning Process:Establishing and Defining the Relationship with the Client

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The Engagement: Is it Financial Planning?

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It Depends on:

• Client’s understanding and intent

• Degree to which multiple financial planning subject areas are involved

• Comprehensiveness of data gathering

• Breadth and depth of recommendations.

Probably yes, if you are:

• Conducting detailed data-gathering regarding multiple aspects of a client’s financial situation

• Analyzing the client’s data, making wide-ranging recommendations

Does it Involve Material Elements of the Financial Planning Process?

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• Even if there is no comprehensive written financial plan

• Based on what was communicated to the client and the client’s resulting perception

An Engagement May Include Material Elements of the Financial Planning Process

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. . . if the engagement involves financial planning or material elements of the financial planning process . . .

A Written Agreement is Required

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The agreement should include:

• Parties to the agreement

• Date and duration of the agreement

• Terms for terminating the agreement

• Services to be provided

• Additional information to

• Define or limit the scope

• Disclose conflicts of interest41

(Disclosures in writing if services include financial planning or material elements of financial planning)

• Compensation arrangements

• Likely conflicts of interest

• Information about the certificant, his/her employer that could materially affect the client’s decision to engage certificant

• Contact information

Disclosures During Step 1 Relationship/Engagement:

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Disclosers to All Clients & Prospective Clients for All Engagements

Compensationrelated to the client engagement

These disclosures must be in writing if:Services include financial planning, material elements of financial planning process.

Conflicts of interestaffecting the client engagement

Relevant informationabout CFP® professional & employer

Contact information for the CFP® professional & employer

Step 1 2 3 4 5 6in the Financial Planning Process:

Gathering Client Data

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Determining a Client’s Personal and Financial Goals, Needs, and Priorities

“The financial planning practitioner and the client shall mutually define the client’s personal and financial goals, needs, and priorities that are relevant to the scope of the engagement before any recommendation is made and/or implemented.”

Step 1 2 3 4 5 6 in the Financial Planning Process:


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Practice Standard 200-2: Obtaining Quantitative Information and Documents

“Obtain sufficient and relevant quantitative information and documents relevant to the scope of the engagement before any recommendation is made and/or implemented.”



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(PS 200-1,2

• Client’s Goals, Needs, and Priorities

• Quantitative Information and Documents)

Principle: Diligence



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Rules of Conduct:• Obtain the information necessary to fulfill

obligations or inform prospective client orclient of material deficiencies (3.3 )

• Exercise reasonable and prudentprofessional judgment in providingprofessional services to clients (4.4)

• Make and/or implement onlyrecommendations that are suitable (4.5)

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• Values-What is truly important to the client about money and finances?

• Goals-What does the client want to achieve over the long run?

• Relationships-Who really counts for your client?

• Assets-What are the client’s assets? Where and how are they held?

Patricia J. Abram:

The Total Client Profile

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• Advisors-Who does the client rely on for advice?

• Process-How will you and the client interact and work with each other?

• Interests-What are the client’s interests: hobbies, sports and leisure activities, charitable and philanthropic involvements, etc.

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See worksheets in the Appendix of the handout.

Life Values WorksheetFinancial Goals Worksheet

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Step 1 2 3 4 5 6in the Financial Planning Process:Analyzing and Evaluating the

Client’s Financial Status

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Analyzing and Evaluating the Client’s Information

“A financial planning practitioner shall analyze the information to gain an understanding of the client’s financial situation and then evaluate to what extent the client’s goals, needs and priorities can be met by the clients resources and current course of action.”


Analyzing and Evaluating Client Information

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(PS 300-1 Analyzing/Evaluating the Client’s Information)

Principles:Objectivity, Competence, Diligence


Analyzing and Evaluating Client Information

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• Place the interest of the client ahead ofyour own. For financial planning or materialelements of the financial planning processyou have the duty of care of a fiduciary (1.4 ).

• Treat clients fairly and provide serviceswith integrity and objectivity (4.1).

• Exercise reasonable and prudentprofessional judgment (4.4).

• Make/implement recommendations that aresuitable for client (4.5).

Rules of Conduct:

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Fiduciary ResponsibilityFiduciary:One who acts in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client.

Important during Steps 3, 4, & 5:#3: Analyzing, evaluating client’s status#4: Developing, presenting

recommendations#5: Implementing recommendations.

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Step 1 2 3 4 5 6in the Financial Planning Process:Developing and Presenting

the Financial Planning Recommendation(s) 57

Practice Standard 400-1

Identifying and Evaluating Financial Planning Alternative(s)

“Consider sufficient and relevant alternatives to the client’s current course of action in an effort to reasonably meet the client’s goals, needs, and priorities.”


Developing and Presenting the Financial Planning Recommendation(s)

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Developing the Financial Planning Recommendation(s)

“Develop the recommendations based on the selected alternatives and the current course of action to meet the client’s goals, needs, and priorities.”



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Presenting the Financial Planning Recommendation(s)

“Communicate the recommendations in a manner and to an extent reasonably necessary to assist the client in making an informed decision.”



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(PS 400-1,2,3 • Identifying/Evaluating Alternatives

• Developing Recommendations

• Presenting Recommendations)

Principles:



• Integrity (PS 400-3 only)

• Objectivity• Competence (PS 400-1, 2)

• Professionalism• Diligence (PS 400-1, 2)

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• Place the interest of the client ahead of your own. For financial planning or material elements of the financial planning process you have the duty of care of a fiduciary (1.4 400-1 only)

• Treat clients fairly, provide services with integrity and objectivity (4.1)

• Make and/or implement only recommendations that are suitable (4.5)

Rules of Conduct:

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• Exercise reasonable and prudent professional judgment in providing professional services (4.4-PS 400-2 and 3)

• Do not

• communicate false or misleading information related to your qualifications or services

• mislead the client about potential benefits

• fail to disclose / omit facts (2.1 PS 400-2 &3)

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Important New Learning Objective: 1.4 Vs 4.5Rule 1.4:“A certificant shall at all times place the interest of the client ahead of his or her own. When the certificant provides financial planning or material elements of the financial planning process, the certificant owes the duty of care of a fiduciary as defined by CFP Board.”

Rule 4.5 “In addition to the requirements of Rule 1.4, a certificant shall make and/or implement only recommendations that are suitable for the client.”

Disclosures During Step 4 / Recommendations:

(Required in writing if services include financial planning or material elements of financial planning)

Any conflicts of interest not previously disclosed

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Step 1 2 3 4 5 6in the Financial Planning Process:Implementing the Financial Planning Recommendation(s)

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Agreeing on ImplementationResponsibilities

“The financial planning practitioner and the client shall mutually agree on the implementation responsibilities consistent with the scope of the engagement.”


Implementing the Financial Planning Recommendation(s)

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Selecting Products and Services for Implementation

“The financial planning practitioner shall select appropriate products and services that are consistent with the client’s goals, needs, and priorities.”


Implementing the Financial Planning Recommendation(s)

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(PS 500-1, 2 •Implementation Responsibilities

• Products and Services for Implementation)

Principles:• Competence• Fairness• Professionalism• Diligence

Step 1 2 3 4 5 6 in the Financial Planning Process:Implementing the Financial Planning Recommendation(s)

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• Provide necessary information/disclosures to client, verbally or in writing as required (1.2, 2.2)

• Place interest of the client ahead of your own For financial planning/material elements: Duty of care of a fiduciary (1.4)

• Treat clients fairly, provide services with integrity and objectivity (4.1)

• Exercise reasonable/prudent judgment (4.4)

• Make/implement suitable recommendations (4.5)

Rules of Conduct:

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Disclosures During Step 5 /Implementation:(Required in writing if services include

financial planning or material elements of financial planning).

• Conflicts of interest

• Sources of compensation

• Material relationships with other professionals

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Step 1 2 3 4 5 6in the Financial Planning Process:

Monitoring

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Defining Monitoring Responsibilities

“The financial planning practitioner and client shall mutually define monitoring responsibilities.”

Step 1 2 3 4 5 6 in the Financial Planning Process:Monitoring

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(PS 600-1 Monitoring Responsibilities)

Principle: Diligence

Step 1 2 3 4 5 6 in the Financial Planning Process:Monitoring

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• Provide necessary information to clientverbally or in writing as required (1.2)

• Obtain information necessary to fulfillobligations or inform client of deficiencies (3.3)

• Clearly identify the assets over which you willtake custody, exercise investment discretion,exercise proper supervision (3.4)

• Treat clients fairly, provide services withintegrity and objectivity (4.1)

Rules of Conduct:

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Compliance Resources at www.cfp.net

• Anonymous Case Histories

• Standards FAQ

• Advisory opinions and guidelines

• Compliance checklist

• Sample forms and documents

• Webinars

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We wish you all smooth sailing!

Visit our self-study online store at: www.bhfe.com

© 2016 Beacon Hill Financial Educators, Inc. 77

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Appendix FACT PATTERNS The following Fact Patterns are used in the presentation to illustrate the six steps in the financial planning process.

Step 1 –Scope of Engagement

Fact Pattern 1A: Using the Practice Standards to Avoid a "Premature Engagement"

Charlie Smith, a potential client, is introduced to Tom Jones, a CFP® professional, at a networking event. Charlie takes the opportunity to inquire about Tom's financial planning services. Tom gives Charlie his business card and invites him to call to set up an appointment.

Charlie arrives at Tom's office for the initial meeting. Tom knows that most prospective clients have something in mind when they first contact the practitioner, so, after the two get acquainted, he asks Charlie "Tell me generally, why are you here?"

As Tom assesses the potential for a financial planning engagement with Charlie, he also looks out for any issues that need to be addressed up front. Tom wants to know, for example if a relationship with Charlie is a "good fit" in terms of his services and expertise, and if there are any potential conflicts of interest or other issues that need to be addressed prior to entering into an agreement.

In answering Tom's question, Charlie responds "I wanted to come in and talk with you about helping me improve my day-trading results—I'd like to know what stocks you like and what other types of investments you recommend to your clients."

At this point Tom, like any CFP® professional, is going to be cautious about providing any substantive information to a prospective client until an engagement has been discussed and agreed upon, and an agreement is executed. The mere discussion of any elements of financial planning can lead the prospective client to believe that a financial planning relationship in fact exists, even if there is no mutually agreed upon engagement or formal agreement.

As a precaution, Tom explains that, before he can respond to Charlie's questions, they need to mutually agree on an engagement. Tom gives Charlie a brochure describing his services and a consumer guide to the financial planning process.

Charlie agrees to review the material and think over what Tom said, and give him a call if he wants to talk further.

Discussion

This is an example of a basic get-to-know-the-client scenario. Practitioners need to approach this process carefully as they assess the potential client's needs and their ability to meet those needs, while at the same time they look for an opportunity to secure a new client.

The Principle of Integrity states: Integrity demands honesty and candor which must not be subordinated to personal gain and advantage.

The Principle of Objectivity states: Objectivity requires intellectual honesty and impartiality.

(Rules 1.1, 1.2, 2.1, 4.1)

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Step 1: Scope of Engagement

Fact Pattern 1B: Defining the Scope of Engagement for a Home Purchase

Jimmy and Laurie Conner want to buy their first home. They have been married for two years, their income is growing steadily, and they want to start a family.

After initially interviewing several CFP® professionals to find the right relationship, the Conners decide to engage Lisa Howard, a CFP® professional.

Since the Conners already have in mind the type of services they need, they are ready to jump right in and begin working with Lisa to define the scope of engagement.

After Lisa and the Conners mutually agree on the scope of the engagement, Lisa prepares a written agreement under which Lisa will provide a financial analysis of the Conner's current status in order to determine how much they can afford for a home.

The Conners specify that the maximum amount of their available income should be used to qualify for the mortgage, as they wish to buy the largest house possible.

With the agreement signed and the necessary qualitative and quantitative information received from the Conners, Lisa begins analyzing the information on the Conner's goals, needs, and priorities, and their current situation, including their income, expenses, and employment status.

After completing her analysis, Lisa creates a budget plan to determine the amount of mortgage financing the Conners can afford. She then meets with the Conners to present her findings and recommendations.

Discussion

In this situation, the scope of the engagement is limited to the determination of the Connor's ability to finance the purchase of a home. However, a financial planning relationship does exist since the individual services of data gathering, analysis, and budget planning represent multiple elements of the financial planning process.

As with any financial planning engagement, whether limited in scope or for the creation of a full financial plan, the process of mutually defining the scope of the engagement and spelling out the obligations and responsibilities of all parties in the engagement serves to establish realistic expectations for the client and the practitioner.

(Rule 1.1, 1.2, 1.4, 3.3, 4.4, 4.5)

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Step 2 Goals, Needs, Objectives

Fact Pattern 2: Defining Personal Goals to Meet Objectives

Stephanie Sweet has just turned 34 years old and is realizing that life is passing her by. She wants to travel but also needs to start saving for retirement. The trips she takes are expensive, and she is concerned about her financial situation. Stephanie's parents urge her to engage their CFP® Professional, John Johnson.

At their initial meeting, John explains that if Stephanie wants to engage John's services, the financial planning relationship will need to be completely separate from the one that he has with her parents.

Stephanie and John discuss Stephanie's needs and mutually agree on a scope of engagement, which calls for the development of a full financial plan. John draws up a written agreement containing the services to be provided along with the necessary information and disclosures, including the compensation arrangement. The agreement is signed by both parties and Stephanie gives John the first payment. John gives Stephanie worksheets to complete that will help him ascertain Stephanie's goals, needs, and priorities.

At their next meeting, John reviews the worksheets with Stephanie to make sure that all the necessary information is provided and is accurate. However, John discovers that Stephanie has not provided the level of financial information necessary for him to develop the recommendations that will be required for the plan.

Stephanie states that, being single, she doesn't have any real goals to speak of, only to travel. But, her trips are frequent and expensive and she wants to figure out how to better afford them. Stephanie tells John that she doesn't understand why he needs all this financial and personal information, including her salary information, spending habits, and debt. John stresses that it is essential for Stephanie to provide him with her qualitative and quantitative information in order for him to develop recommendations.

Unable to convince her, John proposes that they discuss revising the agreement and limiting the scope of the engagement in some manner. At this point, Stephanie decides that she no longer wishes to proceed and asks for a refund. John acknowledges Stephanie's request to end the engagement in writing and gives her a refund, minus a fee for what services he had already provided.

Discussion

Although the agreed upon scope of engagement is for a full financial plan, the fact that John is unable to obtain the qualitative and quantitative information necessary to proceed with the planning process forces him to either limit the scope of the engagement or terminate the relationship with Stephanie.

As Practice Standard 200-2 states: "A financial planning practitioner shall obtain sufficient and relevant quantitative information and documents about a client relevant to the scope of the engagement before any recommendation is made and/or implemented."

(Rule 1.1, 1.2, 2.1, 3.1, 3.3, 4.1, 4.4, 4.5)

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Step 3 Financial Planning Relationship

Fact Pattern 3: Pro Bono Work and Financial Planning Relationships

Bob's sister, Janet, hates her job and wants to quit—maybe even retire. Bob is worried about Janet and asks his friend, Chris, a CFP® practitioner, for help.

Chris works for a major brokerage firm and specializes in asset diversification for high net-worth clients. Since Janet doesn't have much money, Bob asks if Chris could give her some help "pro bono." Chris agrees to help Janet get started by determining if she can retire, and if so, what her spending requirements would be.

In their first meeting, Chris and Janet discuss her needs and mutually define a scope of engagement, which calls for an assessment of her financial situation and her financial needs during retirement. Chris then performs an analysis of Janet's situation in order to develop the necessary recommendations.

The result of Chris's analysis shows that Janet will have a $1,000 per month shortfall in retirement, which will quickly deplete her existing retirement savings. Chris recommends that Janet explore her options further by having a full financial plan drawn. Chris recommends a fee-only advisor for her to call.

Discussion

Is this a financial planning engagement? Yes. Even though Chris provides the services to Janet for no compensation, the engagement involves elements of the financial planning process: The analysis of the client's financial status and recommendations with respect to Janet's financial situation and her retirement cash flow needs. As a result, the engagement must be treated as financial planning even though there is no compensation involved—the Rules of Conduct still apply.

(Rule 1.1, 1.2, 4.1)

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Step 4 Suitability, Fiduciary Duty

Fact Pattern 4: Suitability and Fiduciary Duty

CFP® professional Bob has worked with his client, Gary, for four years. Each year, Bob prepares a scope of engagement for the upcoming year and reviews it with Gary, who in turn signs it. Gary is a great client with more than twenty million dollars under management. This year however, Gary announces that he wants to buy a five-million-dollar annuity. Bob explains to Gary that, based on the current plan, which reflects Gary's goals, needs, and priorities, an annuity is not in his best interest and should not be included in his overall plan. Gary insists on purchasing an annuity however, arguing that he has a gut feeling that it is the right thing to do at this time. It is the "guaranteed" aspect of the annuity that gives him the "peace of mind" he has come to value as he gets older.

Bob concludes that a review of Gary's financial plan is warranted based on Gary's newly announced desire to make his financial security a higher priority in order to have a greater "peace of mind." From a planning perspective, this introduces a change to the current planning engagement. Bob agrees to revisit Gary's goals and values worksheet and develop some alternatives to meet Gary's new objective.

Based on this new qualitative information from Gary, Bob researches alternatives for Gary and presents his recommendation to him in the form of three options:

1) Stay on course with the current financial plan, which Bob believes was in Gary's best interest, at least up until the time he learned of Gary's new concern about financial security;

2) Develop a revised plan that will include one of several alternatives for a two-million-dollar annuity and show Gary how this will differ from his current plan;

3) Develop a revised plan that will include one of several alternatives for a five-million-dollar annuity and show Gary how this will differ from his current plan.

After being presented with these alternatives, Gary, decides that he wants one of the five-million-dollar annuities and he signs off on this change to his plan. Because Bob's firm does not sell annuities nor is Bob licensed to sell them, he refers Gary to an insurance agent who specializes in large annuity contracts.

Discussion

In this situation, Gary's financial plan is revised in order to allow for his newly announced desire to raise his level of financial security. Through mutual agreement, the scope of the engagement is revised to include new alternatives that will meet his new goal. Where these new alternatives may once have been deemed unsuitable based on Gary's original goals, needs, and priorities, they are now suitable, as attested to by Bob's analysis of Gary's newly changed situation.

Bob is in compliance with Rule 4.5. to "make and/or implement only recommendations that are suitable for the client."

Bob has also fulfilled his fiduciary duty to Gary by accommodating the need for a change in the plan. Bob is continuing to act in the interest of his client, even if it means he will not be implementing some of the recommendations.

(Rule 1.1, 1.2, 1.4, 4.1, 4.4, 4.5)

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Step 5 Implementation Responsibilities

Fact Pattern 5A: implementation Responsibilities of the Client

Referring back to Gary and Bob (in Step 4), Gary has decided to proceed with one of the annuities that Bob, the CFP® professional recommended for him. Since Bob is referring Gary to an independent insurance agent for the annuity, Gary agrees to take on this responsibility for implementing this element of the plan (through the insurance agent).

Discussion

Bob continues to fulfill his fiduciary duty to Gary by referring him to an agent, who he has worked with in the past, and who he knows to be fully qualified (suitable) for meeting Gary's needs.

(Rule 1.4, 4.2, 4.4, 4.5)

Fact Pattern 5B: Implementing Products and Services

Bob, the CFP® professional (from Steps 4 and 5), is conducting a periodic review of Gary's estate plan, as called for in Gary's comprehensive planning engagement. The task involves reviewing and, if needed, updating the estate planning documents, including the will, revocable living trust, and the durable power of attorney.

Bob and Gary meet to go over the plan and they discuss the recent changes in Gary's situation, some of which will have an impact on his estate plan. Bob prepares a written summary of the meeting and sends it to Gary along with a reminder of Gary's responsibility to have his attorney update the estate documents per Bob's recommendation.

Gary, a self-proclaimed "do-it-yourselfer," decides he wants to make the necessary changes to his estate documents himself by going online for the information. When Bob learns of this, he cautions Gary against doing the work himself and recommends that Gary have his attorney do the work, or at least have him review the online documents that Gary used to update his plan.

Discussion

Within the scope of the engagement with Gary, Bob has been diligent in defining the responsibilities for updating the estate plan and determining which of those tasks are to be implemented by Gary.

Because Bob is not an attorney, he needs to either outsource any legal tasks to an attorney directly or, as in this case, give the responsibility to Gary, his client, to have the work done by Gary's attorney. Bob in turn agrees to review the estate documents after they are updated to confirm that the changes are satisfactory with respect to the overall financial plan. This implementation responsibility is within the scope of the plan and would be a suitable responsibility for Bob to assume as a CFP® professional.

(Rules 1.1, 1.2, 3.3, 4.1, 4.2, 4.4, 4.5)

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Step 6 Monitoring

Fact Pattern 6A: Monitoring

Referring back to the case of Bob and Gary, Bob outlines a time-line to accomplish the implementation of the estate plan update and follows up on the phone and in writing with Gary to ensure that he fulfills his responsibilities (per their mutual agreement).

Discussion

Successful monitoring requires ongoing diligence on the part of the practitioner. Sometimes the tasks being completed during the monitoring stage lead to a revision of the plan. For example, if Gary were to get divorced during this stage, that could require significant changes to be made to the plan and even the scope of the engagement.

(Rules 1.2, 2.2, 3.3)

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Step 5 and 6, Implementing and Monitoring

Fact Pattern 6B: Implementing and Monitoring an Evolving Plan

Terry is a client of Glenda, a CFP® professional. The scope of Terry's financial planning engagement does not currently include a 401K plan, which Terry has through is employer, nor does it include retirement planning. The employer provides an advisor to help manage the plan, who Terry meets with on a quarterly basis.

During a plan review meeting with Glenda, it becomes apparent to Terry that, although the 401 k advisor at work holds quarterly meetings with Terry, the portfolio is performing below the market equivalent return on investment. Terry asks Glenda to help fix the problem.

Terry and Glenda agree to a plan whereby Terry will roll over his 401K to a traditional IRA and Glenda will include the IRA in the overall investment management strategy. They also agree that Terry needs to do some retirement planning.

As a result of these changes, Terry and Glenda agree on a revision of the scope of the engagement, which will now include management of the IRA and the monitoring of its performance. In addition, the overall plan will include retirement planning services.

These changes are confirmed with a new written agreement, which spells out the management, monitoring, and retirement planning services to be provided, and the assignment of responsibilities for implementation and monitoring.

Glenda has taken care to ensure that this latest revision to the engagement will be accomplished seamlessly. Terry and Glenda have worked hard over time to refine the plan update, review, and tracking process to more easily accommodate changes to the plan. The reporting process is also designed to meet Terry's particular needs and preferences.

For example, Terry travels frequently and he views the plan reports in print form as well as online. Glenda provides the reports such that the print and online versions have the same “look and feel” in terms of formatting and organization. This makes it easier for Terry to switch back and forth between the print and online versions. It also makes it easier to "reengage" the reports as well as the overall planning process after the passage of time. This helps Terry stay in step with the financial planning process and ensures that he will have realistic expectations for the performance of the plan.

Discussion

Making changes to an existing engagement requires the careful consideration of the impact that these changes will have on the planning process, and with respect to the responsibilities of the practitioner and the client.

If, for example, there are previously undisclosed conflicts of interest, sources of compensation, or material relationships with other professionals or advisers that arise as a result of these changes, this information must now be disclosed.

A clearly defined and well-executed monitoring process is also essential to the success of an evolving financial planning engagement, as it creates the awareness for the client that financial planning is a dynamic process.

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“IS THIS FINANCIAL PLANNING?” SCENARIOS

The following are examples of situations where financial planning services are or are not being provided.

#1–Needs Analysis

#2–Suitability

Is This Financial Planning?

John, a CFP® professional, is conducting a needs analysis for Jane and Bob, his clients. Jane and Bob have stated that they wish to fund the college expenses for their two children, who are six and eight years old, respectively, while also staying on course to retire in thirty years. They ask John to determine if and how they can achieve these goals.

Yes. This engagement constitutes financial planning if John's needs analysis focuses on gathering detailed information about multiple aspects of Bob and Jane's financial situation and/or if the analysis is used to make wide-ranging recommendations.


Joan, a CFP® professional, is conducting a suitability analysis of a mutual fund for the client of another practitioner. Joan's analysis is limited to choosing a suitable mutual fund that fits into the asset allocation and fits the diversification already determined for the client's portfolio.

No. Although this engagement involves one or more of the six steps in the financial planning process, it does not, in its own right, necessarily constitute financial planning. CFP Board recognizes that the six steps are not unique to the financial planning process and may occur in connection with other activities such as brokerage, investment advisory, and/or insurance products or services. One needs to consider the entirety of the client-practitioner relationship to determine whether a financial planning engagement exists.

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#3–Is it Financial Planning or is it Not?

#4–Recommendations

Example of what probably would not be considered financial planning: "My five-year old daughter will be going to college in thirteen years. I would like to start a custodial account for my grandchild, the CFP® at the brokerage firm can help me with that paperwork."

Example of what probably would be considered financial planning: "My wife and I plan to retire in thirty years at age sixty-five. How much will we need to save to ensure that we have a secure retirement?"


Mary's tax advisor recommends that she increase her tax-deferred savings. To accomplish this, Mary seeks the help of Nancy, a CFP® professional. It is agreed that Nancy will determine what type of deferred savings would be suitable for Mary and, after consulting with Mary's tax advisor, the amount to be saved. Nancy will then recommend an investment approach and specific investment vehicles.

Yes. This is a financial planning engagement. Nancy has been asked to take the recommendation of a third party (Mary's tax advisor) and investigate options for implementing those recommendations in a manner that is suitable for Mary's objectives.

Because the tax advisor's recommendation lacks the specificity required for an implementation plan, Nancy will need to provide this service for Mary, which will result in an engagement that is broader in scope than if Nancy was only asked to execute an investment transaction based on the financial plan created by a third party.

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Financial Planning Disclosure Sample (Form FPD) CFP Board is providing this sample disclosure document (Form FPD) to assist you in satisfying the requirements of Rules 1.2 and 2.2 of the Rules of Conduct, which require CFP® certificants to provide specific information and disclosures to prospective clients and clients prior to entering into an agreement to provide financial planning services. If applicable, references to similar questions in your Form ADV are provided for guidance. This form may be used contemporaneously with the certificant’s employer’s client agreement that satisfies Rule 1.3 of the Rules of Conduct. To download the forms, go to: http://www.cfp.net/learn/ethicsforms.asp Part I: Contact Information [See Rule 2.2(d)]

A. Client’s Name and Contact Information [Form ADV Part 1, Item 1]B. Certificant and Employer’s (if applicable) Contact Information

Part II: Services to be Provided A. Describe the obligations and responsibilities of each party with respect to: [See Rule 1.2(a)] [Be sure

the services you plan to provide to your client are allowed (or not prohibited) in your Form ADV.]1. Defining goals, needs and objectives2. Gathering and providing appropriate data3. Determining the results if no changes are made to the client/prospect’s current course of action4. Determining recommendations and possible changes to the current course of action5. Determining implementation responsibilities6. Determining monitoring responsibilities

B. Description of other professionals and/or firms the certificant may work with to provide the necessaryservices listed above [See Rule 1.2(d)] [Form ADV Part 1.A., Schedule D, Section 5.3(2), Section 7.A.,Section 7.B. Form ADV Part II, Item 8., Item 12.B., Item 13.A. and 13.B.]

Part III: Material Information Relevant to the Relationship A. Sources of Compensation [See Rule 2.2(a)]

1. Describe how the certificant and/or certificant’s employer are compensated for the servicesprovided [See Rule 2.2(a)] [Form ADV Part 1A, Item 5.E., Item 6.B.(3), Part II, Item 9.A.,9.B., 9.C., 9.D., and 9.E., Item 13.A. and 13.B.]

2. Describe costs incurred that may be charged separately to the client [See Rule 2.2(a)] [This isprobably defined in your client agreement.]

3. Describe other sources of [direct or indirect] compensation received but not yet listed. Includesource(s) and terms for receipt of compensation (i.e., 12b-1 fees; soft dollars; etc.) [See Rule2.2(a)]

4. Include compensation that any affiliate or affiliated entity to the certificant or certificant’semployer may receive for the services provided [See Rule 1.2(b)]

B. Conflicts of Interest [See Rule 2.2(b)] [Form ADV Part 1, Item 8.A., 8.B., 8.C. and 8.d., Item 9.A., 9.B.,9.C., and 9.D., Item 12.B., Item 13.A. and 13.B.]

1. Describe the conflicts of interest the certificant or certificant’s employers (including affiliatesand affiliated entities) may have [See Rule 2.2(b)]

2. Describe the limitations placed on products, services and/or solutions the certificant mayrecommend under this agreement. These limitations may be caused by the relationship thecertificant has with his/her employer or a limitation on products the certificant may offer, asexamples [See Rule 1.2(c)]

C. Describe other material information relevant to the professional relationship that the client should knowbefore making an informed decision [See Rules 2.2(b) and 2.2(e)]

Part IV: Additional Information You, the client, are encouraged to review the information contained in this disclosure form and ask the certificant any questions you may have. [See Rule 1.2] Should any material changes occur to this information, updated information will be provided to you in a reasonable time frame. [See Rule 2.2] As a CFP® certificant, I acknowledge my responsibility to adhere to the standards established in CFP Board’s Standards of Professional Conduct, including the duty of care of a fiduciary, as defined by the CFP Board. [See Rule 1.4] If you become aware that my conduct may violate the Standards, you may file a complaint with CFP Board at www.CFP.net/complaint. (Optional) I hereby acknowledge receipt of the terms of an agreement and the disclosures made above.

http://www.cfp.net/learn/ethicsforms.asp

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__________________________ / _________ __________________________ / _________ Client’s Signature Date Client’s Signature Date _____________________________________ _____________________________________ Client’s Printed Name Client’s Printed Name __________________________ / _________ Certificant’s Signature Date

26

Financial Planning Disclosure and Agreement (FORM FPDA) CFP Board is providing this sample disclosure document and agreement (Form FPDA) to assist you in satisfying the requirements of Rules 1.2, 1.3 and 2.2 of the Rules of Conduct, which require CFP® certificants to provide specific information and disclosures to prospective clients and clients prior to entering into an agreement to provide financial planning services If applicable, references to similar questions in your Form ADV are provided for guidance. Part I: Contact Information for Parties to the Agreement [See Rules 1.3 and 2.2(d)]

A. Client’s Name and Contact Information [Form ADV Part 1, Item 1]B. Certificant and Employer’s (if applicable) Contact Information

Part II: Services to be Provided A. Describe the services to be provided under this Agreement with the Client [See Rule 1.3(d)] [Form ADV

Part 1A, Item 5.G. Form ADV Part II, Item 1.A., 1.D., Item 4.A., 4.B., and 4.C. Item 10, Item 11.A. and11.B. give general information on the services you offer clients. Don’t forget to provide a specific list ofthe services you provide to this particular client.]

B. Describe the obligations and responsibilities of each party with respect to: [See Rule 1.2(a)] [Be surethe services you plan to provide to your Client are allowed (or not prohibited) in your Form ADV.]

1. Defining goals, needs and objectives2. Gathering and providing appropriate data3. Determining the results if no changes are made to the client/prospect’s current course of action4. Determining recommendations and possible changes to the current course of action5. Determining implementation responsibilities6. Determining monitoring responsibilities

C. Description of other professionals and/or firms the certificant may work with to provide the necessaryservices listed under this agreement [See Rule 1.2(d)] [Form ADV Part 1.A., Schedule D, Section5.3(2), Section 7.A., Section 7.B. Form ADV Part II, Item 8., Item 12.B., Item 13.A. and 13.B.]


1. Describe how the certificant and/or certificant’s employer are compensated for the servicesprovided [See Rule 2.2(a)] [Form ADV Part 1A, Item 5.E., Item 6.B.(3), Part II, Item 9.A.,9.B., 9.C., 9.D., and 9.E., Item 13.A. and13.B., ]

2. Describe costs incurred that may be charged separately to the client [See Rule 2.2(a)] [This isprobably defined in your client agreement.]

3. Describe other sources of [direct or indirect] compensation received but not yet listed. Includesource(s) and terms for receipt of compensation (i.e., 12b-1 fees; soft dollars; etc.) [See Rule2.2(a)]

4. Include compensation that any affiliate or affiliated entity to the certificant or certificant’semployer may receive under the terms of this agreement [See Rule 1.2(b)]

B. Conflicts of Interest [See Rule 2.2(b)] [Form ADV Part 1, Item 8.A., 8.B., 8.C. and 8.d., Item 9.A., 9.B.,9.C., and 9.D., Item 12.B., Item 13.A. and 13.B. ]

1. Describe the conflicts of interest the certificant or certificant’s employers (including affiliatesand affiliated entities) may have [See Rule 2.2(b)]

2. Describe the limitations placed on products, services and/or solutions the certificant mayrecommend under this agreement. These limitations may be caused by the relationship thecertificant has with his/her employer or a limitation on products the certificant may offer, asexamples [See Rule 1.2(c)]

C. Describe other material information relevant to the professional relationship that the client should knowbefore making an informed decision [See Rules 2.2(b) and 2.2(e)]

Part IV: Additional Information This agreement is effective as of the date signed below and will last in duration until [________].[See Rule 1.3(b)] To terminate the agreement, [list terms each party may follow to terminate the agreement]. [See Rule 1.3(c)] You are encouraged to review the information contained in this disclosure form and ask the certificant any questions you may have. [See Rule 1.2] Should any material changes occur to this information, updated information will be provided to you in a reasonable time frame. [See Rule 2.2] As a CFP® certificant, I acknowledge my responsibility to adhere to the standards established in CFP Board’s Standards of Professional Conduct, including the duty of care of a fiduciary, as defined by CFP Board. [See Rule 1.4] If you become aware that my conduct may violate the Standards, you may file a complaint with CFP Board at www.CFP.net/complaint. (Optional)

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I hereby acknowledge the terms of this Agreement and the disclosures made above.

__________________________ / _________ __________________________ / _________ Client’s Signature Date Client’s Signature Date

_____________________________________ _____________________________________ Client’s Printed Name Client’s Printed Name

__________________________ / _________ Certificant’s Signature Date

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Other Professional Services (FORM OPS) CFP Board is providing this sample disclosure document (Form OPS) to assist you in satisfying the requirements of Rules 1.2 and 2.2 of the Rules of Conduct, which require CFP® certificants to provide specific information and disclosures to prospective clients and clients prior to entering into an arrangement to provide financial services other than financial planning services. Part I: Contact Information [See Rule 2.2(d)]

A. Client’s Name and Contact InformationB. Certificant and Employer’s (if applicable) Contact Information

Part II: Services to be Provided A. Describe the obligations and responsibilities of each party with respect to: [Be sure the services

provided to clients are allowed (or not prohibited) by the certificant’s employer or in the employer’sForm ADV.]

B. Describe other professionals and/or firms the certificant may work with to provide the necessary serviceslisted above [See Rule 1.2(d)]


1. Describe how the certificant and/or certificant’s employer are compensated for the servicesprovided [See Rule 2.2(a)]

2. Describe costs incurred that may be charged separately to the client [See Rule 2.2(a)]3. Describe other sources of [direct or indirect] compensation received but not yet listed. Include

source(s) and terms for receipt of compensation (i.e., 12b-1 fees; soft dollars; etc.) [See Rule2.2(a)]

4. Include compensation that any affiliate or affiliated entity to the certificant or certificant’semployer may receive for the services provided [See Rule 1.2(b)]

B. Conflicts of Interest [See Rule 2.2(b)]1. Describe the conflicts of interest the certificant or certificant’s employers (including affiliates

and affiliated entities) may have [See Rule 2.2(b)]2. Describe the limitations placed on products, services and/or solutions the certificant may

recommend under this agreement. These limitations may be caused by the relationship thecertificant has with his/her employer or a limitation on products the certificant may offer, asexamples [See Rule 1.2(c)]

C. Describe other material information relevant to the professional relationship that the client should knowbefore making an informed decision [See Rule 2.2(b)]

Part IV: Additional Information You, the client, are encouraged to review the information contained in this disclosure form and ask the certificant any questions you may have. [See Rule 1.2] Should any material changes occur to this information, updated information will be provided to you in a reasonable time frame. [See Rule 2.2] As a CFP® certificant, I acknowledge my responsibility to adhere to the standards established in CFP Board’s Standards of Professional Conduct. [See Rule 1.4] If you become aware that my conduct may violate the Standards, you may file a complaint with CFP Board at www.CFP.net/complaint. (Optional) I hereby acknowledge the receipt the disclosures made above.

__________________________ / _________ __________________________ / _________ Client’s Signature Date Client’s Signature Date

_____________________________________ _____________________________________ Client’s Printed Name Client’s Printed Name

__________________________ / _________ Certificant’s Signature Date

29

Financial Worksheets

Life Values Worksheet

Choose five and rank in order of importance: 1 (lowest) and 5 (highest) Individual Spouse/Partner

Achievement - to accomplish something important in life

Aesthetics - to be able to appreciate and enjoy beauty

Authority - to be a key decision maker, directing priorities

Adventure - to experience variety and excitement

Autonomy - to be independent, have freedom Health - to be physically, mentally, and emotionally well Integrity – to be honest and straightforward, just and fair Friendship - to have close personal relationships, share with family and friends Pleasure - to experience enjoyment and satisfaction from activities Recognition - to be seen as successful, receive acknowledgment for achievement Security - to feel stable and comfortable with few changes or anxieties in my life Service - to contribute to the quality of life for other people Wealth - to acquire an abundance of money/possessions; to be financially independent Wisdom - to have insight, to be able to pursue new knowledge

Other

- From Putting Money in Its Place, by Ken Rouse, 1994

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Financial Goals Worksheet – Understanding Client’s Goals Individual’s Ranking

Spouse/ Partner’s Ranking

Individual’s Most Important

Spouse/ Partner’s Most Important Priority

Finance college for (grand)children

Buy new home (primary, vacation)

Buy a new car/boat/other

Travel extensively

Save for retirement

Reduce/eliminate debt

Set up a reserve/emergency fund

Be financially independent

Contribute to charity/institution

Invest in the stock market

Help support elderly parent(s)

Invest in real estate

Start/buy/expand own business

Early retirement

Leave large estate for children

Other

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Terminology from the standards of Professional Conduct This terminology applies only for purposes of interpreting and/or enforcing CFP Board’s Code of Ethics, Rules of Conduct, Practice Standards and Disciplinary Rules. ► “CFP Board” denotes Certified Financial Planner Board of Standards, Inc.

► “Candidate for CFP® certification” denotes a person who has applied to CFP Board to take the CFP®

Certification Examination, but who has not yet met all of CFP Board’s certification requirements.

► “Certificant” denotes individuals who are currently certified by CFP Board.

► “Certificant’s Employer” denotes any person or entity that employs a certificant or registrant to provideservices to a third party on behalf of the employer, including certificants and registrants who are retainedas independent contractors or agents.

► “Client” denotes a person, persons, or entity who engages a certificant and for whom professionalservices are rendered. Where the services of the certificant are provided to an entity (corporation, trust,partnership, estate, etc.), the client is the entity acting through its legally authorized representative.

► “Commission” denotes the compensation generated from a transaction involving a product or serviceand received by an agent or broker, usually calculated as a percentage on the amount of his or her salesor purchase transactions. This includes 12(b)1 fees, trailing commissions, surrender charges andcontingent deferred sales charges.

► “Compensation” is any non-trivial economic benefit, whether monetary or non-monetary, that acertificant or related party receives or is entitled to receive for providing professional activities.

► A “conflict of interest” exists when a certificant’s financial, business, property and/or personal interests,relationships or circumstances reasonably may impair his/her ability to offer objective advice,recommendations or services.

► “Fee-only.” A certificant may describe his or her practice as “fee-only” if, and only if, all of thecertificant’s compensation from all of his or her client work comes exclusively from the clients in the formof fixed, flat, hourly, percentage or performance-based fees.

► “Fiduciary.” One who acts in utmost good faith, in a manner he or she reasonably believes to be in thebest interest of the client.

► A “financial planning engagement” exists when a certificant performs any type of mutually agreed uponfinancial planning service for a client.

► A “financial planning practitioner” is a person who provides financial planning services to clients.

► “Personal financial planning” or “financial planning” denotes the process of determining whether andhow an individual can meet life goals through the proper management of financial resources. Financialplanning integrates the financial planning process with the financial planning subject areas. In determiningwhether the certificant is providing financial planning or material elements of financial planning, factorsthat may be considered include, but are not limited to:

• The client’s understanding and intent in engaging the certificant.

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• The degree to which multiple financial planning subject areas are involved.

• The comprehensiveness of data gathering.

• The breadth and depth of recommendations.Financial planning may occur even if the material elements are not provided to a client simultaneously, are delivered over a period of time, or are delivered as distinct subject areas. It is not necessary to provide a written financial plan to engage in financial planning.

► “Personal financial planning process” or “financial planning process” denotes the process whichtypically includes, but is not limited to, some or all of these sixsteps:

• Establishing and defining the client-plannerrelationship,

• Gathering client data including goals,

• Analyzing and evaluating the client’s current financialstatus,

• Developing and presenting recommendations and/oralternatives,

• Implementing the recommendations, and

• Monitoring the recommendations.

► “Personal financial planning subject areas” or “financialplanning subject areas” denotes the basic subject fields covered in the financial planning process whichtypically include, but are not limited to:

• Financial statement preparation and analysis (including cash flow analysis/planning andbudgeting)

• Insurance planning and risk management

• Employee benefits planning

• Investment planning

• Income tax planning

• Retirement planning

• Estate planning► Professional Eligible for Reinstatement” (PER) denotes an individual who is not currently certified buthas been certified by CFP Board in the past and has an entitlement, direct or indirect, to use the CFP®

marks. This includes individuals who have relinquished their certification and who are eligible forreinstatement without being required to pass the current CFP® certification examination. The Standards ofProfessional Conduct apply to PERs when the conduct at issue occurred at a time when the PER wascertified; CFP Board has jurisdiction to investigate such conduct.i

i CFP Board. CFP Board’s Standards of Professional Conduct. Certified Financial Planner Board of Standards, Inc., 2013, p. 8.

Material Elements

"It is intentional that the terminology section of CFP Board’s Standards does not define “material elements of financial planning.” In financial planning relationships, products, services, solutions and strategies represent a means to an end – meeting life goals through proper management of financial resources."

-CFP Board's Standards of ProfessionalConduct: Frequently Asked Questions.2010, p. 7.

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