CFP - FUNDAMENTALS 7 STEPS OF THE
FINANCIAL PLANNING PROCESS, CODE
OF ETHICS AND STANDARDS EXAM
QUESTIONS WITH CORRECT ANSWERS
Fiduciary Duty - ANSWER-- A legal obligation of one party to act in the best interest of
another.
- any recommendations must be made as a fiduciary
Client Needs > Financial Planner Interests
*Also related to Duty of Loyalty, Duty of Care, and Follow Instructions.
Integrity - ANSWER-*Honesty, Upstanding, Candor
- Allows for innocent mistakes and differences of opinion.
- Do not commit fraud, deceive or violate the "spirit" of the rules
A CFP® professional may not: - ANSWER-directly or indirectly, in the conduct of
Professional Services:
- Employ any device, scheme, or artifice to defraud
- Make any untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in the light of the circumstances under which
they were made, not misleading
- Engage in any act, practice, or course of business which operates or would operate as
a fraud or deceit upon any person.
Competence - ANSWER-- Relevantly apply knowledge
- A CFP Professional does not have to master all areas of planning.
- Gain competence, obtain assistance, limit the engagement or refer if competence is
lacking.
Diligence - ANSWER-provide services and respond to reasonable client inquiries in a
Timely and thorough manner.
Disclose and Manage conflicts of Interest - ANSWER-- A material conflict is one that
could impact advice given by the CFP Professional or cause potential harm.
- Consent does NOT need to be in writing!
- The larger the potential for harm, the greater need for disclosure.
- Ambiguity on the side of the client
- Assume financial conflicts are material
material conflict - ANSWER-one that could impact advice given by the CFP Professional
or cause potential harm.
,Sound and Objective Professional Judgement - ANSWER-- Exercise Judgement, not
subordinated
- Do not accept or solicit gifts that could influence judgement
Professionalism - ANSWER-- Dignity, Courtesy, Respect
- Applies to clients, potential clients and other financial professionals
Comply with the Law - ANSWER-- Laws, Rules, Regulations, Standards
- Avoid intentionally or recklessly violating laws.
- recklessly can apply to making poor referrals
Is the CFP Board able to discipline a CFP Professional for violating the policies set by
the CFP Professional's firm? - ANSWER-It depends.
If the firm's policies align with the CFP Board's Practice Standards, then the CFP
Professional will be subject to discipline by the CFP Board.
However, if the firm's policies do not align with the CFP Board's Practice Standards,
then the CFP Professional will not be subject to discipline by the CFP Board.
Confidentiality and Privacy - ANSWER-- Must have policies and process to protect
confidentiality, deliver it in writing at or before the engagement and every 12 months if
they change.
- Consent, ordinary business, legal and enforcement purposes, policies
- Client consent does NOT need to be in writing!
- No absolute confidentiality
- "Ordinary Business" requires consent
- "Legal and Enforcement Purposes" does not require consent
What are the exceptions to the client confidentiality and privacy duty owed to clients? -
ANSWER-1. For Ordinary Business purposes (can be oral or written consent)
2. For Legal and Enforcement purposes (does not require consent)
(True/False) Client consent to share personal information needs to be in writing. -
ANSWER-False
Provide Information to a client - ANSWER-- Financial Advice = requires description,
pay, compensation, bankruptcies/regulatory events, other material information
- Financial Planning = all of the above plus, scope of the engagement, limitations and
responsibilities.
*Monitoring is assumed unless excluded from the scope of engagement
Financial Advice - ANSWER-requires description, pay, compensation,
bankruptcies/regulatory events, other material information
, Financial Planning - ANSWER-- A collaborative process that helps maximize a client's
potential for meeting life goals through Financial Advice that integrates relevant
elements of the client's personal and financial circumstances.
- requires all aspects of Financial Advice (description, pay, compensation,
bankruptcies/regulatory events, other material information) PLUS scope of the
engagement, limitations and responsibilities.
Duties when Communicating with a client - ANSWER-- Reasonable, Expected to
Understand, Avoid Complexity
- Ensure client understanding
- Consider multiple forms of communication
- be responsible with the use of industry jargon
- avoid over-complication of disclosures.
- provide clear and understandable information.
Duties when representing compensation - ANSWER-- Fee-only, Fee-based, sales
related compensation, soft dollars, non-monetary benefits, related party
- Fee-only = direct fees charged to clients or as a percentage of financial assets (does
not include sales related compensation)
- 12b-1 fees are specifically stated as sales related compensation
- Fee-based = fees and sales related compensation
- soft-dollars are not sales related compensation.
sales related compensation - ANSWER-- more than a de minimis economic benefit
- includes any bonus or portion of compensation for purchasing or selling assets or
referrals
- examples: commissions, trailing commissions, 12b-1 fees, spreads, transaction fees,
revenue sharing, referral or solicitor fees, or similar consideration.
Are soft dollar arrangements considered sales related compensation? - ANSWER-No.
soft dollars = research or speaking services supplied by an investment company or B/D.
Would travel to a conference be considered sales related compensation? - ANSWER-It
depends.
Yes, if the trip does not have any educational elements, can be paid for by a
broker/dealer, insurance company or related party, participation in the conference is
contingent on sales or performance. If yes, must be disclosed to client.
No, if the trip has educational elements, can be paid for by a RIA custodian, attendance
is not based on sales or performance or financial assets.
Fee-only - ANSWER-- direct fees charged to clients or as a percentage of financial
assets
- $0.01 of sales-related compensation eliminates the ability to use "fee-only"
FINANCIAL PLANNING PROCESS, CODE
OF ETHICS AND STANDARDS EXAM
QUESTIONS WITH CORRECT ANSWERS
Fiduciary Duty - ANSWER-- A legal obligation of one party to act in the best interest of
another.
- any recommendations must be made as a fiduciary
Client Needs > Financial Planner Interests
*Also related to Duty of Loyalty, Duty of Care, and Follow Instructions.
Integrity - ANSWER-*Honesty, Upstanding, Candor
- Allows for innocent mistakes and differences of opinion.
- Do not commit fraud, deceive or violate the "spirit" of the rules
A CFP® professional may not: - ANSWER-directly or indirectly, in the conduct of
Professional Services:
- Employ any device, scheme, or artifice to defraud
- Make any untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in the light of the circumstances under which
they were made, not misleading
- Engage in any act, practice, or course of business which operates or would operate as
a fraud or deceit upon any person.
Competence - ANSWER-- Relevantly apply knowledge
- A CFP Professional does not have to master all areas of planning.
- Gain competence, obtain assistance, limit the engagement or refer if competence is
lacking.
Diligence - ANSWER-provide services and respond to reasonable client inquiries in a
Timely and thorough manner.
Disclose and Manage conflicts of Interest - ANSWER-- A material conflict is one that
could impact advice given by the CFP Professional or cause potential harm.
- Consent does NOT need to be in writing!
- The larger the potential for harm, the greater need for disclosure.
- Ambiguity on the side of the client
- Assume financial conflicts are material
material conflict - ANSWER-one that could impact advice given by the CFP Professional
or cause potential harm.
,Sound and Objective Professional Judgement - ANSWER-- Exercise Judgement, not
subordinated
- Do not accept or solicit gifts that could influence judgement
Professionalism - ANSWER-- Dignity, Courtesy, Respect
- Applies to clients, potential clients and other financial professionals
Comply with the Law - ANSWER-- Laws, Rules, Regulations, Standards
- Avoid intentionally or recklessly violating laws.
- recklessly can apply to making poor referrals
Is the CFP Board able to discipline a CFP Professional for violating the policies set by
the CFP Professional's firm? - ANSWER-It depends.
If the firm's policies align with the CFP Board's Practice Standards, then the CFP
Professional will be subject to discipline by the CFP Board.
However, if the firm's policies do not align with the CFP Board's Practice Standards,
then the CFP Professional will not be subject to discipline by the CFP Board.
Confidentiality and Privacy - ANSWER-- Must have policies and process to protect
confidentiality, deliver it in writing at or before the engagement and every 12 months if
they change.
- Consent, ordinary business, legal and enforcement purposes, policies
- Client consent does NOT need to be in writing!
- No absolute confidentiality
- "Ordinary Business" requires consent
- "Legal and Enforcement Purposes" does not require consent
What are the exceptions to the client confidentiality and privacy duty owed to clients? -
ANSWER-1. For Ordinary Business purposes (can be oral or written consent)
2. For Legal and Enforcement purposes (does not require consent)
(True/False) Client consent to share personal information needs to be in writing. -
ANSWER-False
Provide Information to a client - ANSWER-- Financial Advice = requires description,
pay, compensation, bankruptcies/regulatory events, other material information
- Financial Planning = all of the above plus, scope of the engagement, limitations and
responsibilities.
*Monitoring is assumed unless excluded from the scope of engagement
Financial Advice - ANSWER-requires description, pay, compensation,
bankruptcies/regulatory events, other material information
, Financial Planning - ANSWER-- A collaborative process that helps maximize a client's
potential for meeting life goals through Financial Advice that integrates relevant
elements of the client's personal and financial circumstances.
- requires all aspects of Financial Advice (description, pay, compensation,
bankruptcies/regulatory events, other material information) PLUS scope of the
engagement, limitations and responsibilities.
Duties when Communicating with a client - ANSWER-- Reasonable, Expected to
Understand, Avoid Complexity
- Ensure client understanding
- Consider multiple forms of communication
- be responsible with the use of industry jargon
- avoid over-complication of disclosures.
- provide clear and understandable information.
Duties when representing compensation - ANSWER-- Fee-only, Fee-based, sales
related compensation, soft dollars, non-monetary benefits, related party
- Fee-only = direct fees charged to clients or as a percentage of financial assets (does
not include sales related compensation)
- 12b-1 fees are specifically stated as sales related compensation
- Fee-based = fees and sales related compensation
- soft-dollars are not sales related compensation.
sales related compensation - ANSWER-- more than a de minimis economic benefit
- includes any bonus or portion of compensation for purchasing or selling assets or
referrals
- examples: commissions, trailing commissions, 12b-1 fees, spreads, transaction fees,
revenue sharing, referral or solicitor fees, or similar consideration.
Are soft dollar arrangements considered sales related compensation? - ANSWER-No.
soft dollars = research or speaking services supplied by an investment company or B/D.
Would travel to a conference be considered sales related compensation? - ANSWER-It
depends.
Yes, if the trip does not have any educational elements, can be paid for by a
broker/dealer, insurance company or related party, participation in the conference is
contingent on sales or performance. If yes, must be disclosed to client.
No, if the trip has educational elements, can be paid for by a RIA custodian, attendance
is not based on sales or performance or financial assets.
Fee-only - ANSWER-- direct fees charged to clients or as a percentage of financial
assets
- $0.01 of sales-related compensation eliminates the ability to use "fee-only"
