FP Chapter 3

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  • Put IA-2256 in student manual and moderator’s guide
  • FP Chapter 3

    1. 1. HS 300 Financial Planning: Process and Environment <ul><li>Chapter 3: </li></ul><ul><ul><li>Ethics, Professionalism, and Practice Standards </li></ul></ul>
    2. 2. Learning Objectives
    3. 3. Learning Objectives <ul><li>1. Describe the role of ethics in society. </li></ul><ul><li>2. Explain the relationship between law and ethics. </li></ul><ul><li>3. Identify common themes and sentiments found in almost all ethics codes applicable to financial advisors. </li></ul>
    4. 4. Learning Objectives <ul><li>4. Summarize the content of codes of ethics of Certified Financial Planner Board of Standards, Inc. and The American College. </li></ul><ul><li>5. Briefly explain what these codes mean in terms of daily professional practice. </li></ul><ul><li>6. Describe the qualities that define a professional. </li></ul>
    5. 5. Learning Objectives <ul><li>7. Identify the hallmarks of professional behavior for financial advisors. </li></ul><ul><li>8. Explain why financial planning professionals are subject to increased risk of legal liability in business dealings with clients. </li></ul>
    6. 6. <ul><li>9. Explain the nature and significance of Certified Financial Planner Board’s practice standards for financial planning practitioners. </li></ul>Learning Objectives
    7. 7. Discussion Break <ul><li>If you had to choose between an advisor who would operate </li></ul><ul><ul><ul><li>(a) above the law, OR </li></ul></ul></ul><ul><ul><ul><li>(b) above the call (of duty), </li></ul></ul></ul><ul><ul><li>which advisor would you choose? </li></ul></ul><ul><ul><li>Would you pay a premium to use either advisor? </li></ul></ul>
    8. 8. Relationship Between Law and Ethics
    9. 9. Relationship Between Law and Ethics
    10. 10. Relationship Between Law and Ethics <ul><li>How We Ought to Live: </li></ul><ul><ul><li>Managers that define ethics as legal compliance are implicitly endorsing a code of moral mediocrity for their organizations. </li></ul></ul><ul><ul><li>Lynn Sharpe Paine </li></ul></ul>
    11. 11. <ul><li>You cannot legislate morality </li></ul><ul><ul><li>Not quite true </li></ul></ul><ul><ul><li>That is the intersection of ethics and law </li></ul></ul>Relationship Between Law and Ethics
    12. 12. Role of Ethics <ul><li>Ethical Codes for Financial Advisors </li></ul><ul><ul><li>CFP ® Board of Standards </li></ul></ul><ul><ul><li>The American College </li></ul></ul>
    13. 13. Overview of the CFP Board’s Code of Ethics and Professional Responsibility
    14. 14. Certified Financial Planning Board <ul><li>Overview </li></ul><ul><li>Code of Ethics and Professional Responsibility (Code of Ethics) </li></ul><ul><li>Rules of Conduct </li></ul><ul><li>Financial Planning Practice Standards (Practice Standards) </li></ul><ul><li>Disciplinary Rules and Procedures (Disciplinary Rules) </li></ul>
    15. 15. Certified Financial Planning Board <ul><li>Code of Ethics </li></ul><ul><li>CFP Board adopted the Code of Ethics to establish the highest principles and standards. These Principles are general statements expressing the ethical and professional ideals certificants and registrants are expected to display in their professional activities. </li></ul>
    16. 16. Certified Financial Planning Board <ul><li>The Principles form the basis of CFP Board’s Rules of Conduct, Practice Standards and Disciplinary Rules, and these documents together reflect CFP Board’s recognition of certificants’ and registrants’ responsibilities to the public, clients, colleagues and employers. </li></ul>
    17. 17. Certified Financial Planning Board <ul><li>Rules of Conduct </li></ul><ul><li>The Rules of Conduct establish the high standards expected of certificants and describe the level of professionalism required of certificants. </li></ul><ul><li>The Rules of Conduct are binding on all certificants, regardless of their title, position, type of employment or method of compensation, and they govern all those who have the right to use the CFP® marks, whether or not those marks are actually used. </li></ul>
    18. 18. Certified Financial Planning Board <ul><li>The universe of activities engaged in by a certificant is diverse, and a certificant may perform all, some or none of the typical services provided by financial planning professionals. </li></ul>
    19. 19. Certified Financial Planning Board <ul><li>Violations of the Rules of Conduct may subject a certificant or registrant to discipline. </li></ul><ul><li>Because CFP Board is a certifying and standards-setting body for those individuals who have met and continue to meet CFP Board’s initial and ongoing certification requirements, discipline extends to the rights of registrants and certificants to use the CFP® marks. </li></ul>
    20. 20. Certified Financial Planning Board <ul><li>Practice Standards </li></ul><ul><li>The Practice Standards describe best practices of financial planning professionals providing professional services related to the six elements of the financial planning process. </li></ul>
    21. 21. Certified Financial Planning Board <ul><li>Disciplinary Rules </li></ul><ul><li>The Disciplinary Rules provide a fair process pursuant to which certificants are given notice of potential violations and an opportunity to be heard by a panel of other professionals. </li></ul>
    22. 22. Code of Ethics Principles
    23. 23. Seven Principles <ul><li>Principle 1: Integrity </li></ul><ul><li>Provide professional services with integrity. </li></ul>
    24. 24. Seven Principles <ul><li>Principle 2: Objectivity </li></ul><ul><li>Provide professional services objectively. </li></ul>
    25. 25. Seven Principles <ul><li>Principle 3: Competence </li></ul><ul><li>Maintain the knowledge and skill necessary to provide professional services competently. </li></ul>
    26. 26. Seven Principles <ul><li>Principle 4: Fairness </li></ul><ul><li>Be fair and reasonable in all professional relationships. Disclose conflicts of interest. </li></ul>
    27. 27. Seven Principles <ul><li>Principle 5: Confidentiality </li></ul><ul><li>Protect the confidentiality of all client information. </li></ul>
    28. 28. Seven Principles <ul><li>Principle 6: Professionalism </li></ul><ul><li>Act in a manner that demonstrates exemplary professional conduct. </li></ul>
    29. 29. Seven Principles <ul><li>Principle 7: Diligence </li></ul><ul><li>Provide professional services diligently. </li></ul>
    30. 30. Rules of Conduct (Distilled)
    31. 31. Rules of Conduct <ul><li>1. Defining the Relationship With the Prospective Client or Client </li></ul>1.1 Services provided by certificant. 1.2 Obligations of both parties when financial planning takes place. 1.3 Written agreement must include these items when financial planning takes place. 1.4 Fiduciary responsibility of certificant in planning relationships.
    32. 32. Rules of Conduct <ul><li>2. Information Disclosed to Prospective Clients and Clients </li></ul>2.1 Don’t lie, mislead, misstate or omit in client communications 2.2 Required disclosures
    33. 33. Rules of Conduct <ul><li>3. Prospective Client and Client Information and Property </li></ul>3.1 Confidentiality of client information 3.2 Secure information and property 3.3 Obtain all information relative to decision making process 3.4 I.D. client assets 3.5 Maintain complete records
    34. 34. Rules of Conduct <ul><li>3. Prospective Client and Client Information and Property </li></ul>3.6 Don’t borrow from client (exceptions) 3.7 Don’t lend to client (exceptions) 3.8 No commingling of client assets with certificant assets (exceptions) 3.9 No commingling of client assets with other client assets (exceptions) 3.10 Return client assets when asked or as agreed.
    35. 35. Rules of Conduct <ul><li>4. Obligations to Prospective Clients and Clients </li></ul>4.1 Fair treatment/professional service 4.2 Advise in areas of competency 4.3 Comply with applicable regulations 4.4 Exercise reasonable and prudent judgment 4.5 Make or implement suitable recommendations
    36. 36. Rules of Conduct <ul><li>4. Obligations to Prospective Clients and Clients </li></ul>4.6 Provide reasonable and prudent professional supervision of subordinates or third parties. 4.7 Obligation to inform clients of suspension or revocation action by CFP Board
    37. 37. Rules of Conduct <ul><li>5. Obligations to Employers </li></ul>5.1 Perform professional services with dedication to lawful objectives of employer/principal. 5.2 Obligation to inform employer/ principal of suspension or revocation action by CFP Board
    38. 38. Rules of Conduct <ul><li>6. Obligations to CFP Board </li></ul>6.1 Abide by Board rules 6.2 Meet Board requirements including C.E. 6.3 Keep contact information current 6.4 Notify Board of convictions, professional suspensions or bar 6.5 Not engage in conduct that reflects adversely on integrity or fitness as a certificant
    39. 39. CFP Board’s Financial Planning Practice Standards
    40. 40. <ul><li>These Practice Standards are intended to: </li></ul><ul><li>1. Assure that the practice of financial planning by CERTIFIED FINANCIAL PLANNER™ professionals is based on established norms of practice; </li></ul><ul><li>2. Advance professionalism in financial planning; and </li></ul><ul><li>3. Enhance the value of the financial planning process. </li></ul>Practice Standards
    41. 41. <ul><li>A Practice Standard establishes the level of professional practice that is expected of certificants engaged in financial planning. </li></ul>Description of Practice Standards
    42. 42. <ul><li>The Practice Standards apply to certificants in performing the tasks of financial planning regardless of the person’s title, job position, type of employment or method of compensation. Compliance with the Practice Standards is mandatory for certificants whose services include financial planning or material elements of the financial planning process. </li></ul>Description of Practice Standards
    43. 43. <ul><li>The Practice Standards are designed to provide certificants with a framework for the professional practice of financial planning. Similar to the Rules of Conduct, the Practice Standards are not designed to be a basis for legal liability to any third party. </li></ul>Description of Practice Standards
    44. 44. <ul><li>Each Practice Standard is a statement regarding an element of the financial planning process. It is followed by an explanation of the Standard, its relationship to the Code of Ethics and Rules of Conduct, and its expected impact on the public, the profession and the practitioner. </li></ul>Format of the Practice Standards
    45. 45. <ul><li>The practice of financial planning consistent with these Practice Standards is required for certificants who are financial planning practitioners. </li></ul>Compliance With the Practice Standards
    46. 46. <ul><li>100-1: Defining the Scope of the Engagement </li></ul><ul><li>The financial planning practitioner and the client shall mutually define the scope of the engagement before any financial planning service is provided. </li></ul>Practice Standards
    47. 47. <ul><li>100-1: Defining the Scope of the Engagement </li></ul><ul><li>The financial planning practitioner and the client shall mutually define the scope of the engagement before any financial planning service is provided. </li></ul>Practice Standards
    48. 48. <ul><li>200-1: Determining a Client’s Personal and Financial Goals, Needs and Priorities </li></ul><ul><li>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. </li></ul>Gathering Client Data
    49. 49. <ul><li>200-2: Obtaining Quantitative Information and Documents </li></ul><ul><li>The financial planning practitioner shall obtain sufficient quantitative information and documents about a client relevant to the scope of the engagement before any recommendation is made and/or implemented. </li></ul>Gathering Client Data
    50. 50. <ul><li>300-1: Analyzing and Evaluating the Client’s Information </li></ul><ul><li>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 client’s resources and current course of action. </li></ul>Practice Standards
    51. 51. CFP Board’s Financial Planning Practice Standards Part 2
    52. 52. <ul><li>The 400 Series </li></ul><ul><li>- These Practice Standards can be </li></ul><ul><li>described as </li></ul><ul><li>“ What is Possible?” </li></ul><ul><li>“ What is Recommended?” </li></ul><ul><li>“ How is it Presented?” </li></ul>Developing and Presenting the Financial Planning Recommendation(s)
    53. 53. <ul><li>400-1: Identifying and Evaluating Financial Planning Alternative(s) </li></ul><ul><li>The financial planning practitioner shall 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. </li></ul>Developing and Presenting the Financial Planning Recommendation(s)
    54. 54. <ul><li>400-2: Developing the Financial Planning Recommendation(s) </li></ul><ul><li>The financial planning practitioner shall develop the recommendation(s) based on the selected alternative(s) and the current course of action in an effort to reasonably meet the client’s goals, needs and priorities. </li></ul>Developing and Presenting the Financial Planning Recommendation(s)
    55. 55. <ul><li>400-3: Presenting the Financial Planning Recommendation(s) </li></ul><ul><li>The financial planning practitioner shall communicate the recommendation(s) in a manner and to an extent reasonably necessary to assist the client in making an informed decision. </li></ul>Developing and Presenting the Financial Planning Recommendation(s)
    56. 56. <ul><li>500-1: Agreeing on Implementation Responsibilities </li></ul><ul><li>The financial planning practitioner and the client shall mutually agree on the implementation responsibilities consistent with the scope of the engagement. </li></ul>Practice Standards
    57. 57. <ul><li>500-2: Selecting Products and Services for Implementation </li></ul><ul><li>The financial planning practitioner shall select appropriate products and services that are consistent with the client’s goals, needs and priorities. </li></ul>Practice Standards
    58. 58. <ul><li>600-1: Defining Monitoring Responsibilities </li></ul><ul><li>The financial planning practitioner and client shall mutually define monitoring responsibilities. </li></ul>Practice Standards
    59. 59. The American College Code of Ethics
    60. 60. The American College Code of Ethics: Pledge <ul><li>In all my professional relationships, I pledge myself to the following rule of ethical conduct: I shall, in light of all conditions surrounding those I serve, which I shall make every conscientious effort to ascertain and understand, render that service which, in the same circumstances, I would apply to myself. </li></ul>
    61. 61. <ul><li>I. Conduct yourself at all times with honor and dignity. </li></ul><ul><li>II. Avoid practices that would bring dishonor upon your profession or The American College. </li></ul><ul><li>III. Publicize your achievement in ways that enhance the integrity of your profession. </li></ul>The American College Code of Ethics: Eight Canons
    62. 62. The American College Code of Ethics: Eight Canons <ul><li>IV. Continue your studies throughout your working life so as to maintain a high level of professional competence. </li></ul><ul><li>V. Do your utmost to attain a distinguished record of professional service. </li></ul><ul><li>VI. Support the established institutions and organizations concerned with the integrity of your profession. </li></ul>
    63. 63. <ul><li>VII. Participate in building your profession by encouraging and providing appropriate assistance to qualified persons pursuing professional studies. </li></ul><ul><li>VIII. Comply with all laws and regulations, particularly as they relate to professional and business activities. </li></ul>The American College Code of Ethics: Eight Canons
    64. 64. SEC Reg. IA-2256
    65. 65. Role of Ethics <ul><li>Practical application of ethics code </li></ul><ul><li>IA-2256 requires that RIAs adopt code of ethics </li></ul>
    66. 66. Ethics Mandate for Investment Advisors <ul><li>IA-2256 Investment Advisor Codes of Ethics </li></ul><ul><ul><li>Mandates registered advisers to adopt a code of ethics </li></ul></ul><ul><ul><li>Subject to compliance and records </li></ul></ul><ul><ul><li>Code breach is actionable </li></ul></ul>
    67. 67. Discussion Break <ul><li>As ethics and practice standards place increased demands on your business’s time and budget, how will you “manage” ethics in your practice? </li></ul>
    68. 68. Characteristics of a Professional
    69. 69. Characteristics Defining Professional <ul><li>Specialized knowledge </li></ul><ul><li>Threshold entrance requirement </li></ul><ul><li>Sense of altruism </li></ul><ul><li>Code of ethics </li></ul>
    70. 70. Professional Behavior <ul><li>Does advisor listen to client? </li></ul><ul><li>Does advisor answer client’s questions? </li></ul><ul><li>Is advisor gathering information sufficient to provide good advice? </li></ul><ul><li>Has advisor educated client about products and/or services? </li></ul>
    71. 71. Professional Behavior <ul><li>Has advisor considered client’s ability to deal with risk in recommendations? </li></ul><ul><li>Has advisor disclosed educational background and affiliations in financial planning to the client? </li></ul><ul><li>Does advisor provide client with a sense of steady service? </li></ul>
    72. 72. Professional Behavior <ul><li>Does advisor handle money matters properly? </li></ul><ul><li>Does advisor refer to other experts? </li></ul><ul><li>Does advisor seem up-to-date? </li></ul>
    73. 73. Characteristics of Professional <ul><li>Behaving professionally </li></ul><ul><ul><li>Salesperson’s standard is suitability </li></ul></ul><ul><ul><li>Advisor’s standard is fiduciary </li></ul></ul><ul><li>Increased risk of legal liability </li></ul><ul><ul><li>Lawsuits and complaints damage reputation and practice </li></ul></ul><ul><ul><ul><li>NASD’s broker check </li></ul></ul></ul><ul><ul><ul><li>CFP ® Board reports disciplinary actions </li></ul></ul></ul>
    74. 74. Applying CFP ® Practice Standards to Financial Planning Process
    75. 75. Financial Planning Process Steps and Corresponding Practice Standard(s) <ul><li>Establishing and defining advisor-client relationship </li></ul><ul><ul><li>100-1 Defining the scope of engagement </li></ul></ul><ul><li>Determining goals and gathering data </li></ul><ul><ul><li>200-1 Determining goals, needs, priorities </li></ul></ul><ul><ul><li>200-2 Obtaining information and documents </li></ul></ul>
    76. 76. <ul><li>Analyzing and evaluating data </li></ul><ul><ul><li>300-1 Analyzing and evaluating the client’s information </li></ul></ul>Financial Planning Process Steps and Corresponding Practice Standard(s)
    77. 77. <ul><li>Developing and presenting a plan </li></ul><ul><ul><li>400-1 I.D. alternatives </li></ul></ul><ul><ul><li>400-2 Develop recommendation </li></ul></ul><ul><ul><li>400-3 Present recommendation </li></ul></ul>Financial Planning Process Steps and Corresponding Practice Standard(s)
    78. 78. <ul><li>Implementing the plan </li></ul><ul><ul><li>500-1 Agreeing on implementing responsibilities </li></ul></ul><ul><ul><li>500-2 Selecting products and services for implementation </li></ul></ul>Financial Planning Process Steps and Corresponding Practice Standard(s)
    79. 79. <ul><li>Monitoring the plan </li></ul><ul><ul><li>600-1 Defining monitoring responsibilities </li></ul></ul>Financial Planning Process Steps and Corresponding Practice Standard(s)
    80. 80. Chapter Three Review
    81. 81. Chapter Three Review <ul><li>Ethics and the law </li></ul><ul><li>CFP Code Principles and Rules </li></ul><ul><li>Confidentiality </li></ul><ul><li>Professionalism </li></ul><ul><li>Diligence </li></ul><ul><ul><ul><li>Integrity </li></ul></ul></ul><ul><ul><ul><li>Objectivity </li></ul></ul></ul><ul><ul><ul><li>Competence </li></ul></ul></ul><ul><ul><ul><li>Fairness </li></ul></ul></ul>
    82. 82. <ul><li>The American College Code </li></ul><ul><ul><li>Pledge </li></ul></ul><ul><ul><li>Canons </li></ul></ul><ul><li>SEC Reg. IA-2256 </li></ul><ul><ul><li>Code breach is actionable </li></ul></ul><ul><li>What does it mean to be a professional? </li></ul><ul><li>What does it mean to not be a professional? </li></ul>Chapter Three Review
    83. 83. <ul><li>CFP Board ® steps in financial planning process and corresponding practice standards </li></ul>Chapter Three Review

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