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1235 Jefferson Davis Highway, Suite 602, Arlington, VA 22202 P:703-414-5811 F:7303-414-5185 E: W: www.cfp.net March 15, 2004 Jonathan G. Katz Re: File No. S7-04-04, Investment Adviser Code of Ethics Dear Mr. Katz: I am writing to provide CFP Board's1 comments to the Securities and Exchange Commission ("the Commission") concerning the proposed rule requiring each investment adviser to adopt a code of ethics. CFP Board strongly supports the Commission's proposal calling for an investment adviser code of ethics. CFP Board's Code of Ethics and Professional ResponsibilityCFP Board has an extensive history of its own in developing and enforcing a code of ethics. Introduced in 1986, the CFP Board Code of Ethics and Professional Responsibility ("the Code"2) is the leading guide for the principled practice of financial planning. Specifically, CFP certification requires certificants to agree to adhere to the Code and acknowledge CFP Board's right to enforce it through its Disciplinary Rules and Procedures. By signing the Declaration and Agreement form, individuals agree to be bound by the Code. This demonstrates to the public that certificants have agreed to provide personal financial planning in the client's best interest and to act in accordance with the highest ethical and professional standards for the practice of financial planning. In addition to the Code, CFP certificants must also agree to abide by the Financial Planning Practice Standards. In 1995, CFP Board established its Board of Practice Standards to develop practice standards for financial planners that would ultimately benefit consumers. The Board of Practice Standards drafted and revised the standards, considering input from CFP certificants, consumers, government regulators, and other organizations. The final standards were implemented in January 2002. The Practice Standards establish the level of professional practice that is expected of a CFP certificant engaged in personal financial planning and are intended to; 1) assure that the practice of financial planning by CFP professionals is based on established norms of practice, 2) advance professionalism in financial planning, and 3) enhance the value of the financial planning process. They apply to CFP Board designees in performing the tasks of financial planning regardless of the person's title, job position, type of employment, or method of compensation. CFP Board considers adherence to the Code and the Practice Standards absolutely essential for all its designees. CFP Board enforces the Code and Practice Standards through its Disciplinary Policies and Procedures. These procedures provide for a thorough review and a decision as to whether there has been a violation of the Code or non-compliance with the Practice Standards and if an internal sanction is warranted. A charge against the conduct, actions, or recommendations of a CFP professional is a matter that CFP Board takes very seriously. The CFP Board's Board of Professional Review ("BOPR") includes a Hearing Panel that enforces the Code and Practice Standards. The BOPR conducts extensive investigations of allegations of misconduct, and holds disciplinary hearings three times a year. The BOPR determines whether allegations of unethical conduct or non-compliance with Practice Standards are justified and whether the unethical conduct warrants disciplinary action. Before being authorized to use the CFP certification marks and each time certificants renew certification, a CFP Board designee must disclose whether he or she has ever been involved in any criminal, civil, self-regulatory organization or governmental agency inquiry, investigation or proceeding. If a candidate for certification discloses matters on the Declaration and Agreement form, or if CFP Board discovers that the candidate has ever been involved in matters that may give rise to a violation of the Code of Ethics or Practice Standards, her or his certification may be delayed pending CFP Board's review of the matters. Additionally, if the matters involve serious misconduct, CFP Board reserves the right to permanently deny a candidate of her or his right to obtain the CFP certification. Likewise, an individual already authorized to use the CFP certification marks is required to make the same disclosures every two years upon renewing certification. Any matters disclosed or discovered by CFP Board that give rise to a violation of the Code or Practice Standards may be disciplined, up to and including revocation of any rights to use the CFP certification marks. All such ethics reviews are conducted in accordance with CFP Board's Disciplinary Rules and Procedures. Since it was introduced, CFP Board has opened over 9,400 cases of potential violations of the Code. These potential Code violation cases have led to nearly 5,000 investigations. In turn, these investigations have resulted in 178 private letters of censure, 118 public letters of admonition, 127 suspensions of the right to use the CFP Board's marks for a specified period of time, and 275 permanent revocation of the right to use the CFP Board's marks. CFP Board's Code as Applied to the Commission's ProposalThe Commission's proposal calls for an investment adviser code of ethics that; (1) sets forth standards of conduct expected of advisory personnel (including compliance with the federal securities laws), (2) safeguards material nonpublic information about client transactions, and (3) requires advisers "access persons to report their personal securities transactions. It also calls for the code of ethics to require investment advisers to promptly report any violations and provide for a signed copy of the code by each supervised person. CFP Board believes the Code and its ensuing rules may serve as a model for sole practitioner investment advisers and with an addendum addressing specific points, serve as a suitable code of ethics under the proposed rules. Standards of Conduct and Compliance with LawsThe Commission is proposing that each code of ethics set forth a standard of business conduct. This standard must require the investment adviser's and it supervised persons' compliance with federal securities laws. CFP Board believes CFP professionals acting as sole practitioner investment advisers meet this standard under these Code rules: Rule 102 - In the course of professional activities, a CFP Board designee shall not engage in conduct involving dishonesty, fraud, deceit or misrepresentation, or knowingly make a false or misleading statement to a client, employer, employee, professional colleague, governmental or other regulatory body or official, or any other person or entity Rule 606 - In all professional activities, a CFP Board designee shall perform services in accordance with (a) Applicable laws, rules, and regulations of governmental agencies and other applicable authorities The Commission is requesting comment of the appropriateness of the formulation of the business conduct element of the proposed code of ethics. CFP Board believes this formulation is not entirely adequate. The business conduct element should incorporate ethical behavior in all business relationships and require compliance with all applicable professional laws and regulations as well as all applicable state and federal laws, not simply federal securities laws. A breach of trust in a business environment or violation of other applicable laws or regulations could seriously call into questions the ability to act in the interests of advisory clients. For example, a financial planner acting as a sole practitioner investment adviser might be meeting a relevant obligation to her or his clients and all federal securities laws, but however be acting fraudulently in their relationships with business vendors or in violation of rules under their business as a state licensed CPA. Protection of Material Nonpublic InformationThe Commission is proposing to restrict access to client information on a "need to know" basis. CFP Board believes CFP professionals acting as sole practitioner investment advisers meet this standard under these Code rules: Rule 501 - A CFP Board designee shall not reveal - or use for his or her own benefit - without the client's consent, any personally identifiable information relating to the client relationship or the affairs of the client, except and to the extent disclosure or use if reasonably necessary:
Rule 502 - A CFP Board designee shall maintain the same standards of confidentiality to employers as to clients Rule 503 - A CFP Board designee doing business as a partner or principal of a financial services firm owes the CFP Board designee's partners or co-owners a responsibility to act in good faith. This includes, but is not limited to, adherence to reasonable expectations of confidentiality both while in business together and thereafter. Personal Securities TradingThe Commission is proposing that each investment adviser code of ethics require personal trading reports from each "access person" of the investment adviser. It is also proposing an exception for advisers with only one employee. CFP Board believes CFP professionals acting as sole practitioner investment advisers meet this standard as they are firms with only one employee engaged in an advisory role and no other access persons. CFP Board believes sole practitioner investment advisers that have other employees may meet this standard as long as they are strictly administrative in nature and do not meet the definition of "access persons" found in the release. Reporting of ViolationsThe Commission is proposing to require prompt internal reporting of any violations of the code of ethics. CFP Board believes CFP professionals acting as sole practitioner investment advisers meet this standard under these Code rules: Rule 603 - A CFP designee who has knowledge, which is not required to be kept confidential under this Code, that another CFP designee has committed a violation of this Code which raises substantial questions as to the designee's honesty, trustworthiness or fitness as a CFP designee in other respects, shall promptly inform the CFP Board. This rule does not require disclosure of information or reporting based on knowledge gained as a consultant or expert witness in anticipation of or related to litigation or other dispute resolution mechanisms. For purposes of this rule, knowledge means no substantial doubt. Rule 604 - A CFP designee who has knowledge, which is not required under this Code to be kept confidential, and which raises a substantial question of unprofessional, fraudulent or illegal conduct by a CFP designee or other financial professional, shall promptly inform the appropriate regulatory and/or professional disciplinary body. This rule does not require disclosure of information or reporting based on knowledge gained as a consultant or expert witness in anticipation of or related to litigation or other dispute resolution mechanisms. For purposes of this rule, knowledge means no substantial doubt. Rule 605 - A CFP designee who has reason to suspect illegal conduct within the CFP designee's organization shall make timely disclosure of the available evidence to the CFP designee's immediate supervisor and/or partners or co-owners. If the CFP designee is convinced that illegal conduct exists within the CFP designee's organization, and that appropriated measures are not taken to remedy the situation, the CFP designee shall, where appropriate, alert the appropriate regulatory authorities including the CFP Board in a timely manner. Rule 606 - In all professional activities a CFP designee shall perform services in accordance with:
Rule 705 - A CFP designee shall properly supervise subordinates with regard to their delivery of financial planning services, and shall not accept or condone conduct in violation of this Code The Commission is requesting comment on whether the proposed rule should require reporting of apparent violations of a code of ethics. CFP Board believes apparent violations should be reported. If an individual considers an action to be an apparent violation, he or she has at least a notion that a violation has occurred. This notion demonstrates the individual is unsure about the requirements found under the code of ethics and can not suitably determine whether the action is a violation or not. If this is the case, the individual not only should report the action, but as well be further trained on the code of ethics. He or she would be demonstrating a lack of knowledge about the specific requirements of the code of ethics. Acknowledged Receipt of Code of EthicsThe Commission is proposing that the code of ethics require the adviser to provide a copy to supervised persons and acknowledge in writing receipt. CFP Board believes CFP professionals acting as sole practitioner investment advisers meet this standard by signing the Declaration and Agreement Form. The Commission is requesting comment on a requirement that all codes of ethics contain procedures to educate employees about the code of ethics and that each employee certify they have re-read, understands, and has complied with the code. CFP Board believes CFP professionals acting as sole practitioner investment advisers meet this standard through the entirety of our certification process. Throughout this process, CFP Board designees are exposed to and tested on their knowledge of the Code. This includes the following elements: Each CFP Board Registered Program must include the Code in their course curriculum The CFP Certification Examination includes questions covering the Code CFP Board requires CFP certificants to obtain two hours of continuing education every two years on the Code Other Code of Ethics ProvisionsThe Commission is requesting comment on other areas that should be included in a code of ethics. CFP Board believes any investment adviser code of ethics should cover the following matters: Loans between investment advisers and clients - CFP Board itself takes the position that these loans should be avoided in the client-financial planner relationship.3 Pertinent information about who are access persons - This information should be maintained in addition to the personal trading reports access persons file. If an identified access person does not report any personal trading, that should be made evident by an affirmative statement that no personal trades occurred. Procedures to periodically review code of ethics - CFP Board believes an investment adviser code of ethics must contain procedures to ensure the code of ethics' provisions match current business practices Discussion of penalties for violating the code of ethics and subsequent disciplinary procedures - CFP Board believes it is essential to include these provisions in any code of ethics. A code of ethics is only relevant if those to whom it applies understand the implications of not meeting its standards. Understanding the penalties for violating a code of ethics reinforces the validity of the code of ethics and eliminates any confusion on post-violation actions and. CFP Board itself extensively addresses this issue in its Disciplinary Policies and Procedures. Adviser Review and EnforcementThe Commission is proposing that each investment adviser maintain and enforce their code of ethics. CFP Board believes CFP professionals acting as sole practitioner investment advisers meet this standard by the fact that CFP Board actively and aggressively enforces the Code as demonstrated in the information above. RecordkeepingThe Commission is proposing that investment advisers keep copies of their code of ethics, their supervised persons' written acknowledgment of receipt of the code of ethics, records of violations of the code of ethics, and records of action taken as a result of violations. CFP Board believes CFP professionals acting as sole practitioner investment advisers meet this standard by the fact that CFP Board keeps these records on all its certificants. Form ADV AmendmentsThe Commission is requesting comment on whether amended Form ADV to require a disclosure requirement about the existence of a code of ethics and a general description of it is suitable. CFP Board believes this requirement is adequate. Recent CFP Board research shows that only 32% of Americans "enjoy planning and thinking about financial matters."4 This indicates that a relatively low number of investors would find value in automatically receiving their investment adviser's code of ethics. CFP Board believes full disclosure of its existence will suffice. CFP Board hopes the comments it has provided are useful. We look forward to discussing how our certification may assist the Commission in its regulatory duties. If staff at the SEC should have any questions regarding CFP Board or the individuals it certifies, please contact me at 703-414-5814 or . Sincerely, Michael C. Herndon AppendixCertified Financial Planner Board of Standards Code of Ethics and Professional ResponsibilityIntroduction This booklet contains three publications that describe the ethical and professional standards required of CFP® certificants. The Code of Ethics and Professional Responsibility (Code of Ethics) describes the minimum standards of acceptable professional conduct for individuals authorized to use CFP Board's CFP certification marks. At the back of the Code of Ethics are two of CFP Board's Advisory Opinions, which are issued from time to time to interpret the Code of Ethics' requirements, and sample disclosure forms, developed to aid certificants in complying with the Code of Ethics' disclosure requirements. The Financial Planning Practice Standards (Practice Standards) establish the level of professional practice that is expected of a CFP certificant engaged in personal financial planning. The Disciplinary Rules and Procedures describe the rules and procedures followed by CFP Board in enforcing the Code of Ethics and Practice Standards. Contents This booklet is also available for download on CFP Board's Web site at www.CFP-Board.org. Revisions from the 1/03 edition include:
Terminology in this Booklet "Client" denotes a person, persons, or entity who engages a practitioner and for whom professional services are rendered. For purposes of this definition, a practitioner is engaged when an individual, based upon the relevant facts and circumstances, reasonably relies upon information or service provided by that practitioner. Where the services of the practitioner are provided to an entity (corporation, trust, partnership, estate, etc.), the client is the entity acting through its legally authorized representative. "CFP Board designee" denotes current certificants, candidates for certification, and individuals that have any entitlement, direct or indirect, to the CFP certification marks. "Commission" denotes the compensation received by an agent or broker when the same is calculated as a percentage on the amount of his or her sales or purchase transactions. "Compensation" is any economic benefit a CFP Board designee or related party receives from performing his or her professional activities. "Conflict(s) of interest" exists when a CFP Board designee'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" denotes a method of compensation in which compensation is received solely from a client with neither the personal financial planning practitioner nor any related party receiving compensation which is contingent upon the purchase or sale of any financial product. A "related party" for this purpose shall mean an individual or entity from whom any direct or indirect economic benefit is derived by the personal financial planning practitioner as a result of implementing a recommendation made by the personal financial planning practitioner. A "financial planning engagement" exists when a client, based on the relevant facts and circumstances, reasonably relies upon information or services provided by a CFP Board designee using the financial planning process. "Personal financial planning" or "financial planning" denotes the process of determining whether and how an individual can meet life goals through the proper management of financial resources. "Personal financial planning process" or "financial planning process" denotes the process which typically includes, but is not limited to, these six elements: establishing and defining the client-planner relationship, gathering client data including goals, analyzing and evaluating the client's financial status, developing and presenting financial planning recommendations and/or alternatives, implementing the financial planning recommendations and monitoring the financial planning recommendations. "Personal financial planning subject areas" or "financial planning subject areas" denotes the basic subject fields covered in the financial planning process which typically include, but are not limited to, financial statement preparation and analysis (including cash flow analysis/planning and budgeting), investment planning (including portfolio design, i.e., asset allocation and portfolio management), income tax planning, education planning, risk management, retirement planning and estate planning. "Personal financial planning professional" or "financial planning professional" denotes a person who is capable and qualified to offer objective, integrated and comprehensive financial advice to or for the benefit of individuals to help them achieve their financial objectives. A financial planning professional must have the ability to provide financial planning services to clients, using the financial planning process covering the basic financial planning subjects. "Personal financial planning practitioner" or "financial planning practitioner" denotes a person who is capable and qualified to offer objective, integrated and comprehensive financial advice to or for the benefit of clients to help them achieve their financial objectives and who engages in financial planning using the financial planning process in working with clients. Code of Ethics and Professional ResponsibilityContents Part I - PRINCIPLES Principle 1 - Integrity Part II - RULES Rules that Relate to the Principle of Integrity Advisory Opinion 2000-1 Form FPE Copyright © 1986-2003, Certified Financial Planner Board of Standards Inc. All rights reserved. Preamble and Applicability The Code of Ethics and Professional Responsibility (Code of Ethics) has been adopted by Certified Financial Planner Board of Standards Inc. (CFP Board) to provide principles and rules to all persons whom it has recognized and certified to use the CFP®, Certified Financial PlannerTM and certification marks (collectively "the marks"). CFP Board determines who is certified and thus authorized to use the marks. Implicit in the acceptance of this authorization is an obligation not only to comply with the mandates and requirements of all applicable laws and regulations but also to take responsibility to act in an ethical and professionally responsible manner in all professional services and activities.For purposes of this Code of Ethics, a person recognized and certified by CFP Board to use the marks is called a CFP Board designee . This Code of Ethics applies to CFP Board designees actively involved in the practice of personal financial planning, in other areas of financial services, in industry, in related professions, in government, in education or in any other professional activity in which the marks are used in the performance of professional responsibilities. This Code of Ethics also applies to candidates for the CFP® certification who are registered as such with CFP Board. For purposes of this Code of Ethics, the term CFP Board designee shall be deemed to include current certificants, candidates and individuals who have been certified in the past and retain the right to reinstate their CFP certification without passing the current CFP® Certification Examination. Composition and Scope The Code of Ethics consists of two parts: Part I - Principles and Part II - Rules. The Principles are statements expressing in general terms the ethical and professional ideals that CFP Board designees are expected to display in their professional activities. As such, the Principles are aspirational in character but are intended to provide a source of guidance for CFP Board designees. The comments following each Principle further explain the meaning of the Principle. The Rules in Part II provide practical guidelines derived from the tenets embodied in the Principles. As such, the Rules describe the standards of ethical and professionally responsible conduct expected of CFP Board designees in particular situations. This Code of Ethics does not undertake to define standards of professional conduct of CFP Board designees for purposes of civil liability. Due to the nature of a CFP Board designee's particular field of endeavor, certain Rules may not be applicable to that CFP Board designee's activities. For example, a CFP Board designee who is engaged solely in the sale of securities as a registered representative is not subject to the written disclosure requirements of Rule 402 (applicable to CFP Board designees engaged in personal financial planning) although he or she may have disclosure responsibilities under Rule 401. A CFP Board designee is obligated to determine what responsibilities he or she has in each professional relationship including, for example, duties that arise in particular circumstances from a position of trust or confidence that a CFP Board designee may have. The CFP Board designee is obligated to meet those responsibilities. The Code of Ethics is structured so that the presentation of the Rules parallels the presentation of the Principles. For example, the Rules which relate to Principle 1 - Integrity are numbered in the 100 to 199 series, while those Rules relating to Principle 2 - Objectivity are numbered in the 200 to 299 series. Compliance CFP Board requires adherence to this Code of Ethics by all CFP Board designees. Compliance with the Code of Ethics, individually and by the profession as a whole, depends on each CFP Board designee's knowledge of and voluntary compliance with the Principles and applicable Rules, on the influence of fellow professionals and public opinion, and on disciplinary proceedings, when necessary, involving CFP Board designees who fail to comply with the applicable provisions of the Code of Ethics. Part I - Principles These Code of Ethics' Principles express the profession's recognition of its responsibilities to the public, to clients, to colleagues and to employers. They apply to all CFP Board designees and provide guidance to them in the performance of their professional services. Principle 1 - Integrity A CFP Board designee shall offer and provide professional services with integrity. As discussed in "Composition and Scope," CFP Board designees may be placed by clients in positions of trust and confidence. The ultimate source of such public trust is the CFP Board designee's personal integrity. In deciding what is right and just, a CFP Board designee should rely on his or her integrity as the appropriate touchstone. Integrity demands honesty and candor which must not be subordinated to personal gain and advantage. Within the characteristic of integrity, allowance can be made for innocent error and legitimate difference of opinion; but integrity cannot co-exist with deceit or subordination of one's principles. Integrity requires a CFP Board designee to observe not only the letter but also the spirit of this Code of Ethics. Principle 2 - Objectivity A CFP Board designee shall be objective in providing professional services to clients. Objectivity requires intellectual honesty and impartiality. It is an essential quality for any professional. Regardless of the particular service rendered or the capacity in which a CFP Board designee functions, a CFP Board designee should protect the integrity of his or her work, maintain objectivity, and avoid subordination of his or her judgment that would be in violation of this Code of Ethics. Principle 3 - Competence A CFP Board designee shall provide services to clients competently and maintain the necessary knowledge and skill to continue to do so in those areas in which the CFP Board designee is engaged. One is competent only when he or she has attained and maintained an adequate level of knowledge and skill, and applies that knowledge effectively in providing services to clients. Competence also includes the wisdom to recognize the limitations of that knowledge and when consultation or client referral is appropriate. A CFP Board designee, by virtue of having earned the CFP® certification, is deemed to be qualified to practice financial planning. However, in addition to assimilating the common body of knowledge required and acquiring the necessary experience for certification, a CFP Board designee shall make a continuing commitment to learning and professional improvement. Principle 4 - Fairness A CFP Board designee shall perform professional services in a manner that is fair and reasonable to clients, principals, partners and employers, and shall disclose conflict(s) of interest in providing such services. Fairness requires impartiality, intellectual honesty and disclosure of conflict(s) of interest. It involves a subordination of one's own feelings, prejudices and desires so as to achieve a proper balance of conflicting interests. Fairness is treating others in the same fashion that you would want to be treated and is an essential trait of any professional. Principle 5 - Confidentiality A CFP Board designee shall not disclose any confidential client information without the specific consent of the client unless in response to proper legal process, to defend against charges of wrongdoing by the CFP Board designee or in connection with a civil dispute between the CFP Board designee and client. A client, by seeking the services of a CFP Board designee, may be interested in creating a relationship of personal trust and confidence with the CFP Board designee. This type of relationship can only be built upon the understanding that information supplied to the CFP Board designee will be confidential. In order to provide the contemplated services effectively and to protect the client's privacy, the CFP Board designee shall safeguard the confidentiality of such information. Principle 6 - Professionalism A CFP Board designee's conduct in all matters shall reflect credit upon the profession. Because of the importance of the professional services rendered by CFP Board designees, there are attendant responsibilities to behave with dignity and courtesy to all those who use those services, fellow professionals, and those in related professions. A CFP Board designee also has an obligation to cooperate with fellow CFP Board designees to enhance and maintain the profession's public image and to work jointly with other CFP Board designees to improve the quality of services. It is only through the combined efforts of all CFP Board designees, in cooperation with other professionals, that this vision can be realized. Principle 7 - Diligence A CFP Board designee shall act diligently in providing professional services. Diligence is the provision of services in a reasonably prompt and thorough manner. Diligence also includes proper planning for, and supervision of, the rendering of professional services. Part II - Rules As stated in Part I - Principles, the Principles apply to all CFP Board designees. However, due to the nature of a CFP Board designee's particular field of endeavor, certain Rules may not be applicable to that CFP Board designee's activities. The universe of activities engaged in by a CFP Board designee is indeed diverse and a particular CFP Board designee may be performing all, some or none of the typical services provided by financial planning professionals. As a result, in considering the following Rules, a CFP Board designee must first recognize what specific services he or she is rendering and then determine whether or not a specific Rule is applicable to those services. To assist the CFP Board designee in making these determinations, the Standards of Professional Conduct includes a series of definitions of terminology used throughout the Code of Ethics. Based upon these definitions, a CFP Board designee should be able to determine which services he or she provides and, therefore, which Rules are applicable to those services. Rules that Relate to the Principle of Integrity Rule 101 A CFP Board designee shall not solicit clients through false or misleading communications or advertisements:
Rule 102 Rule 103
Rules that Relate to the Principle of Objectivity Rule 202 Rule 301 Rule 302 Rules that Relate to the Principle of Fairness
Rule
402
Rule 403 Rule 404 Rule 405 Rule 406 Rule 407
Rule 408 Rule 409 Rules that Relate to the Principle of Confidentiality Rule 501
For purposes of this rule, the proscribed use of client information is improper whether or not it actually causes harm to the client. Rule 502 Rule 503 Rules that Relate to the Principle of Professionalism Rule 601 Rule 602 Rule 603 Rule 604 Rule 605 Rule
606
Rule 607 Rule 608 Rule
609 Rule 610 Rule 611 Rule 612 Rules that Relate to the Principle of Diligence Rule 701 Rule 702
Rule 703 Rule 704 Rule 705 Advisory Opinion 2001-1 Loans between CFP Board designees and their clients should be avoided in the client-planner relationship. Background The Board of Professional Review (the "BOPR") has generally viewed loans between CFP Board designees and their clients unfavorably and, in the majority of cases, to be a violation of the Code of Ethics and Professional Responsibility (Code of Ethics). Since the Code of Ethics does not have a rule that specifically prohibits such transactions, however, the BOPR has addressed the issue under various rules, depending upon the facts and circumstances of the case being examined. Due to an increase in the number of disciplinary cases that involve the issue of loans between a CFP Board designee and his or her client, the BOPR is issuing this advisory opinion to clarify its position and to serve as a guide to both CFP Board designees and their clients. Issue Whether a loan between a CFP Board designee and his or her client(s) violates the Code of Ethics. Analysis Cases involving a loan between a CFP Board designee and a client involve an investigation of whether that CFP Board designee has violated the Code of Ethics. The BOPR has evaluated these cases under a number of rules, including, but not limited to, Rules 201, 202, 401, 402, 606, 607 and 703. To determine which, if any, rules have been violated, the BOPR considers:
While any and/or all of the rules mentioned above, and others, may apply in a particular case, this advisory opinion focuses on two rules which are implicated in the majority of "loan" cases and are, therefore, most frequently cited by the BOPR: Rules 202 and 607. Rule 202 "[A] person who is capable and qualified to offer objective, integrated and comprehensive financial advice to or for the benefit of clients to help them achieve their financial objectives and who engages in financial planning using the financial planning process in working with clients." Borrowing from a Client BOPR Recognizes Exceptions
The BOPR recognizes that borrowing and/or lending of funds between family members is a common, generally accepted, practice. Likewise, financial institutions are in the business of borrowing and lending funds and, as such, often provide loans to individuals, regardless of whether they are CFP Board designees. In both instances, loans between these groups can fall outside the scope of the planner-client relationship. In either of the two situations described above, while the BOPR does not presume that the planner's borrowing of funds is a violation of Rule 202, it may still find that the transaction was not in the client's best interests if the financial planning practitioner is unable to establish that:
Lending to a Client The exception to this presumption is when the client is a family member. Even if the client is a family member, however, the BOPR may still find that the transaction was not in the client's best interest if the financial planning practitioner is unable to establish that (a) the terms and conditions of the loan were clearly and objectively disclosed to the client, taking into consideration the client's level of sophistication, (b) the terms and conditions of the transaction were fair and reasonable under the circumstances, and (c) the client fully understood the terms and conditions of the transaction and the impact the transaction may have on his/her financial situation. Rule 607 As defined in the Code of Ethics, CFP Board designees include individuals who are currently certified, candidates for certification, and individuals who have any entitlement, either direct or indirect, to use the CFP certification marks. Accordingly, this rule has been interpreted to apply to all CFP Board designees regardless of whether they are practitioners, including candidates for certification, and individuals who have the right to renew their CFP® certification without re-taking CFP Board's CFP® Certification Examination. Whether the Client is the Borrower or Lender BOPR Recognizes Exceptions
Summary Advisory Opinion 2003-1 Background The purpose of this Advisory Opinion is to reduce confusion on the part of CFP Board designees, their clients, and the public, and to maintain consistency with other organizations' use of the term "fee-only." Thus, the Board of Governors withdrew Advisory Opinions 97-1 and 97-2 in January 2002 and the Code of Ethics definition can no longer be considered an accurate reflection of the BOPR's position on this issue. Issue Analysis
There are other compensation arrangements under which a CFP Board designee could be compensated for working with a client. In some of these arrangements, the designee may be paid by a third party for the recommending, referring or selling of a product and/or service. These arrangements, including, but not limited to the following, shall not be interpreted as fees under the Code of Ethics:
Use of the Term "Fee-Only" Potential Rule Violations Rule 401 Rule 402 Rule 101(a) and (b) Summary Sample Disclosure Forms These forms provide for certain disclosures to clients (or potential clients) as required by CFP Board's Code of Ethics, with corresponding Rules in the Code of Ethics referrenced in parantheses. The client acknowledgments at the end of each disclosure form are not required by CFP Board's Code of Ethics, but CFP certificants may wish to use them for their own purposes. Please note in Part II, section E of Form FPE, a CFP certificant shall not hold out as a fee-only financial planning practitioner if the CFP certificant receives commissions or other forms of economic benefit form related parties. (Refer also to Advisory Opinion 2003-1.) Also note that the disclosure of Part II, section B of Form OPS, is not required if the services contemplated by the client relationship have been completed. CFP certificants may use these forms, SEC Form ADV Part II, or a form of their own design or choosing as long as the required Code of Ethics disclosures are included in whatever form is used by the CFP certificant. Compliance with the client disclosure requirements of the Code of Ethics is accomplished only when all material information relevant to the professional relationship (which includes everything required, pertinent and appropriate to the given client relationship) has been disclosed to the client or prospective client. Such disclosure should include, if material, (1) information about the financial condition of the CFP certificant and/or his or her firm which is reasonably likely to impair the ability of the CFP certificant to meet contractual commitments to the client and (2) any legal or disciplinary event relative to the CFP certificant that is material to a client's or potential client's evaluation of the CFP certificant's integrity or ability to meet contractual commitments to the client. Mere completion of a suggested disclosure form does not, in and of itself, constitute full compliance with the Code of Ethics disclosure requirements. A blank form of each, in addition to a sample of how the forms might look when they are filled in, is included and may be copied for your use. The forms can also be downloaded as Word documents from CFP Board's Web site at www.CFP-Board.org. Sample CFP® Certificant Disclosure Form (FORM FPE) This disclosure form gives information about the CFP® certificant(s) and his/her/their business. This information has not been reviewed, approved or verified by CFP Board or by any governmental or self-regulatory authority. CFP Board does not warrant the specific qualifications of individuals certified to use its marks, nor does it warrant the correctness of advice or opinions provided. PART I. GENERAL INFORMATION:
PART II. MATERIAL INFORMATION RELEVANT TO THE PROFESSIONAL RELATIONSHIP
PART III. ADDITIONAL NOTIFICATION
(Code reference - Rules 402 and 403) I hereby acknowledge receipt of this required disclosure. _____________________/_________/_____________________/_________ Sample CFP® Certificant Disclosure Form (FORM FPE) Sample Filled-In Form This disclosure form gives information about the CFP® certificant(s) and his/her/their business. This information has not been reviewed, approved or verified by CFP Board or by any governmental or self-regulatory authority. CFP Board does not warrant the specific qualifications of individuals certified to use its marks, nor does it warrant the correctness of advice or opinions provided. PART I. GENERAL INFORMATION:
PART II. MATERIAL INFORMATION RELEVANT TO THE PROFESSIONAL RELATIONSHIP
Our approach to personal financial planning is to obtain from you significant financial and other information including your attitudes, goals and objectives; to analyze the information obtained in order to develop alternatives for your consideration; to educate you about the implications of selecting a particular alternative; to implement the alternative selected by you; and to periodically update the plan adopted. It is our goal to become your chief financial adviser and to coordinate the efforts of your other advisers in your best interests. We want you to be educated about your own financial affairs and to take an active role in managing them. Our philosophy of financial planning is to gather adequate reliable information about a client's personal financial situation; to determine the client's goals and objectives, time horizon, and risk tolerance; to analyze all of the foregoing information in an objective manner and to develop recommendations for our clients based upon this thorough analysis and in the interest of rendering disinterested advice. In a personal financial planning engagement, we endeavor to consistently act in the interest of our client and to place his or her interest ahead of our own. Moreover, we believe that a client should be both informed and proactively involved in his or her personal financial affairs. Accordingly, we believe in holding frequent meetings with our clients to educate them about the financial planning process and their own financial situation. 1. Educational background: 2. Professional/employment history: 3. Professional certifications and licenses
held: Example 1: Example 2: 1. Conflict(s) of interest: Example 1: Example 2: 2. Source(s) of compensation: Example 1: Fees from clients Example 2: Commissions from third parties 3. Contingencies or other aspects material to the certificant's compensation: I will not receive a commission unless you purchase the financial products recommended by me. 1. Material agency or employment relationships with third parties: Life & Health Insurance Broker for DEF Insurance Company 2. Compensation resulting from such agency or employment relationships: 50% commissions on first year life insurance premiums and 0.25% commission upon annual renewal. John Doe is licensed only for the sale of mutual funds and variable annuities. PART III. ADDITIONAL NOTIFICATION
(Code reference - Rules 402 and 403) I hereby acknowledge receipt of this required disclosure. _____________________/_________/_____________________/_________ CFP® CERTIFICANT DISCLOSURE FORM (FORM OPS) This disclosure form gives information about the CFP® certificant(s) and his/her/their business. This information has not been reviewed, approved or verified by CFP Board or by any governmental or self-regulatory authority. CFP Board does not warrant the specific qualifications of individuals certified to use its marks, nor does it warrant the correctness of advice or opinions provided. PART I. MATERIAL INFORMATION RELEVANT TO THE PROFESSIONAL RELATIONSHIP (Disclosures
required to be provided at the time of entering into a client relationship)
PART II. SUBSEQUENT DISCLOSURES (Disclosures required to be provided subsequent to entering into a client relationship)
(Code reference - Rule 401) I hereby acknowledge receipt of this required disclosure. _____________________/_________/_____________________/_________ CFP® Certificant Disclosure Form (FORM OPS) - Sample Filled-In Form This disclosure form gives information about the CFP® certificant(s) and his/her/their business. This information has not been reviewed, approved or verified by CFP Board or by any governmental or self-regulatory authority. CFP Board does not warrant the specific qualifications of individuals certified to use its marks, nor does it warrant the correctness of advice or opinions provided. PART I. MATERIAL INFORMATION RELEVANT TO THE PROFESSIONAL RELATIONSHIP
I am a sales representative for ABC Securities and I am licensed to sell general securities through that firm. These products include mutual funds, stocks, bonds and other types of securities. My compensation is based solely upon the sale of securities. Should you choose to purchase a product through us, I will receive a commission payable by a third party. John Doe owns a partnership interest in ABC Securities. I am required by law to provide you with a copy of the most recent prospectus for any security that I recommend to you. I am required by law to provide you with a copy of the order confirmation for any securities transactions. PART II. SUBSEQUENT DISCLOSURES
(Code reference - Rule 401) I hereby acknowledge receipt of this required disclosure. _____________________/_________/_____________________/_________ Financial Planning Practice Standards Contents Copyright © 1998-2002, Certified Financial Planner Board of Standards Inc. All rights reserved. Statement of Purpose for Financial Planning Practice Standards These Practice Standards are intended to:
History of Practice Standards In 1995, CFP Board established its Board of Practice Standards composed exclusively of CFP practitioners, to draft standards of practice for financial planning. The Board of Practice Standards drafted and revised the standards considering input from CFP certificants, consumers, regulators and other organizations. CFP Board's Board of Governors adopted the revised standards. Description of Practice Standards Practice Standards apply to CFP Board designees 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 CFP Board designees, but all financial planning professionals are encouraged to use the Practice Standards when performing financial planning tasks or activities addressed by a Practice Standard. Conduct inconsistent with a Practice Standard in and of itself is neither intended to give rise to a cause of action nor to create any presumption that a legal duty has been breached. The Practice Standards are designed to provide CFP Board designees a framework for the professional practice of financial planning. They are not designed to be a basis for legal liability. Practice Standards are not intended to prescribe the services to be provided or step-by-step procedures for providing any particular service. Such procedures may be provided in practice aids developed by various financial planning organizations and other sources. Practice Standards were developed for selected financial planning activities identified in a financial planner job analysis first conducted by CFP Board in 1987, updated in 1994 by CTB/McGraw-Hill, an independent consulting firm, and again in 1999 by the Chauncey Group. The financial planning process is defined as follows:
Format of Practice Standards The Explanation accompanying each Practice Standard explains and illustrates the meaning and purpose of the Practice Standard. The text of each Practice Standard is authoritative and directive. The related Explanation is a guide to interpretation and application of the Practice Standard based, where indicated, on a standard of reasonableness, a recurring theme throughout the Practice Standards. The Explanation is not intended to establish a professional standard or duty beyond what is contained in the Practice Standard itself. Compliance with Practice Standards Practice Standards 100 Series Explanation of this Practice Standard This process is accomplished in financial planning engagements by:
The scope of the engagement may include one or more financial planning subject areas. It is acceptable to mutually define engagements in which the scope is limited to specific activities. Mutually defining the scope of the engagement serves to establish realistic expectations for both the client and the practitioner. This Practice Standard does not require the scope of the engagement to be in writing. However, as noted in the "Relationship" section, which follows, there may be certain disclosures that are required to be in writing. As the relationship proceeds, the scope may change by mutual agreement. This Practice Standard shall not be considered alone, but in conjunction with all other Practice Standards. Effective Date Relationship of this Practice Standard to CFP Board's Code of Ethics and Professional Responsibility Principle 4 states "A CFP Board designee shall perform professional services in a manner that is fair and reasonable to clients...."Although, as stated earlier, there is no requirement that the scope of the engagement be in writing, Rule 402 in the Code of Ethics requires a financial planning practitioner to make "timely written disclosure of all material information relative to the professional relationship. In all circumstances and prior to the engagement, a CFP Board designee shall, in writing: (a) Disclose conflict(s) of interest and sources of compensation; and (b) Inform the client or prospective client of his/her right to ask at any time for information about the compensation of the CFP Board designee." Principle 7 states "A CFP Board designee shall act diligently in providing professional services." Rule 702 requires that financial planning practitioners enter into an engagement only after obtaining sufficient information to satisfy that "the relationship is warranted by the individual's needs and objectives; and the CFP Board designee has the ability to either provide requisite competent services or to involve other professionals who can provide such services." Anticipated Impact of this Practice
Standard Upon the Financial Planning Profession Upon the Financial Planning Practitioner Practice Standards 200 Series Explanation of this Practice Standard Goals and objectives provide focus, purpose, vision and direction for the financial planning process. It is important to determine clear, and measurable objectives that are relevant to the scope of the engagement. The role of the practitioner is to facilitate the goal-setting process in order to clarify, with the client, goals and objectives. When appropriate, the practitioner shall try to assist clients in recognizing the implications of unrealistic goals and objectives. This Practice Standard addresses only the tasks of determining the client's personal and financial goals, needs and priorities; assessing the client's values, attitudes and expectations; and determining the client's time horizons. These areas are subjective and the practitioner's interpretation is limited by what the client reveals. This Practice Standard shall not be considered alone, but in conjunction with all other Practice Standards. Effective Date Relationship of this Practice Standard to CFP Board's Code of Ethics and Professional Responsibility Anticipated Impact of this Practice
Standard Upon the Financial Planning Profession Upon the Financial Planning Practitioner 200-2:
Obtaining Quantitative Information and Documents Explanation of this Practice Standard The practitioner shall obtain sufficient and relevant quantitative information and documents pertaining to the client's financial resources, obligations and personal situation. This information may be obtained directly from the client or other sources such as interview(s), questionnaire(s), client records and documents. The practitioner shall communicate to the client a reliance on the completeness and accuracy of the information provided and that incomplete or inaccurate information will impact conclusions and recommendations. If the practitioner is unable to obtain sufficient and relevant quantitative information and documents to form a basis for recommendations, the practitioner shall either:
The practitioner shall communicate to the client any limitations on the scope of the engagement, as well as the fact that this limitation could affect the conclusions and recommendations. This Practice Standard shall not be considered alone, but in conjunction with all other Practice Standards. Effective Date Relationship of this Practice Standard to CFP Board's Code of Ethics and Professional Responsibility This Practice Standard relates to CFP Board's Code of Ethics and Professional Responsibility (Code of Ethics) through the Code of Ethics' Principle 7 - Diligence and Rules 701 through 703. Rule 701 states "A CFP Board designee shall provide services diligently." Rule 702 requires a financial planning practitioner to "enter into an engagement only after securing sufficient information to satisfy the CFP Board designee that ... the relationship is warranted by the individual's needs and objectives...." In addition, Rule 703 requires a financial planning practitioner to "make and/or implement only recommendations which are suitable for the client." Anticipated Impact of this Practice Standard Upon the Public Upon the Financial Planning Profession Upon the Financial Planning Practitioner Practice Standards 300 Series 300-1: Analyzing and Evaluating the Client's Information Explanation of this Practice Standard The practitioner will utilize client-specified, mutually agreed upon, and/or other reasonable assumptions. Both personal and economic assumptions must be considered in this step of the process. These assumptions may include, but are not limited to, the following:
Analysis and evaluation are critical to the financial planning process. These activities form the foundation for determining strengths and weaknesses of the client's financial situation and current course of action. These activities may also identify other issues that should be addressed. As a result, it may be appropriate to amend the scope of the engagement and/or to obtain additional information. Effective Date Relationship of this Practice Standard to
CFP Board's Code of Ethics and Professional Responsibility Principle 2 states "A CFP Board designee shall be objective in providing professional services to clients." Rule 201 states "A CFP Board designee shall exercise reasonable and prudent professional judgment in providing professional services" and Rule 202 states "A financial planning practitioner shall act in the interest of the client." Principle 3 states "A CFP Board designee shall provide services to clients competently and maintain the necessary knowledge and skill to continue to do so in those areas in which the designee is engaged." Rule 302 states "A CFP Board designee shall offer advice only in those areas in which the CFP Board designee has competence. In areas where the CFP Board designee is not professionally competent, the CFP Board designee shall seek the counsel of qualified individuals and/or refer clients to such parties." Under Principle 7, Rule 701 states "A CFP Board designee shall provide services diligently." Anticipated Impact of this Practice Standard Upon the Financial Planning Profession Upon the Financial Planning
Practitioner Practice Standards 400 Series These three Practice Standards emphasize the distinction among the several tasks which are part of this process. These Practice Standards can be described as, "What is Possible?," "What is Recommended?" and "How is it Presented?" The first two Practice Standards involve the creative thought, the analysis, and the professional judgment of the practitioner, which are often performed outside the presence of the client. First, the practitioner identifies and considers the various alternatives, including continuing the present course of action (Practice Standard 400-1). Second, the practitioner develops the recommendation(s) from among the selected alternatives (Practice Standard 400-2). Once the practitioner has determined what to recommend, the final task is to communicate the recommendation(s) to the client (Practice Standard 400-3). The three Practice Standards that comprise the 400 series should not be considered alone, but in conjunction with all other Practice Standards. 400-1: Identifying and Evaluating Financial Planning
Alternative(s) Explanation of this Practice Standard This evaluation may involve, but is not limited to, considering multiple assumptions, conducting research or consulting with other professionals. This process may result in a single alternative, multiple alternatives or no alternative to the client's current course of action. In considering alternative actions, the practitioner shall recognize and, as appropriate, take into account his or her legal and/or regulatory limitations and level of competency in properly addressing each of the client's financial planning issues. More than one alternative may reasonably meet the client's goals, needs and priorities. Alternatives identified by the practitioner may differ from those of other practitioners or advisers, illustrating the subjective nature of exercising professional judgment. Effective Date Relationship of this Practice Standard to CFP Board's Code of Ethics and Professional Responsibility This Practice Standard relates to CFP Board's Code of Ethics and Professional Responsibility (Code of Ethics) through the Code of Ethics' Principle 2 - Objectivity and Rules 201 and 202; Principle 3 - Competence and Rule 302; Principle 6 - Professionalism and Rule 609; and Principle 7 - Diligence and Rules 701 and 703. Principle 2 states "A CFP Board designee shall be objective in providing professional services to clients." Rule 201 states "A CFP Board designee shall exercise reasonable and prudent professional judgment in providing professional services." Rule 202 states "A financial planning practitioner shall act in the interest of the client." Principle 3 states "A CFP Board designee shall provide services to clients competently and maintain the necessary knowledge and skill to continue to do so in those areas in which the designee is engaged." Rule 302 states "A CFP Board designee shall offer advice only in those areas in which the CFP Board designee has competence. In areas where the CFP Board designee is not professionally competent, the CFP Board designee shall seek the counsel of qualified individuals and/or refer clients to such parties." Principle 6 states "A CFP Board designee's conduct in all matters shall reflect credit upon the profession." Rule 609 states "A CFP Board designee shall not practice any other profession or offer to provide such services unless the CFP Board designee is qualified ... and is licensed as required by state law." Principle 7 states "A CFP Board designee shall act diligently in providing professional services." Rule 701 states "A CFP Board designee shall provide services diligently." Rule 703 states "A financial planner practitioner shall make and/or implement only recommendations which are suitable for the client." 400-2: Developing the Financial Planning Recommendation(s)g the Financial Planning Explanation of this Practice Standard The recommendation(s) shall be consistent with and will be directly affected by the following:
A recommendation may be to continue the current course of action. If a change is recommended, it may be specific and/or detailed or provide a general direction. In some instances, it may be necessary for the practitioner to recommend that the client modify a goal. The recommendations developed by the practitioner may differ from those of other practitioners or advisers, yet each may reasonably meet the client's goals, needs and priorities. Effective Date Relationship of this Practice Standard to CFP Board's Code of Ethics and Professional Responsibility Principle 2 states "A CFP Board designee shall be objective in providing professional services to clients." Rule 201 states "A CFP Board designee shall exercise reasonable and prudent professional judgment in providing professional services." Rule 202 states "A financial planning practitioner shall act in the interest of the client." Principle 3 states "A CFP Board designee shall provide services to clients competently and maintain the necessary knowledge and skill to continue to do so in those areas in which the designee is engaged." Rule 302 states "A CFP Board designee shall offer advice only in those areas in which the CFP Board designee has competence. In areas where the CFP Board designee is not professionally competent, the CFP Board designee shall seek the counsel of qualified individuals and/or refer clients to such parties." Principle 6 states "A CFP Board designee's conduct in all matters shall reflect credit upon the profession." Rule 609 states "A CFP Board designee shall not practice any other profession or offer to provide such services unless the CFP Board designee is qualified ... and is licensed as required by state law." Principle 7 states "A CFP Board designee shall act diligently in providing professional services." Rule 701 states "A CFP Board designee shall provide services diligently." Rule 703 states "A financial planner practitioner shall make and/or implement only recommendations which are suitable for the client." Rule 704 states "... a CFP Board designee shall make a reasonable investigation regarding the financial products recommended to clients. Such an investigation may be made by the CFP Board designee or by others provided the CFP Board designee acts reasonably in relying upon such investigation." 400-3: Presenting the Financial Planning Recommendation(s) Explanation of this Practice Standard The practitioner shall communicate the factors critical to the client's understanding of the recommendations. These factors may include but are not limited to material:
The practitioner should indicate that even though the recommendations may meet the client's goals, needs and priorities, changes in personal and economic conditions could alter the intended outcome. Changes may include, but are not limited to: legislative, family status, career, investment performance and/or health. If there are conflicts of interest that have not been previously disclosed, such conflicts and how they may impact the recommendations should be addressed at this time. Presenting recommendations provides the practitioner an opportunity to further assess whether the recommendations meet client expectations, whether the client is willing to act on the recommendations, and whether modifications are necessary. Effective Date Relationship of this Practice Standard to CFP Board's Code of Ethics and Professional Responsibility Principle 1 states "A CFP Board designee shall offer and provide professional services with integrity." Rule 102 states "... a CFP Board designee shall not ... knowingly make a false or misleading statement to a client...." Principle 2 states "A CFP Board designee shall be objective in providing professional services to clients." Rule 201 states "A CFP Board designee shall exercise reasonable and prudent professional judgment in providing professional services." Principle 6 states "A CFP Board designee's conduct in all matters shall reflect credit upon the profession." Rule 607 states "A CFP Board designee shall not engage in any conduct which reflects adversely on his or her integrity or fitness as a CFP Board designee...." Anticipated Impact of these Practice Standards Upon the
Financial Planning Profession Upon the Financial Planning Practitioner Practice Standards 500 Series 500-1: Agreeing on Implementation Responsibilities Explanation of this Practice Standard The practitioner's responsibilities may include, but are not limited to the following:
If there are conflicts of interest, sources of compensation or material relationships with other professionals or advisers that have not been previously disclosed, such conflicts, sources or relationships shall be disclosed at this time. When referring the client to other professionals or advisers, the financial planning practitioner shall indicate the basis on which the practitioner believes the other professional or adviser may be qualified. If the practitioner is engaged by the client to provide only implementation activities, the scope of the engagement shall be mutually defined, orally or in writing, in accordance with Practice Standard 100-1. This scope may include such matters as the extent to which the practitioner will rely on information, analysis or recommendations provided by others. Effective Date Relationship of this Practice Standard to CFP Board's Code of Ethics and Professional Responsibility Principle 3 states "A CFP Board designee shall provide services to clients competently and maintain the necessary knowledge and skill to continue to do so in those areas in which the designee is engaged." Rule 302 states "A CFP Board designee shall offer advice only in those areas in which the CFP Board designee has competence. In areas where the CFP Board designee is not professionally competent, the CFP Board designee shall seek the counsel of qualified individuals and/or refer clients to such parties." Principle 4 states "A CFP Board designee shall perform professional services in a manner that is fair and reasonable to clients ... and shall disclose conflict(s) of interest in providing such services." Rule 402 states "A CFP Board designee in a financial planning engagement shall make timely written disclosure of all material information relative to the professional relationship. In all circumstances and prior to the engagement, a CFP Board designee shall, in writing: (a) Disclose conflict(s) of interest and sources of compensation; and (b) Inform the client or prospective client of his/her right to ask at any time for information about the compensation of the CFP Board designee." Principle 6 states "A CFP Board designee's conduct in all matters shall reflect credit upon the profession." Rule 606 states "... a CFP Board designee shall perform services in accordance with: (a) Applicable laws, rules, and regulations of governmental agencies and other applicable authorities...." Rule 609 states "A CFP Board designee shall not practice any other profession or offer to provide such services unless the CFP Board designee is qualified ... and is licensed as required by state law." Under Principle 7, Rule 701 states "A CFP Board designee shall provide services diligently." 500-2: Selecting Products and Services for Implementation Explanation of this Practice Standard The financial planning practitioner uses professional judgment in selecting the products and services that are in the client's interest. Professional judgment incorporates both qualitative and quantitative information. Products and services selected by the practitioner may differ from those of other practitioners or advisers. More than one product or service may exist that can reasonably meet the client's goals, needs and priorities. The practitioner shall make all disclosures required by applicable regulations. Effective Date Relationship of this Practice Standard to CFP Board's Code of Ethics and Professional Responsibility Principle 2 states "A CFP Board designee shall be objective in providing professional services to clients." Rule 202 states "A financial planning practitioner shall act in the interest of the client." Principle 4 states "A CFP Board designee shall perform professional services in a manner that is fair and reasonable to clients ... and shall disclose conflict(s) of interest in providing such services." Rule 402 states "A CFP Board designee in a financial planning engagement shall make timely written disclosure of all material information relative to the professional relationship. In all circumstances and prior to the engagement, a CFP Board designee shall, in writing: (a) Disclose conflict(s) of interest and sources of compensation; and (b) Inform the client or prospective client of his/her right to ask at any time for information about the compensation of the CFP Board designee." Rule 409 states "If a CFP Board designee enters into a personal business transaction with a client, separate from regular professional services provided to that client ... the CFP Board designee shall disclose, in writing, the risks of the transaction, conflict(s) of interest of the CFP Board designee, and other relevant information ... necessary to make the transaction fair to the client." Principle 6 states "A CFP Board designee's conduct in all matters shall reflect credit upon the profession." Rule 606 states "In all professional activities a CFP Board designee shall perform services in accordance with: (a) Applicable laws, rules and regulations of govern-mental agencies and other applicable authorities; and (b) Applicable rules, regulations and other established policies of CFP Board." Principle 7 states "A CFP Board designee shall act diligently in providing professional services." Rule 701 states "A CFP Board designee shall provide services diligently." Rule 703 states "A financial planning practitioner shall make and/or implement only recommendations which are suitable for the client." Rule 704 states "... a CFP Board designee shall make a reasonable investigation regarding the financial products recommended to clients." Anticipated
Impact of these Practice Standards Upon the Financial Planning Profession Upon the
Financial Planning Practitioner Practice Standards 600 Series Explanation of this Practice Standard If engaged for monitoring services, the practitioner shall make a reasonable effort to define and communicate to the client those monitoring activities the practitioner is able and willing to provide. By explaining what is to be monitored, the frequency of monitoring and the communication method, the client is more likely to understand the monitoring service to be provided by the practitioner. The monitoring process may reveal the need to reinitiate steps of the financial planning process. The current scope of the engagement may need to be modified. Effective Date Relationship of this Practice Standard to CFP Board's Code of Ethics and
Professional Responsibility Principle 7 states "A CFP Board designee shall act diligently in providing professional services." Rule 702 requires that financial planning practitioners enter into an engagement only after obtaining sufficient information to satisfy that "the relationship is warranted by the individual's goals and objectives; and the CFP Board designee has the ability to either provide requisite competent services or to involve other professionals who can provide such services." Anticipated Impact of this Practice Standard Upon
the Financial Planning Profession Upon the Financial Planning Practitioner Disciplinary Rules and Procedures Contents Copyright © 1986-2003, Certified Financial Planner Board of Standards Inc. All rights reserved. Disciplinary Rules and Procedures Article 2: Board of Professional Review CFP Board's Board of Professional Review (referred to herein as the "Board"), formed pursuant to and governed by the bylaws of CFP Board, is charged with the duty of investigating, reviewing and taking appropriate action with respect to alleged violations of the Code of Ethics and alleged non-compliance with the Practice Standards as promulgated by CFP Board's Board of Governors and shall have original jurisdiction over all such disciplinary matters and procedures. 2.2 Powers and Duties of the Board
2.3 Panels and Staff Counsel 2.3.1 Inquiry Panel 2.3.2 Hearing Panel 2.3.3 Disqualification 2.3.4 Staff Counsel Article 3: Grounds for Discipline
Article 4: Forms of Discipline 4.1
Private Censure 4.2 Public Letter of Admonition 4.3 Suspension 4.4 Revocation 4.5 Forms of Discipline Concerning Candidates Article 5: Interim Suspension Status 5.1 Issuance of a Show Cause Order 5.2 Service 5.3 Response 5.4 Failure to Respond to the Order to Show Cause 5.5 Show Cause Hearing 5.6 Interim Suspension 5.7 Automatic Reinstatement Upon Reversal of Conviction or Suspension 5.8 Publication Article 6:
Investigation 6.2 Procedures for Investigation of a Grievance 6.3 Procedures Before the Inquiry Panel 6.4 Disposition Article 7: Complaint - Answer - Default 7.2 Complaint 7.3 Service of the Complaint 7.4 Answer 7.5 Default and Orders of Revocation and Denial 7.6 Request for Appearance Article 8: Discovery and Evidence 8.2 Documents Should a CFP Board designee deem it necessary to exceed the 100 page limit, the CFP Board designee shall be required to submit a written memorandum that outlines clearly and with reasonable particularity how each and every document submitted by the CFP Board designee or on his or her behalf relates to the allegations contained in the CFP Board Complaint. After reviewing such outline, the Board shall determine which documents will be permitted. 8.3 Witnesses Article 9: Hearings 9.2 Designation of a Hearing Panel 9.3 Procedure and Proof Article 10: Report, Findings of Fact and Recommendation 10.2 Report of the Hearing Panel 10.3 Power of the Board Article 11: Appeals Article 12: Conviction of a Crime or Professional Suspension 12.2 Duty to Report Criminal Conviction or Professional Suspension 12.3 Commencement of Disciplinary Proceedings Upon Notice of Conviction or Professional Suspension 12.4 Conviction of Serious Crime or Professional Suspension - Immediate Suspension 12.5 Serious Crime Defined 12.6 Definition of a Professional Suspension Article 13: Settlement Procedure 13.1 Offer of Settlement Offers of Settlement may be made where the nature of the proceeding, and the interests of the public and CFP Board permit. A CFP Board designee shall be permitted to submit only one Offer of Settlement during the course of a disciplinary proceeding. The Offer must be made in conformity with the provisions of this Article and should not be made frivolously or propose an action inconsistent with the seriousness of the violations alleged in the proceedings. Every Offer of Settlement shall contain and describe in reasonable detail: 13.2 Acceptance of Offer 13.3 Rejection of Offer 13.4 Publication Article 14: Required Action After Revocation or Suspension Article 15: Reinstatement After Discipline 15.2 Reinstatement After Suspension 15.3
Investigation 15.4 Successive Petitions 15.5 Reinstatement Fee Article 16: Confidentiality of Proceedings 16.2 Exceptions to Confidentiality Article 17: General Provisions 17.2 Notice and Service 17.3 Costs Financial hardship. In the event a CFP Board designee is unable to pay the required hearing costs due to financial hardship, the CFP Board designee may submit a written statement explaining his or her financial situation and request a deferral, reduction or waiver of the hearing costs. Upon
receipt and review of such request, Staff Counsel shall have the discretion to defer, reduce or waive the required hearing costs. All written requests for a reduction or waiver of hearing costs due to financial hardship must be submitted at least forty-five (45) days prior to the date of the scheduled hearing. Anonymous Case Histories Endnotes |