CODE OF ETHICS and PROFESSIONAL RESPONSIBILITY

Transcription

1 CODE OF ETHICS and PROFESSIONAL RESPONSIBILITY Written and Researched by: Edward J. Barrett CFP, ChFC, CLU, CEBS, RPA, CRPS, CRPC 2014 EJB Financial Press Inc., Printed in U.S.A. All rights reserved 1

2 Disclaimer This course is designed as an educational program for financial professionals. EJB Financial Press is not engaged in rendering legal or other professional advice and the reader should consult legal counsel as appropriate. We have tried to provide you with the most accurate and useful information possible. However, one thing is certain and that is change. The content of this publication may be affected by changes in law and in industry practice, and as a result, information contained in this publication may become outdated. This material should in no way be used as an original source of authority on legal and/or tax matters. Laws and regulations cited in this publication have been edited and summarized for the sake of clarity. Names used in this publication are fictional and have no relationship to any person living or dead. This presentation is for educational purposes only. The information contained within this presentation is for internal use only and is not intended for you to discuss or share with clients or prospects. Financial professionals are reminded that they cannot provide clients with tax advice and should have clients consult their tax advisor before making tax-related investment decisions. Note: Unless otherwise noted, all quoted passages are taken from CFP Board s Standards of Professional Conduct, as updated February 2014, and used with permission. EJB Financial Press, Inc Congress St. New Port Richey, FL (800)

3 About The Author Edward J. Barrett CFP, ChFC, CLU, CEBS, RPA, CRPS, CRPC, began his career in the financial and insurance services back in 1978 with IDS Financial Services, becoming a leading financial Advisor and top district sales manager in Boston, Massachusetts. In 1986, Mr. Barrett joined Merrill Lynch in Boston as a Financial Advisor and then becoming the Estate and Business Insurance Planning Specialist working with over 400 Financial Advisors and their clients throughout the New England region assisting in the sale of insurance products. In 1992, after leaving Merrill Lynch and moving to Florida, Mr. Barrett founded The Barrett Companies Inc. and Wealth Preservation Planning Associates, a financial and insurance brokerage agency. During the same period, Mr. Barrett also formed Broker Educational Sales & Training Inc., a premier provider of training and continuing education programs to financial and insurance professionals in all 50 states and the District of Columbia. Mr. Barrett is also a highly sought after speaker for financial advisors, insurance professionals, attorneys, CPA s and general audiences. He has written over 1,000 financial articles for newspapers and magazines and has authored several books. Mr. Barrett was a qualifying member of the Million Dollar Round Table, Qualifying Member Court of the Table and Top of the Table producer. He has a number of professional designations including: Certified Financial Planner (CFP), Chartered Financial Consultant (ChFC), Chartered Life Underwriter (CLU), Certified Employee Benefit Specialist (CEBS), Retirement Planning Associate (RPA), Chartered Retirement Planning Consultant (CRPC), and Chartered Retirement Planning Specialist (CRPS). About EJB Financial Press EJB Financial Press, Inc. ( was founded in 2004, by Mr. Barrett to provide advanced educational and training manuals approved for correspondence continuing education credits for insurance agents, financial advisors, accountants and attorneys throughout the country. Broker Educational Sales & Training Inc. Broker Educational Sales & Training Inc. (BEST) is a nationally approved provider of continuing education and advanced training programs to the mutual fund, insurance, financial services industry and an approved sponsor of CPE courses with the National Association of State Boards of Accountancy and Quality Assurance Service (QAS). For more information visit their website at: Or call them at

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5 Table of Contents Table of Contents... 5 Introduction Course Learning Objectives Terminology CHAPTER 1 CODE OF ETHICS AND PROFESSIONAL RESPONSIBILITY Overview The Seven Principles Principle 1: Integrity Principle 2: Objectivity Principle 3: Competence Principle 4: Fairness Principle 5: Confidentiality Principle 6: Professionalism Principle 7: Diligence Review Questions Answers to Review Questions CHAPTER 2 RULES OF CONDUCT Overview Rules of Conduct Rule 1. Defining the Relationship with the Prospective Client or Client Rule 2. Information Disclosed To Prospective Clients and Clients Rule 3. Prospective Client and Client Information and Property Rule 4. Obligations to Prospective Clients and Clients Rule 5. Obligations To Employers Rule 6. Obligations to CFP Board Review Questions Answers to Review Questions CHAPTER 3 FINANCIAL PLANNING PRACTICE STANDARDS. 29 Overview What Is Financial Planning? Format of Practice Standards Series: Establishing and Defining the Relationship with the Client: : Defining the Scope of the Engagement Explanation of this Practice Standard Relationship of this Practice Standard to CFP Board s Code of Ethics and Rules of Conduct Series: Gathering Client Data : Determining a Client s Personal and Financial Goals, Needs and Priorities Explanation of this Practice Standard Relationship of this Practice Standard to CFP Board s Code of Ethics and Rules of Conduct : Obtaining Quantitative Information and Documents

6 Explanation of this Practice Standard Relationship of this Practice Standard to CFP Board s Code of Ethics and Professional Responsibility Series: Analyzing and Evaluating the Client s Financial Status : Analyze and Evaluating the Client s Information Explanation of this Practice Standard Relationship of this Practice Standard to CFP Board s Code of Ethics and Rules of Conduct Series: Developing and Presenting the Financial Planning Recommendation : Identifying and Evaluating Financial Planning Alternative(s) Explanation of this Practice Standard Relationship of the Practice Standard to CFP Board s Code of Ethics and Rules of Conduct : Developing the Financial Planning Recommendations Explanation of this Practice Standard Relationship of the Practice Standard to CFP Board s Code of Ethics and Rules of Conduct : Presenting the Financial Planning Recommendation(s) Explanation of this Practice Standard Relationship of the Practice Standard to CFP Board s Code of Ethics and Rules of Conduct Series: Implementing the Financial Planning Recommendation(s) : Agreeing on Implementation Responsibilities Explanation of this Practice Standard Effective Date: January 1, Relationship of the Practice Standard to CFP Board s Code of Ethics and Rules of Conduct : Selecting Products and Services for Implementation Explanation of this Practice Standard Relationship of the Practice Standard to CFP Board s Code of Ethics and Rules of Conduct Series: Monitoring Explanation of this Practice Standard Relationship of the Practice Standard to CFP Board s Code of Ethics and Rules of Conduct Financial Planning Subject Areas When Does Financial Planning Occur? Determining the Financial Planning Engagement Case Study Background Question 1: Is Liz performing financial planning? Analysis Question 2: Is Liz providing material elements of financial planning? Analysis Conclusion Additional Duties Owed When Providing Financial Planning

7 Fiduciary Duty Defining Best Interest Establishing Standards of Care Required Disclosures and Written Agreement Required Disclosures Compensation Disclosures Written Disclosures Written Agreement CFP Disclosure and Agreement Forms Form FPDA Form FPD Form OPS Other Disclosure Forms Summary of Rules that Apply to Financial Planning Review Questions Answers to Review Questions CHAPTER 4 DISCIPLINARY RULES AND PROCEDURES Overview ARTICLE 1: INTRODUCTION ARTICLE 2: DISCIPLINARY AND ETHICS COMMISSION Function and Jurisdiction of the DEC Powers and Duties of the Board Powers and Duties of the CEO of CFP Board Hearing Panel Disqualification CFP Board Counsel, CFP Board Designated Counsel and CFP Board Advisory Counsel, and the duties thereof: Venue ARTICLE 3: GROUNDS FOR DISCIPLINE ARTICLE 4: FORMS OF DISCIPLINE Private Censure Public Letter of Admonition Suspension Revocation ARTICLE 5: INTERIM SUSPENSION STATUS Issuance of a Show Cause Order Service Response Failure to Respond to the Order to Show Cause Show Cause Hearing Interim Suspension Automatic Interim Suspension Proceedings Subsequent to Interim Suspensions Automatic Reinstatement Upon Reversal of Conviction or Professional Discipline ARTICLE 6: INVESTIGATION

8 6.1 Commencement Procedures for Investigation Probable Cause Determination Procedures Disposition Relinquishment ARTICLE 7: COMPLAINT - ANSWER DEFAULT Complaint Service of the Complaint Answer Default and Orders of Revocation Request for Appearance Request for Extension or Continuance ARTICLE 8: DISCOVERY AND EVIDENCE Discovery Documents Witnesses Respondent s Counsel Administrative Dismissal ARTICLE 9: Motions Motion Response Length Disposition of Motion ARTICLE 10: REPORT, FINDINGS OF FACT AND RECOMMENDATION Notice Designation of a Hearing Panel Procedure and Proof Recommendations ARTICLE 11: REPORT OF FINDINGS OF FACT AND RECOMMENDATION Recommendation of the Hearing Panel Powers of the DEC ARTICLE 12: APPEALS ARTICLE 13: CONVICTION OF A CRIME OR PROFESSIONAL SUSPENSION Conviction Of A Crime or Professional Discipline Duty to Report Criminal Conviction or Professional Discipline Commencement of Disciplinary Proceedings Upon Notice of Conviction or Professional Discipline Definition of Professional Discipline ARTICLE 14. SETTLEMENT PROCEDURE Offer of Settlement Acceptance of Offer Rejection of Offer; Counter Offer ARTICLE 15. REQUIRED ACTION AFTER REVOCATION OR SUSPENSION ARTICLE 16. REINSTATEMENT AFTER DISCIPLINE After Revocation Reinstatement after Suspension

9 16.3 Investigation Successive Petitions Reinstatement Fee ARTICLE 17. CONFIDENTIALITY OF PROCEEDINGS Confidentiality Exceptions to Confidentiality ARTICLE 18. GENERAL PROVISIONS Quorum Notice and Service Submissions Costs Electronic Signature Publication Anonymous Case Histories and Sanction Guidelines FITNESS STANDARDS Conduct Deemed Unacceptable Conduct Deemed a Presumptive Bar Petitions for Consideration Review Questions Answers to Review Questions CHAPTER 5 APPEAL RULES & PROCEDURES Overview ARTICLE 1: SCOPE OF RULES ARTICLE 2: APPEAL PANEL Function and Jurisdiction Composition Disqualification ARTICLE 3: STANDARD OF REVIEW Appeals from Orders of the DEC ARTICLE 4: RIGHT TO APPEAL AND REPRESENTATION ARTICLE 5: APPEAL PROCEDURES Initiation of Appeal Petition for Appeal ARTICLE 6: MOTIONS Filing Content ARTICLE 7: AUTOMATIC STAY OF ORDER ARTICLE 8: THE RECORD ON APPEAL Composition Omission from or Misstatement in the Record ARTICLE 9: APPEAL HEARING Notice of Hearing ARTICLE 10: DECISIONS Order of the Appeal Panel Service of the Order of the Appeal Panel

10 ARTICLE 11: REVIEW BY THE APPEALS COMMITTEEE OF THE BOARD OF DIRECTORS OF CFP BOARD Presentation to Appeals Committee Definitions Review Questions Chapter 5 Answers to Review Questions APPENDICES Appendix A Sample Disclosure Forms Appendix B Anonymous Case Histories Appendix B Anonymous Case Histories Appendix C Notices to CFP Professionals Appendix D Sample Engagement Letter CONFIDENTIAL FEEDBACK

11 Introduction Broker Educational Sales & Training Inc. is pleased to offer this course which has been approved by the Certified Financial Planner Board of Standards, Inc. to meet the required two (2) hours of credit in Code of Ethics for the ongoing continuing education of certificants and registrants. Course Learning Objectives The learning objective of this course is to assist certificants and registrants to understand the required standards of ethical and professional conduct and responsibilities of all certificants and registrants, as set forth by the directives established by CFP Board in January Upon successful completion of the course, students should be able to: Define the Seven Principles of the Code of Ethics that guide the manner in which all CFP professionals must conduct their professional activities; Define the Rules of Conduct that demonstrate how CFP professionals must conduct their actions and activities; Demonstrate an understanding of, and be able to define financial planning, the financial planning process, and financial planning subject areas; Communicate any potential conflicts of interest to a client at the initiation of client engagement; Determine if a CFP professional is providing financial planning or material elements of financial planning; Define the elements of the fiduciary standard; Determine when the fiduciary standard applies in a variety of financial planning contexts and scenarios; Explain CFP Boards compensation disclosure requirements to clients and prospective clients recommendations to the client /prospective client; Define the CFP Boards Disciplinary Rules and Procedures and the Fitness Standards for Candidates and Professionals Eligible for Reinstatement ; and Determine the CFP Board s Appeal Rules and Procedures (the Rules) As a certificant or registrant it is very important to understand that the conduct of each individual financial planner can be reflected on all CFP professionals. Because of this it is very important to be knowledgeable of the responsibilities towards clients, employers and partners, and abide by the Code of Ethics in all professional situations. CFP professionals are encouraged to obtain a full copy of CFP Board s Standard of Professional Conduct, which may be downloaded from CFP Board of Standard s Web site at: 11

12 This course will be made up of an Introduction and five Chapters and Appendices covering the following: Chapter 1: Chapter 2: Chapter 3: Chapter 4: Chapter 5: Appendix A Appendix B Appendix C Appendix D Code of Ethics and Professional Responsibility Rules of Conduct Financial Planning Practice Standards Disciplinary Rules and Procedures Appeals Rules and Procedures Sample Disclosure Forms Anonymous Case Histories Notices to CFP Professionals Client Engagement Letter To receive credit for this course, the CFP Board requires that all self-study programs approved for its ethics requirement include a final exam with at least 40 questions per credit hour. Accordingly, this course includes a 40-question final exam. Terminology This terminology applies only for purposes of interpreting and/or enforcing CFP Board s Code of Ethics, Rules of Conduct, Practice Standards and Disciplinary Rules. CFP Board denotes Certified Financial Planner Board of Standards, Inc. Candidate for CFP certification denotes a person who has applied to CFP Board to take the CFP Certification Examination, but who has not yet met all of CFP Board s certification requirements. Certificant denotes individuals who are currently certified by the CFP Board. Certificant s Employer denotes any person or entity that employs a certificant or registrant to provide services to a third party on behalf of the employer, including certificants and registrants who are retained as independent contractors or agents. Client denotes a person, persons, or entity who engages a certificant and for whom professional services are rendered. Where the services of the certificant are provided to an entity (corporation, trust, partnership, estate, etc.), the client is the entity acting through its legally authorized representative. Commission denotes the compensation generated from a transaction involving a product or service and received by an agent or broker, usually calculated as a percentage on the amount of his or her sales or purchase transactions. This includes 12 (b) 1 fees, trailing commissions, surrender charges and contingent deferred sales charges. 12

13 Compensation is any non-trivial economic benefit, whether monetary or nonmonetary, that a certificant or related party receives or is entitled to receive for providing professional activities. A conflict of interest exists when a certificant s financial, business, property and/or personal interests, relationships or circumstances reasonably may impair his/her ability to offer objective advice, recommendations or services. Fee-only. A certificant may describe his or her practice as fee-only if, and only if, all of the certificant s compensation from all of his or her client work comes exclusively from the clients in the form of fixed, flat, hourly, percentage or performance-based fees. Fiduciary. One who acts in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client. Financial planning engagement exists when a certificant performs any type of mutually agreed upon financial planning service for a client. Financial planning practitioner is a person who provides financial services to clients. 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. Financial planning integrates the financial planning process with the financial planning subject areas. In determining whether the certificant is providing financial planning or material elements of financial planning factors, issues that may be considered include but are not limited to: The client s understanding and intent in engaging the certificant. The degree to which multiple financial planning subject areas are involved. The comprehensiveness of data gathering. The breadth and depth of recommendations. Financial planning may occur even if the material elements are not provided to a client simultaneously, are delivered over a period of time, or are delivered as distinct subject areas. It is not necessary to provide a written financial plan to engage in financial planning. Personal financial planning process or financial planning process denotes the process which typically includes, but is not limited to, some or all of these six steps: Establishing and defining the client-planner relationship, Gathering client data including goals, Analyzing and evaluating the client s current financial status, Developing and presenting recommendations and/or alternatives, Implementing the recommendations, and Monitoring the recommendations. 13

14 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), Insurance planning and risk management, Employee benefits planning, Investment planning, Income tax planning, Retirement planning, Estate planning. Registrant denotes individuals who are not currently certified but have been certified by CFP Board in the past and have an entitlement, direct or indirect, to use the CFP marks. This includes individuals who have relinquished their certification and who are eligible for reinstatement without being required to pass the current CFP Certification Examination. The Standards of Professional Conduct apply to registrants when the conduct at issue occurred at a time when the registrant was certified; CFP Board has jurisdiction to investigate such conduct. Disclaimer: While the materials for this course have been approved by CFP Board as meeting the established standards for continuing education, CFP Board does not review the method or means of presentation and, therefore, makes no representation concerning the delivery of this information to the CFP Certificant. CFP Board s Code of Ethics and Professional Responsibility, Financial Planning Practice Standards, Anonymous Case History and Advisory Opinions are the property of CFP Board and may not be resold, republished, or copied without the prior consent of CFP Board. CFP, CERTIFIED FINANCIAL PLANNER TM, and CFP (with the flame logo) are certification marks owned by Certified Financial Planner Board of Standards, Inc. These marks are awarded to individuals who successfully complete CFP Board s initial and ongoing certification requirements. Copyright 2014 Certified Financial Planner Board of Standards, Inc. All rights reserved. Reproduced with permission. Questions concerning the Code of Ethics and Professional Responsibility can be directed to the: Certified Financial Planner Board of Standards, Inc K Street, NW, Suite 800 Washington, DC Telephone: (800) [email protected] Web site: 14

15 CHAPTER 1 CODE OF ETHICS AND PROFESSIONAL RESPONSIBILITY Overview As part of the CFP certification process and the terms and conditions imposed upon certificants and registrants, CFP Board maintains professional standards necessary for competency and ethics in the financial planning profession. Through its Code of Ethics and Professional Responsibility (Code of Ethics), CFP Board identifies the ethical principles certificants and registrants should meet in all of their professional activities. Every certificant and registrant when he or she accepts the certification implicitly accepts the responsibility to act ethically and in a professional manner in all areas by accepting the CFP certification. The certificant and registrant also agrees to follow the Code of Ethics and Professional Responsibility adopted by Certified Financial Planner Board of Standards, Inc. (CFP Board). In this chapter, we will review the Seven Principles that makeup the CFP Board s Code of Ethics and Professional Responsibility. The Seven Principles The Code of Ethics and Professional Responsibility ( Code of Ethics ) is made up of Seven Principles. These Principles are general statements expressing the ethical and professional ideals certificants and registrants are expected to display in their professional activities. As such, the Principles are aspirational in character and provide a source of guidance for certificants and registrants. These 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. The several Principles are: Integrity Objectivity Competence Fairness Confidentiality Professionalism Diligence 15

16 Let s review each of these Seven Principles in greater detail. Principle 1: Integrity The first Principle is Integrity, which refers to candor, honesty, and trust. The Code of Ethics states: Integrity demands honesty and candor which must not be subordinated to personal gain and advantage. Certificants are placed in positions of trust by clients and the ultimate source of that trust is the certificant s personal integrity. Allowance can be made for innocent error and legitimate differences of opinion, but integrity cannot co-exist with deceit or subordination of one s principle. Integrity, as the famous saying goes, is what you do when no one is looking. In terms of actions that violate the principle of integrity, the allegations of misrepresentation are the most common client complaint heard by the CFP Board. For Example, promised a better return than actually received; did not make sure they understood the risks of a recommendation; failed to explain the tax consequences of a recommendation ; did not disclose the fees associated with a recommendation. To avoid these allegations certificants and registrants should take the necessary steps to ensure that clients fully understand all aspects of a recommendation. Principle 2: Objectivity The second Principle is Objectivity, which refers to intellectual honesty and impartiality. The Code of Ethics states: Regardless of the particular service rendered or the capacity in which a certificant functions, certificants should protect the integrity of their work, maintain objectivity and avoid subordination of their judgment. Objectivity also means exercising reasonable and prudent professional judgment and acting in the best interests of clients. For Example: The most common client complaint the CFP Board receives related to the Principle of Objectivity is that the certificant did not provide the care and attention the client expected. Putting together adequate procedures to communicate with clients on a regular basis can go a long way to avoiding this complaint. 16

17 Principle 3: Competence The third Principle is Competence. This Principle describes the need to maintain the knowledge and skill necessary to provide professional services competently. The Code of Ethics states: Competence means attaining and maintaining an adequate level of knowledge and skill, and application of that knowledge and skill in providing services to clients. Competence also includes the wisdom to recognize the limitations of that knowledge and when consultation with other professionals is appropriate or referral to other professionals necessary. Certificants make a continuing commitment to learning and professional improvement. It s important for certificants to recognize their limitations and have procedures in place for referring clients to other competent professions when appropriate (importance of building a Financial Planning Team). For Example: The most common client complaint the CFP Board has received relating to the Principle of Competence is when the certificant tries to do too much. Principle 4: Fairness The fourth Principle is Fairness. This Principle directs certificants to perform services that are fair and reasonable to clients, principals, partners, and employers. It also discusses disclosing any possible conflict(s) of interest. The Code of Ethics states: Fairness requires impartiality, intellectual honesty and disclosure of material conflicts 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. CFP certificants are required to conduct themselves in a way that is consistent with the principles of reasonableness and equity in all of their professional relationships. This requires adopting an even-handed and objective approach to one s professional practice and to one s professional relationships, in both appearance and fact. The moral teaching of the Golden Rule: Do unto others as you would have them do to you and the ethical reciprocity it implies support the certificant s duty to be fair and impartial. The rule implies that an ethical person is concerned not only with themselves but, also with the well-being of others. Principle 5: Confidentiality The fifth Principle is Confidentiality, which covers the confidentiality of all client information. The Code of Ethics states: 17

18 Confidentiality means ensuring that information is accessible only to those authorized to have access. A relationship of trust and confidence with the client can only be built upon the understanding that the client s information will remain confidential. A certificant must also be aware of the rules on confidentiality mandated by the Gramm- Leach-Bliley Act. Principle 6: Professionalism The sixth Principle is Professionalism. This Principle explains how our professional conduct reflects upon our profession. The Code of Ethics states: Professionalism requires behaving with dignity and courtesy to clients, fellow professionals, and others in business-related activities. Certificants cooperate with fellow certificants to enhance and maintain the profession s public image and improve the quality of services. Under the Principle of Professionalism, the certificant must abide by all applicable laws, rules and regulations of governmental agencies and or authorities. Certain actions, such as criminal conviction or professional suspension, must be reported to CFP Board within thirty (30) calendar days (see Article 13.2, Chapter 4). Often actions, for example, a client arbitration or NASD investigation must be disclosed during the certification application or renewal process, although the certificant has the option of reporting earlier. Also under the Principle of Professionalism, certificant must report any violations of the Code by another certificant to both CFP Board and other appropriate regulatory agencies. Principle 7: Diligence The seventh and final Principle is Diligence which informs us that we must provide services diligently. The Code of Ethics states: Diligence is the provision of services in a reasonably prompt and thorough manner, including the proper planning for, and supervision of, the rendering of professional services. An example of a case that may be brought before CFP Board is when a certificant may recommend an annuity to a client who lacks sufficient liquidity. This is surely an unsuitable sale. The requirement of diligence extends to supervisory activities as well. In our example above, a certificant supervisor would be held responsible for overseeing other subordinate certificants. 18

19 Chapter 1 Review Questions 1. Which of the following Principles refers to candor, honesty and trust? ( ) A. Diligence ( ) B. Competence ( ) C. Fairness ( ) D. Integrity 2. Under the Principle of Professionalism, this Principle explains how a certificant s professional conduct reflects upon our profession. ( ) A. True ( ) B. False 3. Which Principle describes the need for the certificant and registrant to maintain an adequate level of knowledge and skill in providing services to clients? ( ) A. Integrity ( ) B. Objectivity ( ) C. Competence ( ) D. Confidentiality Chapter 1 Answers to Review Questions 1. (D) Integrity, refers to candor, honesty, and trust (page 10). 2. (A) True. Professionalism (page 12). 3. (C) Competence, describes the need to maintain the knowledge and skill necessary to provide professional services competently (page 11). 19

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21 CHAPTER 2 RULES OF CONDUCT Overview The Rules of Conduct establish the high standards expected of certificants and describe the level of professionalism required of certificants. 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. 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 professional. Some Rules may not be applicable to a certificant s specific activity. As a result, when considering the Rules of Conduct, the certificant must determine whether a specific Rule is applicable to those services. A certificant will be deemed to be in compliance with these Rules if that certificant can demonstrate that his or her employer completed the required action. Violations of the Rules of Conduct may subject a certificant or registrant to discipline. 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. Thus, the rules are not designed to be a basis for legal liability to any third party. In this chapter, we will review the Rules of Conduct that are part of the Code of Ethics and Professional Responsibility. Rules of Conduct In 2007, CFP Board adopted revisions to its Rules of Conduct, which became effective July 1, The current Rules of Conduct center on six core areas that set forth requirements as to how certificants must conduct themselves, as well as their relationships with clients and prospective clients. The six core conduct of rules and their subparts focus on the following: Defining the relationship with prospective clients or client; Information to be disclosed to prospective clients or client; Handling prospective client or client information and property; Obligations to prospective clients and clients; Obligations to employers; and 21

22 Obligations to CFP Board. Prior to the revisions, each of the Rules was tied to a specific ethical principle; the revised Rules are not. However, certificants should understand that the spirit and intent of their ethical duties and responsibilities, as a body of principle, underscore all manner of their conduct, creating the foundation upon which their actions are based and their services delivered. Among other measures, the current Rules set forth: An elevated duty of care to the client, from reasonable and prudent professional judgment to that of a CFP certificant at all times [placing] the interest of the client ahead of his or her own: A heightened duty of care for certificants providing financial planning or material elements of financial planning to duty of care of a fiduciary; Enhanced requirements for documenting the relationship with clients; Disclosure requirements that apply to clients as well as prospective clients; and a standard of suitability that applies to any recommendations that a certificant makes or implements. Below is a review of the current Rules of Conduct. Included are several related points, many of which derive from a series of Focus on Ethics articles as they appeared in CFP Board s monthly newsletter, CFP Board Report. Significantly, the revised rules set forth distinct duties required when a certificant engages in activities that are deemed financial planning or material elements of financial planning. These distinctions and their requirements will be discussed in greater detail in Chapter 3. Rule 1. Defining the Relationship with the Prospective Client or Client 1.1 The certificant and the prospective client or client shall mutually agree upon the services to be provided by the certificant. 1.2 If the certificant s services include financial planning or material elements of financial planning, prior to entering into an agreement, the certificant shall provide written information or discuss with the prospective client or client the following: a. The obligations and responsibilities of each party under the agreement with respect to: i. Defining goals, needs, and priorities, ii. Gathering and providing appropriate data, iii. Examining the result of the current course of action without changes, iv. The formulation of any recommended actions, v. Implementation responsibilities, and vi. Monitoring responsibilities. 22

23 b. Compensation that any party to the agreement or any legal affiliate to a party to the agreement will or could receive under the terms of the agreement, and factors or terms that determine costs, how decisions benefit the certificant and the relative benefit to the certificant. c. Terms under which the agreement permits the certificant to offer proprietary products. d. Terms under which the certificant will use other entities to meet any of the agreement s obligations. If the certificant provides the above information in writing, the certificant shall encourage the prospective client or client to review the information and offer to answer any questions that the prospective client or client may have. 1.3 If the services include financial planning or material elements of the financial planning process, the certificant or the certificant s employer shall enter into a written agreement governing the financial planning services ( Agreement ). The Agreement shall specify: a. The parties to the Agreement, b. The date of the Agreement and its duration, c. How and on what terms each party can terminate the Agreement, and d. The services to be provided as part of the Agreement. The Agreement may consist of multiple written documents. Written documentation that includes the items above and is used by a certificant or certificant s employer in compliance with state and/or federal law, or the rules or regulations of any applicable self-regulatory organization, such as the Securities and Exchange Commission s Form ADV or other disclosure documents, shall satisfy the requirements of this Rule. 1.4 A certificant shall at all times place the interest of the client ahead of his or her own. When the certificant provides financial planning or material elements of financial planning, the certificant owes to the client the duty of care of a fiduciary as defined by CFP Board. Rule 2. Information Disclosed To Prospective Clients and Clients 2.1 A certificant shall not communicate, directly or indirectly, to clients or prospective clients any false or misleading information directly or indirectly related to the certificant s professional qualifications or services. A certificant shall not mislead any parties about the potential benefits of the certificant s service. A certificant shall not fail to disclose or otherwise omit facts where that disclosure is necessary to avoid misleading clients A certificant shall disclose to a prospective client or client the following information: 23

24 1. An accurate and understandable description of the compensation arrangements being offered. This description must include: i. Information related to costs and compensation to the certificant and/or the certificant s employer, and ii. Terms under which the certificant and/or the certificant s employer may receive any other sources of compensation, and if so, what the sources of these payments are and on what they are based. b. A general summary of likely conflicts of interest between the client and the certificant, the certificant s employer or any affiliates or third parties, including, but not limited to, information about any familial, contractual or agency relationship of the certificant or the certificant s employer that has a potential to materially affect the relationship. c. Any information about the certificant or the certificant s employer that could reasonably be expected to materially affect the client s decision to engage the certificant that the client might reasonably want to know in establishing the scope and nature of the relationship, including but not limited to information about the certificant s area of expertise. d. Contact information for the certificant and if applicable, the certificant s employer. e. If the services include financial planning or material elements of financial planning, these disclosures must be in writing. The written disclosures may consist of multiple written documents. Written disclosures used by a certificant or certificant s employer that includes the elements listed above, and are used in compliance with state or federal laws, or the rules or requirements of any applicable self-regulatory organization, such as the Securities and Exchange Commission s Form ADV or other disclosure documents, shall satisfy the requirements of the Rule. The certificant shall timely disclose to the client any material changes to the above information. Rule 3. Prospective Client and Client Information and Property 3.1 A certificant shall treat information as confidential except as required in response to proper legal process; as necessitated by obligations to a certificant s employer or partners; as required to defend against charges of wrongdoing; in connection with a civil dispute; or as needed to perform the services. 3.2 A certificant shall take prudent steps to protect the security of information and property, including the security of stored information, whether physically or electronically, that is within the certificant s control. 3.3 A certificant shall obtain the information necessary to fulfill his or her obligation. If a certificant cannot obtain the necessary information, the certificant shall inform the prospective client or client of any and all material deficiencies. 3.4 A certificant shall clearly identify the assets, if any, over which the certificant will 24

25 take custody, exercise investment discretion, or exercise supervision. 3.5 A certificant shall identify and keep complete records of all funds or other property of a client in the custody, or under the discretionary authority, of the certificant. 3.6 A certificant shall not borrow money from a client. Exceptions to this Rule include: a. The client is a member of the certificant s immediate family, or b. The client is an institution in the business of lending money and the borrowing is unrelated to the profession services performed by the certificant. 3.7 A certificant shall not lend money to a client. Exceptions to this Rule include: a. The client is a member of the certificant s immediate family, or b. The certificant is an employee of an institution in the business of lending money and the money lent is that of the institution, not the certificant. 3.8 A certificant shall not commingle a client s property with the property of the certificant or the certificant s employer, unless the commingling is permitted by law or is explicitly authorized and defined in a written agreement between the parties. 3.9 A certificant shall not commingle a client s property with other client s property unless the commingling is permitted by law or the certificant has both explicit written authorization to do so from each client involved and sufficient recordkeeping to track each client s assets accurately A certificant shall return a client s property to the client upon request as soon as practicable or consistent with a time frame specified in an agreement with the client. Rule 4. Obligations to Prospective Clients and Clients 4.1 A certificant shall treat prospective clients and clients fairly and provide professional services with integrity and objectivity. 4.2 A certificant shall offer advice only in those areas in which he or she is competent to do and shall maintain competence in all areas in which he or she is engaged to provide professional services. 4.3 A certificant shall be in compliance with applicable regulatory requirements governing professional services provided to the client. 4.4 A certificant shall exercise reasonable and prudent professional judgment in providing professional services to clients. 25

26 4.5 In addition to the requirements of Rule 1.4, a certificant shall make and/or implement only recommendations that are suitable for the client. 4.6 A certificant shall provide reasonable and prudent professional supervision or direction to any subordinate or third party to whom the certificant assigns responsibility for any client service. 4.7 A certificant shall advise his or her current clients of any certification suspension or revocation he or she receives from CFP Board. Rule 5. Obligations To Employers 5.1 A certificant who is an employee/agent shall perform professional services with dedication to the lawful objectives of the employer/principal and in accordance with CFP Board s Code of Ethics. 5.2 A certificant who is an employee/agent shall advise his or her current employer/principal of any certification suspension or revocation he or she receives from CFP Board. Rule 6. Obligations to CFP Board 6.1 A certificant shall abide by the terms of all agreements with CFP Board, including, but not limited to, using the CFP marks properly and cooperating fully with CFP Board s trademark and professional review operations and requirements. 6.2 A certificant shall meet all CFP Board requirements, including continuing education requirements, to retain the right to use the CFP marks. 6.3 A certificant shall notify CFP Board of changes to contact information, including, but not limited to, address, telephone number(s) and physical address, within forty-five (45) days. 6.4 A certificant shall notify CFP Board in writing of any conviction of a crime, except misdemeanor traffic offenses or traffic ordinance violations unless such offense involves the use of alcohol or drugs, or of any professional suspension or bar within ten (10) calendar days after the date on which the certificant is notified of the conviction, suspension or bar. 26

27 Chapter 2 Review Questions 1. Which Rule of Conduct relates to a certificant meeting all CFP Board requirements, including continuing education requirements, to retain the right to use the CFP marks? ( ) A. Rule 6.2 ( ) B. Rule 3.1 ( ) C. Rule 2.1 ( ) D. Rule A certificant shall notify CFP Board in writing of any conviction of a crime, except misdemeanor traffic offenses or traffic ordinance violations unless such offense involves the use of alcohol or drugs, or of any professional suspension or bar within how many calendar days after the date on which the certificant is notified of the conviction, suspension or bar. ( ) A. Three calendar days ( ) B. Seven calendar days ( ) C. Ten calendar days ( ) D. Thirty calendar days 3. Under Rule 1.4, what is the duty of care owed by a certificant at all times to a client? ( ) A. To serve as a fiduciary ( ) B. To place the interest of the client ahead of his or her own ( ) C. To document in writing all conversations and mutual agreements ( ) D. To use prudence Chapter 2 Answers to Review Questions 1. (A) Rule 6.2 a certificant shall meet all CFP Board requirements, including continuing education requirements, to retain the right to use the CFP marks. 2. (C) Rule 6.4 a certificant shall notify CFP Board in writing within 10 calendar days. 3. (B) Rule 1.4 a certificant shall at all times place the interest of the client ahead of his or her own. When the certificant provides financial planning or material elements of financial planning, the certificant owes to the client the duty of care of a fiduciary as defined by CFP Board. 27

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29 CHAPTER 3 FINANCIAL PLANNING PRACTICE STANDARDS Overview A Practice Standard establishes the level of professional practice that is expected of certificants engaged in financial planning. The Practice Standards apply to certificants in performing the tasks of financial planning regardless of the person s title, job position, and 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 financial planning, but all financial planning professionals are encouraged to use the Practice Standards when performing financial planning tasks or activities addressed by a Practice Standard. Practice Standards are designed to provide certificants with a framework for the professional practice of financial planning. Similar to the Rules of Conduct, Practice Standards are not designed to be a basis for legal liability to any third party. In this chapter, we will review the CFP Board s definition of financial planning, when it is deemed to occur, and the specific Rules of Conduct that apply when a CFP certificant engages in financial planning or material elements of financial planning. What Is Financial Planning? As it has been defined by CFP Board and as it applies to CFP certificants, financial planning is: The process of determining whether and how an individual can meet life goals through the proper management of financial resources. Financial Planning integrates the financial planning process with defined financial planning subject areas. Through financial planning, certificants help their clients define their life goals and formulate financial plans and decisions that point to those goals. The process creates a unique relationship between planner and client one that goes beyond mere transactionbased activity and instead, relies on mutual understanding, collaboration, trust, and counsel. As practiced by CFP certificants, financial planning involves the application of advanced knowledge, skills, and decision-making in service to their clients. 29

30 Format of Practice Standards Each Practice Standard is a statement regarding one of the steps 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. 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 Experience 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. The Six Elements of the Personal Financial Planning Process The numbering format for Practice Standards coordinates the Six Elements of the Personal Financial Planning Process: 100 Series Establishing and Defining the Relationship with the Client 200 Series - Gathering Client Data 300 Series - Analyzing and Evaluating the Client s Financial Status 400 Series - Developing and Presenting the Financial Planning Recommendations 500 Series - Implementing the Financial Planning Recommendations 600 Series Monitoring 100 Series: Establishing and Defining the Relationship with the Client: 100-1: Defining the Scope of the Engagement The financial planning practitioner and the client shall mutually define the scope of the engagement before any financial planning service is provided. Explanation of this Practice Standard Prior to providing any financial planning service, the financial planning practitioner and the client shall mutually define the scope of the engagement. The process of mutuallydefining is essential in determining what activities may be necessary to proceed with the engagement. 30

31 The process is accomplished in financial planning engagement by: Identifying the service(s) to be provided; Disclosing the practitioner s material conflict(s) of interest; Disclosing the practitioner s compensation arrangement(s); Determining the client s and the practitioner s responsibilities; Establishing the duration of the engagement; and Providing any additional information necessary to define or limit the scope. 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. And, 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: Updated version effective January 1, Relationship of this Practice Standard to CFP Board s Code of Ethics and Rules of Conduct. This Practice Standard relates to CFP Board s Code of Ethics and Rules of Conduct through Principle 4: Fairness, Principle 7: Diligence and Rules 1.1, 1.2, 1.3 and 2.2. Anticipated Impact of this Practice Standard Upon the Public The public is served when the relationship is based upon a mutual understanding of the engagement. Clarity of the scope of the engagement enhances the likelihood of achieving client expectations. Upon the Financial Planning Profession The profession benefits when clients are satisfied. This is more likely to take place when clients have expectations of the process, which are both realistic and clear, before services are provided. Upon the Financial Planning Practitioner A mutually-defined scope of the engagement provides a framework for financial planning by focusing both the client and the practitioner on the agreed upon tasks. This Practice 31

32 Standard enhances the potential for positive results. 200 Series: Gathering Client Data 200-1: Determining a Client s Personal and Financial Goals, Needs and Priorities. The financial planning practitioner and the client shall mutually define the client s personal and financial goals, needs and priorities that are relevant to the scope of the engagement before any recommendation is made and/or implemented. Explanation of this Practice Standard Prior to making recommendations to the client, the financial planning practitioner and the client shall mutually define the client s personal and financial goals, needs and priorities. In order to arrive at such a definition, the practitioner will need to explore the client s values, attitudes, expectations, and time horizons as they affect the client s goals, needs and priorities. The process, of mutually-defining is essential in determining what activities may be necessary to proceed with the client engagement. Personal values and attitudes shape the client s goals and objectives and the priority placed on them. Accordingly, these goals and objectives must be consistent with the client s values and attitudes in order for the client to make the commitment necessary to accomplish them. 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: Original version, January 1, Updated version, January 1,

33 Relationship of this Practice Standard to CFP Board s Code of Ethics and Rules of Conduct This Practice Standard relates to CFP Board s Code of Ethics and Rules of Conduct through Principle 7: Diligence and Rules 3.3, 4.4 and 4.5. Anticipated Impact of this Practice Standard Upon the Public The public is served when the relationship is based upon a mutually-defined goals, needs and priorities. This Practice Standard reinforces the practice of putting the client s interests first, which is intended to increase the likelihood of achieving the client s goals and objectives. Upon the Financial Planning Profession Compliance with this Practice Standard emphasizes to the public that the client s goals, needs and priorities are the focus of financial planning. This encourages the public to seek out the services of a financial planning practitioner who uses such an approach. Upon the Financial Planning Practitioner The client s goals, needs and priorities help determine the direction of financial planning. This focuses the practitioner on the specific tasks that need to be accomplished. Ultimately, this will facilitate the development of appropriate recommendations : Obtaining Quantitative Information and Documents The financial planning practitioner shall obtain sufficient quantitative information and documents about a client relevant to the scope before any recommendation is made and/or implemented. Explanation of this Practice Standard Prior to making recommendations to the client and depending on the scope of the engagement, the financial planning practitioner shall determine what quantitative information and documents are sufficient and relevant. 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. 33

34 If the practitioner is unable to obtain sufficient and relevant quantitative information and documents to form a basis for recommendations, the practitioner shall either: (a) Restrict the scope of the engagement to those matters for which sufficient and relevant information is available; or (b) Terminate the engagement. 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: Original version, January 1, Updated January 1, 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 Rules of Conduct through Principle 7: Diligence and Rules 3.3, 4.4 and 4.5. Anticipated Impact of this Practice Standard Upon the Public The public is served when financial planning recommendations are based upon sufficient relevant quantitative information and documents. This Practice Standard is intended to increase the likelihood of achieving the client s goals and objectives. Upon the Financial Planning Profession Financial planning requires that recommendations be made based on sufficient and relevant quantitative data. Therefore, compliance with this Practice Standard encourages the public to seek financial planning practitioners who use financial planning. Upon the Financial Planning Practitioner Sufficient and relevant quantitative information and documents provide the foundation for analysis. Ultimately, this will facilitate the development of appropriate recommendations. 34

35 300 Series: Analyzing and Evaluating the Client s Financial Status 300-1: Analyze and Evaluating the Client s Information. A financial planning practitioner shall analyze the information to gain an understanding of the client s financial situation and then evaluate to what extent the client s goals, needs and priorities can be met by the client s resources and current course of action. Explanation of this Practice Standard Prior to making recommendations to a client, it is necessary for the financial planning practitioner to assess the client s financial situation and to determine the likelihood of reaching the stated objectives by continuing present activities. 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: Personal assumptions, such as: retirement age(s), life expectancy(ies), income needs, risk factors, time horizons and special needs; and Economic assumptions, such as: inflation rates, tax rates and investment returns. 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: Original version, January 1, Updated January 1, Relationship of this Practice Standard to CFP Board s Code of Ethics and Rules of Conduct This Practice Standard relates to CFP Board s Code of Ethics and Rules of Conduct through Principle 2: Objectivity, Principle 3: Competence, Principle 7: Diligence and Rules 1.4, 4.1, 4.4 and 4.5. Anticipated Impact of this Practice Standard Upon the Public The public is served when objective analysis and evaluation by a financial planning practitioner results in the client s heightened awareness of specific financial planning issues. This Practice Standard is intended to increase the likelihood of achieving the client s goals and objectives. 35

36 Upon the Financial Planning Profession Objective analysis and evaluation enhances the public s recognition of and appreciation for financial planning and increases the confidence in the financial planning practitioners who provide this service. Upon the Financial Planning Practitioner Analysis and evaluation helps the practitioner establish the foundations from which recommendations can be made that are specific to the client s financial planning goals, needs and priorities. 400 Series: Developing and Presenting the Financial Planning Recommendation. The 400 Series Developing and Presenting the Financial Planning Recommendation(s), represents the very heart of financial planning. It is at this point that the financial planning practitioner, using both science and art, formulates the recommendations designed to achieve the client s goals, needs and priorities. Experienced financial planning practitioners may view this process as one action or task. However, in reality, it is a series of distinct but interrelated tasks. 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). The three Practice Standards that comprise the 400 Series should be considered alone, but in conjunction with all other Practice Standards : Identifying and Evaluating Financial Planning Alternative(s) 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. 36

37 Explanation of this Practice Standard After analyzing the client s current situation (Practice Standard 300-1) and prior to developing and presenting the recommendation(s) (Practice Standards and 400-3), the financial planning practitioner shall identify alternative actions. The practitioner shall evaluate the effectiveness of such actions in reasonably meeting the client s goals, needs and priorities. 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 actions. 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: Original version, January 1, Updated version, January 1, Relationship of the Practice Standard to CFP Board s Code of Ethics and Rules of Conduct This Practice Standard relates to CFP Board s Code of Ethics and Rules of Conduct through Principle 2: Objectivity, Principle 3: Competence, Principle 6: Professionalism, Principle 7: Diligence and Rules 1.4, 4.1 and : Developing the Financial Planning Recommendations 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. Explanation of this Practice Standard After identifying and evaluating the alternative(s) and the client s current course of action, the practitioner shall develop the recommendation(s) expected to reasonably meet the client s goals, needs and priorities. A recommendation may be an independent action or a combination of actions which may need to be implemented collectively. The recommendation(s) shall be consistent with and will be directly affected by the following: 37

38 Mutually-defined scope of the engagement; Mutually-defined client goals, needs, and priorities; Quantitative data provided by the client; Personal and economic assumptions; Practitioner s analysis and evaluation of client s current situation; and Alternative(s) selected by the practitioner. 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 financial planning 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: Original version, January 1, Updated, effective January 1, Relationship of the Practice Standard to CFP Board s Code of Ethics and Rules of Conduct This Practice Standard relates to CFP Board s Code of Ethics and Rules of Conduct through Principle 2 Objectivity, Principle 3 Competence, Principle 6 Professionalism, Principle 7 Diligence and Rules 1.4, 4.1 and : Presenting the Financial Planning Recommendation(s) 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. Explanation of this Practice Standard When presenting a recommendation, the practitioner shall make a reasonable effort to assist the client in understanding the client s current situation, the recommendation itself, and its impact on the ability to meet the client s goals, needs and priorities. In doing so, the practitioner shall avoid presenting the practitioner s opinion as fact. 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: Personal and economic assumptions Interdependence of recommendations Advantages and disadvantages Risks and/or 38

39 Time sensitivity The practitioner should indicate that even though the recommendations may meet the client s 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: Original version effective January 1, Updated version effective January 1, Relationship of the Practice Standard to CFP Board s Code of Ethics and Rules of Conduct This Practice Standard relates to CFP Board s Code Ethics and Rules of Conduct through Principle 1 Integrity, Principle 2 Objectivity, Principle 6 Professionalism and Rules 2.1, 4.1, 4.4 and 4.5. Anticipated Impact of this Practice Standard Upon the Public The public is served when strategies and objective recommendations are developed and are communicated clearly to specifically meet each client s individual financial planning goals, needs and priorities. Upon the Financial Planning Profession A commitment to a systematic process for the development and presentation of the financial planning recommendations advances the financial planning profession. Development of customized strategies and recommendations enhances the public s perception of the objectivity and value of financial planning. The public will seek out those professionals who embrace these Practice Standards. Upon the Financial Planning Practitioner Customizing strategies and recommendations forms a foundation to communicate meaningful and responsive solutions. This increases the likelihood that a client will accept the recommendations and act upon them. These actions will contribute to client satisfaction. 39

40 500 Series: Implementing the Financial Planning Recommendation(s) 500-1: Agreeing on Implementation Responsibilities The financial planning practitioner and the client shall mutually agree on the implementation responsibilities consistent with the scope of the engagement. Explanation of this Practice Standard The client is responsible for accepting or rejecting recommendations and for retaining and/or delegating implementation responsibilities. The financial planning practitioner and the client shall mutually agree on the services, if any, to be provided by the practitioner. The scope of the engagement, as originally defined, may need to be modified. The practitioner s responsibilities may include, but are not limited to the following: Identifying activities necessary for implementation; Determining division of activities between the practitioner and the client; Referring to other professionals; Coordinating with other professionals; Sharing of information as authorized; and Selecting and securing products and/or services. 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 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: January 1, Relationship of the Practice Standard to CFP Board s Code of Ethics and Rules of Conduct This Practice Standard to the CFP Board s Code of Ethics and Rules of Conduct through Principle 3 Competence; Principle 4 Fairness; Principle 6 Professionalism; Principle 7-Diligence and Rules 1.2, 2.2, 4.1 and

41 500-2: Selecting Products and Services for Implementation The financial planning practitioner shall select appropriate products and services that are consistent with the client s goals, needs, and priorities. Explanation of this Practice Standard The financial planning practitioner shall investigate products or services that reasonably address the client s needs. The products or services selected to implement the recommendations(s) must be suitable to the client s financial situation and consistent with the client s goals, need and priorities. 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. Effective Date: January 1, Relationship of the Practice Standard to CFP Board s Code of Ethics and Rules of Conduct This Practice Standard relates to CFP Board s Code Ethics and Rules of Conduct through Principle 2-Objectivity, Principle 4 Fairness, Principle 6 Professionalism, Principle 7-Diligence and Rules 1.2, 1.4, 2.2, 4.1, 4.4 and 4.5. Anticipated Impact of this Practice Standard Upon the Public The public is served when the appropriate products and services are used to implement recommendations, thus increasing the likelihood that the client s goals will be achieved. Upon the Financial Planning Profession Over time, implementing recommendations using appropriate products and services for the client increases the credibility of the profession in the eyes of the public. Upon the Financial Planning Practitioner In selection of products and services, putting the interest of the client first benefits the practitioner over the long-term. 41

42 600 Series: Monitoring The financial planning practitioner and client shall mutually define monitoring responsibilities. Explanation of this Practice Standard The purpose of this Practice Standard is to clarify the role, if any, of the practitioner in the monitoring process. By clarifying this responsibility, the client s expectations are more likely to be in alignment with the level of monitoring services in which the practitioner intends to provide. 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: January 1, Relationship of the Practice Standard to CFP Board s Code of Ethics and Rules of Conduct This Practice Standard relates to CFP Board s Code Ethics and Rules of Conduct through Principle 7-Diligence and Rules 1.2, 3.3, 3.4 and 4.1. Anticipated Impact of this Practice Standard Upon the Public The public is served when the practitioner and client have similar perceptions and a mutual understanding about the responsibilities for monitoring the recommendation(s). Upon the Financial Planning Profession The profession benefits when clients are satisfied. Clients are more likely to be satisfied when expectations of the monitoring process are both realistic and clear. This Practice Standard promotes awareness that financial planning is a dynamic process rather than a single action. Upon the Financial Planning Practitioner A mutually-defined agreement of the monitoring responsibilities increases the potential for client satisfaction and clarifies the practitioner s responsibilities. 42

43 Financial Planning Subject Areas 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) Insurance planning and risk management Employee benefits planning Investment planning Income tax planning Retirement planning Estate planning Financial planning is a means to an end: through the application of the process steps in one or more of the core subject areas, it strives to help individuals meet their life goals through the proper management of financial resources. When Does Financial Planning Occur? The universe of activities that CFP professionals engage in is diverse. For example, a CFP professional may be a registered securities broker or a licensed insurance producer. Does opening an investment account or placing a term life insurance policy constitute financial planning? A CFP professional may be an accountant. Does completing and filing a client s tax return rise to the level of financial planning? Is the writing of a will or a review of a trust document by an attorney who is also a CFP professional considered financial planning? For these professionals and others who hold CFP certification the question of whether they are conducting financial planning is an important one. First, they are bound to follow the applicable rules and principles that apply when delivering financial planning. With regard to any specific engagement, the issue also affects the terms of the case or engagement that must be put in writing, the disclosures that must be made in writing, and the duty of care owed to the client. Therefore, it is imperative that CFP professionals understand when a client engagement is deemed to be for financial planning or for material elements of financial planning. Determining the Financial Planning Engagement CFP Board recognizes that one or more of the six steps of the financial planning process (discussed above) may occur in connection with other activities, such investment advisory and insurance-related services. Gathering client data and conducting suitability reviews, for example, are important elements of these services, which would not necessarily involve financial planning. However, financial planning is not defined by the number of steps performed or by which steps are performed. CFP Board does not 43

44 stipulate that all six steps in the planning process must occur for a financial planning engagement to exist. For instance, a client engagement may be specifically limited to the first four steps of the financial planning process, ending with the CFP professional s recommendations. The fact that the CFP professional was not charged with implementing or monitoring the recommendations does not necessarily separate the engagement from financial planning. Nor does CFP Board require all subject areas or any particular subject areas be addressed for financial planning to occur. For example, while estate planning is recognized as a core subject area, it may not be part of the financial planning process as it applies to a specific client. Income tax planning, another core subject area, may not be part of the financial planning process as it applies to another client. The fact that one or more of the core subject areas are not addressed does not automatically separate the engagement from financial planning. Likewise, an engagement that addresses a specific subject area creating a comprehensive retirement plan or devising a complex estate plan would likely elevate the engagement to financial planning because of the degree to which multiple areas of the client s financial situation must be reviewed, evaluated, and addressed. To determine whether financial planning or material elements of financial planning are being provided, the CFP professional should first consider the definition of financial planning: Is he or she working through the process to determine how the client can meet life goals through the proper management of financial resources and is he or she integrating that process with one or more of the financial planning subject areas? Then, CFP Board advises that the CFP professional examine two things: The entirety of the client relationship and The degree of integration between the financial planning process and the subject matter areas If the agreed-upon services to be provided are not narrowly defined to specific tasks or are not limited in scope, then it s likely that the engagement is for financial planning. Similarly, greater degrees of integration between the financial planning process and the subject matter areas are more likely to be considered financial planning. Once any service or services to a given client become financial planning or material elements of financial planning, the client relationship becomes financial planning. Financial planning may occur even if the elements are not provided to a client simultaneously, are delivered over a certain period, or are delivered as distinct subject areas. It is not necessary to provide a written financial plan to engage in financial planning. To help CFP professionals determine whether an engagement is for financial planning, the Standards of Professional Conduct offer some practical guidelines, as do a series of Frequently Asked Questions compiled by CFP Board s Business Model Working Group. The CFP Board does not identify a minimum number of subject areas for an engagement to be considered financial planning. While it is more likely for financial planning to exist when multiple subject areas are involved, in some circumstances a 44

45 financial planning engagement may exist even when a single subject area is involved. For example, a financial planning engagement may exist when a client requests a comprehensive retirement plan or requires a complex estate plan. In determining whether a financial planning engagement exists, 45rr Table 3.1 summarizes activities that likely would and would not be considered material elements of financial planning. (The information is drawn from CFP Board s Standards of Professional Conduct: Frequently Asked Questions.). Table 3.1 Summary of Material Elements of Financial Planning Activities that Would Likely be Considered Material Elements of Financial Planning Conducting detailed datagathering regarding multiple aspects of a client s financial situation Employing multiple financial planning areas to analyze a client s situation Analyzing a client s data and making wide-ranging recommendations Recommending a broad financial plan requiring a depth of technical knowledge to execute the plan Providing investment advisory services as defined by the applicable state or federal regulations Defining the scope of the client engagement whereby the client understands and intends to engage the CFP professional in financial planning Activities that Would Likely Not be Considered Material Elements of Financial Planning Opening an account or completing an application Fact-finding to meet regulatory requirements for suitability, such as the Know Your Customer rules Conducting a basic suitability review in association with a single financial transaction Solely providing brokerage and/or insurance products or services Engaging in activity solely related to the sale of a specific product Acting as a mortgage broker without providing any other financial services Completing tax returns without providing any other financial services Teaching a financial class or continuing education program The above are examples of the kinds of activities that likely would and would not be deemed material elements of financial planning by CFP Board. However, they are only examples, and the lists should not be considered all inclusive. Whether a client relationship or engagement involves financial planning or material elements of financial planning is determined on a case-by-case basis. If there is any question as to whether a client engagement or client relationship is for financial planning 45

46 or material elements of financial planning, the CFP professional should embrace the standard of care that attends to the level of financial planning and should provide services that are in the best interests of the client. CFP professionals may also submit questions about any specific engagement or situation to: Case Study CFP Board has developed a series of case-based scenarios to help CFP professionals better understand the definition of financial planning and material elements of financial planning. Note: These case studies are available on CFP Board s Web site at: Below is one of these scenarios, involving a CFP professional who has been asked for advice in a single subject area. The question is: Is the CFP professional providing financial planning or material elements of financial planning? Background An attorney is helping a business owner plan for the tax impact of his death. The analysis predicts that there could be substantial costs and that the business would need to be sold to meet the tax obligations. The attorney recommends the purchase of a $3.5 million life insurance policy owned by an irrevocable life insurance trust (ILIT). Liz Weston, CFP, has worked with the attorney on several cases in the last two years. She appreciates his referral and meets with the business owner to design an appropriate life insurance policy for purchase by the ILIT. The attorney gave Liz a copy of the estate plan, but she has the business owner complete her fact-finder as well. She figures out the kind of policy and which insurer would suit the business owner s needs. Question 1: Is Liz performing financial planning? Analysis Financial planning denotes the process of determining whether and how an individual can meet life goals through the proper management of financial resources and integrates the financial planning process with defined financial planning subject areas. The attorney provides the planning. The attorney designed the solution and made the recommendation. Liz provides support to implement a suitable insurance solution. Liz is involved as an agent in the sale of the policy. 46

47 Question 2: Is Liz providing material elements of financial planning? Analysis In determining whether the CFP professional is providing financial planning or material elements of the financial planning process, issues that may be considered include but are not limited to The client s understanding and intent in engaging the certificant: o The business owner asks Liz to implement actions suggested by his attorney. o The business owner expects Liz to assist him in the purchase of life insurance by the ILIT. o The business owner does not expect to start the entire planning process over with Liz. o The attorney does not expect Liz to second guess his recommendations. The degree to which multiple subject areas are involved: o Liz only works on the risk management aspect of the case. o Liz uses her knowledge of insurance products to design a policy for the business owner. o Liz helps the ILIT purchase a policy on the business owner s life that would preserve the business for the heirs. o Liz does not work with the business owner on any other business or personal financial matters. The comprehensiveness of data-gathering: o Liz gathers data necessary to design an appropriate insurance solution. While this is substantial, it is required by the complexity of the case and the amount of coverage requested. o Liz obtains only the data needed by the insurer to complete the application by the ILIT. o Liz does not collect any superfluous data. The breadth and depth of the recommendations: o Liz makes recommendations about insurance options available to the ILIT. o Liz provides the business owner with the information he needs to make an informed and knowledgeable decision about the kind of insurance, the cost of insurance, and the benefits. Conclusion By helping the business owner implement his attorney s recommendations, Liz is not providing financial planning or material elements of financial planning. Additional Duties Owed When Providing Financial Planning As discussed above, the distinction between services or client engagements that rise to the level of financial planning (or material elements of financial planning) and those that do not is important because financial planning requires the CFP professional to adhere 47

48 to additional requirements. Whereas all CFP professionals are bound by the Standards of Professional Conduct at all times and must always place the client s interest ahead of their own (the baseline duty of care), any engagement that involves financial planning or material elements of financial planning imposes these additional duties: A heightened standard of care to the client (the duty to serve as a fiduciary); Additional disclosures to the client or prospective client; A written agreement that describes and guides the financial planning services that will be delivered. Fiduciary Duty The Financial Planning Practice Standards require that all CFP professionals who provide financial planning services will be held to the duty of care of a fiduciary, as defined by CFP Board. Since some CFP professionals are not involved in providing financial planning services to clients, it would be inappropriate to hold these individuals to a duty of care that may not apply to their professional activities. While CFP Board s fiduciary standard is reserved for financial planning services, the Standards nevertheless require a high duty of care for all CFP professionals in any type of client relationship: "A CFP professional shall at all times place the interest of the client ahead of his or her own." [See Rule 1.4] The CFP Board defines a fiduciary as one who acts in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client. This requires that the CFP Professional understand the client s goals, needs and current financial situation, make recommendations based on the best available options and exercise professional judgment in determining the best of those options. This is set forth in Conduct Rule 1.4 which defines the relationship between a CFP professional and a client. Defining Best Interest CFP Board expects CFP professionals to provide only financial planning recommendations (services and/or products) that they reasonably believe to be the best possible options available to their clients. CFP Board acknowledges that it is impossible to review all possible options to select the best. There can be nearly infinite options when one brings together an individual s situation and goals with the ever-increasing range of choices available to the financial services industry. For a CFP professional who works in a setting where business or regulatory requirements limit the services or investments that can be made available to clients (captive agents, for example), CFP Board expects any financial planning services provided to be the best services and recommendations available, given the CFP professional s reasonable professional judgment and the limitations placed on the CFP professional by those business or regulatory requirements. In such situations, the CFP 48

49 professional would be expected to disclose the limitations to the client, including any contractual or agency relationships that have potential to affect the client and any terms under which proprietary products may be offered. For the CFP professional who is engaged in financial planning or materials elements of financial planning, Practice Standards explains that 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. Additionally, Practice Standards explains that products and services selected by the practitioner may differ from those of other practitioners or advisers [and] more than one product or service may exist that can reasonably meet the client s goals, needs and priorities. Establishing Standards of Care Rule 1.4 establishes the standard of care required by CFP professionals. The rule establishes a baseline standard that requires that all CFP professionals place the interest of the client ahead of their own at all times. When providing financial planning or material elements of financial planning, the CFP professional s duty of care rises to that of a fiduciary, as defined above by CFP Board. A CFP professional s fiduciary status supersedes the baseline standard of care. [See Rule 1.4 in Chapter 2] It should be noted that the current regulatory structure of the financial services industry in the U.S. assigns regulatory oversight to various bodies based on the type of product or service involved, rather than on the type of client relationship within which those products or services are provided. With the differences in the standards imposed by various regulatory bodies, CFP Board requires CFP professionals to understand how particular regulators or certifying bodies apply standards of care pertinent to the client relationship. Failure to comply with regulatory requirements could subject a CFP professional to discipline by CFP Board under Rule 4.3. When providing financial planning or material elements of financial planning and thus serving as a fiduciary, the CFP professional is bound to act in the best interest of the client. Required Disclosures and Written Agreement In addition to imposing a fiduciary standard, engagements that involve financial planning or material elements of financial planning also require the CFP professional to: Make certain disclosures to the client; and Provide a written agreement that outlines the terms of the engagement. Required Disclosures When a certificant s services include financial planning or material elements of financial planning, the certficant must provide certain disclosures to the client. The following are to be discussed or offered in writing before an agreement is made with the client: 49

50 The obligations and responsibilities of both certificant and client under the agreement with respect to o defining goals, needs, and objectives; o gathering and providing appropriate data; o examining the result of the current course of action without changes; o formulating any recommended actions; o implementing responsibilities; and o monitoring responsibilities; The compensation that any party to the agreement (or any legal affiliate to a party) will or could receive under the terms of the agreement; The factors or terms that determine costs, and how decisions benefit the certificant; Any terms under which the agreement permits the certificant to offer proprietary products; and Any terms under which the certificant will use other entities to meet any of the agreement s obligations. Best Practice Standards: All oral or verbal disclosures should subsequently be put into writing, whether the client engagement is for financial planning or for other financial services. Compensation Disclosures On August 7, 2013, CFP Board issued a notice to CFP professionals regarding the importance of compensation disclosures to clients (see Appendix C). The Notice provides an important reminder that CFP professionals are required to disclose to clients and prospective clients information concerning the CFP professional s compensation. The purpose of the Notice is to remind CFP professionals of both the scope of the term compensation and the obligation to make accurate disclosures of compensation methods on all public websites, including on related-party websites, public search engines, and public disclosure forms, including Form ADV. Disclosures of compensation methods must remain accurate throughout each client relationship ( (See Notice in Appendix C, page ). Written Disclosures When the relationship is for financial planning or will involve material elements of financial planning, the following must be provided in writing: An accurate and understandable description of the compensation arrangement, including information related to both the certificant s costs and compensation and those of his or her employer. These costs and compensations include expenses 50

51 such as advisor or firm costs that are passed on to the client. All of the following, for example, would have to be disclosed in writing: o 12b-1 fees o cash bonuses or other incentives from the firm or the product issuer o trailing commissions o compensation from wrap-fee programs o trading fees and ticket charges if passed on to the client o administrative or management fees on mutual funds or variable annuities o solicitation fees The terms under which the certificant and his or her employer may receive any other compensation and, if they do receive other compensation, the sources of these payments and the conditions upon which they are based. A general summary of likely conflicts of interest between the client and the certificant and the certificant s employer or any third parties. Any information about the certificant or the certificant s employer that could reasonably be expected to materially affect the client s decision to engage the certificant, including information about the certificant s areas of expertise. Contact information for the certificant and, if applicable, the certificant s employer. (See Rule of Conduct 2.2e) With regard to the requirements for disclosing compensation, the Standards do not mandate that certificants disclose specific dollar amounts or percentages of compensation unless the client specifically asks for this information. If a CFP professional is asked about the amount he or she will earn from a specific transaction, that information must be provided, to the extent it can be determined. If the cost to the client will not be known until certain decisions or actions occur, the information must be given to the client as and when it is determined. Written Agreement When a client engagement involves financial planning services, a written agreement must be given to the client (see Client Engagement Letter Appendix D, page 132). This requirement helps ensure that CFP certificants and their clients clearly define the services associated with any specific relationship, which will lessen the likelihood for disputes based on misunderstandings of those services. The agreement may also contain the disclosures that must be given to the client in writing (see Written Disclosures ), but at a minimum must identify all of the following: the parties to the agreement the date of the agreement and its duration the procedures and terms for terminating the agreement a description of the services to be provided as part of the agreement The written agreement for financial planning may consist of multiple documents. (See Rule of Conduct 1.3). 51

52 CFP Disclosure and Agreement Forms Below are example disclosure and agreement forms created by the CFP Board to assist certificants. They are: Form FPDA The Financial Planning Disclosure Document and Agreement (FPDA) is the document that can be used to satisfy both the disclosure obligations and the written client agreement requirement as stipulated in Rules 1.2, 1.3, and 2.2. (See Appendix C, page 99). Form FPD The Financial Planning Disclosure Document (FPD) is the document that can be used to meet the disclosure obligations when a certificant engages in financial planning or material elements of financial planning as required by Rules 1.2 and 2.2. (See Appendix C, page 102). Form OPS The Other Than Financial Planning Services (OPS) is the document that can be used to meet the required disclosures when a certificant provides other than financial planning services. Rule 2.2 requires certificants to make certain disclosures to clients and prospective clients before formalizing a relationship that only involves executing transactions or providing investment advisory services. (See Appendix C, page 104). Other Disclosure Forms Written disclosures and/or written agreements used by a certificant or a certificant s employer that include the elements required by Rules 1.3 and 2.2 and that are used in compliance with state or federal laws (or the requirements of any applicable selfregulatory organization) will satisfy the written disclosure and written agreement requirements of CFP Board. CFP Board understands that employers of CFP certificants who provide services other than financial planning may require clients to sign a disclaimer stating that the certificant is not providing financial planning services. Regardless of any such disclaimer, CFP Board stipulates that it reserves the right to make an independent determination as to whether a certificant s services rise to the level of financial planning based on the Rules of Conduct. If so, CFP Board may enforce the written agreement and disclosure rules. 52

53 Summary of Rules that Apply to Financial Planning CFP certificants are bound to follow the ethical and professional ideals that are set forth in the Code of Ethics at all times. The Rules of Conduct specify the professional standards that certificants are expected to follow, regardless of their title, position, type of employment, or method of compensation. When the services a certificant provides are for financial planning or material elements of financial planning, the certificant is obliged to conform to additional Rules of Conduct. To summarize, the individual rules and obligations that apply specifically to financial planning engagements are: Rule 1.2 the duty to disclose specific information to clients and prospective clients before entering into an engagement for financial planning or material elements of financial planning; Rule 1.3 the duty to enter into a written agreement with the client for financial planning or materials elements of financial planning; Rule 1.4 the duty of care as a fiduciary one who acts in utmost good faith in a manner he or she reasonably believes to be in the best interest of the client; and Rule 2.2 the duty to provide all required disclosures in writing once a financial planning engagement or an engagement to provide material elements of financial planning is agreed upon. 53

54 Chapter 3 Review Questions 1. The CFP Board defines a fiduciary as one who acts in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client. ( ) A. True ( ) B. False 2. For a client engagement to be deemed financial planning, all six steps in the financial planning process must occur. ( ) A. True ( ) B. False 3. All of the following individuals are CFP certificants, and each delivers a different service to a client. Who would likely be considered to be engaging in financial planning or material elements of financial planning? ( ) A. Bob, who is gathering client data and client facts to meet his firm s Know Your Customer regulatory requirements ( ) B. Bill, who is conducting a basic suitability review in association with a client s interest in purchasing a variable annuity ( ) C. Mary, who is completing an income tax return for her next door neighbor ( ) D. Abram, who is conducting detailed data gathering on multiple areas of his client s financial situation 4. Applying the financial planning process is more likely to be considered financial planning or material elements of financial planning when the process is applied to which of the following? ( ) A. One subject area ( ) B. Two or more subject areas ( ) C. Three or more subject areas ( ) D. Four or more subject areas 5. What is the first step in the financial planning process? ( ) A. Analyze and evaluate the client s current financial status ( ) B. Gather client data ( ) C. Establish and define the client-planner relationship ( ) D. Develop recommendations and/or alternatives 54

55 Chapter 3 Answers to Review Questions 1. (A) True. The CFP Board defines a fiduciary as one who acts in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client. 2. (B) False. Financial planning is not defined by the number of steps performed or by which steps are performed; CFP Board does not stipulate that all six steps occur for a financial planning engagement to exist. Nor does it require that a certain minimum number of subject areas or particular subject areas be addressed for financial planning to occur. 3. (D) If the CFP professional s work and recommendations involve multiple subject areas and those subject areas are integrated with the steps in the financial planning process, the professional is likely providing financial planning. By comparison, if the agreed-upon services are narrowly defined to a specific task or are limited in scope, it s likely that the engagement would not be deemed financial planning. 4. (B). The primary criteria that are used to determine whether a client engagement is for financial planning are: (1) the client s understanding and intent in engaging the certificant; (2) the degree to which multiple financial planning subject areas are involved; (3) the comprehensiveness of data gathering; and (4) the breadth and depth of recommendations. The method of compensation fee-based or commission-based is not a factor for consideration. 5. (C). Establish and define the client-planner relationship. Prior to providing any financial planning service, the financial planning practitioner and the client shall mutually define the scope of the engagement. 55

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57 CHAPTER 4 DISCIPLINARY RULES AND PROCEDURES Overview The Disciplinary Rules and Procedures govern how CFP Board will enforce the Code and uphold high standards of conduct within the profession. The Disciplinary Rules and Procedures consist of eighteen (18) Articles outlining the administrative proceedings, possible disciplinary outcomes and each Respondents rights and responsibilities. These Articles will be discussed in further detail throughout this Chapter. This Chapter will also review the Fitness Standards for Candidates and Professionals Eligible for Reinstatement. Table 4.1 displays the CFP Board Disciplinary Statistics cases opened and closed by year, from 2002 through 2012 (latest data provided by the CFP Board). Table 4.1 Professional Review Cases Opened and Closed By Year Cases Opened Cases Closed Source: CFB Board Disciplinary Statistic, Also, Table 4.2 displays the cases that went to a hearing and hearing results. In addition to disciplinary actions taken by CFP Board, other relevant data, such as the number of reinstatements, dismissals and settlement offers. 57

58 Table 4.2 Public Disciplines by Year Announced Decision Dismissed without Merit Dismissed 1 7 With Caution Private Censure Letter of Admonition Suspension (up to 5 years) Interim Suspension issued Revocation Admin Revocation Settlement Offers Countered Settlement Offers Rejected Total Hearings ¹ 84² Total Appeal Hearings ¹Some Hearing Decisions included a stay or continuance to next Hearings ² One Hearing resulted in a stay Source: CFB Board Disciplinary Statistic, ARTICLE 1: INTRODUCTION Article I puts forward the purpose for the Disciplinary Rules and Procedures and the power of CFP Board to modify these Procedures as needed. As stated: Certified Financial Planner Board of Standards, Inc. ( CFP Board ) has adopted the Code of Ethics and Professional Responsibility (Code of Ethics), Rules of Conduct and Financial Planning Practice Standards ( Practice Standards ), which establish the expected level of professional conduct and practice for CFP professionals. CFP Board has also established the Fitness Standards for Candidates and Professionals Eligible for Reinstatement ( Fitness Standards ), which apply to candidates for CFP certification and individuals who were previously certified and are eligible to reinstate the CFP certification ( Professionals Eligible for Reinstatement ). The Code of Ethics, Rules of Conduct, Practice Standards, Disciplinary Rules and Procedures ( Disciplinary Rules ) and Fitness Standards may be amended from time to time, with revisions submitted to the public for comment before final adoption by CFP Board. To promote and maintain the integrity of its CFP, 58

59 CERTIFIED FINANCIAL PLANNER, and certification marks ( the marks ) for the benefit of the clients and potential clients of CFP professionals, CFP Board has the ability to enforce the provisions of the Code of Ethics, Rules of Conduct and Practice Standards. Adherence to the Code of Ethics and Rules of Conduct and compliance with the Practice Standards by CFP professionals is required, with the potential for CFP Board sanctions against those who violate the regulations contained in these documents. CFP Board will follow the Disciplinary Rules set forth below when enforcing the Code of Ethics, Rules of Conduct and Practice Standards for CFP professionals and enforcing the Fitness Standards. Hereafter, CFP professionals, candidates for CFP certification and Professionals Eligible for Reinstatement may be referred to as Respondent or Respondents. ARTICLE 2: DISCIPLINARY AND ETHICS COMMISSION 2.1 Function and Jurisdiction of the DEC CFP Board s Disciplinary and Ethics Commission (referred to herein as the DEC ), 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 Rules of Conduct and alleged non-compliance with the Practice Standards and conduct reviewed pursuant to the Fitness Standards. The DEC shall original jurisdiction over all such matters as defined in the DEC Charter. 2.2 Powers and Duties of the Board The DEC shall be required to: (a) Evaluate the performance of the volunteers during the hearings; (b) Report annually to the Chief Executive Officer and Board of Directors of CFP Board on the operation of the DEC. (c) Provide input to the CEO on the selection of prospective DEC members. The DEC Chair and Chair-Designee shall provide input to the CEO on the selection of prospective volunteers who serve temporarily on a Hearing Panel; (d) At its summer meeting each year, the DEC shall recommend to the CEO, subject to the CEO s appointment, the DEC Chair to serve during the following calendar year; (e) Recommend to the CEO, as may be necessary and subject to review and approval of the Board of Directors, amendments to these Disciplinary Rules and Procedures; (f) Adopt rules or procedures, subject to review and approval of the CEO, as may be necessary to ensure that the hearings, ratification process and disciplinary decisions are fair to all participants; and (g) Recommend to the CEO such other rules or procedures as may be necessary or appropriate. 59

60 2.3 Powers and Duties of the CEO of CFP Board The CEO shall be required to: (a) Appoint the DEC Chair, members and volunteers of the DEC; (b) Oversee the DEC to ensure it follows the established rules and procedures required to provide a fair process to all participants; (c) Ensure that each Hearing Panel is comprised of individuals who act in an impartial and objective manner and have no conflicts of interest with the complainant or Respondent subject to the complaint; (d) Conduct appropriate background investigations of prospective DEC members and volunteers; seek the input of the Board of Directors and the DEC on prospective DEC members; and seek the input of the DEC Chair and Chair-Designee on prospective volunteers; and (e) Report to the Board of Directors the intended appointments to, and activities of, the DEC. 2.4 Hearing Panel The Hearing Panel shall consist of three persons, two of whom must be CFP professionals. A Hearing Panel shall be comprised of two DEC members and one volunteer, unless circumstances make it impractical. One member of each Hearing Panel shall serve as Chair of each hearing. The Hearing Panel Chair must be a DEC member. The Chair shall rule on all motions, objections and other matters presented at, or prior to, a hearing. 2.5 Disqualification DEC members and volunteers shall not participate in any proceeding in which they, a member of their immediate family or a member of their firm have any interest or where such participation otherwise would involve a conflict of interest or the appearance of impropriety. A Respondent must identify any conflicts with potential Hearing Panel members in his or her Answer to CFP Board s Complaint. Failure to do so will result in the waiver of an objection to the Hearing Panel member. A Respondent may raise any conflicts arising after the filing of his/her answer with the Hearing Panel at the start of the hearing and the Chair of the Hearing Panel shall make a ruling pursuant to Article CFP Board Counsel, CFP Board Designated Counsel and CFP Board Advisory Counsel, and the duties thereof: (a) CFP Board Counsel refers to the attorney who presents the case to the Hearing Panel. i. Conducts any investigation commenced under Article 6.1; ii. Makes the probable cause determination under Article 6.3; iii. Issues Administrative Orders of Revocation under Article 7.4; and 60

61 iv. Presents the case to the Hearing Panel as an advocate for CFP Board (b) CFP Board Designated Counsel refers to the outside attorney who presents the case to the Hearing Panel as an advocate for CFP Board. (c) CFP Board Advisory Counsel refers to the attorney who acts in an advisory capacity in providing advice on the Standards of Professional Conduct and hearing procedures to the Hearing Panel and the DEC during the Ratification Meeting. (d) No person shall act as both CFP Board Counsel and CFP Board Advisory Counsel during the same set of hearings. 2.7 Venue Unless otherwise approved by the Board of Directors, CFP Boards headquarters shall serve as a central office for filing of requests for: (a) the investigation of Respondent conduct; (b) the coordination of such investigations; (c) the administration of all disciplinary enforcement proceedings carried out pursuant to these Disciplinary Rules; and (d) the performance of such other activities as are designated by the CEO. ARTICLE 3: GROUNDS FOR DISCIPLINE Misconduct by a Respondent, individually or in concert with others, including the following acts or omissions, shall constitute grounds for discipline, whether or not the act or omission occurred in the course of a client relationship: (a) Any act or omission which violates the provisions of the Code of Ethics and Rules of Conduct; (b) Any act or omission which fails to comply with the Practice Standards; (c) Any act or omission which violates the criminal laws of any State or of the United States or of any province, territory or jurisdiction of any other country, provided however, that conviction thereof in a criminal proceeding shall not be a prerequisite to the institution of disciplinary proceedings, and provided further, that acquittal in a criminal proceeding shall not bar a disciplinary action; (d) Any act which is the proper basis for professional suspension, as defined herein, provided professional suspension shall not be a prerequisite to the institution of disciplinary proceedings, and provided further, that dismissal of charges in a professional suspension proceeding shall not necessarily bar a disciplinary action; (e) Any act or omission which violates these Disciplinary Rules or that violates an order of discipline; 61

62 (f) Failure to respond to a request by the CFP Board staff, or obstruction of the DEC, or any panel thereof, or CFP Board staff in the performance of its or their duties. (g) Any false or misleading statement made to CFP Board. The enumeration of the foregoing acts and omissions constituting grounds for discipline is not exclusive, and other acts or omissions amounting to unprofessional conduct may constitute grounds for discipline. ARTICLE 4: FORMS OF DISCIPLINE In cases where no grounds for discipline have been established, the DEC may dismiss the matter as either without merit or with a cautionary letter. In all cases, the DEC has the right to require the Respondent to complete additional continuing education or other remedial work, which includes, but is not limited to, completing the coursework required by a CFP Board-Registered Program. Such continuing education or remedial work may be ordered instead of, or in addition to, any discipline listed below. Where grounds for discipline have been established, any of the following forms of discipline may be imposed. 4.1 Private Censure The Commission may order private censure of a Respondent which shall be an unpublished written reproach mailed by the DEC to a censured Respondent. 4.2 Public Letter of Admonition The DEC may order that a Public Letter of Admonition be issued against a Respondent, which shall be a publishable written reproach of the Respondent behavior. It shall be standard procedure to publish the Public Letter of Admonition in a press release or in such other form of publicity selected by the DEC. 4.3 Suspension The DEC may order suspension for a specified period of time, not to exceed five (5) years. In the event of a suspension, CFP Board must publish the fact of the suspension together with identification of the Respondent in a press release, or in such other form of publicity as is selected by the DEC. Respondents receiving a suspension may qualify for reinstatement to use the marks as provided in Article

63 4.4 Revocation The DEC may order permanent revocation of a Respondent s right to use the marks. In the event of a permanent revocation it shall be standard procedure to publish the fact of the revocation together with identification of the Respondent in a press release, or in such other form of publicity as is selected by the DEC. ARTICLE 5: INTERIM SUSPENSION STATUS Interim suspension is the temporary suspension by the DEC of a CFP professional s right to use the marks for a definite or indefinite period of time, while proceedings conducted pursuant to these Disciplinary Rules are pending against the CFP professional. Imposition of an interim suspension shall not preclude the imposition of any other form of discipline entered by the DEC in final resolution of the disciplinary proceeding. 5.1 Issuance of a Show Cause Order Although a CFP professional s right to use the marks shall not ordinarily be suspended during the pendency of such proceedings, when CFP Board receives evidence that a CFP professional has engaged in conduct (1) that poses an immediate threat to the public, and (2) the gravity of the conduct significantly impinges upon the stature and reputation of the marks, CFP Board Counsel may issue an Order to Show Cause why the CFP professional s right to use the marks should not be suspended during the pendency of the proceedings. 5.2 Service CFP Board shall serve the Order to Show Cause upon the CFP professional as provided in Article Response All Responses to Orders to Show Cause shall be in writing and shall be submitted within twenty (20) calendar days from the date of service of the Order to Show Cause upon the CFP professional. Extensions and/or continuances are generally disfavored by CFP Board. CFP Board Counsel may, however, grant reasonable requests for extension and continuances, as deemed appropriate. The CFP professional shall, in the response, either request or waive the right to participate in the Show Cause Hearing. 5.4 Failure to Respond to the Order to Show Cause If the CFP professional fails to file a Rresponse within the period provided in Article 5.3, the CFP professional shall be deemed to have waived the right to respond, the 63

64 allegations set forth in the Order to Show Cause shall be deemed admitted and an interim suspension will automatically be issued. 5.5 Show Cause Hearing Upon receiving the certificant s or registrant s response as provided in Article 5.3, a hearing shall be scheduled as soon as practicable before a Hearing Panel consisting of three members of the DEC, generally no more than 40 days from the date of service of the Order to Show Cause. The CFP professional shall have the opportunity to participate at such hearing presenting arguments and evidence on his/her behalf. All evidence presented must be submitted to CFP Board Counsel with the CFP professional s Response to the Order to Show Cause in accordance with Article 5.3. Either party may make a motion at the hearing to admit evidence discovered by either party after the CFP professional files a Response to the Order to Show Cause. The Chair of the Hearing Panel shall have the discretion to grant or deny the motion. CFP Board Counsel will provide the CFP professional with the evidence submitted to the Hearing Panel prior to the Show Cause Hearing. In making its determination whether to issue an interim suspension, the Hearing Panel shall consider all of the evidence presented. 5.6 Interim Suspension Upon a showing of any of the factors listed in Article 5.1, an interim suspension shall be issued, subject to review by the DEC under the provisions of Article 11.2, unless the Hearing Panel determines that the CFP professional has provided evidence that establishes by a preponderance of the evidence that the CFP professional does not pose an immediate threat to the public and that the gravity of the CFP professional s conduct does not significantly impinge upon the stature and reputation of the marks. The fact that a CFP professional is seeking appellate review of a conviction or professional discipline shall not limit the power of the Hearing Panel to impose an interim suspension. 5.7 Automatic Interim Suspension An interim suspension shall immediately be issued without a hearing when CFP Board Counsel receives evidence of a conviction or a professional discipline in accordance with Article 13.1 for any of the following conduct: (a) Felony conviction for any crime; (b) Misdemeanor conviction for fraud, misrepresentation or crimes of moral turpitude; or (c) Revocation of a financial professional license (securities, insurance, accounting or bank-related license) unless the revocation is administrative in nature, i.e. the result of the individual determining to not renew the license by not paying the required fee and/or not completing the required continuing education. 64

65 CFP Board Counsel will notify any CFP professional subject to interim suspension under this Article as provided in Article Proceedings Subsequent to Interim Suspensions After the issuance of an interim suspension or an automatic interim suspension, CFP Board Counsel shall continue to investigate as outlined in Article 6. After CFP Board Counsel issues a Complaint, as outlined in Article 7, a CFP professional will have the opportunity to be heard in accordance with the Disciplinary Rules. An Interim Suspension issued under this Article, however, is not subject to the CFP professional s right of appeal as outlined in Article Automatic Reinstatement Upon Reversal of Conviction or Professional Discipline A CFP professional subject to a suspension under this Article shall have the suspension vacated immediately upon filing with the DEC a certificate demonstrating that the underlying criminal conviction or professional discipline has been reversed; provided, however, the reinstatement upon such reversal shall have no effect on any proceeding conducted pursuant to these Disciplinary Rules then pending against a CFP professional. ARTICLE 6: INVESTIGATION 6.1 Commencement Proceedings involving potential ethics violations shall be commenced upon (1) a receipt of information by CFP Board Counsel indicating a potential violations of the Code of Ethics, Rules pf Conduct and/or noncompliance with the Practice Standards, or (2) disclosure by a Respondent of any matter constituting a potential violation of the Code of Ethics, Rules of Conduct and/or non-compliance with the Practice Standards. 6.2 Procedures for Investigation Upon receipt of a request for investigation containing allegations which, if true, could give rise to a violation of the Code of Ethics, Rules of Conduct and/or non-compliance with the Practice Standards, or upon the acquisition by CFP Board Counsel of information which, if true, could give rise to a violation of the Code of Ethics, Rules of Conduct and/or non-compliance with the Practice Standards, CFP Board Counsel shall give written notice to the Respondent that the Respondent is under investigation and of the general nature of the allegations asserted against the Respondent. The Respondent shall have 30 calendar days from the date of notice of the investigation to file a written response to the allegations with the CFP Board. 65

66 (a) No Response. At the expiration of the 30 calendar-day period if no response has been received, CFP Board Counsel shall give written notice of a second request for information via certified mail. The Respondent shall have 20 calendar days from the date of the second request to file a written response to the allegations with CFP Board. At the expiration of the 20 calendar-day period if no response has been received, the matter shall be referred to the DEC. (b) Adverse Inference. Failure to provide requested information may give rise to an adverse inference with respect to the underlying subject matter. An adverse inference is an inference, adverse to the concerned party, drawn from silence or absence of requested evidence. This rule applies to evidence that has been destroyed, evidence that exists but the party refuses to produce, and evidence that the party has under his/her control and has not produced. This adverse inference is based upon the presumption that the party who controls the evidence would have produced it, if it had been supportive of his/her position. (c) Response. Upon receipt of a response within the prescribed time period, CFP Board Counsel shall compile all documents and materials and commence probable cause determination procedures as soon thereafter as is reasonably practicable. 6.3 Probable Cause Determination Procedures CFP Board Counsel or his/her designee shall be responsible for determining if there is probable cause to believe grounds for discipline exist and shall: 1) dismiss the allegations as not warranting further investigation at this time; 2) dismiss the allegations with a letter of caution indicating that CFP Board Counsel has determined that based on the available evidence, the Respondent s conduct may have violated the Code of Ethics, Rules of Conduct and/or not complied with the Practice Standards but does not warrant referral to the DEC; or 3) begin preparation and processing of a Complaint against the Respondent in accordance with Article 7. For matters that are dismissed, CFP Board reserves the right to reopen the investigation in the future if appropriate. When CFP Board Counsel issues a letter of caution, the Respondent may submit a letter in response to the letter of caution. The response letter will become part the Respondent s record, but will not receive any additional consideration by CFP Board Counsel. The letter of caution and the response to the letter of caution will be available for consideration by the DEC. 6.4 Disposition CFP Board Counsel shall conduct CFP Board s investigation as expeditiously as reasonable practicable. 6.5 Relinquishment A Respondent may not voluntarily relinquish his/her CFP certification during the course of an investigation. 66

67 ARTICLE 7: COMPLAINT - ANSWER DEFAULT 7.1 Complaint An original Complaint shall be prepared by the CFP Board Counsel and forwarded to the Respondent. Copies of the Complaint shall be included with the materials provided to the Hearing Panel in advance of the hearing. The Complaint shall reasonably set forth the grounds for discipline with which the Respondent is charged and the conduct or omission which gave rise to those charges. 7.2 Service of the Complaint The CFP Board Counsel shall promptly serve the Complaint upon the Respondent as provided in Answer All Answers to Complaints shall be in writing. The Answer shall be submitted within twenty (20) calendar days from the date of service of the Complaint on the Respondent. The Respondent shall file an original of such Answer with CFP Board. A copy of the Answer shall be included with the materials provided to the Hearing Panel in advance of the hearing. In the Answer, the Respondent shall respond to every material allegation contained in the Complaint. In addition, the Respondent shall set forth in the Answer any defenses or mitigating circumstances. 7.4 Default and Orders of Revocation If the Respondent fails to file an Answer within the period provided by Article 7.3, or fails to pay the hearing costs assessed by CFP Board pursuant to Article 18.3, except in cases where CFP Board Counsel has granted a waiver due to financial hardship, such Respondent shall be deemed to be in default, and the allegations set forth in the Complaint shall be deemed admitted. In such circumstance, CFP Board Counsel shall serve upon the Respondent an Administrative Order of Revocation. Such orders shall state clearly and with reasonable particularly the grounds for the revocation of Respondent s right to use the marks. These orders are subject to the Respondent s right of appeal as outlined in Article Request for Appearance Upon the filing of an Answer, the Respondent may request an appearance at the hearing before the Hearing Panel, at which the Respondent may present arguments, witnesses and evidence on his/her behalf. Alternatively, the Respondent may request a paper review in which the DEC will consider the Complaint and Answer as well as documents contained in CFP Board s files to make its decision. Neither CFP Board Counsel nor Respondent will be permitted to make an appearance or present witnesses. 67

68 7.6 Request for Extension or Continuance A Respondent may request an extension to answer the Complaint or a continuance of the hearing no later than within 20 calendar days from the date of service of the Complaint. Upon receipt of the request, CFP Board Counsel shall either grant or deny all requests for extension and continuances. Extensions and/or continuances are generally disfavored by CFP Board Counsel. CFP Board Counsel may, however, grant reasonable requests for extensions and continuances, as deemed appropriate. CFP Board Counsel shall not grant any extension to file an Answer to the Complaint longer than 14 calendar days. CFP Board Counsel shall not grant more than one continuance. If more than one continuance is requested, the matter shall proceed to the DEC for review of the hearing materials without appearances by CFP Board or the Respondent. ARTICLE 8: DISCOVERY AND EVIDENCE 8.1 Discovery Discovery of a disciplinary case may be obtained only after a Complaint has been issued against a Respondent. A Respondent may obtain copies of all documents in the Respondent s disciplinary file that are not privileged or do not constitute attorney work product and are relevant to the subject matter in the pending action before the Hearing Panel. Requests for copies of CFP Board documents must be made to CFP Board Counsel in writing. Release of information contained in a Respondent s disciplinary file is premised on the understanding that materials will be used only for purposes directly connected to the pending CFP Board action. 8.2 Documents Documents submitted by a Respondent to the DEC for consideration in resolution of the issues raised during an investigation shall be limited to 100 pages. No evidence may be accepted less than 45 calendar days prior to the scheduled hearing, except by motion at the hearing. Should a Respondent deem it necessary to exceed the 100 page limit, the Respondent shall be required to submit a written memorandum that outlines clearly and with reasonable particularity how each and every document submitted by the Respondent or on his or her behalf relates to the allegations contained in the CFP Board Complaint. After reviewing such outline, the DEC shall determine which documents will be permitted. 8.3 Witnesses Witnesses, if any, shall be identified by the Respondent and CFP Board no later than 45 calendar days prior to the scheduled hearing. When witnesses are identified, the Respondent and CFP Board shall also state the nature and extent of the witnesses testimony, as well as whether the witnesses will appear in person or via telephone. 68

69 8.4 Respondent s Counsel Respondent s Counsel, if any, shall be identified to CFP Board no later than 45 calendar days prior to the scheduled hearing. When Respondent s Counsel is identified, the Respondent shall provide the counsel s contact information as well as whether the counsel will appear in person or via telephone. Respondent s counsel must be an active member in good standing of the bar of a United States state, jurisdiction, possession, territory or dependency. 8.5 Administrative Dismissal If, upon receipt of a Respondent s Answer to the Complaint, new information becomes available that may warrant a dismissal of the case prior to review by a Hearing Panel, the CFP Board Counsel may administratively dismiss the Complaint. ARTICLE 9: Motions 9.1 Motion Respondent and/or CFP Board Counsel may file a written motion regarding procedural and/or evidentiary matters. The motion must be filed no later than 30 calendar days prior to the hearing, except as otherwise referenced in Articles 5.5 and 8.2. Filing is accomplished by depositing the motion in the U.S. Mail, by Certified Mail, return receipt requested, properly addressed in accordance with Articles 2.7 and/or The motion must state with reasonable particularity the grounds for the motion, the relief sought and whether a hearing is requested. If the motion pertains to a specific rule or rules, the motion must identify the rules. The Chair of the Hearing Panel shall have the discretion to summarily rule on a motion without a requested hearing. 9.2 Response Respondent and/or CFP Board Counsel may file a written response to any motion filed by another party. Any response must be filed no later than 10 calendar days after the filing of the motion. Filing is accomplished by depositing the response in the U.S. Mail, by Certified Mail, return receipt requested, properly addressed accordance with Articles 2.7 and/or If a response is filed, a rebuttal is not permitted. 9.3 Length Motions shall not exceed two single-spaced pages. Attachments shall not exceed 10 pages. 69

70 9.4 Disposition of Motion The Chair of the Hearing Panel shall rule on all motions, objections and other matters presented at, or prior to, a hearing. ARTICLE 10: REPORT, FINDINGS OF FACT AND RECOMMENDATION 10.1 Notice Not less than 30 calendar days before the date set for the hearing of a Complaint, notice of such hearing shall be given as provided in Article 18.2 to the Respondent, or to the Respondent s counsel. The notice shall designate the date and place of the hearing Designation of a Hearing Panel All hearings on Complaints seeking disciplinary action against a Respondent shall be conducted by the Hearing Panel Procedure and Proof The Hearing Panel may be guided by the rules of procedure and evidence applicable in a court of law to the extent it believes it is appropriate. Such rules, however, are not binding on the Hearing Panel. Proof of misconduct shall be established by a preponderance of the evidence. A preponderance of the evidence is a legal standard of review that generally means more probable than not, i.e., evidence which shows that, as a whole, the fact sought to be proved is more probable than not to have occurred.. In the course of the proceedings, the Chair of the Hearing Panel shall administer affirmations. A complete record shall be made of all testimony taken at hearings before the Hearing Panel Recommendations CFP Board Counsel or CFP Board Designated Counsel shall present to the Hearing Panel the information and documentation gathered during the investigation and make a recommendation regarding an appropriate sanction. 70

71 ARTICLE 11: REPORT OF FINDINGS OF FACT AND RECOMMENDATION 11.1 Recommendation of the Hearing Panel At the conclusion of the hearing, the Hearing Panel shall record its findings of fact and recommendations and report its findings and recommendations to the DEC for its consideration. In this report, the Hearing Panel shall: 1) determine that the Complaint is not proved or that the facts as established do not warrant the imposition of discipline and recommend the Complaint be dismissed, either as without merit or with caution; or 2) refer the matter to the DEC with the recommendation that discipline by the DEC is appropriate. The recommendation of the Hearing Panel shall state specifically the form of discipline the Hearing Panel deems appropriate. The Hearing Panel may also recommend that the DEC enter other appropriate orders. In making its recommendation, the Hearing Panel may take into consideration the Respondent s prior disciplinary record, if any, which includes, but is not limited to, any previous sanction issued by the DEC and/or a letter of caution issued by CFP Board Counsel Powers of the DEC The DEC reserves the authority to review any determination made by the Hearing Panel in the course of a disciplinary proceeding and to enter any order with respect thereto including an order directing that further proceedings be conducted as provided by these Disciplinary Rules. The DEC shall review the recommendation of the Hearing Panel and may either approve the recommendation or remand it to the Hearing Panel for further consideration. Within 45 calendar days of the hearing, the DEC must mail by certified mail to Respondent a final order containing the DECs findings of fact and, if appropriate, the sanction imposed. Once the DEC has issued an order, the DEC s decision is final. ARTICLE 12: APPEALS All appeals from orders of the DEC and orders of CFP Board Counsel shall be submitted to CFP Board s Appeals Committee in accordance with the Rules and Procedures of the Appeals Committee. If an order of the DEC or an order of CFP Board Counsel is not appealed within 30 calendar days after notice of the order is sent to the Respondent, such order shall become final. All orders of the DEC and orders of CFP Board Counsel are appealable unless otherwise noted in these Disciplinary Rules. 71

72 ARTICLE 13: CONVICTION OF A CRIME OR PROFESSIONAL SUSPENSION 13.1 Conviction Of A Crime or Professional Discipline Except as otherwise provided in these Disciplinary Rules, a certificate from the clerk of any court of criminal jurisdiction indicating that a Respondent has been convicted of a crime in that court or a letter or other writing from a governmental or industry selfregulatory authority to the effect that a Respondent has been the subject of an order of professional discipline (as hereinafter defined) by such authority, shall conclusively establish the existence of such conviction or such professional suspension for purposes of disciplinary proceedings and shall be conclusive proof of the DEC of that crime or of the basis for such suspension, by the Respondent Duty to Report Criminal Conviction or Professional Discipline Every Respondent: 1. upon being convicted of a crime, other than minor traffic offenses; 2. upon being the subject of professional discipline; or 3. upon notification of a change to a matter previously disclosed under items (1) and (2) to CFP Board, shall notify CFP Board in writing of such conviction or professional discipline within 30 calendar days after the date on which the Respondent is notified of the conviction or professional discipline Commencement of Disciplinary Proceedings Upon Notice of Conviction or Professional Discipline Upon receiving notice that a Respondent has been convicted of any crime occurring within the last 10 years, other than minor traffic offenses, or been the subject of professional discipline, CFP Board Counsel shall determine whether an investigation is warranted. CFP Board shall obtain the record of conviction or proof of discipline and, if appropriate, file a Complaint against the Respondent as provided in Article 7. If the Respondent s criminal conviction or professional discipline is either proved or admitted as provided herein, the Respondent shall have the right to be heard by the Hearing Panel only on matters of rebuttal of any evidence presented by CFP Board Counsel other than proof of the conviction or professional discipline Definition of Professional Discipline Professional discipline as used herein shall include the suspension, bar or revocation as a disciplinary measure by any governmental agency, industry self-regulatory organization or professional association. 72

73 ARTICLE 14. SETTLEMENT PROCEDURE A Respondent or CFP Board Counsel may propose an Offer of Settlement ( Offer ) in lieu of a disciplinary hearing pursuant to these Disciplinary Rules. Submitting an Offer shall stay all proceedings conducted pursuant to these Disciplinary Rules Offer of Settlement CFP Board Counsel shall be permitted to negotiate settlements with Respondents on behalf of CFP Board where it is in the best interests of all parties to attempt to arrive at an expedited resolution. Either CFP Board counsel or Respondent may initiate the settlement negotiations. CFP Board Counsel and Respondent may negotiate violations and penalties, but not factual findings unless evidence proving the contrary is produced during negotiations. CFP Board Counsel shall be authorized to reach a provisional agreement for CFP Board. Upon agreement, the final Offer shall be reduced to writing and signed for presentation by both parties to the DEC. The Offer shall be in writing and must be submitted to CFP Board staff at least 40 calendar days prior to the Respondent s scheduled disciplinary hearing. CFP Board Counsel may endorse the Offer to the Hearing Panel. A Hearing Panel shall consider the Offer and take one of the actions described in Articles 14.2 and The Hearing Panel shall consider only one Offer after the Complaint is filed. Only the DEC shall have final decision making authority to accept or reject an Offer. The Offer shall contain and describe in reasonable detail: a) The act or practice which the Respondent is alleged to have engaged in or omitted; b) The principle, rule, regulation or statutory provision which such act, practice or omission to act is alleged to have violated; c) The mitigating factors that were considered during the negotiations; d) Any evidence produced during negotiations that exonerated or resulted in the recommendation of a lesser violation or penalty or the removal of same; e) Any other information CFP Board Counsel found relevant in settlement discussions. f) Proposed acceptance and a statement that the Respondent consents to the entry of the Offer; and g) A waiver of all rights of appeal to CFP Board s Appeals Committee and the courts or to otherwise challenge or contest the validity of the Order issued if the Settlement Agreement is accepted. If negotiations between CFP Board Counsel and Respondent are unsuccessful, then Respondent shall have the right to present the Offer directly to the DEC. 73

74 14.2 Acceptance of Offer If an Offer is accepted by a Hearing Panel, the decision of the Hearing Panel shall be reviewed by the DEC. The DEC s decision to affirm the decision of the Hearing Panel to accept the Offer shall conclude the proceeding as of the date the Offer is accepted. If the Offer includes a penalty of revocation or suspension, the revocation or suspension shall become effective immediately upon execution of the Offer by the Hearing Panel and affirmation by the DEC Rejection of Offer; Counter Offer If the Offer is rejected by a Hearing Panel, the Offer shall be deemed void and the matters raised in the Complaint shall be set for hearing at the next meeting of the DEC. The Respondent shall not be prejudiced by the prior Offer, and it shall not be given consideration in the determination of the issues involved in the pending or any other proceeding. If the Hearing Panel deems it appropriate, it may make a Counter Settlement Offer ( Counter Offer ) to the Respondent modifying the proposed finding(s) of fact, violation(s) and/or discipline. The Respondent must respond to CFP Board within 20 calendar days from the date of service of the Counter Offer by either accepting or rejecting the Counter Offer. Respondent s failure to respond within 20 calendar days shall be considered rejection of the Counter Offer. If the Counter Offer is rejected by the Respondent, the Offer and Counter Offer shall be deemed void and the matters raised in the Complaint will be set for hearing at the next meeting of the DEC. The Respondent shall not be prejudiced by the prior Offer or the Counter Offer, and neither shall be given consideration in the determination of the issues involved in the pending or any other proceeding. ARTICLE 15. REQUIRED ACTION AFTER REVOCATION OR SUSPENSION After the entry of an order of revocation or suspension is final, the Respondent shall promptly terminate any use of the marks and in particular shall not use them in any advertising, announcement, letterhead or business card. Within 30 days of receiving an order of suspension or the execution of an Offer in which a Respondent consented to a suspension, the Respondent must provide to CFP Board evidence that he/she has ceased all use of the marks by providing copies of documents requested by the DEC in its order. Failure to provide the information requested by the DEC will result in an automatic issuance of a revocation under Article

75 ARTICLE 16. REINSTATEMENT AFTER DISCIPLINE 16.1 After Revocation Revocation shall be permanent, and there shall be no opportunity for reinstatement Reinstatement after Suspension Unless otherwise provided by the DEC in its order of suspension, a Respondent who has been suspended for a period of one year or less shall be automatically reinstated upon the expiration of the period of suspension, provided the Respondent files with CFP Board within 30 calendar days of the expiration of the period of suspension a request for reinstatement. A Respondent who has been suspended for a period longer than one year must petition the DEC for a reinstatement hearing within six months of the end of his/her suspension, or the Respondent shall be permanently barred from using the CFP certification. Before any reinstatement hearing will be scheduled, the Respondent must meet all administrative requirements for recertification, pay the reinstatement hearing costs and provide evidence, if necessary, that all prior hearing costs have been paid. At the reinstatement hearing, the Respondent must prove by clear and convincing evidence that the Respondent has been rehabilitated, has complied with all applicable disciplinary orders and provisions of these Disciplinary Rules, and that the Respondent is fit to use the marks. Clear and convincing evidence means that the DEC must have no reasonable doubt that the Respondent has met his/her burden. The Respondent may prove rehabilitation by providing to the DEC: 1. Evidence that the Respondent maintained competence and learning in the area of financial planning during the suspension period; 2. Evidence that the Respondent s conduct since the issuance of the DEC s order has been exemplary and beyond reproach; 3. Evidence that the Respondent made restitution or settled all claims from persons injured or harmed by his/her misconduct; and 4. Documentary evidence of all business activities during the suspension period. The Respondent may prove that he/she is fit to use the marks by demonstrating to the DEC: 1. Whether the Respondent has a proper understanding of CFP Board s Standards and is willing to act in conformity with the Standards; 2. Whether the Respondent can be confidently recommended to the public as a CFP professional; 3. How the Respondent plans to use the CFP marks in his/her future business; and 4. Any other information obtained during the hearing that the DEC chooses to consider. 75

76 16.3 Investigation Immediately upon receipt of a petition for reinstatement, CFP Board Counsel will initiate an investigation. The petitioner shall cooperate in any such investigation, and CFP Board Counsel or CFP Board Designated Counsel shall provide to the DEC the Respondent s past disciplinary record and any recommendation regarding reinstatement Successive Petitions If a Respondent is denied reinstatement, he/she must wait two years to petition again for reinstatement. The second petition must be received by CFP Board within six months of the expiration of the two -year period, or the Respondent s right to use the marks will be revoked. If the second petition is denied, the Respondent will be permanently barred from using the marks Reinstatement Fee Respondents for reinstatement will be assessed the costs of the reinstatement proceeding. ARTICLE 17. CONFIDENTIALITY OF PROCEEDINGS 17.1 Confidentiality Except as otherwise provided in these Disciplinary Rules, all proceedings conducted pursuant to these Disciplinary Rules shall be confidential and the records of the DEC, Hearing Panel, CFP Board Counsel and CFP Board staff shall remain confidential and shall not be made public Exceptions to Confidentiality CFP Board may release the records of the proceedings, subject to privilege, if: 1) the proceeding is predicated on a criminal conviction or professional discipline as defined herein; 2) the Respondent has waived confidentiality; 3) such disclosure is required by legal process of a court of law, governmental agency or an industry self-regulatory organization having appropriate jurisdiction; 4) CFP Board Counsel provides the information to a governmental agency or industry self-regulatory organization having appropriate jurisdiction; or 5) in proceedings involving a consumer, CFP Board staff contacts the consumer and/or the Respondent s current and/or former employer to request documents relevant to the proceeding. 76

77 ARTICLE 18. GENERAL PROVISIONS 18.1 Quorum Two-thirds of the members of the DEC must be present in order to constitute a quorum of such DEC, and the approval of a majority of the quorum shall be the action of such DEC Notice and Service Except as may otherwise be provided in these Disciplinary Rules, notice shall be in writing and the giving of notice and/or service shall be sufficient when made by certified mail sent to the last known address of the Respondent according to the records of CFP Board. In matters where a Respondent has designated counsel, notice and service shall be accomplished by certified mail to counsel s address as provided by Respondent Submissions All documents received by CFP Board shall be date-stamped and deemed filed on the date received by CFP Board. All such documents shall become part of the investigative file Costs In all disciplinary cases wherein a proceeding is initiated, the DEC will assess against the Respondent the costs of the proceedings. In addition, a Respondent who desires an appearance, whether telephonically or in person, or a paper review, or who submits an Offer of Settlement pursuant to Article 14, will be required to submit hearing costs not less than 45 days prior to the date of the scheduled hearing. In the event that the hearing results in a dismissal without merit, the hearing costs shall be refunded to the Respondent. Hearing costs will not be refunded if the hearing results in any action other than a dismissal without merit. A Respondent who petitions for reinstatement from a suspension or revocation or who petitions for appeal shall bear the costs of such proceeding. Financial hardship. In the event a Respondent is unable to pay the required hearing costs due to financial hardship, the Respondent must submit a written statement and supporting documentation explaining his or her financial situation and request a deferral, reduction or waiver of the hearing costs. Upon receipt and review of such request, CFP Board 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 with Respondent s Answer to the Complaint. 77

78 18.5 Electronic Signature Some documents that require a handwritten signature may be submitted electronically through CFP Board s closed website. Any document received by CFP Board through this process shall constitute conclusive proof that: 1) the Respondent whose name appears on the document submitted such document; and 2) the Respondent intended to be bound by the terms and conditions contained therein. Accordingly, the document shall be as legally binding as any containing a handwritten signature Publication It shall be standard procedure to publish the fact of an interim suspension, Public Letter of Admonition, suspension, revocation or permanent bar issued pursuant to Article 4, together with identification of the CFP professional in a press release and on CFP Board s website. In the event proceedings pursuant to Article 14 result in a Public Letter of Admonition, suspension, revocation, or otherwise result in a termination of the right to use the marks, it shall be standard procedure to publish such fact together with identification of the Respondent in a press release and on CFP Board s website Anonymous Case Histories and Sanction Guidelines Anonymous Case Histories are available through CFP Board s website ( Anonymous Case Histories are summaries of prior decisions rendered by the DEC. While the Anonymous Case Histories may be relied on by the DEC during hearings and deliberations, the Anonymous Case Histories are not binding on the DEC. The DEC considers all allegations of misconduct on a case-by-case basis, taking into consideration the details specific to each case. While CFP Board has attempted to capture in the Anonymous Case Histories the details relevant to each DEC decision, the summary nature of an Anonymous Case History may omit certain details affecting the decision. Accordingly, the decisions and/or rationale described in the Anonymous Case History may not apply to other cases reviewed by the DEC or reflect the DEC s future interpretation or application of the Standards. The Sanction Guidelines identify specific conduct that is a violation of CFP Board s Standards, the sanction guideline for that conduct and policy notes for the DEC to consider when imposing the appropriate sanction. The DEC is not bound by the Sanction Guidelines, which are intended, along with the Anonymous Case Histories, to guide the decision making of the DEC. When considering the appropriate sanction in a particular case, the DEC may deviate from the sanction guideline if there are aggravating facts that warrant a more severe sanction or mitigating factors that warrant a less severe sanction. 78

79 FITNESS STANDARDS CFP Board established specific character and fitness standards for candidates for CFP certification to ensure that an individual's prior conduct would not reflect adversely upon the profession or the CFP certification marks. CFP Board determined that such standards would also provide notice to individuals interested in attaining CFP certification that certain conduct would bar certification, or require an individual to petition the Disciplinary and Ethics Commission (DEC) for consideration. Effective January 1, 2011, the Fitness Standards shall apply to Professionals Eligible for Reinstatement (PER), i.e., individuals who are not currently certified but have been certified by CFP Board in the past and are eligible to reinstate their certification without being required to pass the current CFP Certification Examination. Conduct Deemed Unacceptable The following conduct is unacceptable and will always bar an individual from becoming certified: Felony conviction for theft, embezzlement or other financially-based crimes. Felony conviction for tax fraud or other tax-related crimes. Revocation of a financial (e.g. registered securities representative, broker/dealer, insurance, accountant, investment advisor, financial planner) professional license, unless the revocation is administrative in nature, i.e. the result of the individual determining not to renew the license by not paying the required fees. Felony conviction for any degree of murder or rape. Felony conviction for any other violent crime within the last five years. Conduct Deemed a Presumptive Bar The following conduct is presumed to be unacceptable and will bar an individual from becoming certified unless the individual petitions the DEC for consideration, and the DEC grants the petition: Two or more personal or business bankruptcies. Revocation or suspension of a non-financial professional (e.g. real estate, attorney) license, unless the revocation is administrative in nature, i.e. the result of the individual determining not to renew the license by not paying the required fees. Suspension of a financial professional (e.g. registered securities representative, broker/dealer, insurance, accountant, investment advisor, financial planner) license, unless the suspension is administrative in nature, i.e. the result of the individual determining not to renew the license by not paying the required fees. Felony conviction for non-violent crimes (including perjury) within the last five years. 79

80 Felony conviction for violent crimes other than murder or rape that occurred more than five years ago. Other matters that may reflect adversely upon the profession or the CFP certification marks will be reviewed by the DEC under the procedures outlined in CFP Board s Disciplinary Rules and Procedures, after the candidate or PER has successfully completed the education, examination and experience requirements for certification. These include, but are not limited to, customer complaints, arbitrations and other civil proceedings, felony convictions for non-violent crimes that occurred more than five years ago, misdemeanor convictions, and employer investigations and terminations. CFP Board requires candidates for CFP certification and PERs to disclose certain matters on the ethics declaration of the Certification Application. Petitions for Consideration Individuals who have conduct that either falls under the "Presumptive Bar" list (see above) or may reflect adversely upon the profession or the CFP certification marks may petition the DEC for consideration and a determination whether their conduct will bar certification. The process for these reviews is as follows: 1. When CFP Board learns that an individual s conduct falls within the Unacceptable list (see above), CFP Board shall notify the individual that he/she is permanently barred from becoming certified. 2. The individual submits a written petition for consideration to CFP Board s Professional Standards Department, and signs a form agreeing to CFP Board s jurisdiction to review the matter. 3. CFP Board reviews the request to confirm that the conduct either falls within the Presumptive Bar list, or is conduct that may reflect adversely upon the profession or the CFP certification marks. Once confirmed, CFP Board will request all relevant documentation from the individual, and a fee shall be paid by the individual submitting the petition for consideration. Following the DEC s review of the petition, the DEC shall make one of the following determinations: Grant the petition after determining the conduct does not reflect adversely on the individual s fitness as either a registrant seeking reinstatement or as a candidate for CFP certification, or upon the profession or the CFP certification marks, and CFP certification shall be issued to the individual. Deny the petition but allow the individual to re-apply for CFP certification after a period not to exceed five years. The individual shall be required to satisfy the education, examination, experience and ethics requirements of CFP certification at the time of re-application. Deny the petition after determining the conduct reflects adversely on the individual s fitness as a registrant seeking reinstatement or as a candidate for 80

81 CFP certification, or upon the profession or the CFP certification marks, and the CFP certification shall be permanently barred. The DEC's decision regarding a petition for consideration may be appealed to the Appeals Committee of the Board of Directors, in accordance with Article 11 of the Disciplinary Rules and Procedures. Registrants applying for reinstatement following a period of suspension must follow the reinstatement procedures outlined in Article 15 of the Disciplinary Rules and Procedures. 81

82 Chapter 4 Review Questions 1. The Hearing Panel shall consist of how many persons? ( ) A. Two person ( ) B. Three persons ( ) C. Four persons ( ) D. Six persons 2. The DEC may order suspension for a specified period of time, not to exceed how many years, for those individuals it deems can be rehabilitated? ( ) A. Two years ( ) B. Three years ( ) C. Four years ( ) D. Five years 3. All Responses to Orders to Show Cause shall be in writing and shall be submitted within how many calendar days from the date of service of the Order to Show Cause upon the certificant or registrant? ( ) A. 5 calendar days ( ) B. 10 calendar days ( ) C. 20 calendar days ( ) D. 30 calendar days 4. If an individual is denied reinstatement, he/she must wait how many years to again petition for reinstatement? ( ) A. Two years ( ) B. Three years ( ) C. Four years ( ) D. Five years 5. 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. ( ) A. 7 calendar days ( ) B. 10 calendar days ( ) C. 30 calendar days ( ) D. 45 calendar days 82

83 Chapter 4 Answers to Review Questions 1. (B) Two persons. Rule 2.4: The Hearing Panel shall consist of three persons, two of whom must be CFP professionals. 2. (D) Five years. Rule 4.3 Suspension: The DEC may order suspension for a specified period of time, not to exceed five (5) years, for those individuals it deems can be rehabilitated. 3. (C ) 20 calendar days. Rule 5.3 Response: All Responses to Orders to Show Cause shall be in writing and shall be submitted within twenty (20) calendar days from the date of service of the Order to Show Cause upon the CFP professional. 4. (A) Two years. Rule 16.4 Successive Petitions: If an individual is denied reinstatement, he/she must wait two (2) years to again petition for reinstatement. 5. (D.) 45 calendar days. Rule Costs. Upon receipt and review of such request, CFP Board Counsel shall have the discretion to defer, reduce or waive the required 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. 83

84 84

85 CHAPTER 5 APPEAL RULES & PROCEDURES Overview This chapter will review the Appeals Rules and Procedures (the Rules) that govern the procedure of appeals from orders of the Disciplinary and Ethics Commission (DEC). Back on November 30, 2012, the CFP Board amended several amendments of The Rules. ARTICLE 1: SCOPE OF RULES These Appeal Rules and Procedures (the Rules) govern the procedure of appeals from orders of the Disciplinary and Ethics Commission (DEC) of the Certified Financial Planner Board of Standards, Inc. (CFP Board), and appeals from Administrative Orders. ARTICLE 2: APPEAL PANEL 2.1 Function and Jurisdiction. The Appeal Panel is charged with the duty of reviewing all appeals from orders of the DEC and Administrative Orders. The Appeal Panel shall have jurisdiction to review cases that are appealed in accordance with these Rules, and that involve: (1) any Order issued by the DEC, except Interim Suspension Orders; or (2) Administrative Orders. 2.2 Composition The composition of the Appeal Panel and appointment of a Chair shall be as set forth in CFP Board s Bylaws, Policy Governance Manual and/or Appeal Panel Charter, as amended from time to time. No member of the Appeal Panel may serve simultaneously as a member of the DEC. 2.3 Functions of the Appeal Panel Chair The Appeal Panel Chair shall rule on all motions, objections, and other matters presented in the course of the hearing. The Chair shall also have the authority to rule on preliminary motions or matters raised prior to the hearing. 85

86 2.4 Disqualification. Appeal Panel members shall not participate in any appeal proceeding that would result in, or cause, a conflict of interest or would give the appearance of impropriety. ARTICLE 3: STANDARD OF REVIEW 3.1 Appeals from Orders of the DEC. In appeals from orders of the DEC, except interim suspension orders, the Appeal Panel shall affirm the findings of fact and disposition of the proceedings, unless Appellant establishes or the Appeal Panel finds that the findings of fact, rule violation(s) and/or the disposition of the proceedings is clearly erroneous. 3.2 Appeals from Administrative Orders. In appeals from administrative orders, the Appeal Panel shall affirm the order of CFP Board, unless Appellant establishes: (a) excusable neglect for failing to respond to the Complaint; or (b) that the issuance of the order was clearly erroneous. ARTICLE 4: RIGHT TO APPEAL AND REPRESENTATION CFP Board Counsel may appeal any Order of the DEC, except an order in which the DEC declines to impose an interim suspension, to the Appeal Panel, provided he or she complies with all other provisions of these Rules. In the event that CFP Board Counsel appeals an Order of the DEC, the Respondent shall not be assessed an appeal fee. A Respondent may appeal any Order of the DEC, except an interim suspension order, and an Administrative Order issued by CFP Board Counsel to the Appeal Panel, provided he or she complies with all other provisions of these Rules. Additionally, a Respondent has the right to be represented by counsel. Respondent s Counsel, if any, shall be identified to CFP Board in his or her Petition for Appeal or Response to Petition for Appeal. When Respondent s Counsel is identified, the Respondent shall provide the counsel s contact information as well as whether the counsel will appear in person or via telephone. Respondent s counsel must be an active member in good standing of the bar of a United States state, jurisdiction, possession, territory or dependency ARTICLE 5: APPEAL PROCEDURES 5.1 Initiation of Appeal a) Initiation Deadline: An Appellant s Petition for Appeal must be filed within 30 calendar days from the date the DEC s or CFP Board s order is mailed to Respondent. 86

87 b) Motion for More Time: In the event Appellant fails to satisfy the provisions of this section within the time allotted in subsection a. above, the Appeal Panel may extend the time for initiating the appeal upon motion by Appellant. Said motion must be filed by Appellant no later than 30 calendar days after the expiration of the time prescribed in subsection a. and must demonstrate excusable neglect for Appellant s failure to submit a Notice of Appeal and/or costs within the time allotted under subsection a. 5.2 Petition for Appeal a. Filing: Filing shall be accomplished by depositing the Petition for Appeal in the U.S. Mail, by Certified Mail, return receipt requested, properly addressed to CFP Board headquarters. Content. (1) Appeals from Orders issued by the DEC: The Petition for Appeal from an Order issued by the DEC must specify the party filing the appeal, shall identify the DEC s order, and shall state clearly and concisely the grounds upon which the Appellant seeks a modification or remand of the Order. The contents of the Petition for Appeal shall be limited to the evidence contained in the record. The Appeal Panel shall not consider new evidence or hear testimony from any witnesses. However, a party can raise new arguments (as distinguished from a new claim ) on appeal. Once a claim is properly presented, a party can make any argument in support of that claim; parties are not limited to the precise arguments they made below. See, Yee v. City of Escondido, 503 U.S. 519, (U.S. 1992). (2) Appeals from Administrative Orders: The Petition for Appeal from administrative orders shall specify the party filing the appeal and must identify the Administrative Order. The content of the Petition for Appeal must be limited to the circumstances and evidence surrounding Appellant s failure to respond to CFP Board s Complaint. The Appeal Panel must not consider any evidence with regard to the allegations in the Complaint, except those allegations relating to Appellant s failure to respond. (3) Length: The aggregate length of a Petition for Appeal shall not exceed 10 singlespaced pages, excluding any attachments, and shall be submitted on 8 ½ x 11 inch paper, with a minimum font size of 11 points. Attachments shall not exceed 20 pages. c. Appearance: An Appellant appealing an Order issued by the DEC has the right to appear, either telephonically or in person, but must request such an appearance in the Petition for Appeal. Failure to request an appearance in the Petition for Appeal will result in a waiver of the Appellant s right to appear. d. Costs: All costs for an appellate review, including all costs from the underlying hearing, if any, must be received by CFP Board within the time allotted under subsection a. above and are nonrefundable. Appellant may request a reduction or waiver of the appeal hearing costs due to financial hardship. Such request must be submitted in writing with the Petition for Appeal. Upon receipt and review of the request, CFP Board Advisory Counsel shall have the discretion to reduce or waive the required appeal hearing costs. If CFP Board Counsel initiates the appeal of an Order, the Appellee will 87

88 not be assessed a hearing fee. 5.3 Answer a. Filing: Appellee must file an Answer within 30 calendar days after CFP Board receives the Petition for Appeal. The Answer must be filed at least 30 calendar days prior to the hearing, unless Appellant expressly waives his or her right, in writing, to the 30-day notice. Filing must be accomplished by depositing the Answer in the U.S. Mail, by Certified Mail, return receipt requested, and shall be sent to the Appellant and/or Appellant s counsel s last known address. b. Content: The Answer must specify the party filing the Answer, respond to the issues raised in the Petition for Appeal, and state clearly and concisely the grounds upon which the DEC s order should be affirmed, modified or remanded. c. Length: The aggregate length of the Answer must not exceed 10 single-spaced pages, excluding any attachments, and must be submitted on 8 ½ x 11 inch paper, with a minimum font size of 11 points. Attachments must not exceed 20 pages. 5.4 Rebuttal. a. Filing: An Appellant may file a rebuttal under the following circumstances: (1) if Appellant has waived the right to appear at the appeal hearing; or (ii) if Appellant is appealing an administrative order. Appellant must file a rebuttal within 10 calendar days of receipt of the Answer. A rebuttal must be filed at least 20 calendar days prior to the appeal hearing, unless Appellee expressly waives his or her right, in writing, to this 20- day notice. Filing is accomplished by depositing the rebuttal in the U.S. Mail, by Certified Mail, return receipt requested, properly addressed to Appellant and/or Appellant s counsel s last known address.. b. Content: The content of the rebuttal is limited to those issues raised in the Petition for Appeal and the Answer. c. Length: Rebuttals must not exceed two single-spaced pages and shall be submitted on 8 ½ x 11 inch paper, with a minimum font size of 11 points. No attachments are permitted. ARTICLE 6: MOTIONS 6.1 Filing. An Appellant or Appellee may file a written motion (exclusive of motions in Article 5.1b and 9.3b) regarding procedural matters. The motion must be filed no later than 30 days prior to the appeal hearing. Filing is accomplished by depositing the motion in the U.S. Mail, by Certified Mail, return receipt requested, properly addressed to the Appellant s or Appellee s and/or Appellant s or Appellee s counsel s last known address. 88

89 6.2 Content The motion must state with reasonable particularity the grounds for the motion and the relief sought. If the motion pertains to a specific rule or rules, the motion must identify the rules. 6.3 Response An Appellant or Appellee may file a written response to any motion filed by another party. Any response must be filed no later than 10 days after the filing of the motion. The content of a response to a motion is governed by Article 6.2. Filing is accomplished by depositing the response in the U.S. Mail, by Certified Mail, return receipt requested, properly addressed to the last known address Appellant s or Appellee s and/or Appellant s or Appellee s counsel s last known address. If a response is filed, a rebuttal is not permitted. 6.4 Length Motions must not exceed two single-spaced pages and must be submitted on 8 ½ x 11 inch paper, with a minimum font size of 11 points. Attachments must not exceed 10 pages. 6.5 Disposition of a Motion a. Appearance Requested: The Appeal Panel Chair must rule on all motions, either orally or in writing, on or before the date of the hearing. b. Paper Review: The Appeal Panel Chair must rule on all motions in a written order mailed to both parties within 30 days of the Appeal Panel s decision. The order must be mailed to each party by U.S. Mail, by Certified Mail, return receipt requested, to the last known address of each party and/or each party s counsel. ARTICLE 7: AUTOMATIC STAY OF ORDER Upon successful initiation of an appeal, the Order of the DEC or Administrative Order shall be stayed pending a decision by the Appeal Panel. ARTICLE 8: THE RECORD ON APPEAL 8.1 Composition. a. Appeals from Orders issued by the DEC: The record on appeal shall consist of all evidence provided to the DEC, the DEC s Order, the transcript of the hearing 89

90 before the DEC, the Petition for Appeal, the Answer to the Petition for Appeal, and the rebuttal, if applicable. b. Appeals from Administrative Orders: The record on appeal shall consist of the Notice of Complaint and Hearing, the Complaint, proof of service of the Complaint upon the Appellant, the Administrative Order of Revocation, all evidence that relates to Appellant s failure to respond, the Petition for Appeal, the Answer to the Petition for Appeal, along with a timeline of events, and the rebuttal, if any. 8.2 Omission from or Misstatement in the Record If anything material to any party is omitted from the record created from the hearing before the DEC or is misstated therein, either party may, at any time, supply the omission or correct the misstatement by stipulation. In the event there is no stipulation, the parties may submit the matter to the Appeal Panel Chair, who may, at any time, direct the omission or misstatement be remedied and, if necessary, that a supplemental record be prepared and filed. ARTICLE 9: APPEAL HEARING 9.1 Notice of Hearing Not less than 30 calendar days prior to the date set for an appeal hearing, written notice of such hearing shall be sent to each party, designating the date and place of the hearing. The notice shall be deposited in the U.S. Mail, by Certified Mail, return receipt requested, to each party s last known address. 9.2 Review of the Record The Appeal Panel shall review the record on appeal (see Article 7.1). 9.3 Presentations a. Right to presentation. (1) Appellant. Appeals from Orders issued by the DEC. If Appellant requests an appearance pursuant to Article 5.3(d), he/she will have the right to make an oral presentation. If Appellant has waived his/her right to appear pursuant to Article 5.3(d) of these Rules, the Appeal Panel will make its decision based on the record and neither the Appellant nor the DEC will have the right to make an oral presentation. Appeals from Administrative Orders. Neither Appellant nor Appellee will have the right to appear if Appellant is appealing an administrative Order of Revocation. (2) Appellee: The Appellee will have the right to make an oral presentation in all cases 90

91 on appeal where the Appellant has exercised his/her right to appear pursuant to Article 5.3(d) of these Rules. b. Affirmative Presentation. (1) Content: Affirmative presentations shall be concise, shall address only those issues raised in the Petition for Appeal and Answer, and may be terminated by the Appeal Panel if either Appellant or Appellee exceeds the time limits prescribed below. (2) Time Allotted and Order of Presentations: Appellant and Appellee each have 20 minutes to make an oral presentation. Appellant shall present first. (3) Motion for More Time: The Appeal Panel may consider motions from the Appellant or Appellee requesting additional time for oral presentations and may grant such motions upon a showing of good cause. c. Rebuttal: Following the presentation of the Appellee, Appellant shall be permitted five minutes for rebuttal. The rebuttal must address only those issues raised in the Petition for Appeal and Answer or the affirmative presentations. d. Questioning: The Appeal Panel may ask questions at any time during or after the presentations. In the event the Appeal Panel exercises its right to ask questions, the time allotted for presentation will not be extended. 9.4 Transcript of Appeal Hearing If either party wishes to have a transcript of the appeal hearing, the party is responsible for securing, making all necessary arrangements with, and paying the cost of, the transcriptionist. ARTICLE 10: DECISIONS 10.1 Order of the Appeal Panel Decisions shall be rendered as set forth below. a) Order issued by the DEC: The Appeal Panel shall: (i) affirm the DEC s findings of fact, rule violation(s) and the disposition of the proceedings if the Appeal Panel finds no clear error; (ii) affirm the DEC s findings of fact and modify the rule violation(s) and/or disposition of the proceedings if the Appeal Panel finds clear error as to the rule violation(s) and/or disposition of the proceedings; or (iii) remand the matter to the DEC with instructions for further proceedings if the Appeal Panel finds clear error as to the DEC s findings of fact. A finding is clear error when the Appeal Panel, after considering all the evidence, is left with the definite and firm conviction that a mistake has been committed regarding the support of one or more factual findings by the evidence or the application of the Rule(s). 91

92 b) Administrative Orders: The Appeal Panel shall: (i) affirm CFP Board s administrative order; or (ii) remand the matter to the DEC for a disciplinary hearing. In order to impose (ii) above, the Appeal Panel must find Appellant has established excusable neglect for failing to respond to the Complaint, or that the issuance of the order was clearly erroneous Service of the Order of the Appeal Panel A written order must be mailed to both parties within 30 days after the review by CFP Board s Board of Directors as provided in Article 11. The order must be mailed to the Appellant or the Appellant s counsel by U.S. Mail, by Certified Mail, return receipt requested, to the last known address of each party and/or each party s counsel. ARTICLE 11: REVIEW BY THE APPEALS COMMITTEEE OF THE BOARD OF DIRECTORS OF CFP BOARD 11.1 Presentation to Appeals Committee The Managing Director of Professional Standards and Legal ( Managing Director ) must present every decision issued by the Appeal Panel to the Appeals Committee of the Board of Directors. The Board of Directors may: (i) affirm the Appeal Panel s decision; or (ii) call the matter for review at the next scheduled Appeals Committee meeting. The Appeals Committee s decision is the final decision of CFP Board Call for Review by the Appeals Committee After receiving the presentation from the Managing Director, the Appeals Committee may, if it wants further details of the Appeal Panel s determination, call the case for review at the Appeals Committee s next scheduled meeting. At the Appeals Committee s next scheduled meeting, the Managing Director must present a detailed review of the Appeal Panel s determinations. Neither Appellant nor Appellee will have the right to appear during this review by the Appeals Committee Decision After Review After review of the matter under Article 11.2, the Appeals Committee may: (i) affirm the Appeal Panel s decision; or (ii) if it finds clear error, remand the matter to the Appeal Panel with instructions for further proceedings. DEFINITIONS Administrative Orders. CFP Board Counsel issues an Administrative Order of Denial or an Administrative Order of Revocation in instances where a CFP Board designee fails to file a timely Answer to the Complaint within the required 20 calendar days from the date 92

93 of service of the Complaint, as provided in Article 7.3 of the Disciplinary Rules and Procedures. Such orders are referred to as administrative because they do not involve a hearing before the DEC. Appellant. The party who appeals an Order issued by the DEC and/or an Administrative Order. Appellee. The party against whom an appeal is taken and whose role is to respond to the Petition for Appeal. Clear error / Clearly erroneous. A finding is clearly erroneous when the Appeal Panel, after considering the entire evidence, is left with the definite and firm conviction that a finding of fact, rule violation and/or the disposition of the proceedings is unsupported by substantial evidence. Excusable Neglect. A legal standard of review which generally means a failure to take proper steps at a proper time, which were not a consequence of carelessness, but rather resulted from some unavoidable hindrance or occurrence. In determining whether excusable neglect exists, relevant circumstances include: (1) the danger of prejudice to the DEC; (2) the length of the delay and its potential impact on the proceedings of either the DEC or the Appeal Panel; (3) the reason for the delay, including whether it was within the respondent s control; and (4) whether the Respondent acted in good faith. Preponderance of the Evidence. A legal standard of review which generally means more probable than not, i.e., evidence which shows that, as a whole, the fact sought to be proved is more probable than not to have occurred. 93

94 Chapter 5 Review Questions 1. Who is charged with the duty of reviewing all appeals from orders of the DEC and Administrative Orders? ( ) A. The Hearing Panel ( ) B. The Appeal Panel ( ) C. The CFP Board Counsel ( ) D. The Commission 2. An Appellant s petition for appeal must be filed within how many calendar days from the date the DEC or CFP Board s order is mailed to Respondent? ( ) A. 7 calendar days ( ) B. 10 calendar days ( ) C. 15 calendar days ( ) D. 30 calendar days 3. An Appellant or Appellee may file a written response to any motion filed by another party but it must be filed no later than how many days after filing the motion? ( ) A. 7 calendar days ( ) B. 15 calendar days ( ) C. 10 calendar days ( ) D. 30 calendar days 4. A written order must be mailed to both parties within how many days after the review by CFP Board s Board of Directors as provided in Article 11? ( ) A. 5 calendar days ( ) B. 10 calendar days ( ) C. 20 calendar days ( ) D. 30 calendar days 5. In determining whether excusable neglect exists, relevant circumstances include which of the following? ( ) A. The danger of prejudice to the DEC ( ) B. The length of the delay and its potential impact on the proceedings of either the DEC or the Appeal Panel ( ) C. The length of the delay and its potential impact on the proceedings of either the DEC or the Appeal Panel ( ) D. 30 calendar days 94

95 Chapter 5 Answers to Review Questions 1. (B) Appeals Panel: Article 2.1: Function and Jurisdiction. The Appeals panel is charged with the duty of reviewing all appeals from orders of the DEC and Administrative Orders. 2. (D) 30 days. Article 5.1 Initiation of Appeal states an Appellant s Petition for Appeal must be filed within 30 calendar days from the date the DEC s or CFP Board s order is mailed to Respondent. 3. (C ) 10 days. Article 6.3. An Appellant or Appellee may file a written response to any motion filed by another party. Any response must be filed no later than 10 days after the filing of the motion. 4. (D) 30 days. Article 10.2: Service of the Order of the Appeal Panel. A written order must be mailed to both parties within 30 days after the review by CFP Board s Board of Directors as provided in Article (D) All of the Above. Excusable Neglect. A legal standard of review which generally means a failure to take proper steps at a proper time, which were not a consequence of carelessness, but rather resulted from some unavoidable hindrance or occurrence. In determining whether excusable neglect exists, relevant circumstances include: (1) the danger of prejudice to the DEC; (2) the length of the delay and its potential impact on the proceedings of either the DEC or the Appeal Panel; (3) the reason for the delay, including whether it was within the respondent s control; and (4) whether the Respondent acted in good faith. 95

96 APPENDICES Appendix A Appendix B Appendix C Appendix D Sample Disclosure Forms Anonymous Case Histories Notices To CFP Professionals Client Engagement Letter 96

97 Appendix A Sample Disclosure Forms Following are three sample forms prepared by CFP Board, which certificants can use to meet their obligations under the Standards of Professional Conduct: Form FPDA ( Financial Planning Disclosure Document and Agreement ), which can be used to satisfy both the disclosure obligations and the written agreement requirement. Form FPD ( Financial Planning Disclosure Document ), which can be used to meet the disclosure obligations. Form OPS ( Other Than Financial Planning Services ), which can be used to meet the required disclosures when a certificant provides other than financial planning services. Financial Planning Disclosure and Agreement Sample (Form FPDA) CFP Board is providing this sample disclosure document and agreement (Form FPDA) to assist you in satisfying the requirements of Rules 1.2, 1.3 and 2.2 of the Rules of Conduct, which require CFP certificants to provide specific information and disclosures to prospective clients and clients prior to entering into an agreement to provide financial planning services. If applicable, references to similar questions in your Form ADV are provided for guidance. Part I: Contact Information for Parties to the Agreement [See Rules 1.3 and 2.2(d)] A. Client s Name and Contact Information [Form ADV Part 1, Item 1] B. Certificant and Employer s (if applicable) Contact Information Part II: Services to be Provided A. Describe the services to be provided under this Agreement with the Client [See Rule 1.3(d)] [Form ADV Part 1A, Item 5.G. Form ADV Part II, Item 1.A., 1.D., Item 4.A., 4.B., and 4.C. Item 10, Item 11.A. and 11.B. give general information on the services you offer clients. Don t forget to provide a specific list of the services you provide to this particular client.] B. Describe the obligations and responsibilities of each party with respect to: [See Rule 1.2(a)] [Be sure the services you plan to provide to your Client are allowed (or not prohibited) in your Form ADV.] 97

98 1. Defining goals, needs and objectives 2. Gathering and providing appropriate data 4. Determining the results if no changes are made to the client/prospect s current course of action 1. Determining recommendations and possible changes to the current course of action 2. Determining implementation responsibilities 3. Determining monitoring responsibilities C. Description of other professionals and/or firms the certificant may work with to provide the necessary services listed under this agreement [See Rule 1.2(d)] [Form ADV Part 1.A., Schedule D, Section 5.3(2), Section 7.A., Section 7.B. Form ADV Part II, Item 8., Item 12.B., Item 13.A. and 13.B.] Part III: Material Information Relevant to the Relationship A. Sources of Compensation [See Rule 2.2(a)] 1. Describe how the certificant and/or certificant s employer are compensated for the services provided [See Rule 2.2(a)] [Form ADV Part 1A, Item 5.E., Item 6.B.(3), Part II, Item 9.A., 9.B., 9.C., 9.D., and 9.E., Item 13.A. and13.b., ] 2. Describe costs incurred that may be charged separately to the client [See Rule 2.2(a)] [This is probably defined in your client agreement.] 3. Describe other sources of [direct or indirect] compensation received but not yet listed. Include source(s) and terms for receipt of compensation (i.e., 12b-1 fees; soft dollars; etc.) [See Rule 2.2(a)] 4. Include compensation that any affiliate or affiliated entity to the certificant or certificant s employer may receive under the terms of this agreement [See Rule 1.2(b)] B. Conflicts of Interest [See Rule 2.2(b)] [Form ADV Part 1, Item 8.A., 8.B., 8.C. and 8.d., Item 9.A, 9.B., 9.C., and 9.D., Item 12.B., Item 13.A. and 13.B. ] 1. Describe the conflicts of interest the certificant or certificant s employers (including affiliates and affiliated entities) may have [See Rule 2.2(b)] 2. Describe the limitations placed on products, services and/or solutions the certificant may recommend under this agreement. These limitations may be caused by the relationship the certificant has with his/her employer or a limitation on products the certificant may offer, as examples [See Rule 1.2(c)] C. Describe other material information relevant to the professional relationship that the client should know before making an informed decision [See Rules 2.2(b) and 2.2(e)] 98

99 Part IV: Additional Information This agreement is effective as of the date signed below and will last in duration until [ ]. [See Rule 1.3(b)] To terminate the agreement, [list terms each party may follow to terminate the agreement]. [See Rule 1.3(c)] You are encouraged to review the information contained in this disclosure form and ask the certificant any questions you may have. [See Rule 1.2] Should any material changes occur to this information, updated information will be provided to you in a reasonable time frame. [See Rule 2.2] As a CFP certificant, I acknowledge my responsibility to adhere to the standards established in CFP Board s Standards of Professional Conduct, including the duty of care of a fiduciary, as defined by CFP Board. [See Rule 1.4] If you become aware that my conduct may violate the Standards, you may file a complaint with CFP Board at (Optional) I hereby acknowledge the terms of this Agreement and the disclosures made above. / / Client s Signature Date Client s Signature Date Client s Printed Name Client s Printed Name / Certificant s Signature Date 99

100 Financial Planning Disclosure Sample (Form FPD) CFP Board is providing this sample disclosure document (Form FPD) to assist you in satisfying the requirements of Rules 1.2 and 2.2 of the Rules of Conduct, which require CFP certificants to provide specific information and disclosures to prospective clients and clients prior to entering into an agreement to provide financial planning services. If applicable, references to similar questions in your Form ADV are provided for guidance. This form may be used contemporaneously with the certificant s employer s client agreement that satisfies Rule 1.3 of the Rules of Conduct. Part I: Contact Information [See Rule 2.2(d)] A. Client s Name and Contact Information [Form ADV Part 1, Item 1] B. Certificant and Employer s (if applicable) Contact Information Part II: Services to be Provided A. Describe the obligations and responsibilities of each party with respect to: [See Rule 1.2(a)] [Be sure the services you plan to provide to your client are allowed (or not prohibited) in your Form ADV.] 1. Defining goals, needs and objectives 2. Gathering and providing appropriate data 3. Determining the results if no changes are made to the client/prospect s current course of action 4. Determining recommendations and possible changes to the current course of action 5. Determining implementation responsibilities 6. Determining monitoring responsibilities B. Description of other professionals and/or firms the certificant may work with to provide the necessary services listed above [See Rule 1.2(d)] [Form ADV Part 1.A., Schedule D, Section 5.3(2), Section 7.A., Section 7.B. Form ADV Part II, Item 8., Item 12.B., Item 13.A. and 13.B.] Part III: Material Information Relevant to the Relationship A. Sources of Compensation [See Rule 2.2(a)] 1. Describe how the certificant and/or certificant s employer are compensated for the services provided [See Rule 2.2(a)] [Form ADV Part 1A, Item 5.E., Item 6.B.(3), Part II, Item 9.A., 9.B.,9.C., 9.D., and 9.E., Item 13.A. and 13.B.] 2. Describe costs incurred that may be charged separately to the client [See 100

101 Rule 2.2(a)] [This is probably defined in your client agreement.] 3. Describe other sources of [direct or indirect] compensation received but not yet listed. Include source(s) and terms for receipt of compensation (i.e., 12b-1 fees; soft dollars; etc.) [See Rule 2.2(a)] 4. Include compensation that any affiliate or affiliated entity to the certificant or certificant s employer may receive for the services provided [See Rule 1.2(b)] B. Conflicts of Interest [See Rule 2.2(b)] [Form ADV Part 1, Item 8.A., 8.B., 8.C. and 8.d., Item 9.A., 9.B., 9.C., and 9.D., Item 12.B., Item 13.A. and 13.B.] 1. Describe the conflicts of interest the certificant or certificant s employers (including affiliates and affiliated entities) may have [See Rule 2.2(b)] 2. Describe the limitations placed on products, services and/or solutions the certificant may recommend under this agreement. These limitations may be caused by the relationship the certificant has with his/her employer or a limitation on products the certificant may offer, as examples [See Rule 1.2(c)] C. Describe other material information relevant to the professional relationship that the client should know before making an informed decision [See Rules 2.2(b) and 2.2(e)] Part IV: Additional Information You, the client, are encouraged to review the information contained in this disclosure form and ask the certificant any questions you may have. [See Rule 1.2] Should any material changes occur to this information, updated information will be provided to you in a reasonable time frame. [See Rule 2.2] As a CFP certificant, I acknowledge my responsibility to adhere to the standards established in CFP Board s Standards of Professional Conduct, including the duty of care of a fiduciary, as defined by the CFP Board. [See Rule 1.4] If you become aware that my conduct may violate the Standards, you may file a complaint with CFP Board at (Optional) I hereby acknowledge receipt of the terms of an agreement and the disclosures made above. / / / Client s Signature Date Client s Signature Date Client s Printed Name Client s Printed Name / Certificant s Signature Date 101

102 Other Professional Services (Form OPS) CFP Board is providing this sample disclosure document (Form OPS) to assist you in satisfying the requirements of Rules 1.2 and 2.2 of the Rules of Conduct, which require CFP certificants to provide specific information and disclosures to prospective clients and clients prior to entering into an arrangement to provide financial services other than financial planning services. Part I: Contact Information [See Rule 2.2(d)] A. Client s Name and Contact Information B. Certificant and Employer s (if applicable) Contact Information Part II: Services to be Provided A. Describe the obligations and responsibilities of each party with respect to: [Be sure the services provided to clients are allowed (or not prohibited) by the certificant s employer or in the employer s Form ADV.] B. Describe other professionals and/or firms the certificant may work with to provide the necessary services listed above [See Rule 1.2(d)] Part III: Material Information Relevant to the Relationship A. Sources of Compensation [See Rule 2.2(a)] 1. Describe how the certificant and/or certificant s employer are compensated for the services provided [See Rule 2.2(a)] 2. Describe costs incurred that may be charged separately to the client [See Rule 2.2(a)] 3. Describe other sources of [direct or indirect] compensation received but not yet listed. Include source(s) and terms for receipt of compensation (i.e., 12b-1 fees; soft dollars; etc.) [See Rule 2.2(a)] 4. Include compensation that any affiliate or affiliated entity to the Certificant or certificant s employer may receive for the services provided [See Rule 1.2(b)] B. Conflicts of Interest [See Rule 2.2(b)] 1. Describe the conflicts of interest the certificant or certificant s employers (including affiliates and affiliated entities) may have [See Rule 2.2(b)] 2. Describe the limitations placed on products, services and/or solutions the certificant may recommend under this agreement. These limitations may 102

103 be caused by the relationship the certificant has with his/her employer or a limitation on products the certificant may offer, as examples [See Rule 1.2(c)] C. Describe other material information relevant to the professional relationship that the client should know before making an informed decision [See Rule 2.2(b)] Part IV: Additional Information You, the client, are encouraged to review the information contained in this disclosure form and ask the certificant any questions you may have. [See Rule 1.2] Should any material changes occur to this information, updated information will be provided to you in a reasonable time frame. [See Rule 2.2] As a CFP certificant, I acknowledge my responsibility to adhere to the standards established in CFP Board s Standards of Professional Conduct. [See Rule 1.4] If you become aware that my conduct may violate the Standards, you may file a complaint with CFP Board at (Optional) I hereby acknowledge the receipt the disclosures made above. / / Client s Signature Date Client s Signature Date Client s Printed Name Client s Printed Name / Certificant s Signature Date 103

104 Appendix B Anonymous Case History Case Number This is a summary of a decision issued following the March 2013 hearings of the Disciplinary and Ethics Commission ( Commission ) of Certified Financial Planner Board of Standards, Inc. ( CFP Board ). The conduct at issue in this case occurred after January 1, The Rules in effect at that time under the Code of Ethics and Professional Responsibility ( Code of Ethics ) were Rules 101 through 705/Rules of Conduct were Rules 1.1 through 6.5. I. Issues Presented Whether a CFP professional ( Respondent ) violated CFP Board s Standards of Professional Conduct when he: 1) helped another individual to sell away variable annuities; 2) engaged in private securities transactions without obtaining the prior approval and consent of his employer; 3) shared commissions without the prior approval and consent of his employer; and 4) purchased new variable annuities for his clients without first processing 1035 Exchanges for the old variable annuities, thereby creating a taxable event and potentially exposing his clients to higher capital gains taxes. II. Findings of Fact Relevant to the Commission s Decision 2011 Securities Firm Termination According to Respondent s BrokerCheck record, Securities Firm terminated him in June 2011 for violating Securities Firm s policies and procedures by sharing commissions with a registered representative from another firm without Securities Firm s approval. According to Respondent, Person 1, a relative he has known for many years, approached him and asked him to execute transactions through S Securities Firm. Person 1 claimed the transactions could not be executed through Investment Firm, Person 1 s firm. In his May 2012 response to the NOI, Respondent admitted to executing the transactions without obtaining the prior approval and consent of Securities Firm, and helping Person 1 sell away from Investment Firm. Respondent stated that although he originally agreed to help Person 1 with the first trade because of restrictions Investment Firm had on a particular customer, Respondent continued to execute transactions that Person 1 referred to him for several years thereafter. Respondent also stated that he did not inquire into Person 1 s reasons for the subsequent transactions. Respondent did not explain why he did not question Person 1 about the reasons for the subsequent transactions. 104

105 According to Person 1 s BrokerCheck record, in June 2011, Investment Firm terminated Person 1 for participating in selling away activities by sharing commissions with a Respondent in violation of Financial Industry Regulatory Authority, Inc. ( FINRA, formerly known as the National Association of Securities Dealers or NASD ) Rule Person 1 had clients take substantial withdrawals from existing variable annuities to purchase new variable annuities at Securities Firm, through Respondent, without processing 1035 Exchanges. Person 1 and Respondent split commissions on the new annuity purchases without notification to Investment Firm or Securities Firm. In July 2011, FINRA opened an inquiry into the 2011 Securities Firm Termination by mailing to Respondent a request for information related to the Termination. Respondent responded to FINRA s Inquiry letter in July In his response, Respondent stated that Person 1 informed him that each new annuity referred to Respondent was being purchased with new money, and was not funded by withdrawals from another variable annuity. Respondent stated that he subsequently learned that in at least one case there had been a withdrawal from a variable annuity some weeks before Person 1 referred the business to him. According to Respondent, he conducted due diligence regarding the suitability of the variable annuities for the clients by reviewing the applications Person 1 provided to him. Respondent stated that customers were not impacted as a result of the transactions. According to Person 1 s BrokerCheck record, however, Person 1 had the clients make withdrawals from existing variable annuities to purchase new variable annuities without processing 1035 Exchanges for the clients. Person 1 s failure to process 1035 Exchanges for the clients likely created taxable events for the clients following their withdrawals from their existing variable annuities and prior to purchasing the new variable annuities through Securities Firm. Respondent did not explain whether these surrenders negatively affected the clients or how he avoided creating capital gains taxable events without processing the 1035 Exchanges. According to Respondent, he executed the transactions at Securities Firm and returned almost all commissions made on the transactions to Person 1, except a percentage that he retained for taxes incurred on the transactions. Person 1 s BrokerCheck record indicates Person 1 split the commissions earned on the transactions with Respondent outside of Securities Firm. Respondent s provided two spreadsheets, which revealed that Respondent and Person 1 s selling away activities/private securities transactions began in January 2003 and ended in November In total, Respondent sold approximately $1,800,000 in annuities during this period of time. The total gross commissions on the sales of the annuities in the two spreadsheets were approximately $120,000. The total gross commissions retained by Respondent were approximately $54,000. The spreadsheet indicates that after paying approximately $53,000 in taxes, Respondent retained approximately $1,000 for himself. 105

106 2012 FINRA Letter of Acceptance, Waiver and Consent ( AWC ) In October 2012, Respondent submitted an AWC to FINRA, and in November 2012, FINRA s Office of Disciplinary Affairs accepted the AWC. According to the AWC, from January 2006 through November 2010, Person 1 recommended and sold variable annuities totaling approximately $1.4 million to 13 customers. After meeting with the customers and completing the annuity applications, Person 1 forwarded the documents to Respondent to process the as the registered representative of record. Respondent paid Person 1 50% of the net commissions generated from the annuity sales an Respondent paid Person 1 approximately $50,000 in commissions. Respondent did not inform Securities Firm of his commission-sharing arrangement with Person 1. According to the AWC, by paying commissions to another registered representative, Respondent violated NASD Conduct Rule 2110 for conduct prior to December 2008, and FINRA Rule 2010 for conduct after December Without admitting or denying the findings, Respondent consented to a three-month suspension from association with any FINRA member firm and a $5,000 fine. According to Respondent s BrokerCheck record, Respondent s suspension was in effect from December 2012 through March III. Commission s Analysis and Conclusions Regarding Rule Violations A. 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 making a false or misleading statement to the client, employer, employee, professional colleague, governmental or other regulatory body or official, or any other person or entity. Based on Respondent s admission during his testimony, the Commission determined that from 2003 to 2008, Respondent engaged in conduct involving dishonesty, fraud, deceit or misrepresentation when he: 1) helped Person 1 to sell away variable annuities from Investment Firm; 2) engaged in private securities transactions with Person 1 without obtaining the prior approval and consent of Securities Firm; and 3) shared commissions with Person 1 without the prior approval and consent of Securities Firm. Thus, respondent violated Code of Ethics Rule 102. B. Rule 201 A CFP Board designee shall exercise reasonable and prudent professional judgment in providing professional services. Based on Respondent s admission during his testimony, the Commission determined that Respondent failed to exercise reasonable and prudent professional judgment in providing professional services when he agreed to: 1) help Person 1 to sell away variable annuities from Investment Firm; 2) engage in private securities transactions with Person 1 without obtaining the prior approval and consent of Securities Firm; and 3) share commissions with Person 1 without the prior approval and consent of Securities Firm. Thus, 106

107 Respondent violated Code of Ethics Rule 201. C. Rule 406 A CFP Board designee who is an employee shall perform professional services with dedication to the lawful objectives of the employer and/or in accordance with the Code of Ethics. Based on Respondent s admission during his testimony, the Commission determined that from 2003 to 2008, Respondent failed to perform professional services with dedication to the lawful objectives of his employer and in accordance with the Code of Ethics by violating Securities Firm policy when he: 1) purchased variable annuities for customers referred by Person 1 without obtaining the prior approval and consent of Securities Firm; and 2) shared commissions with Person 1 without the prior approval and consent of Securities Firm. Thus, Respondent violated Code of Ethics Rule 406. D. Rule 407(a) A CFP Board designee shall advise his or her employer of outside affiliations which reasonably may compromise service to an employer. Based on Respondent s admission during his testimony, the Commission determined that from 2003 to 2008, Respondent failed to advise Securities Firm of outside affiliations that might compromise his service when he failed to inform Securities Firm of: 1) his selling away activities with Person 1; 2) the variable annuities purchases referred by Person 1; and 3) the shared commissions with Person 1. Thus, Respondent violated Code of Ethics Rule 407(a). E. Rule 408 A CFP Board designee shall inform one s employer, partners or co-owners of compensation or other benefit arrangements in connection with one s services to clients, which are in addition to compensation from the employer, partners or co-owners for such services. Based on Respondent s admission during his testimony, the Commission determined that Respondent failed to inform his employer of compensation or other benefit arrangements in connection with his services to clients when he failed to notify Securities Firm of his commission-sharing arrangement with Person 1. Thus, Respondent violated Code of Ethics Rule 408. F. Rule 606(a) A CFP Board designee shall perform services in accordance with applicable laws, rules and regulations of governmental agencies and other applicable authorities. Based on Respondent s admission during his testimony, the Commission determined that from 2003 to 2008, Respondent failed to perform services in accordance with applicable laws, rules and regulations of governmental agencies and other applicable authorities when he violated Securities Firm s policies and procedures by sharing commissions with Person 1 without Securities Firm s approval, in violation of NASD Conduct Rule Thus, Respondent violated Code of Ethics Rule 606(a). 107

108 G. Rule 606(b) A CFP Board designee shall perform services in accordance with applicable rules, regulations and other established policies of CFP Board Based on Respondent s admission during his testimony, the Commission determined that from 2003 to 2008, Respondent failed to perform services in accordance with applicable rules, regulations and other established policies of CFP Board when he: 1) helped Person 1 to sell away variable annuities from Investment Firm; 2) engaged in private securities transactions with Person 1 without obtaining the prior approval and consent of Securities Firm; 3) shared commissions with Person 1 without the prior approval and consent of Securities Firm; and 4) purchased new variable annuities for his clients without first processing 1035 Exchanges for the old variable annuities, thereby creating a taxable event and potentially exposing his clients to higher capital gains taxes. Thus, Respondent violated Code of Ethics Rule 606(b). H. Rule 607 A CFP Board designee shall not engage in conduct which reflects adversely on his or her integrity or fitness as a CFP Board designee, upon the marks, or upon the profession Based on Respondent s admission during his testimony, the Commission determined that from 2003 to 2008, Respondent engaged in conduct that reflects adversely on his integrity and fitness as a CFP professional, upon the marks and upon the profession when he: 1) helped Person 1 to sell away variable annuities from Investment Firm; 2) engaged in private securities transactions with Person 1 without obtaining the prior approval and consent of Securities Firm; and 3) shared commissions with Person 1 without the prior approval and consent of Securities Firm. Thus, Respondent violated Code of Ethics Rule 607. I. Rule 701 A CFP Board designee shall provide services diligently Based on Respondent s admission during his testimony, the Commission determined that from 2003 to 2008, Respondent failed to provide services diligently when he purchased new variable annuities for his clients without first processing 1035 Exchanges for the old variable annuities, thereby creating a taxable event and potentially exposing his clients to higher capital gains taxes. Thus, Respondent violated Code of Ethics Rule 701. J. Rule 4.1 A certificant shall treat prospective clients and clients fairly and provide professional services with integrity and objectivity Based on Respondent s admission during his testimony, the Commission determined that from 2009 to 2010, Respondent failed to treat his clients fairly and provide professional services with integrity and objectivity when he: 1) purchased new variable annuities for the clients without first processing 1035 Exchanges for the old variable annuities, thereby creating a taxable event and potentially exposing his clients to higher capital gains taxes; 2) helped Person 1 to sell away variable annuities from Investment Firm; 3) engaged in private securities transactions with Person 1 without obtaining the prior approval and consent of Securities Firm; and 4) shared commissions with Person 1 without the prior 108

109 approval and consent of Securities Firm. Thus, Respondent violated Rules of Conduct Rule 4.1. K. Rule 4.3 A certificant shall comply with applicable regulatory requirements governing professional services provided to the client Based on Respondent s admission during his testimony, the Commission determined that from 2009 to 2010, Respondent failed to comply with applicable regulatory requirements governing professional services provided to the client when he: 1) engaged in private securities transactions with Person 1 without obtaining the prior approval and consent of Securities Firm; and 2) shared commissions with Person 1 without the prior approval and consent of Securities Firm, in violation of firm policy and FINRA Rule Thus, Respondent violated Rules of Conduct Rule 4.3. L. Rule 4.4 A certificant shall exercise reasonable and prudent professional judgment in providing professional services to clients Based on Respondent s admission during his testimony, the Commission determined that from 2009 to 2010, Respondent failed to exercise reasonable and prudent professional judgment in providing professional services to clients when he: 1) purchased new variable annuities for the clients without first processing 1035 Exchanges for the old variable annuities, thereby creating a taxable event and potentially exposing his clients to higher capital gains taxes; 2) helped Person 1 to sell away variable annuities from Investment Firm; 3) engaged in private securities transactions with Person 1 without obtaining the prior approval and consent of Securities Firm; and 4) shared commissions with Person 1 without the prior approval and consent of Securities Firm. Thus, Respondent violated Rules of Conduct Rule 4.4. M. Rule 4.5 A certificant shall make and/or implement only recommendations that are suitable for the client. Based on Respondent s admission during his testimony, the Commission determined that from 2009 to 2010, Respondent failed to make and/or implement only recommendations that were suitable for his clients when he purchased new variable annuities for the clients without first processing 1035 Exchanges for the old variable annuities, thereby creating a taxable event and potentially exposing his clients to higher capital gains taxes. Thus, Respondent violated Rules of Conduct Rule 4.5. N. Rule 5.1 A certificant shall perform professional services with dedication to the lawful objectives of the employer/principal and in accordance with CFP Board s Code of Ethics. Based on Respondent s admission during his testimony, the Commission determined that from 2009 to 2010, Respondent failed to perform professional services with dedication to the lawful objectives of his employer and in accordance with CFP Board s Code of Ethics 109

110 when he: 1) purchased variable annuities for customers referred by Person 1 without obtaining the prior approval and consent of Securities Firm; and 2) shared commissions with Person 1 without the prior approval and consent of Securities Firm. Thus, Respondent violated Rules of Conduct Rule 5.1. O. Rule 6.5 A certificant shall not engage in conduct which reflects adversely on his or her integrity or fitness as a certificant, upon the CFP marks, or upon the profession. Based on Respondent s admission during his testimony, the Commission determined that from 2009 to 2010, Respondent engaged in conduct that reflects adversely on his integrity and fitness as a CFP professional, upon the CFP marks and upon the profession when he: 1) purchased new variable annuities for the clients without first processing 1035 Exchanges for the old variable annuities, thereby creating a taxable event and potentially exposing his clients to higher capital gains taxes; 2) helped Person 1 to sell away variable annuities from Investment Firm; 3) engaged in private securities transactions with Person 1 without obtaining the prior approval and consent of Securities Firm; and 4) shared commissions with Person 1 without the prior approval and consent of Securities Firm. Thus, Respondent violated Rules of Conduct Rule 6.5. IV. Discipline Imposed Article 3(a) of CFP Board s Disciplinary Rules and Procedures ( Disciplinary Rules ) provides grounds for discipline for any act or omission that violates the Code of Ethics and/or Rules of Conduct. The Commission found grounds for discipline under Article 3(a) because Respondent violated Rules 102, 201, 406, 407(a), 408, 606(a), 606(b) and 607 of the Code of Ethics and Rules 4.1, 4.3, 4.4, 4.5, 5.1 and 6.5 of the Rules of Conduct. Pursuant to Article 4.3 of the Disciplinary Rules, the Commission issued a three-year suspension. While considering the degree of sanction to impose, the Commission consulted Anonymous Case Histories ( ACH ) and The Commission also consulted Sanction Guidelines 7 (Conflict of Interest), 11 (Diligence), 12 (Employer Policies Violation), 20 (Fraud, Misrepresentation or Deceit), 30 (Securities Law Violation), 31 (Suitability Violation) and 33 (Professional discipline as defined in Article 13.6 involving a suspension for more than one calendar month and less than three calendar months). The Commission determined that Respondent s conduct was substantially similar to ACH 22986, which resulted in a four-year suspension. The panel determined to mitigate that sanction slightly due to the mitigating factors considered below. The Commission, however, was concerned that Respondent s conduct happened over an extended period of time and was intentionally designed to avoid detection by compliance. The Commission cited the following mitigating factors: 1. Respondent cooperated fully with FINRA and CFP Board during the investigation; 110

111 2. Prior to the conduct at issue, the last regulatory matters on Respondent s record are from 1988; 3. Respondent admitted to the conduct during the hearing and was contrite and remorseful; Respondent s intent was to assist his cousin rather than to gain financially. The Commission cited the following aggravating factors: 1. One of the annuities Respondent sold resulted in a customer complaint; 2. Respondent s conduct extended over an eight-year period; 3. Respondent s conduct appeared to be designed to circumvent compliance procedures; 4. Respondent s employer terminated him due to his conduct; 5. Respondent indicated during his testimony that if he and his cousin did not get caught that he would still be engaging in the conduct. 111

112 Appendix B Anonymous Case Histories Case Number This is a summary of a decision issued following the February 2011 hearings of the Disciplinary and Ethics Commission ( Commission ) of Certified Financial Planner Board of Standards, Inc. ( CFP Board ). The conduct at issue in this case occurred prior to January 1, The Rules in effect at that time under the Code of Ethics and Professional Responsibility ( Code of Ethics ) were Rules 101 through 705. I. Issue Presented Whether a CFP registrant ( Respondent ) demonstrated rehabilitation by clear and convincing evidence that he complied with all disciplinary orders and provisions of the Disciplinary Rules and Procedures ( Disciplinary Rules ) and is, once again, fit to use the CFP, CERTIFIED FINANCIAL PLANNER, and certification marks ( CFP marks ). II. Findings of Fact Relevant to the Commission s Decision In December 2008, CFP Board suspended Respondent s right to use the CFP marks for two years. The suspension was related to a State Office of Financial Institutions ( State ) complaint filed against Respondent and his company ( Company ), which was ultimately settled in January In January 2008, CFP Board filed a complaint against Respondent based on the State Settlement Agreement and Order. In March 2008, Respondent appeared before a hearing panel of the Disciplinary and Ethics Commission ( Commission ). The Commission found that Respondent: 1) made misrepresentations to clients regarding his fee structure; 2) commingled client funds with his personal funds; 3) offered advice in an area in which he had little or no competence; 4) failed to disclose conflicts of interests to his clients; and 5) failed to provide services In February 2011, Respondent petitioned the Board for reinstatement of his right to use the CFP marks. III. Commission s Analysis and Conclusions Regarding Petition for Reinstatement After a hearing and careful consideration of the evidence in Respondent s case, the Commission determined to grant Respondent s petition for reinstatement. The Commission found that Respondent proved by clear and convincing evidence that he was fit to use the CFP marks. The Commission determination that Respondent proved he 112

113 had been rehabilitated, complied with all applicable disciplinary orders and provisions of the Disciplinary Rules and Procedures, and was fit to use the CFP marks. In reaching its decision, the Commission considered two recent civil suits, one filed in the First State and the other in the Second State, by the beneficiaries of the estate of a client, for which Respondent served as executor. The Commission relied on documentation submitted by Respondent indicating that he and the beneficiaries entered into a settlement agreement, which resulted in the dismissal of the suit in the First State. Respondent informed the Commission that he intended to use the same settlement agreement to seek a dismissal of the civil suit in the Second State. The Commission informed Respondent that CFP Board reserved the right to open a new investigation regarding the Second State Civil Suit upon receiving any new information that could, if true, give rise to a violation of the Standards of Professional Conduct The Commission considered as a mitigating factor the number of recommendations Respondent received from his clients. The Commission considered no aggravating factors. 113

114 Appendix B Anonymous Case Histories Case Number This is a summary of a Settlement Agreement entered into at the October 2013 hearings of the Disciplinary and Ethics Commission ( Commission ) of Certified Financial Planner Board of Standards, Inc. ( CFP Board ). The conduct at issue in this case occurred after January 1, The Rules in effect at that time under the Rules of Conduct were Rules 1.1 through 6.5. I. Issues Presented Whether a CFP professional ( Respondent ) violated CFP Board s Standards of Professional Conduct when he engaged in unlicensed investment advisory activity by: 1) providing discretionary, fee-based investment advisory services to clients; 2) preparing a financial plan for a client for compensation and 3) receiving compensation for soliciting at least 16 investment advisory clients. II. Findings of Fact In May 2013, State sent an to CFP Board regarding a consent order Respondent executed with State ( 2013 State Consent Order ). State attached a copy of the executed 2013 State Consent Order to her . CFP Board opened an investigation into the matter on the same day. In June 2013, CFP Board mailed a Notice of Investigation ( NOI ) to Respondent requesting information and documents related to the 2013 State Consent Order. Respondent responded to the NOI in July 2013 by providing the following documents: 1) a statement; 2) a copy of the 2013 State Consent Order; 3) a Letter of Undertaking, Plan and Agreement for Heightened Supervision ( Heightened Supervision Agreement ) executed with Firm; and 4) a copy of Firm s letter to State regarding Respondent s license and the Heightened Supervision Agreement. In July 2013, during a routine background check, CFP Board discovered that Respondent s former firm terminated Respondent s services in May In July 2013, CFP Board sent a request for additional information ( RFAI ) to Respondent. The RFAI requested information related to the 2013 Termination by Respondent s former firm and additional information related to the 2013 State Consent Order. Respondent responded to the RFAI in July Prior CFP Board Investigation In September 2002, CFP Board opened an investigation into Respondent that involved conduct substantially similar to Respondent s conduct in the above referenced matters. 114

115 After a hearing, the Board of Professional Review ( BOPR ), predecessor to the Disciplinary and Ethics Commission ( Commission ), accepted Respondent s settlement offer and issued him a Private Censure in June The Commission considered CFP Board s prior investigation, as summarized below, in arriving at its decision. In Respondent s September 2002 initial application for CFP certification, Respondent disclosed his involvement in three matters that arose from Respondent s former employer s allegations that Respondent improperly used the firm s portfolio analysis system and provided his client with incorrect portfolio analyses regarding mutual fund investments. In September 2001, Respondent s former employer began an Internal Review of Respondent in connection with a customer complaint filed by Client A and B. At the conclusion of its Internal Review, Respondent s former employer determined that Respondent improperly used its portfolio system when he gave Client A incorrect portfolio analyses regarding his mutual fund investments. Consequently, Respondent s former firm terminated Respondent in September In October 2001, State issued to Respondent a Notice of Intent to Revoke License ( 2001 Notice ) as a result of his conduct in providing incorrect portfolio analyses to Client A regarding his mutual fund investments. The 2001 Notice asserted the following: 1. By giving the Clients A and B fictitious statements and misrepresenting the value of their portfolio Respondent committed fraud in violation of State law. 2. Respondent s activities with Clients A and B constituted unlawful, unethical and dishonest conduct and practice in the securities business in violation of State law, and were contrary to the public interest and were therefore grounds for revocation and bar of his State securities license. 3. Respondent made untrue statements of material fact and further committed fraud and deceit in connection with the offer, sale and purchase of securities in violation of State law, both of which constituted grounds for revocation, bar and civil penalty. In December 2001, Respondent entered into a Consent Order with State ( 2001 State Consent Order ). Respondent acknowledged that State had a good faith basis to assert the claims set forth in the 2001 Notice and substantial evidence to support the allegations contained in the notice. Accordingly, Respondent consented to a three-month suspension of his State securities license, beginning September 2001 and continuing until December 2001, and upon reinstatement, Respondent s license would be subject to the following restrictions for two years: a. A prohibition against acting in any principal, supervisory or managerial capacity for a broker-dealer or investment adviser; b. A requirement to promptly report all investigations, proceedings and customer complaints against him to state; 115

116 c. A prohibition against exercising discretionary authority in customer accounts without State s prior written consent; d. A requirement for enhanced supervision by Respondent s broker-dealer by a person licensed with or qualified in State; e. A requirement for Respondent to keep Maine informed of the name of the individual responsible for his supervision; and f. A requirement that any account Respondent handles will first be subject to the approval of the branch manager or a principal of the broker-dealer. In July 2002, the Stock Exchange, Inc. s ( SE ) Division of Enforcement issued charges against Respondent, generally adopting allegations set forth in the Clients A and B customer complaint filed with Respondent s former employer. In February 2002, following a hearing, the SE determined that Respondent was guilty of violating SE Exchange Rules in that he engaged in conduct inconsistent with just and equitable principles of trade, by providing a customer with reports which contained misleading information regarding the customer s account. Consequently, an SE hearing panel unanimously voted to censure and bar Respondent from membership, allied membership, approved person status, and from employment or association in any capacity with any member or member organization for three weeks. As a result of Respondent s conduct, he: 1) was terminated by Respondent s former employer; 2) entered into a consent order with State that included a three-month suspension of his State Securities License and a two-year restricted license; and 3) was censured and barred from membership in the SE for a three-week period for violating SE Exchange Rules by providing a customer with reports that contained misleading information regarding the customer s account State Consent Order Respondent entered into a Consent Order with Maine in April During a July 2013 teleconference with State, they informed CFP Board that Respondent was represented by counsel during the State Investigation. State also informed CFP Board that Respondent s attorney was present for their On-the-Record ( OTR ) Interview with Respondent, which was recorded and transcribed. During CFP Board s investigation of Respondent, CFP Board requested certain information from Respondent that he stated were no longer in his possession since his termination from Firm A. Respondent did not state whether he requested copies of those documents from his attorney of record during the State Investigation. Respondent consented to the 2013 State Consent Order without admitting or denying the Conclusions of Law set forth in the Order. However, it should be noted that Respondent did admit to the Findings of Fact detailed in the 2013 State Consent Order, and agreed that the consent order has the same preclusive effect as an order issued pursuant to a hearing. 116

117 Respondent, a State resident, was licensed in State as an agent for Firm A. In October 2010, Respondent applied for a State investment adviser representative ( IAR ) license. Because Firm A s application for licensure in State as an investment adviser ( IA ) firm was still pending during the relevant period of the alleged conduct, Respondent s IA license application remained deficient and was never approved. Respondent, however, stated that he applied for registration as an IAR and registered representative with Firm A in July In August 2010, his supervisor informed him that he had the green light to do business in State. Respondent stated that he assumed that his supervisor s statement applied to all lines of business for which he had applied. Respondent also stated that in August or September 2010, Firm A provided him with documents to open fee-based accounts and required him to obtain discretionary trading agreements with all his fee-based clients. Respondent sated that at approximately the same time, Firm A executed a selling agreement with CC, an SEC-regulated IA firm that provides turnkey managed portfolios for investment advisory clients. Respondent also stated he believes Firm A attested to being a registered IA firm in its selling agreement with CC. During the July 2013 teleconference with State, CFP Board asked them about the license approval process. CFP Board asked if State typically notified applicants in writing that their license had been approved. State responded that it does not notify applicants in writing when a license is approved, but applicants learn about the status of their application by monitoring the Financial Industry Regulatory Authority ( FINRA ) Central Registration Depository s ( CRD ) Web site to determine the approval status of their license. Respondent has been previously registered as an IAR with several other investment advisory companies. According to Respondent, he was shocked when his supervisor informed him, during the first half of 2011, that he was not properly registered as an IAR. Thereafter, Firm A stopped approving new business for Respondent with CC, but continued to collect their share of fees charged by CC. Firm A later instructed Respondent to send fee-based brokerage agreements to all clients that had previously executed investment advisory feebased agreements with him. Respondent stated that in July 2011, a team of State examiners arrived at his office, but all their findings following the examination were referred directly to Firm A. Respondent was not informed of the results of the examination. Respondent further stated that he no longer had access to any of the documents related to the examination. According to the 2013 State Consent Order, Respondent provided fee-based services to at least nine Firm A clients pursuant to the terms of an investment advisory agreement. Respondent also had each client execute a limited discretionary trading authorization during the period August 2010 through October Additionally, from approximately September 2010 through March 2013, CC compensated Respondent for his solicitation of at least 16 State investment advisory clients. Respondent provided ongoing services to the 16 clients following the referral of 117

118 the clients to CC, including regular meetings concerning asset allocation and investment objectives. From January 2011 through May 2011, Respondent specifically provided financial planning services for compensation in State to an individual ( Client C ) who resided in France. According to the 2013 State Consent Order, Respondent: 1. entered into a financial planning agreement with Client C; 2. communicated with Client C via telephone and from State regarding the financial plan; 3. prepared and delivered a completed financial plan to Client C from State; and 4) accepted 4. compensation from Client C for preparing the financial plan. Respondent directed Client o provide the retainer fee for the financial plan directly to him and did not share the compensation he received from Client C with Firm A. According to Respondent, he entered into a written financial planning agreement with Client C in The client maintained part-time residences in France and the United States. Respondent billed the client for the financial plan through a consulting firm approved by Firm A as an outside business activity. Respondent stated that he provided investment recommendations, not covered by the financial planning agreement, to the client in a separate letter on Firm A letterhead. This resulted in the sale of an annuity contract to the client. The State Uniform Securities Act makes it unlawful for an individual to transact business in State as an IAR unless he or she is licensed. Respondent engaged in unlicensed activity as an IAR for Firm A when he: a) provided discretionary fee-based investment advisory services to at least nine Firm A clients; b) prepared one financial plan for compensation; and c) received compensation for his solicitation of at least 16 State clients for CC. Pursuant to the 2013 State Consent Order, Respondent agreed to: 1) pay a $15,000 civil fine; 2) attend remedial training approved by the State on the use of discretion; and 3) be subject to heightened supervision for a two-year period for any current license held by Respondent and a two-year period for any future license beginning on the effective date on that license. Respondent s two-year period of heightened supervision for his current broker-dealer license began in April 2013, the date the 2013 State Consent Order was fully-executed. The terms of the heightened supervision imposed against Respondent were severe and included: a. precluding Respondent from acting in any principal, supervisory, or managerial capacity for a broker-dealer or investment adviser; 118

119 b. imposing mandatory bi-annual inspections of Respondent s branch office and implementing system of adequate supervisory controls over the branch office designed to ensure appropriate oversight; c. requiring Respondent to give written notification to State of any securities, insurance or financial industry-related complaint or investigation against him within 15 days of learning of the matter; d. precluding Respondent from exercising trading authority in any fee-based accounts and being compensated for soliciting IA clients for other IA firms; e. requiring any firm with which Respondent is associated to assign an appropriately State-licensed individual approved by the Securities Administrator as Respondent s supervisor; f. requiring Respondent s supervisor to contact at least three randomly selected State fee-based clients on a monthly basis to confirm that Respondent is not exercising discretion and conducting a review of all documentation requiring client signatures to ensure that the documentation is complete and contain original signatures; g. precluding Respondent from collecting any outstanding fees for his solicitation of IA clients during the period of his unlicensed activity; and h. requiring Respondent to obtain the written agreement of his broker-dealer and/or IA to the supervisory conditions contained in the 2013 State Consent Order. According to State, its investigation of Firm A is still pending. As a result of the pendency, CFP Board was been unable to obtain documents related to State s investigation of Firm A Firm A Termination In May 2013, Firm A terminated Respondent for violating the firm s policies as a personal trustee when he accepted a fee for financial planning which was not approved and for discretionary trading of clients accounts. Respondent resigned from Firm A effective May 2013 after Firm A informed him that they would terminate him for failing to agree to their terms for continued employment through June Respondent received a termination letter from Firm A, but destroyed the letter after Firm A s Chief Compliance Officer informed him that a new letter would be forthcoming to correct certain inaccuracies in the original. Firm A terminated Respondent for cause, contrary to their agreement, because of the protracted negotiations between the attorneys regarding the terms of the proposed release agreement. Respondent attempted to terminate his employment with Firm A effective immediately (although Firm A had already terminated him) and demanded payment of all amounts due to Respondent, including commissions. 119

120 III. Rule Violations A. Rule 4.3 violation A certificant shall be in compliance with applicable regulatory requirements governing professional services provided to the client. State law made it unlawful from an individual to transact business in State unless he or she is licensed as an IAR. Respondent failed to comply with applicable regulatory requirements when he engaged in unlicensed activity by: 1) providing discretionary, fee-based investment advisory services to at least nine Firm A clients; 2) preparing one financial plan for compensation; and 3) receiving compensation from CC for his solicitation of at least 16 State clients. Thus, Respondent violated Rule 4.3 of CFP Board s Rules of Conduct. IV. Discipline Imposed Article 3(a) of CFP Board s Disciplinary Rules provides grounds for discipline for any act or omission that violates the Rules of Conduct. The Commission found grounds for discipline under Article 3(a) because Respondent violated Rule 4.3 of the Rules of Conduct. The Commission and Respondent entered into a Settlement Agreement in which Respondent consented to the Findings of Fact and Rule Violations. Based on the terms of the Settlement Agreement, the Commission issued to Respondent a Public Letter of Admonition, pursuant to Article 4.2 of the Disciplinary Rules. In mitigation, the Commission considered 1. State issued Respondent an investment adviser representative license after the State disciplinary action; and 2. Respondent did not intend to act as an unlicensed investment adviser representative and was not informed that his license had not been approved. The Commission considered the following aggravating factors: 1. Respondent received a $15,000 fine from State and was still under heightened supervision at the time of the hearing; 2. Respondent had prior conduct resulting in a 2002 suspension from State and a Private Censure from CFP Board in 2003; and 3. Respondent provided investment advisory services to multiple clients while he was unlicensed. The Commission did not find that this was a pattern of conduct, however, because the misconduct all stemmed from the singular event of Respondent s failure to receive his investment advisor representative license. In arriving at its decision, the Commission consulted Anonymous Case History and Sanction Guidelines 12 (Employer Policies Violation), 27 (Practicing Without a Professional License), 30 (Securities Law Violation) and 32 (Professional Discipline as defined in Article 13.6 involving a suspension for up to one calendar month). 120

121 Appendix C Notices to CFP Professional Notice to CFP Professionals: Importance of Accurate Compensation Disclosures August 7, 2013 Background This notice provides an important reminder that CFP professionals are required to disclose to clients and prospective clients information concerning the CFP professional s compensation. The purpose of this Notice is to remind CFP professionals of both the scope of the term compensation and the obligation to make accurate disclosures of compensation methods on all public websites, including on related-party websites, public search engines, and public disclosure forms, including Form ADV. Disclosures of compensation methods must remain accurate throughout each client relationship. What Constitutes Compensation? The Rules of Conduct require CFP professionals to disclose to clients and prospective clients certain information concerning the CFP Professional s compensation. In the terminology section set forth on page 4 of the Standards of Professional Conduct, CFP Board defines compensation as any non-trivial economic benefit, whether monetary or non-monetary, that a certificant or related party receives or is entitled to receive for providing professional activities. Therefore, in addition to informing a client or prospective client of the compensation that the CFP professional receives or is entitled to receive for providing professional activities, a CFP professional is required to disclose the compensation that a related party, such as the CFP professional's employer, receives or is entitled to receive for providing professional activities. This includes: Compensation that the CFP professional receives or is entitled to receive from a client or prospective client for providing professional activities; Compensation that related parties, such as the CFP professional s employer, receives or is entitled to receive from a client, prospective client, or other source for providing professional activities; and Compensation the CFP professional receives or is entitled to receive from related parties, such as the CFP professional s employer or other sources, for providing professional activities. 121

122 Note that as set forth in the compensation definition, compensation includes any nontrivial economic benefit, whether monetary or non-monetary. As a general rule, CFP Board considers as non-trivial any consideration received in exchange for providing professional activities. That includes, for example, consideration received for a recommendation provided by the CFP professional or a related party. In addition, compensation includes non-trivial economic benefits that a certificant or related party receives or is entitled to receive. Thus, a CFP professional is required to disclose all compensation that may result from the provision of professional activities. This includes, for example, first year commissions, renewal commissions in subsequent years, 12b-1 fees, and compensation that may result from a client referral agreement. Disclosure of Compensation Method CFP Board s Find a CFP Professional search engine allows a member of the public to determine how a CFP professional describes his/her compensation method as either Commission and Fee, Commission Only, Fee-only or Salary. The terms Commission, Fee-only, Commission and Fee, and Salary are discussed below. Commission In the Standards of Professional Conduct, CFP Board defines Commission as compensation generated from a transaction involving a product or service and received by an agent or broker, usually calculated as a percentage on the amount of his or her sales or purchase transactions. This includes 12b-1 fees, trailing commissions, surrender charges and contingent deferred sales charges. If the CFP professional or a related party receives or is entitled to receive commissions for providing professional activities, the CFP professional must disclose that he/she receives commissions as part of his/her compensation. For example, if the CFP professional works for a registered investment adviser that is under common ownership with a broker-dealer, CFP Board considers the broker-dealer to be a related party. Therefore, any CFP professional working for an organization that has a broker-dealer subsidiary or affiliate must include commission as part of his/her compensation disclosure. Fee-only The fee-only definition set forth in the Standards of Professional Conduct provides that a CFP professional may describe his or her practice as fee-only if and only if, all of the certificant s compensation from all of his or her client work comes exclusively from the clients in the form of fixed, flat, hourly, percentage or performance-based fees. When read in conjunction with the definition of compensation, the fee-only description applies when the CFP professional and any related parties receive, or are entitled to receive, only fees for providing professional activities. For example, a CFP professional may work for an investment advisor that charges only fees for the CFP professional s professional activities. However, if a related party receives 122

123 commissions, the definition of fee-only is not satisfied, and the CFP professional may not describe his or her compensation as fee-only. Commission and Fee If a CFP professional and any related party receives or is entitled to receive both commissions and fees for providing professional activities, the CFP professional must disclose his or her compensation as Commission and Fee. Salary CFP Board does not define salary in the Standards of Professional Conduct. A CFP professional is required to describe his/her compensation in a manner that allows clients and prospective clients to understand how they will pay the CFP professional and any related party. Except in very limited circumstances, salary does not provide an accurate and understandable description of the compensation arrangement being offered by a CFP professional because it does not describe how the client will pay the CFP professional and any related party. Therefore, CFP Board will remove Salary from its Find a CFP Professional search engine, effective Friday, August 16, Conclusion In determining how to make compensation disclosures, a CFP professional must consider compensation to the CFP professional and any related party. The CFP professional also must include as compensation any non-trivial economic benefit that the CFP professional or any related party receives or is entitled to receive. Please note that CFP Board does not audit CFP professionals to verify the accuracy of their compensation disclosures. However, in the event that CFP Board is notified that a CFP professional has made an inaccurate compensation disclosure, CFP Board will initiate an investigation of the CFP professional's compensation disclosures. Questions? Questions concerning this Notice may be directed to Michael P. Shaw, Managing Director, Professional Standards and Legal, at or [email protected]. 123

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125 Notice to CFP Professional From: CFP Board Sent: Friday, September 20, :26 PM Subject: [ACTION REQUIRED] Your Profile in CFP Board's "Find a CFP Professional" Tool CFP Board has become aware that some CFP professionals have represented their compensation method as fee only in our Find a CFP Professional search tool despite the fact that they are affiliated with firms and related parties that receive commission compensation. To prevent consumers from receiving inaccurate information through our search tool, CFP Board has temporarily removed all fee only data from the search tool. Consumers are still able to search for CFP professionals in our search tool. Only data related to fee only compensation will be temporarily unavailable. ACTION REQUIRED: Because you have identified your compensation as fee only in our Find search tool, we are asking you to carefully review CFP Board s compensation disclosure rules and definitions and to update your search profile with the description that accurately reflects your compensation. CFP Board recently mailed to you and other CFP professionals a notice on the importance of accurate compensation disclosures. As set forth in that notice, fee only is strictly defined in CFP Board s Standards of Professional Conduct as follows: A certificant may describe his or her practice as Fee-only if, and only if, all of the certificant s compensation from all of his or her client work comes exclusively from the clients in the form of fixed, flat, hourly, percentage or performance-based fees. The fee only description is appropriate only when the CFP professional and any related parties receive, or are entitled to receive, only fees for providing professional activities. As a general rule, if you are a registered representative of a broker/dealer, are dually-registered, or are an employee of an insurance firm, your compensation may not be described as fee only. CFP professionals are responsible for disclosing their compensation consistent with our compensation disclosure rules and definitions. Should it come to our attention, subsequent to the opportunity to fully understand and comply with our rules, that a CFP professional is misrepresenting their compensation, the matter will be referred to our enforcement process. After reviewing the notice, you may then select the appropriate compensation structure for your search profile: 125

126 Log in to your CFP Board account at and access your account. Select the Update your profile link on the welcome page. Open the search profile update form by clicking the link titled Update your profile or opt-out of participating in the "Find a CFP Professional" search tool. In the Business Activities section of the form, select the appropriate compensation structure from the drop-down menu. We also ask you to verify that the contact information and demographics information in your account accurately reflect your current licensing status and firm affiliations. Please note that changes to your compensation structure may not immediately be displayed in the Find a CFP Professional search results. Thank you for taking time to update your search profile. If you have any questions about CFP Board s compensation disclosure rules and definitions, or any other aspect of CFP Board s Standards of Professional Conduct, please contact us at [email protected]. Sincerely, Michael P. Shaw, Esq. Managing Director of Professional Standards and Legal CERTIFIED FINANCIAL PLANNER BOARD OF STANDARDS, INC. [email protected] P F CFP.NET 1425 K STREET, NW #500 WASHINGTON, DC

127 CONFLICTS OF INTEREST BETWEEN CFP PROFESSIONALS AND CLIENTS I. Background In their day-to-day business, it is not uncommon for CFP professionals to face decisions about whether a particular action or circumstance constitutes a conflict of interest. In response to recent increases in the number of conflict of interest cases reviewed by CFP Board, CFP Board presents this Advisory Opinion to provide guidance to CFP professionals concerning conflicts of interest in order to help CFP professionals address conflicts of interest in compliance with CFP Board s Standards of Professional Conduct ( Standards ). II. Issue: Conflicts of Interests Between CFP Professionals and Clients i. What constitutes a conflict of interest under CFP Board s definition of conflicts of interest? ii. How and when should a CFP professional disclose a conflict of interest to a client or prospective client? III. Rules CFP Board defines conflict of interest in the Terminology section of the Standards, which states that a conflict of interest exists when a CFP professional s financial, business, property and/or personal interests, relationships or circumstances reasonably may impair his/her ability to offer objective advice, recommendations or services. Several Rules of Conduct are related to this definition: Rule 1.4 requires that a CFP professional shall at all times place the interest of the client ahead of his or her own. When the CFP professional provides financial planning or material elements of financial planning, the CFP professional owes to the client the duty of care of a fiduciary as defined by CFP Board. Rule 2.2(b) requires a CFP professional to disclose to a prospective client or client a general summary of likely conflicts of interest between the client and the CFP professional, the CFP professional s employer or any affiliates or third parties, including, but not limited to, information about any familial, contractual or agency relationship of the CFP professional or the CFP professional s employer that has a potential to materially affect the relationship. Further, Rule also imposes an ongoing obligation to disclose any conflicts of interest that arise during the course of the CFP professional-client relationship. Rule 4.1 requires a CFP professional to treat prospective clients and clients fairly and provide professional services with integrity and objectivity. 127

128 IV. Analysis i. What constitutes a conflict of interest under CFP Board s definition? According to CFP Board s definition, a conflict of interest exists when a CFP professional s financial, business, property and/or personal interests, relationships or circumstances reasonably may impair his/her ability to offer objective advice, recommendations or services. There are two key phrases in CFP Board s definition of a conflict of interest. The first key phrase is financial, business, property and/or personal interests, relationships or circumstances. These terms include not only pecuniary interests, but also familial interests and relationships, the motive to obtain professional or personal advancement or reputational benefits, such as the ability to develop or maintain a relationship with an individual or entity. For example, if the CFP professional recommends that a client purchase a private placement not because he or she will earn money from the recommendation but because he or she seeks a relationship with the issuer or underwriter of the private placement, that is a conflict of interest. The second key phrase is reasonably may impair his/her ability to offer objective advice, recommendations or services. First, CFP professionals should carefully consider whether their interests may impair their ability to offer objective advice, recommendations or services. Loyalty and independent judgment are essential elements of a CFP professional s relationship with a client. CFP professionals should clearly identify each client they are working with and determine whether the client may have any interests that conflict with the CFP professional or the CFP professional s other clients. For example, a CFP professional who advises owners of a business personally and serves as the adviser for the business may have a conflict of interest as the interests of the business may diverge from the interests of an individual owner or the individual owners relationship may become adversarial. The second key phrase does not require that the conflict of interest actually manifest itself. Rather, this definition indicates that a conflict occurs anytime financial, business, property and/or personal interests, relationships or circumstances reasonably may, or have the potential to, impair the CFP professional s ability to offer objective advice, recommendations or services. For example, if a CFP professional enters into a transaction to purchase a home from a client, there is a conflict that may impair the CFP professional s ability to offer objective advice. The CFP professional s ability to offer objective advice, recommendations or services may not actually be impaired, but there is the potential for the conflict of interest to impair the CFP professional s ability to offer objective advice, recommendations or services. ii. When and how should a CFP professional disclose a conflict of interest to a client? Rule 2.2 requires a CFP professional to disclose conflicts of interest to a client. If the conflict is apparent at the initiation of the relationship, the CFP professional should 128

129 disclose the conflict at that time. If the conflict arises later in the relationship, the disclosure should be made promptly. Generally, CFP Board will consider a disclosure to be prompt if made within 30 days of the date the CFP professional knew or should have known about the conflict of interest, unless notification prior to 30 days was necessary to avoid an adverse consequence to a client. CFP Board s rules require CFP professionals providing financial planning services to disclose all conflicts in writing. While CFP professionals who are not providing financial planning services may make conflict disclosures orally, CFP Board encourages CFP professional to make all disclosures in writing. After disclosing the conflict of interest to the client, the CFP professional may want to consider obtaining written consent from the client in which the client acknowledges the conflict of interest and consents to move forward in the CFP professional-client relationship despite the conflict of interest. CFP professionals need to consider, however, that some conflicts of interest may be such that the client is not protected by the disclosure and the CFP professional will not be able to offer objective advice, recommendations or services. In these instances, the CFP professional should end the client relationship. The examination of several case studies will be instructive to the CFP professional in navigating conflict of interest situations. Case Study 1: Conflicts of Interest When Dealing With Multiple Clients Husband and Wife retained a CFP professional to represent the couple s combined interests, although the majority of the assets in the couple s portfolio were brought to the marriage by Husband. The CFP professional advised the couple to invest the majority of the assets (over a million dollars) in an IRA in Husband s name only, with the Wife as beneficiary. The CFP professional also recommended that the residue of the couple s assets be placed in a joint checking account, to address short and medium term income needs and cash management. Because the couple was happily married at the time, this did not pose an immediate problem. Wife claimed she never knew there was a separation of ownership of the couple s assets into two separate accounts as the CFP professional had always corresponded with Husband and Wife regarding both accounts. Several years later, the couple began experiencing marital difficulties and started divorce proceedings. After divorce proceedings began, Wife wrote a check in an attempt to withdraw almost all of the funds from the joint account. CFP professional immediately contacted Husband and informed him that Wife was attempting to remove all of the money from the joint account and asked him if was willing to sell securities to cover the check. Husband indicated that he was not, and the CFP professional directed the bank not to process the check. When Wife inquired as to whether the check had cleared, CFP professional represented to Wife that the check had cleared. The CFP professional did not inform Wife that he had contacted Husband and that Husband had refused to sell any securities to allow the check to clear. 129

130 The CFP professional violated Rules 1.4, 4.1 and 4.4 by failing to: 1) communicate with both clients appropriately regarding conflicts in representing both of them after he became aware of a potential divorce; and 2) appropriately respond to Wife s inquiries and subsequent check processing by failing to inform her that Husband refused to consent to the sale of investments to cover the check. When the couple s interests diverged, a conflict of interest developed between Wife and the CFP professional due to the CFP professional s relationship with Husband, which caused the CFP professional to favor Husband. The CFP professional should have consulted his compliance department and disclosed the potential conflict with his clients. Case Study 2: Referral Conflict of Interest A CFP professional owned a dually registered firm with investment advisory and broker-dealer divisions. The CFP professional, in his capacity as a registered representative, referred clients to the investment advisory division of his firm. The CFP professional did not disclose to clients that: 1) the divisions were related and that the clients could use investment advisory services from other firms; and 2) the CFP professional had a conflict of interest in referring clients to the investment advisory division because he stood to obtain additional compensation through the firm s receipt of investment advisory fees. The CFP professional violated Rules 1.4 and 2.2(b). The CFP professional should have disclosed the conflict of interest due to the related party status of his firm s investment advisory division and clearly advised clients that they had the opportunity to seek investment advisory services from an unrelated firm. Case Study 3: Financial Conflict of Interest A CFP professional served as the president and owner of an investment advisory firm and had primary responsibility for the financial and investment services offered by the firm. The firm held a private offering to raise money for working capital, marketing, expansion of present facilities, and operating expenses. The CFP professional recommended that clients purchase shares in the private offering. Four clients purchased $2,550,000 worth of shares of the firm, which represented 12.5% of the company. The CFP professional violated Rules 1.4 and 2.2(b). The CFP professional s sale of interests in his firm constituted a conflict of interest. The conflict arose due to the CFP professional s status as the owner of the firm and an investment adviser to the clients who purchased an interest in the firm. The CFP professional should have made clear disclosures regarding the potential conflict prior to making the sale and encouraged the clients to seek out another adviser with respect to that transaction. V. Conclusion CFP professionals should carefully evaluate the potential for conflicts of interest in 130

131 each client relationship. If a conflict of interest exists, the CFP professional should evaluate whether he/she can continue to advise the client without impairing his/her ability to offer objective advice, recommendations or services. In all cases, the CFP professional must disclose the conflict. If the CFP professional believes he/she can offer objective advice despite the conflict, the CFP professional should obtain the client s informed written consent to the conflict. If, on the other hand, the CFP professional believes he/she cannot continue to offer objective advice because of the conflict, the CFP professional should end the client relationship. 131

132 Appendix D Sample Engagement Letter Name of CFP Professional Firm Name Address City, State Zip Date Client Name Address City, State Zip Dear Mr./Ms. [Client Name]: Thank you for the opportunity to meet with you. I welcome the opportunity to work with you as your financial planner. This engagement letter outlines the specific terms of the financial planning engagement between: NAME OF CFP PROFESSIONAL, CLIENT 1 and CLIENT 2 If the scope or terms of the financial planning engagement change, they should be documented in writing and mutually agreed upon by all parties to the engagement. Please be assured that all information that you provide will be kept strictly confidential. During the financial planning engagement I may, on occasion, be required to consult with other third-party professionals at which time I would obtain your written permission to disclose your personal information. As discussed during our introductory meeting, this engagement will include all services required to develop a [TYPE] plan. These services will specifically include: [CHOOSE ANY THAT APPLY DELETE ANY THAT DO NOT APPLY] Reviewing and prioritizing your goals and objectives. Developing a summary of your current financial situation, including a net worth statement, cash flow summary, and insurance analysis. Reviewing your current investment portfolio and developing an asset management strategy. 132

133 Developing a financial management strategy, including financial projections and analysis. Completing a retirement planning assessment, including financial projections of assets required at estimated retirement date. Assessing estate net worth and liquidity. Identifying tax planning strategies to optimize financial position. Presenting a written financial plan that will be reviewed in detail with you. It will contain recommendations designed to meet your stated goals and objectives, supported by relevant financial summaries. Developing an action plan to implement the agreed upon recommendations. Referral to other professionals, as required, to assist with implementation of the action plan. Assisting you with the implementation of the financial plan. Determining necessity to revise your financial plan. This will be an on-going professional relationship. At a minimum, we will meet on an annual basis to ensure the plan is still appropriate for you. [This is not intended to be an ongoing relationship. The engagement will end upon delivery of the services described above.] Either party may terminate this agreement by notifying the other in writing. Any fees incurred prior to date of termination will be payable in full. My services will be charged on a flat-fee basis [or, describe fees]. We agreed on a fee of $xxx for the first year of service. This includes development and delivery of your financial plan, unlimited communication and a review meeting in XX Please provide a check for $$$ with a signed copy of this engagement letter. An additional $$$ will be billed at the end of XX. The balance will be payable [DESCRIBE TERMS]. You agree to pay any outstanding charges in full within 15 days of billing. Please make checks payable to NAME OF FIRM. Please be advised that I do not receive a referral fee from any other professionals to whom you may be referred. [THE FOLLOWING PARAGRAPH MAY BE REDUNDANT IF ADEQUATELY COVERED IN OTHER DOCUMENTS] In order to ensure that the financial plan contains sound and appropriate recommendations, it is your responsibility to provide complete and accurate information regarding pertinent aspects of your personal and financial situation including objectives, needs and values, investment statements, tax returns, copies of wills, powers of attorney, insurance policies, employment benefits, retirement benefits, and relevant legal agreements. This list is not all-inclusive and any other relevant information should be disclosed in a timely manner. It is your responsibility to ensure that any material changes to the above noted circumstances are disclosed to me as your financial planner on a timely basis since they could impact the financial planning recommendations. 133

134 I have no known conflicts of interest in the acceptance of this engagement. [I am disclosing to you the following conflicts of interest: ]. I commit that I will advise you of any conflicts of interest, in writing, if they should arise. I acknowledge my responsibility to adhere to the standards established in CFP Board s Standards of Professional Conduct. This includes placing your interest ahead of my own when providing professional services. In addition, since this engagement includes financial planning services, I am required to act as a fiduciary as defined by CFP Board. You can learn more about CFP Board s ethical requirements at I look forward to working with you and helping you reach your financial goals. Sincerely, Name of CFP Professional CFP Professional: I accept the terms of this engagement letter. Client: I accept the terms of this engagement letter. 134

135 CONFIDENTIAL FEEDBACK CFP BOARD CODE OF ETHICS AND PROFESSIONAL RESPONSIBILITY (2014 EDITION) Date: Please feel free to use this Confidential Feedback form to submit your comments to Broker Educational Sales & Training, Inc. However, if you are using this course to meet a state education requirement, you MUST return this Confidential Feedback form with your Request for Certification form and exam materials. How would you rate this course? CONTENT Complete & accurate? Excellent Good Adequate Poor FORMAT easy to use, understandable? Excellent Good Adequate Poor How much time did it take you to complete the course? Hours Would you recommend this course to others? Yes No If you have any additional comments on this course please use the space below and be as specific as you can. (Please use back of this sheet if more space is required) Broker Educational Sales & Training Inc. relies on feedback from people like you who study our courses. We welcome both compliments and criticism. Your comments are the most direct means we have of checking the quality and effectiveness of the programs we publish. Please complete the personal information below so we can contact you if necessary. Name: Company Name: Street: City, State, ZIP: Telephone: Fax: [email protected] 135