1. Chapter 19: Ethical Responsibilities Chapter 19 Ethical Responsibilities

2.  2005 Kaplan Financial 2 Chapter 19: Ethical Responsibilities Ethics, Law, and Codes of Ethics Ethics Law Code of Ethics

3.  2005 Kaplan Financial 3 Chapter 19: Ethical Responsibilities CFP Board and the Code of Ethics CFP Board’s Board of Professional Review (BOPR) CFP Board’s Board of Governors Principles Rules CFP Board designee

4.  2005 Kaplan Financial 4 Chapter 19: Ethical Responsibilities Principle 1: Integrity Rule 101 of the Code prohibits the solicitation of clients through “false or misleading communications or advertisements.” Rule 102 prohibits “conduct involving dishonesty, fraud, deceit, or misrepresentation.”

5.  2005 Kaplan Financial 5 Chapter 19: Ethical Responsibilities Rule 103 Rule 103 establishes responsibility for a CFP Board designee regarding funds and property of clients. Commingling of funds Fiduciary responsibility

6.  2005 Kaplan Financial 6 Chapter 19: Ethical Responsibilities Principle 2: Objectivity Rule 201: “A CFP Board designee shall exercise reasonable and prudent professional judgment in providing professional services.” Rule 202: “A financial planning practitioner shall act in the interest of the client.”

7.  2005 Kaplan Financial 7 Chapter 19: Ethical Responsibilities Principle 3: Competence Rule 301: “A CFP Board designee shall keep informed of developments in the field of financial planning and participate in continuing education throughout the designee’s professional career.” Under Rule 302 a CFP Board designee must offer advice “only in those areas in which [he/she] has competence.”

8.  2005 Kaplan Financial 8 Chapter 19: Ethical Responsibilities Principle 4: Fairness Under Rule 401, a CFP Board designee shall “disclose to the client material information relevant to the professional relationship, including conflict(s) of interest,…” Rule 402 requires the financial planning practitioner to make “timely written disclosure of all material information relative to the professional relationship.”

9.  2005 Kaplan Financial 9 Chapter 19: Ethical Responsibilities Principle 4: Fairness (cont.) Rule 403 requires a CFP Board designee providing financial planning services to disclose upon request of the client the details of the financial planner’s compensation as it relates to his or her engagement. Rule 404 mandates CFP Board designees to offer the disclosures described in Rule 402 at least annually.

10.  2005 Kaplan Financial 10 Chapter 19: Ethical Responsibilities Principle 4: Fairness (cont.) Rule 405: “A CFP Board designee’s compensation shall be fair and reasonable.” Rule 406 requires all CFP Board designees to adhere to the same standards of disclosure and service. Under Rule 407, a CFP Board designee must “advise the CFP Board designees employer of outside affiliations which reasonably may compromise service to an employer…”

11.  2005 Kaplan Financial 11 Chapter 19: Ethical Responsibilities Principle 4: Fairness (cont.) Rule 408 requires CFP Board designees to inform employers of compensation in connection with their services to clients that are in addition to compensation from the employers. Rule 409 mandates designees entering into personal business transactions with clients be “fair and reasonable.”

12.  2005 Kaplan Financial 12 Chapter 19: Ethical Responsibilities Principle 5: Confidentiality Rule 501 provides that a CFP Board designee is prohibited from revealing “or use for his or her own benefit— without the client’s consent, any personally identifiable information relating to the client relationship or the affairs of the client, except and to the extent disclosure or use is reasonably necessary.”

13.  2005 Kaplan Financial 13 Chapter 19: Ethical Responsibilities Principle 5: Confidentiality (cont.) Rule 502 requires a CFP Board designee to “maintain the same standards of confidentiality to employers as to clients.” Rule 503 states that a CFP Board designee doing business as a partner of a financial services firm “owes to the [designee’s] partners…a responsibility to act in good faith.”

14.  2005 Kaplan Financial 14 Chapter 19: Ethical Responsibilities Principle 6: Professionalism Rule 601: CFP Board designees must “use the marks in compliance with the rules and regulations of the CFP Board.” Under Rule 602, designees must show respect for, and engage in fair and honorable competitive practices with other financial planning professionals.

15.  2005 Kaplan Financial 15 Chapter 19: Ethical Responsibilities Principle 6: Professionalism (cont.) Rule 603 requires a CFP Board designee who has knowledge that is not confidential that another CFP Board designee violated the Code which “raises substantial questions as to the designee’s honesty, trustworthiness or fitness as a CFP Board designee…shall promptly inform the CFP Board…” Under Rule 604, a CFP Board designee with knowledge that raises a substantial question of unprofessional, fraudulent, or illegal conduct by a CFP Board designee or other financial professional must promptly inform the appropriate regulating body.

16.  2005 Kaplan Financial 16 Chapter 19: Ethical Responsibilities Principle 6: Professionalism (cont.) If the CFP Board designee has reason to suspect illegal conduct within his/her organization, the designee must timely inform his/her immediate supervisor. If measures are not taken to remedy the situation, Rule 605 requires the designee to alert the appropriate authorities and CFP Board. Rule 606: When rendering professional activities, a CFP Board designee must perform services according to applicable laws, rules, and regulations of governmental agencies and policies of CFP Board.

17.  2005 Kaplan Financial 17 Chapter 19: Ethical Responsibilities Principle 6: Professionalism (cont.) Rule 607 prohibits CFP Board designees from engaging in any conduct that reflects adversely upon the CFP ® mark or upon the profession. Rule 608 deals with registered investment advisers. Rule 609 forbids designees from practicing any other profession unless he/she is qualified to practice in that field.

18.  2005 Kaplan Financial 18 Chapter 19: Ethical Responsibilities Principle 6: Professionalism (cont.) Rule 610 mandates that CFP Board designees return clients’ original records timely upon request. Under Rule 611, a designee is prohibited from bringing disciplinary proceedings “for no substantial purpose other than to harass…another CFP Board designee.” Rule 612 commands designees to comply with CFP Board’s post certification requirements.

19.  2005 Kaplan Financial 19 Chapter 19: Ethical Responsibilities Principle 7: Diligence Under Rule 701, a CFP Board designee “shall provide services diligently.” Rule 702: A financial planning practitioner shall enter into an engagement by a client only after determining that the relationship is warranted by the client’s needs.

20.  2005 Kaplan Financial 20 Chapter 19: Ethical Responsibilities Principle 7: Diligence Rule 703 directs a CFP Board designee to “make and/or implement only recommendations which are suitable for the client.” Under Rule 704, the designee is required to “make a reasonable investigation regarding the financial products recommended to clients.” Rule 705: A CFP Board designee must properly “supervise subordinates with regard to their delivery of…services…”

21.  2005 Kaplan Financial 21 Chapter 19: Ethical Responsibilities Disciplinary Rules and Procedures “The Procedures” are the rules and regulations for disciplinary proceedings against CFP Board designees. A standard of proof, or “burden of proof,” is the requirement of proving facts to a certain degree of probability.

22.  2005 Kaplan Financial 22 Chapter 19: Ethical Responsibilities Burdens of Proof Preponderance of the evidence Clear and convincing evidence Evidence beyond a reasonable doubt

23.  2005 Kaplan Financial 23 Chapter 19: Ethical Responsibilities Grounds and Forms of Discipline Grounds for discipline--any act which violates the Code, fails to comply with the Practice Standards, violates any criminal laws, whether the CFP Board designee is convicted or acquitted, violates these Procedures or an order of discipline Failure to respond to a request of the CFP Board without good cause, or obstruction of the CFP Board or staff in the performance of their duties Any false or misleading statement made to the CFP Board Other acts amounting to unprofessional conduct

24.  2005 Kaplan Financial 24 Chapter 19: Ethical Responsibilities Grounds and Forms of Discipline (cont.) Forms of Discipline Private censure Public letter of admonition Suspension Revocation

25.  2005 Kaplan Financial 25 Chapter 19: Ethical Responsibilities The Practice Standards The 100 Series – establishing and defining the relationship with the client. The 200 Series – gathering client data. The 300 Series – analyzing and evaluating the client’s financial status. The 400 Series – developing and presenting the financial planning recommendations. The 500 Series – implementing the financial planning recommendations. The 600 Series – monitoring.