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CFP Board Is Now Enforcing New Code of Ethics and Standards of Conduct

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The Certified Financial Planner Board of Standards began enforcing its new Code of Ethics and Standards of Conduct on June 30, 2020. This means a CFP is obligated to act as a fiduciary and in the best interest of his or her client at all times when providing financial planning or advice.

Failure to comply may result in disciplinary action based on the CFP Board’s new Procedural Rules, also effective June 30, 2020.

Among other changes, the CFP Board’s revisions to the Code and Standards require a CFP to:

• Obtain the information necessary to review and analyze the client’s personal and financial circumstances prior to determining their financial planning goals;

• Document the facts and circumstances they gathered or provided to the client when giving advice, including recommendations, and retain that information;

• Analyze and document the client’s current course of action and provide potential alternatives, develop financial planning recommendations and present the recommendations to the client;

• When engaged for monitoring, the CFP should document and retain his/her analysis of the client’s progress towards achieving those goals;

• If they specifically exclude monitoring and implementation as part of their engagement, they must complete, at least, the first five steps of the financial planning process. Otherwise, they must complete all seven steps of the financial planning process;

However, when engaged for monitoring and updating, a CFP must:

a) Document which actions, products and services are and are not subject to the their monitoring responsibility;

b) Determine how and when they will monitor actions, products and services;

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c) Establish how the client will notify them of any material changes in the client’s qualitative and quantitative information; and,

d) Determine the circumstances under which they will update/revise the client’s financial planning recommendations.

• Fully disclose material conflicts of interest that may affect the professional relationship, how the CFP will manage those conflicts and obtain the client’s informed consent; and

• Not make false or misleading representations regarding their firm’s method(s) of compensation.

Remember, the Code and Standards are the responsibility of the CFP and not of their respective firms. However, if an advisory firm updates its policies and procedures to provide guidance to its CFPs, regulators (e.g., the Securities and Exchange Commission and the Financial Industry Regulatory Authority), may consider these policies and procedures during review of the advisory firm.

The final Procedural Rules replace the previous rules. The CFP Board’s Disciplinary and Ethics Commission “has the authority to issue a final order that finds facts, determines whether a violation has occurred and, where appropriate, impose discipline in the form of a sanction,” which may include revoking a CFP’s designation with “no opportunity for reinstatement.”

Additionally, the latest rules require a CFP with multiple customer disputes (evidenced by BrokerCheck), to turn over documents related to those disputes. The existence of the settled customer complaints will constitute grounds for sanction(s) unless the CFP proves that the allegations of misconduct are without merit.

Guidance, including a Roadmap to the Code and Standards and Case Studies Applying the New Standards, is available from the CFP Board.

Also, CFPs should consider implementing best practices and enhancements to certain documents including the Investor Profile Statement, Client Engagement Letters, Investment Advisory Agreements and the CFP’s Form ADV Part 2B.

Thomas D. Giachetti is chairman of the Investment Management and Securities Practice Group of Stark & Stark, a law firm. He can be reached at [email protected].