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CFP® Certificants in the News: Are You Committing Financial Planning?

CFP® Certificant in the News

A CFP® Certificant is subject to a greater duty, the duty to adhere to the Practice Standards, to clients when providing Financial Planning vs. when providing Financial Advice. As we will see in just a moment, a Certificant may be subject to the Practice Standards based upon what the client believes instead of what the Certificant intends; Practice Standard B(3)b stands in authoritative witness to that observation.

Practice Standard B(3)

A CFP® professional must comply with the Practice Standards when:

  1. The CFP® professional agrees to provide or provides:
    1. Financial Planning; or
    2. Financial Advice that requires integration of relevant elements of the Client’s personal and/ or financial circumstances in order to act in the Client’s best interests (“Financial Advice that Requires Financial Planning”); or
  2. The Client has a reasonable basis to believe the CFP® professional will provide or has provided Financial Planning [emphasis added].

Here’s an insight into how CFP Board interprets Practice Standard B(3)b:

cfpBoard-Released Case Study #10

Kimani, a CFP® professional, distributes a flyer inviting prospects to attend a Financial Planning Seminar. At the event, Kimani places a sign at the entrance that states: “What Financial Planning Can Do For You.”

Daniel, a prospect, attends the event. At an in-person meeting the following week, Daniel tells Kimani that he wants to be a Financial Planning Client, with a specific focus on retirement planning. Kimani asks Daniel to complete an investment risk profile questionnaire.

Kimani does not clearly inform Daniel that she would not be providing Financial Planning. Kimani reviews Daniel’s answers and, rather than providing Financial Planning, Kimani solely makes an investment recommendation.

QUESTION:

Is Kimani required to comply with the Practice Standards for the Financial Planning Process, and therefore, provide Financial Planning?

RESPONSE OPTIONS:

  1. Kimani is not required to comply with the Practice Standards for the Financial Planning Process because Kimani only provided investment planning to Daniel.
  2. Kimani is required to comply with the Practice Standards for the Financial Planning Process because Kimani provided Financial Advice to Daniel when she conducted investment planning.
  3. Kimani is required to comply with the Practice Standards for the Financial Planning Process because Daniel has a reasonable basis to believe that Kimani will provide or has provided Financial Planning.
  4. Kimani is not required to comply with the Practice Standards for the Financial Planning Process because Kimani only engaged in a brokerage transaction.

Response C is the best response. This case study involves the Application of Practice Standards (Standard B.3.). A CFP® professional must comply with the Practice Standards for the Financial Planning Process and, therefore, provide Financial Planning when…The Client has a reasonable basis [emphasis added] to believe the CFP® professional will provide or has provided Financial Planning.

Although Daniel’s engagement does not specify that Kimani will provide Financial Planning, Daniel has a reasonable basis to believe that Kimani will provide or has provided Financial Planning:

  • Kimani invited Daniel to a Financial Planning seminar;
  • Daniel told Kimani that he wanted Financial Planning;
  • Kimani advised Daniel how to invest; and
  • Kimani did not clearly inform Daniel that she would not be providing Financial Planning

…In addition, since Kimani is required to provide Financial Planning to Daniel, some of the information that she may have provided to Daniel orally when providing Financial Advice now must be delivered to Daniel in writing.1

Here’s the takeaway for CFP® Certificants - if you are not providing Financial Planning, do not give clients any impression to the contrary. CLEARLY indicate in writing that you are not providing financial planning. Noteworthy - in any subsequent Board disciplinary proceeding, the burden of proof is on the Certificant to prove she was not required to follow the Practice Standards .

Stay tuned next month as we continue excavating the Standards of Conduct.

1 For exact documentation requirements, refer to page 9 of ROADMAP TO THE CODE OF ETHICS AND STANDARDS OF CONDUCT at https://www.cfp.net/docs/default-source/for-cfp-pros---professionalstandards-enforcement/cfp-board-roadmap-to-code-and-standards.pdf?sfvrsn=4