What are the four “E”s?
- Education
- Examination
- Experience
- Ethics
In order to become certified as a financial planner with CFP Board, you must:
- Provide evidence of your complete education training
- Pass the examination
- Meet experience requirements
- Agree to follow CFP Board ethical guidelines
What is the purpose of having financial planning practice standards?
CFP Board requires all CFP® professionals to apply Financial Planning Practice Standards when working with clients. CFP Board developed these standards to benefit consumers of financial planning services. Per CFP Board, the Practice Standards are intended to:
- Assure that the practice of financial planning by CFP professionals is based on established norms of practice;
- Advance professionalism in financial planning; and
- Enhance the value of the financial planning process.
As defined by CFP Board, a “Practice Standard” establishes the level of professional practice that is expected of certificants engaged in financial planning. Who may opt out of following the Practice Standards?
Compliance with the Practice Standards is mandatory for any CFP professional who provides financial planning services or material elements of financial planning. Per CFP Board, “The Practice Standards are designed to provide certificants with a framework for the professional practice of financial planning. They are not designed to be a basis for legal liability to any third party.”
Identify the Practice Standard(s) associated with step one of the financial planning process: Establishing and defining the relationship with a client.
100-1 Defining the Scope of the Engagement
Identify the Practice Standard(s) associated with step one of the financial planning process: Gathering client data.
- 200-1 Determining a Client’s Personal and Financial Goals, Needs, and Priorities
- 200-2 Obtaining Quantitative Information and Documents
Identify the Practice Standard(s) associated with step three of the financial planning process: Analyzing and evaluating the client’s financial status.
300-1 Analyzing and Evaluating the Client’s Information
Identify the Practice Standard(s) associated with step four of the financial planning process: Developing and presenting financial planning recommendations.
- 400-1 Identifying and Evaluating Financial Planning Alternative(s)
- 400-2 Developing the Financial Planning Recommendation(s)
- 400-3 Presenting the Financial Planning Recommendation(s)
Identify the Practice Standard(s) associated with step five of the financial planning process: Implementing the financial planning recommendations.
- 500-1 Agreeing on Implementation Responsibilities
- 500-2 Selecting Products and Services for Implementation
Identify the Practice Standard(s) associated with step six of the financial planning process: Monitoring.
600-1 Defining Monitoring Responsibilities
Describe the specific types of activities a financial planner should do when establishing and defining a mutually defined relationship.
- Identify the client
- Identity the services
- Understand client needs and expectations
- Identify conflicts of interest
- Explain client roles
- Define scope of engagement
- Agree on duration of engagement
- Make disclosures
What is meant by the phrase “defining the scope of the engagement”?
A CFP professional and client must mutually define the scope of the engagement. The process of “mutually defining” is accomplished through open dialogue, honesty, and disclosure. Specifically, a CFP professional must:
- Identify the service(s) to be provided;
- Disclose the CFP professional’s material conflict(s) of interest;
- Disclose the CFP professional’s compensation arrangement(s);
- Determine the client’s and the CFP professional’s responsibilities;
- Establish the duration of the engagement; and
- Provide any additional information necessary to define or limit the scope.
What is meant by the phrase “gathering client data”?
Prior to making recommendations to a client, a CFP professional and the client must mutually define the client’s personal and financial goals, needs, and priorities. To arrive at such a definition, the CFP professional needs to explore the client’s values, attitudes, expectations, and time horizons. A client’s values, attitudes, expectations, and time horizon shape current and future planning recommendations.
Describe the difference between quantitative and qualitative data.
- Quantitative data includes facts, figures, and verifiable information that can be objectively measured.
- Qualitative data includes a client’s attitudes, beliefs, values, and similar information that is subjective in nature.
What is meant by the phrase “analyzing and evaluating the client’s information”?
Before making recommendations to a client, a CFP professional must assess the client’s financial situation and determine the likelihood that the client will reach her stated objectives. When making this judgment, a CFP professional should utilize client-specified and mutually agreed upon assumptions, in addition to other planning-specific rules. It is appropriate to incorporate personal and economic assumptions at this step of the financial planning process. These assumptions may include, but are not limited to:
- Personal assumptions, including age of retirement, life expectancy(ies), asset and income needs, market risk factors, risk attitudes, time horizon, and special needs and requirements; and
- Economic assumptions, such as: inflation and tax rates and investment returns.
The 400 Series Practice Standards emphasize that a financial planner should focus on what three elements when developing and presenting the financial planning recommendation(s)?
The 400 Series Practice Standards emphasize:
- What is possible?
- What is recommended?
- How is it presented?
Describe who is ultimately responsible for accepting or rejecting recommendations made by a CFP professional.
As described in Practice Standard 500-1, the client is ultimately responsible for accepting or rejecting recommendations made by a CFP professional. The client is also responsible for implementing recommendations or delegating implementation responsibilities.
The CFP professional and the client must mutually agree on the services, if any, to be provided by the CFP professional. The scope of the engagement, as originally defined, may need to be modified.
Describe the purpose of Practice Standard 600-1 Defining Monitoring Responsibilities.
The last step in the financial planning process involves monitoring planning recommendations and outcomes. The purpose of this Practice Standard is to clarify the role, if any, a CFP professional has in the monitoring process.
Describe what is required of a CFP professional when developing and presenting a financial planning recommendation (as described in Practice Standard 400).
To develop recommendations and appropriate alternatives to meet a client’s goals, needs, and priorities, and communicate recommendations to the client.
Describe what is required of a CFP professional when implementing a financial planning recommendation (as described in Practice Standard 500).
To select appropriate services and products that are consistent with the client’s goals, needs, and priorities. Also, to mutually agree on who will be responsible for implementing recommendations.
