CFC Ethics and Professional Standards 1 — Questions and Answers
Question 1: Under CFP Board's fiduciary standard, a financial planner must always act in:
- The firm's best interest
- The client's best interest (Correct answer)
- The interest of both client and firm equally
- Accordance with product suitability rules only
Correct answer: The client's best interest
The CFP Board's Code of Ethics requires CFP professionals to act as fiduciaries — placing the client's interest first at all times when providing financial advice.
Question 2: A CFC who discovers a material fact about a client's financial situation that the client did not disclose must:
- Immediately terminate the engagement
- Ignore it if not relevant to the current recommendation
- Address it with the client and consider how it affects the advice (Correct answer)
- Share it with the client's spouse without asking
Correct answer: Address it with the client and consider how it affects the advice
Discovering undisclosed material information requires the planner to address it with the client and reassess how it may affect the planning recommendations or the engagement.
Question 3: Which action by a financial consultant would constitute a conflict of interest that must be disclosed?
- Recommending index funds with no personal financial stake
- Recommending a product for which the planner receives a higher commission than alternatives (Correct answer)
- Providing comprehensive planning to a client for a flat fee
- Using a standardized fact-finding questionnaire
Correct answer: Recommending a product for which the planner receives a higher commission than alternatives
Receiving compensation that differs based on product recommendations creates a conflict of interest that must be fully disclosed to the client under fiduciary and suitability obligations.
Question 4: Competence as an ethical obligation requires a financial professional to:
- Hold every possible designation in the industry
- Provide advice only within their areas of knowledge and skill, referring out when appropriate (Correct answer)
- Guarantee investment returns to demonstrate skill
- Never work with complex clients to avoid errors
Correct answer: Provide advice only within their areas of knowledge and skill, referring out when appropriate
Professional competence requires limiting advice to areas where the practitioner has adequate knowledge and skill, while referring clients to qualified specialists for matters outside that competence.
Question 5: Confidentiality obligations in financial planning mean the practitioner must:
- Share client data freely with affiliated firms
- Protect client information and only disclose it with client consent or as required by law (Correct answer)
- Post client success stories on social media without names
- Retain all client records indefinitely with no destruction policy
Correct answer: Protect client information and only disclose it with client consent or as required by law
Professionals must safeguard client information, obtaining consent before disclosure to third parties and complying with applicable privacy laws like Gramm-Leach-Bliley.
Question 6: A CFC who charges a fee while also receiving commissions on products sold to the same client is operating under which compensation model?
- Fee-only
- Commission-only
- Fee-based (fee-and-commission) (Correct answer)
- Pro bono
Correct answer: Fee-based (fee-and-commission)
A fee-based model combines advisory fees with sales commissions, distinguishing it from the fee-only model where no commissions are received.
CFC Ethics and Professional Standards 1
Under CFP Board's fiduciary standard, a financial planner must always act in: