CFP Professional Standards & Competencies 2 — Questions and Answers
Question 1: A CFP® professional discovers their client has been the victim of financial elder abuse by a family member. What is the MOST appropriate first step?
- Immediately report the abuse to adult protective services without informing the client
- Discuss the situation with the client to understand their wishes and assess safety, then consider mandatory reporting obligations (Correct answer)
- Confront the family member directly on the client's behalf
- Document the situation but take no action to preserve client confidentiality
Correct answer: Discuss the situation with the client to understand their wishes and assess safety, then consider mandatory reporting obligations
The CFP® professional should first discuss the matter with the client to understand their perspective and assess safety before taking action, while also considering any mandatory reporting requirements under applicable law.
Question 2: Under the CFP Board's Practice Standards, which of the following BEST describes the 'understanding the client's personal and financial circumstances' step?
- Reviewing only the client's investment portfolio and net worth
- Gathering quantitative data such as income, expenses, assets, liabilities, and qualitative data such as goals, values, and risk tolerance (Correct answer)
- Completing a standard suitability questionnaire as required by FINRA
- Asking the client to provide their most recent tax return
Correct answer: Gathering quantitative data such as income, expenses, assets, liabilities, and qualitative data such as goals, values, and risk tolerance
This step requires collecting both quantitative financial data and qualitative information about the client's goals, values, health, family situation, and risk tolerance to form a complete picture.
Question 3: A CFP® professional who is also a registered investment adviser charges an hourly fee for financial planning. A referral arrangement with a mutual fund company requires disclosure of:
- Nothing, because the hourly fee already constitutes full compensation disclosure
- The referral arrangement and any compensation received therefrom, in writing, prior to or at the time of engagement (Correct answer)
- Only the referral arrangement if it results in more than $1,000 in annual compensation
- The arrangement only if the client specifically asks about compensation sources
Correct answer: The referral arrangement and any compensation received therefrom, in writing, prior to or at the time of engagement
CFP Board's Code requires disclosure of all sources of compensation, including referral arrangements, in writing before or at the point of engagement, regardless of the amount.
Question 4: Which scenario BEST illustrates a violation of CFP Board's competence standard?
- A CFP® professional refers a complex tax matter to a CPA while continuing to manage the client's investments
- A CFP® professional prepares a comprehensive retirement plan without having completed continuing education in that specific area in the past year
- A CFP® professional provides estate planning advice on a complex multi-generational trust without adequate knowledge or referral to a specialist (Correct answer)
- A CFP® professional declines to provide advice on a topic outside their area of expertise and explains why
Correct answer: A CFP® professional provides estate planning advice on a complex multi-generational trust without adequate knowledge or referral to a specialist
Providing advice on complex matters outside one's competence without referring to a qualified specialist violates the CFP Board's competence standard under the Code of Ethics.
Question 5: The CFP Board's fiduciary standard applies:
- Only when the CFP® professional is managing discretionary investment accounts
- At all times when providing financial planning or material elements of financial planning (Correct answer)
- Only during the engagement period defined in the written agreement
- Only to CFP® professionals employed by RIAs, not broker-dealers
Correct answer: At all times when providing financial planning or material elements of financial planning
CFP Board's fiduciary duty applies at all times when the CFP® professional is providing financial planning or material elements of it, regardless of their employer or compensation model.
Question 6: A client instructs their CFP® professional to invest all retirement assets in a single sector ETF, contrary to the planner's recommendation. The planner should:
- Refuse to execute the instruction and terminate the engagement
- Execute the instruction without comment to respect client autonomy
- Document the advice given, explain the risks, and respect the client's informed decision while noting disagreement in writing (Correct answer)
- Report the client to FINRA for making an unsuitable investment decision
Correct answer: Document the advice given, explain the risks, and respect the client's informed decision while noting disagreement in writing
CFP® professionals must respect client autonomy and their right to make informed decisions; the professional's obligation is to advise clearly, document the recommendation, and note any disagreement.
Question 7: Under CFP Board's Standards of Conduct, a 'material conflict of interest' requires the CFP® professional to:
- Immediately terminate the client relationship
- Disclose the conflict and obtain the client's informed consent before proceeding (Correct answer)
- Avoid the conflict entirely in all circumstances, even if the client consents
- Report the conflict to the CFP Board within 30 days
Correct answer: Disclose the conflict and obtain the client's informed consent before proceeding
Material conflicts of interest must be fully disclosed to the client, and the CFP® professional must obtain the client's informed consent before proceeding with the advice or recommendation.
CFP Professional Standards & Competencies 2
A CFP® professional discovers their client has been the victim of financial elder abuse by a family member.
What is the MOST appropriate first step?