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Disclosure & Written Agreement - Financial Planning

Look here to learn more about the specific disclosure requirements when providing financial planning..

CFP Board wants all CFP® professionals to have a thorough understanding of the Standards of Professional Conduct. Questions not answered in these FAQs may be sent to standards@cfpboard.org for consideration and possible inclusion in future revisions of this document.

Question 3-1: What disclosures do the Standards require for client engagements that do involve financial planning or material elements of financial planning?

CFP® professionals involved in client engagements that do involve financial planning or material elements of financial planning must make all of the disclosures listed in Rule 2.2, and they must also make those disclosures in writing. [See Questions 3-2, 3-3, 3-6 and 3-7] The written disclosures need not be a single newly-created document; the written disclosures may be made through multiple documents or through existing disclosure documents, such as Form ADV, that are used to make disclosures in compliance with state or federal laws, or the rules or requirements of any applicable self-regulatory organization.

Rule 1.2 outlines additional disclosure obligations to clients or prospective clients for engagements that include financial planning or material elements of financial planning, including the following general areas:

  • The obligations and responsibilities of each party
  • Any compensation that may be related to the client agreement
  • The terms under which proprietary products may be offered
  • Any factors that determine costs
  • The terms under which other entities will be used to meet any services outlined in the agreement.

Rule 1.2 also notes that if the information above is disclosed in writing, the CFP® professional must encourage the client or prospective client to review the information and offer to answer any questions that the client or prospective client may have.

Question 3-2:When, what and how does CFP Board require disclosure to clients and prospective clients when providing financial planning? 

Rules 1.2 and 2.2 of the Standards address the timing, content and manner in which disclosures must be made by a CFP® professional to a client or prospective client. If the CFP® professional offers financial planning or material elements of financial planning, the following must be disclosed either orally or in writing prior to entering into a written agreement with a client:

  • Contact information for the CFP® professional, and the firm with which the CFP® professional is associated;
  • Any information about the CFP® professional or the firm with which the CFP® professional is associated that could materially affect the client’s decision to engage the CFP® professional;
  • The CFP® professional’s and client’s obligations and responsibilities under the agreement;
  • The compensation that the CFP® professional, the CFP® professional’s firm, and/or any third party may earn under the agreement;
  • How costs of products and services are determined;
  • Whether and how the CFP® professional may benefit from the client’s decision;
  • If the CFP® professional offers proprietary products and the terms under which such products may be offered;
  • Other likely conflicts of interest; and
  • Whether the CFP® professional may use other entities to fulfill the obligations of the agreement. 

CFP® professionals should note that Rule 4.3 of the Standards requires compliance with applicable regulatory requirements governing professional services provided to the client.

Question 3-3: Does CFP Board require CFP® professionals to address a certain number of subject areas for the engagement to be considered financial planning?

Rules 1.2 and 2.2 require CFP® professionals to disclose certain information to clients or prospective clients. The Rules allow for any form of delivery to clients. Under Rule 1.2, if the disclosures are made in writing, the CFP® professional must encourage the prospective client or client to review the information and offer to answer any questions from the client or prospective client.  CFP Board believes best practice is to disclose such items upon request; before any agreement is signed; or prior to any transaction where the client is expected to pay for a service or product.  Notifying the client or prospective client that the disclosure information can be found on an employer’s Web site probably does not meet the standard of care required under Rule 1.4, which obligates the CFP® professional to place the client’s interest ahead of the CFP® professional’s interest.

Question 3-4: When should a CFP® professional send out disclosure documents to clients?

The Rules of Conduct do not specify a timeframe for sending out disclosure documents. CFP Board believes a CFP® professional’s best practice is to disclose such items when the client requests such information or before any agreement is signed or prior to the execution of any transaction where the client is expected to pay for a service or product.  If information previously disclosed to a client changes, Rule 2.2 requires that those changes be disclosed to the client in a timely manner.

CFP Board understands that CFP® professionals may be engaged in providing clients financial services that fall under different regulatory environments. Each regulatory environment may require CFP® professionals and their employers to provide disclosures at different points during a client relationship. CFP Board does not advocate any particular business model or any form of compensation and does not intend to replace the regulatory requirements for disclosing items to clients. CFP® professionals are reminded to adhere to Rule 1.4 when dealing with clients in all capacities.

Question 3-5: In what ways are the disclosures required by the current Standards different from the disclosure requirements in the former Standards?

The current Standards introduce several changes to the disclosure requirements for CFP® professionals:

  1. Disclosures Required for Prospective Clients
    The current Standards expand CFP Board's disclosure requirements by requiring disclosures to be made to prospective clients as well as existing clients, including material information relevant to the CFP® professional's relationship such as compensation and conflicts of interest, as well as information about the CFP® professional's credentials and business affiliations. [See Rules 1.2 and 2.2]
  2. Additional Guidance about Disclosing Conflicts and Compensation
    The current Standards provide additional guidance about the types of conflicts [See Rule 2.2(b)] and the type of compensation disclosure that must be made to clients and prospective clients, including direct and indirect sources of compensation to the CFP® professional and/or the CFP® professional's employer. [See Rule 2.2(a)]
  3. Ongoing Disclosure Obligation
    While the former Standards required CFP® professionals to tell clients on an annual basis that they can request information about compensation and conflicts of interest, the current Standards provide a more proactive requirement, stating that the CFP® professional shall make timely disclosure updates to the client if previously-disclosed information becomes outdated. [See Rule 2.2]

Question 3-6: How does a CFP® professional disclose compensation?

CFP Board does not advocate any particular business model or form of compensation.CFP® professionals provide services under various regulatory environments and consequently, may be required to comply with federal and/or state laws, as well as the rules of a self-regulatory organization. The regulatory environment in which a CFP® professional operates governs how the CFP® professional and his/her employer receives compensation and how that compensation must be disclosed to a client. CFP Board’s Standards do not allow a CFP® professional to avoid the regulatory requirements imposed by federal and/or state authorities, or a self-regulatory organization. 

CFP® professionals must provide an accurate and understandable description of the compensation arrangements, including information related to costs and compensation to the CFP® professional and/or the CFP® professional’s employer. This disclosure requirement allows the client to make an informed decision. The Standards do not require disclosure of specific dollar amounts or percentages of compensation to a client unless the client specifically asks for this information. If the client asks a CFP® professional the amount he/she will earn from a specific transaction or service, the CFP® professional must provide this information, to the extent it can be determined. [See Rule 2.2] If the cost to the client is not known until a series of decisions or actions occur, a CFP® professional must make that information available to the client as it is determined.

Question 3-7: What does CFP Board mean by “costs” and “any other sources of compensation”?

Rule 2.2a.ii requires disclosure of expenses the client will incur, including firm or adviser expenses passed on to the client as an additional charge. Examples that must be disclosed include but are not limited to the following, when applicable:

  • 12b-1 fees;
  • Cash bonuses or other incentives received from the firm or issuer for selling specific financial or insurance products;
  • Trailing commissions for selling financial or insurance products;
  • Compensation received from wrap-fee programs;
  • Trading fees, if passed on to the client;
  • Ticket charges, if passed on to the client;
  • Administrative or management fees on mutual funds or variable annuities as outlined in the prospectus; and
  • Solicitation fees.

If the cost to the client is not known until a series of decisions or actions occurs, the Standards do not require the CFP® professional to provide disclosure until that information is determined.

Question 3-8: Is any additional written documentation required by the Standards?

Yes.  Rule 1.3 requires that financial planning services be accompanied by a written agreement that identifies:

  1. The parties to the agreement;
  2. The date of the agreement and its duration;
  3. The procedure and terms for terminating the agreement; and
  4. A description of the services to be provided as part of the agreement.

This written agreement requirement may be satisfied through multiple documents, and it is CFP Board's belief that most CFP® professionals or their employers currently provide clients with written documents that cover the requirements of Rule 1.3.

The written agreement requirement was designed to help ensure that CFP® professionals and their clients define clearly the services involved in a specific business relationship and help reduce disputes based on misunderstandings of those services.

As with the former Standards, the current Standards require that CFP® professionals entering a financial planning engagement make specific written disclosures to the client or prospective client.  [See Rules 1.2 and 2.2]  The disclosures required to be in writing under the current Standards do not differ significantly from the written disclosures required by the former Standards.

Question 3-9: Will CFP Board provide sample agreements and disclosures that CFP® professionals can use with their clients?

Yes. CFP Board has created sample disclosure forms and a sample agreement form that CFP® professionals may use with their clients. 

Form OPS (Other than Financial Planning Services) and Form FPD (Financial Planning Disclosure Document) may help CFP® professionals assemble a document containing the information required to be disclosed under Rules 1.2 and 2.2. 

Form FPD is for CFP® professionals who provide financial planning services or material elements of financial planning; Form OPS is for CFP® professionals who provide services that do not rise to the level of financial planning.

Form FPDA (Financial Planning Disclosure Document and Agreement) may help CFP® professionals who provide financial planning services or material elements of financial planning create a document that satisfies the written agreement requirements of Rule 1.3 as well as the disclosure obligations of Rules 1.2 and 2.2.

CFP Board understands that employers of CFP® professionals who provide services other than financial planning may require CFP® professionals to have their clients sign a document or disclaimer stating that the CFP® professional is not providing financial planning services. Regardless of any document or disclaimer signed by a client, CFP Board reserves the right to make an independent determination of whether the CFP® professional’s services rise to the level of financial planning based on CFP Board’s Rules of Conduct. If CFP Board determines that the CFP® professional provided financial planning and the terms required under Rule 1.3 were omitted or a written agreement was not provided, CFP Board may enforce Rule 1.3 against the CFP® professional. Similarly, Rules 1.2 and 2.2 may be enforced if CFP Board determines that the CFP® professional provided financial planning without the written disclosures required by the Rules of Conduct.


Did This Answer Your Question?

CFP Board welcomes questions about specific aspects of the Standards of Professional Conduct and their application to specific situations.

CFP Board will consider all questions submitted and draft a response where it determines that interpretation of the Standards is needed.  For responses that it believes would be helpful to all CFP® professionals, CFP Board will publish its response in CFP Board’s newsletters and on CFP Board’s website.

Send your questions and requests for guidance documents to CFP Board at standards@cfpboard.org.

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