Look here to find out about the required disclosures concerning the conflicts of interest associated with these transactions.
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 firstname.lastname@example.org for consideration and possible inclusion in future revisions of this document.
Question 5-1: How do the Standards relate to CFP® professionals who provide clients principal-trade transactions?
CFP Board is neutral as to the type of investment or planning strategies a CFP® professional may use to achieve a client’s objectives and goals, as long as those strategies comply with CFP Board’s Standards and with any applicable federal or state regulatory requirements related to the activities they undertake. [See Rule 5.1] CFP® professionals may engage in principal-trade transactions, provided that the CFP® professional is allowed to make principal-trade transactions under applicable federal and state regulations and that the CFP® professional complies with any additional requirements under CFP Board’s Standards that may or may not be part of the requirements of federal or state regulatory requirements, such as the following:
- Disclose conflicts of interest [See Rule 2.2]
- Assess whether any particular recommendation to purchase or sell financial products is suitable for the client [See Rule 4.5]
- Exercise reasonable and prudent professional judgment [See Rule 4.4]
- Perform professional services with dedication to the lawful objectives of his or her employer and in accordance with the Standards [See Rule 5.1]
- Place the interest of the client ahead of his or her own at all times [See Rule 1.4]
If a CFP® professional implements principal-trade transactions as part of a financial planning engagement or the material elements of financial planning, Rules 1.2, 1.3, 1.4 and 2.2 set out additional requirements for written documentation and require that the CFP® professional provide services with the duty of care of a fiduciary, as defined by CFP Board. [See Question 2-2]
Question 5-2: When, what and how does CFP Board require disclosure to clients and prospective clients when providing financial planning?
Yes, the Standards apply to all CFP® professionals, regardless of the type of investment and planning strategies used to achieve a client’s objectives and goals. All financial product recommendations made by CFP® professionals, including proprietary financial products, must comply with the requirements of the Standards, including the following:
- Assess whether any particular recommendation to purchase or sell financial products is suitable for the client [See Rule 4.5];
- Exercise reasonable and prudent professional judgment [See Rule 4.4];
- Perform professional services with dedication to the lawful objectives of a CFP® professional’s employer and in accordance with the Standards [See Rule 5.1];
- Comply with applicable regulatory requirements governing professional services provided to clients [See Rule 4.3]; and
- Place the interest of the client ahead of his or her own [See Rule 1.4].
When a CFP® professional recommends the purchase of a proprietary financial product, the CFP® professional must comply with the disclosure requirements contained in the Standards, including disclosure of the following information:
- An accurate and understandable description of the compensation arrangements being offered, including:
- Information related to costs and compensation to the CFP® professional and/or the CFP®professional’s employer; and
- Terms under which the CFP® professional and/or the CFP® professional’s employer may receive any other sources of compensation, and if so, what the sources of these payments are and on what they are based. [See Rule 2.2(a)]
- A general summary of likely conflicts of interest, which would include, but not be limited to, the fact that the CFP® professional may recommend the proprietary financial products of his or her employer or principal. [See Rule 2.2(b)]
- Any information that could reasonably be expected to materially affect the client's decision to engage the CFP® professional that the client might reasonably want to know in establishing the scope and nature of the relationship, including but not limited to information about the CFP® professional’s areas of expertise. [See Rule 2.2(c)]
- Contact information for the CFP® professional and, if applicable, the CFP® professional’s area of expertise. [See Rule 2.2(d)]
If the transaction in a proprietary financial product is part of a financial planning engagement, CFP Board requires the services provided to be the best services and recommendations available, given the CFP® professional’s reasonable professional judgment and any limitations placed on the CFP® professional by any particular business framework or regulatory requirement. In such situations, the CFP® professional must disclose the limitations to the client in writing, including any contractual or agency relationships that have the potential to affect the client and any terms under which proprietary products may be offered.
[See Questions 2-2 and 5-1; see also Rule 1.2]
These guidelines apply to all CFP® professionals who are providing financial planning services to a client or prospective client. It is of no consequence that the CFP® professional is an employee or an agent of a firm, or whether the firm allows transactions in the firm’s proprietary financial products as one option for clients, or requires its proprietary products to be offered to all clients.
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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 email@example.com.
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