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Practice Standards 100

Establishing and Defining the Relationship with the Client

100-1: Defining the Scope of the Engagement

The financial planning practitioner and the client shall mutually define the scope of the engagement before any financial planning service is provided.

Explanation of this Practice Standard

Prior to providing any financial planning service, the financial planning practitioner and the client shall mutually define the scope of the engagement. The process of "mutually-defining" is essential in determining what activities may be necessary to proceed with the engagement.

This process is accomplished in financial planning engagements by:

  1. Identifying the service(s) to be provided;
  2. Disclosing the practitioner's material conflict(s) of interest;
  3. Disclosing the practitioner's compensation arrangement(s);
  4. Determining the client's and the practitioner's responsibilities;
  5. Establishing the duration of the engagement; and
  6. Providing any additional information necessary to define or limit the scope.

The scope of the engagement may include one or more financial planning subject areas. It is acceptable to mutually define engagements in which the scope is limited to specific activities. Mutually defining the scope of the engagement serves to establish realistic expectations for both the client and the practitioner.

This Practice Standard does not require the scope of the engagement to be in writing. However, as noted in the "Relationship" section, which follows, there may be certain disclosures that are required to be in writing.

As the relationship proceeds, the scope may change by mutual agreement.

This Practice Standard shall not be considered alone, but in conjunction with all other Practice Standards.

Effective Date

Original version, January 1, 1999. Updated version, January 1, 2002.

Relationship of this Practice Standard to CFP Board's Code of Ethics and Rules of Conduct

This Practice Standard relates to CFP Board's Code of Ethics and Rules of Conduct through Principle 4 - Fairness, Principle 7 - Diligence and Rules 1.1, 1.2, 1.3 and 2.2.

Anticipated Impact of this Practice Standard

Upon the Public

The public is served when the relationship is based upon a mutual understanding of the engagement. Clarity of the scope of the engagement enhances the likelihood of achieving client expectations.

Upon the Financial Planning Profession

The profession benefits when clients are satisfied. This is more likely to take place when clients have expectations of the process, which are both realistic and clear, before services are provided.

Upon the Financial Planning Practitioner

A mutually defined scope of the engagement provides a framework for financial planning by focusing both the client and the practitioner on the agreed upon tasks. This enhances the potential for positive results.

Next: Practice Standards Series 200 >

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