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Practice Standards

Practice Standards 100 Series

Establishing and Defining the Relationship with the Client

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.

Principle 4 states "A CFP Board designee shall perform professional services in a manner that is fair and reasonable to clients.."Although, as stated earlier, there is no requirement that the scope of the engagement be in writing, Rule 402 in the Code of Ethics requires a financial planning practitioner to make "timely written disclosure of all material information relative to the professional relationship. In all circumstances and prior to the engagement, a CFP Board designee shall, in writing: (a) Disclose conflict(s) of interest and sources of compensation; and (b) Inform the client or prospective client of his/her right to ask at any time for information about the compensation of the CFP Board designee."

Principle 7 states "A CFP Board designee shall act diligently in providing professional services." Rule 702 requires that financial planning practitioners enter into an engagement only after obtaining sufficient information to satisfy that "the relationship is warranted by the individual's needs and objectives; and the CFP Board designee has the ability to either provide requisite competent services or to involve other professionals who can provide such services."