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Practice Standards

Practice Standards 400 Series

Financial Planning Practice Standards Overview
100 Series: Establishing and Defining the Relationship with the Client
200 Series: Gathering Client Data
300 Series: Analyzing and Evaluating the Client's Financial Status
400 Series: Developing and Presenting the Financial Planning Recommendation
500 Series: Implementing the Financial Planning Recommendation(s)
600 Series: Monitoring

Developing and Presenting the Financial Planning Recommendation(s)

Preface to the 400 Series

The 400 Series, "Developing and Presenting the Financial Planning Recommendation(s)," represents the very heart of the financial planning process. It is at this point that the financial planning practitioner, using both science and art, formulates the recommendations designed to achieve the client's goals, needs and priorities. Experienced financial planning practitioners may view this process as one action or task. However, in reality, it is a series of distinct but interrelated tasks.

These three Practice Standards emphasize the distinction among the several tasks which are part of this process. These Practice Standards can be described as, "What is Possible?," "What is Recommended?" and "How is it Presented?" The first two Practice Standards involve the creative thought, the analysis, and the professional judgment of the practitioner, which are often performed outside the presence of the client. First, the practitioner identifies and considers the various alternatives, including continuing the present course of action (Practice Standard 400-1). Second, the practitioner develops the recommendation(s) from among the selected alternatives (Practice Standard 400-2). Once the practitioner has determined what to recommend, the final task is to communicate the recommendation(s) to the client (Practice Standard 400-3).

The three Practice Standards that comprise the 400 series should not be considered alone, but in conjunction with all other Practice Standards.

400-1: Identifying and Evaluating Financial Planning Alternative(s)

The financial planning practitioner shall consider sufficient and relevant alternatives to the client's current course of action in an effort to reasonably meet the client's goals, needs and priorities.

Explanation of this Practice Standard

After analyzing the client's current situation (Practice Standard 300-1) and prior to developing and presenting the recommendation(s) (Practice Standards 400-2 and 400-3) the financial planning practitioner shall identify alternative actions. The practitioner shall evaluate the effectiveness of such actions in reasonably meeting the client's goals, needs and priorities.

This evaluation may involve, but is not limited to, considering multiple assumptions, conducting research or consulting with other professionals. This process may result in a single alternative, multiple alternatives or no alternative to the client's current course of action.

In considering alternative actions, the practitioner shall recognize and, as appropriate, take into account his or her legal and/or regulatory limitations and level of competency in properly addressing each of the client's financial planning issues.

More than one alternative may reasonably meet the client's goals, needs and priorities. Alternatives identified by the practitioner may differ from those of other practitioners or advisers, illustrating the subjective nature of exercising professional judgment.

Effective Date

Original version, January 1, 2001. Updated version, January 1, 2002.

Relationship of this Practice Standard to CFP Board's Code of Ethics and Professional Responsibility

This Practice Standard relates to CFP Board's Code of Ethics and Professional Responsibility (Code of Ethics) through the Code of Ethics' Principle 2 - Objectivity and Rules 201 and 202; Principle 3 - Competence and Rule 302; Principle 6 - Professionalism and Rule 609; and Principle 7 - Diligence and Rules 701 and 703.

Principle 2 states "A CFP Board designee shall be objective in providing professional services to clients." Rule 201 states "A CFP Board designee shall exercise reasonable and prudent professional judgment in providing professional services." Rule 202 states "A financial planning practitioner shall act in the interest of the client."

Principle 3 states "A CFP Board designee shall provide services to clients competently and maintain the necessary knowledge and skill to continue to do so in those areas in which the designee is engaged." Rule 302 states "A CFP Board designee shall offer advice only in those areas in which the CFP Board designee has competence. In areas where the CFP Board designee is not professionally competent, the CFP Board designee shall seek the counsel of qualified individuals and/or refer clients to such parties."

Principle 6 states "A CFP Board designee's conduct in all matters shall reflect credit upon the profession." Rule 609 states "A CFP Board designee shall not practice any other profession or offer to provide such services unless the CFP Board designee is qualified . and is licensed as required by state law."

400-2: Developing the Financial Planning Recommendation(s)

The financial planning practitioner shall develop the recommendation(s) based on the selected alternative(s) and the current course of action in an effort to reasonably meet the client's goals, needs and priorities.

Explanation of this Practice Standard

After identifying and evaluating the alternative(s) and the client's current course of action, the practitioner shall develop the recommendation(s) expected to reasonably meet the client's goals, needs and priorities. A recommendation may be an independent action or a combination of actions which may need to be implemented collectively.

The recommendation(s) shall be consistent with and will be directly affected by the following:

Mutually defined scope of the engagement;
Mutually defined client goals, needs and priorities;
Quantitative data provided by the client;
Personal and economic assumptions;
Practitioner's analysis and evaluation of client's current situation; and
Alternative(s) selected by the practitioner.

A recommendation may be to continue the current course of action. If a change is recommended, it may be specific and/or detailed or provide a general direction. In some instances, it may be necessary for the practitioner to recommend that the client modify a goal.

The recommendations developed by the practitioner may differ from those of other practitioners or advisers, yet each may reasonably meet the client's goals, needs and priorities.

Effective Date

Original version, January 1, 2001. Updated version, January 1, 2002.

Relationship of this Practice Standard to CFP Board's Code of Ethics and Professional Responsibility

This Practice Standard relates to CFP Board's Code of Ethics and Professional Responsibility (Code of Ethics) through the Code of Ethics' Principle 2 - Objectivity and Rules 201 and 202; Principle 3 - Competence and Rule 302; Principle 6 - Professionalism and Rule 609; and Principle 7 - Diligence and Rules 701, 703 and 704.

Principle 7 states "A CFP Board designee shall act diligently in providing professional services." Rule 701 states "A CFP Board designee shall provide services diligently." Rule 703 states "A financial planner practitioner shall make and/or implement only recommendations which are suitable for the client." Rule 704 states ". a CFP Board designee shall make a reasonable investigation regarding the financial products recommended to clients. Such an investigation may be made by the CFP Board designee or by others provided the CFP Board designee acts reasonably in relying upon such investigation."

400-3: Presenting the Financial Planning Recommendation(s)

The financial planning practitioner shall communicate the recommendation(s) in a manner and to an extent reasonably necessary to assist the client in making an informed decision.

Explanation of this Practice Standard

When presenting a recommendation, the practitioner shall make a reasonable effort to assist the client in understanding the client's current situation, the recommendation itself, and its impact on the ability to meet the client's goals, needs and priorities. In doing so, the practitioner shall avoid presenting the practitioner's opinion as fact.

The practitioner shall communicate the factors critical to the client's understanding of the recommendations. These factors may include but are not limited to material:

Personal and economic assumptions;
Interdependence of recommendations;
Advantages and disadvantages;
Risks; and/or
Time sensitivity.

The practitioner should indicate that even though the recommendations may meet the client's goals, needs and priorities, changes in personal and economic conditions could alter the intended outcome. Changes may include, but are not limited to: legislative, family status, career, investment performance and/or health.

If there are conflicts of interest that have not been previously disclosed, such conflicts and how they may impact the recommendations should be addressed at this time.

Presenting recommendations provides the practitioner an opportunity to further assess whether the recommendations meet client expectations, whether the client is willing to act on the recommendations, and whether modifications are necessary.

Effective Date

Original version, January 1, 2001. Updated version, January 1, 2002.

Relationship of this Practice Standard to CFP Board's Code of Ethics and Professional Responsibility

This Practice Standard relates to CFP Board's Code of Ethics and Professional Responsibility (Code of Ethics) through the Code of Ethics' Principle 1 - Integrity and Rule 102; Principle 2 - Objectivity and Rule 201; and Principle 6 - Professionalism and Rule 607.

Principle 1 states "A CFP Board designee shall offer and provide professional services with integrity." Rule 102 states ". a CFP Board designee shall not . knowingly make a false or misleading statement to a client.."

Principle 6 states "A CFP Board designee's conduct in all matters shall reflect credit upon the profession." Rule 607 states "A CFP Board designee shall not engage in any conduct which reflects adversely on his or her integrity or fitness as a CFP Board designee.."

Anticipated Impact of these Practice Standards

Upon the Public

The public is served when strategies and objective recommendations are developed and are communicated clearly to specifically meet each client's individual financial planning goals, needs and priorities.

Upon the Financial Planning Profession

A commitment to a systematic process for the development and presentation of the financial planning recommendations advances the financial planning profession. Development of customized strategies and recommendations enhances the public's perception of the objectivity and value of the financial planning process. The public will seek out those professionals who embrace these Practice Standards.

Upon the Financial Planning Practitioner

Customizing strategies and recommendations forms a foundation to communicate meaningful and responsive solutions. This increases the likelihood that a client will accept the recommendations and act upon them. These actions will contribute to client satisfaction.