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Case Study

The Delivery of Firm Research Does Not Constitute Financial Advice

CFP Board has developed a series of case studies to provide practical guidance to CFP® professionals and their firms on the new Code and Standards. Each case study presents a hypothetical factual circumstance and then asks a question about a CFP® professional’s duty in that circumstance under the Code and Standards.

November 26, 2019

Meghan is a CFP® professional who is a registered representative of a broker-dealer. Ted, a longtime Client, asks Meghan for information regarding a specific stock he is considering purchasing. Meghan provides Ted a research report on the stock that her firm prepared. The research report states that the stock is undervalued. Meghan tells Ted that she has not analyzed whether the stock is a good investment for him. Ted reviews the research report and then directs Meghan to purchase the stock for him.

Question

 

Which of the following best describes Meghan’s duty?

Response Options

Response A is not the best response because it does not accurately describe the reason why the Fiduciary Duty does not apply. Meghan is not required to act as a fiduciary because she did not provide or agree to provide Financial Advice to a Client. Whether Meghan must comply with the Fiduciary Duty does not turn on whether Ted requested information regarding the Financial Asset at issue.

Response B is the best response. This case study involves the Fiduciary Duty (Standard A.1.) and the definitions of Client and Financial Advice (Glossary).

At all times when providing Financial Advice to a Client, a CFP® professional must act as a fiduciary, and therefore, act in the best interests of the Client. A Client is any person to whom the CFP® professional provides or agrees to provide Professional Services pursuant to an Engagement. Financial Advice includes a communication that, based on its content, context, and presentation, would reasonably be viewed as a recommendation that the Client take or refrain from taking a particular course of action with respect to, among other things, the value of or the advisability of investing in, purchasing, holding, gifting, or selling Financial Assets. The determination of whether Financial Advice has been provided is an objective rather than subjective inquiry. The more individually tailored the communication is to the Client, the more likely the communication will be viewed as Financial Advice.

In this circumstance, Ted is Meghan’s longtime Client. Meghan responded to Ted’s question by providing a research report that her firm prepared. The research report was not individually tailored to Ted’s personal and financial circumstances. Meghan also mentioned to Ted that she has not analyzed whether the stock is a good investment for him. The content, context, and presentation makes clear that Meghan did not recommend that Ted purchase the stock. Therefore, Meghan did not provide Financial Advice to Ted. The duty to act as a fiduciary arises when a CFP® professional provides Financial Advice to a Client. Since Meghan did not provide Financial Advice, she was not required to act as a fiduciary.

Response C is not the best response. Meghan is not required to comply with the Fiduciary Duty because she did not provide or agree to provide Ted with Financial Advice. A CFP® professional may purchase a stock for a Client without providing Financial Advice.

Read more case studies about the new Code and Standards
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Relevant Standards and Definitions: Fiduciary Duty (Standard A.1.); Definitions of Client and Financial Advice (Glossary).

 

 

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