Unit V.

Ethical and professional considerations in

Financial Planning
• 5.1 The Code of Ethics and Professional Responsibility, CFP
licensee’s responsibilities to the public, clients and employers.

• 5.2 Client agreements and confidentiality clauses, AFP

Practice Standards.
• Ethics are moral principles.

• Codes of ethics are general standards which have to be

followed by everyone engaged in the same profession and are
set out to be uniformly followed by all members.

• Codes of ethics are different from codes of conduct.

• A code of conduct is enforceable while codes of ethics are

standards which have to be followed voluntarily by members
in the interest of their clients as well as in their own interest.
 A code of ethics is required:
• To define an acceptable behavior

• To promote high standards of practice

• To provide a benchmark for members to use for self

evaluation

• To establish a framework for professional behavior and

responsibilities

• As a vehicle for occupational identity

• As a mark of occupational maturity

• These Code of Ethics’ Principles express the profession’s
recognition of its responsibilities to the public, to clients, to
colleagues and to employers.

• They apply to all CFP Board designees and provide guidance

to them in the performance of their professional services.
 FPSB, INDIA’S CODE OF ETHICS TO BE FOLLOWED BY
FINANCIAL PLANNERS
1. Code of Ethics of Integrity

2. Code of Ethics of Objectivity

3. Code of Ethics of Competence

4. Code of Ethics of Fairness

5. Code of Ethics of Confidentiality

6. Code of Ethics of Professionalism

7. Code of Ethics of Diligence

8. Code of Ethics of Compliance

 1. Code of Ethics of Integrity
• All the members shall observe high standards of honesty in
conducting their financial planning business and should give
services related to financial planning business honestly.
• Rules that Relate to the Code of Ethics of Integrity
– Members shall not give false or misleading advertisements about the
– size, scope and areas of competence in financial planning of their
– organization.
– Members should not indulge in materially false and misleading
– promotional activities via speeches, interviews, books, seminars, radio
and television shows.
 2. Code of Ethics of Objectivity
• Members shall disclose to the client any limitation on their part to
provide financial planning services.
• Rules that Relate to the Code of Ethics of Objectivity
– Members shall exercise reasonable and prudent professional judgment in
providing financial planning services
– They should act in the interest of the clients
– A member shall disclose in writing to the client if he is authorized to sell or
advise only on a restricted range of products and any other limitation
regarding his capacity to serve the client
– A detailed statement of compensation disclosing the sources of fee/
commission or any other benefit received/receivable should be fully
disclosed.
 3. Code of Ethics of Competence
• The members shall provide competent financial planning
services and maintain the necessary knowledge and skill to
continue to do so while providing financial planning advice.

• Rules that Relate to the Code of Ethics of Competence

– Members should keep themselves informed of developments in the
field of financial planning and participate in continuing education
programs throughout the professional career in order to improve
professional competence and be in a position to provide quality advice
on a regular basis.
– The members shall offer advice only in those areas where they have
competence and they should seek guidance from qualified individuals
or refer the clients to them on the areas in which they are not
qualified.
– The representatives should be appointed on the basis of reasonable
and appropriate standards.
 4. Code of Ethics of Fairness
• The members shall provide financial planning services in a
manner that is fair
• and reasonable.
• Rules that Relate to the Code of Ethics of Fairness
– While providing financial planning services, the member should
ensure that prospective clients are clearly informed in writing about
the identity of the company providing advice, the nature of services
provided and any material information relevant to the professional
relationship.
– Information regarding the applicable laws and compliance with the
law by the members should also be communicated.
– Clients should also be informed in writing about the internal and
external complaint handling system.
– Compensation to be received by the member should be fair and
reasonable.
 5. Code of Ethics of Confidentiality
• Members shall not disclose any confidential information
pertaining to the client without the specific consent of the
client and unless compelled to by law or as required to fulfill
other legal obligations.

• Rules that Relate to the Code of Ethics of Confidentiality

– The members shall not reveal or use for their own benefits without
the consent of the client, any personally identifiable information
relating to the client relationship except and to the extent that
disclosure or use is reasonably necessary. The information can be
revealed to establish an advisory account, to effect a transaction for
the client, to comply with legal requirements, to defend the member
against charges of wrongdoing or in connection with a civil dispute
between the member and the client.
– A member shall maintain the same standards of onfidentiality to
employers as to clients.

– A member who is doing business as a partner or principal of a financial

services firm has a responsibility to act in good faith and adhere to
reasonable expectations of confidentiality while doing business
together and even thereafter

– Unless compelled by law or to fulfill a legal obligation, any member

who as a member of FPSB has access to information concerning FPSB,
must keep the information confidential.

– When asked for by the client or any of his authorized representatives

about the receipt of any original documents relating to the financial
planning advice the member should provide original copies. These do
not include file notes or other working documents prepared by the
financial
– planner.
 6. Code of Ethics of Professionalism
• The members shall ensure that their conduct does not bring
discredit to the financial planning profession.
• Rules that Relate to the Code of Ethics of Professionalism
– The members shall show respect for other financial planning
– professionals and related occupational groups by engaging in fair and
honorable competitive practices.
– Members should not engage in any conduct that reflects adversely on
their integrity and fitness as a member.
– The members shall engage in business for which they are competent
and qualified and certificated as required by law.
– The members shall maintain professional indemnity insurance in
accordance with the requirement prescribed by the FPSB from time to
time and shall also inform FPSB in writing immediately if there is any
material change to their professional indemnity insurance.
– A member shall not misstate his authority to misrepresent FPSB or his
status as a member of FPSB. He shall not speak or act in such a
manner that another person believes that he is representing FPSB.
 7. Code of Ethics of Diligence
• The members shall act with due skill, care and diligence in
providing financial planning services.
• Rules that Relate to the Code of Ethics of Diligence
– The members shall provide services diligently and on a timely basis.
– The financial planning practitioner shall enter into an engagement
after securing sufficient information from the client and satisfying
himself that the relationship is warranted by the client’s needs and
objectives and that the practitioner has the ability to provide the
requisite competent services.
– In preparing written and oral recommendations to clients, the
practitioner shall collect sufficient information to ensure that
appropriate advice matching with the needs and objectives can be
given.
– While preparing oral or written recommendations to clients, the
practitioner shall develop a suitable financial strategy or plan for the
client based on the relevant information collected and analyzed.

– The recommendations prepared by the financial planning practitioner

shall be understood by the client, i.e. the client should be in a position
to comprehend the recommendations, and the risks involved in each
investment should be explained to the client.

– All significant recommendations shall be made in writing. If any

recommendation is given orally, then the confirmation must be given
in writing as soon as practicable.
– Only those recommendations shall be implemented which are suitable
for the client and which are agreed upon by the client. They should be
implemented in an accurate, efficient and timely manner.
– The client must be warned about the relevant transactions and the
consequences of following these prior to implementation.
– A financial planning practitioner shall not advise the client to move
from one investment to another investment without explaining the
reasons for the move in terms which are easily understood by the
client.
 8. Code of Ethics of Compliance
• The members must maintain knowledge of and comply with
FPSB, India’s code of ethics and rules of professional conduct
and all applicable laws, rules and regulations of any
government, regulatory authority or professional organization
governing the member’s professional activities.

• Rules that Relate to the Code of Ethics of Compliance

– In all professional activities the practitioner shall perform services in
accordance with applicable laws, rules, regulations of government
agencies and other applicable authorities and rules, and other
established policies of FPSB, India.
– In determining whether a member has complied with FPSB, India’s
professional standards, conduct by its representatives and employees
shall be treated as the conduct of the member.

– The member shall use the marks in compliance with the rules of the
FPSB, India.

– A member shall cooperate with the FPSB, India in any investigation or

compliance review.

– The members must comply with the relevant FPSB disciplinary rules
and procedures concerning complaint handling, dispute resolution
and disciplinary procedures.
– A member who is an employee in a financial planning firm shall
perform professional services with dedication to the lawful objectives
of the employer and in accordance with these rules and all laws of
India.

– A member shall comply with all the post-certification requirements

established by the FPSB, India, e.g. payment of annual membership
fees as well as signing and returning the certificate statement
annually, in connection with the certificate renewal process.

– All information and relevant documents given to or gathered by the

member must be securely stored to establish at any time that it has
complied with the FPSB, India’s professional standards. Additionally,
they should be available for inspection by the FPSB, India and be
retained by the practitioner for seven years from the date a document
was last acted upon.
 Rules
• Rules that Relate to the Principle of Integrity
• Rule 101: A CFP Board designee shall not solicit clients
through false or misleading communications or
advertisements
• Rule 102: In the course of professional activities, a CFP Board
designee shall not engage in conduct involving dishonesty,
fraud, deceit or misrepresentation, or knowingly make a false
or misleading statement to a client, employer, employee,
professional colleague, governmental or other regulatory
body or official, or any other person or entity.
• Rule 103 : A CFP Board designee has the following responsibilities
regarding funds and/or other property of clients:

• A. In exercising custody of, or discretionary authority over, client funds or

other property, a CFP Board designee shall act only in accordance with the
authority set forth in the governing legal instrument (e.g., special power of
attorney, trust, letters testamentary, etc.); and

• B. A CFP Board designee shall identify and keep complete records of all
funds or other property of a client in the custody, or under the
discretionary authority, of the CFP Board designee; and
• C. Upon receiving funds or other property of a client, a CFP Board
designee shall promptly or as otherwise permitted by law or provided by
agreement with the client, deliver to the client or third party any funds or
other property which the client or third party is entitled to receive and,
upon request by the client, render a full accounting regarding such funds
or other property; and

• D. A CFP Board designee shall not commingle client funds or other

property with a CFP Board designee’s personal funds and/or other
property or the funds and/or other property of a CFP Board designee’s
firm. Commingling one or more clients’ funds or other property together is
permitted, subject to compliance with applicable legal requirements and
provided accurate records are maintained for each client’s funds or other
property; and
• E. A CFP Board designee who takes custody of all or any part of a client’s
assets for investment purposes, shall do so with the care required of a
fiduciary.
• Rules that Relate to the Principle of Objectivity
• Rule 201: A CFP Board designee shall exercise reasonable and
prudent professional judgment in providing professional services.
• Rule 202:A financial planning practitioner shall act in the interest of
the client.

• Rules that Relate to the Principle of Competence

• Rule 301: A CFP Board designee shall keep informed of
developments in the field of financial planning and participate in
continuing education throughout the CFP Board designee’s
professional career in order to improve professional competence in
all areas in which the CFP Board designee is engaged. As a distinct
part of this requirement, a CFP Board designee shall satisfy all
minimum continuing education requirements established for CFP
Board designees by CFP Board.
• Rule 302: 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.

• Rules that Relate to the Principle of Fairness

• Rule 401: In rendering professional services, a CFP Board
designee shall disclose to the client:
• a. Material information relevant to the professional
relationship, including, conflict(s) of interest, the CFP Board
designee's business affiliation, address, telephone number,
credentials, qualifications, licenses, compensation structure
and any agency relationships, and the scope of the CFP Board
designee's authority in that capacity; and
• b. The information required by all laws applicable to the
relationship in a manner complying with such laws.
• Rule 402: A CFP Board designee in a financial planning
engagement shall make timely written disclosure of all
material information relative to the professional relationship.
In all circumstances and prior to the engagement.
• Rule 403: Upon request by a client or prospective client, the
CFP Board designee in a financial planning engagement shall
communicate in reasonable detail the requested
compensation information related to the financial planning
engagement, including compensation derived from
implementation.
• The disclosure may express compensation as an approximate
dollar amount or percentage or as a range of dollar amounts
or percentages. Any estimates shall be clearly identified as
such and based on reasonable assumptions