Ethics Cautionary Note
When exams from the October 2024 CFP exam administration were scored, several professional conduct/ethical issues were flagged in a significant number of candidate responses. We are addressing the identified issues here as guidance for
all candidates. These issues, if they had occurred with an actual client, would likely have constituted breaches of the FP Canada Standards Council™ Standards of Professional Responsibility,
which is set and enforced by the FP Canada Standards Council. And, as this guidance is applicable for both QAFP® professionals and CFP professionals, references below to CFP professionals should be interpreted as referring to both groups.
1. Prudent and appropriate recommendations (Rule 22) and gathering the client’s information (Practice Standard 4 and 5)
CFP professionals must only make recommendations that are prudent and appropriate for the client (Rule 22 of the FP Canada Standards Council Rules of Conduct). As an example, when recommending any change to an investment strategy, the
CFP professional must consider all the client’s suitability factors. Prudent strategies and recommendations will take into consideration, among other factors, the client’s current situation, goals, needs, priorities, risk tolerances, and
time horizons for each account.
For example, a CFP professional should not recommend that a client move from a conservative or low risk investment strategy to a moderate risk investment strategy to achieve a higher rate of return (as a proposed solution to achieving retirement income
objectives) without first determining that the change aligns with the client’s actual risk tolerance and time horizons. It is inappropriate to take the following actions:
- Assume that a client can take on additional risk, either with investments or leverage, by reviewing the client’s other investments, the number of years remaining until their retirement, or their equity in fixed assets.
- Suggest, encourage, or insist that a client amend their risk tolerance to adopt a riskier asset allocation to better their chance of achieving a desired goal or level of investment income.
- Change a client’s documented risk tolerance and preferences to match changes in the client’s investment portfolio without first confirming with the client that their actual risk tolerance matches the proposed changes — and that they
have authorized the change based on full and thorough assessment.
- Recommend that clients purchase insurance products and incur costs without an established insurance need or objective.
When assessing the client’s current situation, a CFP professional should consider the client’s financial position; their ability to manage financial emergencies; their ability to meet their financial obligations; and their projected ability
to meet their goals, needs, and priorities (Practice Standard 5). It is also important to note that a client’s risk tolerance, risk capacity, or time horizon can change over time. Discussions should be held with the client and these factors
should be revisited on a regular basis, particularly after major life events.
The FP Canada Standards Council Financial Planning Practice
Standards within the Standards of Professional Responsibility provide guidance for CFP professionals engaged in financial planning activities with clients.
Financial planning professionals should review Practice Standard 4, which requires that CFP professionals gather sufficient qualitative and quantitative information relevant to the engagement, as well as identify and resolve any gaps in information required,
before assessing the client’s current situation and making recommendations. A thorough discovery process can also help ensure the CFP professional’s implicit biases are not inserted into client recommendations and provide clients with
advice that meets their specific goals.
2. Objectivity (Principle 3)
When assessing a client situation, CFP professionals must be objective and be careful not to insert personal biases when providing advice to clients. For example, when assessing a cash flow shortfall and reviewing a list of expenses, it is not the CFP
professional’s role to pass judgement on the validity or acceptability of certain expenses. The Principle of Objectivity (Principle 3) requires impartiality when assessing a client’s situation to exercise sound judgment.
3. Managing conflicts of interest and objectivity (Rule 8 and Principle 1)
CFP professionals have an obligation to disclose conflicts of interest in writing (Rule 8) and to mitigate conflicts in their client’s favour (Principle 1) — i.e. resolving any conflict in a manner that puts the client’s interest first
and ahead of the CFP professional’s interests. CFP professionals must be aware of client situations that may create an actual, perceived, or potential conflict of interest. A conflict of interest is any interest that may adversely affect, or
be perceived as adversely affecting, a CFP professional’s judgment or ability to put the client’s interest first. Potential and actual conflicts of interest must be disclosed to the client(s) in writing.
Where a conflict of interest arises during an ongoing relationship with a client, either between the client and the CFP professional or between clients in the case of a joint engagement, a CFP professional shall, immediately upon discovery of the conflict
of interest, advise the client(s) in writing of the conflict. In such circumstances, the CFP professional shall cease providing services (acting in accordance with the provisions of Rule 14) unless and until the client makes the informed decision
to continue with the engagement for which the CFP professional shall obtain the client’s written consent to continue the engagement.
4. Competence (Rule 25)
A CFP professional must only offer advice in those areas in which they are competent. They must recognize when their ability and/or authority to handle a client situation is limited, such as with
regard to the provision of legal advice or services, and must take steps to either confer with other professionals or, after completing appropriate due diligence, refer the client to another professional for advice or assistance in a particular area.
5. Professionalism (Principle 8)
A CFP professional shall act in a manner reflecting positively upon the profession. Professionalism refers to conduct that inspires confidence and respect from clients and the community and embodies all the other principles within the Code of Ethics.
Professionalism is also reflected in the way we communicate. A CFP professional should convey respect and thoughtfulness and avoid offensive terms to ensure inclusivity and understanding.
To ensure that the integrity of FP Canada’s certifications is upheld, CFP professionals must be knowledgeable about, and adherent to, the principles, practice standards, and applicable rules. Please refer to the Standards of Professional Responsibility for more detail.
