CFP Notes: Professional Conduct and Regulation - Financial Planning Practice Standards

Purpose and Applicability
The Practice Standards are designed to set the level of professional practice required of a CFP designee engaged in personal financial planning. The Practice Standards advance professionalism in financial planning and enhance the value of the financial planning process. These standards are set also to help practitioners focus on what clients need.

There are ten standards that have been drafted by the Board of Practice Standards, with one or more being assigned to each step in the financial planning process. The Practice Standards do not require that financial planners provide comprehensive planning for clients.

Compliance with Practice Standards is discussed in Rule 606 (b) of the Code of Ethics.

100 and 200 Series
The 100 series of the Practice Standards is about establishing and defining a relationship with a client. Standard 100-1 states that the scope of the engagement should be defined before any financial planning service is provided. The 200 series of the Practice Standards is about gathering client data. Standard 200-1 states that a financial planner should determine a client’s personal and financial goals, needs, and priorities before making or implementing any recommendations. Standard 200-2 states that a financial planner must obtain quantitative information and documents before making or implementing any recommendations. If such information or documentation is not obtained, the engagement should either be limited or terminated.

300 and 400 Series
The 300 series of the Practice Standards pertains to analyzing and evaluating the financial status of the client. Standard 300-1 states that a financial planner should analyze in order to understand the client’s financial situation and to determine how the client’s goals can be met. The 400 series is about developing and presenting financial planning recommendations. Standard 400-1 states that a financial planner should identify and evaluate the financial planning alternatives that can achieve the client’s goals, needs, and priorities. Standard 400-2 states that a financial planner should develop his or her recommendations from this set of alternatives.

Standard 400-3 states that a financial planner should the present his or her recommendations to the client.

500 and 600 Series and Enforcement
The 500 series of the Practice Standards is about implementing the financial planning recommendations. Standard 500-1 states that the financial planner and the client should agree on the implementation responsibilities. Standard 500-2 states that they should also select products and services for implementation. The 600 series involves monitoring the implemented strategies. Standard 600-1 states that the financial planner and client must mutually define monitoring responsibilities. CFP designees are required to practice in a manner consistent with these Practice Standards. The enforcement of the Practice Standards is based on the disciplinary rules and procedures established by the CFP Board and administered by the Board of Professional Review and Board of Appeals.