CFP PRINCIPLES ASSIGNMENT PDF

Preview

Summary

ASSIGNMENT 1 ...

Description

Professional Conduct Case Study Sam Smith, a CFP licensee, opened his own financial planning company this year. He called his company Smith and Associates to make is appear more impressive even though the company was made up of just himself and one other newly registered CFP, Jane, that Sam would be supervising until she became more comfortable in her position. Sam had engaged fifty new client relationships in the first six months – so business was fairly good! Most of the clients were quite happy with the services that Sam was providing; however, one couple, Mr. and Mrs. Counterbuckle had been difficult to deal with and had requested that there accounts be transferred to another firm! Sam had just received another voice-mail from Mr. Counterbuckle last week requesting that he return some of their original documents – this was the second time that he had left the same message for Sam over the last month! Sam was extremely busy this week with 10 new client meetings, so he diarized to send the information out next week. To obtain clients Sam asked Jane to place an advertisement in the local newspaper. The ad that Jane took out in the paper promoted the company as having extensive experience in all areas of financial planning including retirement planning, insurance and mutual funds. Sam is currently licensed to sell mutual fund products only but plans to obtain his insurance license within the next several months. Sam has been so occupied over the last couple of years in preparing to open his business that he has not had the opportunity to stay abreast of recent changes in the industry or do any studying for his insurance licensing examination – but he is confident that he will now have the chance to get all caught-up. A new prospect, Betty-Lynn, met with Sam at Smith & Associates based on the advertisement which she had seen in the local newspaper. During the first meeting, Betty-Lynn asked for Sam’s advice on her home insurance policy and Sam confessed that he had not yet written the last exam for his insurance license, but that he had been studying very hard – so he expected to write it in the next month or two. However, since it was a very straightforward and simple question about premiums, Sam answered it and Betty-Lynn was very impressed with this extra level of service! Betty-Lynn then gave Sam a cheque for $125,000 to invest evenly across five mutual funds that Sam personally thought were going to provide the best returns. Sam did not discuss with Betty-Lynn how he was going to get compensated for completing the investment request because she did not seem all that concerned about it – rather, she just wanted the money to be invested as quickly as possible. After the meeting, Sam deposited Betty-Lynn’s cheque in his company’s general bank account since he had not had time yet to open a separate client deposit bank account. Later that same day, after he had finished placing some rebalancing trades on his niece’s RESP account for his sister, Sam remembered about Betty-Lynn’s money and he quickly invested it into three of the same mutual funds that they had discussed earlier. Unfortunately, the trades missed the cut-off for that day, so they would be automatically traded the following day. Sam wasn’t overly concerned about missing the cut-off, he knew mutual funds weren’t as volatile as stocks – so the daily price movement wouldn’t be all that drastic and besides, the markets had been down that day, so it would benefit Betty-Lynn to have the trades entered the following day! Sam had chosen the funds from a group that paid the highest level of commissions, but within that group, he was also careful to choose the funds that had the best recent financial performance. Later that night, Sam told a fellow financial planner, Joyce, about his luck in getting Betty-Lynn as a client. Sam was so excited that he told his friend all about Betty-Lynn and everything that had transpired during the meeting. He also bragged about how much money he was going to make in commissions on selling the mutual funds. It definitely had been a very good day! Use the link below to answer the following questions with reference to the FPSC Standards of Professional Responsibility which outlines the eight principles in the Code of Ethics, as well as, the FPSC Rules of Conduct.

http://fpsc.ca/docs/default-source/FPSC/standards-and-enforcement/standards-of-professionalresponsibility-2018.pdf a) Are there any potential issues that Sam should be aware of in regards to how he promoted and advertised his company? (4 marks)  



Sam committed false advertising. The ad that was put out promoted the company as having immense experience in retirement planning, insurance and mutual funds. Sam is only licensed to sell mutual funds and he has not yet received his insurance license. Smith and Associates advertisement contains misleading representations of their promoted service that could lead people in the wrong place to invest their money, because they do not have enough expertise in financial services. Clients could develop trust issues with the company because they are not being truthful on what they advertise. Sam can be in serious trouble for lying about what services they offer in the advertisement. Advertisements must always be truthful. There could be a variation of truth in advertising laws and regulations that small businesses are supposed to follow. Especially since its as important as insurance license where clients are trusting advisors with their money. Sam could possibly end up receiving a fine and even jail time.

b) With reference to the FPSC Code of Ethics and Rules of Conduct, analyze what happened in the case study and identify at least one issue and the related rule which was violated for each principle within the code of conduct. (16 marks) 1. Duty of Loyalty to the Client: 



Sam is not putting Mr. and Mrs. Counterbuckle first as they are his clients, he continues to delay their request for their accounts to be transferred to another firm, and another voice mail saying to return some of their original documents. Sam has received this message twice in over a month. Sam was putting his busy schedule and diarizing the information for Counterbuckle clients instead of handling them first as they were the first to talk to Sam then the 10 new clients. Sam isn’t thinking about his clients by not staying abreast of recent changes in the industry and by not staying on top of that, it can really affect the client financially and even mentally. He isn’t thinking of his clients, rather just thinking about preparing to open his business. Sam as well didn’t put Betty-Lynn first as he did not put her best interest at heart and made the excuse to say, “she did not SEEM all that concerned” about how he was going to get compensated for completing the investment request. He did not even bother to open a separate client deposit bank account to actually place Betty-Lynn’s mutual funds in because he was only thinking about himself and was too busy. Sam was to place 3 mutual funds that him and BettyLynn had discussed but instead didn’t place them on time as she wanted them to be placed today but Sam had forgotten to do so and was rather doing some balances for his niece’s RESP and because of that he did not put Betty’s mutual funds on time. Rule 6 has been violated as a Certificant holds the funds and/or property of a client, they have the following responsibilities: “A Certificant 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”. Sam violated that as he was given the responsibility to take care of Betty-Lynn's mutual funds and to invest in them evenly but didn’t do so when asked the day of, and Betty trusted him with the amount of money she gave but he was too late to put the money where needed because he was busy helping out his niece instead.

2. Integrity:



The newspaper advertisement violates rule 2, because it was dishonest about the services provided by Sam in hopes of gaining more clients by making him appear more certified than he is.



Sam should have invested Betty-Lynn's money as soon as he received it, failure to do so is directly conflicting with rule 13, as he said he would invest it right away as per the clients' request, but instead he wasn’t able to meet the cut-off time because he held off on depositing the investment. This means he was not honest with his client and failed to act with integrity because he was unable to comply with the code.



Sam shouldn’t have given Betty-Lynn any financial advice regarding her home insurance plans, because he is not legally certified to do so, he should have redirected her to another person or firm who could help her with her home insurance. This is a violation of rule 25. Sam was not acting with integrity, as he failed to follow the codes and he was not making the best and most morale decision for his client.

3. Objectivity

  

Sam failed to discuss with Betty-Lynn on how he was going to get compensation from completing the investment request. He then proceeded to choose funds from a group that paid him the highest amount of commissions. Sam was being biased in his service to Betty-Lynn. He was not being honest, and there was a conflict of interest. Rule 8 is violated. A conflict of interest exists in where the duties of a Certificant is being impacted with the Certificant’s own interests.

4. Competence:



Smith and Associates placed an advertisement that promoted the company having substantial experience in all areas of financial planning. This is false as Sam is only licensed to sell mutual fund products, and he has not received his insurance license.



Over the years Sam has not been attaining the new knowledge from the recent changes in the industry. Sam has not developed and maintained the abilities, skills and knowledge required to efficiently provide the services his company has advertised.



Rule 25 is violated. This rule of conduct states the CFP shall only offer advice in areas in where the CFP is competent.

5. Fairness:



Sam Smith was nowhere fair to his 2 clients, one of them being Mr. and Mrs. Counterbuckle. Sam isn’t being professional towards the couple as he has not completed the work for them when supposed to. He is just helping new clients instead of completing what they asked and treating them as fairly as the new 10 clients he received as he is paying more attention to them rather than finish the job for the Counterbuckle’s a month ago. Sam was not being fair when he had advertised an add saying he had extensive experience in insurance but hasn’t obtained his insurance license yet and claims that he will get it in the next several months. He isn’t being fair because he is deceiving people and making them think he does have his license for insurance and so people are not getting the actual help from professionals that have their insurance licenses. Example would be Betty-Lynn when she went and gave Sam $125,000 to invest in 3 mutual funds but he did not provide her with the reasonable expectation as to what he was going to get compensated for completing the investment request and not being honest that he did not actually do what Betty asked and invest Betty’s money into three of the same mutual funds they had discussed earlier for the exact day to invest.



Rule 2 has been violated because in their professional practice, Certificants must treat colleagues, clients, employees and all others fairly, respectfully and in a manner that garners trust and Sam did not do that to two of his clients and also because of that advertisement he put out.

6. Confidentiality:



Sam violated this principle when he leaked the information to Joyce. He should not have told her about everything that transpired in the meeting between himself and Betty-Lynn. This is a breach of the clients trust and relationship with him as Joyce is not authorized to this information, and Sam disclosed it without Betty-Lynn's knowledge.



This is against rule 28, because he does not have written consent from Betty-Lynn to discuss their meeting and it is not to handle legal matters.

7. Diligence:



Sam didn’t fulfill his duty to assist Mr. Counterbuckle in a timely manner. Sam was ignoring Mr. Counterbuckle’s request twice in a month. That could potentially lose Mr. Counterbuckle’s trust to Sam and to his company because he didn’t give attention to Mr. Counterbuckle’s request.



Sam didn’t give much effort in giving Betty-Lynn information about how much compensation he would receive from completing the investment. Sam should be transparent to Betty-Lynn so that she will know the reduced amount on her investment.



Rule 13 and 7 are violated. Rule 13 is about fulfilling professional commitments in a timely manner and Rule 7 is about disclosing important information to the client.

8. Professionalism:



Sam is not being professional when he bragged about how much he was going to make in commission on selling the mutual funds to his fellow financial planner. Sam’s action and attitude reflects to the whole company and he should respect his other colleague.



Sam shouldn’t share any confidential information to his other colleague because the client trusts Sam with her information and it's just between Sam and the client.



Rule 6 is violated. Rule 6 is about taking professional responsibility to the client....