CFP Board Code of Ethics: Are You in Compliance?

All CFP^® professionals must agree to abide by a code of ethics and standards of professional conduct that center on protecting clients and complying with employer policies. In 2019, CFP Board enacted a new code and standards, which began June 30, 2020. Those who violate the code and standards are subject to discipline. This article shares some examples of violations and disciplinary actions.

CFP Board Code of Ethics and Standards of Professional Conduct: What Are They?

CFP Board’s Code of Ethics and Standards of Professional Conduct require CFP^® professionals to put the interests of their clients above their own in all circumstances and not just when acting as their financial advisors. In addition, they must act with integrity, respect, and professional competence. Serious disciplinary actions are taken against anyone who violates the code and standards. For industry-related violations, CFP Board maintains an anonymous list of professionals who have been disciplined with revocation of the certification, suspension of up to five years, a public letter of admonition, or private censure.

Some violations are easy to understand and remember. Anyone convicted of theft, embezzlement, a violent crime, murder or rape, tax fraud or other tax-related crimes will face permanent revocation of the CFP^® mark. Other criminal or felony charges can result in a suspension. Anyone who files for bankruptcy is likely to be disciplined with a suspension or revocation of the mark. And, those who violate the standards but are not convicted of a crime will receive either a suspension, a public letter of admonition, or private censure. Here are examples of some of the other actions and activities that violate the code of ethics and professional standards of conduct.

Employer Policy Violations

CFP^® professionals are required by the code and standards to follow their employers’ rules and policies, yet the majority of CFP Board ethics and standards violations are for not doing that. The discipline for this violation is most likely to be a suspension. For example, a professional received a suspension for obtaining reimbursement from his firm for computer equipment he purchased but then returned or cancelled, encouraging other employees to follow suit, and lying to firm investigators about it. Another professional was suspended for failing to properly supervise an individual’s sale of complex products and unsuitable Class A mutual fund shares.

There has been at least one case where the professional had their CFP^® certification revoked for improper employee conduct. The professional had participated in at least three separate outside business activities without informing his employer, loaned money to three clients, and presented a private securities transaction to clients that resulted in eight of them investing in the transaction. He then completed an employer questionnaire stating that he was not participating in any outside business activities that required disclosure and that he had not participated in any private securities transactions.

Misrepresentation

The second most common violation of CFP’s code of ethics and standards of conduct is misrepresentation; there are 92 examples of it in CFP Board’s list of disciplined professionals. The term covers a broad range of improper and illegal behavior. The most common are claiming to only offer fee-based services when that is not the case and informing CFP board that required continuing education has been completed when, in reality, it has not. Those who falsely claim to be fee-based advisors usually receive letters of admonition, but lying about continuing education results in suspension.

A more unusual example is the suspension of one CFP^® professional who:

• Used unreasonable assumptions that resulted in large overstatements of fund investment values to investors

• Falsely claimed in MD&As (management discussion and analyses) sent to fund investors that a fund’s principal investment relationship with a foreign company was a partnership

• Disclosed to clients and prospective clients that he had obtained a letter of intent to invest from a large development bank when this was not true

Failure to Exercise Fiduciary Duty

For a CFP^® professional, fiduciary duty means putting the interests of your clients above your own at all times. Discipline for those who do not act in a client’s best interest is either suspension or a letter of admonition. For example, a financial advisor received a letter of admonition for charging clients an unreasonable investment fee and failing to disclose the risks involved with Real Estate Investment Trusts.

Another CFP® professional was suspended for directing his clients to sign incomplete and blank forms, including account registration forms, transfer forms, and annuity application forms. None of these included written disclosure of information such as fees, sales charges, or surrender charges. And, finally, another financial advisor was issued a letter of admonition for not exercising his fiduciary duties. Among his long list of transgressions was the fact that he lied to clients and prospective clients, telling them that all advisors who earn commissions make recommendations based on their own personal enrichment, fail to disclose all relevant facts, and do not act in the client’s best interest.

Misconduct

Misconduct is most likely to result in suspension. In one case, a professional was suspended when he took approximately $19,000 from a Scholarship Fund during the period of 2005 to 2012 and used a significant portion of that money for his personal benefit. In 2018, another professional was suspended for convincing her client, who was also her mother, to transfer assets to her, which was not acting in her mother’s best interest. Another example is a professional who was suspended after making material misstatements and omissions to his clients while recommending that the clients invest in what was found to be a Ponzi scheme.

CFP® Exam Violations

CFP Board also disciplines individuals who have not earned the mark for exam violations and misconduct. For example, CFP Board imposed a two-year delay on any validation of one candidate’s prior passing score after he posted a summary of contents of the CFP® exam on a Reddit message board. Another candidate was barred from taking the exam for two years when he removed a sheet of scratch paper from the scratch booklet, concealed it, and then left the testing center with it. When asked to return the paper, he denied that he had it.

Increase Your Odds of Complying with CFP Board’s Code of Ethics and Standards of Professional Conduct

Understanding the CFP Board code and standards is critical to earning and keeping your CFP® mark. Our education packages can help you get up to speed on all the rules, so you are not surprised on exam day or in your future career.