Certified Financial Planner (CFP) Professional Conduct, Regulation, and the Financial Planning Process Flashcards

24 sample cards from the Professional Conduct, Regulation, and the Financial Planning Process deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. What is the SEC's recordkeeping rule for registered investment advisers under the Investment Advisers Act of 1940?

   Rule 204-2 (the 'books and records' rule) requires advisers to keep specified books and records, generally for at least 5 years (the first 2 years in an easily accessible place), and certain corporate/partnership records for the life of the firm plus 3 years after dissolution.

2. What is the Investment Advisers Act of 1940 and whom does it regulate?

   A federal law that regulates investment advisers — persons who, for compensation, are engaged in the business of advising others about securities. It requires registration (with the SEC or states), imposes a fiduciary duty, and prohibits fraudulent and deceptive practices.

3. Define an 'investment adviser' under the three-part test of the Investment Advisers Act of 1940.

   A person who (1) for compensation, (2) is engaged in the business of, (3) providing advice or issuing reports/analyses about securities. All three prongs must be met to be an investment adviser.

4. What is the federal/state registration threshold ('division of regulatory responsibility') for investment advisers post Dodd-Frank?

   Generally, advisers with $100 million or more in assets under management (or advising registered investment companies) must register with the SEC; advisers with less than $100 million register with the state(s). 'Mid-sized' advisers ($25M–$100M) typically register with the state unless not subject to state exam or required to register in 15+ states.

5. What is Form ADV and what are its two parts?

   Form ADV is the uniform registration/disclosure form for investment advisers. Part 1 contains business and disciplinary information filed with regulators; Part 2 is the narrative 'brochure' (2A) and brochure supplement (2B) written in plain English and delivered to clients describing services, fees, conflicts, and disciplinary history.

6. Name the key federal securities statutes in the U.S. securities regulation framework and what each governs.

   Securities Act of 1933 (registration/disclosure of new securities issues — the 'truth in securities' law); Securities Exchange Act of 1934 (secondary trading, exchanges, brokers/dealers, created the SEC); Investment Company Act of 1940 (mutual funds/investment companies); Investment Advisers Act of 1940 (investment advisers); and Dodd-Frank (2010).

7. What is the difference between a fiduciary standard and the suitability/Reg BI standard for brokers?

   Investment advisers are held to a fiduciary standard (must act in the client's best interest at all times). Broker-dealers historically followed a suitability standard; under SEC Regulation Best Interest (Reg BI, effective 2020) they must act in the retail customer's best interest at the time of a recommendation without placing their own interests ahead of the customer's.

8. What does the Gramm-Leach-Bliley Act (GLBA) require regarding consumer financial privacy?

   Financial institutions must provide consumers a privacy notice explaining information-sharing practices, give consumers the right to opt out of sharing nonpublic personal information with nonaffiliated third parties, and implement safeguards to protect customer data (the Safeguards Rule).

9. What consumer protection does the Fair Credit Reporting Act (FCRA) provide?

   It governs the collection, accuracy, and use of consumer credit information by credit reporting agencies; gives consumers the right to access their credit report, dispute inaccuracies, and be notified of adverse actions; and limits who may access a credit report and for what permissible purposes.

10. What does Regulation S-P require of SEC-registered firms?

    Regulation S-P (the privacy rule implementing GLBA for SEC registrants) requires broker-dealers and investment advisers to deliver privacy notices, honor opt-out rights, and adopt written policies and procedures to safeguard customer records and information.

11. What are the four possible forms of discipline (sanctions) the CFP Board may impose, from least to most severe?

    (1) Private Censure (private written reproach); (2) Public Censure (published reproach); (3) Suspension of the right to use the CFP marks (up to 5 years); and (4) Permanent Revocation of certification.

12. Outline the basic stages of the CFP Board's disciplinary (enforcement) process.

    Complaint/inquiry → investigation by CFP Board Counsel → issuance of a Complaint if probable cause of a violation → respondent's Answer → hearing before the Disciplinary and Ethics Commission (DEC) → DEC decision and sanction → possible appeal to an Appeals Committee. Settlement may occur at various stages.

13. What is the standard of proof in a CFP Board disciplinary proceeding, and who bears the burden?

    The standard of proof is generally a 'preponderance of the evidence' (more likely than not). CFP Board Counsel bears the burden of proving the alleged violation.

14. What CFP Board mechanisms create automatic/interim bars or summary actions?

    Conduct deemed unacceptable always bars certification (e.g., felony conviction for theft, embezzlement, fraud, tax fraud, or violent crimes). The CFP Board may also issue an Interim Suspension (e.g., upon a felony conviction or professional license revocation) and Administrative Termination for failing to meet certification requirements.

15. What is the difference between values, attitudes, and goals in client psychology?

    Values are deeply held core beliefs about what is important (e.g., security, family, freedom); attitudes are predispositions or feelings toward a person, object, or idea (more changeable than values); goals are specific desired future outcomes that flow from values and attitudes.

16. What are common behavioral/cognitive biases a CFP professional should recognize in clients?

    Examples include anchoring, confirmation bias, overconfidence, recency bias, loss aversion (prospect theory), mental accounting, herd behavior, familiarity/home bias, availability bias, and the disposition effect (selling winners too early, holding losers too long).

17. Distinguish loss aversion from risk aversion in client psychology.

    Risk aversion is a general preference for certainty over uncertainty (disliking variability of outcomes). Loss aversion (from prospect theory) is the tendency to feel the pain of a loss roughly twice as strongly as the pleasure of an equivalent gain, causing clients to take irrational steps to avoid realizing losses.

18. What is the difference between counseling and advising in financial planning communication?

    Advising is directive — the planner provides expert recommendations and solutions. Counseling is facilitative — the planner uses interpersonal skills to help clients explore feelings, clarify goals and values, overcome resistance, and reach their own decisions. Effective planning blends both.

19. Name key active-listening and communication techniques used in financial counseling.

    Attending (eye contact, posture, body language), using open-ended vs. closed-ended questions, reflecting/paraphrasing, clarifying, summarizing, empathy, appropriate silence, and recognizing nonverbal cues (tone, facial expressions, gestures).

20. What is the difference between an open-ended and a closed-ended question in client interviews?

    Open-ended questions invite expansive, narrative responses (e.g., 'How do you feel about retiring early?') and are used to gather rich qualitative information. Closed-ended questions elicit short, specific, or yes/no answers (e.g., 'What is your annual salary?') and are used to confirm facts.

21. What are the three counseling theory approaches a financial planner may draw upon?

    Classical/cognitive (focuses on rational thoughts and changing distorted thinking), behavioral (focuses on changing observable behaviors via reinforcement), and humanistic/client-centered (focuses on empathy, unconditional positive regard, and helping clients self-actualize toward their own solutions).

22. What is 'money scripts' as it relates to client psychology?

    Money scripts are unconscious, typically childhood-rooted beliefs about money that drive financial behaviors. Common categories include money avoidance, money worship, money status, and money vigilance; recognizing them helps planners address self-defeating financial behavior.

23. Describe a structured ethical decision-making framework a CFP professional can apply to a dilemma.

    A common model: (1) identify the facts and the ethical issue/conflict; (2) identify the affected stakeholders and the duties owed (client, firm, public, profession); (3) identify applicable rules in the Code and Standards and the law; (4) evaluate alternative courses of action and their consequences; (5) choose and implement the action that best satisfies fiduciary and ethical duties; (6) document and reflect on the outcome.

24. Under the CFP Board Standards, what is the order of priority when the interests of the client, firm, and CFP professional conflict?

    The client's interests come first. A CFP professional providing Financial Advice must act in the best interest of the client, placing the client's interests above those of the professional and the firm, and must avoid or fully disclose and manage any conflict.

What this deck covers

Professional Conduct, Regulation, and the Financial Planning Process flashcards FAQ