Disciplinary Actions in Financial Planning
One of the hallmarks of any credential-granting professional body is that it has a well-established disciplinary process. The credential-granting body to which I answer is FP Canada. A division of FP Canada, the FP Canada Standards Council™, establishes and enforces the standards that are required of CFP® and QAFP™ professionals. Part of the enforcement process is the publication of its disciplinary actions. While I do not take any glee in reading how a financial planner has breached confidentiality or ignored a blatant conflict of interest, it is important for the development and integrity of financial planning that these findings are disclosed. In this blog post, I present abbreviated summaries of some recent disciplinary actions.
Admitted Conduct: Unauthorized transactions after the death of a client
After being advised that his client passed away, the Respondent nonetheless proceeded to process two investment fund transactions after her death, without authorization of an estate administrator or other authorization, and thereby failed to act with diligence and integrity and engaged in any conduct that reflects adversely on his integrity or fitness as a Certificant, the certification marks or the profession.
The Respondent’s certification was suspended for six months, was ordered to cease using the CFP certification marks or hold himself out as a CFP professional, and required to complete a total of seven continuing education credit hours in the areas of professional responsibility, practice management, and financial planning, and pay costs of $3,500 as preconditions for recertification.
Admitted Conduct: Processing transactions that placed the planner’s interests first
The Respondent processed 18 transactions in respect of 18 clients as redemptions and purchases, rather than as switches, to ensure that the transactions counted toward his sales targets established by his employer. By engaging in this conduct and placing his interests first, the Respondent failed to make only those recommendations and implement those strategies that were prudent and appropriate for the clients and failed to act in his clients’ best interests.
The Respondent failed to disclose the conflict of interest to his clients, in writing or otherwise, arising from his decision to process transactions as redemptions and purchases as opposed to switches, and failed to obtain their written consent to continue acting on their behalf.
The Respondent’s CFP certification and entitlement to use the CFP marks were suspended for eight months; was ordered to cease holding himself out to clients or the public as a CFP professional; was required to complete an additional four hours of Continuing Education in the areas of professional responsibility and practice management; and required to pay costs of $2,000 to FP Canada before being able to seek recertification.
Admitted Conduct: Forging of signatures
The Respondent forged two clients’ signatures on their life insurance applications; obtained copies of two clients’ signatures for the purposes of copying their signatures onto applications, without their authorization or knowledge; obtained instructions and information from one client and failed to obtain instructions directly from her spouse, who was also a client; withdrew his clients’ applications for life insurance without their authorization or consent and without disclosure to the insurer; and failed to provide professional services in accordance with the applicable laws, regulations, rules or established policies of other applicable authorities.
The Respondent was banned from seeking renewal or reinstatement of his CFP® certification, or any certification with FP Canada, for six months; banned from using the CFP certification marks until reinstated and in good standing; required to complete the annual hours of Continuing Education required of any certificant plus successfully complete the “Identifying Ethical Obligations in Discovery” course; and pay costs of $1,500 to FP Canada before being able to seek reinstatement of his certification.
Admitted Conduct: Changing client phone numbers
The Respondent intentionally changed client phone numbers in his employer’s database to gain a competitive advantage before moving to another employer; used personal or confidential client information without the written consent of the clients; and failed to provide professional services in accordance with applicable laws, regulations, rules or established policies of governmental agencies and other applicable authorities.
The Respondent was suspended for six months; required to cease using the CFP certification marks or hold himself out to clients or the public as a CFP professional; in addition to completing the standard Continuing Education hours required of every CFP professional, required to complete the Introduction to Professional Ethics program and two credit hours in practice management; and pay costs to FP Canada of $1,500 as preconditions to recertification.
These are only intended as summaries of a few cases. It should be noted that the persons disciplined were holders of licences that permitted them to engage in the sale of mutual funds, securities, or life insurance products. In several cases, they had already gone through a disciplinary process with the body that had issued their licences.
You can read more details of these and other cases on FP Canada’s website under the section identified as Disciplinary Actions here.
Standards of Professional Responsibility
The CFP registrants who were disciplined in these cases were generally found to have violated one or more of the Principles of the Code of Ethics as well as various Rules of Conduct. These principles and rules are found in FP Canada’s Standards of Professional Responsibility.
For the Public
You may wish to attend to this particular paragraph on page 4 of the Standards, which is addressed to the public: “A strong Code of Ethics is first and foremost about serving the public. It is the Certificant’s pledge to their clients. A client should view the Code of Ethics as setting their expectations for how they will be treated by a Certificant. The Code of Ethics should assure clients that they are working with a professional who is committed to ethically, competently and diligently helping them achieve their life goals.”
Principles of the Code of Ethics
Below are the principles of the codes of ethics as found on page 5 of the Standards of Professional Responsibility. This latest version of the Standards came into effect on May 1, 2022.
Principle 1: Duty of Loyalty to the Client
The Duty of Loyalty encompasses:
- The duty to act in the client’s interest by placing the client’s interests first. Placing the client’s interests first requires the Certificant place the client’s interests ahead of their own and all other interests;
- The obligation to disclose conflicts of interest and to mitigate conflicts in the client’s favour; and
- The duty to act with the care, skill and diligence of a prudent professional.
Principle 2: Integrity
A Certificant shall always act with integrity.
Integrity means rigorous adherence to the moral rules and duties imposed by honesty and justice. Integrity requires the Certificant to observe both the letter and the spirit of the Code of Ethics.
Principle 3: Objectivity
A Certificant shall be objective when providing advice and/or services to clients.
Objectivity requires intellectual honesty, impartiality and the exercise of sound judgment, regardless of the services delivered or the capacity in which a Certificant functions.
Principle 4: Competence
A Certificant shall develop and maintain the abilities, skills and knowledge necessary to competently provide advice and/or services to clients.
Competence requires attaining and maintaining a high level of knowledge and skill, and applying that knowledge effectively in providing advice and/or services to clients.
Principle 5: Fairness
A Certificant shall be fair and open in all professional relationships.
Fairness requires providing clients with what they should reasonably expect from a professional relationship, and includes honesty and disclosure of all relevant facts, including conflicts of interest.
Principle 6: Confidentiality
A Certificant shall maintain confidentiality of all client information.
Confidentiality requires that client information be secured, protected and maintained in a manner that allows access only to those who are authorized. A relationship of trust and confidence with the client can be built only on the understanding that personal and confidential information will be collected, used and disclosed only as authorized.
Principle 7: Diligence
A Certificant shall act diligently when providing advice and/or services to clients.
Diligence is the degree of care and prudence expected from Certificants in the handling of their clients’ affairs. Diligence requires fulfilling professional commitments in a timely and thorough manner and taking due care in guiding, informing, planning, supervising, and delivering financial advice and/or services to clients.
Principle 8: Professionalism
A Certificant 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 of the other principles within the Code of Ethics.
This is the 157th blog post for Russ Writes, first published on 2022-07-25.
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Disclaimer: This blog post is intended for general information and discussion purposes only. It should not be relied upon for investment, insurance, tax, or legal decisions.