March 28

Ethics that Certified Financial Planners subscribe to and what they mean to you


Financial advisors for very long has been criticized for misselling and breaching the trust of their customers. The focus, it has been alleged, has been more towards increasing their income and the client’s interest was neglected.Even ethically-minded professionals have not given enough attention to ethical issues because they face demands on their business lives.

As a result there has been an increasing demand for professionals who can treat a consumer fairly and honestly. Recent events led to a change in regulator’s stance. Regulatory changes have taken into account the plight of consumers and they have brought in changes that protect the consumer’s interest.

Certified Financial Planners (CFPs) have been in existence in the US and other countries for long but for Indian consumers they are professionals whose way of working is new to them. What differentiates these professionals from other advisors is the approach towards their client’s interest.

Although CFPs have to go through rigorous examinations and education to be able to offer financial planning services, what makes them work towards their client interest is the code of ethics which every financial planning professional has to subscribe to. This code of ethics is laid down by Financial Planning Standards Board (FPSB) and it very clearly defines the rights of a consumer.

What is this Code of Ethics and how does it help a consumer?

1.      Integrity: A CFP has to place the client’s interest on top and should not work for personal gain and advantage. The rules require planners to avoid misleading ways of soliciting business, fraudulent conduct, and mishandling of client’s funds. For a consumer, they can place trust and confidence on such professionals.

2.      Objectivity: Objectivity requires working in client’s best interest. It is an essential quality for any professional. A financial planner will make timely written disclosure of all material information (including compensation from range of products) relative to the professional relationship. For a consumer,this ensures that his interest is put on priority and the financial planner is using reasonable and prudent judgment in making decisions for his clients.

3.      Competence: As a member of FPSB, the planner needs to take continuing education classes to maintain the necessary knowledge and skill to continue providing quality services to their clients.This also helps the planner to know the limitation of their competence and seek counsel of qualified individuals and/or refer clients to such parties.As a consumer, you are sure that the professional from whom you are seeking advice is qualified and has sufficient knowledge.

4.      Fairness: The financial planner must disclose specific information about conflicts of interest, including compensation from outside sources such as mutual funds, insurance, and brokerage.Also the fee charged should be reasonable and the planner should not engage in personal business transactions.This ensures that the client is charged fairly and honestly.

5.      Confidentiality:A client,by seeking the services of a financial planner, may be interested in creating a relationship of personal trust and confidence with the practitioner. This type of relationship can only be built upon the understanding that information supplied to the planner or other information will be confidential.By following this code, a CFP is able to retain the trust and confidence of his clients.

6.      Professionalism: A CFP need to enhance and maintain the profession’s public image and behave with dignity and courtesy to all those who use those services, fellow professionals, and those in related professions. The planner engages in fair and honorable competitive practices.For a consumer it means a professional environment and an improved quality of service.

7.      Diligence:A financial planning professional enters into engagement only after securing sufficient information. This due diligence makes sure that clients are satisfied that the relationship is warranted by their need and objectives and they are aware of the planner’s scope of services.

8.      Compliance: The financial planner should comply with rules and established policies of FPSB along with laws, rules and regulations of governmental agencies and other applicable authorities. One of the rules of compliance states that the financial planner has to retain a record of all his clients for seven years. For a consumer, this means the financial planner’s advice will be strictly based on analysis of disclosed information and within the prescribed regulations of the country.

A Certified Financial Planner has to follow above code of ethics very rigorously throughout their career and non-adherence to any of the rules can lead to inspection by FPSB. In the worst case, it can also lead to a termination of the license of the practitioner if the rules are not complied with.

As a consumer, by knowing the rules that govern your financial planner, you can get valuable information about what to expect. In addition, even if you work with other finance professionals, you can apply these rules to decide what standards you want the professionals to follow.


Certified Financial Planner, CFP, Financial Planner

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