Professional Ethics and Fiduciary Standards
Fiduciary duty
A fiduciary acts in the client's best interest, placing the client's interests above the professional's own. The duty includes loyalty, care, disclosure of conflicts, and suitability of recommendations. Know the difference between a fiduciary standard and a suitability standard; the former is stricter.
Integrity and objectivity
Ethical practice requires competence, confidentiality, fair dealing, and honest communication. Professionals must avoid misrepresentation, disclose compensation methods (fee-only versus commission), and manage conflicts of interest.
Confidentiality
Client information is protected unless disclosure is required by law or authorized by the client. Know how confidentiality applies to third parties and family members.
Professional practice standards
Understand the steps: define the relationship, gather data, analyze, develop recommendations, implement, and monitor. Documentation supports compliance and protects both client and planner.
Worked example
A planner earns a commission on a product that is not the lowest-cost option for the client. Under a fiduciary standard, the planner must disclose the conflict and recommend the option that best serves the client, even if it pays less. Under a suitability standard, the recommendation need only be suitable, not necessarily best.
Traps
Questions test whether a specific action is a conflict of interest, whether disclosure is sufficient, and the distinction between the fiduciary and suitability standards.