Financial Planning Foundations and Professional Ethics
Domain 1 examines the financial planning process and the professional conduct expected at each stage. Scenario questions typically ask what the planner should do next, how a conflict of interest must be handled, or which standard has been breached.
The planning process
The process is cyclical, not a one-off sale:
- Establish and define the relationship: scope, responsibilities, compensation, duration.
- Gather client data and goals: quantitative facts and qualitative attitudes.
- Analyse the current position: statements, ratios, gaps.
- Develop and present recommendations: alternatives, costs, risks.
- Implement: agree responsibilities and obtain authority.
- Monitor and review: progress, changes in law, markets, and client circumstances.
Ethical standards
A planner owes a fiduciary duty: act in the client's best interest, with integrity, objectivity, competence, confidentiality, fairness, and diligence. Disclosure must be timely, in writing where required, and understandable. Conflicts must be avoided, or disclosed and managed; disclosure alone does not cure a conflict that biases advice. Planners must stay within competence and refer when necessary. Client information may be used only for the engagement. Records should show the basis for recommendations.
Worked example
A planner recommends a product that pays a commission. The client is told orally that 'a commission applies'. Is that sufficient? No. The planner should disclose the amount or rate and how it is paid, in writing before the recommendation; explain that the planner may favour the product; show lower-cost or no-commission alternatives; document the client's decision; and confirm the recommendation remains in the client's best interest. If the conflict cannot be managed, decline or refer.
Traps that cost marks
- Treating disclosure as consent, or oral disclosure as adequate.
- Equating legality with ethics; a lawful product sale can still breach fiduciary duty.
- Skipping the data-gathering or monitoring step and jumping to a product.
- Advising outside competence, for example on complex tax or legal issues.
- Failing to document scope, conflicts, and client instructions.