Financial Planning Practice and Ethics
This domain tests the financial planning process, regulatory boundaries, and ethical judgment. Questions often turn on disclosure, suitability, confidentiality, and conflicts of interest rather than product knowledge.
The planning process
- Establish and define the relationship; collect data; analyse; develop recommendations; implement; monitor. Use an engagement letter, KYC, risk profile, capacity-for-loss assessment, and documented rationale.
- Advice must be suitable for the client's objectives and circumstances. Record the basis of the recommendation and review triggers.
Ethics and regulation
- Core duties include integrity, objectivity, competence, fairness, confidentiality, professionalism, and diligence. Put the client's interest first; disclose actual and potential conflicts; avoid misrepresentation and guarantees.
- Hong Kong regulators include the SFC for securities and funds, the Insurance Authority for insurance intermediaries, the MPFA for MPF, and the HKMA for banks. Comply with the Personal Data (Privacy) Ordinance, AML/CFT rules, and record-keeping requirements.
- Fees and commissions must be disclosed, including referral fees and soft dollars. Manage bias; do not churn or switch products without client benefit.
Practice issues
- Capacity and vulnerable clients; data privacy; social media; cross-border advice; unauthorised products.
Worked example. An adviser recommends an ILAS with a 5% upfront charge because it pays a higher commission than a lower-cost fund platform. The client's objective is a 10-year education fund. The adviser should disclose the commission, compare net returns and liquidity, document why the ILAS is suitable, and consider the cheaper alternative. If the client cannot tolerate the lock-in, the product should not be recommended. The reasoning is that suitability is judged on the client's interest and total cost, not on adviser compensation.
Traps that cost marks: recommending by commission; using vague risk labels; failing to update KYC; disclosing client data without consent; promising returns; acting outside a licence; not documenting conflicts; and accepting blank-signed forms.