CFP Professional Competency Examination cheat sheet

Fiduciary duty has two core components: a duty of loyalty (place client interests first, avoid or disclose conflicts) and a duty of care (competence, diligence, and a reasonable basis for recommendations).

The financial planning process is cyclical, not linear: establish and define the relationship, gather data and goals, analyze the current situation, develop recommendations, present them, implement, then monitor and update.

Material conflicts of interest must be disclosed in writing before or at the time of engagement; disclosure alone does not cure a conflict that biases the advice, so mitigation or avoidance is also required.

Informed consent requires capacity, adequate disclosure of risks and alternatives, voluntariness, and documentation of the client's decision.

Scope-of-engagement documents should state services provided, services excluded, fee structure, term and termination, and each party's responsibilities.

Client confidentiality yields to legal compulsion, court order, client-authorized disclosure, and the need to defend against a claim; disclose only the minimum necessary.

Competence is bounded: a planner who lacks expertise in an area (e.g., complex estate tax) must refer, collaborate, or decline rather than proceed without a reasonable basis.

Ethical decision frameworks rank duties when they collide: legal requirements first, then fiduciary duties to the client, then obligations to the firm and profession.

Competency requires three elements together: technical knowledge, practical application skill, and the judgment to know when a situation exceeds one's expertise.

Continuing education obligations typically require a set number of hours per cycle, with a minimum portion in ethics; verify the current cycle length and hour counts with the certifying body.

Principal-agent and suitability standards differ from fiduciary standards: suitability permits recommendations consistent with the client's interest, while fiduciary requires advice in the client's best interest.

Supervisory responsibility attaches to anyone who reviews, approves, or directs another person's work; inadequate supervision can create liability independent of the underlying error.

Documentation standards: record the facts gathered, alternatives considered, rationale for the recommendation, client decisions, and follow-up dates.

A planner's own capacity limits (time, licensing, product access) must be disclosed when they constrain the advice offered.

Professional standards apply to conduct outside client engagements where it bears on fitness to practice, including fraud, dishonesty, and misuse of client information.

Referral arrangements require disclosure of any compensation received and a reasonable basis for believing the referred professional is competent.

Best interest analysis weighs cost, reasonably available alternatives, product features, and the client's objectives; the lowest-cost option is not automatically required, but cost must be considered.

Conflicts must be identified, then avoided, mitigated, or disclosed; the sequence matters because disclosure is the weakest remedy for a conflict that skews advice.

Risk tolerance, time horizon, liquidity needs, tax situation, and capacity for loss are distinct inputs; conflating risk tolerance with capacity for loss produces unsuitable allocations.

Recommendations must be reviewed in light of reasonably available alternatives, including lower-cost share classes, index options, and doing nothing.

Rollover and transfer recommendations require comparison of fees, services, investment options, and loss of protections in the existing plan.

Annuity and insurance recommendations require analysis of surrender charges, guaranteed vs. projected values, and the client's liquidity needs.

Capacity assessment: when diminished capacity is suspected, document observations, involve trusted contacts consistent with client authorization, and consider a referral for a formal evaluation.

Ongoing monitoring is part of best interest advice when the engagement includes it; without monitoring, the scope must say so explicitly.

Anti-money-laundering programs require a written policy, a designated compliance officer, ongoing training, and independent testing; suspicious activity is reported to the financial intelligence unit, not to the client.

Know-your-customer obligations require verifying identity, understanding the source of funds, and ongoing monitoring of the relationship.

Privacy rules generally require an initial notice, an annual notice where applicable, an opt-out for certain sharing, and safeguards for nonpublic personal information.

Recordkeeping: client communications and recommendations should be retained per the applicable regulator's schedule; the exact retention period varies by jurisdiction and rule set.

Advertising and marketing rules restrict testimonials, guarantees of performance, and misleading use of titles; verify the specific rule set that governs the planner.

Registration and licensing depend on the activity performed and the jurisdiction; giving advice for compensation generally triggers a licensing requirement.

Conflicts of interest disclosures must be specific enough that a client can understand the nature and magnitude of the conflict.

Data security obligations include written information security programs, access controls, vendor oversight, and breach notification procedures.