CFP Professional Competency Examination key terms

A legal obligation to act solely in another party's best interest, placing the client's welfare ahead of the adviser's own and requiring loyalty, care, and full disclosure of conflicts.

A conduct requirement that advice and recommendations serve the client's interests rather than the adviser's, typically satisfied through documented analysis of costs, alternatives, and the client's objectives.

The determination that a recommendation fits a client's financial situation, objectives, risk tolerance, time horizon, and knowledge, judged against the client's stated profile rather than the adviser's gain.

A requirement to collect and keep current information about a client's finances, goals, risk appetite, tax position, and experience before giving advice or accepting an order.

The practice of telling a client, clearly and before or at the point of advice, about any personal, financial, or business interest that could bias a recommendation, so the client can judge the advice fairly.

A personal or financial interest significant enough that a reasonable client would want to know about it before deciding, such as commission-based compensation, proprietary products, or referral fees.

A client's agreement to a course of action given after receiving complete, understandable information about the recommendation, its risks, costs, and the adviser's conflicts.

A structured record of a client's personal and financial circumstances, goals, constraints, and preferences that forms the factual basis for every planning recommendation.

The process of measuring how much investment volatility and potential loss a client can accept emotionally and financially, distinguishing willingness to take risk from actual capacity to bear it.

A written agreement defining the scope of planning services, fees, responsibilities of each party, duration, and limits of the relationship, signed before work begins.

The specific planning areas, deliverables, and boundaries the adviser and client agree to, clarifying what is included and what is expressly excluded from the relationship.

An integrated written analysis covering cash flow, risk management, investments, taxes, retirement, and estate planning, with coordinated recommendations and implementation steps for the client.

The cyclical sequence of establishing the relationship, gathering data, analyzing the situation, developing and presenting recommendations, implementing them, and monitoring progress over time.

The ongoing obligation to track whether a plan still fits the client's circumstances and goals, and to recommend adjustments when markets, laws, or the client's life change.

A payment model in which the adviser receives compensation solely from client fees, such as retainers, hourly charges, or asset-based fees, and accepts no commissions or third-party payments.

A blended model in which the adviser charges client fees and may also receive commissions or third-party payments, creating conflicts that must be disclosed and managed.

Payment from a product provider or transaction rather than directly from the client, which can create incentives to recommend products that generate the highest payment.

The professional obligation to accept only work for which the adviser has the knowledge, skills, and resources to perform well, and to refer or collaborate when a matter exceeds that ability.

The reasonable investigation and verification an adviser performs before recommending a product, strategy, or third party, covering costs, risks, provider standing, and fit with the client.

The specific review of an investment or insurance product's structure, fees, liquidity, tax treatment, and provider strength before it is presented to a client.

Required ongoing study of technical and ethical subjects that keeps a planner's knowledge current and supports the competence obligation throughout a career.

A credential awarded by a governing body after meeting education, examination, experience, and ethics requirements, carrying ongoing renewal and conduct obligations.

A formal set of principles governing professional behavior, typically covering integrity, objectivity, competence, confidentiality, fairness, and professionalism in dealings with clients and the public.

Detailed rules describing how planning services should be delivered, including required steps, documentation, and disclosure, used to judge whether conduct met professional expectations.

The ethical quality of being honest and consistent in word and action, refusing to mislead clients even when a misstatement would be convenient or profitable.

The intellectual discipline of forming judgments on evidence rather than emotion, personal gain, or outside pressure, and of recognizing when bias may impair advice.

The duty to protect client information from unauthorized access or disclosure, sharing it only with consent or where law requires, and safeguarding records in storage and communication.

A statement explaining what personal information is collected, how it is used and shared, and how it is protected, delivered to clients as required by data protection rules.

The requirement to keep engagement documents, advice records, and transaction evidence for a defined period so that conduct can later be verified or defended.

The practice of recording the client's circumstances, the analysis performed, the advice given, and the client's decisions, creating evidence that the process was followed properly.

Laws and procedures requiring financial firms to identify clients, monitor transactions, and report suspicious activity, with advisers expected to follow their firm's program.

Directing a client to another professional for services outside the adviser's competence or scope, with disclosure of any compensation received for the introduction.

The division of a portfolio among asset classes such as equities, bonds, and cash, chosen to balance expected return against the client's risk tolerance and time horizon.

The tension that arises when an adviser (agent) has interests or information that differ from the client (principal), which disclosure, fee structure design, and monitoring are meant to control.