Financial planning practice and ethics
Domain 1 - Financial planning practice and ethics - tests whether you can run an engagement correctly and diagnose ethical failure inside an ordinary fact pattern. Items rarely ask you to recite a principle; they describe a client situation and expect you to name the missing process step or the duty that was breached.
The seven-step process (know the order)
- Establish and define the relationship - written engagement, scope (comprehensive or limited/modular), responsibilities of both parties, compensation, termination.
- Collect client data - quantitative (balance sheet, cash flow, policies, tax position) and qualitative (goals, horizon, risk attitude, values, health).
- Analyse and evaluate - ratios, projections, gap analysis, stress tests.
- Develop recommendations - at least two viable alternatives with trade-offs.
- Present recommendations - prioritised, with rationale, in language the client understands; the client decides.
- Implement - coordinate with other professionals, obtain authorisations.
- Monitor - agreed review triggers, not merely an annual meeting.
The ethical core
Integrity, objectivity, competence, fairness, confidentiality, professionalism and diligence are applied to facts, not quoted. Confidentiality has recognised exceptions: client permission, legal compulsion, defending a complaint, and preventing serious harm.
Worked example
A client says: 'I don't want a full plan - just tell me which fund to buy with my retirement money.' The planner gathers no income, debt or insurance data and recommends a high-equity fund.
Reasoning: a limited scope is permitted, but it must be defined in writing, its consequences explained, and the data needed for the narrowed task still gathered. Retirement money requires knowing the horizon, other resources and capacity for loss. Skipping steps 2–3 breaches competence and diligence and makes the recommendation unsuitable regardless of the fund's quality. Correct handling: document the limited engagement, gather minimum relevant data, state clearly what is not being reviewed, and decline if the client refuses.
Traps that cost marks
- Treating a limited scope as a waiver of the duty of care.
- Confusing 'the client asked for it' with an ethical defence.
- Forgetting step 7; the process does not end at implementation.
- Missing undisclosed conflicts (commission, referral, family interest).
- Choosing the answer that is most profitable rather than the one that follows the process.