Financial planning fundamentals and professional ethics
What the exam tests
Domain 1 covers the seven-step financial planning process, the planner's legal and ethical duties, and the business practices that sustain trust. Questions typically ask you to distinguish fiduciary from suitability standards, identify conflicts of interest, and apply confidentiality, competence and disclosure rules to realistic adviser-client scenarios.
Core rules
- The process: establish and define the relationship; gather client data and goals; analyse the client's financial status; develop the plan; present it; implement recommendations; monitor and review.
- Fiduciary duty requires acting in the client's best interest with loyalty, care, full disclosure and informed consent. A suitability standard is weaker: it asks only whether a recommendation fits the client.
- Ethics codes typically require integrity, objectivity, competence, confidentiality, fair dealing and professionalism.
- Compensation creates conflicts: commissions, trailing fees, soft dollars and referral payments must be disclosed specifically and managed.
- Know the limits of your licence; refer tax, legal and specialist matters to qualified professionals.
Worked example
A client is offered a savings-type insurance policy paying the adviser a 4% first-year commission. A lower-cost term policy plus separate investing could meet the same need. The adviser must disclose the commission, compare both routes on cost and suitability, document why the recommendation is in the client's interest, and offer the lower-cost alternative if it fits. Recommending the commissioned product without that analysis breaches loyalty even if the product is not intrinsically unsuitable.
Traps
Treating 'suitable' as 'best interest'; hiding conflicts behind generic disclosure; giving tax or legal advice outside your competence; promising returns; using client information for marketing without consent; failing to document the review.