Ethics and Fiduciary Standards
Ethics and Fiduciary Standards
This domain tests the AICPA Code of Professional Conduct and fiduciary conduct in personal financial planning: integrity, objectivity, due care, confidentiality, conflicts, and compensation disclosure.
Core rules and concepts
- AICPA principles: responsibilities, public interest, integrity, objectivity and independence, due care, and scope and nature of services.
- Fiduciary duties: loyalty, care, good faith, full disclosure, and acting in the client's best interest.
- Disclose compensation: fee-only, commission, fee-based, referral fees, and contingent arrangements.
- Conflicts of interest must be identified, disclosed, and managed; some conflicts require consent or avoidance.
- Confidentiality: use client information only for the engagement unless authorized or legally required.
- Competence: engage specialists when the matter exceeds your expertise.
- Document the engagement, recommendations, client decisions, and monitoring.
Worked example
An adviser recommends a commissioned annuity. The commission is 5% of the $200,000 investment, or $10,000. The adviser must disclose the commission and the conflict, compare lower-cost alternatives, and document why the product meets the client's objectives, liquidity needs, and risk tolerance. If the adviser also receives a referral fee from the insurer, that fee must be disclosed. The client's informed consent should be documented; otherwise the advice may fail the fiduciary standard.
Traps
- Hiding commissions or referral fees.
- Recommending a product before understanding the client's liquidity needs.
- Using client data for marketing without consent.
- Practicing outside the scope of competence.