Composite Finance Inc.

What are Practice Standards?

• Generally, Practice Standards expand on the commonly accepted process of a profession and integrate rules of professional conduct into the process.
• With extensive input from industry and CFP professionals, Financial Planners Standards Council (FPSC) developed Financial Planning Practice Standards.
• In this case, the Financial Planning Practice Standards expand on the financial planning process already defined by the CFP (Certified Financial Planner) designation.
• The Practice Standards provide greater clarity as to how the financial planning process should be implemented and ensure uniformity of practice among all practitioners.
• They spell out the full spectrum of what specifically should happen during the financial planning engagement and clarify the role and responsibilities of the professional financial planner (i.e. the CFP professional).

What's changed?

• While ethical and process standards already exist within the CFP Standards, the Practice Standards move forward in providing clarity on interpretation of the financial planning process and Code of Ethics as they apply to any and every financial planning engagement.
• The financial planning process defines "what" financial planners must do. The Practice Standards define "how" they should do it.
• The Practice Standards have helped to crystallize a clear and concise definition of financial planning.

How do they differ/relate to the Code of Ethics?

• The Code of Ethics deals with behaviours that a CFP professional must adhere to every day of their life. The Practice Standards provide detailed guidance that relate specifically to the principles of the financial planning process.
• The Practice Standards bring together the Code of Ethics and the financial planning process: They demonstrate how the process must be implemented so as to meet the ethical standards to which all CFP professionals are committed.

Who developed these standards?

• Led by FPSC with extensive industry consultation, this current version of the Practice Standards is the result of a comprehensive development effort begun in 2001.
• After many working drafts, the Practice Standards are now ready to be used and rigorously tested in preparation of the final version that will be mandatory in Spring 2005.

Why are you launching now instead of waiting for the final version?

• The success of the financial planning community to date is attributed to CFP professionals who honour and commit to the highest standard in the industry (the CFP standard). It is this community that we are inviting to step forward with us, to work with these Financial Planning Practice Standards, and to let us know how they fit before they become mandatory.
• We will consider this feedback as we make final refinements to the Practice Standards.
• In addition, it takes time for organizations to adapt and establish protocol and compliance policies. This time will allow the industry to try the standards within their own organizations.

Can you give an example of a Practice Standard?

• One step of the financial planning process is, "Clarify the client's financial situation." This is the "what." The Practice Standard dealing with this step addresses how clarification is achieved, meeting the high ethical standards required of CFP professionals that insist the client's interest be served.
• Thus: "The CFP professional will analyze all data to determine the client's current financial situation and evaluate to what extent the client's goals, needs and priorities can be met under the current circumstances."( i.e. it is an explanation of how the financial planning process applies in practice)

How do you define financial planning and has this changed?

• "Financial planning is the process of creating strategies, considering all relevant aspects of a client's financial situation, to manage financial affairs to meet life goals."
• The definition has not really changed from previous definitions - rather, it has been refined to be more concise and more readily understood by all interested parties.

So what is not financial planning?

• A lot of people confuse investing with financial planning. But financial planning isn't the offering of financial advice on a particular subject in isolation (for example, investing or recommending a good stock to buy) or about providing informal consultation on financial issues.
• While these offerings might be part of the overall process and relationship, in isolation, they aren't financial planning.
• Financial planning might be offered as a comprehensive service or modular (i.e. retirement planning). But even when offered at a modular level, the financial planning professional must still consider all relevant aspects of the client's financial situation.

How will consumers benefit from these new Practice Standards?

• This will be an important tool to help educate the public.
• Once finalized and presented to the consumer (in consumer-friendly language), the Practice Standards will help existing and prospective clients understand financial planning and how to determine if a professional is indeed providing the quality of care and service that one should expect and deserves from a professional financial planning engagement.

Where do these standards fit in with respect to the regulatory environment?

• In the absence of financial planning regulation in most jurisdictions, the CFP designation serves as the industry-recognized gold standard in financial planning competency and ethical behavior. It serves as the only way the public has of determining at the outset of their search who has proven their competence and is meeting a professional commitment to ethical behavior and continuing education.
• As the regulatory landscape changes, industry participants are seeking ways to supervise the financial planning activities of their representatives and employees.

The Practice Standards provide a concrete framework on which to clearly define the knowledge, skills, abilities and attitudes that should be expected of financial planning professionals. They provide the guidelines for supervision as well as action and they provide the standards with which to evaluate competence and ethical behavior in the practice of financial planning.

(CFP Flame logo)™ Certified Financial Planner™ and CFP™ are certification marks awarded by Financial Planners Standards Council under a license agreement with Financial Planning Standards Board Ltd. (FPSB).  Copyright © 2004 Financial Planners Standards Council. All rights reserved.