In this Post, we will explain the inclusion of embedded ethical dilemmas in The CFP Examination.
Embedded ethical dilemmas
As per The CFP Examination Blueprint, Professional Skill 1 – Professional Responsibility will be integrated into at least 6% of The CFP Examination items. Specifically, at least 6% of The CFP Examination score points will include situations with embedded ethical dilemmas. During scoring of the exam, scorers will note any potential breaches of ethics suggested in candidate responses, and candidates will receive a breach score for ethics, which will not be part of the score used to determine pass/fail status.
However, candidates who exhibit more breaches than the threshold set by The CFP Examination standard setting committee will have their papers assessed by a sub-committee of the Scoring Committee. This Committee will determine whether or not the denial of a pass on the exam is warranted by the potential breaches in ethics exhibited by the candidate in their responses, or if another remediation is necessary.
An ethical dilemma is a complex situation that involves an apparent conflict between moral imperatives, in which to obey one would result in transgressing another.
The most commonly cited ethical dilemma is that between an imperative not to steal and an imperative to care for a family that you cannot afford to feed without stolen money. However, in your ethic, is stealing more wrong than letting one's family die? Ethical systems do in fact allow for, and sometimes outline, tradeoffs or priorities in decisions.
Of course, the ethical system for The CFP Examination is the Standards of Professional Responsibility for CFP® Professionals and FPSC® Registered Candidates.
Appendix A of the Competency Profile
Professional Skill 1 – Professional Responsibility defines six skills in Appendix A of the Competency Profile.
For example, Professional Skill 102 says that you must “put the client’s interest first”.
“A CFP professional must respond to a number of competing demands, including the expectations of her clients, her employer, and her own expectations to grow her business. Having the skill to know what it means to act primarily for the client, and following through with that obligation means placing the client’s interests first and setting competing demands aside. A CFP professional’s advice will not be swayed by compensation, employer pressures to sell certain products, opportunities to attract new clients or sources of referral, or any other external influences.”
Standards of Professional Responsibility
The Standards of Professional Responsibility have similar Professional Skills, but they call them the eight Principles of the Code.
For example, Professional Skill 102 says that you must “put the client’s interest first”; while Principle 1: Client First says, “A CFP professional shall always place the client’s interests first.”
However, the Standards of Professional Responsibility also include 22 rules. For example, rule 16 says, “A CFP professional shall make only those recommendations that are both prudent and appropriate for the client.”
What to expect
So, at least 6% of The CFP Examination score points will include situations with embedded ethical dilemmas. You are not likely to see any questions specifically on ethics.
The CFP Examination is very highly structured and there is not much opportunity to go off on a tangent about ethics.
With a multiple-choice question, one of the answers may involve an unethical action. Obviously, you should keep the ethical implications in mind.
However, with a multiple-choice question, the opportunities for suggesting unethical actions are limited. Should George contribute to an RRSP or a TFSA? How much should Sandra contribute to her child’s RESP? Who should be the named beneficiary of Albert’s pension benefits?
With a structured response question, you are asked what type of life insurance Gerry should purchase and why? Obviously, you should keep the ethical implications in mind. However, again, the opportunities for unethical actions are limited.
So, you may have an opportunity to note the dilemma as part of a structured response question. However, obviously, you do not want to recommend a course of action, or undertake any activity, that is unethical. You should be familiar with the principles and rules of the code of ethics.
The most commonly cited ethical dilemma for financial planners is the requirement for financial planners who sell product to put the client’s interest first. The conflict is between the compensation of the planner and the interests of the client. So, make sure that you do not recommend a product with a high commission if there is an alternative that is as good or better that has a lower cost to the client.
Another ethical dilemma can arise when putting the client’s interest first, but the client is a couple who have different interests. Your clients, Sally and Fred, have been living as common-law partners. Each has been married before and has children from that previous relationship. Sally would like to leave her estate to her children after the passing of her and Fred. However, if she leaves her estate directly to Fred, there is no requirement for Fred to pass it on to her children. How do you put Sally’s interest first and put Fred’s interests first?
FPSC® Educator Newsletter
According to the FPSC® Educator Newsletter of Winter 2014, the most common breach of ethics is a recommendation towards a more risky asset allocation or asset class that is clearly contrary to the client’s stated risk tolerance and situation.
Common ethical breaches also include:
- answers that explicitly or implicitly suggest a guarantee of returns for a product that carries none; and
- answers that suggest a leveraged investment that is clearly not suitable, given the client’s situation.
What to do
Someone once said that you learn your moral code by behaving with other children playing in the sandbox. This is so true. You better look at the 22 rules of the Standards of Professional Responsibility, but focus on putting the client’s interest first. With 6% of the questions having embedded moral dilemmas, just be careful to avoid “any potential breaches of ethics”.
One of our clients offered this view: “Ultimately, I think it may be the least of one's concerns when writing an exam of this size and complexity. Think simple, answer directly to the best of one's ability and don't suggest anything obviously inappropriate. “
If you have any good ones that you have come across in practice, please let us know. If you have seen any in the sample questions from the FPSC, please let us know.
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John Gobeil, BSc, CFP®
David Gobeil, CPA, CA, CFP®
Certified Financial Planner® and CFP® are certification marks owned outside the U.S. by the Financial Planning Standards Board Ltd. The Financial Planners Standards Council is the marks licensing authority for the CFP marks in Canada, through agreement with FPSB.