Understanding the Client's Personal and Financial Circumstances

CFP Board’s new Code of Ethics and Standards of Conduct (“Code and Standards”), which takes effect on October 1, 2019, introduces a new 7-step financial planning process that begins with Step 1: “Understanding the Client’s Personal and Financial Circumstances.”

The previous first step of the process – “Defining the Scope of the Engagement” – was removed from the Practice Standards so that they would now solely address the delivery of Financial Planning. That previous step became the “Duty to Provide Information to a Client” addressed in Standard A10.

The previous second step of the financial planning process was divided and re-ordered, with its first part becoming Step 1 – “Understanding the Client’s Personal and Financial Circumstances” – and the second part becoming Step 2 – “Identifying and Selecting Goals.”

These changes mean CFP^® professional will now be required to work with the Client to obtain information and analyze the Client’s personal and financial circumstances before mutually defining the Client’s goals, and not after, as the current Practice Standards require. This change recognizes that for a CFP^® professional to collaborate effectively with the Client to identify and then select goals, a CFP^® professional first must understand the Client’s circumstances.

A CFP^® professional understands the Client’s personal and financial circumstances and satisfies the first Practice Standard by obtaining qualitative (subjective) and quantitative (objective) information, analyzing the information, and addressing any incomplete information.

The Code and Standards presents broadly written examples of qualitative and quantitative information that a CFP^® professional must collaborate with the Client to obtain. Not all will apply to each Client, which is why the Code and Standards describes them as examples, not requirements.

The examples of qualitative and quantitative information in Practice Standard 1 reflect the order in which they are likely to arise in an Engagement.

In complying with the Practice Standards, a CFP^® professional must act prudently in documenting information, as the facts and circumstances require, taking into account the significance of the information, the need to preserve the information in writing, the obligation to act in the Client’s best interests, and the CFP^® Professional’s Firm’s policies and procedures.