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Statement of Purpose for Practice Guidelines

Practice Guidelines have been developed and promulgated by FPSB India in line with global guidelines for practice of personal Financial Planning. These guidelines: (1) assure that the practice of Financial Planning by CFP is based on agreed upon norms of practice; (2) advance professionalism in Financial Planning; and (3) enhance the value of the personal Financial Planning process. Each Practice Guideline will apply to both CFP and FPSB India Certificants (collectively known as FPSB India Certificants)

Practice Guidelines Defined

A Practice Guideline establishes the level of professional practice that is expected of FPSB India Certificants engaged in personal Financial Planning. The services provided depend on the facts and circumstances of a particular situation.

Practice Guidelines apply to FPSB India Certificants while performing the tasks of personal Financial Planning regardless of the person’s title, job position, type of employment, or method of compensation. All personal Financial Planning professionals should consider Practice Guidelines when performing the Financial Planning tasks or activities addressed by the guideline but are enforceable by FPSB India only against FPSB India Certificants. Conduct inconsistent with a guideline in and of itself is not intended to give rise to a cause of action or to create any presumption that a legal duty has been breached. The guidelines are designed to provide FPSB India Certificants a structure for identifying and implementing expectations regarding the professional practice of personal Financial Planning. They are not designed to be a basis for legal liability.

Practice Guidelines are not intended to prescribe step-by-step procedures for providing any particular service. Such procedures may be provided in practice aids developed by various Financial Planning and other sources.

Compliance

The practice of Financial Planning consistent with these guidelines is required for FPSB India Certificants and will be enforced by FPSB India.

Guideline Series

S.No. Financial Planning Process Guideline Series
1 Establishing and defining the relationship with the client 100
2 Gathering client data including goals 200
3 Analyzing and evaluating the Client’s financial status 300
4 Developing and presenting Recommendations and/or alternatives 400
5 Implementing the Financial Planning recommendations 500
6 Monitoring the Financial Planning recommendations 600
 

Establishing and Defining the Relationship with the Client

Defining the Scope of the Engagement - Practice Guidelines 100-1

The scope of engagement shall be mutually defined by the Financial Planning practitioner and the client prior to providing any Financial Planning service.

Explanation: Prior to providing any Financial Planning service, a Financial Planning practitioner and the client shall mutually define the scope of the engagement. The process of “Mutually-defining” is essential in determining what activities may be necessary to proceed with the client engagement. This is accomplished by:

        Identifying the service(s) to be provided;
        Disclosing Financial Planning practitioner’s compensation arrangement(s);
        Determining the clients and the Financial Planning practitioner’s responsibilities;
        Establishing the duration of the engagement; and
        Providing any additional information necessary to define or limit the scope.

The scope of the engagement may include one or more Financial Planning subject areas. It is acceptable to mutually define engagements in which the scope is limited to specific activities. This serves to establish realistic expectations both for the client and the practitioner.

As the relationship proceeds, the scope may change by mutual understanding.

This Practice Guideline shall not be considered alone, but in conjunction with all other Practice Guidelines.

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Gathering Client Data including Goals

Determining a Client’s Personal and Financial Goals, Needs and Priorities - Practice Guideline 200-1

A client’s personal and financial goals, needs and priorities that are relevant to the scope of the engagement and the service(s) being provided shall be mutually defined by the Financial Planning practitioner and the client prior to making and/or implementing any recommendations.

Explanation: Prior to making recommendations to a client, a Financial Planning practitioner (practitioner) and the client shall mutually define the client’s personal and financial goals, needs and priorities. In order to arrive at such a definition, the practitioner will need to explore client’s values, attitudes, expectations, and time horizons as they affect the client’s goals, needs and priorities. The process of “mutually-defining” is essential in determining what activities may be necessary to proceed with the client engagement. Personal values and attitudes shape a client’s goals and objectives must be consistent with the client’s values and attitudes in order for the client to make the commitment necessary to accomplish them.

Goals and objectives provide focus, purpose, vision and direction for the Financial Planning process. It is essential that objectives relative to the scope of engagement are determined and they are clear, precise, consistent, and measurable. The role of the practitioner is to facilitate the goal-setting process in order to clarify, with the client, goals and objectives, and, when appropriate, the practitioner must try to assist clients in recognizing the implications of unrealistic goals and objectives.

This Practice Guideline addresses only the tasks of determining a client’s personal and financial goals, needs and priorities; assessing a client’s values, attitudes and expectations; and determining a client’s time horizons. These areas are subjective and the practitioner’s interpretation is limited by what the client reveals. A practitioner performing the activity of “gathering client data” should consider together the various Practice Guidelines applicable to such activity.

This Practice Guideline shall not be considered alone, but in conjunction with all other Practice Guidelines.

Obtaining Quantitative Information and Documents - Practice Guidelines 200 – 2

A Financial Planning practitioner shall obtain sufficient and relevant quantitative information and documents about a client applicable to the scope of the engagement and the services being provided prior to making and/or implementing any recommendations.

Explanation:Prior to making recommendations to a client and depending upon the type of client engagement and its scope, a Financial Planning practitioner (practitioner) shall determine what quantitative information and documents are sufficient and relevant.

A practitioner shall obtain sufficient and relevant quantitative information and documents pertaining to the client’s financial resources, obligations, and personal situation. This information may be obtained directly from the client or other sources through interview, questionnaire, client records and documents.

A practitioner shall communicate to the client a reliance on the completeness and accuracy of the information provided and that incomplete or inaccurate information will impact conclusions and recommendations, the practitioner shall either:

Restrict the scope of the engagement to those matters for which sufficient and relevant information is available; or

b) Terminate the engagement

A practitioner shall communicate to the client any limitations on the scope of the engagement, as well as the fact that this limitation could affect the conclusions and recommendations.

This practice guideline shall not be considered alone, but in conjunction with all other practice guideline.

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Analyzing and Evaluating the Client’s Financial Status

Analyzing and Evaluating the Client’s Information - Practice Guidelines 300 – 1

A Financial Planning practitioner shall analyze the information to gain an understanding of the client’s financial situation and then evaluate to what extent the client goals, needs and priorities can be met by the client’s resources and current course of action.

Explanation: Prior to making recommendations to a client, it is necessary for the Financial Planning practitioner to assess the client’s financial situation and to determine the likelihood of reaching the stated objectives by continuing present activities.

The practitioner will utilize client specified, mutually agreed upon, and/or other reasonable assumptions. Both personal and economic assumptions must be considered in this step of the process. These assumptions may include, but are not limited to the following:

Personal assumptions, such as: retirement age(s). life expectancy(ies), income needs, risk factors, time horizon and special needs; and

Economic assumptions, such as: inflation rates, tax rates and investment returns.

Analysis and evaluation are critical to the Financial Planning process. These activities form the foundation for determining strengths and weakness of the client’s financial situation and current course of action. These activities may also identify other issues that should be addressed. As a result, it may be appropriate to amend the scope of the engagement and/or to obtain additional information.

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Developing and Presenting Financial Planning Recommendations

The 400 series, Developing and Presenting the Financial Planning Recommendation(s), represents the very heart of the Financial Planning process. It is at this point, that the Financial Planning practitioner using both science and art, formulates the recommendations designed to achieve the client’s goals, needs and priorities. Experienced Financial Planning practitioners may view this process as one action or task.

However, in reality, it is a series of distinct but interrelated tasks.

These three Practice Guidelines emphasize the distinction among the several tasks which are a part of this process. These Practice Guidelines can be described as “What is Possible?” “What is Recommended?” and “How is it Presented?” The first two Practice Guidelines involve the creative thought, the analysis, and the professional judgment of the practitioner, which are often performed outside the presence of the client. First, the practitioner identifies and considers the various alternatives, including continuing the present course of action – (Practice Guideline 400-1). Second, the practitioner develops the recommendation(s) from among the selected alternatives – (Practice Guidelines 400-2). Once the practitioner has determined what to recommend, the final task is to communicate the recommendation(s) to the client – (Practice Guideline 400-3).

The three practice guidelines that comprise the 400 series should not be considered alone, but in conjunction with all other Practice Guidelines.

Identifying and evaluating Financial Planning Alternative(s) - Practice Guideline 400-1

A Financial Planning practitioner shall consider sufficient and relevant alternatives to the client’s current course of action in an effort to reasonably achieve the client’s goals, needs and priorities

Explanation: After analyzing the client’s current situation (Practice Guideline 300-1) and prior to developing and presenting recommendation(s) (Practice Guidelines 400-2 and 400-3) the Financial Planning practitioner shall identify alternative actions. The practitioner shall evaluate the effectiveness of such actions in reasonably achieving the client’s goals, needs and priorities.

This evaluation may involve, but is not limited to, considering multiple assumptions, conducting research or consulting with other professionals. This process may result in a single alternative, multiple alternatives or no alternative to the client’s current course of action.

In considering alternative actions, the practitioner also must recognize and, as appropriate. Take into account his or her legal and/or regulatory limitations and level of competence in properly addressing each of the client’s Financial Planning issues.

More than one alternative may reasonably achieve the client’s goals, needs and priorities. Alternatives identified by the practitioner may differ from those of other practitioners or advisors, illustrating the subjective nature of exercising professional judgment.

Developing the Financial Planning Recommendation(s) - Practice Guideline 400-2

A Financial Planning practitioner shall develop the recommendation(s) based on selected alternative(s) and the current course of action in an effort to reasonably achieve the client’s goals, needs and priorities.

Explanation: After identifying and evaluating the alternative(s) and the client’s course of action, the practitioner shall develop recommendation(s) expected to reasonably achieve the client’s goals, needs and priorities. A recommendation may be independent action or a combination of actions, which may need to be implemented collectively. The recommendation(s) shall be consistent with and will be directly affected by the following:

    Mutually defined scope of engagement;
    Mutually defined client goals;
    Quantitative data provided by the client;
    Personal and economic assumptions;
    Practitioner’s analysis and evaluation of client’s current situations; and
    Alternative(s) selected by the practitioner.

A recommendation may be to continue the current course of action. If a change is recommended, it may be specific and /or detailed or provide a general direction. In some instances, it may be necessary for the practitioner to recommend that the client modifies the goal.

The recommendations developed by the practitioner may differ from those of other practitioners or advisors yet each may reasonably achieve the client’s goals, needs and priorities.

Presenting the Financial Planning Recommendation(s) - Practice Guideline 400-3

A Financial Planning practitioner shall communicate the recommendation(s) in a manner and to extent reasonably necessary to assist the client in making an informed decision.

Explanation: When presenting a recommendation, the practitioner shall make a reasonable effort to assist the client in understanding the client’s current situation, the recommendation itself, and its impact on the ability to achieve the client’s goals, needs priorities. In doing so, the practitioner shall avoid presenting his opinion as fact.

The practitioner shall communicate the factors critical to the client’s understanding of the recommendations. These factors may include but are limited to the material:

    Personal and economic assumptions;
    Interdependence of recommendations;
    Advantages and disadvantages;
    Risks; and/or;
    Time sensitivity

The practitioner should indicate that even though the recommendation may achieve the client’s goals, needs and priorities, changes in personal or economic conditions could alter the intended outcome. Changes may include, but are not limited to: legislative, family status, career, investment performance and/or health.

If there are any conflicts of interest that have not been previously disclosed, such conflicts and how they may impact the recommendations should be addressed at this time.

Presenting recommendations provides the practitioner an opportunity to further asses whether the recommendations meets client expectations, whether the client is willing to act on the recommendations, and whether modifications are necessary.

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Implementing the Financial Planning Recommendation(s)

Agreeing on Implementation Responsibilities - Practice Guideline 500 – 1

A Financial Planning practitioner and the client shall mutually agree on the implementation responsibilities consistent with the scope of the engagement.

Explanation: The client is responsible for accepting or rejecting recommendations and for retaining and/or delegating implementation responsibilities. The Financial Planning practitioner and the client shall mutually agree on the services. If any, to be provided by the practitioner. The scope for engagement, as originally defined, may need to be modified.

The practitioner’s responsibilities may include, but are not limited to, the following:

    Identifying activities necessary for implementation;
    Determining division of activities between the practitioner and the client;
    Referring to other professionals;
    Coordinating with other professionals;
    Sharing of information as authorized; and
    Selecting and securing products and/or services.

If there are conflicts of interest, sources of compensation or material relationships with other professionals or advisors that have not been previously disclosed, such conflicts, sources or relationships must be disclosed at this time.

When referring the client to other professionals or advisors, the Financial Planning practitioners shall indicate the basis for the referral.

If the practitioner is engaged by the client to provide only implementation activities, the scope of engagement shall be mutually defined, in accordance with Practice Guideline 100-1. The scope may include such matters as the extent to which the practitioner will rely on information, analysis or recommendations provided by others.

This Practice Guideline shall not be considered alone, but in conjunction with all other Practice Guidelines.

Selecting Products and Services for Implementation - Practice Guideline 500-2

A financial practitioner shall offer appropriate products and services that are consistent with the client’s goals, needs and priorities.

Explanation: A Financial Planning practitioner will use professional judgment in selecting the products and services that are in the client’s interest. Professional judgment incorporates both qualitative and quantitative information. A Financial Planning practitioner shall reasonably investigate and evaluate products or services that address the client’s needs. The Financial Planning practitioner shall have a reasonable basis for believing that the products or services selected are suitable for the client.

Products and services selected by the practitioner may differ from those selected by other practitioners or advisors. Alternative products or services may be suitable for the client and could reasonably achieve the client’s goals, needs and priorities. It illustrates the subjective nature of exercising professional judgment.

The practitioner must take all disclosures required to comply with the applicable regulations.

This Practice Guideline shall not be considered alone, but in conjunction with all other Practice Guidelines.

Appendix: Terminology in Financial Planning Practice Guidelines

"Client denotes a person, persons, or entity who engages a practitioner and for whom professional services are rendered. For purposes of this definition, a practitioner is engaged when an individual, based upon the relevant facts and circumstances, reasonably relies upon information or service provided by that practitioner. Where the services of the practitioner are provided to an entity (corporation, trust, partnership, estate, etc.), the client is the entity through its legally authorized representative.

"Personal Financial Planning" or "Financial Planning" denotes the process of determining whether and how an individual can meet life goals through the proper management of financial resources.

"Personal Financial Planning Process" or "Financial Planning Process" denotes the process which typically includes, but is not limited to, the six elements of establishing and defining the client-planner relationship, gathering client data including goals, analyzing and evaluating the client’s financial status, developing and presenting Financial Planning recommendations and/or alternatives, implementing the Financial Planning recommendations and monitoring the Financial Planning recommendations.

"Personal Financial Planning subject areas" or "Financial Planning subject areas" denotes the basic subject fields covered in the Financial Planning process which typically include, but are not limited to , financial statement preparation and analysis (including cash flow analysis/planning and budgeting), investment planning (including portfolio design, i.e., asset allocation, and portfolio management), income tax planning, education planning, risk management, retirement planning, and estate planning.

"Personal Financial Planning professional" or "Financial Planning professional" denotes a person who is capable and qualified to offer objective, integrated, and comprehensive financial advice to or for the benefit of individuals to help them achieve their financial objectives. A Financial Planning professional must have the ability to provide Financial Planning services to clients, using the Financial Planning process covering the basic Financial Planning subjects.

"Personal Financial Planning practitioner" or "Financial Planning practitioner" denotes a person who is capable and qualified to offer objective, integrated, and comprehensive financial advice to or for the benefit of clients to help them achieve their financial objectives and who engages in Financial Planning using the Financial Planning process in working with clients.

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