Case Study
The Fiduciary Duty Does Not Apply When Providing General Financial Educational Materials Concerning Education Planning
CFP Board has developed a series of case studies to provide practical guidance to CFP® professionals and their firms on the new Code and Standards. Each case study presents a hypothetical factual circumstance and then asks a question about a CFP® professional’s duty in that circumstance under the Code and Standards.
Imani is expecting her first child and wants to know more about 529 savings plans. Imani decides to share her news with Jeff, the CFP® professional whom she had previously engaged solely to provide investment management. During a 30-minute meeting, Jeff provides an overview of how 529 savings plans work, addresses some of Imani’s general questions about 529 savings plans, and provides a document titled “529 Plans and Other College Savings Options.” Imani thanks Jeff for his time and says she will follow up with him in the next few weeks.
Question
Did Jeff provide Financial Advice when he met with Imani and gave her the 529 savings plan document?
Response Options
A. Yes, because he made a recommendation.
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Responses A is not the best response because a reasonable CFP® professional would not view Jeff’s communications, which were general in nature and not individually tailored to Imani, as Financial Advice. While a 529 savings plan is an important part of the education planning process, that fact does not turn Jeff’s communications to Imani into Financial Advice.
B. No, because Imani did not pay Jeff for the communication.
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Response B is not the best response because whether Jeff provided Financial Advice does not depend upon whether he receives compensation.
C. No, because Jeff provided Imani only general financial education materials.
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Best Response: Response C is the best response. This case study involves the definition of Financial Advice (Glossary).
Financial Advice includes a communication that, based on its content, context, and presentation, would reasonably be viewed as a recommendation that the Client take or refrain from taking a particular course of action with respect to, among other things, the value of or the advisability of investing in, purchasing, holding, gifting, or selling Financial Assets. The determination of whether Financial Advice has been provided is an objective rather than subjective inquiry. The more individually tailored the communication is to the Client, the more likely the communication will be viewed as Financial Advice. The provision of services or the furnishing or making available of marketing materials, general financial education materials, or general financial communications that a reasonable CFP® professional would not view as Financial Advice, does not constitute Financial Advice.
Here, a reasonable CFP® professional would conclude that when Jeff provided Imani with an overview of how 529 savings plans work, addressed her general questions about 529 savings plans, and provided an educational document on 529 savings plans, Jeff was providing general financial education and not Financial Advice.
D. Yes, because a 529 savings plan is an important part of the education planning process.
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Responses D is not the best responses because a reasonable CFP® professional would not view Jeff’s communications, which were general in nature and not individually tailored to Imani, as Financial Advice. While a 529 savings plan is an important part of the education planning process, that fact does not turn Jeff’s communications to Imani into Financial Advice.
READ MORE CASE STUDIES ABOUT THE NEW CODE AND STANDARDS
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Relevant Standards and Definitions: Definition of Financial Advice (Glossary).
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