Identifying and Selecting Goals and Analyzing Course(s) of Action

CFP Board’s new Code of Ethics and Standards of Conduct (“Code and Standards”), effective October 1, 2019, introduces a 7-step financial planning process, with Step 2 focused on helping the Client with identifying and selecting goals, and Step 3 focused on analyzing the Client’s current course of action and potential alternative course(s) of action to develop financial planning recommendations.

After a CFP^® professional gains an understanding of the Client’s personal and financial circumstances, the second step in the Financial Planning process is to help the Client with identifying and selecting goals. This ordering reflects that a CFP^® professional is unable to help the Client with identifying and selecting goals until after the CFP^® professional understands the Client’s personal and financial circumstances.

The standard requires a CFP® professional to discuss with the Client the CFP® professional’s assessment of the Client’s financial and personal circumstances and to help the Client identify goals, including by discussing and applying reasonable assumptions and estimates. Once the CFP® professional has helped the Client with identifying goals, the Code and Standards require the CFP® professional to help the Client select from among the potential goals and to prioritize the selected goals.

The next step is to analyze the Client’s current course of action and potential alternative course(s) of action. The requirement to analyze the current course of action is new and reflects the possibility that no adjustments to the Client’s current course of action may be necessary.

A CFP^® professional must determine whether the current course maximizes the potential for meeting the Client’s goals, and where appropriate, analyze one or more potential alternative courses of action against the same standard. A potential alternative course of action does not become a recommendation until the CFP^® professional selects it as a recommendation in Step 4 of the process.

The new Code and Standards sets forth, in Standard C, a principles-based documentation requirement that applies when a CFP^® professional provides or is required to provide Financial Advice in accordance with the Practice Standards. A CFP^® professional must act prudently in documenting and retaining information, as the facts and circumstances require, taking into the 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.

When completing Steps 2 and 3 of the Financial Planning process, a CFP^® professional may consider documenting the following information in writing, where relevant:

1. The qualitative and quantitative information the CFP^® professional obtains from the Client;
2. The Client’s selected goals;
3. The CFP^® professional’s analysis of the Client’s current course of action;
4. The CFP^® professional’s analysis of potential alternative courses of action.

The principles-based documentation requirement in the new Code and Standards does not require the CFP^® professional to provide the information to the Client. A CFP^® professional may memorialize information in a method of the CFP^® professional’s choosing, and retain the information in, among other places, a client file, a Contact Management System file, a paper file, or a digital vault.