A.1.1 The Six Ethical Principles

Certified Financial Planner CFP

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1 A. Professional Conduct and Regulation

A.1 Code of Ethics and Standards of Conduct A.1.1 The Six Ethical Principles A.2 Procedural Rules and Discipline A.2.1 Fitness Standards for Candidates A.3 Financial Institutions Overview A.3.1 Broker-Dealers vs. RIAs A.4 SEC and Securities Regulation A.4.1 FINRA and Broker-Dealer Regulation A.4.2 State Securities Regulation A.5 Consumer Protection Laws A.5.1 Privacy and Confidentiality Requirements A.6 Fiduciary Duty and Application

2 B. General Principles of Financial Planning

B.7 The Financial Planning Process B.7.1 Establishing the Client Relationship B.7.2 Gathering Client Data and Goals B.8 Personal Financial Statements B.8.1 Key Financial Ratios B.9 Cash Flow Management B.9.1 Emergency Fund Planning B.10 Debt Management Strategies B.10.1 Mortgage and Home Financing B.11 Economic Concepts B.11.1 Planning for Inflation B.12 Time Value of Money Concepts B.12.1 TVM Calculations and Applications B.12.2 Loan Amortization B.13 Education Needs Analysis B.14 Education Savings Vehicles B.14.1 529 Plans In-Depth B.15 Education Funding Strategies B.16 Gift/Income Tax Strategies

3 C. Risk Management and Insurance Planning

C.17 Principles of Risk and Insurance C.17.1 Risk Management Process C.18 Analysis of Risk Exposures C.19 Health Insurance Fundamentals C.19.1 Types of Health Insurance Plans C.20 Disability Income Insurance C.20.1 Disability Policy Features C.21 Long-Term Care Insurance C.22 Annuities Overview C.22.1 Fixed vs. Variable Annuities C.23 Life Insurance Fundamentals C.23.1 Types of Life Insurance C.24 Business Owner Insurance Solutions C.25 Insurance Needs Analysis C.26 Insurance Policy and Company Selection

4 D. Investment Planning

D.27 Equity Securities D.27.1 Fixed Income Securities D.27.2 Mutual Funds and ETFs D.27.3 Taxation of Investment Vehicles D.28 Systematic Risk D.28.1 Unsystematic Risk D.29 Economic and Market Cycles D.30 Measures of Risk and Return D.30.1 Investment Performance Measures D.31 Asset Allocation Strategies D.31.1 Portfolio Diversification D.32 Bond and Stock Valuation D.32.1 Stock Valuation Models D.33 Investment Policy Statement D.33.1 Modern Portfolio Theory D.34 Active vs. Passive Investing D.34.1 Common Investment Strategies D.35 Alternative Investments D.35.1 Options and Derivatives

5 E. Tax Planning

E.36 Income Tax Fundamentals E.36.1 Filing Status and Tax Brackets E.37 Types of Income E.37.1 Deductions and Credits E.37.2 Capital Gains and Losses E.38 Business Entity Taxation E.38.1 Self-Employment Tax E.39 Taxation of Trusts and Estates E.40 Tax Reduction Strategies E.40.1 Retirement Account Tax Strategies E.41 Property Transactions E.41.1 Basis Rules for Acquired Property E.42 AMT and NIIT E.42.1 Special Tax Situations E.43 Charitable Giving Strategies

6 F. Retirement Savings and Income Planning

F.44 Retirement Needs Analysis F.44.1 Sources of Retirement Income F.45 Social Security Benefits F.45.1 Social Security Claiming Strategies F.45.2 Medicare Planning F.46 Eldercare and Special Needs Planning F.47 Qualified Plan Overview F.47.1 Defined Benefit Pension Plans F.47.2 Defined Contribution Plans F.48 Eligibility and Vesting F.48.1 Coverage and Discrimination Testing F.48.2 Contribution and Benefit Limits F.48.3 401(k) Plan Features F.49 Non-Qualified Deferred Compensation F.49.1 Executive Compensation Plans F.50 Retirement Plan Selection for Businesses F.50.1 Individual Retirement Accounts F.51 Distribution Rules F.51.1 Required Minimum Distributions F.52 Retirement Income Strategies F.52.1 Tax-Efficient Withdrawal Strategies F.53 Business Succession Planning

7 G. Estate Planning

G.54 Property Titling and Beneficiary Designations G.54.1 Beneficiary Designations G.55 Strategies to Transfer Property G.55.1 Lifetime Gifting Strategies G.56 Wills and Estate Documents G.56.1 Powers of Attorney G.56.2 Advance Directives and Healthcare Documents G.57 Federal Gift Tax G.57.1 Federal Estate Tax G.57.2 Generation-Skipping Transfer Tax G.58 Sources for Estate Liquidity G.58.1 Life Insurance for Estate Liquidity G.59 Trust Fundamentals G.59.1 Revocable Living Trusts G.59.2 Irrevocable Trusts G.59.3 Trust Income Taxation G.60 Marital Deduction Planning G.60.1 QTIP Trusts G.60.2 Portability of Estate Tax Exemption G.61 Intra-family and Business Transfer Techniques G.61.1 Family Limited Partnerships G.61.2 GRATs and IDGTs G.62 Postmortem Estate Planning Techniques G.62.1 Disclaimer Planning G.62.2 Estate Tax Elections G.63 Planning for Divorce and Unmarried Couples G.63.1 Estate Planning for Unmarried Couples G.63.2 Planning for Blended Families G.64 Planning for Special Needs and Circumstances G.64.1 Special Needs Trusts G.64.2 ABLE Accounts

8 H. Psychology of Financial Planning

H.65 Client and Planner Attitudes, Values, Biases H.65.1 Money Scripts and Money Attitudes H.65.2 Planner Self-Awareness H.66 Behavioral Finance H.66.1 Cognitive Biases H.66.2 Emotional Biases H.66.3 Heuristics and Mental Accounting H.67 Sources of Money Conflict H.67.1 Couples and Money Conflict H.67.2 Family and Intergenerational Money Conflict H.68 Principles of Counseling H.68.1 Therapeutic Techniques in Financial Planning H.68.2 Professional Boundaries and Referrals H.69 General Principles of Effective Communication H.69.1 Listening and Questioning Skills H.69.2 Managing Difficult Conversations H.69.3 Non-Verbal Communication H.70 Crisis Events with Severe Consequences H.70.1 Death and Divorce H.70.2 Job Loss and Health Crisis H.70.3 Sudden Wealth and Sudden Loss H.70.4 Natural Disasters and Traumatic Events

A.1.1 The Six Ethical Principles

Key Takeaways Explain This Topic AI

Act with honesty, integrity, competence, and diligence

Act in the client's best interests

Exercise due care

Avoid or disclose and manage conflicts of interest

Maintain confidentiality and protect privacy

Act professionally and reflect positively on the profession
Last updated: January 2026

The Six Ethical Principles

The CFP Board's Code of Ethics contains six principles that define the ethical ideals CFP professionals must embody. While the Standards of Conduct provide enforceable rules, these six principles are aspirational —they represent the highest standards of professional behavior and provide guidance for ethical decision-making in situations not explicitly covered by specific rules.

Understanding each principle deeply is essential for the CFP exam. Questions often present scenarios where you must apply these principles to determine the appropriate professional response.

Principle 1: Integrity
"Act with honesty, integrity, competence, and diligence."

Integrity is the foundation of the CFP professional's relationship with clients. It demands honesty and candor that cannot be subordinated to personal gain or advantage.

Element Meaning
Honesty Truthful communication in all dealings with clients
Candor Forthright disclosure of relevant information
Personal integrity Consistency between words and actions
No subordination Cannot compromise integrity for personal benefit

CFP professionals are placed in positions of trust by clients. The source of that trust is the certificant's personal integrity. While allowance can be made for innocent error and legitimate differences of opinion, integrity cannot coexist with deceit or subordination of principle .

Practical Application:

Always tell clients the truth, even when the truth is uncomfortable
Disclose all material facts that could affect a client's decision
Never misrepresent your qualifications, experience, or capabilities
Acknowledge mistakes promptly and work to correct them

Exam Tip : When exam questions present scenarios involving honesty vs. personal gain, always choose honesty. A CFP professional's integrity is non-negotiable.

Principle 2: Objectivity
"Act in the client's best interests."

Objectivity requires intellectual honesty and impartiality. CFP professionals must protect the integrity of their work, maintain objectivity, and avoid subordination of their judgment to others' opinions or pressures.

Component Description
Intellectual honesty Base recommendations on facts and sound analysis
Impartiality Treat all clients fairly without favoritism
Independence Form opinions based on evidence, not external pressure
Best interest Put the client's interests ahead of all others

Objectivity means making recommendations based solely on what is best for the client—not what generates the highest commission, satisfies the employer, or benefits the CFP professional personally. The duty of loyalty (acting in the client's best interests) is embedded in this principle.

Practical Application:

Recommend products based on client needs, not compensation
Avoid letting personal relationships affect professional judgment
Consider all reasonable alternatives before making recommendations
Document the basis for recommendations objectively
Principle 3: Competence
"Exercise due care."

Competence means attaining and maintaining an adequate level of knowledge and skill, and applying that knowledge and skill effectively when providing services to clients.

Competence Element Requirement
Knowledge Understand the subject matter thoroughly
Skill Apply knowledge effectively to client situations
Wisdom Recognize limitations and when to refer to others
Continuous learning Stay current through continuing education

CFP professionals must recognize the limitations of their knowledge . When a situation exceeds their competence, they should consult with other professionals or refer the client to a specialist. The competence principle requires knowing what you don't know.

Practical Application:

Complete the required 30 hours of continuing education every two years
Refer clients to specialists (CPAs, attorneys) when appropriate
Stay current on regulatory changes and new financial products
Practice what you know; refer what you don't know

Exam Tip : "Practice what you know, refer what you don't know" is a key concept. The CFP exam tests whether you understand that competence includes knowing your limitations.

Principle 4: Fairness
"Avoid or disclose and manage conflicts of interest."

Fairness requires impartiality, intellectual honesty, and disclosure of material conflicts of interest. It involves subordinating personal feelings, prejudices, and desires to achieve a proper balance when interests conflict.

Fairness Element Description
Impartiality Treat clients equitably; no favoritism
Intellectual honesty Present information accurately and completely
Conflict disclosure Reveal any conflicts that could affect recommendations
Balance Weigh competing interests objectively

Fairness is essentially treating others as you would want to be treated. When conflicts of interest arise, the CFP professional must either avoid the conflict entirely or disclose and manage it appropriately to ensure the client can make an informed decision.

Practical Application:

Disclose all compensation arrangements that could influence recommendations
Treat all clients fairly, regardless of asset size or relationship
Present both advantages and disadvantages of recommendations
When conflicts exist, always err on the side of disclosure
Principle 5: Confidentiality
"Maintain the confidentiality and protect the privacy of client information."

Confidentiality means ensuring that client information is accessible only to those authorized to have access. A relationship of trust can only be built when clients understand their information will remain confidential.

Confidentiality Aspect Requirement
Protection Safeguard client information from unauthorized access
Limited access Share only with those who have a need to know
Client authorization Obtain consent before sharing with third parties
Trust foundation Confidentiality is essential to the client relationship

CFP professionals may use client information for legitimate business purposes or when required by law, but otherwise must maintain strict confidentiality.

Exceptions to Confidentiality (When Disclosure Is Permitted):

Situation Disclosure Allowed?

Client authorizes disclosure Yes
Required by law (subpoena, court order) Yes
Defense against wrongdoing accusations Yes
Regulatory audit or examination Yes
Ordinary business purposes (opening accounts, placing trades) Yes

Practical Application:

Protect physical and electronic client records
Provide a written privacy notice to clients
Obtain authorization before sharing client information with third parties
Maintain confidentiality even after the client relationship ends
Principle 6: Professionalism
"Act in a manner that reflects positively on the financial planning profession and CFP certification."

Professionalism requires behaving with dignity and courtesy to clients, fellow professionals, and others in business-related activities. It encompasses proper use of the CFP marks and conduct that enhances the profession's reputation.

Professionalism Element Requirement
Dignity Conduct yourself with honor and respect
Courtesy Treat others with politeness and consideration
Mark usage Use CFP® marks correctly and appropriately
Reputation Act in ways that enhance the profession's standing

The CFP marks carry significant value and must be used correctly. Misuse of the marks or conduct that damages the profession's reputation can result in disciplinary action.

Proper CFP Mark Usage:

Write: Your Name, CFP® (always include the registration mark)
Write: CERTIFIED FINANCIAL PLANNER™ professional (ALL CAPS with trademark)
Follow with approved nouns: professional, certificant, practitioner, certification, mark, or exam
Do NOT use in email addresses ( john@cfp-advisor.com is prohibited)
Do NOT use in website URLs ( www.cfpjohnsmith.com is prohibited)

Practical Application:

Behave professionally in all client interactions
Treat fellow professionals with respect
Use the CFP marks correctly in all communications
Avoid conduct that could reflect negatively on the profession
Applying the Six Principles: Decision Framework

When facing ethical dilemmas, apply this framework:

Step Question to Ask

1 Does this action demonstrate integrity and honesty?

2 Is this in the client's best interest (objectivity)?

3 Am I competent to handle this situation?

4 Am I being fair to all parties involved?

5 Am I protecting client confidentiality?

6 Does this action reflect positively on the profession?

If the answer to any of these questions is "no," the action likely violates one or more ethical principles and should be reconsidered.

Comparison: Six Principles at a Glance

Principle Core Value Key Prohibition
Integrity Honesty No deceit or subordination of principle
Objectivity Client's best interest No subordination of judgment
Competence Knowledge and skill No practicing beyond capabilities
Fairness Impartiality No undisclosed conflicts
Confidentiality Privacy protection No unauthorized disclosure
Professionalism Dignity and courtesy No conduct damaging to the profession