Question: Professional Conduct Sam Smith, A CFP Licensee, Opened His Own Financial Planning Company This Year. He Called His Company Smith And Associates To Make It Appear More Impressive Even Though The Company Was Made Up Of Just Himself And One Other Newly Registered CFP, Jane, That Sam Would Be Supervising Until She Became More Comfortable In Her Position. …

Professional Conduct
Sam Smith, a CFP licensee, opened his own financial planning
company this year. He called his company Smith and Associates to
make it appear more impressive even though the company was made up
of just himself and one other newly registered CFP, Jane, that Sam
would be supervising until she became more comfortable in her
position.
Sam had engaged fifty new client relationships in the first six
months – so business was fairly good! Most of the clients were
quite happy with the services that Sam was providing; however, one
couple, Mr. and Mrs. Counterbuckle had been difficult to deal with
and had requested that their accounts be transferred to another
firm! Sam had just received another voice-mail from Mr.
Counterbuckle last week requesting that he return some of their
original documents – this was the second time that he had left the
same message for Sam over the last month! Sam was extremely busy
this week with 10 new client meetings, so he diarized to send the
information out next week.
To obtain clients Sam asked Jane to place an advertisement in
the local newspaper. The ad that Jane took out in the paper
promoted the company as having extensive experience in all areas of
financial planning including retirement planning, insurance and
mutual funds.
Sam is currently licensed to sell mutual fund products only but
plans to obtain his insurance license within the next several
months. Sam has been so occupied over the last couple of years in
preparing to open his business that he has not had the opportunity
to stay abreast of recent changes in the industry or do any
studying for his insurance licensing examination – but he is
confident that he will now have the chance to get all
caught-up.
A new prospect, Betty-Lynn, met with Sam at Smith &
Associates based on the advertisement, which she had seen in the
local newspaper. During the first meeting, Betty-Lynn asked for
Sam’s advice on her home insurance policy and Sam confessed that he
had not yet written the last for his insurance license, but that he
had been studying very hard – so he expected to write it in the
next month or two. However, since it was a very straightforward and
simple question about premiums, Sam answered it and Betty-Lynn was
very impressed with this extra level of service!
Betty-Lynn then gave Sam a cheque for $125,000 to invest evenly
across five mutual funds that Sam personally thought were going to
provide the best returns. Sam did not discuss with Betty-Lynn how
he was going to get compensated for completing the investment
request because she did not seem all that concerned about it –
rather, she just wanted the money to be invested as quickly as
possible. After the meeting, Sam deposited Betty-Lynn’s cheque in
his company’s general bank account since he had not had time yet to
open a separate client deposit bank account.
Later that same day, after he had finished placing some
rebalancing trades on his niece’s RESP account for his sister, Sam
remembered about Betty-Lynn’s money and he quickly invested it into
three of the same mutual funds that they had discussed earlier.
Unfortunately, the trades missed the cut-off for that day, so they
would be automatically traded the following day. Sam wasn’t overly
concerned about missing the cut-off, he knew mutual funds weren’t
as volatile as stocks – so the daily price movement wouldn’t be all
that drastic and besides, the markets had been down that day, so it
would benefit Betty-Lynn to have the trades entered the following
day! Sam had chosen the funds from a group that paid the highest
level of commissions, but within that group, he was also careful to
choose the funds that had the best recent financial
performance.
Later that night, Sam told a fellow financial planner, Joyce,
about his luck in getting Betty-Lynn as a client. Sam was so
excited that he told his friend all about Betty-Lynn and everything
that had transpired during the meeting. He also bragged about how
much money he was going to make in commissions on selling the
mutual funds. It definitely had been a very good day!

Are there any potential issues that Sam should be aware of in
regards to how he promoted and advertised his company? (4
marks)

With reference to the FPSC Code of Ethics and Rules
of Conduct, analyze what happened in the case study and
identify at least one issue and the related rule which was
violated for each principle within the code of
conduct. (16 marks)

Client First:

Integrity:

Objectivity:

Competence:

Fairness

Confidentiality:

Diligence:

Professionalism: