CFP Course Notes #2: Common Examples of Negligence by Financial Advisors

In keeping with my goal of finishing one course per month from the University of Georgia Self-Paced CFP education program, I wrapped up the first course “Fundamentals of Financial Planning” in February (barely). Here were the topics covered (source):

• The Personal Financial Planning Process
• Economic Concepts and Consumer Protection Laws
• Personal Financial Statements
• Managing Cash Flow and Debt
• Using the HP-12C Calculator
• Using the HP-10bII Calculator
• Educational Savings Techniques
• Educational Aid and Funding Calculation
• Regulation of Financial Planners
• CFP Board Regulatory Requirements

I previously covered the official 7-Step Financial Planning Process in Notes #1, which was enlightening. I ended up spending the most time overall on the HP-12C calculator section, as it took several reps to learn and memorize how to use all of the specialized buttons for the financial calculator.

I personally didn’t learn much new in the Educational Savings and Aid sections, given my previous research as a parent and owner of multiple 529 plans. It did provide a good generic overview for those that haven’t gone down that rabbit hole.

In terms of new practical information, I again found it helpful when they showed me the perspective of practicing advisors. The course wisely warns potential CFPs of the most common mistakes that have resulted in negligence lawsuits…

• Failure to address risk of disability.
• Failure to address risk of property loss and attached liability.
• Failure to timely process a client’s deposit check, resulting in the loss of potential investment gains.
• Recommending unsuitable investments.
• Recommending only those products which result in high fees to the planner.
• Failure to adequately educate the client regarding investment risks, costs, and benefits.
• Charging fees that were not first disclosed and agreed upon with the client.
• Failure to monitor investments on the schedule agreed upon in the engagement letter.

In turn, these items can be flipped to create a checklist for the individual client:

• Do you have adequate disability insurance?
• Do you have adequate homeowners/rental/landlord insurance, car/boat/vehicle insurance, umbrella liability insurance?
• After sending in money, did you follow-up to confirm that your funds were deposited and invested as promised?
• Do you feel that you fully understand the investments made on your behalf? Do you understand why they are better than other alternatives?
• Did you receive a clear list of all the fees charged?
• Are you receiving updates that your investments being monitored as promised?

Photo by Reba Spike on Unsplash