How do I put together a standard engagement letter? Does FPSC have any templates they can provide to CFP Professional?
In order to assist CFP professionals in the creation of their engagement letters, FPSC has developed a document entitled, FPSC Resource for Practice Standard 100. It provides guidance in your development of engagement letters that are tailored to the specifics of each client engagement. This document is presented in two main sections.
The first section provides suggested phrases that can be used to capture the requisite information for the engagement letter. These phrases contemplate different relationships and situations that one may face in their engagement. This presentation emphasizes that the engagement letter should be customized to clearly outline the scope and respective responsibilities of the parties of the engagement.
The second section illustrates how the suggested disclosure outlined in section one can be incorporated into engagement letters for several different client scenarios. These scenarios include both financial planning engagements and engagements that are not considered to be financial planning, but, can be construed by the client as such. In these cases, it is the responsibility of the CFP professional to specifically outline for the client that they are NOT doing financial planning.
In my practice, the terms of every engagement differ. How can I establish a standard engagement letter for use in my practice?
FPSC recognizes that each client relationship is unique. Therefore, we suggest that you do not attempt to use a standard engagement letter for all clients. Instead, we suggest that you become familiar with the main requirements for an engagement letter (as outlined in Practice Standard 100) and develop unique letters that clearly outline the terms of each engagement.
I am a CFP professional who works as an investment advisor. Most of my business is transaction-based and does not constitute "financial planning" as defined by FPSC. Do I still need to compile an engagement letter for each and every client?
If your engagement is not considered to be "financial planning," technically you don't have an obligation to comply with the CFP Financial Planning Practice Standards. However, it is clearly stated in the Practice Standards that if the client can reasonably construe your services to be financial planning, than it is your obligation to set out the scope and terms of the services to be provided to ensure that they are understood by BOTH parties.
Do I have to supply a letter of engagement to old/existing clients?
You don’t have to call all your existing clients. However, we suggest you have a letter prepared and have the client sign it at your next regularly scheduled meeting. It will give you the chance to clarify for your client the services you provide.
What happens if I haven’t fully implemented the Financial Planning Practice Standards, by April 2006?
If you haven’t fully implemented the Practice Standards, you may, under certain circumstances, find you do not have appropriate evidence of your compliance with the CFP Code of Ethics. Full implementation of the Practice Standards is your best assurance that you are meeting your obligation to abide by the Code of Ethics. For example, according to Rule 401 of the Code of Ethics, “A CFP professional shall make timely written disclosure of all material information relative to the professional relationship.” What better evidence is there of your compliance with this obligation than having a signed letter of engagement as outlined in the Financial Planning Practice Standards?
Implementation of the Practice Standards will also ensure you will meet the expectations of your clients who, through public information campaigns, are becoming increasingly aware of your obligations as a CFP professional.
CFP®, CERTIFIED FINANCIAL PLANNER® and are certification marks owned outside the U.S. by Financial Planning Standards Board Ltd. (FPSB). Financial Planners Standards Council is the marks licensing authority for the CFP marks in Canada, through agreement with FPSB.
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