Certified Financial Planner (CFP) Exam 2026 – 400 Free Practice Questions to Pass the Exam

A material conflict of interest arises when a situation could potentially lead to harm for the client or influence the advice provided by the financial planner. This situation is significant because it carries the possibility that the planner's personal interests, financial gain, or other commitments could interfere with their obligation to act in the best interest of the client. The essence of a material conflict of interest is that it may compromise the objectivity of advice and can result in negative outcomes for the client.

Understanding what constitutes material conflict is vital in maintaining ethical standards and fiduciary duties in financial planning. Options regarding inquiries or permanence focus on circumstances rather than the core potential for harm or bias in advice, which is central to defining a material conflict. Additionally, while increased costs for the client may be a concern, the critical factor that differentiates a material conflict is the impact on the client's welfare rather than the financial implications alone.