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CHPT1 Flashcards

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1
Q

What is the importance of establishing a clearly defined relationship with the client in financial planning?

A

It builds trust and allows planners to understand clients as individuals with unique goals and experiences with money.

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2
Q

What are the components that planners discuss with clients during initial meetings?

A

Responsibilities of both parties, scope of the relationship, compensation method, and individuals impacting the client’s financial plan.

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3
Q

List three examples of individuals whose situations might impact a client’s financial plan.

A
  • Aging parents
  • Adult children
  • Young children from separate marriages
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4
Q

Define personal financial planning.

A

The process of formulating, implementing, and monitoring financial decisions into an integrated plan to achieve financial goals.

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5
Q

What are the steps in the seven-step financial planning process?

A
  • Step 1: Understanding the Client’s Personal and Financial Circumstances
  • Step 2: Identifying and Selecting Goals
  • Step 3: Analyzing Current Course of Action
  • Step 4: Developing Financial Planning Recommendations
  • Step 5: Presenting Recommendations
  • Step 6: Implementing Recommendations
  • Step 7: Monitoring Progress and Updating
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6
Q

What is the first step in the financial planning process?

A

Understanding the Client’s Personal and Financial Circumstances.

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7
Q

What should a planner do in Step 2 of the financial planning process?

A

Identify potential goals and help the client select and prioritize them.

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8
Q

In Step 3, what does the adviser analyze about the client’s current situation?

A

The advantages and disadvantages of the client’s current financial situation in light of their goals.

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9
Q

What is the purpose of developing financial planning recommendations in Step 4?

A

To determine the recommended course(s) of action that will maximize the potential to achieve the client’s goals.

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10
Q

What must be ensured when presenting financial planning recommendations in Step 5?

A

That recommendations are communicated clearly and understood by the client.

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11
Q

Who is responsible for implementing the financial planning recommendations in Step 6?

A

It can be either the client or the adviser, depending on the engagement.

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12
Q

What is the focus of Step 7 in the financial planning process?

A

Monitoring progress and updating the financial plan as necessary.

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13
Q

What are three keys to establishing a solid client relationship?

A
  • Effective communication
  • Respecting the client’s time
  • Demonstrating empathy
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14
Q

What is the difference between passive listening and active listening?

A

Passive listening is effortless and involuntary, while active listening is focused and intentional.

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15
Q

What should advisors do to demonstrate active listening?

A

Restate, paraphrase, or summarize what the client has said and ask open-ended questions.

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16
Q

What should be discussed during the introductory meeting?

A

The client’s primary financial and non-financial goals, risks, and whether the advisor can provide needed services.

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17
Q

What is an engagement letter?

A

A legal agreement prepared by the advisor that outlines the terms of the engagement with the client.

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18
Q

What are some internal data elements considered in financial planning?

A
  • Goals
  • Values
  • Risk tolerance
  • Psychology
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19
Q

What types of external data should advisors be aware of?

A
  • Economic factors
  • Political factors
  • Legal factors
  • Sociological factors
  • Technological factors
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20
Q

What is the distinction between quantitative and qualitative data?

A

Quantitative data is verifiable and objective, while qualitative data pertains to subjective elements like goals and values.

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21
Q

Fill in the blank: The financial planning process is guided by the _______ Code of Ethics and Standards of Conduct.

A

CFP®

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22
Q

What types of insurance policies are owned by family members?

A

Life, health, disability, long-term care, home, auto, liability

These are common types of insurance that provide financial protection for families.

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23
Q

What types of accounts are included in bank and investment account statements of family members?

A

Individual accounts, joint accounts, custodial accounts

These accounts can hold various assets and are important for understanding family finances.

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24
Q

What retirement account types are mentioned?

A

IRA, Roth IRA, 401(k), 403(b), 457

These accounts are crucial for retirement savings and planning.

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25
What are some government benefits listed?
Social Security statements, Medicare coverage information ## Footnote These benefits are key components of financial planning for individuals.
26
What documents are considered estate planning documents?
Wills, durable power of attorneys, advance medical directives, trust documents ## Footnote These documents are essential for managing an individual's estate and wishes.
27
What types of business documents are included in financial planning?
Shareholder agreements, buy-sell agreements ## Footnote These documents govern business ownership and transitions.
28
What factors are included in a client's qualitative data?
Client's attitudes and beliefs regarding goals, spending vs saving, and risk tolerance ## Footnote Understanding these factors is critical for effective financial planning.
29
What are common education goals for clients?
2-year college, 4-year college, graduate school, in-state vs out-of-state school, funding burden (parents, students, both) ## Footnote Education goals can significantly impact financial planning strategies.
30
What are some retirement goals clients may have?
Travel, pick up new hobbies, relax, spend time with family, sell/start/join a business, maintain current lifestyle, re-locate, downsize ## Footnote Retirement goals vary widely and should be considered in planning.
31
What are examples of savings goals?
House, car, private school, retirement, emergencies, vacation, gifts ## Footnote Savings goals can guide investment strategies and financial decisions.
32
What are some charitable goals clients might express?
Volunteer time and/or assets, pre-retirement vs retirement charitable goals, causes clients are passionate about ## Footnote Charitable goals can affect financial priorities and planning.
33
What are the attitudes towards spending vs savings?
Credit card vs debit card usage, frugal vs spendthrift personality ## Footnote These attitudes influence financial behavior and planning.
34
What are the categories of risk tolerance?
Risk-averse, risk-neutral, risk-seeking; financial vs non-financial tolerance for risk ## Footnote Risk tolerance is crucial in shaping investment strategies.
35
What does SMART stand for in goal-setting?
Specific, Measurable, Achievable, Reasonable, Time-bound ## Footnote SMART criteria help in formulating effective and actionable goals.
36
What is an example of a well-defined goal?
This year, save $1,000 per month in my 401k directly from my paycheck ## Footnote Well-defined goals provide clear direction for financial actions.
37
What is an example of a poorly-defined goal?
Put some money toward retirement when I get a chance ## Footnote Poorly-defined goals lack specificity and urgency.
38
What should be considered when prioritizing client goals?
Changing priorities over time, under-prioritization of risk-management goals, over-prioritization of large purchases ## Footnote Effective prioritization is essential for achieving financial success.
39
What are some business models financial planners may use?
Financial planning, debt management and budgeting, insurance product sales, investment product sales, tax preparation ## Footnote Different models cater to various client needs and preferences.
40
Who regulates investment advice?
Securities and Exchange Commission (SEC) and State securities administrator ## Footnote Regulatory bodies ensure compliance and protect investors.
41
What is the duty of fair dealing in financial planning?
Brokers must provide suitable recommendations and receive fair compensation ## Footnote This duty ensures ethical practices in client interactions.
42
What is reasonable basis suitability?
Brokers must have an adequate understanding of an investment before recommending it ## Footnote This obligation is crucial for protecting clients from unsuitable investments.
43
What does customer-specific suitability require?
Brokers must believe that recommendations are suitable based on a customer's investment profile ## Footnote This includes considering various personal financial factors.
44
What is quantitative suitability?
Brokers must ensure that a series of recommended transactions are not excessive or unsuitable when considered together ## Footnote This standard helps prevent excessive trading or churning.
45
What distinguishes the fiduciary standard from suitability standards?
Fiduciary standard imposes broad duties of care and loyalty, requiring advisors to act in the best interests of clients ## Footnote This higher standard emphasizes client welfare over advisor interests.
46
What does the fiduciary duty of care require?
Making reasonable inquiries into the client's investment profile and conducting due diligence on investment strategies ## Footnote This duty ensures informed and prudent advice.
47
What is the fiduciary duty of loyalty?
Investment advisors must act in the client's best interests and avoid conflicts of interest ## Footnote This duty is central to maintaining trust in the advisor-client relationship.
48
What is the primary duty of an investment advisor?
To act in the client’s best interest at all times. ## Footnote This is known as the fiduciary duty.
49
What is the difference between the fiduciary standard and the suitability standard?
The fiduciary standard requires acting in the client’s best interest, while the suitability standard only requires recommendations that are suitable. ## Footnote Suitability does not necessarily mean the best options for clients.
50
Name two professionals who are typically held to a fiduciary standard.
* Investment advisors * Trustees ## Footnote Other examples include executors and guardians.
51
What is the prudent investor rule?
It requires financial professionals to act for the benefit of beneficiaries and to disclose all facts in any transaction. ## Footnote It also includes refraining from self-dealing and balancing risks appropriately.
52
What is one key duty of CFP® professionals?
To make full and fair disclosure of all material facts. ## Footnote This is part of their fiduciary relationship with clients.
53
Under what circumstances might a CFP® professional not be held to the fiduciary standard?
* Acting as a broker to sell products * Speaking with someone who is not their client * Providing general public information ## Footnote These exceptions can occur in specific contexts.
54
What are some benefits of working with a professional financial planner?
* Empower clients with knowledge * Bring objectivity to financial plans * Increase client confidence ## Footnote These benefits help clients make informed financial decisions.
55
List three risks that financial planners help clients mitigate.
* Untimely death * Disability * Health long-term care ## Footnote Planners address various financial goals and risks.
56
What is 'Alpha' in investment management?
Excess return experienced by investors with a financial planner over those without. ## Footnote Investors with planners typically see returns of +3%.
57
How do financial planners assist with risk management?
They help clients avoid over-concentration in investments and ensure adequate insurance coverage. ## Footnote Many people without planners are under-insured or lack essential insurance products.
58
What are two ways financial planners optimize cash flow?
* Increasing income * Decreasing expenses ## Footnote They may also assist in refinancing debt.
59
What impact do financial planners have on clients' well-being?
They increase clients' happiness, peace of mind, and confidence in achieving goals. ## Footnote This effect is noted across various income levels.
60
What is the projected job growth for financial planners by 2026?
15% increase in employment due to retiring baby boomers. ## Footnote This reflects the rising demand for financial planning services.
61
What is the average annual earnings for financial planners?
$88,890 annually. ## Footnote This figure does not include bonuses or self-employed practitioners' wages.
62
What percentage of CFP® professionals are satisfied with their career choice?
91%. ## Footnote This statistic comes from a survey conducted by the Certified Financial Planner Board.
63
Fill in the blank: A fiduciary relationship includes the planner to the client when providing _______.
[financial planning or advice]
64
True or False: A broker always possesses a fiduciary duty.
False. ## Footnote A broker may possess a fiduciary duty under certain circumstances.

HS300 (2 decks)

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