FP511

Question 1

Acronym for 7 Steps of the Financial Planning Process

Answer 1

Umbrellas In A Downpour Prevent Immense Mess

Question 2

7 Steps of the Financial Planning Process

Answer 2

Understand, Identify, Analyze, Develop, Present, Implement, Monitor

Question 3

Financial Planning

Answer 3

Integrated, coordinated management of an individual’s financial situation

Question 4

Where are the Practice Standards for the Financial Planning Process found?

Answer 4

The CFP Board’s Codes & Standards

Question 5

How must information presented to a CFP professional be documented when they are providing Financial Advice or Financial Planning?

Answer 5

Written in either CRM software, email, or handwritten notes

Question 6

Step 1 of the 7-Step Financial Planning Process

Answer 6

“Understand” the Client’s personal and financial circumstances by obtaining and analyzing information (and addressing incomplete info if needed)

Question 7

Step 2 of the 7-Step Financial Planning Process

Answer 7

“Identify” & Select Goals. Identify potential goals, discuss effects on other goals, establish reasonable assumptions and estimates, then select and prioritize goals.

Question 8

When do unrealistic goals get addressed?

Answer 8

In Step 2 (“Identify”) when discussing potential goals

Question 9

How are potential goals best identified?

Answer 9

By using open-ended questions

Question 10

Step 3 of the 7-Step Financial Planning Process

Answer 10

“Analyze” Client’s Current Course of Action and Potential Alternative Course(s) of Action. Analyze material advantages and disadvantages of the current course and how they relate to goal potential, then do the same for alternative courses of action

Question 11

Step 4 of the 7-Step Financial Planning Process

Answer 11

“Develop” the Financial Planning Recommendations considering personal and financial conditions, assumptions and estimates, how courses of action maximize goal potential, timing and priority of the recommendation, and whether it is independent or implemented with another.

Question 12

Step 5 of the 7-Step Financial Planning Process

Answer 12

“Present” the Financial Planning Recommendations AND information considered when creating the plan (required)

Question 13

Why do recommendations discuss the problem/reason for the recommendation and consequences of continuing on the current course of action?

Answer 13

So that clients can have an understanding of why a plan should be put into place. It allows clients to see the importance of implementing it, as well as showing that serious thought and consideration have gone into creating the recommendation.

Question 14

Step 6 of the 7-Step Financial Planning Process

Answer 14

“Implement” the Financial Planning Recommendation(s). Establish responsibilities of the CFP Professional, client, and third parties, then recommend actions, products, and services that implement the recommendation and discuss advantages and disadvantages relative to reasonable alternatives

Question 15

Step 7 of the 7-Step Financial Planning Process

Answer 15

“Monitor” Progress and Updating. Establish whether the CFP Professional will monitor and update the plan, what, when, and how that will be monitored and updated, and the client’s responsibility to report material changes.

Question 16

What happens during Step 7 of the 7-Step Financial Planning Process that makes the process a loop?

Answer 16

Progress is monitored and analyzed at appropriate intervals; qualitative and quantitative information updates are noted when received from client; and goals, recommendations, or implementation are updated when needed.

Question 17

Financial Statements

Answer 17

Enable the planner, client, and others to obtain a clear picture of a client’s situation

Question 17

Two most common financial statements for CFP Professionals

Answer 17

Statement of Financial Position and Cash Flow Statement

Question 17

Statement of Financial Position

Answer 17

Presents assets and liabilities, resulting in a net worth at a given time

Question 18

Cash Flow Statement

Answer 18

Presents cash inflows and expenditures over a period of time

Question 19

Contextual Variables

Answer 19

Unique considerations to consider and address

Question 20

5 Main Categories of Contextual Variables

Answer 20

Family status, net worth, income, life/professional stage, and other

Question 21

Financial Life Cycle

Answer 21

Phases of life based on financial markers/habits

Question 22

Are the three phases of the Financial Life Cycle exlusive/linear?

Answer 22

No. A person can be in multiple stages at once at differing levels of influence

Question 23

Conservation/Protection Phase

Answer 23

Increases to cash flow, assets, and net worth along with a decline in debt use. Key indicator in this phase is more risk aversion as they acquire more assets and become more concerned with financial and life risks.

Question 23

Distribution/Gifting Phase

Answer 23

High net worth and cash flow, little-to-no debt. Indicators are distribution of wealth and implementation of estate planning strategies.

Question 24

Asset Accumulation Phase

Answer 24

Begins with limited investing ability, high debt, low net worth, and low risk concern. As a person moves through this phase, they will have more cash available for investing, reduced debt usage, and increased net worth (typically goes until around age 45)