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CFP Coursework > General Financial Planning - FP511 - Module 1 > Flashcards

General Financial Planning - FP511 - Module 1 Flashcards

1
Q

What is the goal of the Code of Ethics and Standards of Conduct

A
  • To establish best practices within the financial planning profession.
  • Specifically, the Code and Standards are intended to:
    1- benefit and protect the public,
    2- provide standards for delivering financial planning, and
    3- advance financial planning as a distinct and valuable profession.
  • Establish the level of professional practice that is expected of CFP professionals.
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2
Q

Define: Economic Assumptions

A

Based on economic-related data or performance (current and/or historical), such as inflation rates and investment returns.

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3
Q

Define: Financial Planning

A

A collaborative process that helps maximize a client’s potential for meeting life goals through financial advice that integrates relevant elements of the client’s personal and financial circumstances.

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4
Q

Define: Personal Assumptions

A

Based on client-related variables, such as retirement age(s), life expectancy(ies), income needs, risk factors, time horizon, and special needs.

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5
Q

Define: Practice Standards for the Financial Planning Process

A

A section of the Code and Standards in which the financial planning process is broken down into seven distinct steps. Also known as practice standards.

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6
Q

Define: Quantitative Data

A
  • Is measurable or expressed as a quantity or number.
  • Examples include current financial information, assets and liabilities, and cash inflows and outflows.
  • Also known as objective data.
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7
Q

Define: Qualitative Data

A
  • Is related to the subjective quality of a client’s life. This data often represents a client’s individual traits, values, opinions, attitudes, and beliefs.
  • Examples include financial goals and objectives, health status, and risk tolerance.
  • Also known as subjective data.
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8
Q

Define: Relevant Elements

A
  • Are incorporated into the Financial Planning process when Financial Planning takes place.
  • These elements vary depending on the client and their circumstances.
  • Examples include developing client goals, managing assets and liabilities, managing cash flow, providing for educational needs, achieving financial security, preserving or increasing wealth, preparing for retirement, and addressing estate and legacy matters.
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9
Q

Define: Contextual Variables

A

Personal and financial circumstances withing the life cycle influenced by things like:
- age
- family status (traditional family, single parent, same-sex couples, blended families, widowhood, dependents)
- financial status (net worth and income level)
- life or professional stage (student, starting a career, career transition, pre-retirement, retirement)
- other circumstances (health issues, divorces, change of employment status, aging parents, special needs children)
- as well as attitudes, values, beliefs, biases, and behavioral characteristics.

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10
Q

What are the 7 steps of the Financial Planning Process?

A

1- Understand the client’s personal and financial circumstances
2- Identify and select goals
3- Analyze the client’s current course of action and potential alternative course(s) of action
4- Develop the financial planning recommendation(s)
5- Present the financial planning recommendation(s)
6- Implement the financial planning recommendation(s)
7- Monitor progress and update

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11
Q

Step 1 of the Financial Planning Process is to understand the client’s personal and financial circumstances. What actions are taken within this step?

A

1- Obtain qualitative and quantitative data
2- Analyze information
3- Address incomplete information

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12
Q

Step 2 of the Financial Planning Process is to identify and select goals. What actions are taken within this step?

A

1- Identify potential goals
2- Select and prioritize goals

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13
Q

Step 6 of the Financial Planning Process is to implement the financial planning recommendations. What actions are taken within this step?

A

1- Address implementing responsibilities
2- Identify, analyze, and select actions, products, and services
3- Recommend actions, products, and services for implementation
4- Select and implement actions, products, or services

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14
Q

Step 7 of the Financial Planning Process is to monitor progress and update. What actions are taken within this step?

A

1- Establish monitoring and updating responsibilities
2- monitor client’s progress
3- Obtain current qualitative and quantitative data
4- Update goals, recommendations, or implementation decisions

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15
Q

What are the CFP approved nouns?

A
  • Certificant
  • Professional
  • Practitioner
  • Certification
  • Mark
  • Exam
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16
Q

T/F: Planner is an approved CFP noun.

A

FALSE

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17
Q

T/F: As a CFP certificant, the planner does not have the authority to represent the views of the CFP board.

A

TRUE

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18
Q

When a client-planner engagement involves financial advice for which financial planning is required, and the client doesn’t enlist the planner for services, the planner must abide by:

A

Fiduciary Duty and the Code of Ethics

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19
Q

What is one of the most important ways to help clients in the savings process?

A

Developing a budget.
A budget can reveal both problem spending areas and help clients adjust their cash flow.

20
Q

T/F: A CFP professional must advise all current clients of any suspension or revocation received from the CFP board.

A

TRUE
Note: An employee is required to notify their employer, but an employer is not required to notify their employees.

21
Q

T/F: When working with another professional on a client’s behalf, the CFP professional must monitor the professional to ensure their compliance with the Code and Standard.

A

FALSE

22
Q

T/F: Standard A.5 requires that material conflicts of interest be eliminated.

A

FALSE
Material conflicts of interest must be disclosed to the client, not necessarily eliminated.

23
Q

When considering documentation required for Financial Advice vs Financial Planning, which documents must always be in writing and which can be verbal or written.

A

Privacy Policy- always in writing
Material Conflicts of Interest- can be verbal or written
All other documents- can be verbal or written for Financial Advice, but must be written for Financial Planning.

24
Q

What age range is typical of the asset accumulation phase?

A

A client is usually in this phase beginning when they start working, until approximately 45, or later if the client’s children are not yet independent.

25
Q

What characteristics mark the beginning of the asset accumulation phase?

A

Limited excess funds for investing, high degree of debt to net worth, low net worth, and lack of concerns for risk.

26
Q

What characteristics mark the latter part of the asset accumulation phase?

A

As a person moves through the asset accumulation phase, there is increased cash available for investments, reduced use of debt as a percentage of total assets, and increased net worth.

27
Q

What age range is typical of the conservation phase?

A

A client is usually in this phase from approximately age 45-60 or immediately preceding the client’s planned retirement date. This may last throughout the client’s working life or, in some cases, until death.

28
Q

What characteristics mark the conservation phase?

A

Increases in cash flow, assets and net worth; and decreases in proportionate use of debt. People generally become more risk averse as more assets are acquired. Thus, they are more concerned about losing what they have acquired than acquiring more; and become aware of and are concerned with many risks they ignored at the beginning of the asset accumulation phase, including an increased awareness of life’s risk (e.g., untimely death, unemployment, or disability).

29
Q

What age range is typical of the distribution phase?

A

A client is usually in this phase from approximately age 60, or the planned retirement date, until the date of death.

30
Q

What characteristics mark the distribution phase?

A

Distribution strategies (e.g., lifetime gifts to heirs), implementation of estate planning strategies, high net worth and cash flow, and low debt. Also known as gifting phase.

31
Q

Who developed the Code of Ethics and Standards of Conduct?

A

The Certified Financial Planner Board of Standards, Inc. (CFP Board), developed the Code of Ethics and Standards of Conduct (Code and Standards).

32
Q

What are the approved forms of documentation?

A
  • CRM software
  • handwritten notes
  • emails
33
Q

When can the various required disclosures for Financial Advice and Financial planning be delivered to the client?

A

Either prior to or at the time of the engagement.

34
Q

If a practitioner is unable to obtain sufficient and relevant quantitative information and documents to form recommendations, the practitioner may either-

A
  • restrict the scope of the engagement to those matters for which sufficient information is available
  • terminate the engagement
35
Q

Why is discussing goals critical to the planning engagement?

A

They define what the client wants to achieve and directs the overall process.

36
Q

T/F: Any decisions concerning material assumptions within the plan must be disclosed and vetted with the client.

A

TRUE

37
Q

T/F: The planner does not need to account for issues that the client may not have considered independently.

A

FALSE
A planner must anticipate risks and focus the attention of the client on the interrelated nature of every goal.

38
Q

How can a financial planner effectively and accurately identify a client’s financial strengths and weaknesses?

A

By analyzing and evaluating the client’s current course of action.

39
Q

List common strengths a planner may identify in their clients.

A
  • adequate savings
  • appropriate emergency fund
  • appropriate net worth
  • well-defined financial goals
  • excellent cash flow management skills
  • appropriate investments given client risk tolerance, time horizon, and goals
  • appropriate insurance coverage
  • valid and current estate planning documents
  • employment status stable or promising
40
Q

List common weaknesses a planner may identify in their clients.

A
  • insufficient savings
  • inadequate emergency fund
  • low net worth
  • undefined or unrealistic financial goals
  • poor or improper cash flow management skills
  • investments that are not aligned with risk tolerance, time horizon, and goals
  • insufficient amount of or no insurance coverage
  • lack of estate planning documents
  • unfavorable employment status
41
Q

What considerations must be made for each recommendation selected by the CFP professional?

A
  • the assumptions and estimates used to develop the recommendation
  • the basis for making the recommendation
  • the timing and priority of the recommendation
  • whether the recommendation is independent or must be implemented with another recommendation
42
Q

T/F: A CFP professional must present to the client the selected recommendations and information that was required to be considered when developing the recommendations.

A

TRUE

43
Q

Above all, the format and content of the planner’s presentation must be:

A

clear and understandable.

44
Q

What are the elements of a well-prepared recommendation?

A
  • a brief outline of the problem and its potential consequences
  • will provide a specific, actionable recommendation
  • will include a list of advantages and disadvantages with pertinent facts
  • will highlight the second-best alternative
  • will document if the costs of proposed alternatives fit within the client’s budget
45
Q

What goals will someone in the conservation phase typically have?

A

Long-term goals, like investing for retirement

46
Q

According to A.5, Disclose and Manage Conflicts of Interest, a CFP professional must:

A
  • avoid or fully disclose material conflicts of interest
  • obtain informed consent
  • manage the conflict of interest
47
Q

T/F: The financial planner is never responsible for implementation.

A

FALSE
Unless specifically excluded from the Scope of Engagement, the planner is responsible for implementation of their recommendations.

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