General Principles (Calc)

Question 1

Use of Payment in Begin Mode

Answer 1

College Tuition Paid (Pay me now)
Retirement Benefits Received (pay me now)
Family Needs (Pay me now)

• client invests (negative) 1000 at the beginning of each of the next three years

Question 2

Use of Payment in End Mode

Answer 2

401k Deferrals
Profit Sharing Contributions
Bond Interest Paid
Mortgage Payments

• client expects to receive (positive) annuity payments at the END of each of the next three years

*

Question 3

Financial Planning Process (7 Steps)

Answer 3

Unicorns (Understand)
Go (gather info and identify goals)
All (analyze current course)
Day (Develop recommendations)
Prancing (present)
In (implement)
May (monitor)

1.) Understanding the Clients Personal Goals and Objectives

• Discuss needs
• Understand family, business, orgs
• Discuss process
• Define and document Scope of engagement
• set/communicate ability to meet those needs
• discuss both responsibilities
• provide client disclosures - regulatory and compensation

1.2) Gathering Information

• identify values and attitudes
• level of knowledge for client/risk exposures
• Gather summary of data: assets, liabilities, beneficiaries, income/expenses, documents, gov benefits, etc.

2. Identifying and Selecting Goals

• ID goals that are mutually agreeable
• prioritize goals
• quantify in time horizon and dollars
• educate realistic or not

3. Analyzing the Clients Current Course of Action and Potential Alternative Courses of Action

• Evaluate and document strengths and weaknesses of current”
  financial status
  risk management/insurance needs
  beenfits
  Investments
  taxes
  retirement
  estate planning
  business ownership
  Education Planning
  other considerations: spec. circumstances - divorce, disabilities, inheritances, windfalls, charitable gift planning, eldercare
  ID proper financial planning software.

4. Developing the Financial Planning Recommendations

• Synthesize conclusions from analysis of current financial status
• consider alternative to meet clients goals
• consult with other professionals as needed
• develop recommendations - consider goals, priorities, attitudes, behavioral finance issues, consider how certain changes may impact, document recommendations.

5. Presenting the Financial Planning Recommendations

• present and educate
• review client goals, revisit assumptions, share observations, compare alternatives, explain reasoning, obtain feedback, provide documentation, verify client acceptance.

6. Implementing the Financial Planning Recommendations

• Create prioritized implementation plan with timeline
• assign responsibilities, support client directly or indirectly with mechanics,
• coordinate and share info with others as authorized
• define monitoring responsibilities,

7. Monitoring Progress and Updating

• discuss and eval changes to circumstances,
• review performance
• review changes to legal, tax, economic environment
• make accommodative changes to rec’s
• provide on going support.

Question 4

Professional & Regulatory Standards

Answer 4

Code of ethics
Professional Responsibility
Rules of Conduct

Understand Disciplinary Rules and Procedures

Financial Planning Practice Standards

Document, monitor client noncompliance with recommendations

Question 5

Code of Conduct (6)

Answer 5

Honestly, Integrity, competence, diligence (4)
clients best interests
exercise due care
avoid or disclose conflicts
maintain confidentiality
act in manner that reflects positively on profession and CFP®

Question 6

Standards of Conduct (Duties owed to Clients)

Answer 6

Fiduciary Standard

Duty Loyalty - client interests first & balance conflicts
Duty Care - act with skill, prudence, diligence
Follow Client Instructions - comply with client instructions, objectives

Question 7

Integrity Standard

Answer 7

Honesty
Disclose any current suspensions that are active during suspension

Do not make untrue statements
do not deceive or defraud
do not omit material facts in order to mislead
do not encourage any business act that would operate as a fraud or deceit upon anyone

When looking at the preponderance of evidence.

Breach of reasonable compensation… in the eyes of a reasonable person … was this investment choice… The BEST option for the clients stated goals… or was it in fact the commission which tipped the scales in favor of a less optimal investment choice for the client.

On a scale of probabilities… a reasonable person would evaluate the alternatives available to the advisor and render judgement on whether it was in fact the best choice… or was there incentive structure to the benefit of the advisor… that tipped the scale in favor of a less optimal choice for the client.

Question 8

Diligence Standard

Answer 8

Provide services in professional manor
respond to reasonable client inquires in a timely manner

Question 9

Competence Standard

Answer 9

Obtain assistance of others
refer client to other professionals
limit or terminate the engagement

Question 10

Qualitative

Answer 10

attitudes and beliefs

Goals
expectations
Priorities
risk tolerance
health PRESUMPTIONS
life expentancy PRESUMPTIONS
Family circumstances
ethical and religious values
Current financial planning actions

Question 11

Quantitative

Answer 11

of dependents

Facts:

age
other professional advisor, lawyers, tax accountants
income & expenses
assets/liabilities
savings
available resources
investment accounts
RISK CAPACITY - level of risk necessary to accomplish goals
government benefits
employee benefits
amount and allocation of retirement accounts
tax exposures
insurance coverages and ownership
estate plans