M1: Principles of Financial Planning

Question 1

Paying full attention to what clients are saying and responding by paraphrasing their comments.

Answer 1

Active listening

Question 2

Giving direction; it is one of the most obvious and utilized directive skills that planners use.

Answer 2

Advice

Question 3

Poor financial decisions are made because they are based on how people believe the outcomes will represent their interest and values.

Answer 3

Affinity Bias

Question 4

A reflection of a person’s opinions, values, and wants.

Answer 4

Attitude

Question 5

A field of study that relates behavioral and cognitive psychology to financial planning and economics in an attempt to understand why people act irrationally during the financial decision-making process.

Answer 5

Behavioral finance

Question 6

A type of attitude that reveals the understanding of some aspect of a person’s own life.

Answer 6

Belief

Question 7

A tendency or inclination toward or against something or someone.

Answer 7

Bias

Question 8

Involves facial expressions, eye contact, gestures, and body posture.

Answer 8

Body language

Question 9

An individual (can also be called an agent) who has passed the appropriate regulatory exams and is authorized to sell securities to clients and charge a commission.

Answer 9

Broker

Question 10

A firm in the business of buying and selling securities, operating as both a blank, depending upon the transaction. A firm acts as a broker when it executes orders on behalf of clients, and acts as a dealer when it trades for its own account.

Answer 10

Broker-dealer

Question 11

Used to ensure the planner understands the client, it involves asking the client to provide details of the conversation.

Answer 11

Clarification

Question 12

Only requires a “yes” or “no” answer; limits data gathering.

Answer 12

Closed-ended question

Question 13

A written set of rules and expectations that embodies principles for behavior, a list of standards for professional conduct, and a set of disciplinary procedures.

Answer 13

Code of ethics

Question 14

Often a result of faulty reasoning a typically arise from a lack of understanding proper statistical analysis techniques, information processing mistakes, faulty reasoning, or memory errors.

Answer 14

Cognitive errors

Question 15

Compensation resulting from a client purchasing a particular product.

Answer 15

Commissions

Question 16

A financial plan that covers just about all of a person’s financial objectives, including consideration of risk management, investment planning, tax planning, retirement planning, and estate planning.

Answer 16

Comprehensive financial plan

Question 17

Occur when the planner has choices that benefit them more than the client, or may get in the way of providing the most objective advice for the client. For example, there may be two products, both of which would be helpful for the client, but the planner would receive a higher commission on one versus the other. blank will always exist; the important thing is for the planner to disclose them to clients.

Answer 17

Conflict of interest

Question 18

A rational view is formed; there is a failure to change that view as new information becomes available.

Answer 18

Conservatism bias

Question 19

Individuals’ past histories or any conditions that presently exist in their lives.

Answer 19

Context

Question 20

A questionnaire used by financial planners to gather information, both quantitative and qualitative, from clients.

Answer 20

Data survey form

Question 21

A tendency or inclination toward something that is related to conscious thought and instead stems from feelings, impulses, or intuition.

Answer 21

Emotional bias

Question 22

Occurs any time others feel they are left out of a conversation or relationship.

Answer 22

Exclusion

Question 22

The ability to recognize emotional expressions in oneself and others, as well as the ability to select socially appropriate responses to the circumstances and others’ emotions.

Answer 22

Emotional intelligence

Question 23

A descriptive statement used to make something more straightforward or understandable.

Answer 23

Explanation

Question 24

Financial planners who charge both a fee and can receive commissions.

Answer 24

Fee-based planning

Question 25

Financial planners who charge a fee for their services and do not receive any commissions. Examples include charging an asset under management (AUM) fee, a retainer fee, or an hourly fee.

Answer 25

Fee-only planning

Question 26

A relationship between two parties in which one (the fiduciary) has a high duty to act in utmost good faith and look out for the best interests of the other.

Answer 26

Fiduciary relationship

Question 27

Always acting in the best interests of the client.

Answer 27

Fiduciary standard

Question 28

A written statement, clearly defined and quantified, that identifies the financial purpose to be achieved. *blank*s should be clear as to purpose, time frame, and amount ("PTA").

Answer 28

Financial goal

Question 29

The development and implementation of total, coordinated plans designed to achieve an individual's financial objectives.

Answer 29

Financial planning

Question 30

Consists of seven steps: understanding the client's personal and financial circumstances; identifying and selecting goals; analyzing the client's current course of action and potential alternate course(s) of action; developing the financial planning recommendations; presenting the financial planning recommendations; implementing the financial planning recommendations; and monitoring progress and updating.

Answer 30

Financial planning process

Question 31

Regulates brokers and broker-dealers.

Answer 31

Financial Industry Regulatory Authority (FINRA)

Question 32

The regulatory from that all registered investment advisers (RIAs) must file with the SEC and provide to every client.

Answer 32

Form ADV Part 2

Question 33

The belief that one can control the outcome of an event when they cannot.

Answer 33

Illusion of control

Question 34

Delivering messages to clients that show others are valued, respected, and supported.

Answer 34

Inclusion

Question 35

Communicating one on one.

Answer 35

Interpersonal communication

Question 36

Guides clients to give more details, making a meeting of the minds more likely.

Answer 36

Leading response

Question 37

Irrational decisions are made because one places money into separate mental "accounts" based on the purposes of these accounts.

Answer 37

Mental accounting

Question 38

The tendency to think one dollar has the same value today, tomorrow, and into the future, without considering inflation.

Answer 38

Money illusion

Question 39

Imitating clients' gestures and physical positions or using similar verbal styles.

Answer 39

Mirroring

Question 40

Encourage clients to reflect and share their goals, beliefs, traditions, cultural background, feelings, and concerns in a thorough and open manner.

Answer 40

Nondirective counseling skills

Question 41

Question that requires clients to answer in their own words.

Answer 41

Open-ended question

Question 42

Repeating what the client says in another way.

Answer 42

Paraphrasing

Question 43

The process of determining whether and how an individual can meet life goals through the proper management of financial resources.

Answer 43

Personal financial planning

Question 44

Copying another person's body language.

Answer 44

Physical mirroring

Question 45

Voice sound quality of highness or lowness; it is primarily dependent on the frequency of the sound wave.

Answer 45

Pitch

Question 46

Behaving in a socially acceptable way with appropriate manners.

Answer 46

Politeness

Question 47

The principle that requires attaining, maintaining, and applying a sufficient level of knowledge and skill in servicing the client.

Answer 47

Principle of competence

Question 48

The principle that requires not disclosing "any confidential client information without the specific consent of the client unless in response to proper legal process."

Answer 48

Principle of confidentiality

Question 49

The principle that "demands honesty and candor which must not be subordinated to personal gain and advantage."

Answer 49

Principle of integrity

Question 50

The principle that requires the application of intellectual honesty and impartiality.

Answer 50

Principle of objectivity

Question 51

The principle that requires the conduct of a financial planner to reflect credit upon the profession.

Answer 51

Principle of professionalism

Question 52

Helps clients shift their perspectives by considering circumstances, feelings, or thoughts from another viewpoint.

Answer 52

Reframing

Question 53

*blank*s are investment advisers who provide advice on investments to clients and must register with either the Securities and Exhange Commission (SEC) or with the states, depending upon the amount of assets they have under management. Many financial planners are *blank*s.

Answer 53

Registered investment adviser (RIA)

Question 54

A federal regulatory agency established under the Securities Exchange Act of 1934. The mission of the *blank* is to protect investors, maintain fair, orderly, and efficient markets, and to facilitate capital formation.

Answer 54

Securities and Exchange Commission (SEC)

Question 55

Individuals taking credit for their successes and either blaming others or external influences for their failures.

Answer 55

Self-Attribution bias

Question 56

Poor financial decisions are made because one lacks self-discipline and favors immediate gratification over long-term goals.

Answer 56

Self-control bias

Question 57

The ability to respond thoughtfully to others.

Answer 57

Sensitivity

Question 58

A brief outline of a discussion.

Answer 58

Summarization

Question 59

Individuals are comfortable with an existing situation, which leads to an unwillingness to make changes, even though the changes are beneficial.

Answer 59

Status quo bias

Question 60

A financial plan that looks at just one objective, such as funding a college education, buying a first home, caring for an elderly parent or handicapped child, or planning for retirement.

Answer 60

Targeted financial planning

Question 61

The inflection of voice or emphasis on certain words; shows attitude, whether humor, anger, sincerity, or sarcasm.

Answer 61

Tone

Question 62

Attitudes and beliefs for which a person feels strongly; they represent what a person believes to be right.

Answer 62

Values

Question 63

Imitating the client's word use, tone of voice, and communication method.

Answer 63

Verbal mirroring