Module 1 Personal Financial Planning Flashcards
Identify the actions that occur in Step 1 of the Practice Standards for the Financial Planning Process, Understanding the Client’s Personal and Financial Circumstances.
Obtaining qualitative and quantitative information
Analyzing information
Addressing incomplete information
Establishing mutually defined goals
A)
IV only
B)
I, II, and III
C)
I and III
D)
I only
The answer is I, II, and III. Step 1, Understanding the Client’s Personal and Financial Circumstances, includes the following:
Obtaining qualitative and quantitative information
Analyzing information
Addressing incomplete information
LO 1.1.1
n developing a client-planner relationship, a CFP® certificant is allowed to do, or is governed by, which one of the following?
A)
As a CFP® certificant, the planner has the authority to represent the views of the CFP Board.
B)
A CFP® certificant is not prevented from advertising the size, scope, and areas of competence of their financial planning practice.
C)
A CFP® certificant is free to promote the stability and long history of any organization with which they are affiliated as if it applies to the financial planning practice.
D)
In an effort to attract a client base, a CFP® certificant may make any statements about the benefits of working with them, as long as any limitations of the practice are disclosed in writing prior to signing a contract for planning services.
The answer is a CFP® certificant is not prevented from advertising the size, scope, and areas of competence of their financial planning practice .The size, scope, and areas of competence of a financial planning practice are appropriate types of information to be used in advertising. All of the other statements violate the rules and principles.
Which of the following best describes data that is measurable or conveyed as a quantity?
A)
Qualitative data
B)
Quality data
C)
Quantitative data
D)
Qualified data
The answer is quantitative data. Examples of quantitative, or objective, data include current financial statements, copies of wills and trusts, and a list of current investments.
LO 1.1.1
Which of the following are primary reasons why a financial planner will ask for each family member’s date of birth during the information gathering process?
A)
To help determine retirement planning needs
B)
To determine how future legislation will affect funding for children’s education
C)
To calculate insurance policy internal rates of return
D)
To calculate Social Security “blackout periods” preretirement benefit amounts for qualifying individuals
TA person’s birth date has little or nothing to do with preretirement Social Security benefit determination. If they have qualified for benefits, then the amount is determined by the formula independent of their age. However, a person’s birth date does have an effect on other potential Social Security benefits. Birthdates also have little to do with calculating an insurance rate of return. Because future legislation is uncertain, it is impossible to determin how it will affect the funding for children’s education.
LO 1.1.1
Settings
According to the rules established by CFP Board, which of the following uses of the certification marks are CORRECT?
Frank Smith, C.F.P.
Frank Smith, CFP®
Frank Smith & Co., PA, CFPs
Frank Smith, CERTIFIED FINANCIAL PLANNER™
A)
I, II, and IV
B)
I, II, and III
C)
II and IV
D)
II only
The answer is II and IV. The CFP® marks should never contain periods. In addition, the marks should not be used as part of or incorporated in the name of a firm.
LO 1.2.1
Developing a financial plan often involves input from a team of financial advisors employed by the client. Members of this team may include which of the following professionals?
A trust officer
An estate-planning attorney
A property and casualty agent
A Certified Public Accountant (CPA)
A)
I and II
B)
I and IV
C)
I, II, and IV
D)
I, II, III, and IV
The answer is I, II, III, and IV. A team of financial advisors may include all of these professionals. This team may also include other financial professionals, such as a life insurance agent.
LO 1.2.2
As a member of a financial adviser team, a financial planner’s responsibilities for a client typically include which of the following?
Drafting a will for the client
Assisting the client identifying financial goals
Analyzing the client’s current financial status
Monitoring whether the client is complying with a plan after implementation
A)
II, III, and IV
B)
I, II, III, and IV
C)
II and III
D)
I and IV
The answer is II, III, and IV. Unless a financial planner is also a licensed attorney, the planner should not draft legal documents such as powers of attorney and wills to avoid the unauthorized practice of law.
Jacoby Jones recently passed his CFP® Examination and fulfilled all of the CFP Board certification criteria. Identify an approved display of his name on an updated business card.
A)
Jacoby Jones, Certified Financial Planner®
B)
Jacoby Jones CFP® Advisor
C)
Mr. Jacoby Jones, CFP®
D)
Mr. Jacoby Jones, C.F.P.®
Mr. Jacoby Jones, CFP® is an acceptable way for the new CFP® Certificant to display his name. “Advisor: is not a CFP Board approved noun. Periods should not be used in “CFP.” Capital letters or small-cap font along with a trademark symbol, should be used when CFP is spelled out.
LO 1.2.1
The Watsons are recently retired and ready to take a vacation to Europe to celebrate their 40th wedding anniversary. When they return, they would like to meet with their financial planner to discuss setting up a family foundation to continue their lifelong philanthropic endeavors. The Watsons are currently in which life cycle phase?
A)
Conservation phase
B)
Asset accumulation phase
C)
Protection phase
D)
Distribution phase
The answer is distribution phase. The distribution/gifting phase begins subtly when a couple realizes that they can afford to spend on things they never believed possible. The asset accumulation and conservation/protection phases make this phase possible. For many people, there is a period when they are being influenced by all three phases simultaneously, though not necessarily to the same degree.
LO 1.1.2
Bertha, age 55, plans to retire in 10 years. Currently, her cash flow and net worth are steadily increasing as her debt is decreasing. Based on Bertha’s current financial life cycle phase, which of the following goals is she is likely to have?
A)
Long-term goals, such as investing for retirement
B)
Long-term goals, such as estate planning and preservation of capital
C)
Short-term goals, such as protection and maintenance of current lifestyle
D)
Short-term goals, such as saving for a down payment on a home
The answer is long-term goals, such as investing for retirement. Bertha is in the conservation/protection phase of the financial life cycle. As such, her goals are likely longer-term goals, such as investing to provide for future retirement income. In the accumulation phase of the financial life cycle, clients have only limited discretionary income and, as a result, they are likely to focus on short-term, cost-of-living goals. Finally, in the distribution/gifting phase, estate planning and capital preservation are usually most important.
LO 1.1.2
According to CFP Board’s Code and Ethics, under Standards of Conduct that relate to Duties Owed to Clients, which of the following are requirements with which the CFP® certificant must comply?
Make only recommendations that are suitable for the client.
Use the CFP® mark in compliance with the rules and regulations of CFP Board.
Exercise reasonable care when supervising persons acting under the CFP® professional’s direction.
May not make false or misleading representations to CFP Board or obstruct CFP Board in the performance of its duties.
A)
IV only
B)
I only
C)
I and III
D)
II and IV
While all of these duties are contained in the code, they are not all under duties owed to clients. It is important to read the question carefully and then make sure that any answers that appear to be correct are actually correct as related to the stem question. For example, the correct use of the CFP® mark is found in the Rules related to Obligations to CFP Board, not to clients. exercising reasonable care when supervising persons acting under the CFP® professional’s direction is found in duties owed to firms and subordinates, not to clients.
Identify the responsibilities a CFP® professional must uphold while working with another professional on a client’s behalf.
Communicate with the other professional about the services each will provide
Monitor the professional to ensure their compliance with the Code and Standards
Communicate respective responsibilities
Inform the client in a timely manner if the other professional did not perform the services in accordance with the scope of services
A)
I, III, and IV
B)
I, II, III, and IV
C)
I only
D)
II, III, and IV
The answer is I, III, and IV. Standard A.13 (Duties When Recommending, Engaging, and Working with Additional Persons) states that when working with another professional on a client’s behalf, the CFP® professional must
communicate with the other professional about the services each will provide and their respective responsibilities; and
inform the client in a timely manner if the other professional did not perform the services in accordance with the scope of services to be provided and the allocation of responsibilities.
CFP® professionals do not have to monitor the professional to ensure compliance with the Code and Standards.
LO 1.2.2
All of the following are CFP Board‒approved nouns to use after the phrase “CERTIFIED FINANCIAL PLANNER™” except
A)
professional.
B)
candidate.
C)
exam.
D)
certificant.
The answer is candidate. CFP Board’s approved nouns are “certificant,” “professional,” “practitioner,” “certification,” “mark” or “exam.”
LO 1.2.1
A financial planner’s responsibilities when acting as a member of a team of financial advisors for a client typically include all of the following except
A)
analyzing the client’s current financial status.
B)
helping the client identify financial goals.
C)
monitoring whether the client is complying with a plan after implementation.
D)
drafting a power of attorney for the client.
The answer is drafting a power of attorney for the client. Unless a financial planner is also a licensed attorney, the planner should not draft legal documents, such as powers of attorney and wills to avoid the unauthorized practice of law.
LO 1.2.2
Analyze the scenario. Ling, a CFP® professional, is providing financial advice to her client. After considering the client’s goals, family medical history, tax situation, and financial resources, she develops a financial plan that recommends that the client purchase long-term care insurance. Which statement regarding implementation responsibilities is NOT correct?
A)
If Ling and the client have not excluded implementation responsibilities from the Engagement, she must recommend one or more long-term care insurance policies to the client and help her client select a policy that will meet the client’s needs.
B)
Ling is not responsible for implementing this planning recommendation because it only involves the purchase of a single product.
C)
Ling must explain to the client the responsibilities she has in implementing the recommendations and the responsibilities that the client and any third party may have with respect to implementation.
D)
If Ling and the client have not excluded implementation responsibilities from the Engagement, she must identify and analyze policies designed to implement the recommendations and must consider advantages and disadvantages of the insurance product relative to reasonably available alternatives.
The answer is Ling is not responsible for implementing this planning recommendation because it only involves the purchase of a single product. Ling is responsible for implementing the recommendations unless implementation is specifically excluded from the Scope of the Engagement.
LO 1.2.2
Alan and Gretchen are completing a data survey form for their financial planner to use in reviewing their financial plan. Their planner has explained that a step in the financial planning process is understanding the client’s personal and financial circumstances. During this step, the planner obtains qualitative and quantitative information. Which of these is qualitative rather than quantitative data?
A)
Projected Social Security benefits statements
B)
Employee benefits and pension plan information
C)
Wills and trust documents
D)
Education or other accumulation goals
Education or other accumulation goals are qualitative wants and/or desires. Completed documents, such as a will or trust, Social Security statements, and business-sponsored employee benefit plan information involve measurable amounts, and are therefore quantitative.
LO 1.1.1
John and Shirley Smith recently retired and are planning a Mediterranean cruise to celebrate John’s 70th birthday. When they return, they would like to meet with you, their financial planner, to discuss charitable contributions they would like to make. The Smiths are currently in which life cycle phase?
A)
Protection phase
B)
Conservation phase
C)
Distribution phase
D)
Asset accumulation phase
The answer is distribution phase. The distribution/gifting phase begins subtly when a couple realizes that they can afford to spend on things they never believed possible. The asset accumulation and conservation/protection phases make this phase possible. For many people, there is a period when they are being influenced by all three phases simultaneously, though not necessarily to the same degree.
In which step of the financial planning process is a planner charged with providing the client ongoing support?
A)
Implementing the Financial Planning Recommendation(s)
B)
Monitoring Progress and Updating
C)
Identifying and Selecting Goals
D)
Developing the Financial Planning Recommendation(s)
The answer is Monitoring Progress and Updating. It is within step seven, Monitoring Progress and Updating, that the planner is charged with providing the client ongoing support.
When a client-planner engagement involves Financial Advice for which Financial Planning is required, and the client does not enlist the planner for services, the Planner must abide by
Fiduciary Duty.
the Code of Ethics.
the Practice Standards for the Financial Planning Process.
the Suitability Standard.
A)
I only
B)
IV only
C)
I, II, and III
D)
I and II
The answer is I and II. In instances where the engagement involves Financial Advice that requires Financial Planning, but the client does not enlist the planner’s services, the planner must uphold the fiduciary duty and abide by the Code of Ethics. Following the Practice Standards for the Financial Planning Process is not required.
LO 1.1.2
A person in the conservation/protection phase of the financial life cycle is likely to have which of these goals?
A)
Short-term goals, such as saving for a down payment on a home
B)
Long-term goals, such as investing for retirement
C)
Long-term goals, such as estate planning and preservation of capital
D)
Short-term goals, such as protection and maintenance of current lifestyle
The answer is long-term goals, such as investing for retirement. In the accumulation phase of the financial life cycle, individuals have only limited discretionary income and, as a result, they are likely to focus on short-term, cost-of-living goals. In the conservation/protection phase, individuals’ financial goals are likely to change to longer-term goals, such as investing to provide for future retirement income. Finally, in the distribution/gifting phase, estate planning and capital preservation become most important.
LO 1.1.2
A client who has become more concerned about losing what she has than in accumulating more is most likely in which financial life cycle phase?
A)
Asset accumulation phase
B)
Conservation/protection phase
C)
Distribution/gifting phase
D)
Preretirement phase
The answer is conservation/protection phase. Clients generally become more risk averse in the conservation/protection phase and become aware and pay attention to risks they ignored in the asset accumulation phase.
oyce has become more risk averse and is not focused on accumulating assets, but maintaining the values of the ones she has. Joyce is in which financial life cycle phase?
A)
Conservation/protection phase
B)
Preretirement phase
C)
Asset accumulation phase
D)
Distribution/gifting phase
The answer is conservation/protection phase. People generally become more risk averse in the conservation/protection phase and become aware of the risks that were ignored in the asset accumulation phase.
LO 1.1.2
Which of the following describes the distribution, or gifting, phase of a client’s life cycle?
A client is usually in this phase until approximately age 45 or later if the client’s children are not yet independent.
Distribution strategies, including retirement income sources and gifting strategies, are often a primary focus of a client’s estate plan.
A)
Neither I nor II
B)
I only
C)
Both I and II
D)
II only
The answer is II only. Only Statement II is correct. Statement I describes the asset accumulation phase of a client’s life cycle.
LO 1.1.2
A client is usually in what phase of the financial life cycle from approximately age 45 to 60 or immediately preceding the client’s planned retirement date?
A)
Conservation/protection phase
B)
Distribution phase
C)
Gifting phase
D)
Asset accumulation phase
Incorrect Answer
Explanation
This defines the conservation/protection phase of the financial life cycle. In the asset accumulation phase, a client is usually age 45 or younger; however, this phase may occur later if the client’s children are not yet independent. A client is usually in the gifting, or distribution, phase from approximately age 60, or the planned retirement date, until the date of death.
LO 1.1.2
