Module 1 - Personal Financial Planning

Question 1

What are the 7 steps of the Practice Standards (financial planning steps)?

Answer 1

1. Understanding the client’s personal and financial circumstances.
2. Identifying and selecting goals
3. Analyzing client’s current course of action and potential alternative course(s) of action
4. Developing financial planning recommendation(s)
5. Presenting financial planning recommendation(s)
6. Implementing the financial planning recommendations
7. Monitoring progress and updating

Question 2

To comply with CFP Practice Standards, you must

Answer 2

Act prudently in documenting relevant information - noting significance, preserving notes, act in best interest of the client, and adhere to policies and procedures.

Question 3

Disclosures of relationship with client can come in which forms?

Answer 3

Handwritten, email, or CRM are appropriate note methods. Must clearly explain relationship to client prior to, or at time of engagement

Question 4

Financial Advice - which disclosure must be in wiritng?

Answer 4

Privacy Policy - everything else can be verbal or written

Question 5

Financial Planning - which disclosures must be in writing?

Answer 5

All, only material about conflicts of interest can be verbal

Question 6

What are some examples of qualitative information?

Answer 6

Related to the client’s quality of life and subjective information like: health status, life expectancy, values, family circumstances, goals, needs, risk tolerance, priorities, etc.

Question 7

What are some examples of quantitative information?

Answer 7

Objective facts, like: age, dependents, other professional advisors, income, cash flow, expenses, savings, assets, liabilities, benefits, coverages, capacity for risk

Question 8

If you cannot get a complete record of all the information needed for engagement, what are your options?

Answer 8

Limiting the scope of advice, or terminating engagement

Question 9

Recording ownership of assets and specifically property is important why?

Answer 9

Transfer of assets upon death, divorce, etc will be determined by the way the ownership of assets are designated and doing this correctly is essential to avoid probate and other legal issues.

Question 10

When collecting data from clients - what is required when receiving documents?

Answer 10

Date of receipt, name of recipient. Electronic storage is okay if reliable backup is also available. Documentation can be emailed, CRM, or handwritten.

Question 11

Step 1 of the Practice Standards includes what?

Answer 11

Obtaining qualitative and quantitative data, analyzing the data, and addressing missing data

Question 12

Step 2 of the Practice Standards include what?

Answer 12

Identifying potential goals, selecting and prioritizing goals - CFP must discuss goals that do not seem realistic

Question 13

Step 3 of the Practice Standards include what?

Answer 13

Analyzing the client’s current course of action and potential alternate courses of action

Question 14

Before making recommendations to the client - the CFP must:

Answer 14

Analyze their current financial situation and likelihood of accomplishing stated goals if they stay on that course

Question 15

What are some examples of client’s financial strengths?

Answer 15

Adequate savings (retirement), appropriate emergency fund, well defined financial goals, excellent cash flow management, appropriate investments for risk tolerance & time horizon & goals, appropriate insurance coverage, valid and current estate planning documents, employment status is stable/promising

Question 16

What are some examples of client’s financial weaknesses?

Answer 16

insufficient retirement savings, insufficient emergency fund, low net worth given stated goals, undefined of unrealistic goals, poor or improper cash flow management, investments are not aligned with risk tolerance & time horizon & goals, insufficient insurance coverage, lack of estate planning documents, unfavorable employment status

Question 17

Define the asset accumulation phase

Question 18

Define the Code of Ethics and Standards of Conduct

Question 19

Define the conservation or protection phase

Question 20

Define the distribution or gifting phase

Question 21

What are some examples of Economic assumptions?

Answer 21

Economic-based data or performance (current and/or historic), such as inflation rates and investment returns

Question 22

What is considered Financial Advice?

Question 23

What is considered Financial Planning?

Question 24

What are some examples of Personal assumptions?

Answer 24

Client specific goals and needs, like: retirement age(s), life expectancy(ies), income needs, risk factors, time horizon, and special needs

Question 25

What are some examples of relevant elements?

Question 26

Step 4 of the Practice Standards includes what?

Answer 26

Developing the financial planning - must include the assumptions and estimates used, the basis for making the recommendation, timing and priority for the recommendation, and whether or not the recommendation is independent or must be implemented with another recommendation

Question 27

A recommendation must be consistent with and will be affected by:

Answer 27

Scope of engagement, client goals & needs & priorities, quantitative and qualitative data provided by the client, personal and economic assumptions, practitioners analysis and evaluation of current situation, alternatives selected by the advisor

Question 28

Step 5 of the Practice Standards includes:

Answer 28

Presenting the Financial Planning Recommendation - A CFP® professional must present to the client the selected recommendations and the information that was required to be considered when developing the recommendation(s).

Question 29

What 5 things must be clearly communicated to the client as part of step 5 of the practice standard?

Answer 29

Personal and economic assumptions, interdependence of the recommendation, material advantages and disadvantages, risks, time sensitivity.

Question 30

What do well prepared recommendations do?

Answer 30

* Outline the problem and the potential outcome if not addressed * Provide a specific and actionable recommendation * List of advantages and disadvantages to give pertinent facts * Highlight the second best option so the client has options * Document whether or not the recommendation fits within client's current budget or if require adjustments to be made

Question 31

What does Step 6 of the Practice Standards include?

Answer 31

Implementation of the financial planning recommendation - addressing implementation responsibilities, identifying & analyzing & selecting actions/products/services, recommending actions/products/services, and selecting and implementing actions/products/services

Question 32

When implementing a recommendation, the CFP practitioner's responsibilities are:

Answer 32

Identifying activities necessary for implementation Determining division of activities between the practitioner and the client Referring to other professionals Coordinating with other professionals Sharing of information as authorized Selecting and securing products and/or services

Question 33

What is step 7 of the Practice Standards?

Answer 33

Monitoring Progress and Updating - this includes: whether or not the CFP is in charge of monitoring and how and when they will do this. The client's responsibility to update the CFP. The CFP's responsibilities regarding updating recommendations and how and when the CFP will make those recommendation changes

Question 34

What are 2 of the 3 acronymns to remember the 7 Practice Standard Steps?

Answer 34

Understand→Identify→Analyze→Develop→Present→Implement→Monitor Umbrellas In A Downpour Prevent Immense Mess Utterly Impossible Acronyms Do Produce Impeccable Memory!

Question 35

What are some examples of Contextual Variables?

Answer 35

* Family Status (or structure) * Net Worth * Income Level * Life/Professional Stage * Other Circumstances (special needs/considerations)

Question 36

What are some defining characteristics of Asset Accumulation Phase

Answer 36

* Age - up to about 45 (or child independence) * Limited excess funds for investing - at the beginning * High ratio of debt to net worth * Low Net Worth * Lack of concern about Risk

Question 37

What are some defining characteristics of Conservation/Protection Phase

Answer 37

* Age - 45-60ish (time before goal retirement age) * Increased cash flow/net worth/assets * Decreases in proportionate use of debt * Generally more concerned about preserving earnings than growing them * More concerned with general risks and protecting against them

Question 38

What are some defining characteristics of Gifting/Distribution Phase?

Answer 38

* Age - 60-death * Distribution strategies are main focus * Implementation of Estate planning * High net worth and cash flow * Low debt

Question 39

How are Financial Lifecycles defined?

Answer 39

Defined by:  Age  Financial status  Special needs  Marital status and dependents  Attitudes, values, beliefs, biases, and behavioral characteristics

Question 40

What are the CFP board's approved nouns?

Answer 40

certificant professional practitioner certification mark exam

Question 41

When engaging or recommending another professional, a CFP® professional must:

Answer 41

Have a reasonable basis for the recommendation or engagement based on the other professional’s reputation, experience, and qualifications Disclose any arrangement by which someone other than the client will compensate the CFP® professional, the CFP® professional’s firm, or a related party for the engagement or recommendation. Communicate with the other professional about the services each will provide and their 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 to be provided and the allocation of responsibilities.

Question 42

In a financial planning agreement - who has responsibility to provide documentation and facilitating feedback in a timely manner?

Answer 42

The client

Question 43

Who has the responsibility to provide information relevant to finalizing the financial recommendation and complete the plan?

Answer 43

The client

Question 44

Who has the responsibility to implement the financial plan unless otherwise specified in the scope of engagement ?

Answer 44

The financial planner

Question 45

What are some of the financial planner's responsibilities related to the financial plan?

Answer 45

* Identifying activities necessary for implementation * Determining division of activities between the practitioner and the client * Referring to other professionals * Coordinating with other professionals * Sharing of information as authorized * Selecting and securing products and/or services