Section 101 Unit 1-2 Flashcards Preview

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Flashcards in Section 101 Unit 1-2 Deck (35):

Comprehensive financial plan consists of six main components...

1. Savings, budgeting, emergency funding, and education funding.
2. Investment Planning
3. Insurance Planning
4. Income Tax Planning
5. Retirement Planning
6. Estate Planning


Quantitative Data

Are those data that are measurable or conveyed as quantity. Examples is a current financial status (assets and liabilities), copies of wills, and trusts, and a list of current investments.


Qualitative Data

Are those data that are concerned with the quality of a client's life. Examples include financial goals and objectives, health status, and client's risk tolerance level.


Client's Financial Cycle

Asset Accumulation Stage
Conservation or Protection Stage
Distribution or Gifting Stage


Financial Planning Process

Step 1 Establishing and Defining the client-planner relationship
Step 2 Gathering Information Necessary to Fulfill the Engagement
Step 3 Analyzing and Evaluating the Client's Current Financial Status
Step 4 Developing and Communicating the Recommendations
Step 5 Implementing the Recommendations
Step 6 Monitoring the Recommendations


Financial Planning Engagement

Exists when a certificate performs any type of mutually agreed-upon financial planning service for a client


Financial Planning Practitioner

Is a person who engages in financial planning using the financial planning process when working with clients


Open-Ended Questions

Conversation provoking questions


Closed-Ended Questions

Require Yes or No answers


Interpersonal Communication

Communicating one-on-one


Emotional Intelligence

The ability to recognize emotional expressions in oneself and the client, as well as selecting socially appropriate responses to both the circumstances and the client's emotions


Active Listening

Paying full attention


Leading Responses

Guide the client to give more detail, making a "meeting of the minds" more likely.


Asset Accumulation Stage

A client is sully in this stage until approximately age 45 or later if the client's children are not yet independent


Conservation or Protection Stage

A client is usually in this stage from approximately age 45 to 60 or immediately preceding the client's planned date of retirement


Distribution or Gifting Stage

A client is usually in this stage from approximately age 60, or planned date of retirement, until date of death. Distribution strategies, including retirement income sources and fitting strategies, are often a primary focus of a client's estate planning.


Statement of Financial Position

A personal balance sheet or net worth statement. Provides a snapshot of the client's net worth on any given date, usually at the end of a calendar year. (Like a picture has been taken of that particular moment in time)


Net Worth Equation

Assists - Liabilities = Net Worth
Assets = Liabilities + Net Worth


Fair Market Value

Defined by the IRS as the price of property will bring when offered for sale by a willing seller to a willing buyer.


Liabilities are always presented as...

Their principal value without regard to any interest obligation


Statement of Financial Position is organized into three categories

Total Assets (what the client owns)
Total Liabilities (what the client owes)
Net Worth (what the client is worth after all liabilities are paid in full)


Statement of Financial Position
Total Assets Subcategories

Cash or Cash Equivalent
Personal Use Assets


Cash and Cash Equivalents

Tend to be current, or short term, in nature.



Tend to be longer term in nature


Personal Use Asset

Is one that is owned by a client for lifestyle reasons and use, not primarily for investment.


Personal Statement of Cash Flows

Summarizes the items of income that were actually received and the expenditures actually made during a specific period. (Like a video of what is going on between the pictures or Statement of Financial Position. To help explain how you got from one picture to the next)


Fixed Cash Outflows

Some predictability in occurrence and amount. I.e. Mortgage payments, auto note payments, insurance premiums, property taxes


Variable Cash Outflows

There is some variation in occurrence and amount. I.e. Food expenses, clothing expenses, utilities, travel and entertainment


Balance Sheet

The business equivalent to a statement of financial position


Income Statement

The business equivalent to a personal statement of cash flow. Also known as a Profit and Loss statement (P&L statement)


Business Statement of Cash Flow

NOT THE SAME AS THE PERSONAL STATEMENT OF CASH FLOW! It assists in the reconciliation of the business income statement to changes between two balance sheets.


Three Components of the Business Statements of Cash Flow

Cash Flow from Business Operations
Cash Flow from the Business Investment actives
Cash Flow from Financing Activities (bonds, stocks)


Pro Forma Income Statement

Is created by first estimating gross profit and total expenses for the coming year or years and then accounting for the amount of taxes due on the net profit. It's a tool for planning future business operations.


Formula to determine this savings level is:

Inflows − outflows (fixed, variable, and taxes) = savings level


The three components of the cash flow statement are:

cash inflows;
cash outflows; and
cash surplus (savings level or discretionary income) or cash deficit