Section 101 Unit 1-2 Flashcards Preview

CFP > Section 101 Unit 1-2 > Flashcards

Flashcards in Section 101 Unit 1-2 Deck (35)
Loading flashcards...
1
Q

Comprehensive financial plan consists of six main components…

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

Quantitative Data

A

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.

3
Q

Qualitative Data

A

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.

4
Q

Client’s Financial Cycle

A

Asset Accumulation Stage
Conservation or Protection Stage
Distribution or Gifting Stage

5
Q

Financial Planning Process

A

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

6
Q

Financial Planning Engagement

A

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

7
Q

Financial Planning Practitioner

A

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

8
Q

Open-Ended Questions

A

Conversation provoking questions

9
Q

Closed-Ended Questions

A

Require Yes or No answers

10
Q

Interpersonal Communication

A

Communicating one-on-one

11
Q

Emotional Intelligence

A

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

12
Q

Active Listening

A

Paying full attention

13
Q

Leading Responses

A

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

14
Q

Asset Accumulation Stage

A

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

15
Q

Conservation or Protection Stage

A

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

16
Q

Distribution or Gifting Stage

A

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.

17
Q

Statement of Financial Position

A

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)

18
Q

Net Worth Equation

A

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

19
Q

Fair Market Value

A

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

20
Q

Liabilities are always presented as…

A

Their principal value without regard to any interest obligation

21
Q

Statement of Financial Position is organized into three categories

A
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)
22
Q

Statement of Financial Position

Total Assets Subcategories

A

Cash or Cash Equivalent
Investments
Personal Use Assets

23
Q

Cash and Cash Equivalents

A

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

24
Q

Investments

A

Tend to be longer term in nature

25
Q

Personal Use Asset

A

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

26
Q

Personal Statement of Cash Flows

A

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)

27
Q

Fixed Cash Outflows

A

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

28
Q

Variable Cash Outflows

A

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

29
Q

Balance Sheet

A

The business equivalent to a statement of financial position

30
Q

Income Statement

A

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

31
Q

Business Statement of Cash Flow

A

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.

32
Q

Three Components of the Business Statements of Cash Flow

A

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

33
Q

Pro Forma Income Statement

A

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.

34
Q

Formula to determine this savings level is:

A

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

35
Q

The three components of the cash flow statement are:

A

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