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Fundamentals of Financial Planning > Unit 1 > Flashcards

Unit 1 Flashcards

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1
Q
A
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2
Q

What is the primary goal of personal financial planning?

A

To formulate financial decisions to achieve financial goals.

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3
Q

What does the financial planning process include?

A

Steps such as understanding the client’s personal circumstances, identifying goals, analyzing current actions, developing recommendations, implementing those recommendations, and monitoring progress.

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4
Q

What are the first two steps in the personal financial planning process?

A
  • Understanding the Client’s Personal and Financial Circumstances
  • Identifying and Selecting Goals
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5
Q

What is the role of a financial planner during the ‘Understanding the Client’s Personal and Financial Circumstances’ step?

A

To obtain qualitative and quantitative information from the client.

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6
Q

During which step does a financial planner analyze a client’s current course of action?

A

Analyzing the Client’s Current Course of Action and Potential Alternative Course(s) of Action.

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7
Q

Fill in the blank: The _______ is the document that outlines the financial planner’s ethical obligations.

A

CFP Board’s Code of Ethics and Standards of Conduct.

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8
Q

True or False: The fiduciary standard is important to the planner-client relationship.

A

True.

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9
Q

What are some activities typically part of a financial planning engagement?

A
  • Establishing and defining the client relationship
  • Analyzing financial information
  • Developing financial planning recommendations
  • Implementing recommendations
  • Monitoring progress
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10
Q

What should a financial planner do during the introductory meeting with a client?

A
  • Discuss background and investment philosophy
  • Disclose any conflicts
  • List required documents
  • Assist with establishing goals
  • Discuss the planning process and fees
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11
Q

What is involved in the ‘Developing the Financial Planning Recommendation(s)’ step?

A

Considering assumptions, estimates, timing, and the independence of recommendations.

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12
Q

What is the purpose of monitoring progress in the financial planning process?

A

To gather current information and update goals and recommendations.

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13
Q

What does the term ‘fiduciary standard’ refer to?

A

The ethical obligation of financial planners to act in the best interest of their clients.

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14
Q

Fill in the blank: A financial planner should adjust their presentations to fit the client’s _______.

A

learning style and body language.

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15
Q

What is the significance of the financial planning profession to clients?

A

Provides structured guidance to achieve financial independence.

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16
Q

In which part of the financial planning process are financial statements prepared?

A

Analyzing the Client’s Current Course of Action and Potential Alternative Course(s) of Action.

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17
Q

What is the purpose of using dedicated planning software in financial planning?

A

To model various scenarios and analyze potential outcomes.

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18
Q

What should a financial planner include in the implementation schedule?

A

Responsibilities of the planner and the client regarding actions, products, or services.

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19
Q

What should be discussed with the client regarding their goals?

A

How the client’s values fit into those goals

Understanding the client’s values is crucial for effective financial planning.

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20
Q

What needs to be agreed upon with the client concerning communication?

A

How and how often they will communicate

Regular communication helps in maintaining a good client relationship.

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21
Q

What should be provided to the client regarding financial planning?

A

Relevant and required disclosures

Disclosures ensure transparency in the financial planning process.

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22
Q

What is included in the engagement letter?

A

A description of the mutually agreed-upon services in writing

The engagement letter outlines the terms of the advisor-client relationship.

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23
Q

What must be documented about the engagement timeline?

A

The time horizon for the work to be completed

Setting a timeline helps manage expectations for both parties.

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24
Q

What should the engagement letter describe regarding fees?

A

A description of the fees and costs

Clear fee structures help avoid misunderstandings later.

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25
What is one obligation of the financial planner in the engagement?
To keep one original copy of the engagement letter ## Footnote This ensures that both parties have a record of the agreement.
26
At what point should the planner and client identify their responsibilities?
When establishing the relationship ## Footnote Clear responsibilities help in setting expectations from the start.
27
What are the two first steps in the financial planning process?
Understanding the client’s personal and financial circumstances, Identifying and selecting goals ## Footnote These steps are critical for creating a personalized financial plan.
28
What types of data should a financial plan consider?
Internal data and external data ## Footnote Both data types are essential for a comprehensive financial analysis.
29
What is the qualitative data concerning a client's financial situation?
Attitudes and beliefs regarding goals ## Footnote Understanding qualitative data helps tailor financial strategies to client preferences.
30
Fill in the blank: Financial goals should be _______.
SMART ## Footnote SMART stands for Specific, Measurable, Achievable, Reasonable, Time-bound.
31
What is a key aspect of well-defined goals?
Specific actions with clear outcomes ## Footnote Well-defined goals provide a clear roadmap for clients.
32
What common mistake do clients make regarding goal prioritization?
Under-prioritizing risk management goals ## Footnote Risk management is essential for financial stability and should not be overlooked.
33
Which financial data should clients provide regarding taxes?
Income, gift, and trust tax returns for the last 5 years ## Footnote Historical tax data can inform future financial planning strategies.
34
What should planners regularly update regarding external data?
Interest rates, housing market, job market ## Footnote Keeping updated external data helps align financial plans with current market conditions.
35
What is an example of qualitative data that planners must gather?
Clients' general attitude towards spending ## Footnote Understanding spending attitudes aids in creating realistic budgets.
36
What type of information is crucial for understanding a client's family?
Age, health, education, income, and financial competence ## Footnote Family dynamics can significantly impact financial planning.
37
What is an example of a poor goal definition?
Put some money toward retirement when I get a chance ## Footnote Vague goals lack the specificity necessary for effective planning.
38
How should planners approach clients' multiple goals?
Help prioritize them according to the financial planning pyramid ## Footnote Prioritization ensures that essential goals are addressed first.
39
What is the importance of understanding the client's risk tolerance?
It guides investment strategies and financial decisions ## Footnote Risk tolerance is a key factor in aligning financial plans with client comfort levels.
40
What are the multiple goals of financial planning that must be prioritized?
Distribution, Accumulation, Protection ## Footnote These goals represent key areas of focus for financial planners.
41
Which stated goal of a client is most workable for financial planning purposes?
To purchase a vacation home within 5 years at a cost of about $100,000 ## Footnote This goal is specific, prioritized, and measurable.
42
What criteria should a workable goal for financial planning meet?
Specific, prioritized, measurable, achievable, realistic ## Footnote Goals must have clear parameters for effective planning.
43
What are the remaining steps in the financial planning process?
* Analyzing the Client’s Current Course of Action and Potential Alternative Course(s) of Action * Developing the Financial Planning Recommendation(s) * Implementing the Financial Planning Recommendation(s) * Monitoring and Updating * Presenting the Financial Planning Recommendations ## Footnote Each step is critical to the overall planning process.
44
What must practitioners follow in the financial planning process?
All relevant licensing, reporting, and compliance requirements ## Footnote These requirements vary based on the business model.
45
Which regulatory authority oversees investment advice?
Securities Exchange and Commission (SEC) and State Securities Administrator ## Footnote Different types of advice may fall under different regulatory bodies.
46
What is the role of the fiduciary in financial planning?
To act in the client's best interests at all times ## Footnote Fiduciaries have a duty of utmost good faith.
47
Which professionals are held to a fiduciary standard?
CFP® professionals ## Footnote They are required to prioritize client interests over their own.
48
When is a planner not held to the fiduciary standard?
* Acting as a broker to sell investment or insurance products * Speaking with an individual who is not their client * Providing information for the general public ## Footnote These situations do not create a fiduciary relationship.
49
Which certifications are recognized in financial planning?
* Certified Financial Planner™ (CFP®) * Chartered Financial Consultant (ChFC®) * European Financial Planner (EFP) ## Footnote These certifications ensure a standard of competence and ethics in the profession.
50
What is the fiduciary duty of financial planners?
To put the interests of their clients ahead of their own interests ## Footnote This duty distinguishes fiduciary responsibility from mere suitability standards.
51
True or False: The SEC is the primary regulatory authority of the financial planning profession.
True ## Footnote However, planners may also be regulated by state authorities.
52
What standard are CFP® professionals held to when interacting with clients?
Fiduciary standard
53
What is a primary reason most clients seek a professional financial planner?
Lack of knowledge on how to prepare a comprehensive financial plan
54
What do financial planners bring to the planning process that clients may lack?
Objectivity
55
Which of the following is NOT a risk that a competent financial planner has knowledge of? A) Mortality risk B) Weather risk C) Disability risk D) Investment returns
B) Weather risk
56
What does the financial planning process help clients to identify?
Risks and establish and prioritize goals
57
Fill in the blank: The financial planning process anticipates where financial needs exist and where new _______ may arise.
[risks]
58
What is one benefit of working with a financial planner?
Decreased exposure to financial risk
59
True or False: Financial planners provide subjective recommendations that increase their clients’ risk exposures.
False
60
What percentage of financial planners are self-employed?
20%
61
What is the expected job growth for financial planners over the next decade?
15%
62
List factors that have predicted success for financial planners.
* Having a college degree * Holding a certification * Having sales skills
63
What was the average annual earnings of financial planners?
$88,890
64
What percentage of CFP® professionals reported being very satisfied with their career choice in a 2017 survey?
91%
65
What are the common forms of compensation for financial planners?
* Hourly rates * Flat fees * Commissions on products sold * Percentage of assets managed * Combination of the above
66
Fill in the blank: The number of jobs held by financial planners is expected to grow from 271,900 to _______ by 2026.
[312,300]

Fundamentals of Financial Planning (4 decks)

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