Describe the 6 step planning process based on the 8 job task domains.
1. Establish and Defining the client-planner relationship
2. Gathering Information Necessary to Fulfill the engagement
3. Analyzing and Evaluating the Client's Current Financial Status
4. Developing the recommedations
5. Communicating the Recommendations
6. Implementing the Recommedations
7. Monitoring the Recommendations
8. Practicing within Professional and Regulatory Standards
When Does the Financial Planning engagement exist?
When a cetificant performs any type of mutually agreed-upon financial planning service for the client
List the 6 main components of a sound financial plan.
1. Savings, budgeting, emergency funding and education funding
2. Investment Planning
3. Insurance Planning
4. Income tax planning
5. Retirement Planning
6. Estate Planning
**Tax planning is inherent in all six compnents of a financial plan
Describe a financial planning practitioner.
A person who engages in financial planning using the financial planning process when working with clients
Describe the points involved in establishing a working relationship with the client.
-Fully explains the services to be provided, how he will be compensated and the source of the compensation.
-Discusses expectations regarding the roles of each party.
-clarifies how decisions will be made; and
-Discusses how long the relationship is expected to last
Letter of engagement
Describes the legal relationshop between the financial planner and the client.
The CFP board requires that certain items be placed in writing and these items can be disclosed in the letter of engagement.
Question types during the gathering and analyzing steps of the financial planning process.
Always ty to use Open Ended Questions. These are the questions that allow the client to answer in there own words. Cannot use Yes or No answers.
What is Quantitative Data?
Data that can be measured in a quantity. Examples of quantitative data include current financial status (assets & liabilities), copies of wills and trusts. Current investments
What is Qualitative Data?
Data that are concerned with the qualitiy of a clients life. Examples include financial goals and objectives, health status , and a client risk tolerance.
Sections of the data gathering form for financial planners.
-Basic personal client inoformation including a list of current financial advisors.
-Detailed information about the clients assets and liabilities
-information about the clients types of insurance coverage
-income sources -personal expendittures
-financial goals and objectives
-Wills and trusts -insurance policies
-previous years income tax returns(usually no more than 3 years because fo the expiration fo applicabe statures of limitiation)
-rate of return and inflation assumptions
-potential inheritances from parents or other family members
-prior gifts made
-closely held business interents
-priorities in terms of financial goals and/or objectives.
Financial Strengths and weaknesses
This is a SUBJECTIVE processs
- Appropriate emergency fund
-Appropriate net worth given client goals
-WELL-DEFINED client financial goals
-excellent cash flow management skills
-Appropriate investemtns given client-risk tolerance and goals
-Appropriate risk coverage
-Valid and current estate planning documents
- employment status stable or promising
-Inadequate savings (particularly for retirement)
-Inadequate emergency fund
-inapproriate net worth given client goals
-inarticulate client financial goals
-Poor or improper cash flow managements skills
-inappropriate investments given client risk tolerance and goals
-uncovered or inadequate amoutn of risk coverage
-lack of estate planning doucments
-unfavorable employment status
Communcating One-on-one. The planne becomes and Advisor and Counselor during this process. This involves understanding the differences across cultures, generations, and genders.
-Paying full attention to what the client is saying
-Respond by paraphrashing clients comments
-Leading responses Generally guide the client to give more detail so a "Meeting of the Minds" is more likely.
-Ability to recognize expressions in oneself and the clients
-A slecion of socially appropriate responses to the circumstances and clients emotions
Communticating Recommendation itms
-It is critical that the recommendations are clearly understood by the client
- From planners, clients want technical expertise and a sincere caring attitude
-Involves facial expressions, gestures and body posture
-Actually impacts how the clients receive messages more than the tone, inflection, and quality of voice or words spoken.
-context refers to past history or conditions that exist during the communcaion
-Planner must consider both his and clients attitudes, values, biases, and behavor.
Communicating Recommendation Facts
Involves action is some or all financial areas. Financial planning team member will also assis in implementation.
Done on an agreed upon basis
-clients circumstances may change ove time
-External conditions such as economy may change and warrant modification of the plan.
Life Cycle Phase - Asset Accumulation Stage
A client is usually in this stage until approximatley age 45 or later if the clients children are not yet independent.
Life Cycle Phase - Conservation or Protection Stage
A client is usually in this stage from approximatley age 45 to 60 or immediately preceding the clients planned date of retirment.
Life Cycle Phase - Distribution or Gifting Stage
A clients is usually in this stage from approximatley age 60, or the planned date of retirement, until the date of death. Distribution strategies, including retirement income sources and gifting strategies, are often a primary focus of a clients estate planning.
Musts for a CFP cetificant.
-Offer advce only in those areas in which he is compentent to do so
-Maintain competence in all areas in which he is engaged to provide professional services
-Consider an restrictions regarding unauthorized practce of law. (typically, only a licensed attorney may draft legal documents, such as a clients will or POA)
-Not draft legal documents or offer written legal opinion unless the CFP certificant is alos a licensed attorney.
-Provide the documentation the financil planner needs in a timely manner
-Provide Feedback that facilitates the financial planning process.
6 Step Planning process Diagram