1.04 - Financial Planning Process Flashcards
What are the 6 steps to the FP Canada’s financial planning process?
1) Establish engagement; 2) Gather client data, goals and expectations; 3) Determine problem areas / opportunities; 4) Develop strategies and present the plan; 5) Implement the plan; 6) Monitor the plan
What are the 6 key components of a financial plan?
1) Financial Management; 2) Tax Planning; 3) Asset Management; 4) Risk Management; 5) Retirement Planning; 6) Estate Planning
What tool is used to clarify expectations, compensation and potential conflicts of interest at the beginning of a client engagement?
The engagement letter
Why is complete disclosure necessary, by the client, for an effective engagement?
The Advisor will require access to all information from the client to fully inform the analysis and recommendations. Without full disclosure, the effectiveness of the plan will be diluted and potentially require costly rework later in the process as “new” information is discovered.
What assumptions should an Advisor use when establishing a financial plan with their clients, and why is this important?
An Advisor should use the assumptions published online by FP Canada / IQFP. If all Advisors use a consistent set of assumptions, it promotes a consistency among the profession and the development of realistic, achievable plans with the client.
When should a client’s financial plan be reviewed / updated?
A plan should be reviewed at least on an annual basis, or when there are material changes to a client’s situation, such as marriage, divorce, birth of a client or changes to employment.
What are 6 key trends affecting the financial planning profession?
1) Diverse family structures; 2) Redefinition of retirement; 3) Increased longevity and an aging population; 4) Shift from DB to DC pension plans; 5) Lower savings rates and increased debt levels; 6) New regulations in the financial services industry
What is the “sandwich generation” and how does it impact household finances?
The sandwich generation is where the client has a senior (parents) and a junior (children) generation that are financially tied to the client, potentially even all living under one roof. This presents unique challenges and risks for clients with the increased financial care burden of both parents and children.
What are 3 major strategies for clients that start saving for retirement later in life?
1) Down-shifting lifestyle spending in the present to increase savings rates; 2) Pushing out retirement date with ongoing employment; 3) Geo-arbitrage and retiring to lower cost of living countries.
What is morbidity risk?
A decrease in functional health and quality of life as a result of an increase in illness and disease.
What is one advantage of a defined contribution pension versus a defined benefit pension?
DB plans cater to the needs of the broad, generic, average employee whereas a DC plan allows the employee (and their financial advisor) to customize the plan according to their needs. The trade off is reduced economies of scale from a DB to a DC plan.
What action typically has the highest return on capital?
Paying down high interest debt, like credit cards.
What province regulates the titles of “Financial planner / advisor” and which province has plans to regulate those titles for greater consumer transparency?
QC regulates the title; ON is in the process of passing legislation to regulate the title.
Why has the industry shifted from defined benefit (DB) to defined contribution (DC) pension plans?
With increasing longevity, there are real risk that DB plans are under-funded. The move to DC plans shifts the burden of risk of the pension plan from the employer to the employee
What is the IQFP and what is its role?
IQFP = Institut québécois de planification financière. Quebec is the only province that regulates the financial planning profession and the IQFP is the organization responsible for granting the financial planning diploma in Quebec.
