1.1 FP Basics Flashcards
Benefits of financial planning
1) Goals identified are more likely to be achieved; 2) helps clearly identify risk exposure; 3) creates framework for feedback, evaluation and control; 4) establishes measurable goals and expectations; 5) develops an improved awareness of financial choices; 6) provides opportunity for increased commitment to financial goals.
Subjectivity vs Objectivity
Subjectivity is perception of reality; objectivity is facts without distortion by personal feelings / prejudices.
Financial Planning
Process of determining whether and how clients can meet their goals through proper management of financial resources.
8 Major Domains
1) Establishing and defining client-planner relationship; 2) Gathering info necessary to fulfill engagement; 3) Analyzing and evaluating current financial status; 4) Developing recommendations; 5) Communicating recommendations; 6) implementing; 7) Monitoring; 8) Practicing within professional and regulatory standards.
Establishing / Defining Relationship (D1) (100 Series)
1) ID Client; 2) Discuss client’s FP needs and expectations; 3) Discuss FP process; 4) Explain scope of services offered; 5) Assess & communicate ability to meet needs and expectation of client; 6) ID & resolve potential conflicts of interest; 7) Discuss client and FP responsibilities; 8) Define and document scope of engagement; 9) Provide client disclosures; 10) Compensation arrangement and associated potential conflicts of interest
Gathering Data (D2) (200 Series)
1) ID client values & attitudes (a. explore psnl & finl needs, priorities, goals; b. time horizon for each; c. knowledge & exp w/fin’l matters; d. risk exposure; e. risk tolerance) 2) Gather data (a. assets - benes, basis, titling; b. liab - bal, term, int; c. inc/exp; d. est plng docs; e. educ plan & resources; f. retmt plan info; g. empl benefits; h. gov’t benefits; i. special circ - legal docs, fam sit; j. tax docs; k. invsmt stmts; l. ins policies; m. bsns docs - agreements; n. inheritances or windfalls; 3) Recognize need for add’l info
Analyzing & Evaluating Financial Status (D3) (300 Series)
1) Financial Status (bal sht, CF stmt, budget, cap needs - ins, retmt, major pchs); 2) Risk Mgmt (ins, retained risk, asset prot - titling, trusts, bsns form; client liquidity - emgcy fund; 3) Benefits eval (gov’t, employee); 4) Invsmt Eval (asset alloc, invsmt strat & types); 5) Tax Eval (current, deferred, future tax liab, inc types); 6) Retmt Eval (retmt plans & strat - pension options, annuitization; accumulation planning, distribution planning); 7) Est Plng Eval (est docs, tax liab, ownership of assets, bene desig, gifting strat); 8) Bsns Ownership (Form, employer benefits, succession planning, exit strategy, risk mgmt); 9) Educ Plng Eval (sources of fin, tax considerations); 10) Other Considerations (special circ - divorce, disab, family dynamics; inheritances, windfalls, large lump sums; charitable plng; eldercare.
ID and use approp tools and techniques to conduct analyses.
Developing Recommendations (D4) (400 Series)
1) Synthesize findings; 2) Consider alternatives to meet goals & obj (scenario analysis - lifestyle or sensitivity analysis - rates, time); 3) Consult w/other prof on tech issues outside of expertise; 4) Develop recs; 5) Document recs
Financial Planning
Process of determining whether and how clients can meet their goals through proper management of financial resources.
Communicating Recommendations (D5) (part of 400 Series)
1) Present Fin Pln to client and provide educ (goal review, assump, observations and findings, alternatives, recomm); 2) Obtain feedback and revise recomm; 3) Provide documentation of plan and recomm and applicable disclosures; 4) Verify client acceptance of recomm
8 Major Domains
1) Establishing and defining client-planner relationship; 2) Gathering info necessary to fulfill engagement; 3) Analyzing and evaluating current financial status; 4) Developing recommendations; 5) Communicating recommendations; 6) implementing; 7) Monitoring; 8) Practicing within professional and regulatory standards.
Monitoring Recommendations (D7) (600 Series)
1) Discuss and eval changes in personal circ; 2) Review pfmc and progress of plan; 3) Review and eval changes in legal, tax, econ envir; 4) Make recomm to accom changes and circ; 5) Review scope of work and redefine engagement; 6) Provide client ongoing support (counsel, educ)
Practicing within Prof Regulatory Standards (D8)
1) Adhere to CFP Board’s Code of Ethics nad Prof Resp and Rules of Cond; 2) Understand CFP Board’s Disciplinary Rules and Procedures; 3) Work within CFP Board’s FP Practice Standards; 4) Manage Practice Risk (documentation, monitor client noncompliance w/recomm); 5) Maintain Awareness of and Comply with Regulatory and Legal Guidelines
Gathering Data (D2)
1) ID client values & attitudes (a. explore psnl & finl needs, priorities, goals; b. time horizon for each; c. knowledge & exp w/fin’l matters; d. risk exposure; e. risk tolerance) 2) Gather data (a. assets - benes, basis, titling; b. liab - bal, term, int; c. inc/exp; d. est plng docs; e. educ plan & resources; f. retmt plan info; g. empl benefits; h. gov’t benefits; i. special circ - legal docs, fam sit; j. tax docs; k. invsmt stmts; l. ins policies; m. bsns docs - agreements; n. inheritances or windfalls; 3) Recognize need for add’l info
Implementing Recommendations (D6) (500 Series)
1) Create prioritized implem plan with timeline, 2) Assign responsibility, 3) Support client directly or indirectly; 4) Coordinate and share info, 5) Define monitoring resp - frequency and communication methods
Compensation
Trailing commissions, surrender charges, non-trivial economic benefit 12(b)1 fees
Intellectual honesty and impartiality.
Objectivity
Planner’s Responsibilities
IOCFCPD 1) Integrity: Take obligations seriously and place client interest over personal gain; 2) Objectivity: Use experience and judgment, consider situation; 3) Competency: Demonstrate appropriate level of knowledge; 4) Fairness: Treat client same way they’d like to be treated in professional relationship; 5) Confidentiality: Do not share info; 6) Professionalism: Avoid providing advice unless properly qualified and licensed; 7) Diligence: Discuss goals / objectives w/client and clarify expectations.
Client’s Responsibilities
1) Take active role in shaping financial future; 2) Have realistic goals; 3) Treat planner professionally; 4) Share relevant personal and financial info; 5) Share info of other advisers.
CFP Board Established
1985
Prompt, thorough service, proper planning for, supervision of, rendering of professional service.
Diligence
Behaving with dignity, courtesy, cooperation; improve quality of service.
Professionalism
Ensuring that info is accessible only to those authorized.
Confidence
Impartiality, intellectual honesty, disclosure of material conflicts of interest, subordination of one’s own feelings, prejudices and desires, to achieve proper balance. Treating others as though you’d like to be treated.
Fairness
Attaining and maintaining adequate level of knowledge, skill, applying that to providing services. Includes wisdom to recognize limitations and when consulting w/other professionals is appropriate.
Competence
Intellectual honesty and impartiality; protect integrity of work, avoid subordination of judgment.
Objectivity
Honesty and candor; not subordinated to personal gain and advantage. Trusted by clients.
Integrity
