B.7 Financial Planning Process Flashcards
Learners will understand the steps involved in the financial planning process, including setting goals, gathering relevant financial information, analyzing financial status, developing a plan, implementing the plan, and monitoring and revising the plan as necessary.
Jennifer, a recent CFP® graduate, has just started her job at a prestigious financial planning firm. On her first day, her manager provides her with a checklist to follow when engaging with a new client. Jennifer reviews the list and notices one of the steps seems out of place. Which of the following is NOT a step in the financial planning process?
A. Establishing the client-advisor relationship
B. Collecting client data
C. Analyzing the client’s financial status
D. Creating a financial plan
E. None of the above
E. None of the above
All the options A through D are recognized steps in the financial planning process. Establishing the relationship sets the tone and terms of the engagement. Collecting client data ensures the advisor has all necessary information to make informed decisions. Analyzing the financial status gives a clear picture of the client’s current situation, and creating a plan is the outcome of the previous steps.
CFP® Practice Standards Reference
B.7 Financial planning process
Jonathan is a financial planner who has recently begun working with a new client, Maria. As part of the initial consultation, he wants to gather a comprehensive understanding of Maria’s financial status. In order to achieve a holistic view, he reviews several factors. Which of the following factors would NOT be considered a component of Maria’s financial status?
A. Net worth
B. Cash flow
C. Tax liabilities
D. Emotional intelligence
D. Emotional intelligence
While emotional intelligence is important in many aspects of life, including making financial decisions and building client-advisor relationships, it is not a direct component of a client’s financial status. A client’s financial status typically includes their net worth (A), cash flow (B), and tax liabilities (C), among other financial metrics.
B.7 Financial planning process
Jane, a 45-year-old software engineer, has been discussing her retirement planning with her financial planner. She expresses concerns about various factors that might negatively affect her investments over the next 20 years. The planner starts explaining different types of risks that might impact her portfolio’s growth. Which of the following is NOT a category of risk the planner should mention?
A. Inflation risk
B. Market risk
C. Lifestyle risk
D. Credit risk
C. Lifestyle Risk
While inflation risk (the risk that inflation will erode the purchasing power of an investment), market risk (the risk that the overall market will decline), and credit risk (the risk that a borrower will default on a debt) are well-recognized categories of financial and investment risk, “lifestyle risk” is not a standard risk category in the context of financial planning and investments. Lifestyle considerations are certainly important in comprehensive financial planning, but they don’t represent a category of investment risk in the same way that the other options do.
B.7 Financial planning process
Which of the following is not a category of expenses in a personal budget?
A. Fixed expenses
B. Variable expenses
C. Discretionary expenses
D. Opportunity expenses
D. Opportunity expenses
Opportunity expenses are not a category of expenses in a personal budget, but they are a concept in economics referring to the cost of an opportunity forgone in choosing one option over another.
B.7 Financial planning process
Which of the following is not a factor to consider when evaluating insurance needs?
A. Income
B. Assets
C. Liabilities
D. Emotional intelligence
D. Emotional intelligence
Emotional intelligence is not a factor to consider when evaluating insurance needs, but it may affect a client’s risk tolerance or decision-making
B.7 Financial planning process
Which of the following is not a type of retirement plan?
A. 401(k) plan
B. Defined benefit plan
C. Roth IRA
D. Health savings account
D. Health savings account
Health savings accounts are not a type of retirement plan, but they are a type of tax-advantaged account for eligible individuals with high-deductible health plans.
B.7 Financial planning process
Which of the following is not a factor to consider when selecting an investment?
A. Risk
B. Return
C. Liquidity
D. Emotional intelligence
D. Emotional intelligence
Emotional intelligence is not a factor to consider when selecting an investment, but it may affect a client’s risk tolerance or decision-making.
B.7 Financial planning process
Which of the following is not a step in the financial planning process?
A. Establishing and defining the client-planner relationship
B. Analyzing the client’s financial status
C. Implementing the financial plan
D. Developing the client’s emotional intelligence
D. Developing the client’s emotional intelligence.
Developing the client’s emotional intelligence is not a step in the financial planning process, but it may be a goal or outcome of the process.
B.7 Financial planning process
Which of the following was a primary financial challenge for Millennials during 2007-2009?
A. Booming stock market.
B. Low student loan debt.
C. The Great Recession.
D. Sudden increase in income.
C. The Great Recession
The article identifies the Great Recession as a defining feature of the financial setbacks Millennials faced during 2007-2009.
B.7 Financial planning process
A significant difference between Millennial women and previous generations is:
A. Millennial women prefer to let their spouses manage finances.
B. Millennial women are less likely to earn more than their partners.
C. Millennial women often delegate financial decision-making to financial planners.
D. Millennial women have greater financial independence and agency.
D. Millennial women have greater financial independence and agency
The article notes that younger women, especially Millennial women, often manage their finances and are primary decision-makers in their households.
B.7 Financial planning process
You are a financial planner and have recently completed a discovery meeting with a prospective client to create a comprehensive financial plan. The day after the meeting, the client calls you and informs you that he forgot to mention substantial 401(k) assets held in a previous employer’s plan. The client is currently employed and participating in a new 401(k) plan. The previous employer has given him a 60-day window to decide on one of the following options for the old 401(k) assets:
- Take a full cash distribution.
- Direct rollover to a new IRA.
- Direct transfer to the new employer’s 401(k) plan.
The client seeks your advice on the best course of action for these assets.
The client seeks your advice on the best course of action for these assets. How should you communicate your recommendation to the prospective client?
A. During the phone conversation
B. Secure email through firm servers
C. Certified letter, retaining copies for documentation
D. As part of the client’s comprehensive financial plan
D. As part of the client’s comprehensive financial plan
Communicating such a recommendation should be done within the context of the client’s comprehensive financial plan. This ensures that the recommendation is tailored to the client’s overall financial situation and goals. It also emphasizes the planner’s commitment to holistic planning and integrates the new information with the broader financial strategy. While other options might be quicker or more convenient, they might not allow for the same depth of analysis and integration with the client’s overall financial picture.
B.7 Financial Planning Process
Sophia, a CFP® professional, is reviewing a financial plan with her client, Mrs. Thompson. Despite Mrs. Thompson’s considerable assets, Sophia has identified that some of the client’s aspirations might not be feasible. At which phase of the financial planning process are such unattainable aspirations typically addressed?
A. Introducing the financial planning proposals.
B. Gathering detailed personal and financial data.
C. Determining and choosing objectives.
D. Evaluating the client’s present strategy.
C. Determining and choosing objectives.
During the “Determining and choosing objectives” phase of the financial planning process, the feasibility and realism of the client’s goals are typically assessed. It is at this stage that the CFP® professional will address any goals that may be unrealistic given the client’s current and expected financial situation.
B.7 Financial planning process
Sarah, age 34, seeks the help of a CFP® Professional to develop a comprehensive financial plan. She is interested in establishing a retirement savings strategy, setting up an emergency fund, and funding her two children’s college education. Sarah’s financial planner gathers all necessary financial data, including her income, expenses, assets, and liabilities.
Question:
What is the next appropriate step for Sarah’s financial planner in the financial planning process after gathering all the necessary financial data?
A. Implementing the financial strategies discussed.
B. Developing and presenting financial planning recommendations.
C. Conducting periodic reviews and revisions of the plan.
D. Determining Sarah’s risk tolerance.
B. Developing and presenting financial planning recommendations.
According to the financial planning process, after collecting all relevant financial data, the next step is to analyze the information to develop suitable recommendations tailored to the client’s goals. The planner should then present these recommendations to Sarah for discussion and refinement before moving on to implementation and ongoing review.
B.7 Financial planning process
John, a 45-year-old entrepreneur, has worked with his financial planner to develop a financial plan that includes risk management, investment planning, and tax planning strategies. After a year, there are significant changes in John’s personal circumstances, including a marriage and the sale of one of his businesses.
Question:
What should John’s financial planner prioritize in response to these changes?
A) Immediately adjust John’s investment portfolio to reflect changes in the market.
B) Review and revise John’s financial plan to accommodate his changed circumstances.
C) Focus solely on optimizing John’s tax liabilities given the sale of his business.
D) Ignore the personal changes as the original financial plan should remain stable over time.
B. Review and revise John’s financial plan to accommodate his changed circumstances.
The financial planning process is dynamic and should accommodate changes in the client’s personal and financial circumstances. Given John’s significant life changes, including marriage and the sale of a business, it’s crucial for the financial planner to review the current plan and make necessary revisions to ensure it continues to align with John’s new goals and needs. This approach ensures that all aspects of his financial well-being are considered and integrated into the revised plan.
B.7 Financial planning process
Linda, a 52-year-old executive, is planning to retire within the next 10 years and has enlisted the help of a Certified Financial Planner to ensure her financial stability during retirement. During their initial meetings, the planner has assessed Linda’s current assets, liabilities, income, and expenditures. Linda has expressed concerns about maintaining her lifestyle in retirement and the impact of potential health care costs.
Question:
After assessing Linda’s concerns and financial status, what should the financial planner do next in the financial planning process?
A. Directly move to implement asset allocation strategies to increase the value of Linda’s investment portfolio.
B. Review Linda’s current insurance policies and suggest changes if necessary.
C. Develop and present a set of financial recommendations that address Linda’s retirement and healthcare concerns.
D. Advise Linda to increase her retirement savings rate without further analysis.
C. Develop and present a set of financial recommendations that address Linda’s retirement and healthcare concerns.
Following the collection and assessment of all necessary data, including understanding the client’s concerns about retirement and healthcare costs, the next step in the financial planning process is to develop a set of tailored recommendations. These should specifically address the key areas of concern such as maintaining lifestyle in retirement and managing potential healthcare expenses. This step involves analyzing the information gathered to create a comprehensive strategy that aligns with Linda’s goals and circumstances before moving to implementation and monitoring.
B.7 Financial planning process
