CFP 101 Fundamentals of Financial Planning Flashcards
What are the steps of the Financial Planning Process?
- Understand the client’s current personal and financial circumstances.
- Identify and select goals
- Analyze the client’s current situation and potential alternatives.
- Develop a recommendation
- Present the recommendation
- Implement the recommendation.
- Monitor and Update
How does a planner effectively communicate with a client?
- Address the client formally
- Actively listen to the client
- Respect the client’s time
- Establish trust by sharing past experiences
- Show empathy
- Make communication effective
What are the elements of an introductory meeting with a client?
(7 items)
1.List of services and products to be provided.
- Mutually establish how you will communicate and how often you will meet.
- Discuss the planning process, fees and answer questions.
- Meet with preferably both spouses to get an overview of the immediate and extended family
- Provide an engagement letter for approval
- Provide a written privacy policy
- Disclose conflicts of interest, public discipline, and any other information that would impact a client’s decision to enter into an agreement with you.
What are the elements of an engagement letter?
( 6 items)
1. A description of mutually agreed upon services
2. A time horizon for completion of work
3. Fees and costs
4. Obligations and Responsibilities:
e.g. Who is responsible for implementing which elements of the plan
5. Provide Disclosures:
e.g. use of the proprietary products, other professionals/entities during the financial planning process/implementation.
6. Communicate services that are not provided:
e.g. legal documents or income, gift estate tax return preparation, someone other than the planner will implement or monitor the plan
Note: The planner has monitoring responsibilities unless specifically stated in the engagement letter.
What are the activities typically included as part of a comprehensive plan:
(7 items)
- Preperation and anlaysis of personal financial statements
- Reivew of risk managmenet
life, health, disablity, long term care, liablity insurance, address gaps in coverage - Evaluate short-term financial goals
emergency fund and debt management - Establish long term goals
retirement, major purchase, legacy - Examine and recommendations for any special needs
divorce, elderly parnents, special needs child - Implemnetation of the agreed upon plan
- Monitoring of plan
What are the approaches to analyze, evaluate, and make recommendations to a client?
- Financial Statement Analysis
- Pie Chart Approach
- Strategic Approach
When devloping and presenting planning recomendations what should the planner provide?
- Assumptions used to develop the recommendations
- How the recommendation helps maximize the potential to reach goals and objectives
- Idenfity when a recomendation is independent or linked to another recommendation
- Presented at the clients level of sophistication
what are the planners responsiblities when implementing plan recommendations?
- Detail on which recommedatiosn are implemented by the planner vs client.
- Identifcation of any third party professionals that will assist in implementation.
- Identify products and services to be used in implementation.
What should an planner provide during the monitoring progress and updating step?
- Set a scheudle for the periodic review and adjustmet of the agreed-to-plan
- Moitor the plan at the appropriate intervals (at least annually)
- Discuss when the client should notify the planner with changes
- Update information such as goals and recommendations in accordance with the Practice Standards
What financial pplanig concepts shoudl be included in the plan:
- An evalution of the clients risk managemnet portoflio
- Financial statement preperation and analysis
- Emergency fund and debt management
- Long-term goal planning (retiremenet, education, legacy)
- Income tax planning
- Investment planning portfolio
What are the benefits from financial planning?
- Identify risks and priortize goals
- Antipates where financial needs exist and where new risks may arise.
- Establishes benchmarks within a finite time frame.
- Help keep the client focused
- Give a client confidence that they can accomplish their financial goals.
Why should you use a professional financial planner?
- Most clients do not know how to prepare a comprehensive financial plan and do not want to spend the time to learn how.
- Even where the client may have the knowledge, he lacks the confidence to undertake this process and is likely seeking confirmation of his own financial planning decisions.
- A finanical planner brings ojectivity, whereas a client views the financial poisition subjectively.
Recognized certifications in financial planning?
- Certified Finanical Plannger
- Chartered Finanicial Consultant (ChFC)
- European Financial Planner (EFP)
How many planners are there in the US and what is the growth projection.
- 330,300 jobs across the country
- forcasted growth 2022 -2032 13%
How many CFP certificants are there in the US.
97,495 (November 2023)
