CFP Board's Financial Planning Practice Standards

Question 1

Identify the Practice Standard(s) associated with step one of the financial planning process: Gathering client data.

Answer 1

200-1 Determining a Client’s Personal and Financial Goals, Needs, and Priorities

200-2 Obtaining Quantitative Information and Documents

Question 2

Describe what is required of a CFP professional when implementing a financial planning recommendation (as described in Practice Standard 500).

Answer 2

To select appropriate services and products that are consistent with the client’s goals, needs, and priorities. Also, to mutually agree on who will be responsible for implementing recommendations.

Question 3

What are the four “Es”?

Answer 3

Education
Examination
Experience
Ethics

Question 4

Identify the Practice Standard(s) associated with step one of the financial planning process: Establishing and defining the relationship with a client.

Answer 4

100-1 Defining the Scope of the Engagement

Question 5

What is meant by the phrase “gathering client data”?

Answer 5

Prior to making recommendations to a client, a CFP professional and the client must mutually define the client’s personal and financial goals, needs, and priorities. To arrive at such a definition, the CFP professional needs to explore the client’s values, attitudes, expectations, and time horizons. A client’s values, attitudes, expectations, and time horizon shape current and future planning recommendations.

Question 6

In order to become certified as a financial planner with CFP Board, you must:

Answer 6

Provide evidence of your complete education training

Pass the examination

Meet experience requirements

Agree to follow CFP Board ethical guidelines

Question 7

What is meant by the phrase “analyzing and evaluating the client’s information”?

Answer 7

Before making recommendations to a client, a CFP professional must assess the client’s financial situation and determine the likelihood that the client will reach her stated objectives. When making this judgment, a CFP professional should utilize client-specified and mutually agreed upon assumptions, in addition to other planning-specific rules. It is appropriate to incorporate personal and economic assumptions at this step of the financial planning process. These assumptions may include, but are not limited to:
Personal assumptions, including age of retirement, life expectancy(ies), asset and income needs, market risk factors, risk attitudes, time horizon, and special needs and requirements; and
Economic assumptions, such as: inflation and tax rates and investment returns.

Question 8

The 400 Series Practice Standards emphasize that a financial planner should focus on what three elements when developing and presenting the financial planning recommendation(s)?

Answer 8

The 400 Series Practice Standards emphasize:
What is possible?
What is recommended?
How is it presented?

Question 9

Identify the Practice Standard(s) associated with step five of the financial planning process: Implementing the financial planning recommendations.

Answer 9

500-1 Agreeing on Implementation Responsibilities

500-2 Selecting Products and Services for Implementation

Question 10

What is meant by the phrase “defining the scope of the engagement”?

Answer 10

A CFP professional and client must mutually define the scope of the engagement. The process of “mutually defining” is accomplished through open dialogue, honesty, and disclosure. Specifically, a CFP professional must:
Identify the service(s) to be provided;
Disclose the CFP professional’s material conflict(s) of interest;
Disclose the CFP professional’s compensation arrangement(s);
Determine the client’s and the CFP professional’s responsibilities;
Establish the duration of the engagement; and
Provide any additional information necessary to define or limit the scope.

Question 11

Identify the Practice Standard(s) associated with step three of the financial planning process: Analyzing and evaluating the client’s financial status.

Answer 11

300-1 Analyzing and Evaluating the Client’s Information

Question 12

Describe the purpose of Practice Standard 600-1 Defining Monitoring Responsibilities.

Answer 12

The last step in the financial planning process involves monitoring planning recommendations and outcomes. The purpose of this Practice Standard is to clarify the role, if any, a CFP professional has in the monitoring process.

Question 13

Identify the Practice Standard(s) associated with step four of the financial planning process: Developing and presenting financial planning recommendations

Answer 13

400-1 Identifying and Evaluating Financial Planning Alternative(s)

400-2 Developing the Financial Planning Recommendation(s)

400-3 Presenting the Financial Planning Recommendation(s)

Question 14

Identify the Practice Standard(s) associated with step six of the financial planning process: Monitoring.

Answer 14

600-1 Defining Monitoring Responsibilities

Question 15

Describe who is ultimately responsible for accepting or rejecting recommendations made by a CFP professional.

Answer 15

As described in Practice Standard 500-1, the client is ultimately responsible for accepting or rejecting recommendations made by a CFP professional. The client is also responsible for implementing recommendations or delegating implementation responsibilities.

The CFP professional and the client must mutually agree on the services, if any, to be provided by the CFP professional. The scope of the engagement, as originally defined, may need to be modified.

Question 16

Describe the difference between quantitative and qualitative data.

Answer 16

Quantitative data includes facts, figures, and verifiable information that can be objectively measured.

Qualitative data includes a client’s attitudes, beliefs, values, and similar information that is subjective in nature.

Question 17

What is the purpose of having financial planning practice standards?

Answer 17

CFP Board requires all CFP® professionals to apply Financial Planning Practice Standards when working with clients. CFP Board developed these standards to benefit consumers of financial planning services. Per CFP Board, the Practice Standards are intended to:
Assure that the practice of financial planning by CFP professionals is based on established norms of practice;
Advance professionalism in financial planning; and
Enhance the value of the financial planning process.

Question 18

As defined by CFP Board, a “Practice Standard” establishes the level of professional practice that is expected of certificants engaged in financial planning. Who may opt out of following the Practice Standards?

Answer 18

Compliance with the Practice Standards is mandatory for any CFP professional who provides financial planning services or material elements of financial planning. Per CFP Board, “The Practice Standards are designed to provide certificants with a framework for the professional practice of financial planning. They are not designed to be a basis for legal liability to any third party.”

Question 19

Describe what is required of a CFP professional when developing and presenting a financial planning recommendation (as described in Practice Standard 400).

Answer 19

To develop recommendations and appropriate alternatives to meet a client’s goals, needs, and priorities, and communicate recommendations to the client.

Question 20

Describe the specific types of activities a financial planner should do when establishing and defining a mutually defined relationship.

Answer 20

Identify the client
Identity the services
Understand client needs and expectations
Identify conflicts of interest
Explain client roles
Define scope of engagement
Agree on duration of engagement
Make disclosures