Chapter 1 Homework Flashcards
What is personal financial planning?
Personal financial planning is the comprehensive process of formulating, implementing, and monitoring
financial decisions into an integrated plan that guides an individual or family to achieve financial goals.
Define the process of financial planning?
The process of financial planning includes, but is not limited to, the following steps: establishing and defining
the client relationship, gathering client data, analyzing and evaluating the client’s financial status, developing
and presenting financial plan recommendations, implementing financial plan recommendations, and monitoring the plan.
What are examples of internal data items collected from the client as part of the “gather client data” part of the financial planning process?
Client internal data includes family information, insurance portfolio information, banking and investment
information, tax information, retirement and employee benefit information, estate planning information, and
financial statements. Qualitative internal data includes education goals, retirement goals, employment goals,
savings goals, risk tolerance, and the client’s general attitude towards spending.
What are examples of external data items required as part of the “gather client data” part of the financial planning process?
Client external data includes interest rates, housing market environment, job market environment, investment
market environment, current business cycle status, local cost of living, expected inflation, costs of education
and medical care, and expected tax rates.
List some important elements of a financial planning engagement letter?
Basic necessary components of an engagement letter should include defining the parties to the agreement, the
duration of the agreement, the services to be provided, a description of the fees and costs, and the conditions
under which the agreement can be terminated. Additional details can include the time horizon for the work to be completed, the obligation and responsibilities of each party (planner/client), and agreement as to the possibility of using other professionals or entities to meet obligations of the engagement.
What are some of the benefits a client receives from choosing to use a professional financial planner?
Clients usually do not have the knowledge to prepare their own comprehensive financial plan. Those that are
knowledgeable can still benefit from the opinion of a financial planning professional. The professional finan
cial planner brings education, objectivity, and experience to apply to the client’s specific financial situation. Through a developed relationship of trust, the planner can guide the client to financial recommendations to meet the values, priorities, and goals that are important to the client.
What is the job and economic outlook for the financial planning profession?
The financial planning profession is anticipated to have 32% growth from 2010-2020 (latest reporting). With
the increasing baby boomer generation reaching retirement age, there will be an increased need for experienced, knowledgeable financial planners to assist with the growing complexity of retirement plans. The average earnings of $64,750 (excluding bonuses) for financial planners will remain an attractive option for
professionals.
Engagement Letter
A legal agreement between a professional organization and a client that defines their business relationship
External Data
The external data, also known as the external environment includes the current economic, legal, political, sociological, tax, and technology environments. Example of external data are the current interest rates, status of housing, job, insurance, and investment markets, the local cost of living, and the expected inflation rate.
Financial Plan
A written document that generally sets out a list of recommendations to achieve a set of goals and objections based on an understanding of a client’s current financial situation
Internal Data
The client’s internal data has both quantitative and qualitative elements. Some quantitative data includes family specifics, insurance, banking, investments, tax, retirement, and estate planning information. Some qualitative data includes the client’s values, attitudes, expectations, goals, needs, and priorities.
Personal Financial Planning
The process of formulating, implementing, and monitoring financial decisions integrated into a plan that guides an individual or a family to achieve their financial goals.
Process of Financial Planning
The process of financial planning includes: (1) establishing and defining the client relationship, (2) gathering client data, (3) analyzing and evaluating the client’s financial status, (4) developing and presenting financial plan recommendations, (5) implementing financial plan recommendations, and (6( monitoring the plan.
