Chapter 1 MC Flashcards
Which of the following financial planning domains is where the advisor identifies the strengths and weaknesses in the client’s present financial condition?
D) Analyze and evaluate the data.
The answer is (D). (A), (B), and (C) are incorrect because in these steps of the financial planning process the advisor does not identify the strengths and weaknesses in the client’s present financial condition. This is done in the third financial planning domain.
According to a consumer survey conducted by the CFP® Board of Standards, the top reason why people begin financial planning is to
(C) build and liquidate a retirement fund
The answer is (C). Building a retirement fund was the top reason why people begin financial planning. This was selected by 82 percent of the survey participants. (A) is incorrect because accumulating capital was selected by 31 percent of those surveyed. (B) is incorrect because purchasing or renovating a home was selected by 41 percent of those surveyed. (D) is incorrect because generating current income was selected by 25 percent of those surveyed.
Which of the following financial planning domains is where the advisor reviews changes in the client’s circumstances and the financial environment?
Answer
B) Monitor the plan
The answer is (B). (A), (C), and (D) are incorrect because in these domains the advisor does not review changes in the client’s circumstances and the financial environment.
A comprehensive financial plan organized to follow the financial planning process should start by
(C) specifying the responsibilities of each party for implementing the plan and carrying it through to completion
The answer is (C). (A) is incorrect because describing the client’s present situation based on personal and financial data gathered from the client takes place in step 2 of the financial planning process. (B) is incorrect because specifying the client’s stated goals indicating the priority of each one and the time frame for achieving it takes place in step 2 of the financial planning process. (D) is incorrect because identifying problems that the client would encounter in attempting to accomplish stated goals takes place in step 3 of the financial planning process.
Which of the following financial advisors using the financial planning process is practicing multiple-purpose financial planning?
(A) a multiline insurance agent who sells life, health, and property and liability insurance to a client
The answer is (A). (B), (C), and (D) are incorrect because these financial advisors are practicing single-purpose financial planning, which is solving a single financial problem with a single financial product or service.
Financial advisor activities considered to be part of developing financial planning recommendations in the financial planning process include all the following EXCEPT
(D) reviewing the plan to see that it is performing satisfactorily
The answer is (D). Reviewing the plan to see that it is performing satisfactorily is a financial advisor activity that is considered part of the seventh planning domain (review) of the planning process.
Which of the following statements concerning the financial planning pyramid is correct?
(C) The pyramid is a widely accepted approach for developing a comprehensive financial plan over a period of time.
The answer is (C). (A) is incorrect because as the client moves up the pyramid, the focus of the plan shifts from income protection needs to wealth accumulation goals. (B) is incorrect because the middle part of the pyramid is the wealth accumulation component of the financial plan. It involves growing money through various types of investments. (D) is incorrect because the foundation of the pyramid is focused on protecting the client against an unexpected occurrence that could cause financial hardship. It is built with emergency savings, insurance coverages, and a properly drawn will.
According to a survey conducted by the CFP® Board, the top three financial planning areas of specialization that advisors engage in include all the following EXCEPT
(A) closely held business planning
The answer is (A). Closely held business planning is not one of the top three financial planning areas of specialization engaged in by advisors.
Starting at a relatively young age, a career-minded person typically will pass through all the following phases of his or her financial life cycle en route to retirement EXCEPT
(D) postretirement
The answer is (D). Postretirement is not one of the four phases of the financial life cycle that a career-minded person will pass through on route to the retirement phase. Besides the early career, career development, peak accumulation, and retirement phases, the other phase is preretirement.
