Client Specific Terms, Factors in FP process Flashcards
Covers client specific terms, factors, etc in FP process
Financial Planning defined:
A means to attain hopes and dreams (goals) while confronting/managing concerns and fears.
What are the 5 elements of an Engagement Letter?
- Define the parties to the agreement.
- A description of the mutually agreed upon services; (scope of work).
- The time horizon of the work to be completed.
- A description of fees and costs.
- Obligation and responsibilities of each party.
At the introductory meeting, the financial planner will… (4 things)
- Collect data
- Come to understand the client’s values and goals
- Establish the scope of the engagement
- Discuss Fees
What are the 7 stages of the process of Financial Planning?
- Understanding the client’s personal/financial circumstances (qualitative & quantitative).
- Identifying and selecting goals.
- Analyzing the client’s current course of action and potential alternative course of action.
- Developing the financial planning recommendation.
- Presenting the financial planning recommendation.
- Implementing the financial planning recommendation.
- Monitoring progress and updating as necessary.
Examples of internal data surrounding client
The client’s financial goals and values.
Examples of external data surrounding client
external environment: inflation, interest rates, gift and estate taxes, current and future income, etc.
What is an Integration Factor?
Anything that has a significant influence over the financial advice or financial planning a CFP provides a client.
List 5 Integration Factors
- Relevant Elements
- Client’s financial elements
- Length of time
- Exposure to risk
- Barriers to change
Give examples of Relevant Elements of Personal and Financial Circumstances
- Develop goals
- Manage cashflow
- Prepare for retirement
- Manage assets and liabilities
- Identify and manage risks
- Preserve/increase wealth
What is a “Sensitivity Analysis?”
The process of changing key variables in planning assumptions to determine the overall impact of those changes on the plan.
What is a Financial Plan?
A written document that generally sets out a list of recommendations to achieve a set of goals and objectives based on an understanding of a client’s current financial and personal situation.
What is the “Statement of Cash Flows?”
The statement of ALL income and expenses (receipts and disbursements) per year.
3 Main Types of Assets
- Cash and cash equivalents
- Investments
- Personal use assets
What is a Statement of Financial Position? (aka Balance Sheet)
A snapshot of a person’s financial position at a specific point in time.
3 main things a Statement of Financial Position (balance sheet) shows
Assets
Liabilities
Net Worth
(Assets-Liabilities=Net Worth)
What is a Monte Carlo Analysis?
A mathematical simulation that determines the probability of achieving a given outcome.
True or False
The CFP and client have similar privileges to attorney/client privileges.
False; Communications between CFP and client are not legally privileged AND are subject to discovery in legal proceedings.
What are some limitations of Financial Statement Analysis? (3 things)
- Inflation
- Uncertain returns
- Hard to value assets
Emergency fund should cover 3 months if…(3 possibilities)
Single with additional reliable source of income other than normal compensation
Both spouses have big paychecks
Clients are married with one income and an additional reliable source of income
Emergency fund should cover 6 months if…(2 possibilities)
Single client with single income
Married clients with single income
Clients who are qualified to be charged performance based fees (2 things)
- Client with a minimum net worth of 2.2 million
- Client with AUM of 1.1 million
5 Elements of a Valid Contract
- An offer
- Acceptance
- Consideration (may be a type of downpayment or promise to pay in full)
- Competent Parties (of age and sound mind)
- Legal Object (don’t break the law)
