Financial Planning Process

Question 1

What does a “fiduciary” do?

Answer 1

One who acts in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client.

Question 2

When does a “conflict of interest” occur?

Answer 2

It exists when a certificant’s financial, business, property and/or personal interests, relationships or circumstances reasonably may impair his/her ability to offer objective advice, recommendations, or services.

Question 3

What is “personal financial planning” or “financial planning”?

Answer 3

A collaborative process that helps maximize a Client’s potential for meeting life goals through Financial Advice that integrates relevant elements of the Client’s personal and financial circumstances.

Question 4

List the 7 steps in the financial planning process.

Answer 4

Understanding the Client’s Personal and Financial Circumstances
Identifying and Selecting Goals
Analyzing the Client’s Current Course of Action and Potential Alternatives
Developing the Recommendation(s)
Presenting the Recommendation(s)
Implementing the Recommendation(s)
Monitoring Progress and Updating

Question 5

To adhere to the CFP Board’s Code of Ethics, a CFP professional must:

Answer 5

1. Act with honesty, integrity, competence, and diligence.
2. Act in the client’s best interests.
3. Exercise due care.
4. Avoid or disclose and manage conflicts of interest.
5. Maintain the confidentiality and protect the privacy of client information.
6. Act in a manner that reflects positively on the financial planning profession and CFP® certification.

Question 6

Identify the financial planning subject areas.

Answer 6

The basic subject fields covered in the financial planning process, which typically include, but are not limited to:

Financial statement preparation and analysis (including cash flow planning);
Insurance planning and risk management;
Employee benefits planning;
Investment planning;
Income tax planning;
Retirement planning; and
Estate planning

Question 7

When does a “financial planning engagement” take place?

Answer 7

It exists when a certificant performs any type of mutually agreed upon financial planning service for a client.

Question 8

Who is a “certificant”?

Answer 8

A person currently certified by CFP board.

Question 9

What is a “commission”?

Answer 9

Compensation generated from a transaction involving a product or service and received by an agent or broker, usually calculated as a percentage on the amount of his or her sales or purchase transactions. This includes 12(b)1 fees, trailing commissions, surrender charges, and contingent deferred sales charges.

Question 10

What does a “fee-only” practice, or compensation model, mean?

Answer 10

A certificant may describe his or her practice as “fee-only” if, and only if, all the certificant’s compensation from all of his or her client work comes exclusively from the clients in the form of fixed, flat, hourly, percentage, or performance-based fees.

Question 11

What does it mean to define the “scope of engagement”?

Answer 11

Clearly identify client (to know duty of loyalty)
Discuss financial planning process
Identify and explain services
Assess and communicate ability to meet the client’s needs and expectations (referral is made if skills and needs do not align)
Disclose compensation arrangements and associated potential conflicts of interest
Determine the client’s and the practitioner’s responsibilities
Define and document the duration and scope of the engagement