FP511 Flashcards
Acronym for 7 Steps of the Financial Planning Process
Umbrellas In A Downpour Prevent Immense Mess
7 Steps of the Financial Planning Process
Understand, Identify, Analyze, Develop, Present, Implement, Monitor
Financial Planning
Integrated, coordinated management of an individual’s financial situation
Where are the Practice Standards for the Financial Planning Process found?
The CFP Board’s Codes & Standards
How must information presented to a CFP professional be documented when they are providing Financial Advice or Financial Planning?
Written in either CRM software, email, or handwritten notes
Step 1 of the 7-Step Financial Planning Process
“Understand” the Client’s personal and financial circumstances by obtaining and analyzing information (and addressing incomplete info if needed)
Step 2 of the 7-Step Financial Planning Process
“Identify” & Select Goals. Identify potential goals, discuss effects on other goals, establish reasonable assumptions and estimates, then select and prioritize goals.
When do unrealistic goals get addressed?
In Step 2 (“Identify”) when discussing potential goals
How are potential goals best identified?
By using open-ended questions
Step 3 of the 7-Step Financial Planning Process
“Analyze” Client’s Current Course of Action and Potential Alternative Course(s) of Action. Analyze material advantages and disadvantages of the current course and how they relate to goal potential, then do the same for alternative courses of action
Step 4 of the 7-Step Financial Planning Process
“Develop” the Financial Planning Recommendations considering personal and financial conditions, assumptions and estimates, how courses of action maximize goal potential, timing and priority of the recommendation, and whether it is independent or implemented with another.
Step 5 of the 7-Step Financial Planning Process
“Present” the Financial Planning Recommendations AND information considered when creating the plan (required)
Why do recommendations discuss the problem/reason for the recommendation and consequences of continuing on the current course of action?
So that clients can have an understanding of why a plan should be put into place. It allows clients to see the importance of implementing it, as well as showing that serious thought and consideration have gone into creating the recommendation.
Step 6 of the 7-Step Financial Planning Process
“Implement” the Financial Planning Recommendation(s). Establish responsibilities of the CFP Professional, client, and third parties, then recommend actions, products, and services that implement the recommendation and discuss advantages and disadvantages relative to reasonable alternatives
Step 7 of the 7-Step Financial Planning Process
“Monitor” Progress and Updating. Establish whether the CFP Professional will monitor and update the plan, what, when, and how that will be monitored and updated, and the client’s responsibility to report material changes.
What happens during Step 7 of the 7-Step Financial Planning Process that makes the process a loop?
Progress is monitored and analyzed at appropriate intervals; qualitative and quantitative information updates are noted when received from client; and goals, recommendations, or implementation are updated when needed.
Financial Statements
Enable the planner, client, and others to obtain a clear picture of a client’s situation
Two most common financial statements for CFP Professionals
Statement of Financial Position and Cash Flow Statement
Statement of Financial Position
Presents assets and liabilities, resulting in a net worth at a given time
Cash Flow Statement
Presents cash inflows and expenditures over a period of time
Contextual Variables
Unique considerations to consider and address
5 Main Categories of Contextual Variables
Family status, net worth, income, life/professional stage, and other
Financial Life Cycle
Phases of life based on financial markers/habits
Are the three phases of the Financial Life Cycle exlusive/linear?
No. A person can be in multiple stages at once at differing levels of influence
