FP511 Module 1 Flashcards
Asset Accumulation Phase
client is usually in this phase until approximately age 45 or later if the client’s children are not yet independent.
beginning of this phase is characterized by the following:
Limited excess funds for investing
High degree of debt to net worth
Low net worth
Lack of concern for risks
Later in phase, there is
Increased cash available for investments
Reduced use of debt as a percentage of total assets
Increased net worth
conservation or protection phase
approximately age 45–60 or immediately preceding the client’s planned retirement date. This may last throughout the client’s working life or, in some cases, until death.
characterized by:
Increases to cash flow, assets, and net worth
Decreases in proportionate use of debt
People generally become more risk averse as more assets are
acquired.
distribution or gifting phase
From roughly 60 (or planned retirement) until death
Beginning of phase you may see people also overlapping with the asset accumulation or conservation/protection phases
characterized by the following:
Distribution strategies (e.g., lifetime gifts to heirs)
Implementation of estate planning strategies
High net worth and cash flow
Low debt
Financial Advice
Typically focused around management of investment portfolios and less around the entire financial picture/long term goals
Financial Planning
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.
the integrated, coordinated management of an individual’s financial situation.
Practice Standards for the Financial Planning Process
Section of the Code and Standards in which the financial planning process is divided into seven distinct steps.
1. Understanding the Clients Personal/Financial Circumstances
2. Identifying & Selecting Goals
3. Analyzing Client’s Current Course of Action
4. Developing Financial Planning Recommendations
5. Presenting Recommendations
6. Implementing Recommendations
7. Monitoring Progress & Updating
relevant elements
Relevant elements of personal and financial circumstances vary from Client to Client, and may include the Client’s need for or desire to:
develop goals, manage assets and liabilities, manage cash flow, identify and manage risks, identify and manage the financial effect of health considerations, provide for educational needs, achieve financial security, preserve or increase wealth, identify tax considerations, prepare for retirement, pursue philanthropic interests, and address estate and legacy matters.
Steps of the Financial Planning Process
There are 7: Uber is a drunk persons immediate motorvehicle
- Understanding the Clients Personal/Financial Circumstances
- Identifying & Selecting Goals
- Analyzing Client’s Current Course of Action
- Developing Financial Planning Recommendations
- Presenting Recommendations
- Implementing Recommendations
- Monitoring Progress & Updating
Step 1: Understand clients personal and financial circumstances
Obtain qualitative (subjective, client’s health, values, expectations, earnings potential) and quantitative (age, dependents, income, expenses, cash flow, estate plans) information
Step 2: Identifying & Selecting Goals
Identify goals by discussing with the client about personal circumstances and future aspirations.
Based on the identified goals, select and prioritize what goals make most sense for the Client
During Step 2, any goals the client has selected that the CFP® professional believes are not realistic must be discussed.
Step 3: Analyzing the Client’s Current Course of Action & Potential Alternative Course(s) of Action
A CFP® professional must analyze the client’s current course of action, including the material advantages and disadvantages of the current course and whether the current course maximizes the potential for meeting the client’s goals.
Where appropriate, a CFP® professional must consider and analyze one or more potential alternative courses of action, including their material advantages and disadvantages of each alternative and how each alternative integrates the relevant elements of the client’s personal and financial circumstances.
Step 4: Developing the Financial Planning Recommendations
From the potential courses of action, select one or more recommendations designed to maximize the potential for meeting the client’s goals.
Step 5: Presenting the Financial Planning Recommendations
The Practice Standards state that the following actions occur during Step 5:
A CFP® professional must present to the client the selected recommendations and the information that was required to be considered when developing the recommendation(s).
Recommendations should briefly outline the problem and its potential outcome, an actionable recommendation, a list of advantages and disadvantages, provide a second best alternative to weigh pros and cons and will discuss how the goal fits within existing budget and what adjustments are needed.
Step 6: Implementing the Financial Planning Recommendations
Addressing Implementation Responsibilities: A CFP® professional must establish with the client whether the CFP® professional has implementation responsibilities.
Identifying, Analyzing, and Selecting Actions, Products, and Services: A CFP® professional who has implementation responsibilities must identify and analyze actions, products, and services designed to implement the recommendations.
Recommending Actions, Products, and Services for Implementation: A CFP® professional who has implementation responsibilities must recommend one or more actions, products, and services to the client.
Selecting and Implementing Actions, Products, or Services: A CFP® professional who has implementation responsibilities must help the client select and implement the actions, products, or services.
Step 7: Monitoring Progress & Updating
A CFP® professional must establish with the client whether the CFP® professional has monitoring and updating responsibilities.
Monitoring the Client’s Progress: A CFP® professional who has monitoring responsibilities must analyze, at appropriate intervals, the progress toward achieving the client’s goals.
Obtaining Current Qualitative and Quantitative Information: A CFP® professional who has monitoring responsibility must collaborate with the client in an attempt to obtain current qualitative and quantitative information concerning the client’s personal and financial circumstances.
Updating Goals, Recommendations, or Implementation Decisions: Where a CFP® professional has updating responsibility, and circumstances warrant changes to the client’s goals, recommendations, or selections of actions, products, or services, the CFP® professional must update as appropriate in accordance with these Practice Standards.
Contextual variables
These variables account for client situations that require applying specific financial planning knowledge. Including:
1. Family Status (traditional family, single parent, same-sex couples, blended families, widowhood)
2. Net Worth (ultra-high net worth, high net worth, mass affluent, emerging affluent, mass market)
3. Income Level (high, medium, low)
4. Life or Professional Stage (student, starting a career, career transition, pre-retirement)
5. Other Circumstances (health issues, divorce, change of employment status, aging parents, special needs children)
How to use CFP ® Marks
Always capital letters
Never periods
Always use the ®
Always with an approved noun (certificant, professional, practitioner, certification, mark, exam) or on the same line directly following the name of the individual certified by the CFP Board
CFP/CERTIFIED FINANCIAL PLANNER are never used as parenthetical abbreviations or expansions (John Does is a CERTIFIED FINANCIAL PLANNER (CFP)
Never to be used in domain names/URLs and email addresses used by them
How to use CERTIFIED FINANCIAL PLANNER™ marks
Always capital letters or small cap font
Always use the ™ symbol.
Always use with approved noun (certificant, professional, practitioner, certification, mark, exam) or on the same line directly following the name of the individual certified by the CFP Board
CFP/CERTIFIED FINANCIAL PLANNER are never used as parenthetical abbreviations or expansions (John Does is a CERTIFIED FINANCIAL PLANNER (CFP)
Never to be used in domain names/URLs and email addresses used by them
How to use CFP® Mark logo
Always reproduce the logo from original artwork.
Never alter or modify the logo.
Always associate with the individual(s) certified by CFP Board.
Maintain a minimum size of 0.5 in in print or 50 px on screen.
Always maintain clear space around the mark to maintain legibility.
Competence
A CFP® professional must provide professional services with competence, which means with relevant knowledge and skill to apply that knowledge.
When the CFP® professional is not sufficiently competent in a particular area to provide the professional services, the CFP® professional must gain competence, obtain the assistance of a competent professional, limit or terminate the engagement, and/or refer the client to a competent professional.
Duties when engaging, working with or recommending another professional
- Have a reasonable basis for the recommendation or engagement based on the other professional’s reputation, experience, and qualifications
- Disclose any arrangement by which someone other than the client will compensate the CFP® professional, the CFP® professional’s firm, or a related party for the engagement or recommendation.
- Communicate with the other professional about the services each will provide and their respective responsibilities; and
- Inform the client in a timely manner if the other professional did not perform the services in accordance with the scope of services to be provided and the allocation of responsibilities.
Standard A.5, Disclose and Manage Conflicts of Interest
A CFP® professional must:
1. Avoid or fully disclose material conflicts of interest by providing sufficiently specific facts
2. Obtain informed consent
3. Manage the conflict of interest.
