General Principles of Financial Planning

Question 1

What are the three steps to understanding the client’s personal and financial circumstances?

Answer 1

1. obtaining qualitative and quantitative information
2. analyzing information
3. addressing incomplete information

Question 2

What must a CFP professional consider for each recommendation

Answer 2

1. The assumptions and estimates used
2. The basis for making the recommendation
3. The timing and priority of the recommendation
4. Whether the recommendation is independent or must be implemented with another recommendation.

Remember: RABIT

Question 3

When addressing implementation responsibilities, whose responsibilities must be addressed?

Answer 3

Those of the CFP professional, the client, and any third-party

Question 4

In which step do we again obtain qualitative and quantitative information?

Answer 4

Monitoring progress and updating

Question 5

What are the integration factors the CFP Board may consider to determine if Financial Planning is occurring?

Answer 5

1. The number of relevant elements the Financial Advice may effect
2. The portion and amount of Financial Assets that the Financial Advice may affect
3. The length of time the client’s circumstances may be affected by the Financial Advice
4. The effect on the client’s exposure to risk from the Financial Advice.
5. The barriers to modifying the actions taken to implement the Financial Advice.

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Question 6

Financial planning is a ________ process.

Answer 6

collaborative

Question 7

Financial planning helps maximize a client’s potential for meeting ______ through ___________.

Answer 7

life goals, Financial Advice

Question 8

Financial planning _________ relevant elements of the client’s ________________________.

Answer 8

integrates, personal and financial circumstances

Question 9

The need or desire to develop goals, manage assets and liabilities, manage cash flow, and identify and manage risk are examples of what?

Answer 9

Relevant elements

Question 10

When does a CFP professional have a fiduciary duty?

Answer 10

When providing Financial Advice or Financial Planning

Question 11

When must a CFP professional manage conflicts of interest?

Answer 11

When providing Financial Advice or Financial Planning

Question 12

When must a CFP professional abide by the Code of Ethics?

Answer 12

At all times

Question 13

What are three communications that are not considered Financial Advice?

Answer 13

1. marketing materials
2. general financial education materials
3. general financial communications

Question 14

Financial Advice is a communication that would reasonably be viewed as a recommendation that the client take or refrain from taking a particular course of action with respect to

Answer 14

1. A financial plan
2. Investing in a particular asset
3. Investment policies or strategies
4. Selecting other persons to provide services to the client

Question 15

What are the three financial life cycle phases?

Answer 15

1. asset accumulation
2. conservation
3. distribution

Question 16

What is the rule of thumb for consumer debt (non-mortgage)?

Answer 16

20% or less or net monthly income (15 % or less is healthy)

Question 17

What is the rule of thumb for housing costs (interest, principal, fees, taxes and insurance)?

Answer 17

28% or less of gross monthly income

Question 18

What is the rule of thumb for total debt?

Answer 18

36% or less of gross monthly income

Question 19

Current ratio

Answer 19

current assets/current liabilities

Question 20

Acid test ratio (quick ratio)

Answer 20

(cash and cash equivalents + accounts receivable)/current liabilities

Question 21

Emergency funds ratio

Answer 21

cash and cash equivalents/expenses

Question 22

How much should one have in an emergency fund?

Answer 22

between 3-6 months of expenses

Question 23

When computing savings goals, how much should be deducted from checking?

Answer 23

1 month of expenses

Question 24

This form of bankruptcy allows an individual to keep certain assets but all others must be surrendered to satisfy the costs of bankruptcy and the claims of creditors?

Answer 24

Chapter 7

Question 25

Can child support and alimony be discharged by bankruptcy?

Answer 25

No

Question 26

Can student loans be discharged by bankruptcy?

Answer 26

Usually not

Question 27

Can taxes be discharged by bankruptcy?

Answer 27

Usually not

Question 28

This form of bankruptcy creates a plan under which the debtor will repay outstanding debts within a specified period of time?

Answer 28

Chapter 13

Question 29

Which form of bankruptcy is generally more favorable to creditors?

Answer 29

Chapter 13

Question 30

After filing chapter 7 bankruptcy, you must wait how many years to file again?

Answer 30

8 years

Question 31

In bankruptcy, which law is primary state law or federal law?

Answer 31

state law

Question 32

How does one calculate a serial payment (payment made at the end of the year)?

Answer 32

take the result from the beginning of the year and multiply by 1 + inflation rate

Question 33

What are the components of gross domestic product?

Answer 33

GDP = C + I + G + E
C = personal consumption
I = gross private domestic investment
G = government spending
E = net exports

Question 34

What are the seven steps of the budgeting process?

Answer 34

1. Identify client’s financial goals and determine what is required to meet them
2. Estimate income from all sources
3. Estimate expenses and divide between fixed and variable
4. Compare income and expenses to determine if expected expenses are equal to or less than expected income
5. If expenses are too high, identify potential sources of income or places where expenses may be reduced
6. Present each category of income and expense as a percentage of the total.
7. Review the budget at the end of each month and make adjustments
   Short version:
8. Identify
9. Income
10. Expenses
11. Compare
12. Too high
13. Percentage
14. Review
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