M1: Principles of Financial Planning Flashcards
Paying full attention to what clients are saying and responding by paraphrasing their comments.
Active listening
Giving direction; it is one of the most obvious and utilized directive skills that planners use.
Advice
Poor financial decisions are made because they are based on how people believe the outcomes will represent their interest and values.
Affinity Bias
A reflection of a person’s opinions, values, and wants.
Attitude
A field of study that relates behavioral and cognitive psychology to financial planning and economics in an attempt to understand why people act irrationally during the financial decision-making process.
Behavioral finance
A type of attitude that reveals the understanding of some aspect of a person’s own life.
Belief
A tendency or inclination toward or against something or someone.
Bias
Involves facial expressions, eye contact, gestures, and body posture.
Body language
An individual (can also be called an agent) who has passed the appropriate regulatory exams and is authorized to sell securities to clients and charge a commission.
Broker
A firm in the business of buying and selling securities, operating as both a blank, depending upon the transaction. A firm acts as a broker when it executes orders on behalf of clients, and acts as a dealer when it trades for its own account.
Broker-dealer
Used to ensure the planner understands the client, it involves asking the client to provide details of the conversation.
Clarification
Only requires a “yes” or “no” answer; limits data gathering.
Closed-ended question
A written set of rules and expectations that embodies principles for behavior, a list of standards for professional conduct, and a set of disciplinary procedures.
Code of ethics
Often a result of faulty reasoning a typically arise from a lack of understanding proper statistical analysis techniques, information processing mistakes, faulty reasoning, or memory errors.
Cognitive errors
Compensation resulting from a client purchasing a particular product.
Commissions
A financial plan that covers just about all of a person’s financial objectives, including consideration of risk management, investment planning, tax planning, retirement planning, and estate planning.
Comprehensive financial plan
Occur when the planner has choices that benefit them more than the client, or may get in the way of providing the most objective advice for the client. For example, there may be two products, both of which would be helpful for the client, but the planner would receive a higher commission on one versus the other. blank will always exist; the important thing is for the planner to disclose them to clients.
Conflict of interest
A rational view is formed; there is a failure to change that view as new information becomes available.
Conservatism bias
Individuals’ past histories or any conditions that presently exist in their lives.
Context
A questionnaire used by financial planners to gather information, both quantitative and qualitative, from clients.
Data survey form
A tendency or inclination toward something that is related to conscious thought and instead stems from feelings, impulses, or intuition.
Emotional bias
Occurs any time others feel they are left out of a conversation or relationship.
Exclusion
The ability to recognize emotional expressions in oneself and others, as well as the ability to select socially appropriate responses to the circumstances and others’ emotions.
Emotional intelligence
A descriptive statement used to make something more straightforward or understandable.
Explanation
Financial planners who charge both a fee and can receive commissions.
Fee-based planning
Financial planners who charge a fee for their services and do not receive any commissions. Examples include charging an asset under management (AUM) fee, a retainer fee, or an hourly fee.
Fee-only planning
A relationship between two parties in which one (the fiduciary) has a high duty to act in utmost good faith and look out for the best interests of the other.
Fiduciary relationship
Always acting in the best interests of the client.
Fiduciary standard
A written statement, clearly defined and quantified, that identifies the financial purpose to be achieved. blanks should be clear as to purpose, time frame, and amount (“PTA”).
Financial goal
The development and implementation of total, coordinated plans designed to achieve an individual’s financial objectives.
Financial planning
Consists of seven steps: understanding the client’s personal and financial circumstances; identifying and selecting goals; analyzing the client’s current course of action and potential alternate course(s) of action; developing the financial planning recommendations; presenting the financial planning recommendations; implementing the financial planning recommendations; and monitoring progress and updating.
Financial planning process
Regulates brokers and broker-dealers.
Financial Industry Regulatory Authority (FINRA)
The regulatory from that all registered investment advisers (RIAs) must file with the SEC and provide to every client.
Form ADV Part 2
The belief that one can control the outcome of an event when they cannot.
Illusion of control
Delivering messages to clients that show others are valued, respected, and supported.
Inclusion
Communicating one on one.
Interpersonal communication
Guides clients to give more details, making a meeting of the minds more likely.
Leading response
Irrational decisions are made because one places money into separate mental “accounts” based on the purposes of these accounts.
Mental accounting
The tendency to think one dollar has the same value today, tomorrow, and into the future, without considering inflation.
Money illusion
Imitating clients’ gestures and physical positions or using similar verbal styles.
Mirroring
Encourage clients to reflect and share their goals, beliefs, traditions, cultural background, feelings, and concerns in a thorough and open manner.
Nondirective counseling skills
Question that requires clients to answer in their own words.
Open-ended question
Repeating what the client says in another way.
Paraphrasing
The process of determining whether and how an individual can meet life goals through the proper management of financial resources.
Personal financial planning
Copying another person’s body language.
Physical mirroring
Voice sound quality of highness or lowness; it is primarily dependent on the frequency of the sound wave.
Pitch
Behaving in a socially acceptable way with appropriate manners.
Politeness
The principle that requires attaining, maintaining, and applying a sufficient level of knowledge and skill in servicing the client.
Principle of competence
The principle that requires not disclosing “any confidential client information without the specific consent of the client unless in response to proper legal process.”
Principle of confidentiality
The principle that “demands honesty and candor which must not be subordinated to personal gain and advantage.”
Principle of integrity
The principle that requires the application of intellectual honesty and impartiality.
Principle of objectivity
The principle that requires the conduct of a financial planner to reflect credit upon the profession.
Principle of professionalism
Helps clients shift their perspectives by considering circumstances, feelings, or thoughts from another viewpoint.
Reframing
blanks are investment advisers who provide advice on investments to clients and must register with either the Securities and Exhange Commission (SEC) or with the states, depending upon the amount of assets they have under management. Many financial planners are blanks.
Registered investment adviser (RIA)
A federal regulatory agency established under the Securities Exchange Act of 1934. The mission of the blank is to protect investors, maintain fair, orderly, and efficient markets, and to facilitate capital formation.
Securities and Exchange Commission (SEC)
Individuals taking credit for their successes and either blaming others or external influences for their failures.
Self-Attribution bias
Poor financial decisions are made because one lacks self-discipline and favors immediate gratification over long-term goals.
Self-control bias
The ability to respond thoughtfully to others.
Sensitivity
A brief outline of a discussion.
Summarization
Individuals are comfortable with an existing situation, which leads to an unwillingness to make changes, even though the changes are beneficial.
Status quo bias
A financial plan that looks at just one objective, such as funding a college education, buying a first home, caring for an elderly parent or handicapped child, or planning for retirement.
Targeted financial planning
The inflection of voice or emphasis on certain words; shows attitude, whether humor, anger, sincerity, or sarcasm.
Tone
Attitudes and beliefs for which a person feels strongly; they represent what a person believes to be right.
Values
Imitating the client’s word use, tone of voice, and communication method.
Verbal mirroring
