Midterm Review Flashcards
What are the six steps of the financial planning process?
- Establishing and Defining Client Relationship
- Gather Client Data
- Analyze and Evaluate Client’s Financial Status
- Develop and Present Financial Planning Recommendations.
- Implement Financial Plan Recommendations
- Monitor Plan
What is the first step of the financial planning process and what activities does it include?
The first step of the financial planning process is Establishing and Defining Client Relationship. During the initial meeting, it is important to establish a relationship of trust and to assess the client’s attitudes and values. This meeting will also including helping a client establish goals and a general discussion of the client’s personal data. The two parties will agree on how they communicate and an engagement letter will be provided to the client to define the scope of the engagement and the responsibilities of the two parties.
What is the second step of the financial planning process and what activities does it include?
The second step of the financial planning process is Gathering Client Data. The financial planner must gather quantitative and qualitative about he client. The quantitative data may include information about the client’s family, insurance portfolio, banking and investing information, taxes, retirement and employee benefits, estate planing, all personal financial statements, Qualitative information may include: education goals, retirement goals, employment goals, savings goals, risk tolerance, charitable goals, and general attitude towards spending.
What is the third step of the financial planning process and what activities does it include?
The third step of the planning process is analyzing and evaluating the client’s financial status. This analysis may include the three step approach, pie chart approach, and other means of interpreting the client’s information.
What is the fourth step of the financial planning process and what activities does it include?
The fourth step of the financial planning process is developing and presenting financial planning recommendations. The recommendations presented must be based on the scope of the engagement, the goals and objectives of the client, the information gathered from the client by the planner, an analysis of the economic environment, and alternatives available to accomplish the client’s goals. This is generally and iterative process. The information will be presented and discussed afterwards to financial any planning recommendations.
What is the fifth step of the financial planning process and what activities does it include?
The fifth step of the planning process is implementing financial plan recommendations. During this stage of the process, activities to implemented and which activities will be performed by the client versus the planning will be determined.
What is the last step of the financial planning process and what activities does it include?
The last step of the process is monitoring the plan. The results are monitored periodically. If results differ from the planned returns, changes to the plan will have to be implemented. Other reasons for monitoring may include changes to tax law and other factors in the external environment.
What are the two learning styles?
The three learning styles are visual and auditory learning. If the client is a visual learner, the planner should use examples including graphs, charts, and other visual aids to make the client more comfortable. If the client is a auditory learning the verbal learning graphics can be supplemented with carefully selected words. About 65 percent of people are visual learners.
How do you extract information from the client in an engaging way?
It is important to use a mix of open and closed questions to gather information from the client. If the adviser must assess the need for an open discussion, an open ended question may be needed. If a point has been made and clarification is needed, a closed questions can be used. Avoiding why is important to avoid putting the client on the defensive. Active listening is also important to the process.
What is verbal and nonverbal communication?
Nonverbal behaviors are provided by the body. The body may sometimes communicate a message that may contradict what is being said. A client’s voice may also communicate feelings of the speaking that can be at odds with what is being said. When mixed signals are given it is important to seek clarifications.
What is clarifying and restating a client’s statement
By restating the client’s position, this allows the planner to accurately access the accuracy of his or her perceptions and to enhance the understanding of the client’s goals.
What if the client’s goals are unrealistic?
If the goals are unrealistic it is important to establish with the client why the goals are unrealistic.
What is the life cycle position?
Generally used in the early stages of the engagement, the life cycle approach allows the financial planner. It is useful to engage the client when the planner only has partial information. Using information, like the client’s age, martial status, number and ages of children, family income, net worth, employment status it is possibly to determine the most likely goals that the client has.
What is the pie chart approach?
The pie chart approach helps the client visualize where their money is going. The pie charts show a graphical representation of the statement of income and the balance sheet.
What is financial statement and ratio analysis?
The purpose behind presenting financial ratios is to provide useful planning information to the client. Ratio’s can help a planner evaluate a client’s ability to meet short term obligations, the relation of their living expenses to their total income, and their asset and return on investment ratios.
What is the two step/ three panel approach?
The two step approach considers risk as potentially leading to catastrophic losses or dependence and regards savings as the path to financial security or independence. The three panel approach expands this approach to look at short term and long term savings and goals.
