Module 1 (1) The financial planning process

Question 1

What languages are required to be mastered in the process of becoming a CFP?

Answer 1

1. Insurance
2. Investments
3. Taxes
4. Employee benefits
5. Retirement planning
6. Estate planning

Question 2

What are the CFP practice standards intended to do?

Answer 2

1. Assure that the practice of the CFP is based on established norms of practice
2. Advance professionalism in financial planning
3. Enhance the value of the planning process.

Question 3

What is the Financial Planning Process?

Answer 3

1. Establishing and Defining the Client- Planner relationship.
2. Gathering Client Data including goals
3. Analyzing and evaluating the clients financial status
4. Developing and Presenting Financial Planning Recommendations and/or alternatives
5. Implementing the Financial Planning Recommendations
6. Monitoring the Financial Planning Recommendations.

Question 4

What is Practice Standard 100-1?

Answer 4

Defining the scope of engagement: The financial planning practitioner and the client shall mutually define the scope of the engagement before any financial planning service provided.

Question 5

What is the six step process of accomplishing 100-1?

Answer 5

1. Identifying the service to be provided
2. Disclosing the practitioners material conflicts of interest
3. Disclosing the practitioners compensation arrangements
4. Determining the client’s and practitioner’s responsibilities
5. Establishing the duration of the engagement
6. Providing any additional information necessary to define or limit the scope.

Question 6

What is Practice Standard 200-1?

Answer 6

Determining a Clients Personal and Financial goals, needs and priorities:

The FA and the client shall mutually define the clients personal and financial goals, needs and priorities that are relevant to the scope engagement before any recommendation is made and/or implemented.

Question 7

What is rule 200-2?

Answer 7

Obtaining Quantitative Information and Documents:

The FA shall obtain sufficient quantitative information and documents about a client relevant to the scope of the engagement before any recommendation is made and/or implemented.

Question 8

What should the FA do if he/she is not able to obtain sufficient quantitative information and documents to form a basis for a recommendation?

Answer 8

Either of these:

1. Restrict the scope of the engagement to those matters for which sufficient information is available
2. Terminate the engagement

Question 9

What is qualitative data?

Answer 9

Data where one finds out what people want, how they feel and who they want to benefit.

Question 10

What areas might one explore in a comprehensive plan?

Answer 10

Retirement
Education or other accumulation goals
Emergency reserve goals
Debt management goals and concerns
Investment management concerns
Health insurance concerns
Disability contingency plan
Loss of life contingency plan
Long term care needs contingency plan
Property and liability concerns
Legal documents and estate planning distribution
Anticipated changes in lifestyle, family, health or other concerns.

Question 11

What type of quantitative data might one collect?

Answer 11

• cash flow statements
• benefit package descriptions
• copies of personal insurance policies and latest statements
• investment and bank statements including retirement accounts
• SS statement
• Liability contracts/debt statements including family loans
• copies of wills, durable pos, trusts, prenuptial agreements, divorce decrees, business entity formation, gift tax returns

Question 12

What is rule 300-1

Answer 12

Analyzing and Evaluating the clients information:

A FA shall analyze the information to gain an understanding of the clients financial situation and then evaluate to what extent the client goals, needs and priorities can be met by the clients resources and current course of action.

Question 13

What does the statement of financial position present?

Answer 13

The client’s assets, liabilities, and resulting net worth at a given point in time.

Question 14

What does the cash flow statement present?

Answer 14

The clients cash inflows and expenditures for a given period of time.

Question 15

What are the two most common financial statement a FA uses?

Answer 15

Statement of financial position and cash flow statement.

Question 16

What does the standard 400 series deal with?

Answer 16

I deals with recommendations and/or alternatives

Question 17

In dealing with rule 400, what can the 3 steps be described as?

Answer 17

1. what is possible,
2. what is recommended
3. how is it presented

Question 18

What is rule 400-1?

Answer 18

The FA shall consider sufficient and relevant alternatives to the clients current course of action in an effort tot reasonable meet the clients goals, needs and priorities.

Question 19

What is rule 400-2?

Answer 19

The FA shall develop the recommendations based on the selected alternatives and the current course of action in an effort to reasonable meet the client’s goals, needs and priorities.

Question 20

In coming up with a recommendation for rule 400-2 what shall the recommendation consistent with and directly affected by?

Answer 20

1. Mutually defined scope of engagement
2. Mutually defined client goals, needs and priorities
3. Quantitative data provided by the client
4. Personal and economic assumptions
5. Practitioners analysis and evaluation of client’s current situation
6. Alternatives selected by the practitioner

Question 21

What is rule 400-3?

Answer 21

The financial planning practitioner shall communicate the recommendations in a manner and to an extent reasonably necessary to assist the client in making an informed decision.

Question 22

In line with rule 400-3, what factors should be communicated to make sure the client understands the good recommendation?

Answer 22

1. Personal and economic assumptions
2. Interdependence of recommendations
3. Advantages and disadvantages
4. Risks and/or
5. Time sensitivity

Question 23

What 5 factors will a good recommendation contain?

Answer 23

1. Briefly outline the problem and the potential consequences of not addressing the problem.
2. Provide a clear, actionable recommendation that leaves no doubt what the planner believes is in the best interest of the client to implement.
3. Detail a list of advantages and disadvantages that tells the clients the pertinent facts they should know in making a decision.
4. Highlight the second best alternative from the adviser’s viewpoint so the client can see that there are options available and you consider them.
5. Show clients that the costs of the alternatives you are recommending will fit within their budget or require changing the budget constraints they provided you.

Question 24

What does series 500 deal with?

Answer 24

It deals with implementing the financial planning recommendations.

Question 25

What is rule 500-1?

Answer 25

The FA and the client shall mutually agree on the implementation responsibilities consistent with the scope of the engagement.

Question 26

What are the potential responsibilities of the FA in the implementation of a recommendation?

Answer 26

1. Identifying activities necessary for implementation
2. Determining division of activities between the practitioner and the client
3. Referring to other professionals
4. Coordinating with other professionals
5. Sharing of information as authorized
6. Selecting and securing products and/or services

Question 27

What is rule 500-2?

Answer 27

The financial planning practitioner shall select appropriate products and services that are consistent with the client goals, needs and priorities.

Question 28

What does rule 600 deal with?

Answer 28

Monitoring the financial planing recommendations.

Question 29

What is rule 600-1?

Answer 29

The FA and client shall mutually define monitoring responsibilities.