Section 101 Unit 1-2

Question 1

Comprehensive financial plan consists of six main components…

Answer 1

1. Savings, budgeting, emergency funding, and education funding.
2. Investment Planning
3. Insurance Planning
4. Income Tax Planning
5. Retirement Planning
6. Estate Planning

Question 2

Quantitative Data

Answer 2

Are those data that are measurable or conveyed as quantity. Examples is a current financial status (assets and liabilities), copies of wills, and trusts, and a list of current investments.

Question 3

Qualitative Data

Answer 3

Are those data that are concerned with the quality of a client’s life. Examples include financial goals and objectives, health status, and client’s risk tolerance level.

Question 4

Client’s Financial Cycle

Answer 4

Asset Accumulation Stage
Conservation or Protection Stage
Distribution or Gifting Stage

Question 5

Financial Planning Process

Answer 5

Step 1 Establishing and Defining the client-planner relationship
Step 2 Gathering Information Necessary to Fulfill the Engagement
Step 3 Analyzing and Evaluating the Client’s Current Financial Status
Step 4 Developing and Communicating the Recommendations
Step 5 Implementing the Recommendations
Step 6 Monitoring the Recommendations

Question 6

Financial Planning Engagement

Answer 6

Exists when a certificate performs any type of mutually agreed-upon financial planning service for a client

Question 7

Financial Planning Practitioner

Answer 7

Is a person who engages in financial planning using the financial planning process when working with clients

Question 8

Open-Ended Questions

Answer 8

Conversation provoking questions

Question 9

Closed-Ended Questions

Answer 9

Require Yes or No answers

Question 10

Interpersonal Communication

Answer 10

Communicating one-on-one

Question 11

Emotional Intelligence

Answer 11

The ability to recognize emotional expressions in oneself and the client, as well as selecting socially appropriate responses to both the circumstances and the client’s emotions

Question 12

Active Listening

Answer 12

Paying full attention

Question 13

Leading Responses

Answer 13

Guide the client to give more detail, making a “meeting of the minds” more likely.

Question 14

Asset Accumulation Stage

Answer 14

A client is sully in this stage until approximately age 45 or later if the client’s children are not yet independent

Question 15

Conservation or Protection Stage

Answer 15

A client is usually in this stage from approximately age 45 to 60 or immediately preceding the client’s planned date of retirement

Question 16

Distribution or Gifting Stage

Answer 16

A client is usually in this stage from approximately age 60, or planned date of retirement, until date of death. Distribution strategies, including retirement income sources and fitting strategies, are often a primary focus of a client’s estate planning.

Question 17

Statement of Financial Position

Answer 17

A personal balance sheet or net worth statement. Provides a snapshot of the client’s net worth on any given date, usually at the end of a calendar year. (Like a picture has been taken of that particular moment in time)

Question 18

Net Worth Equation

Answer 18

Assists - Liabilities = Net Worth
or
Assets = Liabilities + Net Worth

Question 19

Fair Market Value

Answer 19

Defined by the IRS as the price of property will bring when offered for sale by a willing seller to a willing buyer.

Question 20

Liabilities are always presented as…

Answer 20

Their principal value without regard to any interest obligation

Question 21

Statement of Financial Position is organized into three categories

Answer 21

Total Assets (what the client owns)
Total Liabilities (what the client owes)
Net Worth (what the client is worth after all liabilities are paid in full)

Question 22

Statement of Financial Position

Total Assets Subcategories

Answer 22

Cash or Cash Equivalent
Investments
Personal Use Assets

Question 23

Cash and Cash Equivalents

Answer 23

Tend to be current, or short term, in nature.

Question 24

Investments

Answer 24

Tend to be longer term in nature

Question 25

Personal Use Asset

Answer 25

Is one that is owned by a client for lifestyle reasons and use, not primarily for investment.

Question 26

Personal Statement of Cash Flows

Answer 26

Summarizes the items of income that were actually received and the expenditures actually made during a specific period. (Like a video of what is going on between the pictures or Statement of Financial Position. To help explain how you got from one picture to the next)

Question 27

Fixed Cash Outflows

Answer 27

Some predictability in occurrence and amount. I.e. Mortgage payments, auto note payments, insurance premiums, property taxes

Question 28

Variable Cash Outflows

Answer 28

There is some variation in occurrence and amount. I.e. Food expenses, clothing expenses, utilities, travel and entertainment

Question 29

Balance Sheet

Answer 29

The business equivalent to a statement of financial position

Question 30

Income Statement

Answer 30

The business equivalent to a personal statement of cash flow. Also known as a Profit and Loss statement (P&L statement)

Question 31

Business Statement of Cash Flow

Answer 31

NOT THE SAME AS THE PERSONAL STATEMENT OF CASH FLOW! It assists in the reconciliation of the business income statement to changes between two balance sheets.

Question 32

Three Components of the Business Statements of Cash Flow

Answer 32

Cash Flow from Business Operations
Cash Flow from the Business Investment actives
Cash Flow from Financing Activities (bonds, stocks)

Question 33

Pro Forma Income Statement

Answer 33

Is created by first estimating gross profit and total expenses for the coming year or years and then accounting for the amount of taxes due on the net profit. It’s a tool for planning future business operations.

Question 34

Formula to determine this savings level is:

Answer 34

Inflows − outflows (fixed, variable, and taxes) = savings level

Question 35

The three components of the cash flow statement are:

Answer 35

cash inflows;
cash outflows; and
cash surplus (savings level or discretionary income) or cash deficit