The Financial Planning Process Flashcards
Step 1 Establish Client and Planner Relationship 100-1
Mutually define the scope of the engagement:
Define the Issues and concepts
Explain my services
Explain My fees and compensation
The Duration
The Expectations of both client and planner
*Provide the Form ADV
Step 2 Gathering Client Date Including Goals 200-1 200-2
200-1
- Obtain necessary client Information through interview and questionnaire and documents
- Mutually defiant client goals, needs, & priorities
- Make sure goals are realistic and quantify in terms of measurable objectives
200-2
-Obtain or prepare financial planning statements before making any recommendations.
SMART Goals Goal is General Objective is Specific S. Specific M. Measurable A. Attainable R. Realistic T. Trackable
Step 3 Analyzing and Evaluating the Clients Financial Status 300-1
Determine current Financial Status
- Assets Liabilities, Cashflow, debt
- Capital needs
- Risk Tolerance
- Risk Management & Exposure
Analyze Special Needs
- Divorce/remarriage
- Charitable planning
- Special needs
The client is not usually involved in this process.
Step 4 Developing & Presenting Financial Pllanning Recommendations and/or Alternatives 400
400-1 Develop Client Specific Planning recommendations and/or alternatives
400-2 Depending on the scope of the engagement the presentation may include:
-Statements
-Estate tax projections and recommendations
projected capital needs
-income tax recommendations
-projections
-Projected Employee benefits
-investment plan
400-3 Revise recommendations if necessary after presentation to client (usually done in writing)
Answers to the qualitative date
Step 5 Implementing the Financial Planning Recommendations
500-1 Mutually agree on the implentation of the agreement- We don’t work outside of our own expertise. - So we must seek out extra help. We are the Quarter - We help the client make choose solutions not make them for them.
- Recommendations worthless without implementation
- Use other professionals as needed
- Practice Standards 500-1 and 500-2
Step 6 Monitoring the Financial Plan Recommenations 600-1
-Monitor soundness of
planning recommendations
• Review implemented recommendations
periodically with client
• Incorporate changes in client’s situation
• Update for tax law revisions and general
economic environment
• Return to earlier stages of process, if necessary
• Practice Standard 600-1
Quantitative Data Includes
A. Family profile B. Advisors’ names and addresses C. Assets and liabilities D. Cash inflows and outflows E. Insurance Coverages F. Employee benefits G. Tax returns H. Current investment information I. Retirement benefits J. Estate planning considerations K. Client-owned business information L. Wills and trusts M. Lifetime gifting Programs
Qualitative: Personal and Family Evaluations
A. Goals and objectives B. Health status C. Interests and hobbies D. Expectations about employment E. Risk tolerance level F. Anticipated changes in current/future lifestyle G. Other planning assumptions
2 Personal Financial Statements Are:
Statement of Financial Position - (Think Balances) Point in Time Snapshot
• Assets and liabilities
-Cash/Cash Equivalents
-Invested Assets
-Use Assets
-Liabilities
• Net Worth
Cash Flow Statement - (Think Income) Specific Period in Time
• Income and outflows (All Sources of Income)
-Interest income
Outflows:
-Savings and investments 2
-Fixed outflows
-Variable outflows
Remember:
• Financial activity may show up in various places on different financial statements.
• Pay attention to the footnotes ( Extremely Important-CFP Comprehensive Exam has Footnotes answers maybe in the footnotes)
Emergency Fund
• 3 to 6 months’ expenses should be maintained
in liquid accounts (cash/cash equivalents)
• Actual amount needed within the range varies
with these factors:
o stability of income
o number of stable income sources for the household
o length of disability elimination period and
other risk factors
o potential for financial emergencies
Appropriate Assets for Emergency Fund
- Cash/Cash Equivalents
- Money Market
- Short‐term CDs (< 90 days)
- Savings
- Checking: must reserve an amount equal to one month’s expenses*
*Footnote-Checking should have one months so don’t include in savings.
Inappropriate Assets for Emergency Fund
Inappropriate • Equities • Debt/Debt Instruments • Life Insurance Cash Value**** • Anything that creates a debt or liability
Personal Financial Statement Analysis
General categories to consider: • Emergency fund • Level of savings over past year • Level of debt o consumer/short-term o long-term • Sources of income* • Spending patterns/living within means
Debt Management Rules of Thumb
• Monthly Housing (PITI): Principle, Interest, Taxes and Insurance -no more than 28% of gross income • Total Monthly Payments: -no more than 36% of gross income • Total Consumer Debt: -no more than 20% of net income
Opportunity Funds
“opportunity funds,” which are liquid or semi-liquid accounts available for large purchases of a nonemergency nature that the client may wish to make, such as jewelry, furniture, or travel.
