Unit 1 - The Personal Financial Planning Process and Interpersonal Communication

Question 2

Describe the 6 step planning process based on the 8 job task domains.

Answer 2

Remember E-G-A-D-I-M

1. Establish and Defining the client-planner relationship
2. Gathering Information Necessary to Fulfill the engagement
3. Analyzing and Evaluating the Client’s Current Financial Status
4. Developing the recommedations
5. Communicating the Recommendations
6. Implementing the Recommedations
7. Monitoring the Recommendations
8. Practicing within Professional and Regulatory Standards

Question 3

When Does the Financial Planning engagement exist?

Answer 3

When a cetificant performs any type of mutually agreed-upon financial planning service for the client

Question 4

List the 6 main components of a sound financial plan.

Answer 4

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

**Tax planning is inherent in all six compnents of a financial plan

Question 5

Describe a financial planning practitioner.

Answer 5

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

Question 6

Describe the points involved in establishing a working relationship with the client.

Answer 6

• Fully explains the services to be provided, how he will be compensated and the source of the compensation.
• Discusses expectations regarding the roles of each party.
• clarifies how decisions will be made; and
• Discusses how long the relationship is expected to last

Question 7

Letter of engagement

Answer 7

Describes the legal relationshop between the financial planner and the client.

The CFP board requires that certain items be placed in writing and these items can be disclosed in the letter of engagement.

Question 8

Question types during the gathering and analyzing steps of the financial planning process.

Answer 8

Always ty to use Open Ended Questions. These are the questions that allow the client to answer in there own words. Cannot use Yes or No answers.

Question 9

What is Quantitative Data?

Answer 9

Data that can be measured in a quantity. Examples of quantitative data include current financial status (assets & liabilities), copies of wills and trusts. Current investments

Question 10

What is Qualitative Data?

Answer 10

Data that are concerned with the qualitiy of a clients life. Examples include financial goals and objectives, health status , and a client risk tolerance.

Question 11

Sections of the data gathering form for financial planners.

Answer 11

• Basic personal client inoformation including a list of current financial advisors.
• Detailed information about the clients assets and liabilities
• information about the clients types of insurance coverage
• income sources -personal expendittures
• financial goals and objectives
• Wills and trusts -insurance policies
• previous years income tax returns(usually no more than 3 years because fo the expiration fo applicabe statures of limitiation)
• rate of return and inflation assumptions
• potential inheritances from parents or other family members
• prior gifts made
• closely held business interents
• priorities in terms of financial goals and/or objectives.

Question 12

Financial Strengths and weaknesses

Answer 12

This is a SUBJECTIVE processs

Question 13

Financial Strengths

Answer 13

• Adequate savings
• Appropriate emergency fund
• Appropriate net worth given client goals
• WELL-DEFINED client financial goals
• excellent cash flow management skills
• Appropriate investemtns given client-risk tolerance and goals
• Appropriate risk coverage
• Valid and current estate planning documents
• employment status stable or promising

Question 14

Financial Weaknesses

Answer 14

• Inadequate savings (particularly for retirement)
• Inadequate emergency fund
• inapproriate net worth given client goals
• inarticulate client financial goals
• Poor or improper cash flow managements skills
• inappropriate investments given client risk tolerance and goals
• uncovered or inadequate amoutn of risk coverage
• lack of estate planning doucments
• unfavorable employment status

Question 15

Interpesonal Communication

Answer 15

Communcating One-on-one. The planne becomes and Advisor and Counselor during this process. This involves understanding the differences across cultures, generations, and genders.

Question 16

Active Listening

Answer 16

• Paying full attention to what the client is saying
• Respond by paraphrashing clients comments
• Leading responses Generally guide the client to give more detail so a “Meeting of the Minds” is more likely.

Question 17

Emotional Inteligence

Answer 17

• Ability to recognize expressions in oneself and the clients
• A slecion of socially appropriate responses to the circumstances and clients emotions

Question 18

Communticating Recommendation itms

Answer 18

• It is critical that the recommendations are clearly understood by the client
• From planners, clients want technical expertise and a sincere caring attitude

Question 19

Body Language

Answer 19

• Involves facial expressions, gestures and body posture
• Actually impacts how the clients receive messages more than the tone, inflection, and quality of voice or words spoken.

Question 20

Context

Answer 20

• context refers to past history or conditions that exist during the communcaion
• Planner must consider both his and clients attitudes, values, biases, and behavor.

Question 21

Communicating Recommendation Facts

Answer 21

Involves action is some or all financial areas. Financial planning team member will also assis in implementation.

Question 22

Monitoring recommendations

Answer 22

Done on an agreed upon basis

• clients circumstances may change ove time
• External conditions such as economy may change and warrant modification of the plan.

Question 23

Life Cycle Phase - Asset Accumulation Stage

Answer 23

A client is usually in this stage until approximatley age 45 or later if the clients children are not yet independent.

Question 24

Life Cycle Phase - Conservation or Protection Stage

Answer 24

A client is usually in this stage from approximatley age 45 to 60 or immediately preceding the clients planned date of retirment.

Question 25

Life Cycle Phase - Distribution or Gifting Stage

Answer 25

A clients is usually in this stage from approximatley age 60, or the planned date of retirement, until the date of death. Distribution strategies, including retirement income sources and gifting strategies, are often a primary focus of a clients estate planning.

Question 26

Musts for a CFP cetificant.

Answer 26

• Offer advce only in those areas in which he is compentent to do so
• Maintain competence in all areas in which he is engaged to provide professional services
• Consider an restrictions regarding unauthorized practce of law. (typically, only a licensed attorney may draft legal documents, such as a clients will or POA)
• Not draft legal documents or offer written legal opinion unless the CFP certificant is alos a licensed attorney.

Question 27

Clients responsibilities

Answer 27

• Provide the documentation the financil planner needs in a timely manner
• Provide Feedback that facilitates the financial planning process.

Question 28

6 Step Planning process Diagram

Answer 28