Use of Payment in Begin Mode
College Tuition Paid (Pay me now)
Retirement Benefits Received (pay me now)
Family Needs (Pay me now)
- client invests (negative) 1000 at the beginning of each of the next three years
Use of Payment in End Mode
401k Deferrals
Profit Sharing Contributions
Bond Interest Paid
Mortgage Payments
- client expects to receive (positive) annuity payments at the END of each of the next three years
*
Financial Planning Process (7 Steps)
Unicorns (Understand)
Go (gather info and identify goals)
All (analyze current course)
Day (Develop recommendations)
Prancing (present)
In (implement)
May (monitor)
1.) Understanding the Clients Personal Goals and Objectives
- Discuss needs
- Understand family, business, orgs
- Discuss process
- Define and document Scope of engagement
- set/communicate ability to meet those needs
- discuss both responsibilities
- provide client disclosures - regulatory and compensation
1.2) Gathering Information
- identify values and attitudes
- level of knowledge for client/risk exposures
- Gather summary of data: assets, liabilities, beneficiaries, income/expenses, documents, gov benefits, etc.
- Identifying and Selecting Goals
- ID goals that are mutually agreeable
- prioritize goals
- quantify in time horizon and dollars
- educate realistic or not
- Analyzing the Clients Current Course of Action and Potential Alternative Courses of Action
- Evaluate and document strengths and weaknesses of current”
financial status
risk management/insurance needs
beenfits
Investments
taxes
retirement
estate planning
business ownership
Education Planning
other considerations: spec. circumstances - divorce, disabilities, inheritances, windfalls, charitable gift planning, eldercare
ID proper financial planning software.
- Developing the Financial Planning Recommendations
- Synthesize conclusions from analysis of current financial status
- consider alternative to meet clients goals
- consult with other professionals as needed
- develop recommendations - consider goals, priorities, attitudes, behavioral finance issues, consider how certain changes may impact, document recommendations.
- Presenting the Financial Planning Recommendations
- present and educate
- review client goals, revisit assumptions, share observations, compare alternatives, explain reasoning, obtain feedback, provide documentation, verify client acceptance.
- Implementing the Financial Planning Recommendations
- Create prioritized implementation plan with timeline
- assign responsibilities, support client directly or indirectly with mechanics,
- coordinate and share info with others as authorized
- define monitoring responsibilities,
- Monitoring Progress and Updating
- discuss and eval changes to circumstances,
- review performance
- review changes to legal, tax, economic environment
- make accommodative changes to rec’s
- provide on going support.
Professional & Regulatory Standards
Code of ethics
Professional Responsibility
Rules of Conduct
Understand Disciplinary Rules and Procedures
Financial Planning Practice Standards
Document, monitor client noncompliance with recommendations
Code of Conduct (6)
Honestly, Integrity, competence, diligence (4)
clients best interests
exercise due care
avoid or disclose conflicts
maintain confidentiality
act in manner that reflects positively on profession and CFP®
Standards of Conduct (Duties owed to Clients)
Fiduciary Standard
Duty Loyalty - client interests first & balance conflicts
Duty Care - act with skill, prudence, diligence
Follow Client Instructions - comply with client instructions, objectives
Integrity Standard
Honesty
Disclose any current suspensions that are active during suspension
Do not make untrue statements
do not deceive or defraud
do not omit material facts in order to mislead
do not encourage any business act that would operate as a fraud or deceit upon anyone
When looking at the preponderance of evidence.
Breach of reasonable compensation… in the eyes of a reasonable person … was this investment choice… The BEST option for the clients stated goals… or was it in fact the commission which tipped the scales in favor of a less optimal investment choice for the client.
On a scale of probabilities… a reasonable person would evaluate the alternatives available to the advisor and render judgement on whether it was in fact the best choice… or was there incentive structure to the benefit of the advisor… that tipped the scale in favor of a less optimal choice for the client.
Diligence Standard
Provide services in professional manor
respond to reasonable client inquires in a timely manner
Competence Standard
Obtain assistance of others
refer client to other professionals
limit or terminate the engagement
Qualitative
attitudes and beliefs
Goals
expectations
Priorities
risk tolerance
health PRESUMPTIONS
life expentancy PRESUMPTIONS
Family circumstances
ethical and religious values
Current financial planning actions
Quantitative
of dependents
Facts:
age
other professional advisor, lawyers, tax accountants
income & expenses
assets/liabilities
savings
available resources
investment accounts
RISK CAPACITY - level of risk necessary to accomplish goals
government benefits
employee benefits
amount and allocation of retirement accounts
tax exposures
insurance coverages and ownership
estate plans
