Describe personal financial planning and the aspects of it. (LO 1-1)
It is personal and individual.
Defined by CFP Board as “a collaborative process that helps maximize a client’s potential for meeting life goals through financial advice that ingrates relevant elements of the client’s personal and financial circumstances.”
Can also be described as a coordinated, continuous process of working with a client to set and achieve goals that are subject to review and modification as personal and professional objectives, family and business circumstances, and economic condition changes.
Should be viewed as a coordinated, integrated, ongoing, and dynamic process of managing an individual’s financial resources.
Determine the seven steps in the personal financial planning process. (LO 1-3)
1) understand the client’s personal and financial circumstances
2) identify and select goals
3) analyze the client’s current course of action and potential alternate course(s) of action
4) develop financial planning recommendations
5) present the financial plan recommendations
6) implement the financial plan recommendations
7) monitor progress and update as needed
What are some areas of financial planning?
Developing goals Cash management Debt management Risk management planning Insurance planning Educational needs Group benefit planning Investment planning Retirement planning Income tax planning Charitable giving Estate planning
Describe differences between comprehensive and targeted financial planning
A comprehensive plan covers all aspects of a person’s financial situation - including consideration of risk management, investment planning, tax planning, retirement planning, and estate planning.
A targeted plan typically addresses only a segment of an individual’s objectives - such as trying to buy a first home, caring for an elderly parent, or reducing a tax burden.
What are the steps to setting a financial goal?
PTA - purpose, time frame, and amount
1) the potential goals should be identified by the client - we need to learn how to help people identify their hopes and dreams and turn them into clearly statement, realistic, achievable goals. Double check and verify a client’s level of understanding of their stated objectives
2) a time frame has to be established
3) the goal should be stated in quantifiable terms as far as amount (how much and beginning when) so it can be measured, assessed, and also monitored on the path to its realization.
Best practices when approaching financial planning
- set measurable goals
- understand the effect your financial decisions have on other financial issues
- reevaluate your financial plan periodically
- start now, don’t assume financial planning is for when you get older
- start with what you’ve got, don’t assume financial planning is only for the wealthy
- take charge, you are in control of the financial planning engagement
- look at the big picture, financial planning is more than just retirement planning or tax planning
- don’t confuse financial planning with investing
- don’t expect unrealistic returns on investments
- don’t wait until a money crisis to begin financial planning
What is included in “defining the engagement”
- identify the service to be provided and those that will be excluded
- disclosing the planner’s compensation arrangement, including potential conflicts of interest
- determine the responsibilities of both planner and client
- establish the duration of the engagement
- provide any additional information necessary to determine, define, or limit the scope of engagement
Describe the two types of information that must be gathered in order to properly assess a client’s situation
1) Qualitative information (lifestyle) - determine the client’s personal and financial goals, needs and priorities
- Understand a client’s values, attitudes, priorities, expectations, and time horizons as they relate to the client’s goals. Is dependent on client being honest and accurate
2) Quantitative information (names & numbers) - what documents are necessary and relevant.
- Documents that shed light on a client’s financial resources, obligations, and personal situation - such as bank statements, tax returns, insurance policies, retirement account statements, etc..
What are the fundamental topic areas in the financial planning process?
- Cash management
- Investment planning
- Retirement planning
- Tax planning
- Insurance planning
- Estate planning
What are the fundamental topic areas in the financial planning process and what might each area include?
- Cash management: identify personal income from all sources, identify fixed expenses, identify variable expenses, identify safe and convenient investment vehicles in which to place liquidity, identify types of debt and assess if too much debt is being incurred (debt ratios), take into account any discretionary income after expenses or shortfalls of income, decide what can be adjusted to better allocate resources
- Investment planning: assist with establishing an IPS, determine investment objectives (save for retirement, plan a vacation, purchase a house, tuition), determine time frames involved, identify existing investments, identify types and degrees of risk for individual investments, compare current portfolio risk / return level with desired risk / return level, determine amounts available for investment
- Retirement planning: determine desired retirement income objective, establish desired retirement age and whether early retirement penalties may be involved, identify all current or previous sources of retirement income, determine the matching and vesting provisions for employer-sponsored plans, determine legal imitations for tax-qualified investing, determine if the client meets qualifications and income phaseout limitations for contributing to an IRA, are there any other general investment constraints, will there be an eventual inheritance
- Tax planning: learn about the client’s current income tax situation, discuss any potential changes that might have an effect on their tax situation, identify areas the might be changed to lower income tax burden, identify special income tax situations
- Insurance planning: identify potential areas of risk (income loss due to disability, death, divorce; medical expenses; loss to property; personal liability), determine appropriate risk management techniques (retention, avoidance, reduction, transfer), list existing insurance coverage, review current policies (homeowners, auto, life, health, disability coverage)
- Estate planning: determine the size of the estate, what state laws apply, how do clients want the estate to be distributed, identify the living issues (control of assets, gifting, planning for incapacity, income needs), determine what’s already been done and are there any legal constraints, identify and obtain titles to currently owned property, confirm beneficiaries named are consistent with the client’s wishes, determine whether there is property that is specifically desired to pass through the probate court system
Define the Standards of Professional Conduct
1) Fiduciary Duty
2) Integrity
3) Competence
4) Diligence
5) Professionalism
6) Confidentiality
What are the five major responsibilities of a fiduciary?
1) to put the client’s interests first
2) to act with utmost good faith
3) to provide full and adequate disclosure of all material facts
4) not to mislead clients
5) to expose all conflicts of interest to clients
What are the 6 standards of professional conduct?
1) Fiduciary Duty
2) Integrity
3) Competence
4) Diligence
5) Professionalism
6) Confidentiality
Define “fiduciary duty” from the standards of professional conduct.
At all times when providing financial advice to a client act as a fiduciary. This includes a duty of loyalty that involves placing the best interests of the client above your interests or your firm’s interests and avoiding conflicts of interest.
Define “integrity” from the standards of professional conduct.
Provide professional services with integrity, honor, fairness, and dignity and maintain client trust and confidence.
Define “competence” from the standards of professional conduct.
Maintain an adequate level of knowledge and skill and effectively apply that knowledge while recognizing its limitations.
Define “diligence” from the standards of professional conduct.
Respond to reasonable client inquiries in a timely manner.
Define “professionalism” from the standards of professional conduct.
Comply with all laws and regulations as required and applicable, refraining from actions that bring dishonor to you or your profession.
Define “confidentiality” from the standards of professional conduct.
Keep client information confidential, disclosing only when authorized or compelled by law.
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Module 1 - The Financial Planning Process19
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Module 2 - Business Ownership, Cash Management and the Use of Debt58
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Module 1 - Quiz44
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Calculator33
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Module 3 - Time Value of Money13
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Module 3 - Quiz32
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Module 2 - Quiz41
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Module 4 - Insurance Basics and Property Insurance62
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Module 4 - Quiz54
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Module 5 - Life and Health Insurance87
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Module 6 - Investment Basics and Strategies79
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Module 6 - Quiz44
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Module 5 - Quiz51
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Module 7 - Retirement Planning62
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Module 7 - Quiz41
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Module 8 - Tax Implications of Financial Decisions37
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Module 8 - Quiz41
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Module 9 - Estate Planning Basics1
