[h] HS300 – Module 1
[q] Financial Planning
[a] The process of identifying financial goals and developing appropriate recommendations.
[q] Financial Planning Process
[a] The seven-step process that is outlined in the CFP Board’s Code of Ethics and Standards of Conduct.
[q] Steps of the Financial Planning Process
[q] Understanding the Client’s Personal and Financial Circumstances
[a] The first step of the financial planning process. In this step, the planner gathers client data.
[q] Identifying and Selecting Goals
[a] The second step of the financial planning process. In this step, the planner helps the client explore potential goals and determine how goals impact each other.
[q] Analyzing the Client’s Current Course of Action and Potential Alternative Course(s) of Action
[a] The third step of the financial planning process. In this step, the planner determines if the client is on pace to meet goals, and determines actions that could improve the current situation.
[q] Developing Financial Planning Recommendation(s)
[a] The fourth step of the financial planning process. In this step, the planner identifies and considers alternative strategies for meeting the client’s goals.
[q] Presenting Financial Planning Recommendation(s)
[a] The fifth step of the financial planning process. In this step, the planner communicates recommendations to the client. The planner must ensure the client understands the recommendations.
[q] Implementing Financial Planning Recommendation(s)
[a] The sixth step of the financial planning process. In this step, the planner works with the client to implement the financial plan. This step typically involves the purchase of financial products.
[q] Monitoring Progress and Updating
[a] The seventh and final step of the financial planning process. In this step, the planner updates client goals and potentially provides additional recommendations.
[q] Keys to Establishing a Relationship
Respecting the client’s time.
[q] Goals of an Introductory Meeting
List information the client must provide.
Assist client with establishing goals.
Discuss client values and how they fit into client goals.
Establish communication plan.
Discuss planning process and fees.
Provide relevant and required disclosures.
Answer client questions.
[q] Engagement Letter
[a] A legal agreement that is prepared by the advisor and should be signed by both the advisor and the client before proceeding. Agreement contains:
Parties involved in the engagement.
Services to be provided.
Conflicts of interest.
Advisor’s fees, costs, and other compensation arrangements.
Client’s and advisor’s responsibilities.
Duration of engagement.
[q] Quantitative Data
[a] Internal data gathered from a client that is verifiable and free from bias. Includes family information, such as names and ages of family members, as well as financial information, such as annual income.
[q] Qualitative Data
[a] Internal data gathered from a client that is descriptive and can be observed. Includes education, employment, and retirement goals.
[q] Investment Adviser Assets Under Management (AUM) Thresholds
[a] <$100 million – register with state.
Between $100 million and $110 million – can choose the register with SEC or state.
>=$110 million – register with SEC.
[q] Certified Financial Planner™
[a] The oldest and best-known financial planning certification. Overseen by the CFP Board.
[q] Chartered Financial Consultant
[a] A designation conferred and overseen by the American College.
[q] Duty of Fair Dealing
[a] A duty that requires broker-dealers to:
Provide suitable recommendations to customers.
Receive fair and reasonable compensation
[q] Suitability Standard
[a] A standard that broker-dealers are held to.
[q] Reasonable Basis Suitability
[a] A type of suitability standard that requires a broker-dealer to ensure that he or she has an adequate and reasonable understanding of an investment before recommending it to customers.
[q] Customer-Specific Suitability
[a] A type of suitability standard that requires a member to have a reasonable basis to believe that a recommendation is suitable for a particular customer.
[q] Quantitative suitability
[a] A type of suitability standard that requires a member to have a reasonable basis for believing that a series of recommended transactions are not unsuitable when taken together in light of the client’s investment profile.
[q] Fiduciary Standard
[a] A standard imposed on Investment Advisers. Requires a Duty of Care and a Duty of Loyalty.
[q] Duty of Care
[a] A fiduciary standard that requires an advisor to:
Make a reasonable inquiry into a client’s investment profile before providing advice.
Exercise due diligence.
Provide advice and monitoring over the course of the relationship.
[q] Duty of Loyalty
[a] A fiduciary standard that requires an advisor to:
Act in the client’s best interest at all times.
Seek to avoid conflicts of interest.
[q] Benefits of Working With a Financial Planner
[a] Working with a financial planner can:
Empower clients with knowledge and skills.
Bring objectivity to the financial plan.
Increase client’s confidence with making financial decisions.
[q] Benefits From Financial Planning
[a] Benefits from financial planning:
Cash flow management – planners help clients increase income and decrease expenses.
Well-being – a better financial position increases clients’ happiness and well-being.
[q] Benefits of the Financial Planning Process
[a] The financial planning process helps planners:
Establish and prioritize goals.
Anticipate where financial needs exist and where new risks may arise.
Keep the client focused.
Provide confidence that the client can accomplish their financial goals.