The financial planning process, client relationship rules, and risk management concepts tested on the CFP exam.
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- What is the financial planning process?
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A systematic approach to help clients achieve financial goals through analysis, recommendations, and ongoing monitoring.- Name the six steps of the financial planning process in order.
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1) Establish client relationship, 2) Gather client data, 3) Analyze financial position, 4) Develop recommendations, 5) Implement recommendations, 6) Monitor and review.- What must be established before gathering any client financial data?
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The planner-client relationship, including an engagement letter, scope of services, fees, and confidentiality terms.- What three categories of information does a planner gather during the data-gathering phase?
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Personal and family background, financial information, and goals and priorities.- What is an Individual Policy Statement (IPS)?
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A written document outlining the client's financial goals, risk tolerance, investment constraints, and policy guidelines for the financial plan.- Distinguish between a financial goal and a financial objective.
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A goal is a broad aspiration (retire comfortably); an objective is a specific, measurable target (accumulate $1M by age 65).- What is the purpose of the analysis phase in financial planning?
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To assess the client's current financial position, evaluate progress toward goals, and identify gaps or opportunities.- What should the recommendations phase of a financial plan include?
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Specific, actionable strategies prioritized by urgency, with rationale and expected outcomes tied to client goals.- What is the planner's role during the implementation phase?
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To coordinate with other professionals, provide the client with action steps, and monitor progress toward implementation.- How often should a planner review a client's financial plan at minimum?
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At least annually, or whenever a material change in client circumstances occurs.- What is a financial position statement?
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A snapshot of a client's assets, liabilities, and net worth at a specific point in time, serving as the foundation for financial analysis.- Name three methods a planner uses to gather client data.
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Client questionnaires, personal interviews, financial documents review, and third-party sources.- Define a fiduciary duty in financial planning.
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The legal obligation to act in the client's best interest, place client interests above the planner's own, and disclose conflicts of interest.- What is the scope of an engagement letter?
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A document specifying the services to be provided, fees, duration, client responsibilities, and limitations of the relationship.- How must a planner handle a material conflict of interest?
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The conflict must be disclosed in writing to the client, and the client must consent in writing before proceeding.
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