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HS 300 CFP
Financial Planning: Process and Envioronment
| Question | Answer |
|---|---|
| The Eight Planning Domains | 1) Establishing Client-Planner Relationship 2)Gathering Information 3)Analyzing and Evaluating the Client's Current Financial Status 4)Developing the Recommendations 5) Communicating the Recommendations 6) Implementation 7)Monitoring 8)Regulatory |
| SEC definition of Financial Planning | Financial planning can help assess every aspect of your financial life-including saving, investments, insurance, taxes,retirement, and estate planning. |
| The Financial Planning Association (FPA) definition of financial planning | The long-term process of wisely managing your finances so you can achieve your goals and dreams. |
| Common backgrounds of financial professionals | Traditional college track Career-changing professionals |
| Accomplishments of financial planning | Ascertaining the clients financial goals and objectives Developing a plan for achieving the clients goals and objectives |
| The three different approaches to financial planning | Single Purpose Approach, Multiple-Purpose Approach, Comprehensive Approach |
| Consumer Price Index (CPI) | The index that measures the change in consumer prices as determined by a monthly survey of the US Bureau of Labor and Statistics. It measures change in consumer purchasing power due to price inflation (deflation) a.k.a cost-of-living index. |
| Financial Life Cycle | Phases in a person's financial life: 1) Early career 2) Career development 3) Peak accumulation 4) Pre-retirement 5) Retirement Span a person's entire life. Starting at an early age. A career minded person will pass through four phases and then phase 5. |
| Life Cycle Financial Planning | A financial planning process that is ongoing and occurs throughout a clients financial life. The advisor who monitors this type of planning is practicing life cycle financial planning. |
| Interviewing | One form of structured communication. It can be defined as a process of communication, most often between two people, with a predetermined and specific purpose, usually involving the asking and answering of questions designed to gather information. |
| Direct Interview | A type of structured communication in which the interview (advisor) directs and controls the pace and content to be covered; it is a formalized, structured form of interaction. Its advantages are that it can be brief and that it provides measurable data. |
| Disadvantages of a Direct Interviewing Approach | Are that it is often inflexable and does not allow the interviewee to choose topics for discussion. |
| Financial Planning | A process that focuses on ascertaining a clients financial goals and then developing a plan to help the client achieve those goals. |
| Financial Planning Process | A six-step process financial planning. 1) Establish and define the advisor-client relationship 2) Determine goals and gather data 3) Analyze and evaluate data 4) Develop and present a plan 5) Implement the plan 6)Monitor the plan |
| Financial Risk Tolerance | A client's psychological attitude toward his or her willingness to expose financial assets to possibility of loss for the chance to achieve greater financial gain. It is measured by aggressive to conservative. |
| Fact-Finder Form | A form that needs to be completed by a financial planner engaged in financial planning for a client. It typically includes both quantitative and qualitative information that the advisor needs in order to develop a financial plan for the client. |
| Financial Plan | A plan designed to carry a client from his or her present financial position to the attainment of financial goals. Since no two clients are alike, the plan must be designed for the individual, with all the advisor's recommended strategies tailored |
| Needs, Abilities, and Financial Goals | The recommended strategies that are tailored to each clients needs during the financial planning process. |
| Single-Purpose Approach | The approach to financial planning that occurs when an advisor follows the financial planning process to develop a plan that solves a single financial problem for a client. The plan maybe as simple as selling a single financial product or service. |
| Multiple-Purpose Approach | The approach to financial planning that occurs when an advisor follows the financial planning process to develop a plan that solves two or more financial problems for a client. The plan may focus on solving several problems from the major planning areas. |
| Comprehensive Approach | The approach to financial planning that occurs when an advisor uses the financial planning process to develop a comprehensive financial plan that solves a client's financial problems. Intergrates planning strategies that help solve problems achieve goals |
| Non Direct Interview | A type of structured communication that allows both the interviewer (advisor) and interviewee (client) to discuss a wider range of subject matters; the interviewee (client) usually controls the pacing and purpose of the interview. |
| Advantages of a Non Direct Interview | Greater flexibility and more in-depth responses than with a directive interview, and a closer relationship between the interviewer (advisor) and interviewee (client) is established. |
| Disadvantages of a Non Direct Interview | Consumes more time than a directive interview, and it often provides data that are difficult to measure objectively. |
| Counseling | One form of structured communication. It provides assistance to clients as they explore their present situations, begin to understand where they are in relation to where they want to be, and act to get from where they are to where they want to be. |
| The type of relationship that evolves during the counseling process | An interpersonal relationship often develops between the counselor (advisor) and client |
| Advising | One form of structured communication. IT is defined as an expert (advisor) giving specific guidence or suggestion to a client who in turn may use this knowledge to help reach a decision. |
| Rapport | A relationship marked by harmony or accord. Rapport between a financial advisor and client can be aided by the advisor's friendly, interested, concern, an unhurried, leisurely pace, an accepting nonjudgmental attitude; attentive, active listening. |
| Social Styles | Predictable patterns of behavior that people display and that can be observed. The American population is evenly divided among four social styles: Driver, expressive, amiable,and analytical. Appropriate responses to the characteristics further the process |
| Non Verbal Behaviors | Nonlinguistic actions that make up a large part of communication. From the two main sources of nonverbal behaviors, the body and the voice, come seven important types of nonverbal signs of meaning. |
| Types of Nonverbal Signs | Body position, body movement, gestures, facial expressions, eye contact, voice tone, and voice pitch. |
| Physical Attending | 1) Face the other person squarely 2) Adopt on open posture 3) Lean toward the other person 4) Maintain good eye contact 5) Be relaxed while attending |
| Active Listening | The act of putting together a speaker's words and nonverbal behaviors to get the essence of the communication being sent. With active listening, one becomes involved in the inner world of another person while, at the same time. |
| Continuing Response | A type of understanding response associated with active listening. It is a relatively unobtrusive response that encourages a speaker to continue talking. Examples include "uh-huh" "mmm" "then?" and ...?" They communicate to the speaker Go on. |
| Domain One | Establishing and defining the client Planner Relationship (First Meeting) Planner outlines the responsibilities of both they and the client. Planner discloses the length & Scope of the relationship & planner compensation. |
| Domain Two | Gathering Information Necessary to fulfill the engagement gather broad & specific goals and objectives and client data. Determine risk tolerance collect tax returns, wills, trusts, account statements and pay stubs. |
| Domain Three | Analyzing and Evaluating the clients current financial status (Back stage) the is analyzed used to meet goals. Planners without expertise may utilize team members. |
| Domain Four | Developing the recommendations (Second Meeting) Recommendations are based on the evaluation of the data collected. Alternatives are presented additional fact finding and discovery on the part of the planner is needed. |
| Domain Five | Communicating the recommendations - Recommendations are explained so the client understands. Client accepts or rejects recommendations. Phone virtual and live are accepted forms. Care needs to taken with elderly or the mentally deficient. |
| Domain Six | Client agrees planner outlines how implementation will occur. If additional compensation is needed, either the client or planner can implement the plan. Conflict must be disclosed. |
| Domain Seven | Monitoring the Recommendation Client and planner need to determine frequency. Planners have an obligation of following up and updating the plan. Monitoring maybe time weighted, monthly or annually. Or a strategic basis. |
| Two types of Monitoring | Time weighted ( Monthly, Quarterly, bi-annual, Annual) Strategic Basis (When asset allocations become misaligned. |
| Domain Eight | Practicing within professional and regulatory standards - Planners, insurance agents, stock brokers, follow all regulatory environments and compliance. |
| FVSS (Future Value Single Sum) If you invest $150 today and earn 8 percent compounded annually, what will it be worth in 6 years? | 150 +/-, PV; 8, I/YR; 6, N; FV, Answer: 238.03 |
| PVSS (Present Value Single Sum) How much do you need to invest today to accumulate $5,000 in 5 years, if you can earn 10% annually? | 5,000 FV, 5 N, 10 I/YR, PV Answer: 3,104.61 |
| I (Interest) If 6 years ago you invested $8,000 and it has grown to $20,000, what rate of return have you earned? | 8,000 +/- PV, 6 N, 20,000 FV, I/YR Answer: 16.50 Interest rate |
| N (Number of Years) If you invest $500 today at 10% annually, how many years will it take to grow to $800? | 500 +/- PV, 10 I/Y, 800 FV, N Answer: 4.93 |
| FVA (Future Value Annuity) If you invest $100 at year-end for each of the next 5 years, how much will you have at the end of the fifth year if you earn 8 percent annually? | (End/ Begin) if calculator states begin, 100 +/- PMT, 5 N, 8 I/Y, FV Answer: $586.66 |
| PMT (Payment) If 6 years from now you need to have $10,000 and can earn 9 percent annually, what size year-end annual payments will accomplish your goal? | Shift Beg/End (if calculator states Beg) 6 N, +/I 10,000 FV, 9 I/Y, PMT Answer: 1,329.20 |
| I (Interest) You need to accumulate $1,000 in 5 years. If you can afford to invest $150 at the end of each year, what rate of return will be required to reach your goal? | Shift Beg/End (If calculator denotes BEG) +/I 150 PMT, 1000 FV, 5 N, I/Y, Answer: 14.43% interest |
| N (Period) Evelyn will begin receiving payments of $2,000 per year beginning one year from now. If she invests the money at a 12% return, how long will it take for her accumulate $15,000? | 2,000 +/- PMT, 12 I/Y, 15,000 FV, N, Answer: 5.66 years |
| PVA (Present Value Annuity) If you can afford to make loan payments of $100 at the end of each of the next 5 years, how much can you borrow today if the interest rate is 10%? | Beg/End (if calculator denotes Beg) 100 +/- PMT, 5 N, 10 I/Y, PV Answer: 379.08 |
| PMT (Payment) If you can borrow $20,000 today at a rate of 7 percent for 6 years, how much will your annual payments be? | 20,000 +/- PV, 7 I/Y, 6 N, PMT Answer: 4,195.92 |
| Interest (I) A $50,000 business loan requires payments of $12,000 per year for 5 years. What is the interest rate on the loan? | Shift Beg/End (if beg is displayed) 50,000 +/- PV, 12,000 PMT, and 5 N, I /YR Answer: 6.40 Interest rate |
| N (Number of periods) Jack needs to borrow $10,000 and can make payments of $2,000 per year. If the interest rate is 11%, how long will it take to pay off the loan? | BEG/END (if beg is displayed) 10,000 +/- PV, 2000 +/- PMT, 11 I/YR, N, Answer: 7.65 |
| FVAD (Future Value of Annuity Due) If you invest $100 at the beginning of each of the next 5 years starting today, how much will it be worth at the end of 5 years at a rate of 8%? | Beg/End (Make sure BEG is denoted) 100 +/- PMT, 5 N, 8 I/YR, FV, Answer: 633.59 |
| PMT (Payment) If you want to accumulate $10,000 in 6 years and want to make equal payments at the beginning of each of those years, how large must the payments be if the rate is 6 percent? | BEG/END (Make sure calculator denotes BEG) 10,000 +/- FV, 6 N, 6 I/YR, PMT, Answer: 1352.48 |
| I (Interest) You plan to invest $1,000 at the beginning of each of the next 4 years. IF you want to accumulate $6,000 by the end of the fourth year, what rate must you earn? | BEG/END (if BEG is not denoted on the calculator) 1,000 +/- PMT, 4 N, 6000 FV, I/Y, Answer: 16.90 |
| N (Number of Periods) Fran is starting a savings program. She will deposit $1,000 annually with the first payment made today. If she earns 10 percent, how long will it take to accumulate $7,000? | BEG/END (If BEG is not selected) 1000 +/- PMT, 10 I/YR, 7000 FV, N, Answer: 5.17 |
| N (Number of Periods) Jack needs to borrow $10,000 and can make payments of $2000 per year. If the interest rate is 11 %, how long will it take to pay off the loan? | BEG/END (Make sure BEG is not denoted) 10,000 +/- PV, 2000 PMT, 11 I/YR, N, Answer: 7.65 |
| FVAD (Future Value of Annuity Due) If you invest $100 at the beginning of each of the next 5 years starting today; how much will it be worth at the end of 5 years at a rate of 8 percent? | BEG/END (Make sure BEG is selected) -100 PMT, 5 N, 8 I/YR, FV, Answer: 633.59 |
| PMT (Payment) If you want to accumulate $10,000 in 6 years and want to make equal payments at the beginning of each of those years, how large must the payments be if the rate is 6 percent? | BEG/END (Make sure BEG is denoted) 10000 +/- FV, 6 N, 6 I/YR, PMT Answer: 1352.48 |
| I (Interest) You plan to invest $1,000 at the beginning of each of the next 4 years. If you want to accumulate $6,000 by the end of the fourth year, what rate must you earn? | BEG/END (Make sure BEG is denoted) 1,000 +/- PMT, 4 N, 6,000 FV, I/YR, Answer: 16.90 |
| N (Net Period) Fran is starting a savings program. She will deposit $1,000 annually with the first payment made today. If she earns 10 percent, how long will it take to accumulate $7,000? | BEG/END (If BEG is not displayed) 1000 +/- PMT, 10 I/YR, 7000 FV, N, Answer: 5.17 |
| PVAD A manufacturer offers you six payments 0f $800 per year for rights to your invention. Using a 7 percent discount rate with the payment due immediately, how much cash would you accept right now in lieu of the annual payments? | BEG/END (BEG should be displayed) 800 +/- PMT, 6 N, 7 I/YR, PV, Answer: 4,080.16 |
| PMT (Payment due) A prospect says she buy your business for $100,000, but wants to pay in five equal annual installments. If the first payment is made today and you require a 12 percent return for financing the sale, what will the payments be? | BEG/END (BEG needs to be displayed) 100,000 +/- PV, 12 I/YR, 5 N, PMT, Answer: 24,768.73 |
| I (Interest) Sally is offered $8,000 for her invention. As an alternative, she can receive six annual payments of $1,500 with the first payment made today. If she accepts the annual payments, what is the implied interest rate? | BEG/END (Make sure BEG is displayed today is synonyms with beginning) 8,000 +/- PV, 6 N, 1500 PMT, I/YR, Answer: 4.97 |
| N Gary is offered $10,000 for his financial planning practice. Instead he asks for $2,500 per year for the rest of his life, with the first payment due today. How long would Gary have to live for the annual payments to equate to a 12 percent return? | BEG/END (make sure BEG is displayed) 10,000 PV, 2500 +/- PMT, 12 I/Y, N, Answer: 4.94 years |
| Setting number of decimal places to be displayed: | Shift key, DISP, desired number of decimal places |
| Setting number of payment periods/compounding periods per year to one if both are the same: | 1, Shift key, P/YR, C; to check current setting, press shift and hold down C ALL key |
| Finding Future Value of Single Sum | FVSS: Amount of present value, +/-, PV, Number of Periods, N; periodic interest rate I/YR; FV |
| Finding N (Number of Periods) | Amount of present value +/-, PV; amount of future value, FV, Periodic interest rate, I/YR; N |
| Finding I/YR (periodic interest rate) | Amount of present value +/-, PV; amount future value, FV number of periods, N I/YR |
Created by:
chad1475