CFP exam 2022/2023 well answered

Topic 1: Financial Planning Process ... 6 step process: EGADIM 1. Establish Relationship 2. Gather Information 3. Analyze data 4. Develop plan 5. Implement 6. Monitor 00:05 01:36 Step 1: Establish Relationship • Services that will be provided • compensation/billing • Responsibilities of both client/planner • Time frame of relationship Step 2: Gather quantitative and qualitative data • It is important that goals be defined before any recommendations • A goal should be specific, prioritized and quantified • Fact finder form Step 3: Analyze data • Identify strengths and weaknesses • Analysis of current position • Should be based on realistic assumptions Step 4: Develop Plan • Objective • Should be presented to client • Mutually decide on revisions • Prioritized list of implementation steps and timing Step 5: Implement • Work closely with other professional team members • Help client with product acquisitions Step 6: Monitor • Fed tax changes • Economic changes • Modifications to plan Topic 2: Code of Ethics & Professional Responsibility + Disciplinary Rules Procedures ... Aspirational Principles • Integrity • Objectivity • Competence • Fairness • Confidentiality • Professionalism • Diligence Confidential Information can be disclosed only when... • The client consents • Court ordered • CFP must defend accusations • Civil suit between client and CFP CFP Board of Professional Review • Inquiry Panel - grounds for discipline • The Hearing Panel - Recommendation to board • Board of Appeal - w/in 30 days Topic 3: Financial Planning Practice Standards ... Purpose of practice standards • To ensure professionals follow agreed upon norms • To advance professionalism • To enhance value of planning process 100-1: Defining Scope of the Engagement • Mutually define scope of engagement • Identify services to be provided • Disclose conflicts of interest • Compensation agreement • Responsibilities of each party • Duration 200-1: Determining a Clients Personal and Financial Goals, Needs, and Priorities • Mutually define personal and financial goals • Explore clients values, attitudes, expectations, and time horizons • Subjective to practitioner 200-2: Obtaining quantitative Information and Documents • Interviews, questionnaires, client records and documents • Mutually define clients relevant goals, needs, and priorities • Objectives should be precise and measurable • Obtain sufficient relevant, quantitative information and documents 300-1: Analyzing and Evaluating the Clients Information • Personal assumptions need to be made regarding: retirement age, life expectancy, income needs, risk factors, time horizons and special needs • Economic assumptions need to be made regarding: inflation rates, tax rates, and investment returns 400-1: Identifying and Evaluating Financial Planning Alternatives • What is possible? • What other actions can be taken other than one currently using • May involve consulting other professionals 400-2: Developing the Financial Planning Recommendations • What is recommended? • What strategy will best suit meeting clients goals considering alternatives 400-3: Presenting the Financial Planning Recommendations • How to present? • Should present in manner to help client make informed decision • Should communicate factors: assumptions, interdependence of recommendations, advantages & disadvantages, risks, time sensitivity 500-1: Agreeing on Implementation Responsibilities • Should mutually decide how to split up responsibilities 500-2: Selecting Products and Services for Implementation • Practitioner uses professional judgement in selecting the products and services that the of clients interest • Professional judgement incorporates both qualitative and quantitative information 600-1: Defining Monitoring Responsibilities • What is to be monitored? • Frequency of monitoring • Communication method Topic 4: Financial Statements ... Personal statements • Statement of financial position (balance sheet) • Cash budget (statement of cash flow) Business statements • Balance sheet • Income statement • Statement of cash flows • Pro forma statements Statement of Financial Position • Assets=liabilities+Net worth • Assets should be distinguished from items of income • Assets and net worth increase through appreciations in the value of assets • Paying off liabilities with cash does not increase net worth because assets decline by an equal amount • Buying an asset does not decrease net worth because assets increase by the value of the asset purchased • Assets should be shown at FMV • Assets are categorized as cash and cash equivalent, invested assets, and use assets • Footnotes are important for clarity • Part of FP job is to help client increase net worth • LIKE A SNAPSHOT IN TIME Statement of Cash Flows • Total inflows always equal outflows • Outflows include spending and savings • Cash flow is increased by selling non-income producing assets and by buying income-producing assets • Free cash flow will increase when debt payments are eliminated: paying off debt • Outflows are usually categorized as fixed or variable