FP511 General Financial Planning
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Principles exam with correct answers
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List |the |seven |steps |of |the |financial |planning |process |- |correct |answer |Understand, |Identify, |
Analyze, |Develop, |Present, |Implement, |Monitor
qualitative |information |- |correct |answer |subjective |information, |includes |the |client's |health, |
life |expectancy, |family |circumstances, |values, |attitudes, |expectations, |earnings |potential, |risk |
tolerance, |goals, |needs, |priorities)
quantitative |information |- |correct |answer |objective |information, |includes |the |client's |age, |
dependents, |other |professional |advisors, |income, |expenses, |cash |flow, |savings, |assets, |
liabilities, |available |resources, |liquidity, |taxes, |estate |plans, |insurance |coverage, |and |capacity |
for |risk
quantitative |data |- |correct |answer |measurable |or |expressed |as |a |quantity |or |number
qualitative |data |- |correct |answer |related |to |the |subjective |quality |of |a |client's |life
personal |assumptions |- |correct |answer |based |on |client-related |variables, |such |as |retirement |
age, |life |expectancy, |income |needs, |risk |factors, |time |horizon, |and |special |needs
economic |assumptions |- |correct |answer |based |on |economic-based |data |or |performance, |such |
as |inflation |rates |and |investment |returns
two |statements |used |most |frequently |by |planners |- |correct |answer |(1) |statement |of |financial |
position
(2) |cash |flow |statement
, asset |accumulation |phase |- |correct |answer |client |is |usually |in |this |phase |until |approximately |
age |45 |or |later |if |the |client's |children |are |not |yet |independent. |As |the |person |moves |through |
this |phase, |there |is |increased |cash |available |for |investments, |reduced |use |of |debt |as |a |
percentage |of |total |assets, |and |increased |net |worth
conservation/protection |phase |- |correct |answer |client |is |usually |in |this |phase |from |
approximately |age |45-60 |or |immediately |preceding |the |client's |planned |retirement |date. |
Characterized |by |increases |to |cash |flow, |assets, |and |net |worth |with |decreases |in |proportionate
|use |of |debt. |Goal |is |to |focus |on |long-term |investing |for |retirement
distribution/gifting |phase |- |correct |answer |client |is |usually |in |this |phase |from |approximately |
age |60/planned |retirement |date |until |the |date |of |death. |Characterized |by |distribution |
strategies, |implementation |of |estate |planning |strategies, |high |net |worth, |low |debt
behavioral |finance |- |correct |answer |field |of |study |that |relates |behavioral |and |cognitive |
psychology |to |financial |planning |and |economics |in |an |attempt |to |understand |why |people |act |
irrationally |during |the |financial |decision-making |process
cognitive |errors |- |correct |answer |decision-making |based |on |well-known |concepts |that |may |or |
may |not |be |correct
emotional |biases |- |correct |answer |often |occur |impulsively |based |on |the |feelings |of |the |
individual |when |a |choice |is |made
illusion |of |control |bias |- |correct |answer |a |cognitive |error |that |exists |when |clients |believe |they |
can |control |or |affect |outcomes |of, |say, |the |market |when |they |cannot, |often |associated |with |
overconfidence |bias
money |illusion |- |correct |answer |a |cognitive |error |that |is |the |misunderstanding |people |have |in |
relating |nominal |rates |or |prices |with |real |(inflation-adjusted) |rates |or |prices. |People |tend |to |
think |that |one |dollar |has |the |same |value |today, |tomorrow, |and |into |the |future |without |
considering |inflation
|| | | |
Principles exam with correct answers
| | | |
List |the |seven |steps |of |the |financial |planning |process |- |correct |answer |Understand, |Identify, |
Analyze, |Develop, |Present, |Implement, |Monitor
qualitative |information |- |correct |answer |subjective |information, |includes |the |client's |health, |
life |expectancy, |family |circumstances, |values, |attitudes, |expectations, |earnings |potential, |risk |
tolerance, |goals, |needs, |priorities)
quantitative |information |- |correct |answer |objective |information, |includes |the |client's |age, |
dependents, |other |professional |advisors, |income, |expenses, |cash |flow, |savings, |assets, |
liabilities, |available |resources, |liquidity, |taxes, |estate |plans, |insurance |coverage, |and |capacity |
for |risk
quantitative |data |- |correct |answer |measurable |or |expressed |as |a |quantity |or |number
qualitative |data |- |correct |answer |related |to |the |subjective |quality |of |a |client's |life
personal |assumptions |- |correct |answer |based |on |client-related |variables, |such |as |retirement |
age, |life |expectancy, |income |needs, |risk |factors, |time |horizon, |and |special |needs
economic |assumptions |- |correct |answer |based |on |economic-based |data |or |performance, |such |
as |inflation |rates |and |investment |returns
two |statements |used |most |frequently |by |planners |- |correct |answer |(1) |statement |of |financial |
position
(2) |cash |flow |statement
, asset |accumulation |phase |- |correct |answer |client |is |usually |in |this |phase |until |approximately |
age |45 |or |later |if |the |client's |children |are |not |yet |independent. |As |the |person |moves |through |
this |phase, |there |is |increased |cash |available |for |investments, |reduced |use |of |debt |as |a |
percentage |of |total |assets, |and |increased |net |worth
conservation/protection |phase |- |correct |answer |client |is |usually |in |this |phase |from |
approximately |age |45-60 |or |immediately |preceding |the |client's |planned |retirement |date. |
Characterized |by |increases |to |cash |flow, |assets, |and |net |worth |with |decreases |in |proportionate
|use |of |debt. |Goal |is |to |focus |on |long-term |investing |for |retirement
distribution/gifting |phase |- |correct |answer |client |is |usually |in |this |phase |from |approximately |
age |60/planned |retirement |date |until |the |date |of |death. |Characterized |by |distribution |
strategies, |implementation |of |estate |planning |strategies, |high |net |worth, |low |debt
behavioral |finance |- |correct |answer |field |of |study |that |relates |behavioral |and |cognitive |
psychology |to |financial |planning |and |economics |in |an |attempt |to |understand |why |people |act |
irrationally |during |the |financial |decision-making |process
cognitive |errors |- |correct |answer |decision-making |based |on |well-known |concepts |that |may |or |
may |not |be |correct
emotional |biases |- |correct |answer |often |occur |impulsively |based |on |the |feelings |of |the |
individual |when |a |choice |is |made
illusion |of |control |bias |- |correct |answer |a |cognitive |error |that |exists |when |clients |believe |they |
can |control |or |affect |outcomes |of, |say, |the |market |when |they |cannot, |often |associated |with |
overconfidence |bias
money |illusion |- |correct |answer |a |cognitive |error |that |is |the |misunderstanding |people |have |in |
relating |nominal |rates |or |prices |with |real |(inflation-adjusted) |rates |or |prices. |People |tend |to |
think |that |one |dollar |has |the |same |value |today, |tomorrow, |and |into |the |future |without |
considering |inflation
