FPQP Exam Review
7 Steps of the Financial Planning Process - answer1. Understanding the client's
personal and financial circumstances
2. Identifying and selecting goals
3. Analyzing the client's current course of action and potential alternative course(s) of
action
4. Developing the financial planning recommendations
5. Presenting the financial planning recommendations
6. Implementing the financial planning recommendations
7. Monitoring progress and updating
Financial planning is - answerA collaborative process that helps maximize a Client's
potential for meeting life goals through Financial Advice that integrates relevant
elements of the Client's personal and financial circumstances.
Areas of financial planning: - answerDeveloping goals, cash and debt management, risk
management and insurance planning, education needs, group benefits planning,
investment planning, retirement savings and income planning, tax planning, estate
planning
A comprehensive financial plan: - answeraddresses most, if not all, of the client's
circumstances
A targeted financial plan: - answeraddresses only 1 or 2 of the client's objectives
Planners help _____ and _____ goals and objectives - answeridentify, prioritize
Steps to setting a financial goal: - answerPurpose, Timeframe, Amount (PTA)
Defining the engagement: - answer- identifying the service(s) to be provided, and those
that will be excluded
- disclosing the planner's compensation arrangement(s)
- disclosing existing and/or potential conflicts of interest
- determining the responsibilities of both the planner and client
- establishing the duration of the engagement
- providing any additional information necessary to determine, define, or limit the scope
of the engagement
Financial planners are compensated by: - answersales (commission), fees (only), or a
combination of both
,True or false: the use of other professionals is often necessary for clients to meet their
goals as not one planner can know everything about financial planning - answertrue
Behavioral Finance: - answera 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
The 2 types of biases: - answerCognitive errors and emotional biases
Cognitive errors: - answerdecision-making based on well-known concepts that may or
may not be correct
Emotional biases: - answerwhich often occur impulsively based on the feelings of an
individual when a choice is made
List off the cognitive errors: - answerIllusion of control
Money illusion
Conservation bias
Mental accounting
Self-attribution bias
self-control bias
List off the emotional biases: - answerself-control bias
status quo bias
affinity bias
Financial planners should be using what type of questions during the interview -
answeropen-ended
Non-directive counseling skills: - answerclarification, paraphrasing, summarizing
Directive counseling skills: - answerreframing, explanation, advice
FPQP code of ethics: - answer1. adherence to the Standards of Professional Conduct
2. self-disclosure of prior allegations or violations
3. adherence to the Terms and Conditions
The standards of professional conduct are: - answerFiduciary duty, integrity,
competence, diligence, professionalism, confidentiality
the fiduciary standard: - answer1. Put a client's interests first
2. To act with utmost good faith
3. To provide full and adequate disclosure of all material facts
4. To refrain from misleading clients
5. To expose all conflicts of interests to clients
, Statement of financial position (balance sheet) - answerA snapshot of the financial
situation as of the given date. It is a complete representation of financial assets and
liabilities. It is a statement of net worth
Assets are separated into these 3 categories - answerCash/cash equivalents, invested
assets, use assets
Liabilities: - answerinclude any debt of an individual, such as balances for mortgage
loans, auto loans, and credit cards. They are categorized as short term or long term
Cash flow statement: - answerreveals cash receipts and disbursements over a specific
past period, usually 1 year. It summarizes the inflows and outflows of cash, showing all
sources of income and patterns of spending, saving, and investing.
Benchmark for the front-end ratio - answer28%
Benchmark for the back-end ratio - answerbelow 36%
Benchmark for the consumer debt-to-income ratio - answer20% or lower
5 C's of Credit - answerCharacter, Capacity, Capital, Collateral, Conditions
FICO score range - answer300-850
types of consumer credit: - answerinstallment (closed end) and revolving (open end)
about what % of gross income should be allocated to rent - answer20-30%
List the forms of business: - answerSole proprietorship, partnerships (gps, lps, flps),
corporations (c corps, s corps), and LLCs
Sole proprietorships: - answerProfit is passed to the owner's tax return (Schedule C)
Can register as an LLC to control liability
Partnerships: - answerGeneral, limited, family limited
Profit is passed to the partners with K-1 income form
Can register as an LLC to control liability
Corporations: - answerC corporation is taxed as a business (best liability coverage of
the forms)
S corporation is taxed like a partnership
Can register as an LLC to control liability
Operation of the closely held business: - answeruse debt, usually avoid issuing shares,
often borrow personally from family members, important to look at financial stmts, easy
to mingle personal and business finances
7 Steps of the Financial Planning Process - answer1. Understanding the client's
personal and financial circumstances
2. Identifying and selecting goals
3. Analyzing the client's current course of action and potential alternative course(s) of
action
4. Developing the financial planning recommendations
5. Presenting the financial planning recommendations
6. Implementing the financial planning recommendations
7. Monitoring progress and updating
Financial planning is - answerA collaborative process that helps maximize a Client's
potential for meeting life goals through Financial Advice that integrates relevant
elements of the Client's personal and financial circumstances.
Areas of financial planning: - answerDeveloping goals, cash and debt management, risk
management and insurance planning, education needs, group benefits planning,
investment planning, retirement savings and income planning, tax planning, estate
planning
A comprehensive financial plan: - answeraddresses most, if not all, of the client's
circumstances
A targeted financial plan: - answeraddresses only 1 or 2 of the client's objectives
Planners help _____ and _____ goals and objectives - answeridentify, prioritize
Steps to setting a financial goal: - answerPurpose, Timeframe, Amount (PTA)
Defining the engagement: - answer- identifying the service(s) to be provided, and those
that will be excluded
- disclosing the planner's compensation arrangement(s)
- disclosing existing and/or potential conflicts of interest
- determining the responsibilities of both the planner and client
- establishing the duration of the engagement
- providing any additional information necessary to determine, define, or limit the scope
of the engagement
Financial planners are compensated by: - answersales (commission), fees (only), or a
combination of both
,True or false: the use of other professionals is often necessary for clients to meet their
goals as not one planner can know everything about financial planning - answertrue
Behavioral Finance: - answera 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
The 2 types of biases: - answerCognitive errors and emotional biases
Cognitive errors: - answerdecision-making based on well-known concepts that may or
may not be correct
Emotional biases: - answerwhich often occur impulsively based on the feelings of an
individual when a choice is made
List off the cognitive errors: - answerIllusion of control
Money illusion
Conservation bias
Mental accounting
Self-attribution bias
self-control bias
List off the emotional biases: - answerself-control bias
status quo bias
affinity bias
Financial planners should be using what type of questions during the interview -
answeropen-ended
Non-directive counseling skills: - answerclarification, paraphrasing, summarizing
Directive counseling skills: - answerreframing, explanation, advice
FPQP code of ethics: - answer1. adherence to the Standards of Professional Conduct
2. self-disclosure of prior allegations or violations
3. adherence to the Terms and Conditions
The standards of professional conduct are: - answerFiduciary duty, integrity,
competence, diligence, professionalism, confidentiality
the fiduciary standard: - answer1. Put a client's interests first
2. To act with utmost good faith
3. To provide full and adequate disclosure of all material facts
4. To refrain from misleading clients
5. To expose all conflicts of interests to clients
, Statement of financial position (balance sheet) - answerA snapshot of the financial
situation as of the given date. It is a complete representation of financial assets and
liabilities. It is a statement of net worth
Assets are separated into these 3 categories - answerCash/cash equivalents, invested
assets, use assets
Liabilities: - answerinclude any debt of an individual, such as balances for mortgage
loans, auto loans, and credit cards. They are categorized as short term or long term
Cash flow statement: - answerreveals cash receipts and disbursements over a specific
past period, usually 1 year. It summarizes the inflows and outflows of cash, showing all
sources of income and patterns of spending, saving, and investing.
Benchmark for the front-end ratio - answer28%
Benchmark for the back-end ratio - answerbelow 36%
Benchmark for the consumer debt-to-income ratio - answer20% or lower
5 C's of Credit - answerCharacter, Capacity, Capital, Collateral, Conditions
FICO score range - answer300-850
types of consumer credit: - answerinstallment (closed end) and revolving (open end)
about what % of gross income should be allocated to rent - answer20-30%
List the forms of business: - answerSole proprietorship, partnerships (gps, lps, flps),
corporations (c corps, s corps), and LLCs
Sole proprietorships: - answerProfit is passed to the owner's tax return (Schedule C)
Can register as an LLC to control liability
Partnerships: - answerGeneral, limited, family limited
Profit is passed to the partners with K-1 income form
Can register as an LLC to control liability
Corporations: - answerC corporation is taxed as a business (best liability coverage of
the forms)
S corporation is taxed like a partnership
Can register as an LLC to control liability
Operation of the closely held business: - answeruse debt, usually avoid issuing shares,
often borrow personally from family members, important to look at financial stmts, easy
to mingle personal and business finances
