FPQP Module 1 Principles Of Financial
Planning
A client is seeking guidance in all areas of financial planning. Which of the following
most closely describes the type of financial planning the client wants?
Comprehensive planning - answer Comprehensive planning provides guidance in all
areas of financial planning. Conversely, targeted financial planning typically addresses
only one or two of the client's objectives, such as the purchase of a first home, caring for
a disabled child, or reducing a tax burden. Investment planning focuses on clients'
investment plans. Risk management planning involves recommendations regarding the
assumption of risks or the assignment of risks through Insurance. LO 1-1
A planner who addresses only the purchase of a first home for a client is practicing
targeted financial planning. - answerTargeted planning typically addresses only one or
two of a client's objectives, such as purchasing a first home, caring for an elderly parent,
or reducing a tax burden. The scope of the client-planner engagement may be revised
upon mutual understanding and agreement between the two parties. In fact, targeted
planning often evolves into more comprehensive financial planning as the client and
planner discuss goals and analyze client information.
Kiara has accumulated $10,000 in a savings account over the last few years and has
earmarked that money as a down payment on a luxury boat. Her central air conditioner
breaks and requires $5,000 in repairs. Kiara is reluctant to spend the money in her
savings account to make the repairs because she wants to use that money for the boat
down payment. Instead, she puts the $5,000 repair charge on her credit card at an
annual interest rate of 23%. This is an example of which of these behaviors?
Mental accounting - answerThis is an example of mental accounting because Kiara's
irrational financial decision resulted from mentally putting her money into separate
"accounts" based on the functions of those accounts. Self-control bias involves making
poor financial decisions because an individual lacks self-discipline and favors immediate
gratification over long-term goals. Conservation bias takes place when a person initially
forms a rational view about something (e.g., an investment) but fails to change that view
as new information becomes available. With self-attribution bias, individuals take credit
for their successes and blame other external influences for their failures. LO 1-5
Which of the following is a characteristic of properly stated financial goals?
, Definite - answerFinancial goals should be definite in terms of purpose, time frames,
and dollar amounts. Goals that are general (vague), flexible, or broad (unspecific)
should not be part of the financial plan. LO 1-2
When helping clients identify goals, financial planners should practice active listening
skills by engaging in all of these except
Offering suggestions for goals. - answerFinancial planners can facilitate the discussion
regarding clients' goals; however, they should not offer suggestions. Client goals have
to be the result of clients determining what matters most. LO 1-2
Which of the following financial goals is written correctly?
To accumulate $40,000 in seven years for a down payment on a house. - answerThis
goal is written correctly because it is specific in purpose, dollar amount, and time frame.
The other choices do not include the cost of college, when the new car will be
purchased, or when retirement will occur. LO 1-2
During which of the following steps in the financial planning process is the current yield
from already-invested assets first identified?
Understanding the client's personal and financial circumstances - answerGathering
client data is part of understanding the client's personal and financial circumstances,
which includes gathering quantitative date like the current yield from invested assets.
This is usually obtained from a recent account statement.
LO 1-3
Asset categories that are appropriate for the client are determined during which of the
following steps of the financial planning process?
Implementing the financial planning recommendations - answerDuring the developing
financial planning recommendations step, the planner determines the appropriate asset
categories for the client's objectives, time horizon, expectations, and priorities.
LO 1-3
During which of the following steps of the financial planning process is the performance
of a client's investments reviewed periodically?
Monitoring progress and updating - answerDuring the monitoring progress and updating
step, the planner periodically reviews the performance of a client's investments. LO 1-3
Potential problems that might interfere with clients achieving their objectives are
identified in which of the following steps in the financial planning process?
Analyzing the client's current course of action and potential alternate course(s) of action
- answerDuring the analyzing the client's current course of action and potential alternate
Planning
A client is seeking guidance in all areas of financial planning. Which of the following
most closely describes the type of financial planning the client wants?
Comprehensive planning - answer Comprehensive planning provides guidance in all
areas of financial planning. Conversely, targeted financial planning typically addresses
only one or two of the client's objectives, such as the purchase of a first home, caring for
a disabled child, or reducing a tax burden. Investment planning focuses on clients'
investment plans. Risk management planning involves recommendations regarding the
assumption of risks or the assignment of risks through Insurance. LO 1-1
A planner who addresses only the purchase of a first home for a client is practicing
targeted financial planning. - answerTargeted planning typically addresses only one or
two of a client's objectives, such as purchasing a first home, caring for an elderly parent,
or reducing a tax burden. The scope of the client-planner engagement may be revised
upon mutual understanding and agreement between the two parties. In fact, targeted
planning often evolves into more comprehensive financial planning as the client and
planner discuss goals and analyze client information.
Kiara has accumulated $10,000 in a savings account over the last few years and has
earmarked that money as a down payment on a luxury boat. Her central air conditioner
breaks and requires $5,000 in repairs. Kiara is reluctant to spend the money in her
savings account to make the repairs because she wants to use that money for the boat
down payment. Instead, she puts the $5,000 repair charge on her credit card at an
annual interest rate of 23%. This is an example of which of these behaviors?
Mental accounting - answerThis is an example of mental accounting because Kiara's
irrational financial decision resulted from mentally putting her money into separate
"accounts" based on the functions of those accounts. Self-control bias involves making
poor financial decisions because an individual lacks self-discipline and favors immediate
gratification over long-term goals. Conservation bias takes place when a person initially
forms a rational view about something (e.g., an investment) but fails to change that view
as new information becomes available. With self-attribution bias, individuals take credit
for their successes and blame other external influences for their failures. LO 1-5
Which of the following is a characteristic of properly stated financial goals?
, Definite - answerFinancial goals should be definite in terms of purpose, time frames,
and dollar amounts. Goals that are general (vague), flexible, or broad (unspecific)
should not be part of the financial plan. LO 1-2
When helping clients identify goals, financial planners should practice active listening
skills by engaging in all of these except
Offering suggestions for goals. - answerFinancial planners can facilitate the discussion
regarding clients' goals; however, they should not offer suggestions. Client goals have
to be the result of clients determining what matters most. LO 1-2
Which of the following financial goals is written correctly?
To accumulate $40,000 in seven years for a down payment on a house. - answerThis
goal is written correctly because it is specific in purpose, dollar amount, and time frame.
The other choices do not include the cost of college, when the new car will be
purchased, or when retirement will occur. LO 1-2
During which of the following steps in the financial planning process is the current yield
from already-invested assets first identified?
Understanding the client's personal and financial circumstances - answerGathering
client data is part of understanding the client's personal and financial circumstances,
which includes gathering quantitative date like the current yield from invested assets.
This is usually obtained from a recent account statement.
LO 1-3
Asset categories that are appropriate for the client are determined during which of the
following steps of the financial planning process?
Implementing the financial planning recommendations - answerDuring the developing
financial planning recommendations step, the planner determines the appropriate asset
categories for the client's objectives, time horizon, expectations, and priorities.
LO 1-3
During which of the following steps of the financial planning process is the performance
of a client's investments reviewed periodically?
Monitoring progress and updating - answerDuring the monitoring progress and updating
step, the planner periodically reviews the performance of a client's investments. LO 1-3
Potential problems that might interfere with clients achieving their objectives are
identified in which of the following steps in the financial planning process?
Analyzing the client's current course of action and potential alternate course(s) of action
- answerDuring the analyzing the client's current course of action and potential alternate
