Financial Planning 2 Exam questions
well answered graded A+
Financial planning includes things such as:
Investments, Estate Planning, Addressing legal concerns, Tax Planning, and Insurance
There are five types of methods of compensation for financial planners, what are they?
Fee only, Commission Only, Fee Plus Commission, Salary and Percentage of Assets
What is the fee only method of compensation?
The financial planner charges a fee to develop the financial plan. There is little conflict of
interest because the planner gets paid to develop the plan and not on which product her or she
sells
What is the commission only method of compensation?
The financial planners commissions are based on product sales. This causes some regulators to
question the objectivity of the advice received because there is a possibility that the advisor's
recommendations may be influenced by the payouts
What is the fee plus commission method of compensation?
This is a combination of the fee only method and the commission method.
Which Financial Planning compensation method is most associated with the big banks?
Salary Method
What is the percentage of assets compensation model for financial planners?
A fee is charged based on a percentage of assets. This has become increasingly common for
wealth managers
Which compensation method has the least influence on the planner's recommendations?
The Fee only Approach
There are four emerging trends in the financial planning industry. What are they?
Rising costs, Lower savings/higher debt, the realities of retirement and changing family patterns
,What are the four codes of ethics for Personal Financial Planners?
General Responsibilities, Responsibilities to the client, responsibilities to the profession and
responsibilities to the employer
There are six considerations for determining a client's goals and objectives. What are they?
Time Horizons, Liquidity, Income vs Growth, Goal Achievement, Taxes and Primary and
Secondary Objectives
Two factors that influence risk are:
Demography and Stability of Income
According to the life cycle approaching, there are four stages. What are they?
Accumulation, Consolidation, Financial Independence and Gifting
What defines the accumulation life stage?
Very few assets and significant debts, income is low and long time horizon until retirement. The
portfolio should be more growth oriented
What defines the consolidation life stage?
Income comfortably exceeds expenses, even though retirement may still be years away, the
portfolio should be adjusted more towards fixed-income securities
What defines the financial independence life stage?
Living expenses are financed mainly through investments and pension income. Unable to move
up for any significant losses in the portfolio because no longer the labour force. Even more of
the portfolio should be invested in fixed income and stocks should be blue chips.
What defines the Gifting life stage?
Sharing the wealth with family and charities. The investor's time horizon switches from his or
her own needs to the needs of those receiving the gifts
There are 6 steps involved in the financial planning process. What are they?
Establish the client/advisor relationship, Collect data, analyze data, recommend strategies,
implement recommendations and periodic review.
A financial plan should do three things. What are they?
Determine the client's current financial picture, document his or her goals for the future and
outline the required steps to reach those goals
,A client's financial goals should be:
specific and measurable, ordered by importance, time bound (state when the goal must be
met), Acceptable in terms of risk
What information should be collected in order to properly perform the assessment of the
client's current financial situation?
Financial statements, tax returns, insurance policies, personal balance sheet, wills, unique needs
What is explicit data?
this data can be collected by reviewing documents, such as the client's net worth
What is implicit data?
this data can be determined by the advisor, such as the client's risk tolerance
There are four steps in the recommending stage of a financial plan. What are they?
Discuss potential strategies/recommendations with the client, allow the client to ask questions
and express his or her concerns, modify your recommendation accordingly, discuss the new
recommendations with your client
What is the minimum basis in which a financial plan should be reviewed?
annually
There are four main reasons to consider net worth planning. What are they?
Establish financial discipline, determine a plan to meet a future target, measure progress on a
regular basis and feel financially secure about the future
There are three categories for organizing assets. What are they?
liquid, investment and personal
What does the term insolvent mean?
A term used when a client's liabilities exceed his or her assets and the client is unable to meet
his or her obligations to creditors (negative net worth and cannot pay bills)
How many months of expenses should a client have set aside in an emergency fund?
3-6
There are three steps in calculating a client's cash flow. What are they?
, Determine net income, determine expenses, subtract expenses from net income to determine
net cash flow
Where can expenditure data be collected from?
Bank account statements, invoices, receipts, tax returns etc.
Expenses can be divided into two categories. What are they?
Basic and discretionary
How are basic expenses defined?
These are necessary expenses that cannot be reduced without significantly lowering one's
standard of living.
How are discretionary expenses defined?
These are flexible expenses that can be reduced, including entertainment, dining out and gifts
When trying to reduce expenses it makes the most sense to analyze which expense (because
this expense is easier to reduce)?
Discretionary
What are expenditure clusters?
Expenditure groupings, such as housing costs, transportation costs, and entertainment costs
A typical expense form breaks expenditure data into 12 clusters. What are they?
housing, groceries, clothing, transportation, health care, child or parental care, personal
grooming, leisure, education, savings and investments, debt reduction and miscellaneous
expenses
When preparing a cash flow statement there are typically three drafts created. What are they
called?
First draft, planning draft and revised draft
There are three steps to preparing a projected cash flow statement. What are they?
Forecasts the amount and timing of cash flows over a certain time period (usually one year),
outline a realistic plan, create a cash flow plan the client must decided what he or she prepared
to forgo today to achieve future goals
There are three ways to use a cash flow statement as a planning tool. What are they?
Control Spending, Ensuring liquidity, and creating and implementing a plan
well answered graded A+
Financial planning includes things such as:
Investments, Estate Planning, Addressing legal concerns, Tax Planning, and Insurance
There are five types of methods of compensation for financial planners, what are they?
Fee only, Commission Only, Fee Plus Commission, Salary and Percentage of Assets
What is the fee only method of compensation?
The financial planner charges a fee to develop the financial plan. There is little conflict of
interest because the planner gets paid to develop the plan and not on which product her or she
sells
What is the commission only method of compensation?
The financial planners commissions are based on product sales. This causes some regulators to
question the objectivity of the advice received because there is a possibility that the advisor's
recommendations may be influenced by the payouts
What is the fee plus commission method of compensation?
This is a combination of the fee only method and the commission method.
Which Financial Planning compensation method is most associated with the big banks?
Salary Method
What is the percentage of assets compensation model for financial planners?
A fee is charged based on a percentage of assets. This has become increasingly common for
wealth managers
Which compensation method has the least influence on the planner's recommendations?
The Fee only Approach
There are four emerging trends in the financial planning industry. What are they?
Rising costs, Lower savings/higher debt, the realities of retirement and changing family patterns
,What are the four codes of ethics for Personal Financial Planners?
General Responsibilities, Responsibilities to the client, responsibilities to the profession and
responsibilities to the employer
There are six considerations for determining a client's goals and objectives. What are they?
Time Horizons, Liquidity, Income vs Growth, Goal Achievement, Taxes and Primary and
Secondary Objectives
Two factors that influence risk are:
Demography and Stability of Income
According to the life cycle approaching, there are four stages. What are they?
Accumulation, Consolidation, Financial Independence and Gifting
What defines the accumulation life stage?
Very few assets and significant debts, income is low and long time horizon until retirement. The
portfolio should be more growth oriented
What defines the consolidation life stage?
Income comfortably exceeds expenses, even though retirement may still be years away, the
portfolio should be adjusted more towards fixed-income securities
What defines the financial independence life stage?
Living expenses are financed mainly through investments and pension income. Unable to move
up for any significant losses in the portfolio because no longer the labour force. Even more of
the portfolio should be invested in fixed income and stocks should be blue chips.
What defines the Gifting life stage?
Sharing the wealth with family and charities. The investor's time horizon switches from his or
her own needs to the needs of those receiving the gifts
There are 6 steps involved in the financial planning process. What are they?
Establish the client/advisor relationship, Collect data, analyze data, recommend strategies,
implement recommendations and periodic review.
A financial plan should do three things. What are they?
Determine the client's current financial picture, document his or her goals for the future and
outline the required steps to reach those goals
,A client's financial goals should be:
specific and measurable, ordered by importance, time bound (state when the goal must be
met), Acceptable in terms of risk
What information should be collected in order to properly perform the assessment of the
client's current financial situation?
Financial statements, tax returns, insurance policies, personal balance sheet, wills, unique needs
What is explicit data?
this data can be collected by reviewing documents, such as the client's net worth
What is implicit data?
this data can be determined by the advisor, such as the client's risk tolerance
There are four steps in the recommending stage of a financial plan. What are they?
Discuss potential strategies/recommendations with the client, allow the client to ask questions
and express his or her concerns, modify your recommendation accordingly, discuss the new
recommendations with your client
What is the minimum basis in which a financial plan should be reviewed?
annually
There are four main reasons to consider net worth planning. What are they?
Establish financial discipline, determine a plan to meet a future target, measure progress on a
regular basis and feel financially secure about the future
There are three categories for organizing assets. What are they?
liquid, investment and personal
What does the term insolvent mean?
A term used when a client's liabilities exceed his or her assets and the client is unable to meet
his or her obligations to creditors (negative net worth and cannot pay bills)
How many months of expenses should a client have set aside in an emergency fund?
3-6
There are three steps in calculating a client's cash flow. What are they?
, Determine net income, determine expenses, subtract expenses from net income to determine
net cash flow
Where can expenditure data be collected from?
Bank account statements, invoices, receipts, tax returns etc.
Expenses can be divided into two categories. What are they?
Basic and discretionary
How are basic expenses defined?
These are necessary expenses that cannot be reduced without significantly lowering one's
standard of living.
How are discretionary expenses defined?
These are flexible expenses that can be reduced, including entertainment, dining out and gifts
When trying to reduce expenses it makes the most sense to analyze which expense (because
this expense is easier to reduce)?
Discretionary
What are expenditure clusters?
Expenditure groupings, such as housing costs, transportation costs, and entertainment costs
A typical expense form breaks expenditure data into 12 clusters. What are they?
housing, groceries, clothing, transportation, health care, child or parental care, personal
grooming, leisure, education, savings and investments, debt reduction and miscellaneous
expenses
When preparing a cash flow statement there are typically three drafts created. What are they
called?
First draft, planning draft and revised draft
There are three steps to preparing a projected cash flow statement. What are they?
Forecasts the amount and timing of cash flows over a certain time period (usually one year),
outline a realistic plan, create a cash flow plan the client must decided what he or she prepared
to forgo today to achieve future goals
There are three ways to use a cash flow statement as a planning tool. What are they?
Control Spending, Ensuring liquidity, and creating and implementing a plan
