FP511 - General Financial Planning
Principles, Professional Conduct, and
Regulation UPDATED ACTUAL Questions
and 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.
Principles, Professional Conduct, and
Regulation UPDATED ACTUAL Questions
and 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.
