CFP exam Study Guide

CFP exam Study Guide Topic 1: Financial Planning Process - Answer-... 6 step process: EGADIM - Answer-1. Establish Relationship 2. Gather Information 3. Analyze data 4. Develop plan 5. Implement 6. Monitor Step 1: Establish Relationship - Answer-• Services that will be provided • compensation/billing • Responsibilities of both client/planner • Time frame of relationship Step 2: Gather quantitative and qualitative data - Answer-• It is important that goals be defined before any recommendations • A goal should be specific, prioritized and quantified • Fact finder form EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED. FIRST PUBLISH OCTOBER 2024. Page 2/13 Step 3: Analyze data - Answer-• Identify strengths and weaknesses • Analysis of current position • Should be based on realistic assumptions Step 4: Develop Plan - Answer-• Objective • Should be presented to client • Mutually decide on revisions • Prioritized list of implementation steps and timing Step 5: Implement - Answer-• Work closely with other professional team members • Help client with product acquisitions Step 6: Monitor - Answer-• Fed tax changes • Economic changes • Modifications to plan Topic 2: Code of Ethics & Professional Responsibility + Disciplinary Rules Procedures - Answer-... Aspirational Principles - Answer-• Integrity • Objectivity • Competence EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED. FIRST PUBLISH OCTOBER 2024. Page 3/13 • Fairness • Confidentiality • Professionalism • Diligence Confidential Information can be disclosed only when... - Answer-• The client consents • Court ordered • CFP must defend accusations • Civil suit between client and CFP CFP Board of Professional Review - Answer-• Inquiry Panel - grounds for discipline • The Hearing Panel - Recommendation to board • Board of Appeal - w/in 30 days Topic 3: Financial Planning Practice Standards - Answer-... Purpose of practice standards - Answer-• To ensure professionals follow agreed upon norms • To advance professionalism • To enhance value of planning process 100-1: Defining Scope of the Engagement - Answer-• Mutually define scope of engagement • Identify services to be provided EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED. FIRST PUBLISH OCTOBER 2024. Page 4/13 • Disclose conflicts of interest • Compensation agreement • Responsibilities of each party • Duration 200-1: Determining a Clients Personal and Financial Goals, Needs, and Priorities - Answer-• Mutually define personal and financial goals • Explore clients values, attitudes, expectations, and time horizons • Subjective to practitioner 200-2: Obtaining quantitative Information and Documents - Answer-• Interviews, questionnaires, client records and documents • Mutually define clients relevant goals, needs, and priorities • Objectives should be precise and measurable • Obtain sufficient relevant, quantitative information and documents 300-1: Analyzing and Evaluating the Clients Information - Answer-• Personal assumptions need to be made regarding: retirement age, life expectancy, income needs, risk factors, time horizons and special needs • Economic assumptions need to be made regarding: inflation rates, tax rates, and investment returns EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED. FIRST PUBLISH OCTOBER 2024. Page 5/13 400-1: Identifying and Evaluating Financial Planning Alternatives - Answer-• What is possible? • What other actions can be taken other than one currently using • May involve consulting other professionals 400-2: Developing the Financial Planning Recommendations - Answer-• What is recommended? • What strategy will best suit meeting clients goals considering alternatives 400-3: Presenting the Financial Planning Recommendations - Answer-• How to present? • Should present in manner to help client make informed decision • Should communicate factors: assumptions, interdependence of recommendations, advantages & disadvantages, risks, time sensitivity 500-1: Agreeing on Implementation Responsibilities - Answer-• Should mutually decide how to split up responsibilities 500-2: Selecting Products and Services for Implementation - Answer-• Practitioner uses professional judgement in selecting the products and services that the of clients interest • Professional judgement incorporates both qualitative and quantitative information 600-1: Defining Monitoring Responsibilities - Answer-• What is to be monitored? • Frequency of monitoring EMILLECT 2024/2025 ACADEMIC YEAR ©2024 EMILLECT. ALL RIGHTS RESERVED. FIRST PUBLISH OCTOBER 2024. Page 6/13 • Communication method Topic 4: Financial Statements - Answer-... Personal statements - Answer-• Statement of financial position (balance sheet) • Cash budget (statement of cash flow) Business statements - Answer-• Balance sheet • Income statement • Statement of cash flows • Pro forma statements Statement of Financial Position - Answer-• Assets=liabilities+Net worth • Assets should be distinguished from items of income • Assets and net worth increase through appreciations in the value of assets • Paying off liabilities with cash does not increase net worth because assets decline by an equal amount • Buying an asset does not decrease net worth because assets increase by the value of the asset purchased • Assets should be shown at FMV • Assets are categorized as cash and cash equivalent, inves