Rattiner's Review for the CFP(R) Certification Examination, Fast Track, Study Guide

Jeffrey H. Rattiner

• Publisher: Wiley
• Year: 2009
• ISBN:
  9780470485200
• Edition: 3
• Topic: Persönliche Entwicklung
• Subtopic: Private Finanzen

The proven CFP Study Guide that delivers just what you need to succeed!

A quick-study guide for candidates preparing to take the CFP Certification Examination, Rattiner's Review for the CFP® Certification Examination distills the bare-bones essentials you need to know to pass this challenging exam, all in a logical and easy-to-absorb manner.

This indispensable study tool for students who have already been through traditional CFP educational programming—and just need a little extra help pulling it all together—provides a no-nonsense approach to studying for some of the most important disciplines of financial planning, including: PFP, insurance, employee benefit, investments, income tax, retirement, and estate planning. Each discipline contains short and concise statements emphasizing key points through mnemonic devices, study tips, and other established test-taking methods that provide helpful hints.

Rattiner's Review for the CFP® Certification Examination, Third Edition has been thoroughly updated to include:

• Reviews from recent CFP Exam students who compare the CFP Board curriculum to this Third Edition, ensuring that all topics are covered adequately
• New, easy-to-follow flowcharts at the beginning of each chapter highlight the macro level perspective of each subject discipline
• Basic calculator keystrokes for investment math, retirement, life, and education needs analysis, and other important calculations
• New multiple-choice questions as well as new charts and tables for quick memorizations
• New acronyms to help put things into a simplified perspective and help students tie back to the big picture flowchart

Perfect as a quick-reference guide to complement all CFP texts and self-study materials, it also serves as an important one-stop resource for financial services professionals who want information in a hurry.

Stay organized, on track, and focused with Rattiner's Review for the CFP® Certification Examination, Third Edition.

CHAPTER 1

GENERAL PRINCIPLES OF FINANCIAL PLANNING

TOPIC 1: FINANCIAL PLANNING PROCESS

1. Purpose, benefits, and components

a. The purpose of financial planning is to provide sound, coordinated financial advice to individuals and their families.

2. Steps

a. Establishing client-planner relationships sets the expectations of the parties and lays the groundwork for developing the trust necessary for successful financial planning

1. Identifying the service(s) to be provided

2. Disclosing the financial planning practitioner’s compensation arrangement(s)

3. Determining the client’s and the financial planning practitioner’s responsibilities

4. Establishing the duration of the engagement

5. Providing any additional information necessary to define or limit the scope of the process

b. Gathering client data and determining goals and expectations. A financial plan is only as good as the data collected and the assumptions on which that data are based. Both quantitative and qualitative data are used to establish a client’s goals and objectives.

1. Quantitative data tells you where the client is and what it will take to get the client to a specific financial goal.

2. Quantitative data is found using a fact-finding questionnaire. Qualitative data tells you why the client wants to reach the goal, what will make him or her work toward it, and what the client is not likely to do. Qualitative data is obtained by conducting a goals and objectives interview.

3. Goals are broad-based projections of a client’s aspirations. For example, a client’s goal may be to retire rich.

4. Objectives are quantifiable ways of achieving goals over a specified time period. For example, saving $5 million by age 65 is an objective, whereas retiring rich is the goal.

c. Determining the client’s financial status by analyzing and evaluating his or her general financial status, special needs, insurance and risk management, investments, taxation, employee benefits, retirement, and/or estate planning

d. Developing and presenting the financial plan

e. Implementing the financial plan

f. Motivate the client. Draw on outside experts as needed.

g. Monitoring the financial plan

1. Evaluate the performance. Review changes in client’s circumstances and tax laws. Revisit other steps as necessary.

3. Responsibilities

1. Financial planner. Evaluate client needs, explain financial planning concepts and clarify client goals, analyze client circumstances and prepare financial plans, and implement and monitor financial plans.

2. Client. Express concerns, hopes, and goals; do not procrastinate; be honest with your answers to questions; live within your current income and do not live up to or beyond it; be open to formulating a financial plan and identifying strategies to reach goals and objectives.

3. Other advisers. The planner may seek out the help of others when implementing the financial plan. Their responsibilities fall within the realm of their expertise.

TOPIC 2: CFP BOARD’S CODE OF ETHICS AND PROFESSIONAL RESPONSIBILITY AND DISCIPLINARY RULES AND PROCEDURES

The following contains wording from both the Code of Ethics and Professional Responsibility and Disciplinary Rules and Procedures (© 2009 by the Certified Financial Planner Board of Standards, Inc.). It is imperative that you read the entire Code of Ethics and Practice Standards to ensure the background needed to answer questions pertaining to topics 2 and 3. To download both, please visit the CFP Board’s website at www.cfp.net.

Code Terminology

This terminology applies only for purposes of interpreting and/or enforcing the CFP Board’s Code of Ethics, Rules of Conduct, Practice Standards, and Disciplinary Rules.

“Certificant” denotes individuals who are currently certified by the CFP Board.

“Certificant’s employer” denotes any person or entity that employs a certificant or registrant to provide services to a third party on behalf of the employer, including certificants and registrants who are retained as independent contractors or agents.

“CFP Board” denotes Certified Financial Planner Board of Standards, Inc.

“Client” denotes a person or persons (or entity) who engage(s) a certificant and for whom professional services are rendered. Where the services of the certificant are provided to an entity (corporation, trust, partnership, estate, etc.), the client is the entity acting through its legally authorized representative.

“Commission” denotes the compensation generated from a transaction involving a product or service and received by an agent or broker, usually calculated as a percentage on the amount of his or her sales or purchase transactions. This includes 12b-1 fees, trailing commissions, surrender charges, and contingent deferred sales charges.

“Compensation” is any nontrivial economic benefit, whether monetary or nonmonetary, that a certificant or related party receives or is entitled to receive for providing professional activities.

A “conflict of interest” exists when a certificant’s financial, business, property, and/or personal interests, relationships, or circumstances reasonably may impair his or her ability to offer objective advice, recommendations, or services.

“Fee-only.” A certificant may describe his or her practice as fee-only if, and only if, all of the certificant’s compensation from all of his or her client work comes exclusively from the clients in the form of fixed, flat, hourly, percentage, or performance-based fees.

A “fiduciary” is one who acts in utmost good faith, in a manner he or she reasonably believes to be in the best interest of the client.

A “financial planning engagement” exists when a certificant performs any type of mutually agreed-upon financial planning service for a client.

A “financial planning practitioner” is a person who engages in financial planning using the financial planning process in working with clients.

“Personal financial planning” or “financial planning” denotes the process of determining whether and how an individual can meet life goals through the proper management of financial resources. Financial planning integrates the financial planning process with the financial planning subject areas. In determining whether the certificant is providing financial planning or material elements of the financial planning process, issues that may be considered include but are not limited to:

• The client’s understanding and intent in engaging the certificant.

• The degree to which multiple financial planning subject areas are involved.

• The comprehensiveness of data gathering.

• The breadth and depth of recommendations.

Financial planning may occur even if the elements are not provided to a client simultaneously, are delivered over a period of time, or are delivered as distinct subject areas. It is not necessary to provide a written financial plan to engage in financial planning.

“Personal financial planning process” or “financial planning process” denotes the process that typically includes, but is not limited to, some or all of these six elements:

1. Establishing and defining the client-planner relationship.

2. Gathering client data including goals.

3. Analyzing and evaluating the client’s current financial status.

4. Developing and presenting recommendations and/or alternatives.

5. Implementing the recommendations.

6. Monitoring the recommendations.

“Personal financial planning subject areas” or “financial planning subject areas” denotes the basic subject fields covered in the financial planning process, which typically include, but are not limited to:

• Financial statement preparation and analysis (including cash flow analysis/planning and budgeting).

• Investment planning (including portfolio design, i.e., asset allocation and portfolio management).

• Income tax planning.

• Education planning.

• Risk management.

• Retirement planning.

• Estate planning.

“Registrant” denotes individuals who are not currently certified but have been certified by the CFP Board in the past and have an entitlement, direct or indirect, to potentially use the CFP® marks. This includes individuals who have relinquished their certification and who are eligible for reinstatement without being required to pass the current CFP® Certification Examination. The Rules of Conduct apply to registrants when the conduct at issue occurred at a time when the registrant was certified; the CFP Board has jurisdiction to investigate such conduct.

Code of Ethics and Professional Responsibility

The CFP Board adopted the Code of Ethics to establish the highest principles and standards. These Principles are general statements expressing the ethical and professional ideals that certificants and registrants are expected to display in their professional activities. As such, the Principles are aspirational in character and provide a source of guidance for certificants and registrants. The Principles form the basis of CFP Board’s Rules of Conduct, Practice Standards, and Disciplinary Rules, and these documents together reflect the CFP Board’s recognition of certificants’ and registrants’ responsibilities to the public, clients, colleagues, and employers.

Principle 1—Integrity

Principle 2—Objectivity

Principle 3—Competence

Principle 4—Fairness

Principle 5—Confidentiality

Principle 6—Professionalism

Principle 7—Diligence

The way I help my students remember the principles is through the phrase “I Only Care for Cash Paid Daily,” where the first letters stand for the names of the principles.

“I” stands for “Integrity” under principle 1.
“O” stands for “Objectivity” under principle 2.
“C” stands for “Competence” under principle 3.
“F” stands for “Fairness” under principle 4.
“C” stands for “Confidentiality” under principle 5.
“P” stands for “Professionalism” under principle 6.
“D” stands for “Diligence” under principle 7.

Question: You are working with a divorced wife whose main source of income is from her ex-husband’s business as per the divorce decree. The ex-husband visits your office and informs you that he is going out of business. What is your obligation to the wife?

a. Drop the wife as a client and withdraw from the engagement.

b. Work with both the wife and the ex-husband.

c. Fire the wife and keep the ex-husband.

d. Don’t tell the wife what you know.*

Rules of Conduct

The Rules of Conduct establish the high standards expected of certificants and describe the level of professionalism required of certificants. The Rules of Conduct are binding on all certificants, regardless of their title, position, type of employment, or method of compensation, and they govern a...