Deck 2: Personal Financial Planning Process

Question 1

Communicating the plan, in both written and oral format, is an important job task. What interpersonal communications skills do you think would improve the client's willingness to approve the plan and agree to implementation?

Answer 1

Professional skills for communicating plan recommendations include the following:
-Narrate client's story - The planner should link the recommendations to the specific goals, so the client would relate them to the stated goals and aspirations.
-Personalize the discussion - Help the client visualize the emotional reaction of the family to the planner's recommendations.
-Clarify concepts - Present the underlying concepts by using simple, rather than technical, language, so the client understands them.
-Connect with stories - Christina Baldwin clarified this concept by stating at the National FPA Convention, "Words are how we think, stories are how we link."
-Engage the client - Since the success of the plan ultimately rests on a complete buy-in by the client, it is imperative that the client remains engaged during the entire implementation period. In this process, questions such as "How do you feel about that recommendation?" or "How would you wish to cut back on your monthly spending so you could increase your retirement contributions?" could improve the implementation process.
-• Motivate action - The best way to motivate a client is by explaining the consequences of not going ahead with the planner's recommendations.
-• Observe expressions - The planner needs to be an active listener and an observer. That is because client responses come in the form of verbal response, facial expressions, and gestures.

Question 2

Your affluent client has filled out your planning questionnaire. During the data-gathering interview, the client complained that he had to do too much work and hoped that he would not have to spend any more time. You have discovered that the information supplied by him is incomplete and the accuracy of the data supplied by him is highly questionable. What is your next step?

Answer 2

Without complete, accurate, and detailed data, the value of the plan will be minimal at best, and negative at worst. Furthermore, the client must understand that financial planning is a cooperative process, and the success of a plan ultimately depends upon the client's willingness to cooperate, learn, critically evaluate the recommendations, and ultimately implement them with definite resolve. The planner has the obligation to communicate these thoughts to the client and to make sure that he/she understands them and is willing to cooperate with the planner.

Question 3

In analyzing the client's data, the financial planner assesses the strengths and weaknesses of the current plan. The objective is to improve the client's chances of achieving his or her goals. Provide examples of what you might consider to be major gaps in a risk management plan for a young couple with children.

Answer 3

Examples of weaknesses and gaps are presented in the text. Other examples can be developed with relative ease.

Question 4

Why is the signing of a formal contract an important element of a financial planning process?

Question 5

Describe the process of developing planning recommendations.

Question 6

Is there a difference in the mechanics that is used for collecting qualitative as opposed to quantitative data?

Question 7

Define the steps involved in the financial planning process.

Question 8

Explain the importance of plan monitoring and review.

Question 9

After you develop a financial plan for your client, you realize that it looks too sophisticated for your client. You hate to downgrade the plan, but you are afraid that in its current form the plan would be a total turn off. What is your best course of action?

Question 10

In the financial planning profession it is often said that "a plan, irrespective of its sophistication, is only as good as the data and assumptions on which it is based." Comment on this statement.

Question 11

Question 4. Quantitative data includes which of the following?

A) Cash
B) Risk tolerance level
C) Stock/bonds and mutual funds
D) A and C
E) B and C

Question 12

Describe specific activities within the financial planning process.

Question 13

Question 5. Qualitative data includes which of the following?

A) Feeling toward society
B) Priorities of various objectives
C) Attitude toward life insurance
D) A and B
E) B and C

Question 14

You have asked John Client to come in for an annual review. John says that he does not have any money to invest and consequently does not want to pay you to conduct the annual review. What do you tell him?

Question 15

Question 2. A standard rule-of-thumb with respect to data gathering is that the data should be sufficiently complete to enable the planner to do all except which of the following?

A) Evaluate the client's financial position
B) Determine the client's personality, dreams, and fears
C) Articulate short- and long-term goals
D) Formulate a set of strategies for helping the client achieve his or her stated goals
E) All are necessary functions

Question 16

Impressed with your presentation of the ten-step financial planning process (A to J), John Client signs a contract and writes a check for $2,500 (half of the planning fee). He then makes the following comment: "I am a very busy person. I don't care to see a written plan and don't want to know if you religiously follow the six-step planning process. I will be satisfied if you just tell me what to do." How should you as John's financial planner handle this situation?

Question 17

In the Recommendations section of your plan, you have included the following: (a) universal life insurance for $400,000; (b) a $4,000 disability income policy which will cost $4,500 per year; (c) liquidation of $600,000 of individual stocks currently owned by the client; and (d) purchase of a $500,000 single premium deferred annuity. You are a fee and commission-type planner and have offered to implement these recommendations yourself, if the client so desires. The client fails to take any action. How do you handle this situation?

Question 18

Question 1. When a financial planner designs a formal contract, which of the following should not be included?

A) A range of services to be performed
B) Method of compensation
C) The client's responsibility in the planning process
D) The fact that the financial planner is not authorized to provide any legal advice
E) All must be included

Question 19

Give examples of situations where the real problems of potential clients are far different from those communicated to the financial planner.

Question 20

How does a financial planner qualify a potential client?

Question 21

Question 9. All of the following are job tasks that are specifically associated with monitoring the client's portfolio except for:

A) Identifying changes in client circumstances and goals
B) Monitoring changes in the financial and legislative landscape
C) Creating a timeline to implement recommendations
D) Comparing portfolio performance to projections and benchmarks
E) Preparing client materials e.g., performance reports, meeting handouts, etc.)

Question 22

Question 6. Which of the following is an example of a personal assumption that you will need to obtain from the client as opposed to an economic assumption)?

A) Inflation rate of higher education
B) Priorities of goals and objectives
C) Reinvestment rate of return on blue chip stocks
D) Projected income tax rate schedule
E) Anticipated social security benefit

Question 23

Question 8. Which of the following is are) typically required of the financial planner during the implementation stage?

A) Coordination with other financial professionals
B) Selection of appropriate financial products
C) Rebalance the investment portfolio
D) A and B
E) B and C

Question 24

Question 10. Which of the following can be said with regard to the financial planning process?

A) Personal financial planning is a never ending process
B) Over time a person's tax environment, financial conditions, and personal situation can change
C) A person's goals should be monitored at least annually
D) All of the above represent planning process
E) A and C only represent planning process