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ChFC HS 333 study materials
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ChFC HS 333: Domain 1 - Financial Planning Process

ChFC HS 333 · Work through your exam, one topic at a time.

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Domain 1 - Financial Planning Process

Domain 1 - Financial Planning Process

This domain tests whether you can run an engagement end to end: scope the relationship, gather and verify data, convert goals into measurable targets, test them with time-value mathematics, and leave behind a monitoring plan. Expect computational items on the balance sheet, cash-flow statement and ratio analysis, plus conceptual items on standards of conduct, compensation disclosure and fiduciary duty.

The engagement sequence

  • Define and document scope; disclose compensation (fee-only, commission, fee-and-commission) and material conflicts.
  • Collect quantitative data (statements, returns, policies, beneficiary designations) and qualitative data (goals, risk tolerance, health, values).
  • Analyze, present alternatives - the planner recommends, the client decides.
  • Implement and monitor; name review triggers (job change, birth, business sale, market thresholds).

Statement and ratio analysis

  • Net worth = assets at fair market value minus liabilities. Savings rate = savings ÷ gross income.
  • Liquidity ratio = liquid assets ÷ monthly expenses (roughly 3–6 months is the screening target).
  • Housing ratio = PITI ÷ gross monthly income (about 28%); total debt ratio (about 36%) - guides, not rules.
  • Capital utilization: the share of gross income being converted into long-term assets.

Time value mechanics

Real return ≈ (1 + nominal) ÷ (1 + inflation) − 1. Use after-tax returns for taxable accounts, and inflate a goal stated in today's dollars before discounting - never both.

Worked example. A client needs $150,000 in today's dollars in 12 years; inflation 3%; return 7% before tax; marginal rate 22%.

  1. Inflate the goal: $150,000 × 1.03^12 = $213,864.
  2. After-tax return: 7% × (1 − 0.22) = 5.46%.
  3. Future value factor for 12 annual end-of-year deposits = 16.18; required saving = $213,864 ÷ 16.18 ≈ $13,218 per year.

Traps. Mixing real growth rates with nominal goals (double-counting inflation); using the arithmetic average instead of the geometric return; counting an employer match as a client contribution; treating a Roth balance as pre-tax; ignoring the emergency fund when measuring investable assets; presenting one deterministic projection as if it were a probability.