HS 300 Financial Planning: Process and Environment
The seven-step process
CFP Board-style questions are built on a fixed sequence: (1) understand the client's personal and financial circumstances; (2) identify and select goals; (3) analyze the current course of action and potential alternatives; (4) develop the recommendations; (5) present the recommendations; (6) implement; (7) monitor and update. Steps are iterative, but ordering questions expect data gathering before goal identification and analysis before recommendation.
Qualitative versus quantitative
Qualitative data - goals, values, risk tolerance, health, family dynamics, attitudes toward money - are not numerical. Quantitative data are the balance sheet, cash-flow statement, tax returns, policies, and statements. A very common item asks you to classify a fact; "the client is uncomfortable with market volatility" is qualitative.
Fiduciary and practice standards
Know the duty of care and duty of loyalty, the obligation to act in the client's best interest, the requirement to disclose conflicts and compensation, and the importance of defining the scope of the engagement in writing. Ethics questions usually hinge on disclosure and putting the client's interest ahead of the planner's compensation.
Traps
- Selecting a recommendation in step 1 or 2 when the question asks what to do next.
- Mixing up BEGIN and END modes on annuity problems, or ignoring payments-per-year settings.
- Using a simple subtraction for real return instead of the exact ratio formula.
Worked example
A portfolio is expected to earn 7.2% nominal while inflation runs 2.9%. The inflation-adjusted (real) return is (1.072 / 1.029) − 1 = 4.18%, not 4.3%. Rule of thumb: rough subtraction is fine for intuition, but select the ratio answer when it appears.