FPWMP cheat sheet

The planning process follows seven steps: establish the engagement, gather data and documents, analyze the client's situation, develop recommendations, present the plan, implement, and monitor.

Fiduciary duty requires placing the client's interest first, disclosing material conflicts in writing, and obtaining informed consent before acting on a conflict.

Engagement scope must state deliverables, fees, compensation method, and the client's responsibilities; scope changes require a written amendment.

Material facts must be disclosed to the client, including compensation from third parties, referral arrangements, and proprietary product interests.

Suitability differs from fiduciary best-interest: suitability compares a recommendation to the client's profile, while best-interest also requires mitigating conflicts.

Client risk tolerance, time horizon, liquidity needs, and goals are documented before any recommendation is made.

Monitoring obligations continue after implementation; the agreed review frequency is defined in the engagement letter.

Confidentiality applies to all client information; disclosure is permitted only with consent or where legally compelled.

Net cash flow equals gross income minus taxes minus fixed expenses minus variable expenses minus debt service.

Emergency reserve target is typically three to six months of essential expenses; longer horizons apply to variable or single-income households.

Savings rate equals savings divided by gross income; it drives the timeline to any funding goal more than investment return does in the short run.

Consumer debt should generally be retired before taxable investing when the after-tax interest cost exceeds the expected after-tax return.

Debt avalanche retires highest-interest balances first and minimizes total interest; debt snowball retires smallest balances first and maximizes behavioral momentum.

Debt service ratio equals monthly debt payments divided by gross monthly income; many lenders prefer it below 36 percent including housing.

Amortizing loans allocate early payments mostly to interest; extra principal payments shorten term and reduce total interest.

Budget variance equals actual spending minus planned spending; a negative variance is unfavorable for expenses.

Risk handling options are avoidance, reduction, retention, and transfer; insurance is a transfer mechanism.

Human life value estimates coverage as the present value of the insured's future earnings net of self-maintenance costs.

Needs analysis for life insurance equals debts plus income replacement plus education and final expenses, minus existing assets and coverage.

Term insurance provides pure death benefit with no cash value; permanent coverage combines death benefit with cash accumulation and higher cost.

Disability benefit periods, elimination periods, and own-occupation versus any-occupation definitions determine the real value of a policy.

Umbrella liability sits above auto and homeowners limits and is triggered only after underlying limits are exhausted.

Coinsurance clauses in property policies reduce recovery when the insured limit is below the required percentage of replacement cost.

Long-term care policies are underwritten on health at issue; waiting periods and inflation riders materially change premium and benefit adequacy.

Expected portfolio return equals the weighted average of asset class expected returns; portfolio variance depends on weights, variances, and covariances.

Diversification reduces unsystematic risk; systematic market risk remains and is compensated with a risk premium.

Sharpe ratio equals portfolio return minus the risk-free rate divided by standard deviation.

Beta measures sensitivity to market movements; a beta of 1.2 implies roughly 20 percent greater volatility than the market.

Asset allocation is driven by time horizon, risk capacity, risk tolerance, and liquidity needs rather than by market forecasts.

Rebalancing to target weights controls drift; thresholds or calendar intervals define the rebalancing discipline.

Tax-efficient placement holds tax-inefficient income assets in tax-deferred accounts and tax-efficient equity in taxable accounts.

Duration approximates bond price sensitivity to a one percentage point change in interest rates.

Retirement funding need equals desired annual spending minus guaranteed income sources, inflated to the retirement date and discounted to present value.

The replacement ratio compares retirement income to pre-retirement income; lower-income households generally need a higher ratio.

Sequence-of-returns risk is the danger of poor returns early in withdrawal; it is mitigated by a cash reserve, flexible spending, or a rising equity glide path.

The sustainable withdrawal rate is the inflation-adjusted percentage of the initial portfolio that survives the planned horizon at a chosen confidence level.

Social Security claiming before full retirement age permanently reduces benefits; delayed claiming past full retirement age increases them by delayed retirement credits.

Required minimum distributions apply to tax-deferred accounts after the statutory age; Roth IRAs are not subject to lifetime RMDs.

Annuities convert assets into guaranteed income; immediate annuities start payments now, deferred annuities accumulate first.

Retirement income sequencing draws taxable, tax-deferred, and tax-free accounts in an order that manages bracket and premium exposure.

Marginal tax rate applies to the next dollar of income; effective tax rate equals total tax divided by total income.

Capital gains are long-term if the holding period exceeds one year; short-term gains are taxed at ordinary rates.

Tax-loss harvesting offsets realized gains and up to the allowed annual ordinary income amount, with excess carried forward.

Wash sale rules disallow a loss when a substantially identical security is bought within 30 days before or after the sale.

Standard deduction versus itemized deduction choice depends on the sum of eligible itemized amounts.

Above-the-line deductions reduce gross income before the standard or itemized deduction is applied.

Tax-deferred growth defers taxation until withdrawal; tax-free growth requires qualified distributions from designated accounts.

Estimated tax payments are required when withholding is insufficient; underpayment penalties apply to the shortfall.

Gross estate includes all assets owned at death, certain transfers with retained interests, and life insurance proceeds where the decedent held incidents of ownership.

The unlimited marital deduction defers estate tax between spouses but does not eliminate it at the second death unless portability or a trust is used.

Portability allows a surviving spouse to use the deceased spouse's unused exclusion amount, subject to a timely election.

Annual exclusion gifts avoid gift tax reporting and remove future appreciation from the estate.

Irrevocable life insurance trusts remove policy proceeds from the estate if the three-year lookback rule is satisfied.

Step-up in basis at death eliminates capital gains on appreciated assets but may increase estate tax exposure.

Intestacy statutes control distribution when no valid will exists; beneficiary designations override the will for retirement accounts and insurance.

Powers of attorney and health care directives address incapacity; they do not transfer assets at death.

Loss aversion makes losses feel roughly twice as painful as equivalent gains, producing risk-averse behavior after gains and panic selling after losses.

Anchoring causes clients to fixate on a purchase price or prior portfolio peak when judging current decisions.

Confirmation bias leads clients to seek information that supports existing beliefs and to discount contrary evidence.

Recency bias extrapolates recent market performance into long-term expectations.

Mental accounting treats money differently based on its source or label, producing inconsistent risk decisions.

Active listening techniques include paraphrasing, reflecting emotion, and open-ended questioning before offering recommendations.

Financial anxiety and money scripts from family of origin influence spending and saving behavior; identifying them improves plan adherence.

Communication should match the client's financial literacy level; technical terms are explained before decisions are requested.

Fees may be flat, hourly, asset-based, or retainer; compensation structure must be disclosed and conflicts mitigated.

Custody of client assets triggers heightened controls, including qualified custodian requirements and surprise examinations.

Know-your-client obligations require collecting and documenting financial situation, objectives, and risk tolerance before recommending.

Advertising rules prohibit misleading statements, testimonials without required disclosures, and performance claims that cannot be substantiated.

Privacy rules require safeguarding nonpublic personal information and providing required notices.

Business continuity planning addresses succession, key-person risk, and client notification in the event of incapacity or death.

Errors and omissions insurance covers professional liability claims arising from advice and service failures.

Recordkeeping rules set retention periods for client files, communications, and compliance records.

The code of ethics core principles are integrity, objectivity, competence, fairness, confidentiality, professionalism, and diligence.

Objectivity requires intellectual honesty and impartiality regardless of compensation or personal interest.

Competence requires maintaining the knowledge and skill needed for the engagement and declining work outside one's expertise.

Fairness requires disclosing conflicts, fees, and referral arrangements in a manner the client can understand.

Confidentiality is limited by legal requirements, client consent, and the need to prevent fraud or harm.

Diligence requires timely delivery of services and thorough documentation of the planning process.

Ethical decision frameworks ask whether the action is legal, balanced among stakeholders, and defensible if publicly disclosed.

Violations may result in discipline by regulators or professional bodies; documentation supports defense of recommendations.

Fiduciary standard applies to advisers providing advice for compensation; suitability standard applies to broker-dealers under the older framework.

Regulatory best-interest standards require acting in the client's best interest, disclosing conflicts, and considering reasonably available alternatives.

Form ADV parts 1 and 2 require disclosure of business practices, conflicts, fees, and disciplinary history.

Registration requirements depend on assets under management and state or federal thresholds.

Anti-money-laundering programs require customer identification, monitoring, and suspicious activity reporting.

Complaint handling requires logging, investigation, and response within regulatory timeframes.

Investment policy statements document objectives, constraints, and review procedures for institutional clients.

Cybersecurity rules require written policies, access controls, and incident response planning.