FSCP flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Six-step planning process

Establish and define the relationship, gather client data and goals, analyze the situation, develop the plan, implement recommendations, and monitor progress. Each step ends with documented client agreement.

Net worth identity

Assets minus liabilities equals net worth. A balance sheet shows this at a point in time, while a cash flow statement shows income minus expenses and savings over a period.

Rule of 72

Approximate doubling time in years equals 72 divided by the annual growth rate. At 6% a balance doubles in about 12 years; at 9% in about 8 years.

Real rate of return

Approximately the nominal return minus inflation. The exact formula is (1 + nominal) divided by (1 + inflation) minus 1, which shows purchasing power growth.

Taxable equivalent yield

Tax-exempt yield divided by one minus the marginal tax rate. At a 32% bracket, a 3% municipal yield equals about 4.41% taxable, used to compare bonds.

Fiduciary duty

Act in the client's best interest, disclose conflicts in writing, and provide full and fair disclosure of material limitations. It is stricter than the suitability standard.

Prospecting funnel ratios

Track dials, contacts, appointments, and closes weekly. A common benchmark is roughly ten dials producing five contacts, two appointments, and one new client.

Centers of influence

Referral sources such as CPAs, attorneys, and realtors. Each relationship needs a defined value exchange, not one-way requests, to produce consistent referrals.

Specific referral ask

A request naming the profile and timing, such as asking who recently changed jobs. Specific asks outperform generic requests to send referrals.

Client segmentation tiers

Group clients by revenue and need. Top-tier clients receive proactive contact and comprehensive service; lower tiers receive automated or annual touchpoints to control cost.

Social media compliance

Firm social media profiles and posts are communications subject to pre-approval, supervision, and archiving under firm policy and recordkeeping rules.

Contact cadence

The planned frequency of meaningful touches per prospect or client, often at least twelve per year for top prospects, mixing calls, email, events, and reviews.

Discovery meeting agenda

Confirm goals, quantify time horizon and liquidity needs, assess risk tolerance, and document decision-making style before presenting any recommendation.

Know-your-client data

Age, dependents, income sources, balance sheet, insurance coverage, employer benefits, tax bracket, and estate documents form the core client profile.

DIME insurance method

Death benefit need equals Debt plus Income replacement plus Mortgage plus Education costs, minus existing liquid assets and current coverage.

Suitability versus fiduciary

Suitability requires a reasonable basis that a recommendation fits the client. Fiduciary requires client-best-interest advice and full conflict disclosure.

Goal funding formula

Required annual saving equals the future goal value divided by the future value of an annuity factor for the time horizon and assumed return.

Review triggers

Events requiring a plan update include job change, marriage, divorce, birth, inheritance, a market drop over 20%, and new tax law.

Sequence-of-returns risk

Poor early retirement returns reduce sustainable income more than the same average return earned later. Cash buckets and flexible spending mitigate it.

Social Security delayed credits

Claiming after full retirement age adds about 8% per year to age 70. Claiming at 62 permanently reduces the benefit by roughly 30%.

Required minimum distributions

Traditional IRA and 401(k) withdrawals must begin at age 73 for those born 1951-1959 and age 75 for those born 1960 or later.

Asset location

Placing bonds in tax-deferred accounts, tax-efficient equity index funds in taxable accounts, and highest-growth assets in Roth accounts to improve after-tax returns.

Sharpe ratio

Portfolio return minus the risk-free rate, divided by standard deviation. It measures excess return per unit of total volatility for comparing strategies.

Bond duration

Duration approximates the percentage price change for a 1% change in yield. Bond prices and yields move inversely, so longer duration means more rate risk.

401(k) contribution limits

In 2024 employee deferrals are capped at $23,000, plus $7,500 catch-up at age 50 and over. Employer match is separate and subject to annual additions limits.

Practice valuation multiples

Recurring-revenue advisory firms commonly trade at roughly two to four times recurring revenue or an EBITDA multiple, adjusted downward for client concentration.

Continuity versus succession

Continuity covers the owner's death or disability through a prearranged buyer. Succession is the planned transfer of the business at retirement.

Form ADV Part 2A

The SEC-registered adviser's client brochure describing services, fees, conflicts of interest, and disciplinary history. Part 2B covers supervised persons.

Estate tax exemption

The federal exemption is $13.61 million per person in 2024. Portability lets a surviving spouse use the deceased spouse's unused exemption with a timely return.

Step-up in basis

Assets inherited at death receive a basis equal to fair market value, eliminating capital gains on prior appreciation. Lifetime gifts carry over the donor's basis.

Loss aversion

Losses feel roughly twice as painful as equivalent gains. Frame recommendations around long-term goals to reduce panic selling during declines.

Regulation S-P

Requires written information security policies, employee training, and vendor oversight to protect nonpublic personal information held by financial firms.