RFP Philippines cheat sheet

The six-step financial planning process: establish the engagement, gather data and goals, analyze the current situation, develop recommendations, present and implement, then monitor and review.

A written engagement letter should record scope of work, fees, responsibilities of both parties, and the term of the engagement before any advice is given.

Quantitative data are objective facts such as income, assets, liabilities, and policy values; qualitative data cover goals, attitudes, risk tolerance, and health.

The planner's duty of care requires recommendations to be suitable for the client's objectives, time horizon, liquidity needs, and risk tolerance.

Conflicts of interest must be disclosed in writing; commissions, referral fees, and third-party compensation are typical disclosures in the Philippine market.

A financial plan should state assumptions explicitly (inflation, return, mortality, tax rates) so the client can see how conclusions depend on them.

Monitoring is a continuing obligation: the plan should specify review frequency and trigger events such as job change, marriage, or inheritance.

Documentation of the analysis and the rationale for each recommendation supports both continuity of service and defense in a complaint.

Risk management sequence: identify exposures, measure them, choose a treatment (avoid, reduce, retain, transfer), implement, then monitor.

Life insurance need methods include the human life value approach, the needs (capital retention) approach, and the capital utilization approach; each gives different face amounts.

Under the Insurance Code, the beneficiary must have an insurable interest in the insured at policy inception; the insured's own life policy needs no third-party interest.

Incontestability: after two years from issuance or reinstatement, the insurer generally cannot contest the policy for misrepresentation except for fraud or non-payment of premium.

A reinstated lapsed policy restarts contestability and may restart the suicide exclusion period; unpaid premiums may be deducted or a policy loan taken.

Non-forfeiture options on lapse of a cash-value policy include cash surrender value, reduced paid-up insurance, and extended term insurance.

Health insurance decisions compare deductible, coinsurance, annual out-of-pocket cap, and network; HMO vs. indemnity products differ in gatekeeping and reimbursement.

Disability income need is estimated as a share of pre-disability income, adjusted for existing coverage, waiting period, and benefit period.

Nominal return minus inflation approximates the real return; the exact real return is (1 + nominal)/(1 + inflation) - 1.

Risk-return tradeoff: expected return should be evaluated against the standard deviation of returns and the correlation of the asset with the rest of the portfolio.

Diversification reduces unsystematic risk; systematic (market) risk remains and is compensated by the market risk premium.

Time-weighted return measures manager performance; money-weighted (IRR) return reflects the investor's actual cash-flow timing.

A client's risk tolerance has both ability (financial capacity, horizon) and willingness (psychological) components; the binding constraint governs the allocation.

Asset allocation across equity, fixed income, and cash is the primary driver of long-run portfolio variability, more than individual security selection.

Cost drag: expense ratios, sales loads, and trading costs compound against the client; compare net-of-cost returns, not gross.

Rebalancing to target weights controls drift in risk exposure; thresholds or calendar rules should be written into the investment policy statement.

Retirement funding gap = projected annual retirement expense minus expected recurring income (pension, SSS/GSIS, rental), then capitalized to a lump sum at retirement.

The replacement ratio approach expresses required retirement income as a percentage of pre-retirement income; it is quick but ignores individual spending detail.

Inflation during the accumulation phase raises the future cost of living; use a real (inflation-adjusted) return or inflate expenses to the retirement date.

Longevity risk is managed by annuitizing part of the portfolio, delaying retirement age, or maintaining a conservative withdrawal rate.

Sequence-of-returns risk: poor returns early in drawdown deplete capital faster than the same average return earned later.

SSS and GSIS pensions are defined-benefit in nature; the retirement benefit depends on credited years of service and the salary base, not on market returns.

The PERA (Personal Equity and Retirement Account) is a voluntary retirement vehicle with tax incentives and an annual contribution cap set by regulation.

Required minimum distributions do not apply to PERA in the same way as US IRAs; withdrawal before age 55 generally triggers penalties and tax on earnings.

Residence-based taxation: Philippine citizens and residents are taxed on worldwide income; non-resident aliens only on Philippine-source income.

Graduated income tax rates apply to individuals; the first P250,000 of annual taxable income is exempt under the TRAIN schedule.

Self-employed and professional taxpayers may elect the 8% flat tax on gross sales/receipts in lieu of graduated rates and percentage tax, subject to the P3 million VAT threshold.

Capital gains on sale of listed shares are subject to stock transaction tax; sale of unlisted shares is subject to capital gains tax on net gain.

Sale of a principal residence may be exempt from capital gains tax if the proceeds are fully reinvested within the prescribed period and the requirements are met.

Estate tax is a transfer tax on the net estate; the TRAIN law set a single rate and a standard deduction, with a family home deduction subject to a cap.

Donor's tax is imposed on gratuitous transfers; annual exemptions apply to certain gifts, and transfers between spouses are generally exempt.

Tax avoidance uses legal means within the statute; tax evasion is illegal and involves concealment or false reporting.

Estate planning tools: will (holographic or notarial), trusts, life insurance beneficiary designations, joint accounts, and lifetime gifts.

Legitime is the portion of the estate reserved by law for compulsory heirs; the free portion may be disposed of by will.

Compulsory heirs include legitimate children and descendants, the surviving spouse, and legitimate ascendants, in the order set by the Civil Code.

Intestate succession applies when there is no valid will; the order is descendants, ascendants, spouse, then collateral relatives and the State.

Life insurance proceeds pass to a named beneficiary outside the estate and are generally not part of the gross estate, unless the estate is the beneficiary.

The gross estate includes real property, personal property, and taxable transfers; deductions include standard deduction, family home, and claims against the estate.

A trust can provide for minors or incapacitated heirs, but the settlor must consider the tax treatment of the trust and the trustee's powers.

Probate settles the estate under court supervision; a will contest or intestate proceeding lengthens the settlement and increases cost.

Net worth = assets at fair value minus liabilities; cash flow surplus = income minus expenses, and should be tracked monthly.

Emergency fund target is typically three to six months of essential expenses, held in liquid, low-volatility accounts.

Debt prioritization: compare after-tax interest cost of each debt; high-interest credit card balances are usually retired before investing.

Debt-to-income ratio = total monthly debt payments / gross monthly income; a high ratio reduces loan capacity and signals over-leverage.

Education funding: estimate future tuition by inflating current cost, then compute the annual savings needed using the expected return and time horizon.

Housing affordability: lenders assess loan-to-value, debt service ratio, and appraisal; a larger down payment lowers the loan and the interest cost.

Amortization: early payments are mostly interest; prepaying principal shortens the term and saves interest more than the same amount invested later.

Budget methods include the 50/30/20 rule (needs/wants/savings) and zero-based budgeting; the choice depends on income variability.

Mandatory employee benefits include SSS, PhilHealth, Pag-IBIG contributions, 13th month pay, and service incentive leave under the Labor Code.

Retirement pay under the Labor Code applies to employees in establishments with no retirement plan, based on years of service and half-month salary per year.

Group life and health insurance provide employer-sponsored coverage; portability and conversion rights on termination should be checked.

Business owner risk: key-person insurance protects the firm against the loss of a critical individual; buy-sell agreements fund the transfer of a deceased owner's share.

Entity choice affects taxation: a sole proprietorship is taxed on the owner's income; a corporation is taxed at the corporate rate with possible owner-level taxes on dividends.

Business succession requires a written plan covering ownership transfer, management transition, and funding, coordinated with estate planning.

Executive compensation may include stock options, bonuses, and deferred compensation; tax timing differs between grant, vesting, and exercise.

Separation pay and retirement benefits are generally excluded from gross income only within the limits set by the Tax Code and implementing rules.

Fiduciary duty requires the planner to act in the client's best interest, place the client's interest above the planner's, and avoid or disclose conflicts.

Informed consent means the client understands the recommendation, its risks, costs, and alternatives before acting.

Confidentiality: client information may not be disclosed without consent except where required by law or to prevent a crime.

Competence: a planner should decline or refer work outside their expertise; continuing education maintains competence.

Fair dealing prohibits misleading marketing, exaggerated credentials, and guarantees of investment performance.

Compensation transparency: fees, commissions, and third-party payments should be disclosed in writing before the engagement.

Records should be kept for a period sufficient to support the advice and to respond to a complaint or regulatory inquiry.

A conflict between the planner's firm and the client must be resolved in the client's favor; otherwise the engagement should be declined.