The Tools & Techniques of Financial Planning, 14th Edition

By Stephan Leimberg, Carolynn Tomin and William B. Reeve

Part of the popular Tools & Techniques Series and Leimberg Library, the 14th Edition of The Tools & Techniques of Financial Planning covers all aspects of financial planning, including budget and cash management, credit and debt management, education funding, retirement planning, tax and investment issues, risk management, and estate planning. Complete with the key principles, processes and practices of financial planning, this must-have resource offers planners a well-organized approach for developing financial planning strategies and meeting client objectives.

In addition to providing helpful charts, handy checklists, and insightful case studies, The Tools & Techniques of Financial Planning features:

• Clear, easy-to-read descriptions of all aspects of financial planning, including cash and budgeting issues, education and retirement planning, risk management, investment, estate and insurance planning, and tax issues
  • In-depth discussions of fundamental concepts like business law, property ownership and economic principles
• A comprehensive guide to calculating time value of money with keystroke solutions and practical examples
• Professional ethics for major professional organizations and practice standards in the financial planning field
• Helpful examples show how concepts apply for real-world planning scenarios
• Detailed citations that provide jumping off points for more detailed research needs

New in the 14th Edition:

• Newly revised chapter on Time Value of Money which includes the basic concepts of TVM and step-by-step calculator instructions to solve TVM calculations
• Updated tax and accounting information, including updated statistics and government policy information
• Updated insurance and risk management content

Key Topics Covered:

• Time Value of Money
• CFP Standards
• Budget and cash management
• Credit and debit management
• The planner-client relationship

As with all the resources in the highly acclaimed Leimberg Library, every area covered in this book is accompanied by the tools, techniques, practice tips, and examples you can use to help your clients successfully navigate the complex course of financial planning and confidently meet their needs.

• Language: English
• Publisher: The National Underwriter Company
• Release date: Sep 11, 2023
• ISBN: 9781588528131

Book preview

CHAPTER 1: WHAT IS FINANCIAL PLANNING?

TOPICS COVERED IN THIS CHAPTER:

The Art and Science of Financial Planning

CFP Board Practice Standards for the Financial Planning Process

LEARNING OBJECTIVES:

To ensure you have an understanding of the process of financial planning and the components of a financial plan, the following learning objectives are addressed in this chapter:

Define financial planning and describe its purpose.

Describe the Practice Standards employed during each step of the financial planning process.

Identify common financial planning goals and resources that are available to meet them.

Explain the components of a comprehensive financial plan and the analysis involved in creating one.

Effectively communicate the financial planning recommendations to clients.

CHAPTER CONTENTS:

Introduction

The Financial Planning Process

What a Financial Plan Should Cover

Presenting the Recommendations

1.1 INTRODUCTION

Financial planning is an interdisciplinary and strategic process that provides financial planning advice and services to clients. According to CFP Board, which sets and maintains professional standards for CFP® certification, financial planning is a collaborative process that helps maximize a Client’s potential for meeting life goals through Financial Advice that integrates relevant elements of the Client’s personal and financial circumstances. ¹ The practice of financial planning is both an art and a science. The art of financial planning involves effective use of communication and interpersonal skills to engage with clients in a meaningful way. The science of financial planning integrates a planner’s technical knowledge with their practical expertise to develop financial planning solutions for clients. Financial planners analyze client data, strategize alternative courses of action, and develop financial planning recommendations that are compatible with a client’s values, beliefs, and goals. The competent and skillful application of this process when combined with the art of financial planning becomes the heart or the essence of financial planning. In the purest sense, financial planning is, quite simply, cash flow planning. It is planning to have available the amount of cash needed at the time it is needed, or in the hands of the desired person, to accomplish an individual’s financial goals.

The steps taken to implement a financial plan will be in response to these cash flow goals. For example, if a couple is currently retired and their only source of cash to maintain their lifestyle is the limited investments in their Individual Retirement Accounts (IRAs), those investments will need to be structured more for current income and less for appreciation. On the other hand, if the couple is comfortable, and have more than enough assets to handle their personal financial needs for the rest of their lives, they may allocate more of their investments for growth in order to enhance their ultimate bequests to their children or to charity.

Financial planning can also be defined as:

Creating order out of chaos.

A deliberate and continuing process by which a sufficient amount of capital is accumulated and conserved and adequate levels of income are attained to accomplish the financial and personal objectives of the client.

The development and implementation of coordinated plans for the achievement of a client’s overall financial objectives.

An effective and integrative combination of income tax planning, retirement planning, estate planning, investment and asset allocation planning, education planning, and risk management planning. These subject areas represent the core competencies of the financial planning profession.

An exploration of a person’s attitudes toward life and money, and what is most meaningful in their life relative to money. This is the essence of life planning in the context of financial planning.

There seems to be no one universally accepted definition of financial planning. That’s understandable since the planner’s role must be as different as the needs of clients and their ability or willingness to pay for advice. No two people or problems will ever be exactly the same. Consider that every individual’s finances are planned, some by inaction, lack of concern, or failure to appreciate the multitude of problems standing between the individual and his or her goals; in effect, having no plan is a plan. These individuals allow fate to do their planning. The results are often disappointing and sometimes tragic and disastrous. Others take a careful, calculated, and systematic approach to financial security. Their peace of mind is justified by the existence of a judicious mix of assets producing both adequate income and sufficient capital to safely meet their goals. The definition of financial planning may not be universal, but there is no doubt that engaging in a financial planning process can make a difference in people’s lives.

The purpose of financial planning is to find and implement targeted financial solutions that will help clients achieve their personal goals. One step in the process is to analyze a client’s current financial circumstances to identify any obstacles or problems that may prevent them from reaching their goals. The financial problems our clients most commonly face in their lives can be categorized by the letters L-I-V-E-S.

Lack of Liquidity. Liquidity is the possession of sufficient cash and/or income to pay bills, debts, taxes, and other expenses on time. A lack of liquidity is the inability to quickly turn invested capital into spendable cash without incurring unreasonable cost. This problem can result in a forced sale of assets at pennies on the dollar. For instance, if a client must sell stocks or mutual fund shares in a down market, or if an executor must sell a valuable real estate portfolio to pay federal or state death taxes and administrative expenses, the buyer will offer to pay the lowest possible price for the most precious asset. This forced sale often becomes a fire sale, a loss of prime growth, or income producing assets at a fraction of their real value.

Inadequate Resources. Insufficient capital or income in the event of death, disability, at retirement, or for special needs such as college or preparatory school education or to provide needed services for a disabled child.

Inflation. Not enough has been done to inflation proof the client’s portfolio. Figure 1.1 emphasizes the crippling impact of inflation on each dollar’s ability to buy goods and services.

Improper Disposition of Assets. The client is leaving the wrong asset to the wrong person at the wrong time and in the wrong manner. Picture, for instance, a client leaving a sports car to a child or $100,000 cash outright to a twenty-one-year-old college student.

Value. Not enough has been done to stabilize and maximize the financial security value of the client’s business and other assets.

Excessive Taxes. Excessive taxes add to the cost of an investment and retard progress toward a client’s objectives to accumulate wealth.

Special Needs and Other Issues. Clients have desires, needs, fears, and concerns that go beyond mere quantifiable goals. Psychological aspects such as a need for assurance, comfort, and security should be addressed as part of the financial planning process. For example, a client may want to provide additional levels of financial care for a spouse or children who are physically or emotionally disabled.

Figure 1.1

1.2 THE FINANCIAL PLANNING PROCESS

The financial planning process involves the development and implementation of a financial plan that recommends how clients can achieve their life-fulfilling goals and priorities. The challenge is to develop financial planning solutions and implementation strategies based on the many different, and sometimes conflicting, financial goals that clients want to accomplish. Financial plans are constrained by the resources that are available to achieve these goals. Financial planning outcomes are further affected by economic conditions, a client’s time horizons, a client’s ability and willingness to assume investment risk, and many other personal, financial, and economic factors.

Some clients will require comprehensive financial planning to help them achieve multiple financial goals. A comprehensive financial plan will integrate and synthesize the various subject areas of financial planning together. Others may need only targeted advice or a modular financial plan to provide them with specific planning recommendations. Regardless of the extent of the financial planning services that will be provided, a process for providing financial planning advice and services must be followed.

There are seven steps in the financial planning process, as outlined by CFP Board’s Practice Standards for the Financial Planning Process.² CFP® practitioners must comply with the Practice Standards when they provide financial planning or financial advice that integrates the client’s personal and financial circumstances. The Practice Standards must be integrated into the development of a financial plan and addressed when communicating the plan to a client. The Practice Standards are presented here in the order that must be followed:

Understanding the client’s personal and financial circumstances

Identifying and selecting goals

Analyzing the client’s current course of action and potential alternative course(s) of action

Developing the financial planning recommendation(s)

Presenting the financial planning recommendation(s)

Implementing the financial planning recommendation(s)

Monitoring progress and updating responsibilities

Financial planners may meet with clients of all ages who are in different life-cycle stages based on their age and financial circumstances. There are typical financial planning concerns and objectives for individuals within specific stages. For example, younger clients may be interested in establishing their careers, accumulating wealth, saving for homeownership, and paying down education loans or credit card debt. Older clients are interested in protecting and preserving their wealth and planning for the disposition of their estates. Yet each client has individual goals that must be identified and prioritized, no matter what life cycle stage they are in. Many common financial planning goals and objectives can be broadly categorized as:

maintain current lifestyle;

achieve financial security and independence;

fund children’s education;

prepare for retirement;

address estate, philanthropy, and legacy matters; and

plan for other special needs (such as a disabled child).

In the first two steps of the financial planning process, a client’s qualitative and quantitative information is obtained and analyzed, and their goals are selected. This happens before a financial planner can determine whether the client’s available resources are adequate to accomplish their financial goals and objectives.

Examples of financial planning resources are:

earned income (salary, wages, business income, rental income, royalties, bonuses, tips, commissions, etc.) while still working (full time or part time);

cash and cash equivalents such as checking and savings accounts, Certificate of Deposits, money market accounts, savings bonds etc. that are easily converted to cash;

accumulated investment assets including real estate, collectibles, deferred annuities, stock options, and cash value life insurance;

interest and dividends; and

employer pension plans, traditional and Roth IRAs, and Social Security benefits.

Nearly all long-term savings goals are met through the planned allocation of discretionary cash flow and savings, a reallocation of other assets, or a reduction in liabilities. But what happens when a client’s resources are not adequate to attain all of their goals and objectives? Sometimes compromises need to be made, but, more commonly, and more accurately, the clients must engage in a process of prioritization. The financial resources must be dedicated to whichever goal or goals the client determines is most important.

For example, when a client wants to determine whether he will be able to retire at a certain age, the process usually involves comparing the expected accumulated resources at the desired retirement date to the remaining lifetime financial needs from the retirement date on. If it is determined that the resources are not adequate to cover those needs, the client must evaluate other options (or combinations thereof):

analyze current expenditures to find ways to economize, reduce spending, and accumulate greater savings. This may reduce lifestyle, currently and/or during retirement;

examine debts, loans, and liabilities to determine if reducing, consolidating, or restructuring debt is feasible. Create a debt management plan that prioritizes payments of high-interest, non-tax-deductible debt;

liquidate assets to fund current or future expenditures;

modify investment strategy to yield a higher return and lower taxes, knowing that there may be a commensurately higher risk; and/or

retire later.

It is very difficult for most individuals approaching retirement date to significantly reduce their lifestyle. It is also foolhardy for someone nearing retirement, with limited resources, to take the risk of investing for a significantly higher rate of return. There simply is no time to recover from a negative result. Consequently, the alternative that typically takes priority is extending the retirement date or planning to work during retirement to supplement income. There is very little room to compromise. In addition, any desire to leave a significant estate for the next generation will usually take a back seat to the priority of maintaining current lifestyle.

1.3 WHAT A FINANCIAL PLAN SHOULD COVER

A financial plan is prepared to communicate the financial planning recommendations to a client. The financial plan is the product of the financial planning professional’s analysis and should be a carefully prepared document that summarizes for the client, the client’s family, and the client’s advisers, the following:

Analysis: Where You Are Now

Objectives: Where You Want to Be

Strategy: How to Get to Where You Want to Be

It does not matter whether a financial planner writes comprehensive or modular plans, the real issue is not the plan, or its format, style, or length. What matters is the ability of the plan to communicate the outcome of the planning process to the client and to enable the client to take positive actions toward their financial future. ³ The breadth and depth of the report must be determined by the financial planner and the client, who together will define the scope of the professional engagement (does the client want you to do a full analysis or just solve one or two problems?).The format and length of the plan is also influenced by time and cost considerations, and by the planner’s writing style. The steps in the financial planning process must be integrated into the development of the financial plan and communicated to the client when presenting the financial plan.

A good rule of thumb is, overstate and bore, understate and score. Most clients prefer to have their problems and potential solutions stated as succinctly, and as graphically as possible. We suggest liberal use of graphs, bullet points, and checklists throughout the report. The report should conclude with an action plan that summarizes and prioritizes the steps that need to be taken to implement the plan. Each party’s implementation responsibilities should be clearly addressed and acknowledged by all parties.

See Figure 1.2 for a table of contents for a full-blown analysis.

Figure 1.2

1.4 PRESENTING THE RECOMMENDATIONS

Financial planning recommendations must be skillfully and objectively presented to clients so they may clearly understand the advantages of pursuing particular courses of action. The presentation should serve to educate and motivate clients to take the necessary steps to accomplish their goals. There is specific information that should be communicated to clients when presenting the financial planning recommendations.

Goals- reiterate the client’s goals in their order of priority

Assumptions- address the qualitative information that was obtained from the client that impacts the financial planning recommendations such as health, longevity, family circumstances, client values, attitudes, expectations, risk tolerance assessment, estimates, economic forecasts, etc.

Observations and findings- provide an analysis of the current course of action and whether it can potentially meet client goals based on the client’s quantitative and qualitative information

Alternatives- discuss some alternative courses of action for meeting client goals

Recommendations- present the basis for making the recommendations and explain how recommendations are intended to accomplish client goals and improve the client’s financial and personal circumstances. Address how specific products or services are designed to implement the planning recommendations.

Prioritize recommendations- discuss the timing and the priority of the recommendation

Implementation- explain whether the recommendation is independent or must be implemented with another recommendation.

Once recommendations are presented to a client, the following steps should be taken:

Obtain feedback from the client and revise the recommendations as appropriate

Provide documentation of plan recommendations and any additional disclosures

Verify client acceptance of recommendations

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¹. CFP Board Code of Ethics and Standards of Conduct, available at: https://www.cfp.net/ethics/code-of-ethics-and-standards-of-conduct.

². CFP Board Practice Standards for the Financial Planning Process, available at: https://www.cfp.net/ethics/code-of-ethics-and-standards-of-conduct.

³. R. Lytton, J. Grable and D. Klock, The Process of Financial Planning, The National Underwriter Company 2013.

CHAPTER 2: FINANCIAL PLANNERS AND THE PLANNING PROCESS

TOPICS COVERED IN THIS CHAPTER:

The Financial Planning Process

CFP Board’s Standards of Conduct

LEARNING OBJECTIVES:

To ensure you have an understanding of financial planning responsibilities and the steps involved in creating a financial plan, the following learning objectives are addressed in this chapter:

Discuss the fiduciary standard and its importance to the planner-client relationship.

Describe a financial planner’s professional responsibilities and knowledge requirements.

Identify professional organizations that provide education and credentialing for financial planners.

Explain the steps involved in the financial planning process and the duties and activities that are required of financial planners to execute them.

Describe the Practice Standards employed during each step of the financial planning process and how they are integrated into the development of a financial plan.

CHAPTER CONTENTS:

Who is a Financial Planner?

The Collaborative Approach to Financial Planning

Professional Financial Planning Education and Credentials

Certified Financial Planning (CFP) Board

The American College

AICPA- Personal Financial Specialist (CPA/PFS)

Financial Planning Association (FPA)

National Association of Personal Financial Advisors (NAPFA)

The Society of Financial Service Professionals

The Financial Planning Process

Establish the Relationship

Gather Background Information

Establish Financial Objectives

Develop Financial Plans

Control and Execute Plans

Measure Performance

Financial Planning Practice Standards

CFP Board Financial Planning Practice Standards

2.1 WHO IS A FINANCIAL PLANNER?

The term financial advisor broadly refers to specialists who help people manage their money. Financial professionals range from financial planners, insurance agents, investment advisors, wealth managers, brokers, accountants, bankers, money managers, and others. A financial planner typically helps people meet their financial and personal goals by engaging in the process of financial planning. All financial planners are financial advisors, but not every financial advisor is also a financial planner. A Certified Financial Planner™ professional is authorized by CFP Board of Standards to use the CFP® certification mark, which is considered a mark of excellence in financial planning. It demonstrates to the public that the CFP® professional has met the strict standards of education, examination, experience and ethics. At all times when providing financial advice to a client, a CFP® professional must act as a fiduciary and act in the best interests of the client.

It is foolhardy, even negligent in some cases, to expect that any adviser, no matter how bright or knowledgeable, will know everything necessary to properly execute a comprehensive financial plan. For this reason, a team approach to financial planning may be warranted. A financial planning team should include several other advisors: a CPA (for tax matters), a tax/estate attorney (for legal matters and drafting), a CFP®, ChFC®, or CPA/PFS (for specific financial advice), a CLU® (for life insurance), and a CPCU (for property and casualty insurance advice). Financial planners may be licensed to perform some of these duties as well. For example, many are registered investment advisors who are licensed to sell securities and insurance products. Others may have multiple professional credentials such as CPA or JD which further enables them to perform tax planning services or to practice law. CFP Board’s Standards of Conduct states that, a CFP® professional must provide Professional Services with competence, which means with relevant knowledge and skill to apply that knowledge. ¹ When a CFP® professional is not sufficiently competent in a particular area, as required by the financial planning engagement, he or she may refer the client to a competent professional or obtain the assistance of other professional advisors. If necessary, a financial planner can assemble a team of experts to work with the client to develop planning solutions that will meet the client’s objectives. The team approach involves the coordination of special skills and expertise from all of its members who work together to serve the client’s interests.

Who should lead the financial planning process? In practice, financial planning typically will be initiated by one member of the team; most likely, but not always, this will be the financial planner. Others will contribute in varying degrees. The extent to which each will participate will be determined by the circumstances of the particular case, the experience, skills, and personalities of the parties, and their relationship with the client. Keep in mind that the client should always be considered the single most important member of the financial planning team.

Financial planners must have the ability to understand who the client is, where that client stands in relation to the objectives he or she may have, and what must be done to move the client closer to the realization of his or her goals. Knowledge of the client’s fears, hopes, dreams, family circumstances, and relationship to other family members is essential for the financial planner to apply these skills. The professional must perform the following duties when providing financial planning services to a client:

uncover and describe the nature and extent of the client’s current financial problems and professionally impress the client with the urgency and significance of action;

discuss the viable alternatives to the current course of action;

explain what should be done to meet the client’s goals and explain the basis for the recommendations;

match the financial plan’s recommendations with what the client really needs, wants, can understand, and is likely to accomplish;

match the financial plan to the client’s values, risk-taking propensity, investment philosophy, economic assumptions, and order of goal priorities; and

explain in understandable terms why present arrangements fail to accomplish the client’s objectives or maximize the utility of his resources.

Absent any one or more of these tasks, it is likely that the client’s present financial circumstances will continue unabated.

The College for Financial Planning performed an extensive study of the professional responsibilities and knowledge requirements of financial planners. The survey, conducted by Dr. Larry Skurnik, a Measurement Research Specialist, covered a large number of CFP® professionals and ChFCs® as well as others in the field. The broad categories of inquiry are instructive as to what you must do and know as a practicing financial services professional.

What you must do is:

evaluate client needs;

explain financial planning concepts;

clarify client goals;

analyze information;

prepare comprehensive financial plans;

implement comprehensive financial plans;

monitor comprehensive financial plans;

establish and maintain accurate records and perform other professional functions;

establish a procedure for periodic reviews and updates of the financial plan.

What you must know are:

communications skills;

risk management;

investment planning;

tax planning;

retirement planning; and

estate planning.

The College for Financial Planning Study indicates that aside from a necessary must know common core of skills and information, what you, as a planner, must be able to do or know depends on:

your background;

personal characteristics;

whether you are a sole practitioner, a member of a firm of planners, or an employee with a narrower range of responsibilities;

the major tasks, duties, and scope of your client engagement; and

the market in which you work.

In short, the planner must have competence in many areas and compassion and concern for the financial and emotional well-being of others.

2.2 THE Collaborative APPROACH TO FINANCIAL PLANNING

As noted above, no single financial planner can possibly know all that needs to be known or do all that needs to be done for every client. Nevertheless, no transaction should ever be recommended to a client until the planner acquires a working knowledge of how that recommendation will affect and be affected by:

taxes (income, gift, estate, and generation-skipping) at both the federal and state level;

retirement and education planning, including a practical understanding of Social Security, inflation, and the psychological dynamics of retirement planning;

estate planning, which encompasses property law, domestic relations law, and other state laws as well as tax law;

wealth and asset management, which requires, aside from knowledge of various products and their alternatives, an understanding of cash flow implications and present and future value and rate of return computations; and

risk-reward principles, both economic and psychological.

Since no one person can be adequately knowledgeable in all of these areas, a truly professional financial planner must view himself or herself as part of a financial planning collaboration with the client and with other professionals, with each professional adding to the efficiency and effectiveness of the plan.

The first step in working as a member of this team is to become aware of:

the client’s long, intermediate, and short-range goals;

the problems faced by and opportunities available to the client in the quest to achieve those goals;

what each of the other professional advisers has already done for the client; and

what each of the other professional advisers may be able to contribute to the improvement of the client’s plan to achieve his goals.

It is extremely important to note that, no matter which advisor is the coordinator of this cooperative effort, each member of the financial planning team should be offered the opportunity to participate in the process. The term team implies more than the sum of its parts and requires constant interaction and cooperation among the members to the extent necessary to achieve the client’s goals.

Most importantly, the client, the principal member of the team, must never be forgotten. Clients who are not given an opportunity to express their desires or thoughts or who do not understand a suggestion or the rationale for it will not implement or continue to follow the plan, and will resent paying what the planner feels is a reasonable price for the services rendered.

2.3 PROFESSIONAL FINANCIAL PLANNING EDUCATION AND CREDENTIALS

The major providers involved in the education of financial services professionals are the College for Financial Planning® – a Kaplan Company, The American College, CeriFi, and the many colleges and universities throughout the U.S. that offer CFP® education courses approved by CFP Board. These education providers and universities offer courses that enable students to ultimately attain professional designations such as CLU®, ChFC®, CFP®, and other professional credentials. Another professional financial planner credential of comparable merit includes the Personal Financial Specialist (PFS) designation, which is granted by the American Institute of Certified Public Accountants (AICPA) exclusively to CPAs who meet and maintain stringent requirements.

Many professional organizations also offer continuing education courses, webinars, journals, or events that provide CE credit toward meeting ongoing certification requirements. Some of these organizations include the Financial Planning Association, a leading membership organization for CFP® professionals, the National Association of Personal Financial Advisors (NAPFA), the largest professional association of fee-only comprehensive financial planners in the United States, and the Society of Financial Service Professionals, a multidisciplinary community of accomplished professionals, including CPAs, attorneys, insurance experts, and financial advisors.

2.3a Certified Financial Planning (CFP) Board

The Certified Financial Planner Board of Standards, Inc. (CFP Board) maintains professional standards for the financial planning profession by establishing and enforcing education, examination, experience, and ethics requirements for CFP® certification. CFP Board administers the comprehensive exam that leads to the Certified Financial Planner™ (CFP®) certification. CFP® certification has grown to become one of the world’s most widely recognized certifications in the financial planning profession. As of the end of 2022, there were more than 95,000 registered CFP® professionals in the U.S.

CFP® certification is available to students who successfully complete a CFP Board approved education program at an accredited academic institution, comply with the Board’s ethics requirements, meet the experience requirement, and are able to pass the CFP® exam. CFP Board requirements for certification include subscribing to a Code of Ethics and Standards of Conduct that reflect the commitment that all CFP® professionals make to high standards of competency and ethics (see Chapter 4). The Board is empowered to enforce provisions of the Code and Standards and discipline CFP® professionals who violate that Code.

2.3b The American College

The American College was founded in 1927 and is fully accredited by the Middle States Association of Colleges and Schools. The American College is located in Bryn Mawr, Pennsylvania. American College courses are developed by resident faculty in Bryn Mawr and are studied for independently, through online instructor guided courses, or in local classes. Testing is administered at local examination centers.

The American College offers the Chartered Life Underwriter (CLU®) designation for persons principally interested in the life insurance services and the Chartered Financial Consultant (ChFC®) for those principally interested in providing financial planning services. The American College also offers many other designations, certifications, and degrees for professional advancement.

The American College offers graduate level courses for continuing education requirements or as a preliminary to enrollment in the Graduate School of Financial Sciences. The Graduate School of Financial Sciences at the American College offers courses leading to the Master of Science in Financial Planning. Visit https://www.theamericancollege.edu/designations-degrees for more information.

2.3c AICPA – Personal Financial Specialist (CPA/PFS)

The PFS designation is granted by the AICPA exclusively to CPAs with extensive personal financial planning experience who want to validate their expertise by complying with the requirements of this credential. To qualify for the designation, a CPA must complete a comprehensive personal financial planning education requirement and attain a specified level of personal financial planning experience, as well as pass the PFS examination. To maintain the credential, the CPA/PFS must also comply with the regular recertification requirements. For more information, contact the AICPA by email at [e-mail]

2.3d Financial Planning Association (FPA)

The Financial Planning Association (FPA), is the financial planning membership organization created when the Institute of Certified Financial Planners (ICFP) and the International Association for Financial Planning (IAFP) merged in the year 2000. FPA is primarily focused on supporting its CFP® professional members. Members include individuals and companies who have contributed to building and supporting the financial planning profession and those who champion the financial planning process.

Local Chapters: FPA has a nationwide network of local chapters. The FPA’s official publication is the Journal of Financial Planning. FPA’s web presence includes articles, forums, online networking, student externships, continuing education events, and substantive information of interest to those who support the financial planning process.

The FPA offers services and resources designed to help the public understand the importance of the financial planning process and the value of objective advice from a CFP® professional. Consumers can visit www.fpanet.org to access this information.

2.3e National Association of Personal Financial Advisors (NAPFA)

The National Association of Personal Financial Advisors (NAPFA) is the country’s leading professional association of Fee-Only financial advisors – highly trained professionals who are committed to working in the best interests of those they serve. NAPFA provides networking opportunities, education, business development, continuing education credit, and advocacy to promote the professional success of fee-only, comprehensive financial advisors.

All NAPFA advisors are comprehensive financial planners working in a Fee-Only, fiduciary capacity committed to aligning their compensation solely with a client’s needs. NAPFA’s position is that the Fee-Only method of compensation is the most transparent and objective method available. This model minimizes conflicts and ensures that financial planners act as a fiduciary. Fee-Only planners are compensated directly by their clients for advice, plan implementation and for the ongoing management of assets. All NAPFA members are required to work only within the Fee-Only structure, accepting no commissions for their work. Fee-Only financial advisors may be paid hourly, as a retainer, as a percentage of assets (AUM), or as a flat fee, depending upon the planner. Visit https://www.napfa.org/ for more information.

2.3f The Society of Financial Service Professionals

The Society of Financial Service Professionals (formerly the American Society of CLU and ChFC), headquartered in Ardmore, Pennsylvania https://national.societyoffsp.org/, was established over eighty years ago. The organization’s members are a multidisciplinary community of accomplished professionals whose common purpose is to deliver the highest level of ethical service to their clients. It has 68 chapters nationwide, and membership is limited to individuals holding certain professional designations or licenses, such as CLU®, CFP®, ChFC®, CPA, J.D., and others. Its functions include providing continuing education, promoting the Code of Ethics to which its members ascribe, providing professional services to members and publicizing the profession to the public. The primary publication of the Society of Financial Service Professionals is the Journal of Financial Service Professionals, which features groundbreaking articles and research in all areas of financial services. 

2.4 THE FINANCIAL PLANNING PROCESS

People don’t plan to fail; they fail because they don’t plan.

It is important to understand the concept of financial planning as a process, not a product or a service. It is a series of interrelated activities that a client engages in on a continuing basis. It is not something that the client completes, even successfully, and then puts away or forgets. Financial planning must be done regularly and continually in order to take into account changes in the client’s personal circumstances, the availability of new products, and varying conditions in the financial markets.

The professional chosen by a client to guide him or her through the financial planning process can be as crucial as the plan itself. Finding someone with the appropriate professional credentials is important. However, a planner with whom the client feels comfortable as well as one who has been recommended by satisfied clients is just as important. Personal financial planners, including Certified Financial Planners (CFP®), Chartered Financial Consultants (ChFC®), Chartered Life Underwriters (CLU®), and Personal Financial Specialists (CPA/PFS) are each trained in different areas of financial planning and consulting, so it is in the client’s best interest to research the background of the planner chosen to make sure the planner’s training is best suited to the client’s needs. The best financial planner will take all relevant information into consideration and offer advice and implementation techniques that are reasonable to meet the client’s goals and objectives.

As new products appear, as market conditions and personal circumstances change, even the best-prepared financial plan will tend to become obsolete and out of date. Births, deaths, marriage, divorce, or a new business can have a great impact on personal planning.

The following activities in the process of financial planning should be carried out and, where necessary, may involve qualified professional advisers:

Establish and define the relationship

Gather background information

Establish financial objectives

Develop financial plans

Execute and control plans

Measure performance

The flowchart shown in Figure 2.1 provides a summary of the individual activities involved in the process and shows the relationships between them.

2.4a Establish The Relationship

The first step is that the client has agreed to meet with the planner, either through the planner’s marketing efforts, or because the client sought out the planner on his own. The relationship should start by defining the scope of the financial planning engagement and outlining the responsibilities of both the planner and the client. Conflicts of interest, compensation arrangements, length of the agreement period, planning limitations, and the products or services to be provided should be fully disclosed and agreed upon. Certain professional practice standards (e.g., the CFP Board Standards of Conduct) and regulatory agencies outline the expectations of this step. For example, the Securities and Exchange Commission requires that all Registered Investment Advisors (RIAs) distribute part two of Form ADV (the Uniform Application for Investment Advisor Registration) to clients and prospective clients. In short, step one considers the regulatory, legal, contractual, and professional expectations of the planner-client relationship.

The financial planner’s tools for the client meeting stage include basic counseling skills, including the ability to listen to what the client has to say. It is nearly impossible to provide a client with an effective plan without a clear understanding of where he is coming from, his attitudes, and priorities. Of equal importance is the talent to communicate to the client your understanding of these attitudes and confirming that you and the client are on the same page. Clients are the sum of their past experiences, their present physical, emotional, and mental states and their future hopes, dreams, and aspirations. They have certain belief systems and biases based upon their pasts and their perceptions of the future.

Figure 2.1

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2.4b Gather Background Information

The first step in CFP Board’s Practice Standards is Understanding the client’s personal and financial circumstances. This step includes obtaining qualitative and quantitative information concerning the client’s personal and financial circumstances which are needed to fulfill the scope of the engagement. Qualitative or subjective information include the client’s health, life expectancy, family circumstances, values, attitudes, expectations, earnings potential, risk tolerance, goals, needs, priorities, and current course of action. Examples of quantitative or objective information include the client’s age, dependents, other professional advisors, income, expenses, cash flow, savings, assets, liabilities, available resources, liquidity, taxes, employee benefits, government benefits, insurance coverage, estate plans, education, and retirement accounts and benefits, and capacity for risk. ²

This step takes much time and effort to complete. During discussions, financial planners should also attempt to discover their client’s psychological profile and probe their early money beliefs to understand how they were brought up with money, their views on money, and their comfort level with money. A financial plan cannot be effective if it does not reflect a client’s values and beliefs about money. Therefore, financial advice and planning recommendations must be tailored to accommodate a client’s unique psychological profile, beliefs and behaviors.

There does not seem to be much disagreement amongst planners that obtaining accurate, complete information is critical to fashioning a proper financial plan. Like other professional counselors, planners must obtain accurate information from new clients while convincing them that we possess the requisite levels of trust, empathy, and expertise to be given the very information we require, in order to do our jobs correctly.

Gathering data is a more mechanical function, but it still requires strong communication skills. Clients will invariably forget some resource or responsibility that may have a significant impact on the plan. While many clients have their affairs in order so that data gathering can be accomplished efficiently, numerous—if not most—clients have no idea what they spend, what their income is, where their funds are invested, or what debts they have. Obviously, such clients need help to accumulate the information necessary to prepare the plan. Planners should use checklists and forms to facilitate guiding the client through this process.

Another important area of background analysis has to do with the client’s attitudes toward the degree of risk he or she is willing to accept in the financial plan. Feelings about investment risk, personal financial security, and independence are just as important as their income statement or net worth. An awareness of these feelings enables the client and planner to establish realistic, acceptable objectives. By ignoring these feelings, you may develop a good plan that is simply out of touch with your client’s personality. Such plans are not likely to be implemented, and a great deal of time and effort will have been wasted.

Unfortunately, attitudes toward risk are very difficult to measure for a number of reasons. First, defining the nature of risk is highly subjective and will vary considerably from one person to another. Second, attitudes about risk are likely to change dramatically over an individual or family’s life cycle. What seemed perfectly reasonable to the twenty-five-year-old bachelor may be totally unacceptable to the forty-year-old father of four high school age children. Finally, risk attitudes are a function of many personal psychological factors that may be difficult to deal with. Yet you, as the planning professional, should try, through discussions with family members and other advisers, to determine their feelings about risk and be alert to significant changes that may occur over time.

2.4c Establish Financial Objectives

The process of articulating the client’s financial objectives in a concrete way is a difficult but essential part of the planning process. One reason many plans fail is that financial goals are not described in operational terms. Objectives often are presented in vague language that is difficult to translate into action. Moreover, in setting his or her objectives, the client will also need to take into account the sex, health, age, lifestyle, tastes, and preferences of individual family members. Much of this information is subjective, and attitudes may shift considerably over the years. Such changes make it important that the client, generally prompted by the financial planner, update his or her plan regularly.

The financial planner should help the client identify, select, and prioritize goals, and note the impact that selecting a particular goal may have on other goals. Each of the objective statements should have the following characteristics. First, it should be well-defined and clearly understood by everyone involved. Unless you and the client really know and understand what you are trying to accomplish, the plan probably will not succeed.

Asking the client to write down his or her objectives is one way of working toward a set of clear and useful statements. Comments such as I want a safe and secure retirement income do not provide much guidance for financial planning. They merely express a wish that may be very real to them, but is hard to put into effective terms and plans. In contrast, a statement such as I want sufficient savings to produce a retirement income level equal to 70 percent of my preretirement income, invested at no more than a moderate risk level that produces an average return of 6 percent per year, is a measurable, concrete goal that can be quantified.

In other words, good financial objectives are generally stated in quantitative terms. Only by attaching numbers to the client’s plans can both you and the client know when the objective has been accomplished. This is a particularly important factor in regard to long-term objectives, such as those concerning education funds or retirement. It is desirable to measure progress toward your goals at various points along the way.

The goal of having a particular sum for retirement in twenty years can be reviewed each year to see if the necessary progress has been made. If earnings have been lower than anticipated, you may have to encourage the client to make larger contributions in future years. If a higher rate of return has actually been realized, contributions can be reduced; or you can consider the excess as a safety cushion against years when returns are not as high as anticipated. Such fine tuning is impossible unless numbers are associated with plan objectives. Adding numbers to objectives will also help to make them easier to understand by all members of the family.

Finally, each of the client’s goals or objectives should have a time dimension attached to it. When will a particular goal be accomplished? How much progress has been made since the last review? How much time remains until the goal is to be accomplished? These questions and similar ones can be answered only if you have helped the client establish a schedule with objectives listed at particular points in time.

Some parts of the plan, such as retirement objectives, will have very long time lines. Others, such as a change in savings, may be accomplished in a few months or a year. Whether long-term or short-term, the timing aspect of objectives is very important. Even long-term goals can be broken down into shorter time periods, which can be included in an annual review of the plan.

After the objectives have been identified, they should be ranked in order of priority. This ranking process is necessary, since many objectives normally will compete for limited resources. It’s not likely that the client will be able to satisfy all of his or her wishes at the same time. Some goals will be more important or more urgent than others. Critical short-term needs may have to be satisfied ahead of long-range plans.

Once certain goals have been reached, funds may be channeled to other areas. An example would be education funding for the client’s children. After this goal has been met, you may allocate money the client previously spent on education costs to building a retirement fund or some other long-range objective. Unless you have assigned specific priorities to these and other goals, it will be difficult for you and the client to organize and carry out an effective plan. Conversely, a set of well-integrated financial objectives can make the actual planning process a relatively easy task.

Individuals and families should have workable objectives in each of the following areas:

Standard of Living. Maintaining a particular lifestyle generally takes most of a person’s resources. Setting an objective in this area calls for you to analyze required spending, such as food and housing costs, as well as optional spending (travel, vacations, and entertainment). If almost all of the client’s income is being spent in this area, it will be very difficult to accomplish his other objectives.

One widely used rule of thumb states that no more than 80 percent of gross income should be spent on maintaining a given standard of living. The remaining 20 percent of income should be allocated to the other financial objectives. Obviously, this guideline will vary from one person or family to another. But unless a significant portion of the client’s income can be directed toward the remaining objectives, you are not likely to be successful in helping him reach his other goals.

Savings. Everyone recognizes the need for money that can be used to meet an emergency or other special need. However, determining the ideal level of savings can be a complicated problem. It will depend on the nature of the client’s income, personal risk attitudes, stability of employment, and other factors such as the type of health and dental insurance coverage he has.

Many experts recommend establishing an emergency fund, maintaining savings equal to at least three months’ disposable income. These funds should be kept in a safe and highly liquid form where the rate of return is a secondary consideration. A money market mutual fund or a bank money market account offers a good vehicle for emergency type savings. These investments offer a high degree of safety, and ready access to emergency money.

Protection. This objective pertains to insurance coverage for life, health, disability, property, and liability insurance coverage. It should be designed to provide protection against insurable risks and related losses. Objectives in this area should take into account any coverage that is provided through public programs such as Social Security as well as group insurance offered as an employee benefit.

Accumulation (Investment). This is the most complex objective in a number of ways. It relates to the future buildup of capital for significant financial needs. These needs can be as diverse as a child’s college education, a wedding, or a vacation home. The sheer number and variety of such goals makes it difficult to define this objective and to set priorities.

Adding to the difficult nature of this planning area is the generally long time involved, which may extend for twenty years or more. Finally, the wide variety of potential investments adds to the overall complexity. Regardless of the reason for building capital, the critical ingredients in this objective are the ability to quantify needed amounts and to state target dates for accumulation. An annual review in this area is essential.

Financial Independence (Retirement). This objective is typically the most important example of the accumulation objective, and usually requires the building of assets over a long time. Financial independence may be desired at a particular age and may or may not actually correspond with retirement from work. Instead, the client may wish to have security and financial independence while continuing to work at an enjoyable occupation or profession.

More than most others, this area will be affected by changes in government programs such as Social Security and benefits paid by employers. Also, since the planning period is such a long one, this objective should be broken down into subgoals that can be evaluated, analyzed, and reworked over the years.

Estate Planning. Objectives in this area are typically concerned with the preservation and distribution of wealth after the estate owner’s death. However, accomplishing such goals usually requires a number of actions well before that time. Having a will prepared is the most fundamental act in estate planning, and yet thousands of persons die each year without having done so. These people die intestate, leaving the distribution of their assets to be determined by state laws and the courts.

For larger estates, avoidance or minimization of estate taxes is an important consideration. These objectives can be accomplished, but they call for careful planning and implementation prior to the owner’s death. The use of various trust instruments, distribution of assets through gifts, and proper titling of property can all result in a smaller taxable estate. However, carrying out such a program will take time and should be an ongoing process as various assets are acquired. This is also an area in which professional guidance is generally necessary. An attorney should be included on the planning team, to draft a will or prepare any needed trust documents.

2.4d Develop Financial Plans

Once realistic, well-defined objectives have been established, you can begin to analyze a client’s current financial circumstances. This analysis will determine whether the client should continue with the current course of action or whether the planner must develop alternative planning recommendations to help the client meet their goals. This planning stage includes creating a cash flow statement that captures the budgeting of income and expenditures for the near term along with a forecast of future activity. You should also create a balance sheet that makes a projection of the client’s expected financial position for the next several years. This will give you an idea of the future growth and returns that will be necessary for the client to reach his or her overall net worth objective.

Your financial plan should identify the financial instruments, services, and products that will be recommended to meet the client’s specific objectives. For example, you should identify specific savings instruments that are available to the client if he or she needs more emergency funds. You may consider recommending regular savings accounts, money market certificates, or shares in a money market fund. If an investment program is called for, you should recommend appropriate types of investments such as securities, real estate, or mutual funds. The financial planner should communicate to the client the basis for making these recommendations, and the timing and priority of the recommendations.

2.4e Control and Execute Plans

The next stage of the financial planning model calls for you to set the plan in motion. Implementation responsibilities must be addressed with the client so that each party knows what their duties are and the extent of their duties in executing the plan. This stage may involve the purchase or sale of various assets, changes in the client’s life insurance protection, additional liability coverage, and other changes. All of these activities should be closely monitored and appraised to see that they are effective in accomplishing the client’s objectives. The outcome of some actions will be apparent quickly, while others may take a long time to produce results.

Implementing the financial plan may require the effective interaction of all the members of the financial planning team, all of whom may participate in the planning but also fulfill other functions:

The tax accountant, responsible for projections and quantitative analysis

The estate attorney who drafts the appropriate documents

The insurance and investment advisors who recommend any necessary products and investments

2.4f Measure Performance

Finally, the last stage of the plan involves monitoring the client’s progress toward the goals set out in his or her plan. This is where the planner has to be prepared to help the client deal with the unexpected. This phase, more than any of the others, involves unknown and unanticipated challenges.

Measuring performance is an important step; it helps you determine the progress the client is making toward the attainment of his or her objectives. If performance to date is acceptable, you may not need to take any particular corrective action until the next scheduled review. However, if you determine that progress to date is not satisfactory, action will be necessary. This may include a review of the client’s goals and financial plan to see if they are still valid, and an analysis of the financial environment to take note of unexpected changes that should be addressed within the plan.

If the original objectives are no longer realistic and desirable, you will want to review and recommend that the client alter them. In that case, the entire plan may have to be recycled through each of the stages described above. This model of financial planning is a dynamic one that is continually repeated as personal, financial, and environmental factors and circumstances change.

2.5 FINANCIAL PLANNING PRACTICE STANDARDS

Practice standards draw from ethics and disciplinary rules to describe the process a financial planner should use in working with a client. Because practice standards are related to ethics and disciplinary rules, they provide strong guidance on how to conduct a financial planning practice in accordance with those principles. Unlike ethical standards and disciplinary rules, however, a planner who deviates from a specific practice standard will not be subject to discipline on that basis alone.

Financial planning practice standards are established for CFP® professionals by CFP Board. A summary of these standards is provided in this chapter. All Certified Public Accountants (CPAs), including those who provide personal financial planning advice to clients, are subject to regulation by their respective state boards of accountancy and must adhere to the AICPA Code of Professional Conduct. In addition, the Personal Financial Planning Executive Committee of the AICPA has issued a specific Statement of Responsibilities in Personal Financial Planning Practice (AICPA 2010) to provide guidance to the CPA financial planner. Copies of the Statement are available at the AICPA’s web site (http://www.aicpa.org). Attorneys are subject to disciplinary standards imposed by the various states in which they are licensed.

The CFP Board released the most recent Practice Standards that went into effect on October 1, 2019. In summary, CFP® professionals owe the following duties to clients, their firms and subordinates, and to the CFP Board itself:

Figure 2.2³

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Note that the ethical standards outlined in Figure 2.2 still incorporate by reference the existing Financial Planning Practice Standards provided below.

2.6 CFP Board Financial Planning Practice Standards

B. FINANCIAL PLANNING AND APPLICATION OF THE PRACTICE STANDARDS FOR THE FINANCIAL PLANNING PROCESS 

1. FINANCIAL PLANNING DEFINITION

Financial Planning is a collaborative process that helps maximize a Client’s potential for meeting life goals through Financial Advice that integrates relevant elements of the Client’s personal and financial circumstances.

2. EXAMPLES OF RELEVANT ELEMENTS OF THE CLIENT’S PERSONAL AND FINANCIAL CIRCUMSTANCES

Relevant elements of personal and financial circumstances vary from Client to Client, and may include the Client’s need for or desire to: develop goals, manage assets and liabilities, manage cash flow, identify and manage risks, identify and manage the financial effect of health considerations, provide for educational needs, achieve financial security, preserve or increase wealth, identify tax considerations, prepare for retirement, pursue philanthropic interests, and address estate and legacy matters.

3. APPLICATION OF PRACTICE STANDARDS

The Practice Standards set forth the Financial Planning Process. A CFP® professional must comply with the Practice Standards when:

The CFP® professional agrees to provide or provides:

i. Financial Planning; or

ii. Financial Advice that requires integration of relevant elements of the Client’s personal and/ or financial circumstances in order to act in the Client’s best interests (Financial Advice that Requires Financial Planning); or

The Client has a reasonable basis to believe the CFP® professional will provide or has provided Financial Planning.

4. INTEGRATION FACTORS

Among the factors that CFP Board will weigh in determining whether a CFP® professional has agreed to provide or provided Financial Advice that Requires Financial Planning are:

The number of relevant elements of the Client’s personal and financial circumstances that the Financial Advice may affect;

The portion and amount of the Client’s Financial Assets that the Financial Advice may affect;

The length of time the Client’s personal and financial circumstances may be affected by the Financial Advice;

The effect on the Client’s overall exposure to risk if the Client implements the Financial Advice; and

The barriers to modifying the actions taken to implement the Financial Advice.

5. CFP BOARD EVALUATION

In a disciplinary proceeding in which a CFP® professional denies CFP Board’s allegation that the CFP® professional was required to comply with the Practice Standards, the CFP® professional must demonstrate that compliance with the Practice Standards was not required.

6. NO CLIENT AGREEMENT TO ENGAGE FOR FINANCIAL PLANNING

If a CFP® professional otherwise must comply with the Practice Standards, but the Client does not agree to engage the CFP® professional to provide Financial Planning, the CFP® professional must either:

Not enter in to the Engagement;

Limit the Scope of Engagement to services that do not require application of the Practice Standards, and describe to the Client the services the Client requests that the CFP® professional will not be performing;

Provide the requested services after informing the Client how Financial Planning would benefit the Client and how the decision not to engage the CFP® professional to provide Financial Planning may limit the CFP® professional’s Financial Advice, in which case the CFP® professional is not required to comply with the Practice Standards; or

Terminate the Engagement.

C. PRACTICE STANDARDS FOR THE FINANCIAL PLANNING PROCESS

In complying with the Practice Standards, a CFP® professional must act prudently in documenting information, as the facts and circumstances require, taking into account the significance of the information, the need to preserve the information in writing, the obligation to act in the Client’s best interests, and the CFP® Professional’s Firm’s policies and procedures.

1. UNDERSTANDING THE CLIENT’S PERSONAL AND FINANCIAL CIRCUMSTANCES

Obtaining Qualitative and Quantitative Information. A CFP® professional must describe to the Client the qualitative and quantitative information concerning the Client’s personal and financial circumstances needed to fulfill the Scope of Engagement and collaborate with the Client to obtain the information.

i. Examples of qualitative or subjective information include the Client’s health, life expectancy, family circumstances, values, attitudes, expectations, earnings potential, risk tolerance, goals, needs, priorities, and current course of action.

ii. Examples of quantitative or objective information include the Client’s age, dependents, other professional advisors, income, expenses, cash flow, savings, assets, liabilities, available resources, liquidity, taxes, employee benefits, government benefits, insurance coverage, estate plans, education and retirement accounts and benefits, and capacity for risk.

Analyzing Information. A CFP® professional must analyze the qualitative and quantitative information to assess the Client’s personal and financial circumstances.

Addressing Incomplete Information. If unable to obtain information necessary to fulfill the Scope of Engagement, the CFP® professional must either limit the Scope of Engagement to those services the CFP® professional is able to provide or terminate the Engagement.

2. IDENTIFYING AND SELECTING GOALS

Identifying Potential Goals. A CFP® professional must discuss with the Client the CFP® professional’s assessment of the Client’s financial and personal circumstances, and help the Client identify goals, noting the effect that selecting a particular goal may have on other goals. In helping the Client identify goals, the CFP® professional must discuss with the Client, and apply, reasonable assumptions and estimates. These may include life expectancy, inflation rates, tax rates, investment returns, and other Material assumptions and estimates.

Selecting and Prioritizing Goals. A CFP® professional must help the Client select and prioritize goals. The CFP® professional must discuss with the Client any goals the Client has selected that the CFP® professional believes are not realistic.

3. ANALYZING THE CLIENT’S CURRENT COURSE OF ACTION AND POTENTIAL ALTERNATIVE COURSE(S) OF ACTION

Analyzing Current Course of Action. A CFP® professional must analyze the Client’s current course of action, including the material advantages and disadvantages of the current course and whether the current course maximizes the potential for meeting the Client’s goals.

Analyzing Potential Alternative Courses of Action. Where appropriate, a CFP® professional must consider and analyze one or more potential alternative courses of action, including the material advantages and disadvantages of each alternative, whether each alternative helps maximize the potential for meeting the Client’s goals, and how each alternative integrates the relevant elements of the Client’s personal and financial circumstances.

4. DEVELOPING THE FINANCIAL PLANNING RECOMMENDATION(S)

From the potential courses of action, a CFP® professional must select one or more recommendations designed to maximize the potential for meeting the Client’s goals. The recommendation may be to continue the Client’s current course of action.