AAFM Financial Planning Principles Flashcards

A client wants a plan that coordinates investments, taxes, insurance, and estate goals into one strategy. Which planning approach does this describe?

Answer: Comprehensive financial planning

Comprehensive financial planning integrates all areas of a client's finances into a unified strategy.

In the financial planning process, what is the correct step immediately after establishing the client relationship and scope?

Answer: Gathering client data and defining goals

After defining scope, the planner collects data and clarifies the client's goals and expectations.

Which document formally defines the services, responsibilities, and compensation between planner and client?

Answer: Engagement letter

An engagement letter sets out the scope, duties, and fees governing the planning relationship.

A planner recommends a product that pays the highest commission rather than the best fit for the client. Which principle is violated?

Answer: Duty to act in the client's best interest

Placing personal compensation above client needs breaches the fiduciary best-interest duty.

What primarily distinguishes a fee-only planner from a commission-based one?

Answer: Fee-only planners receive no compensation from product sales

Fee-only planners are paid solely by clients, avoiding commission conflicts of interest.

When quantifying a client's goals, which characteristic makes a goal most actionable in a financial plan?

Answer: It is specific, measurable, and time-bound

Well-defined goals with amounts and deadlines allow the planner to build measurable strategies.

Why does a planner review a client's plan periodically after implementation?

Answer: Because life changes and market conditions can alter the plan's suitability

Monitoring ensures the plan remains aligned with changing circumstances and goals.