Financial Planning in General

Q1. What is Financial Planning?

Financial Planning is the process of meeting your life goals through the proper management of your finances. These goals may include buying a home, saving for your child’s education, starting a business or planning for comfortable retirement.

Q2. What is the role of a Financial Planner?

A financial planner is someone who uses the financial planning process to draw-up a plan with an objective to meet your life goals. The planner takes a “big picture” view of your financial situation and make financial planning recommendations that are right for you. He takes into consideration all of your needs – budgeting, saving, taxes, investments, insurance and retirement planning. He can also work with you on a single financial issue but within the context of your overall financial situation.
This makes the financial planner different more comprehensive in his approach than other financial advisors who may be trained only on specific areas of your financial needs.

Q3. What is the Financial Planning Process?

This Process consists of six steps:

i. Establishing and defining the client-planner relationship
The financial planner should explain clearly or document the services to be provided to you and define both his and your responsibilities. The planner should explain fully how he will be paid and by whom. You and the planner should agree on how long the professional relationship should last and on how decisions will be made.

ii. Gathering client data, including goals
The financial planner should ask for information about your financial situation. You and the planner should mutually define your personal and financial goals, understand your time frame for results and discuss, if relevant, how you feel about risk. The financial planner should gather all the necessary documents before giving you the advice you need.

iii. Analysing and evaluating your financial status
The financial planner should analyse your information to assess your current situation and determine what you must do to meet your goals. Depending on what services you have asked for, this could include analysing your assets, liabilities, cash flow, current insurance coverage, investments and tax strategies.

iv. Developing and presenting financial planning recommendations and/or alternatives
The financial planner should offer financial planning recommendations that address your goals, based on the information you provide. The planner should go through the recommendations with you to help you understand them to help you make informed decisions. The planner should also listen to your concerns and revise the recommendations accordingly.

v. Implementing the financial planning recommendations
You and the planner should agree on how the recommendations will be carried out. The planner may carry out the recommendations or serve as your “coach”, coordinating the whole process with you and your other professionals like your lawyers or stockbrokers.

vi. Monitoring the financial planning recommendations
You and the planner should agree on who will monitor your progress towards your goals. If the planner is in charge of the process, he should report to you on a time basis mutually agreed upon to review your situation and adjust the recommendations, if needed, to complement the changes in your life.

Q4. What are Practice Standards?

Practice Standards were developed to help CFP CERT TM practitioners better understand and implement the financial planning process. These standards also explain what is expected of a CFP practitioner and are to be adhered to when providing financial planning advice.
Practice Standards describe the process that a financial planner should reasonably be expected to follow during a financial planning meeting. These standards are based on the six-step financial planning process :

  • Establishing and defining the client-planner relationship
  • Gathering client data including goals
  • Analyzing and evaluating the client’s financial status
  • Developing and presenting financial planning recommendations and/or alternatives
  • Implementing the financial planning recommendations
  • Monitoring the financial planning recommendations

Q5. What are the 4E’s?

The 4E’s are:

i. Education

Before commencing the certification examinations, a candidate must complete the academic requirements of the CFP syllabus. They are:

Module 1 – Foundation in Financial Planning and Tax Planning
Module 2 – Insurance Planning and Estate Planning
Module 3 – Investment Planning and Retirement Planning
Module 4 – Financial Plan Construction & Professional Responsibilities

ii. Examination
Once a candidate has completed the Education requirement, he can enroll for the Certification Examination. The examination is designed to assess the candidate’s ability to apply the theoretical knowledge he has acquired to financial planning situations in an integrated format, thereby assuring the public that the candidate has acquired the level of competency required for practice.

iii. Experience
In addition to having to complete the financial planning education and examination requirements, a candidate is required to show evidence of having worked in a financial planning-related position for a period of at least three years before or after the successful completion of the Certification Examination.

iv. Ethics
Once a candidate has completed the above 3 E’s and prior to certification, he is required to disclose past or pending litigation or agency proceedings and to acknowledge the right of FPAM to enforce its Code of Ethics and Professional Responsibility.

Only when the candidate has fulfilled his ethics requirement, is he entitled to be a full fledge CFP professional.

Q6. What is it about the CFP CERT TM Mark that distinguishes it from other financial planning qualifications?

The CFP CERT TM mark identifies individuals who have met the education, examination, experience and ethics requirements established by the Financial Planning Standards Board Ltd. (FPSB). FPSB owns the CFP Mark outside the United States and licenses qualified individuals to use this mark and refer themselves as “CFP professionals”. The CFP certification is an internationally recognised mark for the highest level of competence in financial planning.

FPAM is the marks licensing authority in Malaysia in line with the international standards.

Q7. What is the difference between a CERTIFIED FINANCIAL PLANNER CM Practitioner and the other kinds of financial advisors?

A CFP CERT TM Practitioner follows certain standards – called Practice Standards – when providing financial planning advice. Practice Standards describe the process you should reasonably expect a financial planner to use during a financial planning engagement. These standards are based on the six-step Financial Planning Process, documented by the Financial Planning Standards Board through their research on the “Job Analysis” of what a financial planner is expected to be.