Affinity bias - ANS Poor financial decisions are made because they are based on how people believe the outcomes will represent their interests and values
Behavioral finance is - ANS the field of study that examines whether investors act rationally or irrationally when making inve...
Affinity bias - ANS Poor financial decisions are made because they are based on how
people believe the outcomes will represent their interests and values
Behavioral finance is - ANS the field of study that examines whether investors act rationally
or irrationally when making investment decisions
cognitive errors - ANS result from incomplete information or inability to analyze
Comprehensive financial plan - ANS Covers all of a persons financial objectives, including
consideration of risk management, investment planning, tax planning, retirement planning and
estate planning
Conservatism bias - ANS A failure to change views as new information becomes available
Emotional bias - ANS Stems from feelings, impulses or intuitions
Fee-based planning - ANS Charge both a fee and can receive commissions
* Understanding personal and financial circumstances
*Identify and select goals
*Analyzing current course of action and potential alternate course of action
*develop financial planning recommendations
*presenting recommendations
*implementing the recommendations
Monitoring progress and updating - ANS Financial planning process consists of
(7 steps)
mental accounting - ANS categorizing spending and saving decisions into "accounts"
mentally designated for specific consumption transactions, goals, or situations
money illusion - ANS Tendency to think one dollar has the same value today, tomorrow and
into the future without considering inflation
Principle of competence - ANS Requires attaining, maintaining and applying a sufficient
level of knowledge and skill in servicing the client
, Principle of Confidentiality - ANS refers to the concept of privacy
Principle of integrity - ANS Demands honesty and candor which must not be subordinated
to personal gain and advantage
Principle of objectivity - ANS Requires application of intellectual honesty and impartiality
Principle of professionalism - ANS Requires the conduct of a financial planner to reflect
credit upon the profession
Reframing - ANS Helps clients shift perspective by considering circumstances
Self-attribution bias - ANS Individuals take credit for their successes and either blame
others or external influences for failures.
Self-control bias - ANS Poor financial decisions are made because one lacks self-discipline
& favors immediate gratification over long-term goals
status quo bias - ANS Individuals are comfortable with an existing situation, which leads to
an unwillingness to make changes, even though the changes are beneficial
Targeted financial planning - ANS A financial plan that looks at just one objective, such as
funding a college education, buying a first home, caring for an elderly parent or handicapped
child, or planning for retirement.
1. Identify potential goal
2. Establish a time frame
3. Specify amount needed to reach goal
(PTA: purpose, timeframe, amount) - ANS Setting a financial goal
•identifying what will be provided/excluded
•compensation
•conflicts of interest
•responsibilities of client and planner
•any additional information needed - ANS Before beginning the client and planner must
agree on:
Qualatative data - ANS Traits, beliefs, values and attitudes (RTQ, Life expectancy)
Quantative data - ANS Data that can be measured in numbers
1. Cash management and use of debt
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