FPSB Strategic Plan. Bodies Developing a Financial Plan Case Study. April 2008 Guidance for Certifying

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1 FPSB Strategic Plan April 2008 Guidance for Certifying Bodies Developing a Financial Plan Case Study CFP Certification Global excellence in financial planning TM

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3 MISSION STATEMENT Financial Planning Standards Board Ltd. (FPSB) benefits the clients and potential clients of financial planners by establishing, upholding and promoting worldwide professional standards in financial planning. FPSB s commitment to excellence is represented by the marks of professional distinction CFP, CERTIFIED FINANCIAL PLANNER and. Copyright 2011, Financial Planning Standards Board Ltd. All rights reserved.

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5 TABLE OF CONTENTS Introduction...2 Case Study Structure...3 Client Data and Assumptions...4 Attitudes, Goals and Objectives...8 Issues and Problems...9 Analysis...10 Strategies...10 Synthesis and Recommendations...10 Implementations...10 Periodic Review

6 INTRODUCTION Candidates for financial planner certification should demonstrate mastery of the elements described in FPSB s Financial Planner Competency Profile, along with FPSB s Financial Planning Practice Standards, when developing written financial plans for assessment by the certifying body. FPSB s Financial Planning Framework provides a format for entrants to the financial planning profession to integrate among fundamental financial planning practices, Financial Planning Components 1, Financial Planner Abilities and Financial Planning Practice Standards when creating written financial plans for clients. FPSB s Financial Plan Case Study provides candidates for financial planner certification the opportunity to: evaluate a fictitious client s financial situation, goals, needs and objectives; determine key areas that need to be addressed in a written financial plan; identify what additional information is needed to develop a viable financial plan; and develop strategies and recommendations and present them in writing in a manner understandable to the client. FPSB has developed this Guidance for Certifying Bodies Developing a Financial Plan Case Study to demonstrate how certifying bodies can introduce a financial plan component to their certification assessment, and assess candidates ability to develop viable written financial plans for clients, based on information and instructions provided by the certifying body in a Financial Plan Case Study. This Guidance outlines the elements the certifying body should include in its Financial Plan Case Study to adequately reflect the elements, practices and components outlined in FPSB s Financial Plan Framework. The certifying body should include sufficient information in the Case Study to ensure that the candidate draws on all of the elements described in the Financial Plan Framework and addresses at least four of the six Financial Planning Components in the written financial plan. The Financial Plan Case Study may include information that is not directly relevant to the construction of a financial plan. It may also include information related to more than four of the six Financial Planning Components. The financial plan developed by the candidate should clearly demonstrate that he or she is capable of delivering a viable written financial plan for the profiled clients, supported by appropriate assumptions, sound decision-making and relevant data. 1 Financial Management, Asset Management, Risk Management, Tax Planning, Retirement Planning and Estate Planning. 2 2

7 CASE STUDY STRUCTURE General Information The certifying body should make the following submission criteria available to the candidate: Due date Page length Last date for extension requests Assessment standard The certifying body should give the candidate minimum guidelines regarding the presentation style 2 required, including information about: Paper size Numbering all pages, including any appendices, sequentially Font size, type style, and color Making proper references to published material Margins Cover sheets indicating assignment, candidate name, etc. Maximum number of pages, spacing, and Statutory disclosures appropriate use of tables, graphs or figures Table of contents Whether appendices should be included Acceptable mode of submission in the maximum number of pages Candidate declaration (own work) Other Issues The certifying body should provide guidance to the candidate on whether the use of financial planning software is permitted when completing the financial plan. The certifying body should also provide guidance to the candidate on the timeframe for completion and submission of the financial plan. Professional Skills FPSB s Financial Planner Professional Skills (described in FPSB s Financial Planner Competency Profile) form an integral part of what the candidate needs to master to be able to develop a financial plan independently, based on FPSB s Financial Planner Assessment Framework. An entrant to the financial planning profession needs to be able to integrate appropriate Professional Skills (at an appropriate level of competence and professionalism) with appropriate knowledge and abilities into each of his or her professional actions and interactions with clients. The candidate should demonstrate the ability to integrate Professional Skills into his or her strategies and recommendations in the written financial plan. Certifying bodies should ensure that the content of the Financial Planning Case Study allows for the candidate to be tested and assessed on the application of Professional Skills as part of the written financial plan assessment. (Note: Not all Professional Skills can be evaluated by the financial plan assessment). Legal and Professional Compliance Entrants to the financial planning profession should understand and adhere to all applicable legal and professional compliance requirements for the practice of financial planning. FPSB s Financial Planner Professional Skills calls for financial planning professionals to comply with relevant financial services laws and regulations (PS.201) and adhere to a professional code of ethics and standards of practice (PS.202). The certifying body, if appropriate, should provide a statement on the compliance issues, regulatory requirements and standards to be covered in the written financial plan by the candidate being assessed. The certifying body should also indicate that failure to comply with any legislation or regulations dealing with compliance requirements relating to the Case Study will be penalized when assessing the candidate s financial plan submission. 2 Oral presentation is not required unless it is a regular part of the certifying body s assessment program. 3

8 Client Data and Assumptions Client Data The quantitative and qualitative information provided by the certifying body in the Financial Plan Case Study should be sufficiently detailed to give the candidate a comprehensive understanding of the client (who may be an individual or a family) and the client s approach to a range of financial and life issues. The Case Study facts may include the following: Personal Details of Client Title; Surname; Given name(s); Home address; Contact information; Date of birth; Marital/relationship status; Dependent details, including any planned children (name, date of birth, marital/relationship status, education year, employment status, etc.); Health; Smoker status; Employment details; Names and contact information of other professional advisers; and Additional information as appropriate. Client Personal Assets and Liabilities (example only) ASSETS Client 1 Amount Joint Amount Client 2 Amount Projected Income p.a. Lifestyle/Personal Use Assets Primary Residence Vehicle Household Contents/ Personal Effects Bank Accounts Investment Assets Retirement Accounts Real Estate Equities Loan Assets Bank Deposit Accounts Business Assets 4 4

9 LIABILITIES Client 1 Joint Amount Client 2 Amount Lifestyle Mortgage Credit Cards Personal Loans Investment Mortgages Equity Loans Margin Loans Business-Related Income and Expenditure (example only) INCOME Value Name Remuneration Investment Income Rental Income Business Income Pension Income Other Income EXPENDITURE Value Name Tax Food Clothes, Shoes, etc. Dining Out/Entertainment Education Healthcare Holidays and Travel Household Insurance and Financial Costs Loan Servicing Mortgage/Rent Motor Vehicle (running, replacement) and Other Transport Presents, Gifts and Charities Relaxation/Personal Sports, Hobbies and Clubs Utilities and Services Credit Card Debt Payments Child Care Expenses Alimony Child Support 5

10 Financial Management Information regarding the client s assets and liabilities; and Information necessary to prepare a client s cash flow statement and budget. Asset Management Information on the client s investment holdings should include, as applicable: description, cost, date of purchase, fair market value, coupon and maturity if applicable, account type, etc.; and Sufficient information for the candidate to determine the client s asset allocation. Risk Management Details of the client s existing insurance coverage including, as applicable: type, effective date, renewal date, expiration date, coverage, benefit, premium, ownership, beneficiaries and dividend (bonus) options. Categories of insurance may include: Life; Disability/income; Long-term care; Critical illness; Medical/health insurance; Property and casualty; Private liability; and Business insurances. Tax Planning Enough information to enable the candidate to calculate the marginal and average tax rates; Clear information regarding tax treatment of all assets and liabilities; Clear information regarding the relationship with any external party relevant to the client s tax situation; and Copies of prior tax returns (at least last year s return, if applicable). Retirement Planning Details of potential sources of retirement income; Details of estimated retirement expenses including travel or hobby expenses; and Details of beneficiary designation forms on any retirement plans as applicable. Estate Planning Provide or summarize references to legal documents/agreements and documents that have an impact on estate planning strategies to allow analysis and recommendations; Potential inheritances or gifts from others; and Matrimonial property regime applicable and assets subject to exceptions. 6 6

11 Assumptions Assumptions play a critical role in the Financial Plan Case Study because they greatly impact the outcomes of analyses, calculations and final recommendations. General assumptions should only be provided in the Case Study to allow the certifying body to more easily compare among various candidates written financial plans and to facilitate grading of the submitted plans. The financial planning process requires the candidate to make sound and thoroughly researched assumptions; therefore, key assumptions should be clearly identified in the Financial Plan Case Study and correspondingly identified by the candidate in the body of his or her written financial plan submission. Following are some key assumptions for each Financial Planning Component that might be relevant to a particular Case Study. Financial Management Future income sources (including government benefits); Future salary increases (including cost of living increases); Current and future inflation rates if and when applicable; and Current and future interest rates (mortgages, savings and credit card rates). Asset Management Expected rates of return from investments by asset class, after allowing for costs and fees, and where relevant and practicable, taxation; Expected standard deviation and correlations, by asset class; and Expected portfolio rates of return or return ranges, risk levels and frequency of losses. Risk Management Life expectancy factors; Health factors; and Risk factors. Tax Planning Tax rules and rates. Retirement Planning Expected future inflation rates; Expected future cost of living adjustments; Planned age of retirement or range of ages for gradual retirement; Life expectancy and its applications; Budgeted income needs at retirement and at various later stages; Income sources in retirement (in today s value or as a percentage of pre-retirement income); Eligibility for social security benefits and expected amounts at present value; Initial withdrawal amount in first year of retirement (at present value or as a percentage of initial balance) and anticipated future changes; and Legislative changes. Estate Planning Life expectancy; Current and future estate and gift tax rules and rates, if applicable; and Needs of beneficiaries. 7

12 ATTITUDES, GOALS AND OBJECTIVES The certifying body should include information on the client s attitudes, goals and objectives that have financial implications. The information given may include information that is not relevant to the plan. Following are examples of the detail that can be provided to enable the candidate to recognize and establish attitudes, goals and objectives per financial planning component. Financial Management Information on the client s propensity to save; Information on how the client makes spending decisions; Information on the client s attitudes toward debt; and Information on major purchases planned. Asset Management Details on the client s investment objectives; Information on the client s time horizon(s); Information on the client s tolerance to investment risk; and Information on the client s investment preferences. Risk Management Information on the client s risk management preferences and objectives. Tax Planning Information on possible current, deferred and future tax liabilities. Retirement Planning Information on the client s planned transition to retirement; Information on the client s retirement plans and objectives; and Information on the client s tolerance to risk in retirement. Estate Planning Information on the client s estate planning objectives including distribution of assets to heirs; Details on specific needs of beneficiaries; and Details on guardianship of minor children. 8 8

13 ISSUES AND PROBLEMS The certifying body should provide enough information in the Case Study to enable the candidate to identify the issues and problems that can have an influence on the strategies and recommendations included in the written financial plan. Legal issues, client attitudes and the client s level of financial sophistication can all have an influence on the strategies and recommendations developed by the candidate, and should be included in the Case Study by the certifying body, as appropriate. Following are examples of issues and problems for each Financial Planning Component that could be included in the Case Study. The certifying body should encourage candidates to not only solve explicitly mentioned client problems but also to identify and address unnamed problems or areas of concern, based on the facts provided in the Case Study on the client and his or her situation. Financial Management Issues relevant to the client s assets and liabilities (e.g. budgetary issues, the use of bank accounts and credit/debit cards, the place and use of debt and cash management); The client s emergency fund provision, if applicable; and Educational funding. Asset Management The client s experience with, and attitudes and biases toward, investing; The client s tolerance for investment risk (attitude and capacity); The client s assumptions and return expectations and conflicts between these and those of the financial planner; and Time horizons. Risk Management The client s tolerance for, and attitudes toward, risk exposure; Relevant lifestyle issues; Relevant health issues; and The client s willingness to take active steps to manage financial consequences. Tax Planning The client s attitudes toward taxation; Appropriateness of current investment structures (if tax is applicable); and Future changes in taxation. Retirement Planning The client s attitudes toward retirement; The client s comfort with retirement planning assumptions; and Alignment of the client s retirement provision and expectations (e.g. need to work part-time or delay retirement to achieve goals). Estate Planning Family dynamics and business relationships that could impact estate planning strategies; Appropriateness of documents to meet estate planning objectives; Specific bequests and minimum size of estate; and Specific needs of the client s beneficiaries. 9

14 ANALYSIS The certifying body should draft the Case Study in a manner that encourages the candidate to consider the inter-relationships among financial planning components when analyzing the client s objectives, needs, values and information to prioritize the financial planning recommendations. The information provided in the Case Study should be sufficient for the candidate to establish the client s opportunities and constraints and develop a written financial plan. The candidate should not be permitted to use or rely on data that has not been included in the Case Study to establish the client s opportunities and constraints. STRATEGIES The certifying body should provide enough information in the Case Study to enable the candidate to be able to develop viable strategies for the client and to present them in the written financial plan. SYNTHESIS AND RECOMMENDATIONS The certifying body should provide enough information in the Case Study to enable the candidate to be able to synthesize information and to develop recommendations for the client and to present them in the written financial plan. IMPLEMENTATION The certifying body should provide enough information in the Case Study to enable the candidate to indicate steps and actions needed for implementation when required for the client and to present them in the written financial plan. PERIODIC REVIEW The certifying body should provide enough information in the Case Study to enable the candidate to indicate actions and time lines for periodic review when required for the client and to present them in the written financial plan

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16 The global symbol of achievement The global symbol of excellence in financial planning CFP certification is the only globally recognized mark of professionalism for financial planners. When seeking objective, expert and trusted financial planning advice, you should always look for the CFP mark. To achieve the best financial planning results, call a CFP professional. For more information on finding a CFP professional near you, visit CFP Certification Global excellence in financial planning TM Financial Planning Standards Board Ltd. owns the CFP, CERTIFIED FINANCIAL PLANNER and CFP Logo marks outside the U.S. and permits qualified individuals to use these marks to indicate that they have met FPSB s initial and ongoing certification requirements.