Frequently Asked Questions

The Certified Financial Planner™ (CFP®) designation is a professional certification mark for financial planners conferred by the Certified Financial Planner Board of Standards (CFP Board) in the United States. To receive authorization to use the designation, the candidate must meet education, examination, experience and ethics requirements, and pay an ongoing certification fee. This information relates specifically to CFP certification in the United States.

To earn the CFP Board designation, candidates must meet several requirements—the first of which is the educational requirement, which requires candidates to have a bachelor’s degree or higher from an accredited U.S. college or university. As a first step to the present CFP certification criteria, students must master a list of nearly 1,000 topics on integrated financial planning. The topics cover major planning areas such as:

• General Principles of Finance and Financial Planning • Insurance Planning • Employee Benefits Planning • Investment and Securities Planning • State and Federal Income Tax Planning • Estate Tax, Gift Tax, and Transfer Tax Planning • Asset Protection Planning • Retirement Planning • Estate Planning

To fulfill the education requirement, students are required to complete course training in the above listed topic areas in order to meet the first requirement to sit for the 7 ten hour CFP Board Certification Examinations. A bachelor’s degree (or higher), or its equivalent in any discipline, from an accredited college or university is required to attain certification. After passing the examination, the candidate must demonstrate to have exempt and extensive experience in the financial planning field. The CFP Board defines work experience as “the supervision, direct support, teaching or personal delivery of all or part of the personal financial planning process to a client” and such experience must fall within one or more of the following six primary elements of financial planning:

• Establishing and Defining the Client Relationship • Gathering Client Data and Goals • Analyzing and Evaluating the Client’s Financial Status • Developing and Presenting Financial Planning Recommendations and Alternatives • Implementing the Financial Planning Recommendations • Monitoring the Financial Planning Recommendations

After the student passes the exam and meets one or more of the six primary elements of financial planning, he or she must also have completed the following: • Three years full-time or equivalent (2,000 hours per year) part-time experience in the financial planning field • Be approved by the CFP Board during initial certification, which also involves an extensive background check—including an ethics, character and criminal check.

The final components are the ethics and continuing education requirements. Students and certificants are required to adhere to the CFP Board Code of Ethics and Professional Responsibility and to the Financial Planning Practice Standards. Registered investment advisors have a fiduciary duty to care for investments. The CFP Board has the right to enforce them through its Disciplinary Rules and Procedures. To maintain certification, license holders are also required to complete thirty (30) hours of continuing education, of which two (2) hours the Board of Standards approved ethical information, on an on-going basis in addition to paying a licensing fee every two years. (Content from Wikipedia.com.)

Defined by the Investment Advisors Act of 1940, any person that makes investment recommendations or conducts securities analysis in return for a fee, whether through direct management of client assets or via written publications.

An investment advisor is considered to be acting in a fiduciary capacity on behalf of clients with a higher standard of disclosure due to care, a commitment to disclose, minimize and resolve conflicts of the interest than would be found in a traditional securities brokerage environment. In addition, most RIAs are compensated on a fee basis (usually as a percentage of assets under management) rather than a commission basis.

Registration does, however, cause one to become legally responsible for the investment advice given, requiring more disclosure to existing and potential clients, filing periodic reports with various regulatory bodies and to keep longer, more accurate records of the financial advice given to clients.

A fiduciary duty is a legal or ethical relationship of confidence or trust between two or more parties, most commonly a fiduciary or trustee and a principal or beneficiary. In a fiduciary relationship, one person justifiably reposes confidence, good faith, reliance and trust in another whose aide, advice or protection is sought in some matter. In such a relationship good conscience requires one to act at all times for the sole benefit and interests of another, with loyalty to those interests.

An advisor with fiduciary responsibilities is held to a higher ethical standard and should have the knowledge to provide sophisticated wealth management services and advice. Registered Investment Advisors are licensed to provide ongoing financial advice.

Commission is a one-time payment from a third party custodian that can be paid out from insurance products or the buying or selling of securities. A fee is a portion or percentage of assets within a managed portfolio.

Asset allocation is a strategy for achieving your financial goals by spreading your assets among different asset classes and investment options. A well-known study*, which still holds true today, shows that 91% of an investment portfolio’s performance is determined by the allocation of its assets—not the individual investment selection or market timing. This means that asset allocation isn’t just a sound idea for building and protecting your retirement savings but a key element in helping to achieve your retirement savings goals.

Only investing in the asset class that is hottest may not always be the most lucrative strategy. Always remember that this year’s winner very well may be next year’s loser.

(*Study conducted by Gary P. Brinson, L. Randolph Hood and Gilbert L. Beebower, “Determinants of Portfolio Performance,” The Financial Analysts Journal, July/August 1986.)

A means of investment where investors, rather than buying and selling their own securities, place their investment funds in the hands of a qualified investment professional for a set fee, whether a percentage of assets or a flat fee.

You should begin getting quotes in your 40s and you should consider purchasing in your 50s. The earlier you buy, the likelihood exists that your premium can be significantly lower. Your risk for becoming ineligible for coverage can increase as you get older.

Life insurance is an important aspect of a sound financial plan. Life insurance is a way to help protect your family from the effects of losing your contribution to the household income. Life insurance can aid in mortgage payments and debt, as well as cover funeral expenses. Not only does life insurance help to protect your family financially, it also can support them so that they can take ample time off work to properly grieve.

An index annuity is an insurance contract linked to a common market index: for example, the S&P 500. Generally, if the index grows, you are entitled to the majority of the earnings. If the index declines, your account is buffered against loss. Index annuities are intended to allow you to participate in the market without risking principal.

An exchange-traded fund is a security that tracks an index. Much like a mutual fund, it is a basket of assets, but it trades like a stock on an exchange. As opposed to mutual funds an ETF does not have its net asset values calculated every day, and the price of the ETF changes throughout the day. Another attribute of an ETF is the expense ratio. The cost to operate the fund is typically much lower than with mutual funds. With an ETF you may buy on margin, sell short and may purchase as little as one share.

A Roth IRA is a retirement account with many similarities to a traditional IRA. The Roth provides no deductions for contributions but in turn, if you meet the requirements, all earnings are tax free when you or your beneficiary withdraws them. A Roth IRA does not require you to begin taking RMD (required minimum distributions) at age 70 ½.

A real estate investment trust is a security that sells like stock on the major exchanges and invests in real estate directly, either through properties or mortgages. REITs receive special tax considerations and typically offer investors high yields, as well as potential for a highly liquid method of investing in real estate.

A trust whereby provisions can be altered or canceled dependent on the grantor. During the life of the trust, income earned is distributed by the grantor, and only after death does property transfer to the beneficiaries.

This type of agreement provides flexibility and income to the living grantor. He or she is able to adjust the provisions of the trust and earn income.

A trust that can’t be modified or terminated without the permission of the beneficiary. The grantor, having transferred assets in the trust, effectively removes all of his or her rights of ownership to the assets and the trust.