AAFM AAFM Financial Planning Principles 2 — Questions and Answers
Question 1: A client wants a plan that coordinates investments, taxes, insurance, and estate goals into one strategy. Which planning approach does this describe?
- Comprehensive financial planning (Correct answer)
- Single-purpose planning
- Transactional planning
- Product-based planning
Correct answer: Comprehensive financial planning
Comprehensive financial planning integrates all areas of a client's finances into a unified strategy.
Question 2: In the financial planning process, what is the correct step immediately after establishing the client relationship and scope?
- Gathering client data and defining goals (Correct answer)
- Implementing recommendations
- Monitoring the plan
- Presenting the final plan
Correct answer: Gathering client data and defining goals
After defining scope, the planner collects data and clarifies the client's goals and expectations.
Question 3: Which document formally defines the services, responsibilities, and compensation between planner and client?
- Engagement letter (Correct answer)
- Prospectus
- Fact-find questionnaire
- Investment policy statement
Correct answer: Engagement letter
An engagement letter sets out the scope, duties, and fees governing the planning relationship.
Question 4: A planner recommends a product that pays the highest commission rather than the best fit for the client. Which principle is violated?
- Duty to act in the client's best interest (Correct answer)
- Duty of confidentiality
- Duty of diligence
- Duty of record-keeping
Correct answer: Duty to act in the client's best interest
Placing personal compensation above client needs breaches the fiduciary best-interest duty.
Question 5: What primarily distinguishes a fee-only planner from a commission-based one?
- Fee-only planners receive no compensation from product sales (Correct answer)
- Fee-only planners charge nothing
- Fee-only planners cannot manage investments
- Fee-only planners work only with the wealthy
Correct answer: Fee-only planners receive no compensation from product sales
Fee-only planners are paid solely by clients, avoiding commission conflicts of interest.
Question 6: When quantifying a client's goals, which characteristic makes a goal most actionable in a financial plan?
- It is specific, measurable, and time-bound (Correct answer)
- It is broad and aspirational
- It is set by the planner
- It ignores current resources
Correct answer: It is specific, measurable, and time-bound
Well-defined goals with amounts and deadlines allow the planner to build measurable strategies.
Question 7: Why does a planner review a client's plan periodically after implementation?
- Because life changes and market conditions can alter the plan's suitability (Correct answer)
- Because plans expire after one year by law
- Because clients must repay fees
- Because regulators require weekly updates
Correct answer: Because life changes and market conditions can alter the plan's suitability
Monitoring ensures the plan remains aligned with changing circumstances and goals.
AAFM AAFM Financial Planning Principles 2
A client wants a plan that coordinates investments, taxes, insurance, and estate goals into one strategy.
Which planning approach does this describe?