Financial Planning Process Flashcards

What is the correct order of the financial planning process as outlined by the CISI?

Answer: Establish relationship, gather data, analyse and evaluate, develop recommendations, implement, review

The financial planning process follows six systematic steps: (1) Establish the client-adviser relationship and define scope; (2) Gather client data including financial situation, objectives, and risk tolerance; (3) Analyse and evaluate the client's financial status; (4) Develop and present recommendations; (5) Implement the recommendations; (6) Review and monitor. This structured approach ensures comprehensive, suitable advice and is fundamental to the CISI IAD syllabus.

When conducting a fact-find for a new client, which of the following is LEAST likely to be relevant?

Answer: The make and model of the client's car

A comprehensive fact-find should cover the client's personal details, income and expenditure, assets and liabilities, existing investments and pensions, protection needs, tax position, objectives (short, medium, long-term), attitude to risk, capacity for loss, and knowledge and experience. While the value of a car might be relevant as an asset, the specific make and model adds no value to the financial planning process.

What is the difference between 'attitude to risk' and 'capacity for loss'?

Answer: Attitude to risk is the client's willingness to accept risk; capacity for loss is their financial ability to absorb losses without affecting their standard of living

Attitude to risk (ATR) is a psychological measure of how comfortable a client is with investment volatility and potential losses. Capacity for loss is an objective financial measure of how much a client could lose without it materially affecting their standard of living. A client might have a high ATR but low capacity for loss (e.g., an adventurous retiree with limited savings). The adviser must consider both and the lower of the two should typically prevail.

A client aged 55 wants to retire at 60 with a target income of £40,000 per year. Which of the following is the MOST important factor to assess first?

Answer: The client's total retirement provision including State Pension entitlement, defined benefit schemes, and defined contribution pots

The first priority is to establish the client's existing retirement provision. This includes State Pension forecast (available from Gov.uk), any defined benefit pension entitlements (and whether they allow early retirement), defined contribution pension values and projected growth, ISAs, and other investments. Only after understanding the full picture can the adviser identify any shortfall against the £40,000 target and recommend appropriate action.

Under FCA rules, what is the difference between 'independent' and 'restricted' financial advice?

Answer: Independent advice considers all retail investment products across the whole market; restricted advice is limited by product type, provider, or both

Under the FCA's Retail Distribution Review (RDR), advisers must declare whether they offer independent or restricted advice. Independent advisers must consider all retail investment products from all providers (the whole of market) and provide unbiased recommendations. Restricted advisers are limited in some way — by product range, provider panel, or both — and must clearly explain the nature of their restriction to clients.

What is the purpose of a 'cash flow forecast' in the financial planning process?

Answer: To project the client's income, expenditure, and capital over time to determine if their financial objectives are achievable

Cash flow forecasting (also called cash flow modelling) is a critical financial planning tool that projects a client's financial position over their lifetime. It models income sources, expenditure patterns, investment growth, inflation, and life events to determine whether the client's financial objectives (such as retirement income targets) are achievable. It helps identify shortfalls early and allows for scenario testing (e.g., what if they retire 2 years earlier?).