CFP Board Financial Planning Competency Handbook

CFP Board Financial Planning Competency Handbook is the essential reference for those at any stage of CFP certification and a one-stop resource for practitioners looking to better serve their clients. This fully updated second edition includes brand new content on connections diagrams, new case studies, and new instructional videos, and a completely new section devoted to the interdisciplinary nature of financial planning. You'll gain insights from diverse fields like psychology, behavioral finance, communication, and marriage and family therapy to help you better connect with and guide your clients, alongside the detailed financial knowledge you need to perform to the highest expectations as a financial planner. The only official CFP Board handbook on the market, this book contains over ninety chapters that are essential for practitioners, students, and faculty.

Whether a practitioner, student, or faculty member, this guide is the invaluable reference you need at your fingertips. Comprehensive, clear, and detailed, this handbook forms the foundation of the smart financial planner's library.

Each jurisdiction has its own laws and regulations surrounding financial planning, but the information in this book represents the core body of knowledge the profession demands no matter where you practice. CFP Board Financial Planning Competency Handbook guides you from student to practitioner and far beyond, with the information you need when you need it.

Certified Financial Planner Board of Standards, Inc. (CFP Board) is a non-profit organization acting in the public interest by fostering professional standards in personal financial planning. CFP Board sets and enforces the standards for CFP certification, the recognized standard of excellence for personal financial planning. Individuals who successfully complete CFP Board's initial and ongoing certification requirements—including requirements related to education, examination, experience, and ethics—are awarded the right to use the CFP certification marks. CFP certification identifies financial planners who are true professionals in one of the fastest growing and exciting careers today, allowing the public to find professionals qualified to provide competent and ethical financial planning services delivered with a fiduciary standard of care, putting the client's best interests first. CFP Board is located in Washington, D.C.

Acknowledgments xiii

About the Book xv

Preface xvii

Charles R. Chaffin, EdD, CFP Board

About the Practice Questions xxiii

About the Contributors xxv

Part One Introduction 1

Charles R. Chaffin, EdD, CFP Board

1 Theory and Practice 5

Charles R. Chaffin, EdD, CFP Board

2 Function, Purpose, and Regulation of Financial Institutions 15

John E. Grable, PhD, CFP®, University of Georgia

Sonya L. Britt, PhD, CFP®, Kansas State University

3 Financial Services Regulations and Requirements 25

John E. Grable, PhD, CFP®, University of Georgia

Sonya L. Britt, PhD, CFP®, Kansas State University

4 Consumer Protection Laws 35

John E. Grable, PhD, CFP®, University of Georgia

Sonya L. Britt, PhD, CFP®, Kansas State University

5 Fiduciary 45

Martie Gillen, PhD, University of Florida

6 Financial Planning Process 51

John E. Grable, PhD, CFP®, University of Georgia

Ronald A. Sages, PhD, AEP®, CFP®, CTFA, EA, Kansas State University

7 Financial Statements 63

Thomas Warschauer, PhD, CFP®, San Diego State University

8 Cash Flow Management 73

Martie Gillen, PhD, University of Florida

Michael Gutter, PhD, University of Florida

9 Financing Strategies 81

Martie Gillen, PhD, University of Florida

Michael Gutter, PhD, University of Florida

Jorge Ruiz-Menjivar, University of Georgia

10 Economic Concepts 89

Dave Yeske, DBA, CFP®, Golden Gate University

11 Time Value of Money 97

Jorge Ruiz-Menjivar, University of Georgia

Martie Gillen, PhD, University of Florida

Michael Gutter, PhD, University of Florida

12 Client and Planner Attitudes, Values, Biases, and Behavioral Finance 107

Dave Yeske, DBA, CFP®, Golden Gate University

13 Principles of Communication and Counseling 115

John E. Grable, PhD, CFP®, University of Georgia

Kristy L. Archuleta, PhD, LMFT, Kansas State University

14 Debt Management 127

Joseph W. Goetz, PhD, University of Georgia

John E. Grable, PhD, CFP®, University of Georgia

15 Education Needs Analysis 137

Taylor Spangler, MS, University of Florida

Michael Gutter, PhD, University of Florida

Martie Gillen, PhD, University of Florida

Sailesh Acharya, University of Florida

16 Education Savings Vehicles 145

Michael Gutter, PhD, University of Florida

Martie Gillen, PhD, University of Florida

17 Financial Aid (Education) 153

Martie Gillen, PhD, University of Florida

Michael Gutter, PhD, University of Florida

18 Gift and Income Tax Strategies (Education) 159

Martie Gillen, PhD, University of Florida

Michael Gutter, PhD, University of Florida

19 Education Financing 165

Martie Gillen, PhD, University of Florida

Michael Gutter, PhD, University of Florida

20 Principles of Risk and Insurance 173

Dave Yeske, DBA, CFP®, Golden Gate University

21 Analysis and Evaluation of Risk Exposures 183

Dave Yeske, DBA, CFP®, Golden Gate University

22 Health Insurance and Health Care Cost Management 189

Andrew Head, MA, CFP®, Western Kentucky University

Sharon A. Burns, PhD, CPA (Inactive)

23 Disability Income Insurance (Individual) 197

Dave Yeske, DBA, CFP®, Golden Gate University

24 Long-Term Care Insurance 205

Andrew Head, MA, CFP®, Western Kentucky University

Sharon A. Burns, PhD, CPA (Inactive)

25 Annuities 213

Andrew Head, MA, CFP®, Western Kentucky University

John Gilliam, PhD, CFP®, Texas Tech University

26 Life Insurance (Individual) 225

Dave Yeske, DBA, CFP®, Golden Gate University

27 Business Uses of Insurance 233

L. Ann Coulson, PhD, CFP®, Kansas State University

John Gilliam, PhD, CFP®, Texas Tech University

28 Insurance Needs Analysis 245

Thomas Warschauer, PhD, CFP®, San Diego State University

29 Insurance Policy and Company Selection 253

Thomas Warschauer, PhD, CFP®, San Diego State University

Andrew Head, MA, CFP®, Western Kentucky University

30 Property and Casualty Insurance 263

Derek R. Lawson, MS, Sonas Financial Group, Inc. and Kansas State University

Sarah D. Asebedo, MS, CFP®, Virginia Tech

Martin C. Seay, PhD, CFP®, Kansas State University

31 Characteristics, Uses, and Taxation of Investment Vehicles 275

Swarn Chatterjee, PhD, University of Georgia

Lance Palmer, PhD, CPA, CFP®, University of Georgia

32 Types of Investment Risk 283

Thomas Warschauer, PhD, CFP®, San Diego State University

33 Quantitative Investment Concepts 291

Thomas Warschauer, PhD, CFP®, San Diego State University

34 Measures of Investment Returns 299

Thomas Warschauer, PhD, CFP®, San Diego State University

35 Asset Allocation and Portfolio Diversification 307

Dave Yeske, DBA, CFP®, Golden Gate University

36 Bond and Stock Valuation Concepts 315

Dave Yeske, DBA, CFP®, Golden Gate University

37 Portfolio Development and Analysis 325

Thomas Warschauer, PhD, CFP®, San Diego State University

38 Investment Strategies 335

Dave Yeske, DBA, CFP®, Golden Gate University

39 Alternative Investments 343

L. Michael Ladd, CFA, CAIA, CMT, CFP®

40 Fundamental Tax Law 353

Lance Palmer, PhD, CPA, CFP®, University of Georgia

41 Income Tax Fundamentals and Calculations 363

Lance Palmer, PhD, CPA, CFP®, University of Georgia

42 Characteristics and Income Taxation of Business Entities 373

Webster Hewitt, CPA, CFP®, University of Georgia

Lance Palmer, PhD, CPA, CFP®, University of Georgia

43 Income Taxation of Trusts and Estates 383

Martin C. Seay, PhD, CFP®, Kansas State University

Lance Palmer, PhD, CPA, CFP®, University of Georgia

44 Alternative Minimum Tax (AMT) 391

Webster Hewitt, CPA, CFP®, University of Georgia

Lance Palmer, PhD, CPA, CFP®, University of Georgia

45 Tax Reduction and Management Techniques 399

Lance Palmer, PhD, CPA, CFP®, University of Georgia

46 Tax Consequences of Property Transactions 409

Lance Palmer, PhD, CPA, CFP®, University of Georgia

Martin C. Seay, PhD, CFP®, Kansas State University

47 Passive Activity and At-Risk Rules 417

Lance Palmer, PhD, CPA, CFP®, University of Georgia

48 Tax Implications of Special Circumstances 423

Lance Palmer, PhD, CPA, CFP®, University of Georgia

49 Charitable/Philanthropic Contributions and Deductions 431

Webster Hewitt, CPA, CFP®, University of Georgia

Lance Palmer, PhD, CPA, CFP®, University of Georgia

50 Retirement Needs Analysis 439

Andrew Head, MA, CFP®, Western Kentucky University

Sharon A. Burns, PhD, CPA (Inactive)

51 Social Security and Medicare 447

Sarah D. Asebedo, MS, CFP®, Virginia Tech

Martin C. Seay, PhD, CFP®, Kansas State University

Thomas Warschauer, PhD, CFP®, San Diego State University

52 Medicaid 463

Katie Seay, CFP®, The Trust Company

Martin C. Seay, PhD, CFP®, Kansas State University

53 Types of Retirement Plans 471

John E. Grable, PhD, CFP®, University of Georgia

54 Qualified Plan Rules and Options 479

Andrew Head, MA, CFP®, Western Kentucky University

Sharon A. Burns, PhD, CPA (Inactive)

55 Other Tax-Advantaged Plans 485

Andrew Head, MA, CFP®, Western Kentucky University

Sharon A. Burns, PhD, CPA (Inactive)

56 Regulatory Considerations 491

Andrew Head, MA, CFP®, Western Kentucky University

Sharon A. Burns, PhD, CPA (Inactive)

57 Key Factors Affecting Plan Selection for Businesses 495

Andrew Head, MA, CFP®, Western Kentucky University

Sharon A. Burns, PhD, CPA (Inactive)

58 Distribution Rules and Taxation 501

Andrew Head, MA, CFP®, Western Kentucky University

Sharon A. Burns, PhD, CPA (Inactive)

59 Retirement Income and Distribution Strategies 509

Dave Yeske, DBA, CFP®, Golden Gate University

Elissa Buie, MBA, CFP®, Golden Gate University

60 Business Succession Planning 515

John E. Grable, PhD, CFP®, University of Georgia

Joseph W. Goetz, PhD, University of Georgia

Kevin Valentino, MS, University of Georgia

61 Characteristics and Consequences of Property Titling 527

Andrew Head, MA, CFP®, Western Kentucky University

Sharon A. Burns, PhD, CPA (Inactive)

62 Gifting Strategies 533

Elissa Buie, MBA, CFP®, Golden Gate University

63 Estate Planning Documents 541

Andrew Head, MA, CFP®, Western Kentucky University

Sharon A. Burns, PhD, CPA (Inactive)

64 Estate Tax Compliance and Tax Calculation 547

Elissa Buie, MBA, CFP®, Golden Gate University

65 Sources for Estate Liquidity 555

Elissa Buie, MBA, CFP®, Golden Gate University

66 Types, Features, and Taxation of Trusts 561

Elissa Buie, MBA, CFP®, Golden Gate University

67 Marital Deduction 569

Elissa Buie, MBA, CFP®, Golden Gate University

68 Intra-Family and Other Business Transfer Techniques 575

Elissa Buie, MBA, CFP®, Golden Gate University

69 Postmortem Estate Planning Techniques 585

Elissa Buie, MBA, CFP®, Golden Gate University

70 Estate Planning for Non-Traditional Relationships 591

Elissa Buie, MBA, CFP®, Golden Gate University

Supplement: CFP Board’s Code of Ethics and Professional Responsibility 601

Part Two Introduction 605

Charles R. Chaffin, EdD, CFP Board

Thomas Warschauer, PhD, CFP®, San Diego State University

71 Establishing and Defining the Client-Planner Relationship 609

Elissa Buie, MBA, CFP®, Golden Gate University

Dave Yeske, DBA, CFP®, Golden Gate University

72 Gathering Information Necessary to Fulfill the Engagement 617

Elissa Buie, MBA, CFP®, Golden Gate University

Dave Yeske, DBA, CFP®, Golden Gate University

73 Analyzing and Evaluating the Client’s Current Financial Status 625

Thomas Warschauer, PhD, CFP®, San Diego State University

Vickie Hampton, PhD, CFP®, Texas Tech University

Andrew Head, MA, CFP®, Western Kentucky University

74 Developing Financial Planning Recommendations 635

John E. Grable, PhD, CFP®, University of Georgia

Lance Palmer, PhD, CPA, CFP®, University of Georgia

75 Communicating the Financial Planning Recommendations 653

Dave Yeske, DBA, CFP®, Golden Gate University

John E. Grable, PhD, CFP®, University of Georgia

76 Implementing the Financial Planning Recommendations 665

Ronald A. Sages, PhD, AEP®, CFP®, CTFA, EA Kansas State University

77 Monitoring the Financial Planning Recommendations 677

Thomas Warschauer, PhD, CFP®, San Diego State University

Sharon A. Burns, PhD, CPA (Inactive)

Part Three Introduction 685

Charles R. Chaffin, EdD, CFP Board

78 Gathering Data from Clients: Insights from Cognitive Task Analysis and Requirements Engineering 687

Kelly S. Steelman, PhD, Michigan Technological University

Jason S. McCarley, PhD, Flinders University

John E. Grable, PhD, CFP®, University of Georgia

Lance Palmer, PhD, CPA, CFP®, University of Georgia

Dave Yeske, DBA, CFP®, Golden Gate University

Charles R. Chaffin, EdD, CFP Board

79 The Need for Education 703

Joyce Schnur, CFP®, MBA, ChFC, Kaplan University

Charles R. Chaffin, EdD, CFP Board

80 Financial Planning Standards Board 709

Michael Snowdon, CFP®, Financial Planning Standards Board

81 Behavioral Finance and Its Implications for Financial Advisors 737

Keith Redhead, PhD, Coventry University

82 Applications of Behavioral Economics in Personal Financial Planning 751

Swarn Chatterjee, PhD, University of Georgia

Joseph W. Goetz, PhD, University of Georgia

83 Marriage and Family Therapy Applications to Financial Planning 763

Kristy L. Archuleta, PhD, LMFT, Kansas State University

D. Bruce Ross III, MS, University of Georgia

84 Financial Therapy: The Integration of Financial Planning and Theory 779

Kristy L. Archuleta, PhD, LMFT, Kansas State University

Bradley T. Klontz, PsyD, CFP®, Kansas State University

Sonya L. Britt, PhD, CFP®, Kansas State University

85 Aging Clients: Special Considerations 795

Deanna L. Sharpe, PhD, CFP®, University of Missouri

86 Accounting for Time: Important Distinctions and Concepts for Financial Planners 829

John E. Grable, PhD, CFP®, University of Georgia

Robert Rodermund, MS, Lindenwood University

87 The Psychology of Decisions: A Short Tutorial 843

Jason S. McCarley, PhD, Flinders University

Kelly S. Steelman, PhD, Michigan Technological University

John E. Grable, PhD, CFP®, University of Georgia

Lance Palmer, PhD, CPA, CFP®, University of Georgia

Dave Yeske, DBA, CFP®, Golden Gate University

Charles R. Chaffin, EdD, CFP Board

Conclusion

88 Moving Forward 861

Charles R. Chaffin, EdD, CFP Board

Elissa Buie, MBA, CFP®, Golden Gate University

Sharon A. Burns, PhD, CPA (Inactive)

Vickie Hampton, PhD, CFP®, Texas Tech University

Lance Palmer, PhD, CPA, CFP®, University of Georgia

Thomas Warschauer, PhD, CFP®, San Diego State University

Dave Yeske, DBA, CFP®, Golden Gate University

Index 879