Financial Planning Principles

Financial Planning Principles & Process ## Overview The CFP Board defines financial planning as a collaborative process that helps clients achieve their life goals through the proper management of financial resources. Understanding the 7-step financial planning process is foundational for the CFP exam — questions on process steps, fiduciary triggers, and engagement scope appear throughout the exam. --- ## The CFP Board's 7-Step Financial Planning Process | Step | Name | Key Actions | |------|------|-------------| | 1 | Understanding Client's Personal & Financial Circumstances | Gather data, assess financial health, identify relevant personal factors | | 2 | Identifying and Selecting Goals | Explore and prioritize the client's goals, needs, and values | | 3 | Analyzing Current Course of Action | Evaluate what happens if the client makes no changes; identify gaps | | 4 | Developing Financial Planning Recommendations | Formulate strategies that address identified gaps and goals | | 5 | Presenting Recommendations | Communicate recommendations clearly; explain assumptions and trade-offs | | 6 | Implementing Recommendations | Execute agreed-upon strategies, coordinating with other professionals as needed | | 7 | Monitoring and Updating | Track progress, reassess assumptions, and revise the plan as circumstances change | > Exam Tip: The CFP Board moved from a 6-step to a 7-step process in the 2021 Standards. Step 3 (analyzing the current course of action) was added as its own distinct step. If you see questions referencing a 6-step model, it is outdated. --- ## Scope of Engagement Not every interaction with a client constitutes a full financial planning engagement. The scope of engagement defines what the CFP and client have agreed to work on together. - Scope…