Risk Management

CFP — Risk Management Exam: CFP Board Certification Exam Last Updated: June 2026 --- ## Overview of Risk Management Risk management is the process of identifying, analyzing, and responding to risk factors throughout the life of a project or financial plan. For CFP candidates, the focus is personal and household risk. The Risk Management Process: 1. Identify risks facing the client 2. Measure the potential financial impact 3. Evaluate risk management alternatives 4. Select appropriate techniques 5. Implement the plan 6. Monitor and review regularly --- ## Types of Risk ### Pure vs. Speculative Risk | Risk Type | Description | Insurable? | |---|---|---| | Pure risk | Only loss or no loss (no gain possible) | Yes — insurance | | Speculative risk | Possibility of gain or loss | No — investment risk | ### Personal Risks | Risk | Description | |---|---| | Premature death | Death before financial obligations are met | | Disability (living too long disabled) | Inability to earn income due to illness or injury | | Old age (longevity risk) | Outliving assets | | Unemployment | Loss of earned income | | Health care | Medical expenses exceeding ability to pay | ### Property Risks - Direct loss: Physical destruction or theft of property - Indirect loss: Additional living expenses, lost business income following loss ### Liability Risks - Negligent acts resulting in bodily injury or property damage to others - Personal liability, auto liability, professional liability --- ## Risk Management Techniques | Technique | Description | When Used | |---|---|---| | Avoidance | Eliminate the activity creating risk | Risk is unacceptable and no benefit | | Reduction |…