Introduction to Financial Management



Eastern Illinois University

FIN 3300

Final Exam Topics

Calculations will be required for items in bold.

What is Financial Planning?

Who is a Financial Planner?

Chapters 1/2

1) Financial Planning

a) Goals

b) Priorities

c) Challenges to accomplishing goals

2) Financial Planners

a) Regulation

b) CFP

c) Financial planning professional associations

Steps and Tools in the Financial Planning Process

Chapters 3/4

1) Steps in the financial planning process

a) Establish a relationship

i) Methods of compensation

b) Gather data and define client goals

i) Risk tolerance/risk capacity

c) Analyze and evaluate financial status

d) Develop and present financial plan

i) Alternatives

e) Implement

f) Monitor

2) Communication for Financial Professionals

a) Interviewing

i) Gathering information

ii) Counseling

b) Communication skills

i) “Attending” skills

ii) Active listening

c) Risk aversion

d) Client behaviors

i) Availability bias

ii) Irrational behavior

1) Denial of risk

2) Familiarity bias

3) Control bias

4) Time horizon

e) Assessing risk tolerance

3) Principles of Financial Planning

a) Before invest, insure

b) Take risk consistent with tolerance, capacity and goals

c) Education savings risk tolerance

d) Diversification

e) Make savings automatic

f) Dollar cost averaging

g) Increase rate of investing instead of rate of return

h) It’s not what you make, it’s what you keep

i) Tax efficient investing

j) Diversify taxability of investments

k) Repaying debt can be your best investment

Attitudes of Clients and Financial Services Industry Regulations

Chapters 5/6

1) Client Attitudes

a) Risk tolerance

2) Financial Service Industry Regulations

a) Investment adviser

i) Exceptions

ii) Merrill Lynch rule

3) Registration

a) SEC

b) State

4) ADV

5) Fiduciary

6) Brochure

Ethics and Financial Planning Standards

Chapters 7/8

1) Principles of the CFP Board Code of Ethics

a) Principle 1 – Integrity

b) Principle 2 – Objectivity

c) Principle 3 – Competence

d) Principle 4 – Fairness

e) Principle 5 – Confidentiality

f) Principle 6 – Professionalism

g) Principle 7 – Diligence

2) Financial Planning Practice Standards

a) Establish and Define Relationship

i) Compensation

ii) Client/practitioner responsibilities

iii) Duration

iv) Limits of scope

b) Gather Data

i) Establish goals

ii) Client must provide sufficient data to support analysis

c) Analyze and Evaluate Status

i) Agree on assumptions

ii) Personal (retirement age)

iii) Economic (investment returns)

d) Develop/Present Financial Plan

i) Develop alternatives/present plan

ii) Current course of action

iii) Other alternatives

iv) Help client understand plan

v) Don’t overwhelm

vi) Action list

e) Implement

i) Responsibilities/coordination

ii) Different opinions on investment products

f) Monitor

i) Responsibilities

Education Planning

Chapter 10

1) Education Funding Calculation

2) Education Income Tax Credits

a) Hope Credit

i) Phase out will be provided on exam

b) Lifetime Learning Credit

i) Phase out will be provided on exam

c) Coverdell ESA

i) Phase out on contributions will be provided on exam

d) 529 plans

i) Phase out on contributions will be provided on exam

3) Grants and Loans

4) Loans

a) Perkins

b) Stafford

i) Limited to Cost of Attendance - Grants

5) Parents (PLUS)

6) Student Loan Interest Expense

a) Can deduct up to $2,500 per year

b) Phase out will be provided on exam

7) Savings Bond Interest Income

8) Kids Working

a) No social security taxes if under 18

9) Shifting Income

a) Gift assets

i) UTMA/UGMA

10) Financial aid

a) Expected Family Contribution

i) Student Contribution

1) 35% of assets; 50% of earnings

ii) Parent Contribution

1) Generally 6% of assets

Special Circumstances/Special Needs

Chapters 12/13

1) Divorce planning

a) Division of assets

i) QDRO

ii) Value

b) Changing beneficiary (also life insurance)

c) Social security: ex-spouse of 10 years

d) Child support/alimony

2) Nontraditional relationships

a) Issues

b) Recommendations

3) Disability

a) Definition of disability

b) Income tax

c) Coverage

d) Elimination period

e) Benefit period

4) Terminal illness

a) Viatical settlement

b) Living will

c) Health care power of attorney

d) HIPPA

Budgeting/Personal Financial Statements

Chapters 15/16

1) Budgeting

a) Reasons to use a budget

b) Guidelines

c) Steps

2) Cash reserves

a) Factors impacting

3) Increasing investments

a) Increase rate of investment

4) Personal Financial Statements

a) Statement of Financial Condition

5) Obtaining credit

6) Capacity: ability to repay debt

7) Income, other debt payments

8) Dependents, alimony, child support

9) Character: will they repay debt

10) Pay bills on time

11) Stability: own home; job history

12) Collateral:

13) Reduce risk; reduce rate

14) Automatic payments: lower rate

Credit and Debt Management

Chapter 17

1) Debt ratios

a) Debt to income=Loan and credit card payments/gross income

i) ................
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