This is a summary of personal financial planning terms, defined in plain English, organized in alphabetical order. This brief inventory does not contain every word, nor do the definitions substitute for full explanations.
A “client” is an individual who engages a financial planning practitioner to render professional services on their behalf.
A “commission” is compensation to an agent for generating revenue from a transaction for their principal.
“Compensation” is any non-trivial economic benefit, whether monetary or non-monetary, entitled to or received by a financial planning practitioner or a related person for rendering professional services.
Conflict of Interest
A “conflict of interest” is any business, financial, personal and/or property interest, relationship or circumstance that could impair a financial planning practitioner’s ability to offer objective advice or service.
“Fee-only” means compensation paid exclusively by a client to a financial planning practitioner for rendering professional services. Fee-only compensation includes a percentage of assets under management, hourly charges, fixed fees, or subscription fees. Fee-only compensation excludes commissions.
A “fiduciary” is a financial planning practitioner who is legally obligated to act in the best interest of their client.
Financial Planning Engagement
A “financial planning engagement” is where a financial planning practitioner provides a mutually agreed upon professional service for their client.
Financial Planning Practitioner
A “financial planning practitioner” is any individual who engages a client in the financial planning process.
“Financial planning” is the process of determining whether and how individuals can meet their goals through prudent management of personal finances. A financial planning practitioner integrates financial planning subjects into the financial planning process. In determining whether the financial planning practitioner provides material elements of the financial planning process, consider the client’s understanding and intent in engaging the financial planning practitioner, the degree to which multiple financial planning subjects are involved, the comprehensiveness of the data gathering, and the breadth and depth of the recommendations. Financial planning occurs if all elements are provided simultaneously, delivered over time, or as distinct subjects. It is not necessary to have a written financial plan to engage in the process.
Financial Planning Process
The “financial planning process” is a course of action that typically includes, but is not limited to, establishing and defining a consulting relationship between a client and financial planning practitioner. Gathering information and setting goals that pertain to the client’s financial situation. Analyzing and evaluating the client’s current financial status. Developing and presenting recommendations and/or alternatives. Implementing and monitoring the recommendations.
Financial Planning Subjects
The “financial planning subjects” include basic topics covered in the financial planning process. These typically include but are not limited to general principles of financial planning, employee benefits, insurance and risk management, income taxation, investments, retirement and estate planning.
QUESTION: Are their other terms you would like added to this list?
Chris Bryant is an American financial advisor.