Introduction to Personal Financial Planning for NISM certification
Personal financial planning is the core skill of an investment adviser: understanding a client's whole financial life and building a plan that funds their goals. This chapter sets out what planning covers, why clients need it, the six-step process, and how advice is kept separate from selling.
Advice & ResearchSeries X-A58 MCQs5 lessons12 flashcards3 memory tricks
Practise Introduction to Personal Financial Planning free
What you'll learn
- What financial planning is and why clients need it
Explain financial planning and the forces that make it necessary. - Scope: goals and their priority
Turn wishes into goals and rank them. - Assets, liabilities and net worth
Classify a household's assets and compute its net worth. - The six-step planning process
Follow the planning process from first meeting to review. - Advice versus execution
Explain why advice and selling are separated and describe adviser business models.
Key formulas
| Net worth | Total assets − total liabilities |
|---|---|
| Savings | Income − expenses |
Concepts explained
Six-step financial planning process
Planning follows six steps: establish the relationship, gather data and goals, analyse, recommend, implement, and monitor.
What it means
- Scope and fees are agreed in step 1.
- Goals are defined in step 2.
- Monitoring is ongoing.
- Signing an agreement on fees → step 1
- Collecting loan statements → step 2
- Calculating net worth → step 3
- Proposing an asset allocation → step 4
Answer: Match the activity to its step
Advice vs distribution
SEBI separates paid advice (by registered advisers, paid by clients) from distribution (paid by product makers) to curb conflicts of interest.
What it means
- Individual RIA: either advisory or distribution, not both.
- Non-individual RIA: client-level segregation across the group; advice through a separate division.
- Execution by RIAs only through direct plans, with no consideration at group or family level.
Net worth
Net worth is total assets minus total liabilities: the household's financial position at a point in time.
What it means
- Rising net worth shows progress.
- Loans that fund consumption reduce net worth over time.
- Assets ₹110 lakh
- Liabilities ₹47 lakh
Answer: ₹63 lakh
Memory tricks
Establish relationship → gather data → analyse → recommend → implement → monitor.
Advisers are paid by clients; distributors by product makers; individual RIAs can't do both.
Inflation, longevity and nuclear families are key reasons for financial planning.
Try 3 NISM-style questions
Q1. Estate planning deals with
- Buying farmland or a plot as a long-term investment
- Reducing income tax on salary
- Repaying the home loan early
- Passing on wealth through wills and nominations
Show answer
Answer: (4) Passing on wealth through wills and nominations
Estate planning ensures assets reach the intended people smoothly.
Q2. In the planning process, recommendations to raise income, cut expenses or reallocate assets are made in the step of
- Gathering client data
- Establishing the relationship and agreeing on fees
- Developing and presenting recommendations
- Monitoring
Show answer
Answer: (3) Developing and presenting recommendations
This is step 4.
Q3. Which statement about a household's finances is generally correct?
- They are stable when spending stays within income
- They are stable only if there are no assets
- Loans always improve stability
- Spending more than income is sustainable with credit cards
Show answer
Answer: (1) They are stable when spending stays within income
A regular surplus is the base of financial stability.
Practise all 58 questions Free · explanations for every option · see where you go wrong