FP511 Qbank

In developing a client-planner relationship, a CFP® certificant is allowed to do, or is governed by, which one of the following?

A CFP® certificant is not prevented from advertising the size, scope, and areas of competence of their financial planning practice. The answer is a CFP® certificant is not prevented from advertising the size, scope, and areas of competence of their financial planning practice .The size, scope, and areas of competence of a financial planning practice are appropriate types of information to be used in advertising. All of the other statements violate the rules and principles.

A client who has become more concerned about losing what she has than in accumulating more is most likely in which financial life cycle phase?

Conservation/protection phase The answer is conservation/protection phase. Clients generally become more risk averse in the conservation/protection phase and become aware and pay attention to risks they ignored in the asset accumulation phase.

Which of the following describes the distribution, or gifting, phase of a client's life cycle? A client is usually in this phase until approximately age 45 or later if the client's children are not yet independent. Distribution strategies, including retirement income sources and gifting strategies, are often a primary focus of a client's estate plan. A) I only B) Neither I nor II C) II only D) Both I and II

Distribution strategies, including retirement income sources and gifting strategies, are often a primary focus of a client's estate plan. The answer is II only. Only Statement II is correct. Statement I describes the asset accumulation phase of a client's life cycle.

When a client-planner engagement involves Financial Advice for which Financial Planning is required, and the client does not enlist the planner for services, the Planner must abide by Fiduciary Duty. the Code of Ethics. the Practice Standards for the Financial Planning Process. the Suitability Standard. A) I only B) I, II, and III C) I and II D) IV only

Fiduciary Duty. the Code of Ethics. The answer is I and II. In instances where the engagement involves Financial Advice that requires Financial Planning, but the client does not enlist the planner's services, the planner must uphold the fiduciary duty and abide by the Code of Ethics. Following the Practice Standards for the Financial Planning Process is not required.

According to the rules established by CFP Board, which of the following uses of the certification marks are CORRECT? Frank Smith, C.F.P. Frank Smith, CFP® Frank Smith & Co., PA, CFPs Frank Smith, CERTIFIED FINANCIAL PLANNER™

Frank Smith & Co., PA, CFPs Frank Smith, CERTIFIED FINANCIAL PLANNER™ The answer is II and IV. The CFP® marks should never contain periods. In addition, the marks should not be used as part of or incorporated in the name of a firm.

Analyze the scenario. Ling, a CFP® professional, is providing financial advice to her client. After considering the client's goals, family medical history, tax situation, and financial resources, she develops a financial plan that recommends that the client purchase long-term care insurance. Which statement regarding implementation responsibilities is NOT correct?

Ling is not responsible for implementing this planning recommendation because it only involves the purchase of a single product.

Which of the following is NOT a correct use of the CFP marks? A) CFP® practitioner B) CFP® exam C) CFP® certificant D) CFP® planner

The answer is CFP® planner. The Guide to Use of the CFP Certification Marks clearly lists the correct usage of the marks. CFP® certification marks must be followed by one of the approved nouns: "certificant," "professional," "practitioner," "certification," "mark," or "exam."

All of the following are CFP Board‒approved nouns to use after the phrase "CERTIFIED FINANCIAL PLANNER™" except A) certificant. B) candidate. C) professional. D) exam

The answer is candidate. CFP Board's approved nouns are "certificant," "professional," "practitioner," "certification," "mark" or "exam."

Which of the following are primary reasons why a financial planner will ask for each family member's date of birth during the information gathering process? To calculate Social Security "blackout period" preretirement benefit amounts for qualifying individuals To calculate insurance policy internal rates of return To help determine funding for the children's education To help determine retirement planning needs

To help determine funding for the children's education To help determine retirement planning needs The answer is III and IV. A person's birth date has little or nothing to do with preretirement Social Security benefit determination. If they have qualified for benefits, then the amount is determined by the formula independent of their age. However, a person's birth date does have an effect on other potential Social Security benefits. Birthdates also have little to do with calculating an insurance rate of return.

Joyce has become more risk averse and is not focused on accumulating assets, but maintaining the values of the ones she has. Joyce is in which financial life cycle phase? A) Conservation/protection phase B) Distribution/gifting phase C) Preretirement phase D) Asset accumulation phase

a The answer is conservation/protection phase. People generally become more risk averse in the conservation/protection phase and become aware of the risks that were ignored in the asset accumulation phase.

Which of the following statements regarding people who have a visual learning style is CORRECT? They tend to respond to graphs, charts, pictures, and reading information. They retain information by hearing or speaking. They express themselves through facial expressions. They prefer their goals and objectives to be presented as a to-do list in bullet form. A) I and III B) IV only C) I, III, and IV D) II and III

a The answer is I and III. Statement II is incorrect because people who retain information by hearing or speaking have an auditory learning style. Statement IV is not correct because individuals who prefer goals and objectives to be presented in bullet form exhibit a kinesthetic learning style.

During a meeting with his financial planner, Jack asks, "Should I be investing in the stock market to meet my savings goals?" The planner answers, "That depends. How do you feel about the possibility that your investment may decline in value?" The planner's answer is an example of A) a leading response. B) physical mirroring. C) emotional intelligence. D) verbal mirroring.

a The answer is a leading response. The planner's answer is a leading response because it guides the client to provide more detail. Physical mirroring is using the client's body language, and verbal mirroring is imitating the client's word use, tone of voice, and communication method. Emotional intelligence is the ability to recognize emotional expressions in oneself and others.

Rochelle is presented with two equal investment opportunities. The first is stated in terms of potential losses, and the second is stated in terms of potential gains. Without having any additional information, Rochelle selects the second investment. Her decision reflects A) loss aversion theory. B) the framing bias. C) herding. D) anchoring.

a The answer is loss aversion theory. Rochelle's decision reflects the loss aversion theory, which states that people fear losses much more than they value gains, and they prefer avoiding losses to acquiring the same amount in gains. Herding occurs when a person follows the actions of a larger group, whether rational or not. Anchoring is making irrational decisions based on information that should have no influence on the decision at hand. The framing bias states that people are given a frame of reference, a set of beliefs or values, which they use to interpret facts or conditions as they make decisions.

Which one of the following generally is used to determine the amount of emergency funds required? A) Number of sources of income B) Types of assets held (regardless of income-producing capabilities) C) Net income D) Gross income

a The answer is number of sources of income. The number of a client's sources of income is a factor in determining the amount of emergency funds needed. If income comes from several different sources, the amount of emergency funds required is lower than if all income is from one person's earnings. Possession of substantial income-producing assets could affect the amount of emergency funds a client requires. However, this is generally not the situation. Income from the assets would have a direct effect on the recommended level of emergency funds, but the assets themselves would not. The emergency fund amount is a function of expenses, not income. The number of a client's sources of income is a factor in determining the amount of emergency funds needed.

Caroline considers her investment skills to be much greater than they actually are. She takes credit for any investment decisions that have positive returns but blames the economy when her portfolio does poorly. Caroline's behavior is an example of A) overconfidence. B) confirmation bias. C) mental accounting. D) anchoring.

a The answer is overconfidence. Caroline's behavior is an example of overconfidence. Confirmation bias is paying attention to information that supports a preconceived opinion and poorly made decision, while disregarding accurate, unsupportive information. Anchoring is making irrational decisions based on information that should have no influence on the decision at hand. Mental accounting is putting money into separate "accounts" based on the function of these accounts.

Which of the following best describes data that is measurable or conveyed as a quantity? A) Quantitative data B) Qualitative data C) Quality data D) Qualified data

a The answer is quantitative data. Examples of quantitative, or objective, data include current financial statements, copies of wills and trusts, and a list of current investments.

When newly acquired information conflicts with pre-existing understanding, people often experience mental discomfort, also known as cognitive dissonance. All of the following are characteristics of cognitive dissonance except A) Taking credit for individual successes and blaming others or external influences for failures B) Rationalizing actions in order to adhere to the original course C) Individual changes in attitudes, beliefs, or behaviors to reduce discomfort D) Registering only information that appears to affirm an already chosen decision

a The answer is taking credit for individual successes and blaming others or external influences for failures. Self-attribution bias is an ego defense mechanism in which individuals take credit for their successes and either blame others or external influences for failures.

Which of the following items are normally included in a cash flow statement? Dividend income Money market account balance Mortgage note balance Vested pension benefits A) II, III, and IV B) I only C) I and IV D) II and III

b The answer is I only. The remaining items are asset values, correctly shown on a statement of financial position or balance sheet. Income items (e.g., dividend income) are on the cash flow statement.

A financial planner is meeting with a client. During a discussion of the client's estate plan, the client asks, "Would my brother be a good choice as executor of my will?" The planner answers, "What do you feel are your brother's qualifications to serve as executor?" The planner's answer is an example of A) body language. B) a leading response. C) emotional intelligence. D) verbal mirroring.

b The answer is a leading response. The planner's answer is a leading response because it guides the client to provide more detail. Body language involves facial expressions, eye contact, gestures, and body posture. Verbal mirroring is imitating the client's word use, tone of voice, and communication method. Emotional intelligence is the ability to recognize emotional expressions in one's self and others and select socially appropriate responses.

All of the following are ways to improve one's credit score except A) always make payments on time. B) close paid-off accounts on which there is a solid payment record. C) leave good, older debt on your report. D) pay down credit card balances and keep them low.

b The answer is close paid-off accounts on which there is a solid payment record. A mistake people often make is trying to eliminate debt off their credit report once it's paid off. Older debt that has a solid payment history is good for your credit rating. Of course, making payments on time and keeping balances low are good ways to improve a credit score also.

A client who has become more concerned about losing what she has than in accumulating more is in which financial life cycle phase? A) Preretirement phase B) Conservation/protection phase C) Asset accumulation phase D) Distribution/gifting phase

b The answer is conservation/protection phase. People generally become more risk averse in the conservation/protection phase and become aware of the risks that were ignored in the asset accumulation phase.

Which of the following information you may obtain from a client is the best example of qualitative information? A) Whether he has executed a living will B) Whether he considers himself to be an experienced investor C) The amount of annual income he requires for retirement purposes D) The amount of his monthly net cash flow

b The answer is whether he considers himself to be an experienced investor. Whether a client considers himself to be an experienced investor is qualitative because it cannot be quantified in terms of a number or reduced to some form of tangible written document.

Chloe has a kinesthetic learning style. When working with her to create her financial plan, which of the following approaches would be most useful? A) Having detailed discussions regarding goals before they are included in a written financial plan B) Allowing Chloe to write down her goals and objectives using bullet points as she expresses them C) Allowing Chloe to read information regarding financial topics before engaging in any discussions D) Using flowcharts and graphics to relate important concepts

b The answer is allowing Chloe to write down her goals and objectives using bullet points as she expresses them. Clients with a kinesthetic learning style understand concepts better using a hands-on approach. Writing down goals and objectives with bullet points as they are expressed engages clients with this learning style.

In which step of the financial planning process is a planner charged with providing the client ongoing support? A) Developing the Financial Planning Recommendation(s) B) Implementing the Financial Planning Recommendation(s) C) Monitoring Progress and Updating D) Identifying and Selecting Goals

c The answer is Monitoring Progress and Updating. It is within step seven, Monitoring Progress and Updating, that the planner is charged with providing the client ongoing support.

In 2010, the average national gas price was $2.79 per gallon. In 2012, the gas price national average rose to $3.64 per gallon. Responses to gas prices were generally negative. Prices fell to an average per gallon of $3.37 in 2014, and the reaction to the decreased price was positive, even though the price was higher than the 2012 price per gallon of $2.79. This behavior is known as A) confirmation bias. B) mental accounting. C) anchoring. D) herding.

c The answer is anchoring. When average gas prices rose in 2012 to a $3.64-per-gallon threshold, individuals reset their psychological anchors to that price. As the price declined in 2014 to $3.37, the reaction was positive because it was considered in light of the higher 2012 price.

Which of the following statements regarding learning styles is CORRECT? Visual learners express themselves through facial expressions. Kinesthetic learners prefer their goals and objectives to be presented as a to-do-list in bullet form. A) Neither I nor II B) II only C) Both I and II D) I only

c The answer is both I and II. Visual learners express themselves through facial expressions. Additionally, visual learners tend to respond to graphs, charts, pictures, and reading information. Individuals who prefer goals and objectives to be presented in bullet form exhibit a kinesthetic learning style.

Bette and Bob are purchasing a new home and are evaluating financing alternatives. They have heard that using a graduated equity mortgage may be disadvantageous. You can tell them that A) the home must be sold to repay the mortgage. B) the principal amount must be paid in a lump sum. C) negative amortization may occur. D) payment amounts are predictable

c The answer is negative amortization may occur. The payment amounts may change and are unpredictable. Principal is repaid in each payment over the mortgage term, not in a lump sum. Selling the home is unnecessary to repay the mortgage.

A client provides a current personal balance sheet to the financial planner during the initial data gathering phase of the financial planning process. This financial statement will enable the financial planner to gain an understanding of all of the following except A) the client's liquidity position. B) the diversification of the client's assets. C) the size of the client's net cash flow. D) the client's use of debt.

c The answer is the size of the client's net cash flow. A balance sheet (also called a statement of financial position or net worth statement) reports assets and liabilities. Cash flow information is reported on a cash flow statement.

A client is usually in what phase of the financial life cycle from approximately age 45 to 60 or immediately preceding the client's planned retirement date? A) Asset accumulation phase B) Gifting phase C) Conservation/protection phase D) Distribution phase

c This defines the conservation/protection phase of the financial life cycle. In the asset accumulation phase, a client is usually age 45 or younger; however, this phase may occur later if the client's children are not yet independent. A client is usually in the gifting, or distribution, phase from approximately age 60, or the planned retirement date, until the date of death.

Jack Jones recently passed his CFP® Examination and fulfilled all of the CFP Board certification criteria. Identify an approved display of his name on an updated business card. A) Mr. Jack Jones, C.F.P. B) Jack Jones, CFP Advisor C) Jack Jones CFP® Pro D) Mr. Jack Jones, CFP®

d The answer is Mr. Jack Jones, CFP®. Mr. Jack Jones, CFP® is an acceptable way for the new CFP® Certificant to display his name.

Identify the life cycle phase that is best described by the following characteristics: Limited excess funds for investing High degree of debt to net worth Low net worth Lack of concern for risks A) Charitable/donation phase B) Conservation/protection phase C) Distribution/gifting phase D) Asset accumulation phase

d The answer is asset accumulation phase. The asset accumulation phase begins between ages 20 and 25 and lasts until approximately age 45 or later, if the client's children are not yet independent. The beginning of this phase is characterized by the following: Limited excess funds for investing High degree of debt to net worth Low net worth Lack of concern for risks

Harry and Alice, both age 55, plan to retire at age 60. They have three children: Pete, age 32, a computer technician living in Atlanta; Sidney, age 30, a doctor who resides in Indianapolis; and Mark, age 25, a web designer, who is married and lives in Chicago. They also have three grandchildren. Most likely, in what phase in the financial life cycle are Harry and Alice? A) Asset accumulation phase B) Gifting phase C) Distribution phase D) Conservation phase

d The answer is conservation phase. Harry and Alice are in the conservation phase of the financial life cycle because they are between the ages of 45 and 60, their children are independent, and they are approaching retirement.

Terry has a kinesthetic learning style. Which of the following approaches would be most useful in working with Terry to prepare a financial plan? A) Giving Terry material to read before engaging in any discussions B) Using graphs, charts, and pictures to convey information to Terry C) Relying heavily on verbal discussions before Terry's goals and recommendations are reduced to writing D) Having Terry write down his goals and objectives as they are formulated with bullet points

d The answer is having Terry write down his goals and objectives as they are formulated with bullet points. Clients with a kinesthetic learning style understand concepts better using a hands-on approach. Writing down goals and objectives with bullet points as they are formulated engages clients with this learning style.

Martin and Pamela Ash have a combined gross income of $76,000. After taxes, their income is $62,300. Currently their housing payments (PITI) total $1,510 monthly. Their car loans and credit card payments total $1,150. They have no other debt. Which of the following is a CORRECT statement? A) No determination can be made from the information given. B) Their housing costs are too high relative to the standard rules of thumb. C) Their consumer debt is within the acceptable range. D) Their total debt is too high relative to the standard rules of thumb.

d The answer is their total debt is too high relative to the standard rules of thumb. With these totals, the Ashes' total debt is too high in that it exceeds 36% of gross income. Housing costs are less than 28% of gross income, but consumer debt is in excess of 20% of net income, leading to an excessive debt burden.

As a member of a financial adviser team, a financial planner's responsibilities for a client typically include which of the following? Drafting a will for the client Assisting the client identifying financial goals Analyzing the client's current financial status Monitoring whether the client is complying with a plan after implementation A) II and III B) II, III, and IV C) I, II, III, and IV D) I and IV

Assisting the client identifying financial goals Analyzing the client's current financial status Monitoring whether the client is complying with a plan after implementation The answer is II, III, and IV. Unless a financial planner is also a licensed attorney, the planner should not draft legal documents such as powers of attorney and wills to avoid the unauthorized practice of law.

John and Shirley Smith recently retired and are planning a Mediterranean cruise to celebrate John's 70th birthday. When they return, they would like to meet with you, their financial planner, to discuss charitable contributions they would like to make. The Smiths are currently in which life cycle phase?

Distribution phase The answer is distribution phase. The distribution/gifting phase begins subtly when a couple realizes that they can afford to spend on things they never believed possible. The asset accumulation and conservation/protection phases make this phase possible. For many people, there is a period when they are being influenced by all three phases simultaneously, though not necessarily to the same degree.

According to CFP Board's Code and Ethics, under Standards of Conduct that relate to Duties Owed to Clients, which of the following are requirements with which the CFP® certificant must comply? Make only recommendations that are suitable for the client. Use the CFP® mark in compliance with the rules and regulations of CFP Board. Exercise reasonable care when supervising persons acting under the CFP® professional's direction. May not make false or misleading representations to CFP Board or obstruct CFP Board in the performance of its duties. A) I only B) II and IV C) I and III D) IV only

Make only recommendations that are suitable for the client. While all of these duties are contained in the code, they are not all under duties owed to clients. It is important to read the question carefully and then make sure that any answers that appear to be correct are actually correct as related to the stem question. For example, the correct use of the CFP® mark is found in the Rules related to Obligations to CFP Board, not to clients. exercising reasonable care when supervising persons acting under the CFP® professional's direction is found in duties owed to firms and subordinates, not to clients.

Alan and Gretchen are completing a data survey form for their financial planner to use in reviewing their financial plan. Their planner has explained that a step in the financial planning process is understanding the client's personal and financial circumstances. During this step the planner obtains qualitative and quantitative information. Which of the following are qualitative rather than quantitative data? Copies of wills and trusts Risk tolerance level Employee benefits and pension plan information Goals and objectives

Risk tolerance level Goals and objectives The answer is II and IV. Risk tolerance levels as well as goals and objectives are qualitative wants and/or desires. Completed documents, such as a will or trust, and business-sponsored employee benefit plans are measurable and therefore quantitative.

Given the following data for Daphne Jones: Checking account$1,000 Jewelry$5,000 Mutual funds$60,000 Vested 401(k)$55,000 Mortgage balance$95,000 Auto loan balance$20,000 Money market account$10,000 Personal assets$50,000 Sailboat$7,000 Credit card balance$5,000 Stock portfolio$10,000 90-day CD$2,000 Automobile$35,000 Personal residence$150,000 What is the total value of her investment assets?

The answer is $125,000. Daphne's investment assets include the following: Mutual funds$60,000 Stock portfolio$10,000 Vested 401(k)$55,000 $125,000

Jennifer has the following debts and would like to start a process to pay them off, starting with the debt with the lowest balance. She currently has $70 in excess monthly cash flow to start this process. Using the snowball technique, what would she be able to pay on Credit Card 4 once the smaller loans have been paid off? Debt Balance Minimum Payment Credit Card 1 $225 $25 Credit Card 2 $575 $35 Credit Card 3 $1,000 $50 Credit Card 4 $3,200 $120 Auto loan $12,000 $300

The answer is $300. Jennifer would have the $70 she can start with, plus $110 once Credit Cards 1, 2, and 3 are paid off, plus the $120 she has been paying all along on Credit Card 4 for a total of $300.

Which of these may be the responsibility of the financial planner during the Implementing the Financial Planning Recommendation(s) step of the financial planning process? Sharing information as authorized Coordinating with other professionals Determining the likelihood of reaching stated objectives Advising clients of the material advantages and disadvantages of the implemented strategies

The answer is I and II. In Step 3, Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action, the financial planner must deterine the likelihood of reaching stated objectives by continuing the client's current activities. Advising clients of the material advantages and disadvantages of the recommendations is part of Step 5, Presenting the Financial Planning Recommendations.

When a client-planner engagement involves Financial Advice for which Financial Planning is required, and the client does not enlist the planner for services, the Planner must abide by Fiduciary Duty. the Code of Ethics. the Practice Standards for the Financial Planning Process. the Suitability Standard. A) I, II, and III B) I and II C) IV only D) I only

The answer is I and II. In instances where the engagement involves Financial Advice that requires Financial Planning, but the client does not enlist the planner's services, the planner must uphold the fiduciary duty and abide by the Code of Ethics. Following the Practice Standards for the Financial Planning Process is not required.

Which of the following types of data are considered qualitative? Health status List of current investments Copies of wills and trusts Risk tolerance level

The answer is I and IV. A list of current investments and copies of wills and trusts are quantitative data.

Developing a financial plan often involves input from a team of financial advisors employed by the client. Members of this team may include which of the following professionals? A trust officer An estate-planning attorney A property and casualty agent A Certified Public Accountant (CPA) A) I, II, and IV B) I and II C) I and IV D) I, II, III, and IV

The answer is I, II, III, and IV. A team of financial advisors may include all of these professionals. This team may also include other financial professionals, such as a life insurance agent.

Which of the following are major components of a sound financial plan? Estate planning Insurance planning Retirement planning Investment planning

The answer is I, II, III, and IV. All of these are major components of a sound financial plan. Other components include savings, budgeting, education funding, and income tax planning.

According to CFP Board's Standards of Professional Conduct, under Rules of Conduct, which of the following are requirements with which the CFP® certificant must comply? Disclose to clients on a timely basis any material changes in the CFP® certificant's business affiliation. Use the CFP® mark in compliance with the rules and regulations of the CFP Board. Only make recommendations that are suitable for the client. Not use, without a client's consent, any information obtained from the client either to the detriment of the client or for the benefit of the CFP® certificant, except as demanded by certain legal proceedings. A) I, II, III, and IV B) I and III C) I only D) II only

The answer is I, II, III, and IV. Each of these is required in various sections of the Rules of Conduct.

Which of these are disclosure requirements that apply when a planner provides financial planning services? The privacy policy must be disclosed in writing. Material conflicts of interest must be disclosed either verbally or in writing. Services and products offered by the planner must be disclosed in writing. Referral compensation arrangements must be disclosed either verbally or in writing.

The answer is I, II, and III. Referral compensation arrangements must be disclosed in writing. All of the other statements are disclosure requirements.

Identify the actions that occur in Step 1 of the Practice Standards for the Financial Planning Process, Understanding the Client's Personal and Financial Circumstances. Obtaining qualitative and quantitative information Analyzing information Addressing incomplete information Establishing mutually defined goals A) I and III B) IV only C) I, II, and III D) I only

The answer is I, II, and III. Step 1, Understanding the Client's Personal and Financial Circumstances, includes the following: Obtaining qualitative and quantitative information Analyzing information Addressing incomplete information

A CFP® professional who has monitoring and updating responsibilities must communicate to a client which of the following factors? Which actions, products, and services are and are not subject to the CFP® professional's monitoring responsibility How and when the CFP® professional will monitor the actions, products, and services How frequently the CFP® professional will update and change the client's financial goals each year How and when the CFP® professional will update the financial planning recommendations A) I and III B) II and IV C) I and II D) I, II, and IV

The answer is I, II, and IV. A CFP® professional must analyze, at appropriate intervals, the progress toward achieving the client's goals and discuss the results with the client. Goals, recommendations, or selections of actions, products, or services must be updated when the circumstances warrant such an update. Statement III is incorrect because the CFP® professional does not unilaterally update the client's goals. The CFP® professional would update the client's goals, if necessary, by re-engaging the financial planning process.

To properly use the CFP® marks on documents or marketing materials, certain guidelines must be followed. Identify the items that are required when the words "CERTIFIED FINANCIAL PLANNER™" are used. Always use capital letters or small cap font Always use the ™ symbol Always associate with CFP Board Always use with one of CFP Board's approved nouns ("certificant," "professional," "practitioner," "certification," "mark" or "exam") unless directly following the name of the individual certified by CFP Board

The answer is I, II, and IV. If the words "CERTIFIED FINANCIAL PLANNER" are used, they must be presented in capital letters or small cap font followed by a ™ because the words are subject to trademark law. Statement III is incorrect; the words must always associate with the individual(s) certified by CFP Board. "CERTIFIED FINANCIAL PLANNER" must always be used with one of CFP Board's approved nouns ("certificant," "professional," "practitioner," "certification," "mark" or "exam") unless directly following the name of the individual certified by CFP Board.

CFP Board provides guidelines regarding how the CFP® marks may be used in documents or marketing materials. Identify the items that are required when the words "CERTIFIED FINANCIAL PLANNER™" are used. Always use the ™ symbol Always associate with CFP Board Always use capital letters or small cap font Always use with one of CFP Board's approved nouns ("certificant," "professional," "practitioner," "certification," "mark," or "exam"), unless directly following the name of the individual certified by CFP Board

The answer is I, III, and IV. If the words "CERTIFIED FINANCIAL PLANNER" are used, they must be presented in capital letters or small cap font followed by a ™ symbol because the words are subject to trademark law. Statement 2 is incorrect. The words must always associate with the individual(s) certified by CFP Board. "CERTIFIED FINANCIAL PLANNER" must always be used with one of CFP Board's approved nouns ("certificant," "professional," "practitioner," "certification," "mark," or "exam"), unless directly following the name of the individual certified by CFP Board.

Identify the responsibilities a CFP® professional must uphold while working with another professional on a client's behalf. Communicate with the other professional about the services each will provide Monitor the professional to ensure their compliance with the Code and Standards Communicate respective responsibilities Inform the client in a timely manner if the other professional did not perform the services in accordance with the scope of services

The answer is I, III, and IV. Standard A.13 (Duties When Recommending, Engaging, and Working with Additional Persons) states that when working with another professional on a client's behalf, the CFP® professional must communicate with the other professional about the services each will provide and their respective responsibilities; and inform the client in a timely manner if the other professional did not perform the services in accordance with the scope of services to be provided and the allocation of responsibilities. CFP® professionals do not have to monitor the professional to ensure compliance with the Code and Standards.

Which components of the FICO credit score calculation have the greatest impact on the total score? Credit mix Payment history Amounts owed Length of credit history

The answer is II and III. Payment history and amounts owed have the greatest impact on total score of the FICO credit score calculation.

Alan and Gretchen are completing a data survey form for their financial planner to use in reviewing their financial plan. Their planner has explained that a step in the financial planning process is understanding the client's personal and financial circumstances. During this step the planner obtains qualitative and quantitative information. Which of the following are qualitative rather than quantitative data? Copies of wills and trusts Risk tolerance level Employee benefits and pension plan information Goals and objectives A) II and IV B) I and III C) II, III, and IV D) I and II

The answer is II and IV. Risk tolerance levels as well as goals and objectives are qualitative wants and/or desires. Completed documents, such as a will or trust, and business-sponsored employee benefit plans are measurable and therefore quantitative.

According to the rules established by CFP Board, which of the following uses of the certification marks are CORRECT? Frank Smith, C.F.P. Frank Smith, CFP® Frank Smith & Co., PA, CFPs Frank Smith, CERTIFIED FINANCIAL PLANNER™ A) II only B) I, II, and IV C) I, II, and III D) II and IV

The answer is II and IV. The CFP® marks should never contain periods. In addition, the marks should not be used as part of or incorporated in the name of a firm.

Which of the following describes the distribution, or gifting, phase of a client's life cycle? A client is usually in this phase until approximately age 45 or later if the client's children are not yet independent. Distribution strategies, including retirement income sources and gifting strategies, are often a primary focus of a client's estate plan. A) Both I and II B) I only C) Neither I nor II D) II only

The answer is II only. Only Statement II is correct. Statement I describes the asset accumulation phase of a client's life cycle.

Which of these activities would be appropriate if you were understanding the client's personal and financial circumstances? Determining which stocks to purchase for the client's investment portfolio Inquiring about the number of dependents Collecting personal financial information Inquiring about the age or dates of birth of dependents

The answer is II, III, and IV. Understanding the client's personal and financial circumstances does not include determining which stocks or investments to purchase. This occurs in the fourth step of the financial planning process: developing the recommendations.

Which of the following are primary reasons why a financial planner will ask for each family member's date of birth during the information gathering process? To calculate Social Security "blackout period" preretirement benefit amounts for qualifying individuals To calculate insurance policy internal rates of return To help determine funding for the children's education To help determine retirement planning needs A) II and III B) III and IV C) I, III, and IV D) I and II

The answer is III and IV. A person's birth date has little or nothing to do with preretirement Social Security benefit determination. If they have qualified for benefits, then the amount is determined by the formula independent of their age. However, a person's birth date does have an effect on other potential Social Security benefits. Birthdates also have little to do with calculating an insurance rate of return.

Which of these is an obligation the CFP® certificant has to her current clients? To maintain competence in all areas of financial planning To eliminate material conflicts of interest that could affect the professional relationship. To implement the client's financial planning recommendation(s) unless specifically excluded from the scope of the engagement. To have a reasonable basis for the recommendation or engagement of another professional based on the other professional's reputation, experience, and qualifications.

The answer is III and IV. Under CFP Board Standard A.3, Competence, CFP® certificants must only have competence in areas in which they are engaged to provide professional services. CFP Board Standard A.5 requires that, at a minimum, material conflicts of interest be disclosed to the client, not necessarily eliminated.

Which of the following uses of the CFP® certification marks is CORRECT? John Doe, C.F.P. John Doe, a CFP John Doe, CERTIFIED FINANCIAL PLANNER™ John Doe, CFP®

The answer is III and IV. Whenever a CFP® certificant uses the initials after his name (e.g., on a business card), the initials must be followed by the ® symbol. If the words "CERTIFIED FINANCIAL PLANNER" are used, they must be followed by a ™ because the words are subject to trademark law. The initials should not include periods.

Identify the steps included CFP Board's Practice Standards for the Financial Planning Process. Mutually Defining the Terms Presenting Goals Establishing and Defining the Client-Planner Relationship Developing the Financial Planning Recommendation(s)

The answer is IV only. CFP Board's Practice Standards for the Financial Planning Process are as follows: Understanding the Client's Personal and Financial Circumstances Identifying and Selecting Goals Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action Developing the Financial Planning Recommendation(s) Presenting the Financial Planning Recommendation(s) Implementing the Financial Planning Recommendation(s) Monitoring Progress and Updating

Analyze the scenario. Ling, a CFP® professional, is providing financial advice to her client. After considering the client's goals, family medical history, tax situation, and financial resources, she develops a financial plan that recommends that the client purchase long-term care insurance. Which statement regarding implementation responsibilities is NOT correct? A) If Ling and the client have not excluded implementation responsibilities from the Engagement, she must identify and analyze policies designed to implement the recommendations and must consider advantages and disadvantages of the insurance product relative to reasonably available alternatives. B) If Ling and the client have not excluded implementation responsibilities from the Engagement, she must recommend one or more long-term care insurance policies to the client and help her client select a policy that will meet the client's needs. C) Ling must explain to the client the responsibilities she has in implementing the recommendations and the responsibilities that the client and any third party may have with respect to implementation. D) Ling is not responsible for implementing this planning recommendation because it only involves the purchase of a single product.

The answer is Ling is not responsible for implementing this planning recommendation because it only involves the purchase of a single product. Ling is responsible for implementing the recommendations unless implementation is specifically excluded from the Scope of the Engagement.

In which step of the financial planning process is a planner charged with providing the client ongoing support? A) Developing the Financial Planning Recommendation(s) B) Monitoring Progress and Updating C) Implementing the Financial Planning Recommendation(s) D) Identifying and Selecting Goals

The answer is Monitoring Progress and Updating. It is within step seven, Monitoring Progress and Updating, that the planner is charged with providing the client ongoing support.

A client who has become more concerned about losing what she has than in accumulating more is most likely in which financial life cycle phase? A) Distribution/gifting phase B) Asset accumulation phase C) Conservation/protection phase D) Preretirement phase

The answer is conservation/protection phase. Clients generally become more risk averse in the conservation/protection phase and become aware and pay attention to risks they ignored in the asset accumulation phase.

Joyce has become more risk averse and is not focused on accumulating assets, but maintaining the values of the ones she has. Joyce is in which financial life cycle phase? A) Asset accumulation phase B) Preretirement phase C) Conservation/protection phase D) Distribution/gifting phase

The answer is conservation/protection phase. People generally become more risk averse in the conservation/protection phase and become aware of the risks that were ignored in the asset accumulation phase.

John and Shirley Smith recently retired and are planning a Mediterranean cruise to celebrate John's 70th birthday. When they return, they would like to meet with you, their financial planner, to discuss charitable contributions they would like to make. The Smiths are currently in which life cycle phase? A) Conservation phase B) Asset accumulation phase C) Distribution phase D) Protection phase

The answer is distribution phase. The distribution/gifting phase begins subtly when a couple realizes that they can afford to spend on things they never believed possible. The asset accumulation and conservation/protection phases make this phase possible. For many people, there is a period when they are being influenced by all three phases simultaneously, though not necessarily to the same degree.

A financial planner's responsibilities when acting as a member of a team of financial advisors for a client typically include all of the following except A) helping the client identify financial goals. B) monitoring whether the client is complying with a plan after implementation. C) drafting a power of attorney for the client. D) analyzing the client's current financial status.

The answer is drafting a power of attorney for the client. Unless a financial planner is also a licensed attorney, the planner should not draft legal documents, such as powers of attorney and wills to avoid the unauthorized practice of law.

As a planner, you have just finished developing and presenting your recommendations to your client. These steps being completed, what would be one of the next steps that you would expect to undertake? A) Analyze the information. B) Identify, analyze, and select actions, products, and services. C) Select and prioritize goals. D) Monitor the client's progress.

The answer is identify, analyze, and select actions, products, and services. The step following development and presentation is implementation, and only identifying, analyzing, and selecting actions, products, and services is part of the implementation step. Selecting and prioritizing goals is actually part of the identify and prioritize step in the process. Analyzing the information is part of step one of the financial planning process, and monitoring the client's progress is carried out in step seven of the financial planning process.

Which of the following best describes data that is measurable or conveyed as a quantity? A) Qualified data B) Quality data C) Quantitative data D) Qualitative data

The answer is quantitative data. Examples of quantitative, or objective, data include current financial statements, copies of wills and trusts, and a list of current investments.

According to CFP Board's Code and Ethics, under Standards of Conduct that relate to Duties Owed to Clients, which of the following are requirements with which the CFP® certificant must comply? Make only recommendations that are suitable for the client. Use the CFP® mark in compliance with the rules and regulations of CFP Board. Exercise reasonable care when supervising persons acting under the CFP® professional's direction. May not make false or misleading representations to CFP Board or obstruct CFP Board in the performance of its duties. A) I and III B) II and IV C) I only D) IV only

While all of these duties are contained in the code, they are not all under duties owed to clients. It is important to read the question carefully and then make sure that any answers that appear to be correct are actually correct as related to the stem question. For example, the correct use of the CFP® mark is found in the Rules related to Obligations to CFP Board, not to clients. exercising reasonable care when supervising persons acting under the CFP® professional's direction is found in duties owed to firms and subordinates, not to clients.

Harry owns a financial planning firm with $8 million under management. CFP Board recently told Harry that his rights to use the CFP marks were being suspended for six months. Harry immediately removed the marks from his stationery, business cards, and website. Thirty calendar days before the suspension was over, Harry filed an affidavit with the Board stating that he had fully complied with the terms of the suspension, then immediately added the marks back. Did Harry violate any Rules of Conduct?

Yes, Harry did not notify his existing clients that his right to use the marks had been suspended. The answer is yes, Harry did not notify his existing clients that his right to use the marks had been suspended. According to Rule 4.7 of the Rules of Conduct, Harry must advise all current clients of any suspension or revocation received from the CFP Board. If Harry had been an employee, he would have an obligation to report the suspension to his employer, but as the owner, there is no obligation to notify the employees. Any suspension that lasts less than one year will automatically end upon the certificant's filing with CFP Board within 30 calendar days of the expiration of the period of suspension an affidavit stating that the suspended certificant has fully complied with the order of suspension unless such condition was waived by the Commission.

The Mitchells have decided to set up an appointment with Justin, a CFP® professional, in order to get their finances in order. Up to this point, the Mitchells had been making their financial decisions on an as-needed basis, without any concrete plan or overall strategy. Currently, they believe that their life insurance coverage is inadequate and they need to update their wills due to the birth of their second child, Ryan. Unfortunately, they have been spending indiscriminately and are unable to build their savings and investments. What should be Justin's first step in working with the Mitchells after receiving all their documentation and analyzing their cash inflows and outflows? A) He should assist the Mitchells in preparing a budget. B) He should advise the Mitchells that they should consult with their life insurance agent about purchasing additional policies. C) He should have the Mitchells review their wills with an attorney Justin recommends. D) He should recommend that the Mitchells start an investment plan with their broker.

a The answer is he should assist the Mitchells in preparing a budget. Developing a budget is one of the most important ways to help clients in the savings process. The budget can reveal both problem spending areas and help clients adjust their cash flow.

While reviewing the finances of the Stewarts, Ms. Brown, a CFP® certificant, is calculating a variety of financial ratios. The Stewarts have provided the following information: Principal and interest $1,200 per month Property insurance $600 per year Property taxes $2,400 per year Gross income $5,000 per month Based on the information provided, calculate the Stewarts' housing cost ratio. A) 0.29 B) 3.45 C) 0.84 D) 0.50

a The answer is 0.29. The formula for the housing cost ratio is as follows: housing cost ratio = all monthly nondiscretionary housing costs ÷ monthly gross income ≤ 28%. All monthly nondiscretionary housing costs include the following: principal, interest, taxes, and insurance. To compute the Stewarts' housing cost ratio, the property insurance and property taxes provided need to be adjusted to monthly expenses ($600 ÷ 12 = $50; $2,400 ÷ 12 = $200). Therefore, the Stewarts' ratio equals 0.29, or 29% ($1,450 ÷ $5,000) and this would be very close to the acceptable range.

Which of the following guidelines are used to determine whether a client has excessive debt? Payments on housing should be no greater than 28% of gross income. Total monthly payment on all debts should be no greater than 36% of gross monthly income. Total monthly payment on all debts should be no greater than 28% of gross monthly income. Consumer debt payments should be no greater than 30% of net income. A) I and II B) I, II, III, and IV C) I, II, and III D) III only

a The answer is I and II. Consumer debt payments should be no greater than 20% of net income.

Which of the following statements regarding counseling theory is CORRECT? In the classical economics approach to financial counseling, it is believed that improved financial outcomes can result from increased financial resources or reduced financial expenditures. Financial counseling is a process in which the planner helps a client change poor financial behavior by making recommendations to improve financial status. Planners using the economic and resource approach assume clients are rational and will change to the most favorable behavior if given the appropriate counseling The cognitive-behavioral approach to financial counseling asserts that clients' attitudes, beliefs, and values influence their behavior. A) I, III, and IV B) II, III, and IV C) II only D) I and IV

a The answer is I, III, and IV. The belief in the classical economics approach is that increasing financial resources or reducing financial expenditures results in improved financial outcomes. Rational clients are assumed when using the economic and resource approach. Financial counseling is a process that helps clients change their poor financial behavior through education and guidance. The cognitive-behavioral approach to financial counseling believes that clients' behaviors are influenced by their attitudes, beliefs, and values. Making recommendations to improve clients' financial status is not part of financial counseling.

Which of the following are good savings strategies? Use an overdraft feature on debit cards Choose an economical cell phone plan Increase deductibles on automobile insurance policies Limit credit card purchases to those that can be paid off in full in six month A) II and III B) II and IV C) I, II, III D) III and IV

a The answer is II and III. Using an overdraft feature on debit cards may entice individuals to spend money they do not have available in their accounts. Increasing insurance deductibles decreases premiums, which is a good savings strategy. Another good plan is to choose an economical cell phone plan (and limiting texting and calls). If credit cards are used, they should be paid off in full at the end of each month.

All of the following are debt management ratios except A) P/E ratio. B) consumer debt ratio. C) housing cost ratio. D) total debt ratio.

a The answer is P/E ratio. The consumer debt ratio is the ratio of monthly consumer debt payments to monthly net income. The housing cost ratio measures the relationship of housing costs to gross income. The total debt ratio, which includes monthly housing costs and consumer debt payments, should not exceed 36% of gross monthly income. The P/E ratio is used in stock analysis and is not used for debt management.

One way to free up cash flow is for the client to A) consolidate or eliminate consumer debt. B) use a home equity loan for home improvements rather than savings. C) acquire a home equity line of credit. D) obtain an cash-back credit card.

a The answer is consolidate or eliminate consumer debt. Acquiring more debt will not improve a client's cash flow unless the new debt restructures old debt into a lower monthly payment. Using a home equity line of credit or a home equity loan merely adds an additional liability against an asset and incurs an additional outflow when payments are due. Additional credit cards reduce cash flow when used, as they create an additional monthly payment. Consolidating or eliminating consumer debt frees up cash flow.

Which of the following statements best describes representativeness? A) People believe the past will persist and will classify new information based on past experience or classification. B) People tend to follow the actions of a larger group, whether rational or not in a particular case. C) People often make irrational decisions based on information that should have no influence on the decision at hand. D) People often consider their investment abilities to be much better than they actually are.

a The answer is people believe the past will persist and will classify new information based on past experience or classification. The prospect theory of behavioral finance states that people tend to fear losses much more than they value gains. Making irrational decisions based on information that should have no influence on the decision at hand is anchoring. Following the actions of a larger group, whether rational or not, is herding. Considering one's abilities to be much better than they actually are is overconfidence.

According to the guidelines on proper use of the CFP® certification marks, under which circumstance may a planner display either CFP® or CERTIFIED FINANCIAL PLANNER™ without including a Board-approved noun? A) When directly following the name of the individual certified by CFP Board B) When the professional has completed CFP Board's required Education, Exam, Ethics, and Experience requirements C) When included on approved marketing materials D) When acting in accordance with the terms of the Obligations to CFP Board

a The answer is when directly following the name of the individual certified by CFP Board. When displaying either CFP® or CERTIFIED FINANCIAL PLANNER™, the planner must always use it with one of CFP Board's approved nouns (certificant, professional, practitioner, certification, mark, or exam) unless it directly follows the name of the individual certified by CFP Board.

Developing a financial plan often involves input from a team of financial advisors employed by the client. Members of this team may include which of the following professionals? A trust officer An estate-planning attorney A property and casualty agent A Certified Public Accountant (CPA)

all This team may also include other financial professionals, such as a life insurance agent.

Bertha, age 55, plans to retire in 10 years. Currently, her cash flow and net worth are steadily increasing as her debt is decreasing. Based on Bertha's current financial life cycle phase, which of the following goals is she is likely to have? A) Short-term goals, such as protection and maintenance of current lifestyle B) Long-term goals, such as investing for retirement C) Long-term goals, such as estate planning and preservation of capital D) Short-term goals, such as saving for a down payment on a home

b The answer is long-term goals, such as investing for retirement. Bertha is in the conservation/protection phase of the financial life cycle. As such, her goals are likely longer-term goals, such as investing to provide for future retirement income. In the accumulation phase of the financial life cycle, clients have only limited discretionary income and, as a result, they are likely to focus on short-term, cost-of-living goals. Finally, in the distribution/gifting phase, estate planning and capital preservation are usually most important.

Which one of the following client goals is stated appropriately? A) A comfortable retirement B) $14,000 in current dollars, per year, for each child's education C) Enough life insurance to keep the family in its "own world" D) An adequate emergency fund

b The answer is $14,000 in current dollars, per year, for each child's education. A specified dollar amount to be accumulated for education is a goal that can be attained. The other goals/targets are ambiguous and require more specificity to be of any use.

Which of the following is considered a strength in a client's financial plan? Well-defined financial goals Promising employment status Inadequate emergency fund Lack of estate planning documents A) I, III, and IV B) I and II C) II only D) III and IV

b The answer is I and II. Statements I and II are financial strengths. Other examples of strengths are appropriate investments given a client's risk tolerance, appropriate savings, and an adequate emergency fund. An inadequate emergency fund and lack of estate planning documents are considered weaknesses.

A financial planner asked a client the following questions. Which of them is open-ended? Do you have an IRA? What are your financial goals in terms of retirement? What are your feelings about investing in the stock market? Do you have an auto loan? A) I only B) II and III C) I, II, III, and IV D) II and IV

b The answer is II and III. Statements I and IV are closed-ended questions because they require only a "yes" or "no" answer. Statements II and III are open-ended questions because they require the client to answer in her own words.

Which phase of the financial life cycle typically begins when a client is age 45-60 and is characterized by an increase in cash flow, assets, and net worth, with some decrease in the proportional use of debt? A) Estate/bequest phase B) Conservation/protection phase C) Distribution/gifting phase D) Asset accumulation phase

b The answer is conservation/protection phase. The conservation/protection phase of the financial life cycle is characterized by an increase in cash flow, assets, and net worth, with some decrease in the proportional use of debt. The asset accumulation phase typically begins at age 20-25 and the beginning of this phase is characterized by limited excess funds for investing, a high degree of debt, and low net worth. The distribution/gifting phase is the final phase of the financial life cycle.

During his initial interview with a financial planner, Sam explains the tradeoffs he is willing to make between potential risks and rewards. These tradeoffs illustrate Sam's A) risk perception. B) risk tolerance. C) risk capacity. D) loss aversion.

b The answer is risk tolerance. Risk tolerance refers to the tradeoffs people are willing to make between potential risks and rewards. Risk perception refers to a person's assessment of the magnitude of the risks being traded off. Risk capacity is the degree to which a person's financial resources can cushion risks. Loss aversion theory states that people fear losses much more than they value gains, and they prefer avoiding losses to acquiring the same amount in gains.

Which of the following regarding financial counseling is CORRECT? It is a process that helps clients change poor financial behavior through education and guidance. Once clients gain knowledge and resources through financial counseling, they can set realistic short- and long-term goals and make appropriate financial decisions. A) II only B) I only C) Both I and II D) Neither I nor II

both The answer is both I and II. There are several approaches to financial counseling. In different ways, these approaches assist clients in changing poor financial behavior through education and guidance. Once clients become more knowledgeable and are exposed to valuable resources through financial counseling, they can set realistic short- and long-term goals and make appropriate financial decisions.

Which activity that takes place during the financial planning process is generally the most demanding? A) Gathering information necessary to fulfill the engagement B) Communicating the recommendations C) Analyzing and evaluating the client's current financial status D) Prospecting for new clients

c The analysis and evaluation of the client's financial status is considered the most challenging financial planning activity because it often requires an in-depth knowledge of insurance and employee benefits, investments, taxes, retirement planning, and estate planning.

What purpose do footnotes serve on personal financial statements? Used to describe details of assets and liabilities listed on the client's financial statement. Lists values or circumstances not disclosed in the body of the client's financial statements Totals the cash balance on the client's financial statements Totals the investment balance on the client's financial statements A) I, II, and III B) II and III C) I and II D) II, III, and IV

c The answer is I and II. Footnotes should be used to describe details of both assets and liabilities on a client's financial statements. They may also be used to describe values and circumstances not disclosed in the body of the financial statements. Cash and Investments are two categories found in financial statements.

Michael is meeting with his client, Stephanie, to gather the information he needs to develop a financial plan. During the conversation, Michael imitates Stephanie's gestures and physical positions and uses a similar tone of voice. Which communication skill is Michael using to help develop a relationship of honesty and trust with Stephanie? Anchoring Loss aversion theory Verbal mirroring Physical mirroring A) I only B) II, III, and IV C) III and IV D) I, III, and IV

c The answer is III and IV. Michael is using verbal and physical mirroring. Adopting the client's body language is an example of physical mirroring. Imitating the client's tone of voice is verbal mirroring. Anchoring and the loss aversion theory are not communication skills. Anchoring involves clients making irrational decisions based on information that should have no influence on the decisions at hand. Loss aversion theory involves investors generally fearing losses much more than they value gains.

Which of the following areas is the most important to focus on with clients when developing a cash flow statement that will ultimately enable them to meet their long-term goals and objectives? A) Variable expenses B) Insurance costs C) Savings and investments D) Fixed expenses

c The answer is savings and investments. Although controlling expenses is important when developing the cash flow statement, the most important area to focus on that will ultimately give clients more flexibility and the ability to achieve their goals and objectives is making sure that they are committed to saving and investing over time.

Identify the number of steps in the Practice Standards for the Financial Planning Process. A) Six B) Fifteen C) Seven D) Eight

c The answer is seven. There are seven steps in CFP Board's Practice Standards for the Financial Planning Process (Practice Standards). They are: 1) Understanding the Client's Personal and Financial Circumstances, 2) Identifying and Selecting Goals, 3) Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action, 4) Developing the Financial Planning Recommendation(s), 5) Presenting the Financial Planning Recommendation(s), 6) Implementing the Financial Planning Recommendation(s), and 7) Monitoring Progress and Updating. The Practice Standards set forth the level of professional practice expected of CFP® professionals engaged in financial planning.

Which of the following best defines the concept of risk capacity? A) The trade-offs that clients are willing to make between potential risks and rewards B) The client's tendency to make decisions based on perceived gains rather than perceived losses C) The degree to which a client's financial resources can cushion risks D) The client's assessment of the magnitude of the risks being traded off

c The answer is the degree to which a client's financial resources can cushion risks. Risk capacity is the degree to which a client's financial resources can cushion risks. Risk tolerance involves trade-offs that clients are willing to make between potential risks and rewards. The client's assessment of the magnitude of the risks being traded off is known as risk perception. The client's tendency to make decisions based on perceived gains rather than perceived losses is described by the loss aversion theory.

Which of the following statements regarding the classical economics approach to financial counseling is CORRECT? Clients choose among alternatives based on objectively defined cost-benefit and risk-return tradeoffs. This approach is based on the use of psychoanalytic theory such as Freudian or Gestalt theory. This approach believes that increasing financial resources or reducing financial expenditures results in improved financial outcomes. This approach features the use of a SWOT analysis. A) I and II B) II, III, and IV C) III and IV D) I and III

d The answer is I and III. Statement II is incorrect; the financial counseling approach that is based on the use of psychoanalytic theory such as Freudian or Gestalt theory is the psychoanalytic approach. Statement IV is incorrect, the strategic management approach features the use of a SWOT analysis.

Which of the following statements concerning a client's level of savings is CORRECT? A budget should consider the client's financial goals and serve as a control document for future cash flows, including cash available for savings. If future spending exceeds budget projections, the cash actually saved will be more than anticipated. A) II only B) Both I and II C) Neither I nor II D) I only

d The answer is I only. Statement I is correct. A budget should consider the client's financial goals and serve as a control document for future cash flows, including cash available for savings. Statement II is incorrect. If future spending exceeds budget projections, the cash actually saved will be less than anticipated.

Which of the following assets is appropriate to include in an emergency fund for a family with $500 per month in discretionary income? A) A certificate of deposit with a 2-year maturity B) An S&P 500 Index mutual fund C) Cash advance limit on consumer lines of credit D) A money market deposit account

d The answer is a money market deposit account. The only liquid and time-appropriate asset listed is a money market deposit account. An S&P 500 Index mutual fund should not be used for emergency fund purposes because its value may decline and any sale of shares may result in a taxable event.

Which of the following statements regarding the pitch and inflection of one's voice is CORRECT? A) Voice tone is primarily dependent on the frequency of the sound wave. B) Pitch is the inflection of voice or emphasis on certain words and shows attitude, whether humor, anger, sincerity, or sarcasm. C) The inflection of one's voice is the sound quality of highness or lowness. D) Pitch and inflection influence the message conveyed more than the actual spoken words.

d The answer is pitch and inflection influence the message conveyed more than the actual spoken words. The pitch and inflection of one's voice influence the message conveyed more than the actual spoken words. The pitch of one's voice, not the inflection, is the sound quality of highness or lowness. Pitch is primarily dependent on the frequency of the sound wave. Voice tone, not pitch, is the inflection of voice or emphasis on certain words and shows attitude, whether humor, anger, sincerity, or sarcasm.

The degree to which Zack's financial resources can cushion risks is known as A) risk perception. B) risk tolerance. C) emotional intelligence. D) risk capacity.

d The answer is risk capacity. Risk capacity is the degree to which Zack's financial resources can cushion risks. Risk tolerance refers to the tradeoffs clients are willing to make between potential risks and rewards. Emotional intelligence is the ability to recognize emotional expressions in oneself and the client and to select socially appropriate responses to both the circumstances and the client's emotions. A client's assessment of the magnitude of the risks being traded off is known as risk perception.

Which one of the following arguments provides the best support for a decision to buy a car rather than lease one? A) The average annual distance driven will be less than 10,000 miles. B) The client needs the lowest monthly payment for a specific car. C) The client does not have 20% or more for a down payment. D) The client does not want to regularly make monthly payments.

d The answer is the client does not want to regularly make monthly payments. If an individual leases a vehicle, there will be a monthly payment as long as he or she is leasing. If an individual purchases a car, there is an end to the payments. A lease may be the better option in the other scenarios.