General Financial Planning Principles - Ch 1 & 2

Which of the following items is NOT needed to prepare a client's budget? a. Last year's W-2 b. Statement of financial position c. Estimated expenses d. Current expenses

B. statement of financial position

In 2010, the average national gas price was $2.79 per gallon. In 2012, the national average rose to $3.64 per gallon. Responses to gas prices were generally negative. Prices fell to an average of $3.37 per gallon 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. anchoring b. mental accounting c. herding d. confirmation bias

a. anchoring

Loss aversion theory states that people tend to: a. fear losses more than they value gains b. make irrational decisions based on information that should have no influence on the decision at hand c. follow the actions of the larger group, whether rational or not d. consider their abilities to be better than they actually are

a. fear losses more than they value gains

Jessica's friends tell her an investment in Lose-Ease stock is a wise idea because the company sells popular health food that has helped millions lose weight. Even though Matt, her financial planner, advises her that investing in this stock is a poor decision; Jessica makes the investment anyway. Which of the following statements regarding Jessica's behavior is CORRECT? a. it is an example of confirmation bias b. it is representative of overconfidence c. it is an example of anchoring d. it is representative of mental accounting

a. it is an example of confirmation bias

What is the most likely cause of an increase in the money supply? a. the Fed has bought securities b. consumer demand has increased c. bank lending has decreased d. bank reserves have increased

a. the Fed has bought securities

Given the following information, calculate the client's net worth. Schedule C net income = $40,000 Dividends received = $2,000 Auto loan balance = $10,000 Principal residence = $150,000 Mortgage payments = $12,000 Credit card balances = $5,000 Taxes paid = $4,000 Savings account balance = $8,000 a. $131,000 b. $143,000 c. $177,000 d. $183,000

b. $143,000

Michelle, a CFP® professional, scheduled an appointment with one of her prospective clients, Lester. During the meeting, she established and defined the client-planner relationship and gathered all the information necessary to fulfill the engagement. At this point, Michelle started developing a recommendation of a variable annuity. What step did Michelle forget? a. discussing the financial planning needs of the client b. analyzing and evaluating the client's current financial status c. discuss the financial planning expectations of the client d. identify and resolve apparent and potential conflicts of interest

b. analyzing and evaluating the client's current financial status

Wilson is a financial planner who believes that clients should choose among alternatives based on objectively-defined cost-benefit and risk-return tradeoffs. Wilson's approach to financial counseling is an example of which of the following? a. cognitive-behavioral approach b. classical economics approach c. psychoanalytic approach d. strategic management approach

b. classical economics approach

Mario understands concepts better using a hands-on approach. What is his learning style? a. auditory b. kinesthetic c. visual d. verbal

b. kinesthetic

Kacy, a CFP® professional, is meeting with prospective clients, Jack and Susie, this afternoon to review their insurance policies and analyze their investment portfolio. Which of these steps does Kacy need to accomplish to help complete the process of establishing and defining the client-planner relationship? I. Identify the services to be provided II. Disclose material conflicts of interest III. Disclose her compensation arrangement IV. Determine which quantitative information and documents are sufficient and relevant. a. II and III b. III and IV c. I, II, and III d. I, II, III, and IV

c. I, II, and III

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

c. III and IV

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. verbal mirroring b. emotional intelligence c. a leading response d. body language

c. a leading response

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. gifting phase b. asset accumulation phase c. conservation/protection phase d. distribution phase

c. conservation/protection phase

All of these are factors that help strengthen a client-financial planner relationship except: a. understanding client's needs and concerns b. providing clients with peace of mind c. creating financial goals for clients d. clearly explaining difficult concepts

c. creating financial goals for clients

Jillian is meeting with Maggie, a married client. During a discussion of Maggie's retirement planning, Maggie asks, "Should I contribute more to my 401(k) plan?" Jillian answers, "What type of lifestyle do you anticipate during retirement?" Maggie frowns, hangs her head, and responds, "I just want to have the extravagant lifestyle my husband, Tristen, wants us to have." Jillian does not find Maggie convincing. What type of communication is taking place between Jillian and Maggie? I. Jillian is practicing verbal mirroring. II. Jillian's answer to Maggie is a leading response. III. Jillian is likely not convinced that Maggie wants to have the extravagant lifestyle Tristen wants due to Maggie's body language. a. I and III b. I and II c. I, II and III d. II and III

d. II and III

All of the following statements regarding interpersonal communication between financial planners and their clients are CORRECT except: a. emotional intelligence includes the ability to recognize emotional expressions and select socially appropriate responses b. mirroring is accomplished by imitating client's body language or style c. body language can impact how clients receive and interpret messages more than any other type of communication d. effective interpersonal communication involves the application of oral skills but not nonverbal skills

d. effective interpersonal communication involves the application of oral skills but not nonverbal skills

An individual who is a proponent of the efficient market hypothesis (EMH) will likely invest in which of the following? a. sector mutual funds b. growth mutual funds c. balanced mutual funds d. index funds

d. index funds

Based on information gathered at a meeting several weeks ago, you have conducted a retirement needs analysis for Bill, a client, and have arrived at a monthly savings amount that will accumulate the capital necessary to fund Bill's retirement objective in 10 years. You have developed several investment alternatives to present to Bill as part of your next meeting and are prepared to implement the plan. On the call to schedule the meeting, Bill admits he really does not understand how you have calculated the retirement numbers but will follow your recommendations. Which of these should you do next? a. define with Bill the monitoring responsibilities of the plan and discuss the optimal schedule for review. b. complete the necessary paperwork to establish the recommended investments, as Bill has communicated that he will follow your recommendations. c. provide Bill with educational materials regarding the investment alternatives you are recommending. d. review with Bill the goals and assumptions discussed in the previous meeting upon which the retirement needs analysis was conducted.

d. review with Bill the goals and assumptions discussed in the previous meeting upon which the retirement needs analysis was conducted.