CFP - General Principles

Adam and Billie have fixed and variable expenses of $80,000 per year. They each make $60,000. Billie has a small trust which produces marginal income. How much should they have in their emergency fund? a. $20,000 b. $40,000 c. $60,000 d. $80,000 e. $120,000

$20,000 - combined earned income indicates they both work. 3 months or 1/4 of $80,000

Mr. and Mrs. Wright want to set up 529 plans for their four grandchildren. What is the max amount he can contribute in one year without making a taxable gift? a. $150,000 b. $300,000 c. $600,000 d. $1,200,000

$300,000 - the question says "he" not "them" so $75,000*4 grandchildren

If the question above said "they can" instead of "he can", what would your answer be? a. $150,000 b. $300,000 c. $600,000 d. $1,200,000

$600,000 - $75,000*4 grandchildren*2

Once a final order of discipline has been given, an appellant must file a notice of appeal within how many days? a. 10 b. 15 c. 30 d. 45

10

What would be the planning time horizon for a 30-year old male with a good job? a. 5 years b. 10 years c. 15 years d. age 60 e. NRA for social security

10 years - subjective question but b or c is best

A certificant shall notify the CFP Board if he/she has been charged with a felony or relevant misdemeanor with how many days? a. 10 b. 30 c. 45 d. 60

30

Documents are submitted by certificants or registrants to the comission for consideration in resolution of the issues raised during an investigation. No evidence may be accepted less than _____ days prior to the scheduled hearing, except by the motion of the hearing a. 10 b. 20 c. 30 d. 45 e. 60

30

The commission can order a suspension (article 11.4 sanctions) for a specific period of time, not to exceed _____ years a. 2 b. 3 c. 4 d. 5

5

Which of the following is a false statement? a. a CFP certificant is required to disclose conflicts of interest b. a CFP certificant must safeguard the confidentiality of client information c. A CFP certificant may never release client information to a third party d. Confidentiality is a key ingredient in creating a relationship of trust and reliance between a client and a CFP certificant

A CFP certificant may never disclose client information to a third party

A person or business entity (including a trust) whose receipt of sales-related compensation a reasonable CFP professional would view as directly or indirectly benefiting the CFP professional or the CFP professional's firm. There is a rebuttable presumption that a related party includes: Family member A business owned by the family or controlled by members of the family A business entity the CFP professional controls All of the above

A business entity the CFP professional controls

Mr. and Mrs. Hubbell have engaged you to analyze their taxes. You (a CFP) notice that the return contains errors. What should you do? a. Do not advise as you are not a CPA b. Advise the clients to see their CPA to make corrections and consider withdrawing from the engagement c. File an amended return for the clients d. Contact the CPA to inform him/her of the errors

Advise the clients to see their CPA to make corrections and consider withdrawing from the engagement

Coverdell qualified elementary expenses include which of the following? elementary religious school room and board uniforms to and from school transportation extended day care programs (after school)

All of the above

The following are duties of a CFP professional when selecting, using, and recommending technology except: a. Exercise reasonable care and judgement b. Have a reasonable level of understanding of the assumptions and outcomes of the technology employed c. Be able to write out formulas and steps used and explain them to the client d. Have a reasonable basis for believing the outcomes produced are reliable, appropriate, and objective

Be able to write out formulas and steps used and explain them to the client

The financial planner specializes in insurance needs (life, disability, health, and property/casualty). His/her client just heard about a new investment product and poses a random question. How should the financial planner respond? a. refuse to answer the client b. Explain to the client he/she will research and analyze the investment product c. Explain to the client his/her area of expertise is in insurance then suggest a competent investment advisor d. tell the client he/she will research the investment product and will call them back after calling a specialist

Explain to the client his/her area of expertise is in insurance then suggest a competent financial advisor - nothing suggests advisor has securities license required for b and d

If Bob plans to sell variable annuities in Florida, what licenses does he need?

He needs a Series 6 or 7 and a Florida variable insurance license

In regards to a complaint against a certificant, all answers to complaints shall be: In writing Submitted within twenty (20) calendar days from the date of service of the complaint on the certificant

I and II

Under the new bankruptcy act, the inflation-adjusted cap of $1M applies to which of the following? IRA contributions and earnings Roth contributions and earnings 401(k) plan contributions and earnings rolled into an IRA 457 plan contributions and earnings rolled into an IRA

I and II - the cap only applies to IRA and Roth IRA contributions

Under the Securities Act of 1934, "sales" include which of the following? Giving a security as a bonus for securities purchased Making a bona-fide loan of stock Entering into a contract to sell a security for value

I and III - by definition a sale is an agreement between uncompleted buyer and seller on the price of a security

Which of the following is a true statement? Disclosure of material information relative to the professional relationship must be written Referral fees received, since not paid by the client, do not have to be disclosed There is no need to state the CFP certificant's principles of financial planning in the CFP certificant disclosure form A CFP certificant disclosure form should include the CFP certificant's educational background and employment history It is not necessary to list professional designations and licenses held on the CFP certificant's disclosure form

I and IV

One of the requirements is to notify the CFP board in writing of any conviction of a crime. Which of the following requires notification? Theft Embezzlement Tax Fraud Traffic ordinance that involves the use of alcohol (second or more offense)

I, II, III, and IV

The written agreement governing the financial planning services shall specify? How the client pays for the prodcuts and services How the CFP professional is compensated The existence of any public discipline or bankruptcy The webpages of any or all public websites of any governmental agency, SRO, or organization that sets forth CFP history

I, II, III, and IV

What type of specific information should be gathered in the planning process regarding the client's statement of financial position Cost or Basis Encumbrances Budgeting Savings and Investment Allocations Date Assets Were Acquired

I, II, IV, V - cash flow only needed for cash flow statement

Mr. and Mrs. John Hammer retained a CFP professional to handle the couple's combined interest. The majority of assets were brought to the marriage by John. John's IRA ($2,000,000) named Alice, his wife, as beneficiary. The remainder of the assets were placed in a joint checking account and investment accounts with the CFP professional. Several years later, the couple experiencing marital difficulties and started divorce proceedings. After divorce proceedings began, Alice wrote a check in attempt to withdraw almost all of the funds from the joint accounts. The CFP professional contacted John to inform him that Alice was attempting to remove all the money from the joint account. Since there was not enough cash in the account, the CFP professional asked John if he was willing to sell investments to cover the check. John declined. The bank was directed not to process the check. However, Alice called the CFP professional to inquire whether the check had cleared. The CFP professional told her that it had cleared but did not inform her that John had been contacted. What standards have been violated by the CFP professional? The professional should have communicated with both clients the conflicts in representing both of them after he/she was aware of a potential divorce The professional's response to Alice that the check had cleared violated her rights as a client The professional favored John in the relationship The professional should have consulted his compliance departmetnt

I, II, and III

Under the standards of conduct, what are the obligations of a certificant? A certificant shall advise his/her current clients of any certification suspension or revocation he/she receives from the CFP board A certificant shall meet all CFP board requirements, including continuing education requirements, to retain the right to use the CFP marks A certificant shall notify the CFP board of changes to contact information A certificant shall commingle client's property with the property of the certificant

I, II, and III

Which agencies monitor or oversee commercial banks? FDIC Federal Reserve Comptroller of Currency Department of Commerce Department of Treasury

I, II, and III

Fiscal policy activities of the federal government include which of the following? Expenditures Taxation The money supply Debt management

I, II, and IV - the Federal Reserve controls the money supply, reflecting monetary policy

What is in a mutual fund prospectus? Prior Performance Future return performance Fund manager Investment objectives

I, III, IV - the prospectus cannot show future return performance

Octavia Williams recently graduated from college with a liberal arts degree from a well-respected state school. Her family made too much income for her to qualify for financial aid, but not enough to pay for her schooling so both she and her parents took out sizeable loans. Given her broad degree, she has many career options availabel to her and, since helping people has always been more important to her than money, she is unsure which career path she will take. She has come to you for advice on options that might give her some relief around the large amounts of student loans she had to obtain to pay for her college. What options below would offer her or her parents some level of relief from her student loan obligations? at most entry level salaries, she should qualify to write off up to $2,500 of her student loan interest her parents could take IRA distributions with no 10% penalty to help pay off their PLUS loans since it would be considered a qualified education expense tell her to consider joining AmeriCorps Vista program tell her to take a part time job at the local Kentucky Taco Hut and volunteer in her spare time while she figures things out tell her to consider careers in law enforcement or teaching in a low-income area

I, III, IV, V - Paying down student loans is not considered the same thing as education expenses for IRA purposes

You are a CFP practicioner and work for AIP Inc. You have developed a financial plan for Mr. and Mrs. Able. This was an easy plan to write. Both of them are key employees for the firms they work for. Both have substantial employee benefits, qualified retirement plans, high salaries, and save a lot of money. They have a qualifed CPA to keep taxes low. As a result, they want you to focus on the estate planning. Although they have slightly less than $10M, your recommendation is that they need an ILIT funded with about $10M of life insurance. Your proposal to them used your personal assumptions including an after-tax asset growth rate over the next 10 years of 15%. Based on step 6, what standards have you violated? objectivity confidentiality duty of care of a fiduciary protect security of information providing professional services with integrity and objectivity

I, III, and V - this is a step 6 and implementation question

A CFP professional must establish with the client whether the CFP professional has monitoring and updating responsibilities. When the CFP professional has responsibilities for monitoring and updating, the CFP professional must communicate to the client which of the following 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 The client's responsibility to inform the CFP professional of any material changes to the client's qualitative and quantitative information The CFP professional's responsibility to update the financial planning recommendations; how and when the CFP professional will update the financial planning recommendations

II and III

Which of the following can be used to evaluate and document strength and vulnerabilities of the client's current financial situation Standard of living Amount of debt Yearly savings Conduct scenario analysis

II and III

A certificant shall not lend money to a client. Expectations to this rule include which of the following? The client is on Medicaid, over age 65 The client is a member of the certificant's immediate family The client requests a loan The certificant is an employee of an institution in the business of lending money

II and IV

A young couple wishes to purchase a new home using one of the following mortgages: 5% interest with 3 discount points to be paid at closing 6% interest with 1 discount point to be paid at closing Assuming the couple qualifies for both mortgages, which of the following factors should be considered in deciding between these two mortgages? gross income estimated length of ownership real estate tax liability cash currently available

II and IV - they qualify for both mortgages; therefore they can pay the PITI and meet the gross income test and can pay the real estate tax

Bob has filed for protection under Chapter 7 bankruptcy. Which debts cannot be cancelled by bankruptcy? Mortgage loans Student loans Child Support Personal debt Alimony payments

II, III, & V - the other debts shown are cancelable by bankruptcy

A certificant shall treat client information as confidential except in which of the following? To impress a new prospective client As required in response to proper legal process As needed to perform the services In connection to a civil dispute

II, III, and IV

The term "serious crime" in regards to duties owed to CFP board includes which of the following? Misdemeanor traffic crimes Any felony Any lessor crime, a necessary element of which is determined by its statutory or common law definition involves misrepresentation, fraud, misappropriation or theft An attempt or conspiracy to commit crime, or solicitation of another to commit such crime

II, III, and IV

Under current rules, which of the following must an investment advisor do to register with the SEC? Notify his/her broker dealer File the ADV form part I schedule annually Pay an initial filing fee of $150 File form ADV-W

III and III - although notifying broker-dealer important, question asks how to register with SEC

Mr. and Mrs. Davis are in a 37% tax bracket. Which of the following four children and/or Mr. and Mrs. Davis will have some part of his/her personal earnings taxed at 37%? Jill, age 10, earns $1,100 in interest and dividends in an UTMA account Steven, age 12, earns $2,300 in interest and dividends in an UTMA account Nancy, age 14, earns $2,500 in interest and dividends in an UTMA account Mr. and Mrs. Davis redeemed $10,000 of EE education bonds to be used for Jennifer's (age 17) college tuition

IV - kids would need to earn $12,750 to get taxed at 37% rate. Parents already in 37% tax bracket and AGI must be higher than $151,600 for phaseout

After completing a client questionnaire including a complete financial statement, cash flow statement, goals, needs, and priorities you have found the following weaknesses. How would you prioritize them (first, second, etc.) Lack of Disability Insurance No Umbrella Coverage No Emergency Fund Total Monthly Debt is Greater than 40% of Gross Income

IV, III, I, II - assume the exam might consider emergency fund first, even above debt reduction. however no money available for emergency fund so debt reduction first

After two revisions, Robert and Elizabeth Sharp have finally accepted your recommendations on estate planning. The problem wasn't you, but them. They never disclosed various family issues until they understood how their property would be dispersed at the 1st and 2nd deaths. Writing the plan was a challenge because petty little issues came up, but you bent over backwards to find a solution. As you had mentioned in previous meetings, you again informed them that you are not an attorney and they will have to implement the plan with qualified attorneys. You explain that you need their consent to share the information with an attorney of their choice. Out of the blue, they say that they have been talking to Robert's high school friend, Tommy Bailey. You know who Tommy is from his ads on TV. Tommy sues everyone, but you assume he does not have the estate planning knowledge to handing your proposed estate plan. What should you do? a. terminate the relationship b. amend the scope of the engagement to cease at this point c. you can at this point indicate the basis on which you believe the other professional may not be qualified to handle the scope of this planning d. identify the activities necessary for implementation and reaffirm that the scope of the engagement ends at implemenation

Identify the activities necessary for implementation and reaffirm that the scope of the engagement ends at implementation - the wording of this answer is good reflection of standard 6

Jeff and Cathy are in their early 30s with two young children. Jeff works making $5,000 per month. He never completed college (only for two years). Cathy is a stay-at-home mom. She never complete college, but the two of them are still paying off college loans. They lost their home in the real estate downturn and now rent. Rent costs have been increasing. They seem to live from month-to-month and rely on gifts from parents and food kitchens. What do you do first? a. establish an emergency fund b. learn the details of their spending habits c. determine what kind of home they can afford to buy using current mortgage rates d. make a list of priorities they consider important

Learn the details of their spending habits - best starting point is data gathering with this couple

Mr and Mrs. Smith come to you for advice on the financing of their son's college education at State University. Although their annual family income exceeds $100,000, they have not saved enough for his college expenses. You advise them to acquire education funds through which of the following? a. Perkins Loan b. Pell Grant c. Parent Loan for Undergraduate Students (PLUS) d. Subsidized Stafford Student Loan

Parent Loan for Undergraduate Students - the other answers are needs based, parents have high income (wealthy)

Tech co. is going to have initial public offering. Which of the following Acts apply? a. Securities Act of 1933 b. Securities Act of 1934 c. Insider Trading Act of 1988

Securities Act of 1933 - act regulates new securities

Ted, age 15, signs a contract to purchase a used car for $5,000. Which of the following is true? a. Ted can force the used car dealer to honor the agreement b. the used car dealer can force Ted to pay $5,000 c. this is a legally enforceable agreement

Ted can force the used car dealer to honor the agreement - when one of the parties is legally incompetent because of age, illness, or inebriation, the contract is valid but may be voided by incompetent party

Midge wants to establish an account for his minor children. Midge does not want to incur the expense of setting up a trust. She wants to transfer parcels of real estate into the account. Which of the following should she use? a. 529 account b. EE education account c. UTMA account d. UGMA account e. Coverdell ESA

UTMA account - allows for real estate investments and allows for higher contribution of $15,000 per year

Which of the following is a false statement? a. a CFP professional does have to continue to learn and improve professionally once the CFP designation is earned b. a CFP certificant must have an advanced degree in the area of services being provided to meet the competency requirements c. referring the client to other specialized professionals is appropriate when a CFP certificant has limitations of knowledge in a particular area of consultation d. A CFP certificant is deemed to be qualified to practice financial planning

a CFP certificant must have an advanced degree in the area of services being provided to meet the competency requirements

The investment advisors act of 1940 lists certain organizations and invividuals that are excluded from registration. Of the following which is not excluded? a. banks and holding companies b. accountants whose performance of advisory services is solely incidental to their profession c. stockbrokers if advisory services are solely incidental to the conduct of their business and if they do not receive any special compensation d. a financial planner holding himself/herself out to the public as providing investment advice e. none of the above

a financial planner holding himself/herself out to the public as providing investment advice - the exempted person rule will not apply if the financial planner if they are listed as an adviser publicly

Under the IAA, which of the following is true? a. it is unlawful for any person registered as an investment advisor to represent himself or herself as an investment counselor b. once registered, an adviser can use the initials RIA after his name as long as "Registered Investment Adviser" appears in full below the adviser's name c. advisers can assign advisory contracts to another firm as long as the client consents d. the adviser is never a fiduciary

advisers can assign advisory contracts to another firm as long as the client consents - the other three answers are all false

You have proof that a CFP certificant has commingled client funds with the CFP certificant's funds. Those funds were used for his daughter's medical operation. The operation was not covered by insurance. The funds have been repaid. What should you do? a. nothing b. inform the client c. alert the appropriate regulatory authorities including the CFP board d. confront the CFP applicant

alert the appropriate regulatory authorities including the CFP board

For which of the following must a CFP professional provide written notice to the CFP board within 30 calendar days? a. CFP professional has been charged with, or convicted of, a felony or relevant misdemeanor b. CFP professional has been named as a subject of regulatory investigation or actions alleging failure to comply with the laws, rules, or regulations governing professional services c. CFP professional had a professional license suspended, revoked, because of a violation of rules or standards of conduct d. CFP professional has received notice of a federal tax lien or property owned by the CFP professional e. all of the above

all of the above

In the first step of the financial planning process, understanding the client's personal and financial circumstances, which entity could be the client? Individual Family Business Organization

all of the above

Which of the following are data that a CFP professional should gather when completing a comprehensive financial plan for a client? a. the client's needs, wants, and wishes b. summary of assets and liabilities c. estate planning documents d. insurance policy declarations pages e. all of the above

all of the above

Which of the following are true about the first step of the financial planning process? The CFP professional must describe to the client the information needed to fulfill the scope of the engagement The CFP professional must either limit the scope of the engagement or terminate the engagement if he/she is unable to gather the information necessary The CFP professional must analyze the client's information to assess the client's circumstances Both qualitative and quantitative data needs to be collected

all of the above

Tim and Susan Arnold figured that the cost for tuition and related expenses for the first year at a private university for their son, Tim Jr. was $20,000. Their MAGI this year was $160,000. They want to take an AOTC (American Opportunity Tax Credit). Which of the following funds could reduce the qualifying expenses for an AOTC? tax-free portions of scholarships employer provided educational assistance distributions from a 529 distributions from a Coverdell

all of the above - AOTC may be claimed in the same year that a tax-free distribution is made, if the same expenses are not used to calculate the tax-free distribution and AOTC

Which of the following could be a client expectation An inheritance A salary raise Getting married Paying off existing debt

all of the above - all are eager anticipations of something

Which of the following is true? a. the higher the marginal tax bracket, the greater the advantage of owning a home b. short time periods favor renting, long term periods favor owning c. answers a and b d. neither answers a and b

answers a and b

Procedural rules are covered under which of the following? a. code of ethics b. rules of conduct c. practice standards d. articles

articles

When should the client be monitored? a. every 3 months b. every 6 months c. annually d. as needed

as needed - no time frame specified by the CFP board (another good answer is upon what is specified in scope of engagement)

Bob Henry has been referred to you. You completed all aspects of step I and step 2. As you start to analyze and evaluate all the quantitative data, you have a heightened awareness of specific issues that are affecting the scope of the engagement. What should you do? a. consult other professionals to review competence issues b. call the client, identify issues, and make appropriate steps to amend the scope of the engagement c. call the client to inform him/her that the analysis is prodcuing unrealistic expectations d. restrict the scope of the engagement to the information obtained

call the client, identify the issues, and make appropriate steps to amend the scope of the engagement - scope of engagement can still be changed

Which of the following is an example of qualitative data? a. copies of insurance policies b. statements of projected social security benefits c. client's risk tolerance d. employer's current statement of employee benefits

client's risk tolerance - risk tolerance is subjective and influences choice of investments

In regards to the Code of Ethics, certificants make a continuing commitment to learning and professional improvement. Which principle does this apply? a. objectivity b. competence c. professionalism d. diligence

competence

XYZ is a mid-sized corporation. The CEO is friends with one of your clients. In order to retain employees, he is being forced into installing a retirement plan. He has various proposals and is totally confused by all the presentations by various providers. He has called you for help. He has limited the scope of the engagement to retirement plan issues. You have analyzed and evaluated all the information and documents. Now, as you begin to come up with a recommendation, you are becoming a little concerned because of the complexity and the extreme use of discrimination against non-highly compensated employees in the retirement proposals. What should you do? a. terminate the engagement b. consult with another retirement specialist to confirm your assumptions c. consider that you are not competent to take on the engagement d. call the client and try to obtain more information

consult with another retirement specialist to confirm your assumptions - standards indicate "consult with other professionals"

An existing client, Lamar Adams, is concerned about his son. The son, a freshman in high school, shows no signs of wanting a college education, but Lamar and his father attended an Ivy League school. Lamar and his father would like to fund for that possibility. Which of the following do you suggest if his son is an only child? a. contribute the max allowable under gift tax laws to an UGMA/UTMA b. wait and take out a PLUS c. contribute max allowable under gift tax laws to a 529 savings plan d. contribute max allowable under gift tax laws to a 529 prepaid tuition plan

contribute max allowable under gift tax laws to a 529 savings plan - do not want Lamar to have access at age of majority which UGMA/UTMA allows for. Because considering private university 529 savings plan better answer than prepaid plan

Which of the following is not true about ESAs? a. account gains are tax-free if the funds are used for qualified education expenses b. contributions are considered to be a gift of future interest c. the custodian cannot prevent an adult beneficiary from taking a distribution even if it is not to be used for qualified education purposes d. the funds must be distributed by the time the beneficiary reaches age 30 or rolled to a new beneficiary

contributions are considered to be a gift of future interest - they are considered a gift of PRESENT interest

A prospective client wants to give you, a CFP certificant, $50,000 to invest. He provides you with only minimal required personal data. He requests that you use investments that are less traceable by the IRS. What should you do? a. have him sign a liability waiver b. decline the client c. report him to the IRS d. take the money and invest as he suggests

decline the client

Bill Perry and his wife, Victoria, have been referred to you. In the initial meeting you are explaining what services your firm provides. Victoria is shifting around in her chair, looking out the window and looking at her watch as you are explaining the services. As you finish, Victoria immediately wants to know how much it will cost, when the plan will be completed, and what a written plan would look like. Before you can answer, Bill pleads with Victoria to slow down. She glares at Bill and looks back at the window. Bill begins to outline their financial goals. He is concerned that at age 50 he may never be able to retire. Victoria says he is crazy, and he can retire now. What should you do? a. give Bill a list of quantitative information and documents you will require b. enter into a written agreement that you will only work with Bill c. decline the client because you cannot enter into a mutually defined agreement d. tell Victoria the cost to do the planning, but triple what you normally would charge

decline the client because you cannot enter into a mutually defined engagement - must come up with a mutually defined engagement

Which of the following would be the most recommended method of implementing a savings plan? a. pay all your expenses first, including credit cards, then deposit the remainder in a money market account b. simply wait until the end of the month and see if any money is left over c. deposit a fixed or specific amount from a paycheck into a savings or money market account. d. complete a one-year budget, then see if the client can save money

deposit a fixed or specific amount from a paycheck into a savings or money market account - pay yourself first is generally the best advice to give to succeed at savings

Practice standard 2 is which of the following? a. determining the client's financial goals b. obtaining qualitative information c. obtaining quantitative information and documents d. obtaining factual information

determining the client's financial goals

What is the difference between practice standards 3 and 4? a. analyzing and evaluating b. evaluating and processing c. processing and developing d. developing and presenting

developing and presenting

What is the major difference between steps 4 and 5? a. developing vs. documenting b. developing vs. alternatives c. developing vs. presenting d. presenting vs. implementing

developing vs. presenting

Which of the following is a principle of the CFP Board Code of Ethics and Standards of Conduct? a. disclosure b. independence c. diligence d. continuing education

diligence

_______ is the provision of services in a reasonably prompt and thorough manner, including the proper planning for, and supervision of, the rendering of professional services a. competence b. fairness c. professionalism d. diligence

diligence

A new client approaches you. The client, a widow age 65, has never invested in the stock market. She and her deceased husband have always owned savings and CDs. Now she is concerned that her money will run out with the low CD interest rates. Her current boyfriend suggested she invest in the stock market to get her a higher return. What should you do? a. do a risk tolerance survey b. invest her money in brokerage CDs c. invest her money in treasury notes d. refuse the client e. do a complete financial plan

do a risk tolerance survey

Gary and Janet Tuttle are extremely worried. Both are college graduates. Although they had considerable financial help from their parents, they both accumulated college debt due to private college costs and careless spending. Their spending habits continue to haunt them. Even though they both work, they are saving maybe 5% into 401(k) plans after paying all expenses, debt reduction, and child care expenses. Their two children, 10 and 8, want to go to college. Both Gary and Janet's parents refuse to fund for their grandchildren. What do you suggest they do to fund for their children? a. do research on their state prepaid tuition plan b. set up an UTMA and do dollar cost savings every month c. deposit $2,000 in a Coverdell ESA for each child per year d. buy EE education bonds to avoid paying any income tax e. apply for Pell Grants

do research on their state prepaid tuition plan - right now likely no cash flow for any investments/contributions and Pell Grants only available when child in school

Personal financial planning subject to areas typically include which of the following? a. identifying and selecting goals b. gathering client data c. education planning d. implementing the recommendations

education planning - other answers refer to financial planning process not subject areas

Your client, age 35, has a wife and 2 young children. Which of the following makes the most sense for your goal? a. establish a 6 month emergency fund in the next year from excess cash flow b. contribute to a 529 plan at the end of the month until two children go to college c. make contributions to two Roth IRAs each year until retirement d. make contributions to two deductible IRAs each year until retirement e. reduce consumer debt over the next year from excess cash flow

establish a 6 month emergency fund in the next year from excess cash flow - having proper emergency fund has the highest priority

A client, married, has come to you for financial planning advice. He has a high-paying occupation. His wife is a stay-at-home mom with two young children. He has a very high risk-tolerance with adequate insurance coverage. After a review of his financial statement, you and he find about 1 month of cash/cash equivalents and excessive debt. His large investment position is also highly leveraged but doing very well. What should you suggest he do first? a. liquidate some investments and reduce his debt b. establish a budget and save more of the cash flow into liquid assets c. establish an emergency fund with at least 6 months of fixed and variable expenses available in emergency fund type assets d. do a risk tolerance survey and review his investments

establish a budget and save more of the cash flow into liquid assets - emergency fund not realistic investment for risk tolerance

Betty Jane Johnson has been a client of yours for years. When she married Bob, she moved all her money into a joint account with him. Both her marriage and the joint account have bottomed out. She calls and explains that they are about to get a divorce. She needs money for an attorney and living expenses. How do you recommend that she get the money? a. ask him for money b. take the money from the joint account c. go to a bank and take out a loan d. send her to a qualified divorce attorney

go to a bank and take out a loan - he is likely not to give money and joint account is depleted

During your initial meeting with a client you learned the following 1) single 2) age 38 3) has $3,000 annual cash deficit. She recently sold her home and purchased a large home on the water. She used most of her cash and has a mortgage of $100,000. She also wants to send her daughter to an Ivy League college and take her on a trip to Europe before she starts. Her daughter is 15. How should you advise her? a. sell the home and move into one more affordable b. dollar cost average into an aggressvie growth fund to get the returns needed to retire c. start gifting to the child using EE bonds d. have the client reassess and commit to her goals

have client reassess and commit to her goals - the scope suggested in the question is impossible, as a planner must find workable solution

Mr. and Mrs. Delay are approaching retirement. Their statement of financial position shows limited retirement assets. Although Mr. Delay has worked all his life, his income has always been below the maximum Social Security threshold. As a result, his benefits for both he and his wife will be about half the maximum available at NRA. His pension benefits available through a prior employer are also minimal. Since he has been working almost 40 years, he wants to retire early, what should you do if he approached you to do a financial plan. a. tell him he cannot retire until at least NRA b. do a risk tolerance survey to see if his investments could produce better returns c. decline him as a client d. have the client keep a budget to determine current cash flow needs and potential savings e. suggest he get a better job or second job for the next few years to increase savings and get higher SS benefits

have the client keep a budget to determine current cash flow needs and potential savings - the budget will determine both their current situation and their potential needs

In establishing and defining the relationship that will develop between a financial planner and a client, which of the following is not among the planners' obligations? a. identifying the services to be provided b. describing how the planner will be compensated c. deciding on the time frame of the engagement d. having the client sign a written agreement

having the client sign a written agreement

Bob is a fee-only CFP certificant. Bob also does continuing education classes for CFP ethics adn state insurance requirements. He has both security and insurance licenses. Does he have to disclose either his broker-dealer relationship and/or insurance license? a. only the broker-dealer relationship b. he should disclose the insurance license c. neither, he is a fee-only planner d. he should disclose both

he should disclose both

In gathering client data, there are two types of data. Which of the following is an example of qualitative data? a. general family profile b. details on current investments c. health status of client and family members d. names of financial advisors e. copies of wills and trusts

health status of client and family members - other answers include numbers and names which is quantitative

The client has a choice between paying $40,000 in cash for a new car or leasing for 3 years at $500/month (end). After three years the car will be worth $25,000. How would you advise the client? a. if the client can make 3.5% on the $40,000, buy it b. if the client can make 1% on the $40,000, lease it c. if the client can make 4% on the $40,000, buy it d. if the client can make 7% on the $40,000, lease it

if the client can make 7% on the $40,000, lease it - solve for breakeven return (40,000 PV; 12*3 n; 25,000 FV; 500 PMT; solve for i = .2539*12)

Objectivity requires _____ and _______ a. knowledge, conflicts of interest b. candor, skill c. intellectual honesty, impartiality d. thoroughness, subordination

intellectual honesty, impartiality

What restrictions exist under the IAA concerning the assignment of an advisory contract?

investment advisory contracts cannot be assigned unless the client expressively consents to the transfer

The provisions of the Securities Act of 1933 apply to which of the following? a. trading securities b. regulation of secondary market c. issuance of IPOs d. trading of federal issues (like Treasury Bonds)

issuance of IPOs - relates to issuance of new securities and trading takes place on secondary market

Harry Andrews is an estate planning attorney. He mainly deals with very upscale clients. He has two highly trained attorneys. Our attorney personally reviews all business ownership activities to get accurate values and review insurance liability exposure. The other attorney reviews all personal ownership including residences, collectibles, aircraft, yacht, and insurance/liability exposure. Harry interviews the clients in his office which is in the same building as his residence. When the planning is complete the clients come to his office. He does not have a personal car but usually he and his wife use a cab for local travel. The only time he uses his car is to take clients out to lunch or dinner after the planning appointment at the yacht club. The club is 20 miles one way. This usually occurs once or twice a week. He usually keeps his car for 2-3 years. He rarely uses his yacht. Should he lease or buy a car? a. buy b. lease c. use a car service when needed d. not enough information to answer the question

lease - can probably get a great lease option with the low mileage usage and it is a business write-off

Mr. Boyd, an estate planning attorney, mainly uses his car to go to and from his home to his office (10 minutes). He has a sports car he drives on weekends. Even though it is a short drive to work, he likes to ride in style and feels he may occasionally have to take a client to lunch at the club. He likes a new model every two years. The car is owned in his name. Should he buy or lease a car? a. lease, it will be more cost effective b. lease, he can write off the lease cost whereas if he buys the car he cannot get a tax writeoff c. buy, it will be more cost effective d. buy, he will be able to take a tax write off

lease, it will be more cost effective - based on time and taxes, he should lease his car

Jim and Jane Williams have been your clients for years. Jim owns a small business that has been slowly expanding, Jim has other business opportunities come up because he is very active socially and in many civic organizations. Jane is a real estate agent. She has been very successful and occasionally very distressed properties come her way. Because of their net worth, the local bank is always wiling to do temporary loans. She can normally turn the properties in 90 days because she has contractors who can do a quick fix. How should you be handling the client? a. doing new fact finders on a 3-6 month interval b. recommend that they work with other advisors who specialize in business and real estate interests c. establish new goals and objectives so you know how to react d. monitor them on a regular frequent basis

monitor them on a regular frequent basis - this is a vague monitor domain type of question and answer (very exam-like)

Mr. and Mrs. Thomas plan to set up an education account for Jackie, age 10. Mr. and Mrs. Thomas are in the 37% tax bracket. Which of the following strategies could Mr. or Mrs. Thomas implement to pay for college tuition and books and avoid paying income tax? a. EE education bonds b. deferred annuity c. UGMA/UTMA account d. municipal bonds

municipal bonds - MAGI too high for education bonds and annuity distributions are taxed. Municipal bonds in UGMA/UTMA accounts are tax-free

In defining the scope of the engagement, the certificant and the prospective client or clients shall ______ agree upon the services to be provided a. mutually b. independently c. simultaneously d. legally

mutually

Kenneth Zahn, CFP, provides a full disclosure brochure to potential clients. Which of the following items of information does not have to appear in the brochure? a. statement of investment philosophy b. statement of fees and commissions in reasonable detail c. names and addresses of bank or banks where the planning practice maintains its operating accounts d. explanation of material, actual, or potential conflicts of interest e. resume of employees, including education and compensation

names and addresses of bank or banks where the planning practice maintains its operating accounts - would have to be included if question asked where client accounts were managed

In regards to a complaint, is it required that a certificant appear before a hearing panel? a. yes b. no c. it depends on the circumstances d. always

no

Under the new bankruptcy act, if the debtor's average monthly net income for 60 months is greater than $10,000, can the debtor file for Chapter 7? a. yes b. no

no

Is the financial planning process limited to these steps? a. yes b. no c. never d. always

no - almost always exceptions

A CFP professional must act as a fiduciary when providing financial advice to a client. Will a CFP professional have a fiduciary duty when she makes a passing statement about a financial issue to someone she just met at a cocktail party; or provides general advice to a relative who asks her for her general opinion, for example, about a particular company or about the benefits

no - the code and standards requires a CFP professional to act as a fiduciary when providing financial services to a client (where oral/written agreement in place)

Linda's grandfather set up a Coverdell ESA and contributed $2,000 to the account. Linda's aunt wants to also contribute to the account this year. Can she? a. yes, she can contribute as long as she sets up a separate account b. no, $2,000 is the max that can be contributed on Linda's behalf in the current year c. yes, she can contribute as long as she is not a blood relative d. no, only Linda's parents can contribute to the account in the current year

no, $2,000 is the max that can be contributed on Linda's behalf in the current year - max amount that can be contributed on behalf of individual child from all sources cannot exceed $2,000

Is disclosure to a client a one time event? a. disclosures must be updated on a periodic basis at least annually b. no, they must be updated on a periodic basis at least semi-annually c. no, a certificant shall timely disclose to the client any material changes to the disclosure information d. no, the facts and circumstances of each situation are a key factor

no, a certificant shall timely disclose to the client any material changes to the disclosure information

Holly, the daughter of Mr. and Mrs. Golightly, is going to college. She plans to get her master's degree at a state university. Unfortunately, due to economic conditions, her parents never set up a 529 account. She can qualify for some state scholarships. Her parents, both professionals, earn well over $80,000 each, but spend almost all they make. Which of the following may generate federal income income tax credits for undergraduate as well as graduate education? a. American Opportunity Credit b. Lifetime Learning Credit c. Coverdell (ESA) d. PLUS e. None of the above

none of the above - American Opportunity Credit works for undergraduate but not graduate education, Lifetime Learning Credit is subject to phaseout, and the Coverdell and PLUS do not generate federal income tax credits

You, a CFP practitioner, attend a company sponsored conference. In one of the breakfast sessions, Joe Blowhard, CFP, your coworker, is going over a sales gimmick to sell more company proprietary products. Joe is a top producer and is always on the platform for goals attained. As you listen to him you realize what he is telling you in his sales pitch is really not true. However you notice that company compliance has approved the sales material handout but the slant is on his sales pitch. He says he will make the sales pitch available if you e-mail him. What should you do? a. obtain the sales pitch and send it to your compliance department b. send the handout and the sales pitch to the CFP board citing propitiatory products and conflict of interest (fairness) c. confront Joe Blowhard citing conflicts of interest and professionalism d. just let it go, this occurs every day

obtain the sales pitch and send it to your compliance department

Mr. and Mrs. Romero have been working with you on college planning for their daughter Isabella. After some careful business planning you were able to reduce their annual income below $60,000 in hopes of qualifying for Federal financial aid, but when they applied for aid on on the FAFSA before Isabella's freshman year, they were denied due to assets calculated in their Expected Family Contribution. In reviewing their assets, you feel they were just over the asset threshold. Which option would you recommend to them to execute Isabella's freshman year so that they may reduce their EFC and have a better chance of qualifying for financial aid when they reapply next year? a. pay Isabella's $20,000 freshman year college expenses with their 529 investment account to reduce their countable assets for the FAFSA b. pay Isabella's $20,000 freshman year expenses with the UTMA account they opened many years ago c. pay Isabella's $20,000 freshman year expenses with their Coverdell ESA account since it has more liberal definition of qualified education expenses d. claim the full Lifetime Learning Credit for her freshman year expenses to lower their taxable income even further below $60,000 level

pay Isabella's $20,000 freshman year expenses with the UTMA account they opened many years ago - of the assets listed, only the UTMA is in the child's name and would lower the asset level

In regards to revocation grounds for discipline, revocation is: a. for a period of time not exceeding two (2) years b. for a period of time not exceeding five (5) years c. permanent d. suspended for a period of time

permanent

As far as severity, which of the forms of discipline is least severe? a. revocation b. imprisonment c. private censure d. public censure

private censure

A CFP professional may not do indirectly, or through or by another person or entity, any act or thing that the Code and Standards prohibit by the CFP professional from doing directly. This is covered under what section of the Code and Standards? a. duties owed to clients b. duties owed to the board c. duties owed to firms d. prohibition of circumvention

prohibition of circumvention

If the Fed wanted to tighten credit because of rising inflation, the Fed would decrease which of the following? a. margin requirements b. reserve requirements c. discount rate d. purchase of bonds

purchase of bonds - to tighten credit, Fed can increase margins, increase reserve requirements, and sell bonds (slow purchase of bonds)

Which of the following are forms of discipline that the CFP board can impose? a. fine b. imprisonment c. retake the CFP exam d. revocation

revocation

All of the following tools are used by the Federal Reserve to control the money supply except which of the following? a. open market securities b. setting the discount rate c. setting the federal funds rate d. setting the reserve requirements

setting the federal funds rate - federal funds rate is the charge for overnight loans from bank to bank

A sincere belief by a CFP professional with a material conflict of interest that he or she is acting in the best interests of the client is _______ to excuse the failure to make a full disclosure? a. sufficient b. insufficient c. required d. warranted

sufficient

Tom and Mary Williams meet you at a party. You had to help Mary get her husband to their car. The next day he shows up in your office. He wants to hire you. He says he got drunk because he made a huge bet on the NCAA tournament and lost. He says he cannot stop gambling their money away. She does not realize what is happening to their accounts. What is your worst response? a. insist that he gift all the assets to his wife b. join gambler's anonymous c. tell his wife d. set up accounts that require signatures (husband and wife)

tell his wife - he is the potential client, not his wife

Does the new bankruptcy law make it safer to roll over 401(k) funds into an IRA account or leave the funds in the 401(k) a. it does not make any difference b. the 401(k) is safer c. the IRA rollover account is safer d. the cap on the IRA rollover is only $1M. It is better to leave the money in the 401(k) account

the 401(k) is safer - ERISA protection (401(k)) extends to judgments other than bankruptcy, and it applies regardless of state law

A couple with a MAGI of $90,000 wants to know which combination of techniques can be used to pay annual tuition for their daughter in her first year of college a. the American Opportunity Credit, a $20,000 tuition gift from a grandparent, and a Pell Grant b. A Lifetime Learning Credit, a Coverdell ESA distribution, and an UTMA distribution c. A Coverdell ESA distribution, a $20,000 tuition gift from a grandparent, and the American Opportunity Credit d. The American Opportunity Credit, a $20,000 tuition gift from a grandparent, and an UTMA account distribution for room and board

the American Opportunity Credit, a $20,000 tuition gift from a grandparent, and an UTMA account distribution for room and board - when question only uses one expense like tuition, only use one of the four tax-advantaged programs as an answer

Larry Powell has just passed the CFP board exam. As he goes to submit his experience he lists a client complaint. The complaint comes from the 2008 market downturn. The client has less than $100,000 invested, included a medium risk tolerance, and a long-term objective. The client went to arbitration over a loss of $25,000 and Larry's broker dealer settled for $15,000. Larry did not have to pay anything but the settlement went on his record. He forwarded the arbitration paperwork and the settlement to the CFP board. How would you respond after reviewing all the ethics material? a. Larry should not have reported the situation because his broker dealer settled the arbitration b. since this was strictly a securities transaction, not financial planning, Larry will be authorized to immediately use his certification c. the CFP board will review the paperwork and can dismiss the arbitration or may issue a private censure d. the CFP board only reviews new certificants based on the lat 5 years of financial planning activities. The arbitration will be dismissed.

the CFP board will review the paperwork and can dismiss the arbitration or may issue a private censure

Which of the following is not a disadvantage of an UTMA account? a. the kiddie tax is in effect until the child reaches age 18 or 24 b. the assets pass to the child when he/she ceases to be a minor c. the assets can be invested in any cash-type investment d. the assets are considered to be owned by the child for federal aid purposes

the assets can be invested in any cash-type investment - could be an advantage

Which of the following statements about ESA plans is true? a. all funds must be used by the end of a college age participant b. the funds can be set up in a trust c. the ability to use the credit is phased out between $121,600 and $151,600 for married taxpayers filing jointly d. expenses are limited to elementary and secondary education needs

the funds can be set up in a trust - a trust can be the owner of an ESA plan

What prohibitions exist concerning the use of the initials "RIA"?

the initials cannot be used, must use Registered Investment Advisor

Mr. and Mrs. Adams, ages 73 and 71, are having financial problems in retirement years due to health reasons. Mr. Adams took a single-life pension payout (monthly as long as he lives). Both Mr. and Mrs. Adams are receiving reasonable social security benefits due to their work history and taking benefits after NRA. Unfortunately, one of their children suffered a financial reversal due to a loss of their job, and they have been supporting him and his family. They are considering taking a reverse mortgage on their family home. What do you suggest? a. a reverse mortgage will be a burden to them and their cash flow. do not do a reverse mortgage b. a reverse mortgage could distribute over time the entire value of the home. at their combined deaths, no assets would pass to their son. do not do a reverse mortgage c. the reverse mortgage could provide them with additional needed monthly cash flow. do the mortgage d. if either Mr. and Mrs. Adams dies, the loan will be due. do not do a reverse mortgage e. they do not fit the general rules for a reverse mortgage

the reverse mortgage could provide them with additional needed monthly cash flow. do the mortgage

Tim Thomas, age 35 and married, was out of a job for almost 6 months. His wife, Beth, tried to get a job but was also unsuccessful. As a result, they used up most of their cash equivalents, a good portion of their investments and incurred a healthy portion of credit card debt. By rotating credit card debt between cards, they have avoided exceedingly high interest rates. Fortunately, no retirement asset money had to be withdrawn and mortgage payments were paid. Due to wise timing in purchasing their home in 2009, they have a positive balance between the home's FMV and current mortgage balance. Now that Tim has a permanent job, they are considering taking out a home equity loan. Which of the following would not be a good suggestion? a. to obtain a lower interest rate b. to change the term of the loan c. to consolidate debt d. to establish an emergency account e. to get a tax write-off

to get a tax write-off - in 2019, home equity loan would not be a tax write-off unless used to buy, build, or improve the home

Compensation, by definition, includes all of the following except? a. trailing commissions b. surrender charges c. trivial economic benefit d. non-trivial economic benefit (12b-1 fees)

trivial economic benefit

Mrs. Smith, a widow age 75, is fairly wealthy and is receiving her deceased husband's max SS benefits. Although her health is good, she is concerned about senior moments. Which of the following is the best institution to handle her investment assets? a. bank buying time sensitive CDs in her revocable trust with multiple beneficiaries b. brokerage company with SIPC Insurance c. Insurance company buying immediate annuities with multiple beneficiaries d. large mutual fund company with highly diversified conservative portfolio e. trust company at commercial bank

trust company at commercial bank

Linda Thomas, age 40 and divorced, has accepted your written agreement with the scope of the engagement and cost attached. You have informed her of the quantitative information and documents you need. As you proceed through the 2nd meeting you are getting concerned with her complete change in attitude in regard to her financial goals. Her priorities have shifted to unrealistic early retirement from investment allocation modeling. You realize from the quantitative information she is giving that you cannot make a suitable recommendation. What should they do? a. restrict the scope of the engagement to quantitative information b. terminate the engagement c. try to make her understand she needs to have more realistic expectations d. tell her you cannot make a suitable recommendation

try to make her understand she needs to have more realistic expectations

What is the major advantage in buying over leasing? a. insurance costs b. tax deductions c. ultimate ownership d. down payment

ultimate ownership - subjective question but ultimately depends on type of asset

Under the Code and Standards, when is the CFP professional held to the fiduciary standard? a. solely when providing comprehensive financial planning b. just when advising a client on their retirement accounts c. only when advising the client on multiple subject areas d. whenever the professional is providing financial advice

whenever the professional is providing financial advice

Does a certificant have to advise his/her current clients of any certification suspension or revocation he/she receives from the CFP board? a. yes b. no c. only his employer needs to be advised, never his/her clients d. maybe, it depends on the facts

yes

Does a certificant, who is an employee, have to advise his/her employer of a certification suspension or revocation he/she receives from the CFP Board? a. no, unless they are a W-2 employee b. no, unless they are a 1099 employee c. yes d. yes within 10 days

yes

Joe Jones, CFP, is looking for a new house for his wife and family. Unknowingly, a house he is interested in is owned by one of his clients. If he enters into a transaction to purchase the home, could that be deemed by the CFP board to be a conflict of interest? a. yes b. no

yes

Under the terms of the written agreement that defines the relationship with the client, can the certificant offer proprietary products? a. yes b. no c. yes, but it can only be an oral agreement d. maybe

yes

Would lack of estate planning documents be a vulnerability to a young couple with a child living in a community property state? a. depends on which of the nine states b. no, the surviving spouse automatically gets all the assets c. yes d. maybe

yes - there is too much unknown to answer anything else

Bob is a financial planner who does comprehensive planning with an emphasis on tax management. He is registered with the SEC as an investment advisor. Bob wants to sell mutual funds to his clients. Does Bob have to register with FINRA? a. yes, he will be giving advice about investing in direct participation programs b. no, he is already registered investment adviser c. yes, he will be selling mutual funds d. no, he emphasizes tax planning rather than investments

yes, he will be selling mutual funds - bob must register with FINRA if he sells mutual funds (at least have Series 6)

Stanley, a prospective client contacts you to open a tax related investment account. Stanley refuses to give you more information beyond what is required to complete the broker-dealer account form. How should you handle this transaction if Stanley wants a recommendation on only one investment? a. you should refuse him as a client b. you should proceed to advise the client c. you should advise the client after obtaining a signed waiver of practice standards d. you should advise the client after obtaining the broker-dealer consent

you should refuse him as a client