CFP November Exam

Select the category of conduct defined in the Fitness Standards for which a petition for consideration is NOT permitted. A) Conduct Deemed Unacceptable B) Conduct Deemed Adverse C) Conduct Deemed a Temporary Bar D) Conduct Deemed a Presumptive Bar

A) Conduct Deemed Unacceptable. Conduct Deemed Unacceptable is the category of conduct defined in the Fitness Standards under which an individual may not submit a petition for consideration.

Barry, a CFP® professional, has been providing financial planning services to Logan for 20 years. During their annual meeting, Logan discloses to Barry that he has been sued and may be liable for a judgment that will exceed his insurance coverage. Logan realizes he may need to file for bankruptcy under Chapter 7. Barry tells Logan that if he files for Chapter 7 bankruptcy, some of his debts may not be dischargeable. Which of the following items will remain Logan's responsibility even though he files for Chapter 7 bankruptcy? 1. Student loans 2. Child support 3. Debt due to intentional tort claims 4. Alimony A) 1, 2, 3, and 4 B) 3 only C) 2 and 4 D) 1 and 2

A) 1, 2, 3, and 4. None of these debts can be discharged under Chapter 7.

A CFP® professional agrees to be bound by the continuing education (CE) requirement established by Certified Financial Planner Board of Standards, Inc. The CE requirement for a regular continuing professional is which of the following? A) 28 hours of general CE + 2 hours of CFP Board-approved ethics CE B) 30 hours of general CE C) 38 hours of general CE + 2 hours of CFP Board-approved ethics CE D) 40 hours of general CE

A) 28 hours of general CE + 2 hours of CFP Board-approved ethics CE. CERTIFIED FINANCIAL PLANNER™ professionals are required to complete 30 hours of continuing education (CE) each reporting period: 2 hours of CFP Board-approved ethics CE and 28 hours of CE covering one or more of CFP Board's Principal Topics.

Stuart needs an income stream equivalent to $50,000 in today's dollars at the beginning of each year for the next 12 years to maintain his standard of living. He assumes inflation will average 4.5% over the long term and he can earn a 9% compound annual after-tax rate of return on investments. What lump sum does Stuart need to invest today to fund his income need? A) $480,878.04 B) $461,025.81 C) $455,929.00 D) $476,445.85

A) $480,878.04. BEG mode PMT= 50,000 I/YR= 4.3062 = [(1.09 ÷ 1.045) − 1] × 100 N= 12 FV= 0 PVAD= (480,878.04), or $480,878.04

Louis is in his senior year of high school. His parents had set up a qualified tuition program for him when he was 10 years old. Now that his parents are preparing for Louis's college expenses, they wish to understand the tax ramifications of this plan. Which of the following distributions and scenarios would not cause a taxable event to Louis or his parents? 1. Louis takes a distribution to pay for a room on-campus. 2. His parents use the plan to cover Louis's health insurance premiums while he is attending college. 3. His parents make a withdrawal to purchase a train pass to provide him with transportation to and from the campus. 4. His parents have crossed $250,000 in adjusted gross income (AGI). A) 1 and 4 B) 2 and 4 C) 1, 2, and 4 D) 3 only

A) 1 and 4. Moreover, Louis may take a tax-free distribution from the plan if the money is used to pay for a qualified expense such as tuition. There is no AGI limit on plan contributions or distributions.

Ann has been investing in the market for a number of years. She considers herself knowledgeable in the areas of stock trading and options. Up to this point, she has only been writing covered calls. Both Ann and her CFP® professional agree that she may implement other types of option strategies. What should her CFP® professional do next? A) Have Ann complete the necessary paperwork allowing her to use more sophisticated option strategies. B) Obtain information from Ann regarding her current option positions. C) Review the TOD designation on her account. D) Review her most recent brokerage statement.

A) Have Ann complete the necessary paperwork allowing her to use more sophisticated option strategies. Her CFP® professional should have already reviewed the details of her brokerage account, including her current positions and TOD designation.

Which of the following statements regarding verbal mirroring is CORRECT? 1. The use of verbal mirroring can improve rapport with clients. 2. In verbal mirroring, the planner imitates the client's word use, tone of voice, and communication method. 3. In verbal mirroring, the planner uses the client's body language. 4. Verbal mirroring includes the inflection of voice or emphasis on certain words. A) I and II B) I, II, III, and IV C) I and III D) II and IV

A) I and II. The correct answer is both I and II. Statement III is incorrect because the use of the client's body language is physical mirroring. Statement IV is incorrect because voice tone is the inflection of voice or emphasis on certain words.

Identify the situations in which Standard A.1, Fiduciary Duty, must be upheld. 1. At all times 2. Anytime financial matters are discussed with current or prospective clients 3. At all times when providing Financial Advice 4. At all times when providing Financial Advice that does not require Financial Planning A) III and IV B) I only C) I and III D) II, III, and IV

A) III and IV. The answer is III and IV. Per the Code and Standards, "at all times when providing Financial Advice to a Client, a CFP® professional must act as a fiduciary and, therefore, act in the best interests of the Client." (Standard A.1.) The Fiduciary Duty must be upheld at all times when providing Financial Advice, regardless of whether Financial Planning is required or not.

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

A) 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.

Which of the following actions would most likely decrease an individual's credit score? A) Take advantage of several offers for new credit cards B) Have several different types of credit accounts, such as a car loan, a mortgage, and credit cards C) Pay off a balance on a credit card that the individual has had for 10 years D) Make just the minimum payment on time each month

A) Take advantage of several offers for new credit cards. Taking advantage of several offers for new credit cards would decrease an individual's credit score.

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

A) They prefer their goals and objectives to be presented as a to-do-list in bullet form. Individuals who prefer goals and objectives to be presented in bullet form exhibit a kinesthetic learning style. People who retain information by hearing or speaking have an auditory learning style. Visual learners express themselves through facial expressions and respond well to graphs, charts, pictures, and text.

You are a CFP® professional and have not seen Seth during the year. Seth is a cash-basis, calendar-year sole proprietor. It is now December of the current year, and Seth has come to you for a strategy that would help reduce his income tax liability for the current year. You are uncertain of his true tax position because this tax planning was not in the original letter of engagement. Which of these actions should you perform in Seth's best interest? A) You request a new letter of engagement and updated financial information for Seth personally, as well as for the business, before making recommendations. B) You recommend Seth buy an interest in a RELP to shelter some of his ordinary income. C) Because this advice was not in the original scope of work, you cannot help Seth. D) You decide to offer basic recommendations that will help no matter what his tax status currently is.

A) You request a new letter of engagement and updated financial information for Seth personally, as well as for the business, before making recommendations. The Practice Standards clearly require the CFP® professional to define the new scope of work in a letter of engagement and obtain updated information before making any recommendations. Offering generic recommendations may not be in the client's best interest. The planner can still help Seth if a new engagement is defined. A RELP cannot offset ordinary income, only income from another non-publicly traded partnership.

All of the following elements are included in Standard A.5, Disclose and Manage Conflicts of Interest, EXCEPT A) a CFP® professional may not engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person. B) when providing financial advice, a CFP® professional must make full disclosure of all material conflicts of interest. C) written consent to a conflict is not required. D) ambiguity in the disclosure provided to the client will be interpreted in favor of the client.

A) a CFP® professional may not engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person. Standard A.2, Integrity, states that "[a] CFP® professional may not engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person."

The Fair Debt Collection Practices Act does not allow debt collectors to engage in all of the following practices except A) seeking a court order for wage garnishment to satisfy a legal judgment. B) contacting third parties about the payment of the debt without court authorization. C) contacting a debtor at his place of employment if the employer objects. D) harassing or intimidating a debtor or using false and misleading approaches.

A) seeking a court order for wage garnishment to satisfy a legal judgment. A state court may issue an order for garnishment of a portion of a debtor's wages in order to satisfy a legal judgment that was obtained by a creditor.

Which of the following statements regarding financial institutions is CORRECT? 1. A brokerage company is an intermediary that facilitates transactions involving sales of investments or real estate. 2. A credit union, owned by its members, is a financial institution that accepts deposits and makes loans 3. Federally chartered S&Ls are regulated by the Office of the Comptroller of the Currency. 4. A trust company is also known as a thrift institution. A) I and II B) I, II, and III C) IV only D) II, III, and IV

B) I, II, and III. The correct answer is I, II, and III. A savings and loan association is also known as a thrift institution. This is not true of trust companies.

Albin and Marielle would like to establish a Section 529 plan for their granddaughter, Amelie. They want to fund the plan with a one-time contribution in 2022 using gift splitting. What is the maximum contribution they can make to the plan in 2022 without any gift tax consequences? A) $80,000 B) $160,000 C) $16,000 D) $150,000

B) $160,000. Because Albin and Marielle are using gift splitting, they can make a total contribution of $160,000 in 2022 without any gift tax consequences. The $160,000 represents five years' worth of gift tax annual exclusion (5 × $16,000) × 2 because of the gift splitting.

Which of the following is(are) characteristics of PLUS loans? 1. Not need based. 2. Child must be full-time student. 3. Amount unlimited, but not exceed cost of schooling. A) 1 and 3 B) 1, 2, and 3 C) 1 only D) 2 and 3

B) 1, 2, and 3. All of these are characteristics of PLUS loans.

Which of the following statements concerning the responsibilities of SEC registered investment advisers is(are) CORRECT? 1. It is unlawful for any person registered as an investment adviser to use the initials 'RIA' after her name unless the person also carries the CFP® certification. 2. A registered investment adviser who ceases to practice as an investment adviser must file Form ADV-W as soon as possible. A) Both I and II B) II only C) I only D) Neither I nor II

B) II only. Statement I is incorrect. Regardless of any other designation and/or certification a person may hold, it is unlawful for any person registered as an investment adviser to use the initials 'RIA' after her name.

During his initial meeting with a high net worth individual, Brian, a CFP® professional, intentionally shares the account performance and name of one of his best clients in order to sway the prospective client to hire him for a comprehensive wealth management plan. In addition, Brian decides to charge this client a higher than average planning fee to cover the expenses of his upcoming Hawaiian vacation. Which of the following Standards of Conduct has Brian violated? 1. Integrity 2. Confidentiality & Privacy 3. Sound and Objective Professional Judgment 4. Diligence A) 1, 2, 3, and 4 B) 1, 2, and 3 C) 4 only D) 1 and 4

B) 1, 2, and 3. Brian has violated the Principles of Integrity (Standard A.2), Confidentiality & Privacy (Standard A.9), and Sound and Objective Professional Judgment (Standard A.6). Not only did he place his interests in front of his prospective client's, he disclosed personal client information, and treated this individual unfairly. Brian has not violated Standard A.4, Diligence in this meeting. To uphold the Diligence Standard, "A CFP® professional must provide professional services, including responding to reasonable client inquiries, in a timely and thorough manner."

Which of the following persons would be required to register with FINRA? 1. Jennifer, a CFP® professional, wants to market IRAs funded with mutual funds. 2. Louis, a CPA, is planning to add fixed insurance products to his portfolio of client offerings. 3. Jordan, an attorney, wants to provide private money management services, including securities trading, to his clients for a fee and/or commission. 4. Hannah, a life insurance agent, who wishes to sell variable universal life insurance policies. A) 1, 2, and 3 B) 1, 3, and 4 C) 1 and 2 D) 2 and 4

B) 1, 3, and 4. A person must be registered with FINRA in order to sell securities. Therefore, Jennifer, Jordan, and Hannah need to register.

Which of the following statements concerning the responsibilities of investment advisers who must register with the SEC is(are) CORRECT? 1. Registered investment advisers must provide each client with either a copy of Part 2A of Form ADV or a separate brochure that contains every piece of information in Part 2A of Form ADV. 2. If a registered investment adviser does not deliver Part 2A of Form ADV or a separate brochure to a client at least 48 hours before entering into an investment advisory contract, the client has the right to terminate the contract without penalty for a period of 5 business days. A) II only B) Both I and II C) I only D) Neither I nor II

B) Both I and II. Both statements I and II are correct.

The type of bankruptcy in which a person is freed from most debts in exchange for giving creditors assets that legally may be seized is called A) Chapter 13 bankruptcy. B) Chapter 7 bankruptcy. C) Chapter 9 bankruptcy. D) Chapter 11 bankruptcy.

B) Chapter 7 bankruptcy. The answer is Chapter 7 bankruptcy. Chapter 13 bankruptcy is one in which a plan is created for the debtor to repay outstanding debts within a specified time period. Frequently, the amount owed is reduced so that payments will be manageable.

The day after meeting with a client, John, a CFP® professional, noticed that a signature was missing on a new account form. The client told John that he would be leaving the country for two weeks and would not be available. The client and John agreed to deposit the money immediately into the new account and purchase a diversified portfolio of mutual funds. What should John do next? A) Inform his secretary that the client did not sign the new account form. B) Contact his firm's principal. C) Sign the new account form and submit the paperwork to his manager. D) Contact the compliance department to report the mishandling of funds.

B) Contact his firm's principal. Upon noticing the missing signature, John should contact his firm's principal to review the procedure governing this particular situation.

Recently, Fallon, an avid shopper, has heard from her friends that an investment in Shoes-2-You stock was a wise idea because the shoes sold are very stylish. Even though Fallon's financial planner has advised her that investing in this stock is a poor decision, she invests in it anyway. Her brother, Stanley, congratulates her on her investment because he feels it is a wise investment. Stanley considers himself to be an expert in investments. Unfortunately, he considers his expertise to be much greater than it actually is. In the past, Stanley has taken credit for any investment decisions that have positive returns but blames the economy when an investment does poorly. Considering Fallon's and Stanley's behavior, which of the following statements is CORRECT? A) Fallon's behavior is an example of anchoring; Stanley's behavior is representative of mental accounting. B) Fallon's behavior is an example of confirmation bias; Stanley's behavior is representative of overconfidence. C) Fallon's behavior is an example of overconfidence; Stanley's behavior is representative of anchoring. D) Fallon's behavior is an example of mental accounting; Stanley's behavior is representative of confirmation bias.

B) Fallon's behavior is an example of confirmation bias; Stanley's behavior is representative of overconfidence. Confirmation bias is paying attention to information that supports a preconceived opinion and poorly made decision, while disregarding accurate, unsupportive information. Overconfidence tends to make Stanley believe his level of ability is much higher than what it is. 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.

Julie, a CFP® professional, just finished processing the paperwork for a Section 1035 exchange of Jamie's annuity contract. The reason for the exchange was Jamie's interest in adding one of the living benefit riders she had heard about on social media to help protect her supplemental retirement funds within the contract. Julie exchanged the old annuity for a new annuity with much higher expenses to earn a commission, even though the old contract had the identical rider contained within its provisions. Once Jamie realized what happened, she immediately filed a complaint to CFP Board. Which of these is(are) possible with regard to discipline Julie could be subject to by the Disciplinary and Ethics Commission (DEC) for this unethical financial planning behavior? 1. Julie may be required to complete additional continuing education. 2. Julie may have to retake the CFP® Certification Exam. 3. Julie may be subject to a public letter of admonition. 4. Julie may be subject to a suspension not to exceed three years. A) I only B) I and III C) III and IV D) I, II, and III

B) I and III. The DEC may order suspension for a specified period, not to exceed five years. In the event of a suspension, CFP Board must publish the fact of the suspension together with identification of the respondent in a press release, or in such other form of publicity as is selected by the DEC. Respondents receiving a suspension may qualify for reinstatement to use the marks as provided in Article 15.

List these steps in the CORRECT order according to the financial planning communication model. 1. Client: Response message encoded and sent 2. Financial planner: Message encoded and sent 3. Client: Message received, decoded, and interpreted 4. Financial planner: Message received, decoded and interpreted A) II, I, IV, III B) II, III, I, IV C) I, IV, III, II D) II, III, IV, I

B) II, III, I, IV. The correct sequence for the financial planning communication model is: 1) Financial planner: Message encoded and sent, 2) Client: Message received, decoded, and interpreted, 3) Client: Response message encoded and sent, and 4) Financial planner: Message received, decoded, and interpreted.

Andrew, a CFP® professional, is the treasurer of his church. He was recently accused of embezzling church funds. The alleged embezzlement did not involve any of his financial planning clients, and after a trial he was acquitted of all charges. Which of the following statements regarding possible disciplinary actions under the Disciplinary Rules and Procedures as a result of this scenario is(are) CORRECT? 1. No disciplinary action may be taken because Andrew's alleged misconduct did not occur in the course of a client relationship. 2. No disciplinary action may be taken because Andrew was acquitted of the criminal charges. A) Both I and II B) Neither I nor II C) II only D) I only

B) Neither I nor II. Neither statement I nor II is correct. Any act that violates state criminal law constitutes a ground for discipline, even if the act did not occur in the course of a client relationship and even if the CFP® professional is acquitted of the criminal charges.

Which of the following statements concerning the assessment of a client's risk tolerance is CORRECT? A) If the client's primary financial objective is safety of principal or liquidity, then it is safe to assume the client is risk averse. B) None of these are correct. C) If the client's primary financial objective is safety of principal or liquidity, then it is safe to assume the client is risk tolerant. D) If the client's primary financial objective is protection from inflation or tax relief, then it is safe to assume the client is risk tolerant.

B) None of these are correct. A planner should never make assumptions about the client's risk tolerance merely based on the client's objectives. A planner should always attempt to assess the client's actual risk tolerance.

All of the following statements from the Disciplinary Rules and Procedures concerning revocation, suspension, and reinstatement after discipline are correct EXCEPT: A) After the entry of an order of revocation is final, the Respondent shall promptly terminate any use of the marks and in particular shall not use them in any advertising, announcement, letterhead, or business card. B) Revocation is permanent with no opportunity for reinstatement unless specifically sanctioned by CFP Board. C) After the entry of an order of suspension is final, the Respondent shall promptly terminate any use of the marks and in particular shall not use them in any advertising, announcement, letterhead, or business card. D) A Respondent suspended for longer than 1 year must petition the Board for reinstatement, attend a hearing, and present clear and convincing evidence that the Respondent has been rehabilitated.

B) Revocation is permanent with no opportunity for reinstatement unless specifically sanctioned by CFP Board. Revocation is permanent with no opportunity for reinstatement.

Alex, a CFP® professional, is meeting with the Simpsons, a middle-aged couple with two children. One of their children is attending college and the other is in high school. The couple is concerned about paying for the younger child's college education and planning for retirement. Mr. Simpson has a Section 401(k) plan with his employer and Mrs. Simpson has a Section 403(b) plan with her employer. They are funding both plans. In addition, the couple has land, a portfolio of stocks, and a rare coin collection. At this point in the client-planner relationship, Alex has gathered all of this information and prepared his recommendations. However, he notices that the Simpsons are not comfortable with some of his recommendations. Mr. Simpson is leaning back in his chair and Mrs. Simpson is looking at her husband with concern and uncertainty. In addition, they have told Alex that they must leave in a few minutes to pick up the youngest child from high school. How should Alex proceed? A) Stop the meeting and ask for referrals. B) Set up another meeting to discuss additional planning alternatives. C) Insist they take his recommendations before leaving the office. D) Ask closed-ended questions regarding their concerns about the recommendations.

B) Set up another meeting to discuss additional planning alternatives. When clients are hesitant to implement specific recommendations, planners should revise the plan and offer additional planning alternatives that may be more agreeable. After solidifying the relationship, planners may ask for referrals. Demanding that clients accept the recommendations is not advisable. In the final minutes of the meeting, he may wish to ask a few open-ended questions to better help him prepare for the next meeting.

Which of the following statements regarding the National Credit Union Share Insurance Fund (NCUSIF) are CORRECT? 1. The NCUSIF is an agency of the federal government. 2. The NCUSIF is backed by the full faith and credit of the state governments. 3. Up to $500,000 of a member's account balances are insured by the NCUSIF. 4. The fund is administered by the National Credit Union Administration (NCUA). A) I, III, and IV B) I and IV C) II and IV D) I, II, and III

B) The answer is I and IV. The NCUSIF is an agency of the federal government and is administered by the National Credit Union Administration (NCUA). It is backed by the full faith and credit of the U.S, not state, governments. The NCUSIF insures member accounts of all federal and most state-chartered credit unions up to $250,000.

Under common law, which of the following circumstances could cause a financial planner to be liable for damages to a third person? A) Financial planners always owe contractual duties to third persons. B) The third person relied on statements prepared by the financial planner. C) The third person who has no privity of contract and had not reasonably and foreseeably relied upon the documents prepared by the financial planner. D) Financial planners never owe contractual duties to third persons.

B) The third person relied on statements prepared by the financial planner. Traditionally, a financial planner does not owe contractual duties to a third person. However, an exception exists when a third party relied on statements prepared by the financial planner.

All of the following statements regarding the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (the 2005 Bankruptcy Act) are correct except A) debtors who want to file for Chapter 7 must first undergo credit counseling. B) people who have the ability to pay their debts can choose between filing under Chapter 7 or filing under Chapter 13. C) the use of Chapter 7 is limited to the liquidation of credit bills or loans that are not secured. D) lenders must provide consumer information about the dangers of paying only minimum required payments on credit card debt.

B) people who have the ability to pay their debts can choose between filing under Chapter 7 or filing under Chapter 13. Under the 2005 Bankruptcy Act, people who have the ability to pay their debts must file under Chapter 13 (reorganization) rather than having their debts canceled entirely under Chapter 7.

All of the following statements regarding the expected family contribution (EFC) as it relates to student financial aid are CORRECT except A) student assets include the value of everything the student owns or that has been saved on the student's behalf. B) student income includes only taxable income from the year preceding the award year. C) the home equity in the parents' home is excluded from parental assets. D) student assets and income are assigned a higher rating in the EFC calculation than parental assets and income.

B) student income includes only taxable income from the year preceding the award year. Student income includes both taxable and nontaxable income from the year preceding the award year.

According to the Code and Standards, approved methods of documentation include all of the following EXCEPT A) handwritten notes B) text messages C) CRM software D) emails

B) text messages. Text messages are not considered an approved method of documentation.

The behavioral finance concept that asserts 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, is known as A) anchoring. B) the framing bias. C) mental accounting. D) confirmation bias.

B) the framing bias. The correct answer is the framing bias. This asserts 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. Anchoring is making irrational decisions based on information that should have no influence on the decision at hand. Confirmation bias is paying attention to information that supports a preconceived opinion and poorly made decision, while disregarding accurate, unsupportive information. Mental accounting is putting money into separate "accounts" based on the function of these accounts.

Justin has the following accounts on deposit in the same bank. Account Ownership Balance Savings account Justin $300,000 Checking account Justin $25,000 Savings account Justin with spouse $400,000 Savings account Justin with son $100,000 How much Federal Deposit Insurance Corporation (FDIC) insurance coverage does Justin currently have for his accounts? A) $600,000 B) $625,000 C) $500,000 D) $825,000

C) $500,000. The answer is $500,000. Each category of ownership (e.g., individual, joint, or retirement account) in the same institution is subject to a separate limit of $250,000. Justin has $250,000 of coverage on his individual accounts and $250,000 of coverage ($200,000 with his spouse and $50,000 with his son) on his joint accounts, for a total of $500,000 of coverage.

Which of the following statements regarding an investment adviser is(are) CORRECT? 1. An investment adviser is any person who, for compensation, engages in the business of advising others as to the valuation of securities, either directly or through publications or writing. 2. An investment adviser is any person who, for compensation, advises others in purchasing or selling securities. 3. An investment adviser, who is registered with the SEC, must be competent. 4. An individual who wants to be an investment adviser must be sponsored by a broker/dealer prior to registration. A) 2, 3, and 4 B) 1, 2, 3, and 4 C) 1 and 2 D) 3 only

C) 1 and 2. The three-step test used to determine if registration is required is: 1. Does the adviser provide analysis or advice concerning securities? 2. Is the adviser in-the-business of providing investment advisory services? 3. Does the adviser receive any compensation for providing investment advisory services? Remember A-B-C, Analysis-Business-Compensation. However, being registered as an investment adviser does not imply competence. Registered representatives, rather than investment advisers, must be sponsored by a broker/dealer prior to registration.

Which of the following persons or entities are exempt from registering as an investment advisor under the Investment Advisers Act of 1940? 1. Mr. Smith, a local attorney, who conducts a financial planning course at a local community college. 2. Mrs. Jones, an accountant, who provides financial planning advice for her clients for an hourly fee. 3. Fizzle brokerage services that provides complimentary investment advisory services to its clients that set up a special brokerage account. 4. TBC bank that offers securities through the subsidiary TBC advisers. A) 2, 3, and 4 B) 1 and 2 C) 1, 3, and 4 D) 1, 2, and 3

C) 1, 3, and 4. Options 1, 3, and 4 are correct. Mr. Smith is providing financial planning education that is solely incidental to his primary profession as a practicing attorney. Fizzle brokerage will be exempt because they do not charge a separate fee for their investment advisory services. TBC bank will not have to register because the planning services are offered through a subsidiary, therefore, just TBC advisers will be required to register. Only Mrs. Jones is required to register as an investment advisor because she is providing financial advice to her clients for a fee.

Which of the following statements concerning the Consumer Credit Protection Act are CORRECT? Bait and switch advertising is prohibited. Credit terms must be disclosed for evaluation purposes. Interest must be reported in terms of annual percentage rate (APR). Consumers must be made aware of any prepayment penalties. A) 2 and 4 B) 1, 2, and 4 C) 2, 3, and 4 D) 1, 2, 3, and 4

C) 2, 3, and 4. Only statement 1 is incorrect. Bait and switch advertising is prohibited by the Federal Trade Commission (FTC), not by the Consumer Credit Protection Act.

Under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code, which of the following apply to a person who has voluntarily filed for and received a discharge in bankruptcy? 1. The person will be discharged from all debts. 2. The person can obtain another voluntary discharge in bankruptcy under Chapter 7 after three years have elapsed from the date of the prior filing. 3. The debtor will be granted an order for relief if the petition is proper and if the debtor has not been discharged in bankruptcy within the past six years. A) 2 and 3 B) 1 only C) 3 only D) 2 only

C) 3 only. In a voluntary liquidation under Chapter 7, a petitioning debtor does not have to be insolvent unless it is a partnership and the debtor will be granted an order for relief if the petition is proper and if the debtor has not been discharged in bankruptcy within the past six years. Examples of debt that cannot be discharged under Chapter 7 include back taxes (up to three years), debts associated with fraudulent activities, alimony, child support, debt due to intentional tort claims, student loans, and consumer debts of more than $650 for luxury goods or services owed to a single creditor within 90 days of the order for relief.

Which of the following situations is not an example of where your knowledge of consumer protection laws could benefit clients? A) A client tells you about her credit being denied, and she doesn't know why. B) A client tells you they have lost their wallet and are concerned that it may have been stolen. C) A client made a major purchase using credit from a door-to-door salesman last week and is now regretting it five days later. D) A client's son has been having difficulty getting a job. He goes for interviews, but after a background check, he is not being hired.

C) A client made a major purchase using credit from a door-to-door salesman last week and is now regretting it five days later. You may know the provisions of the Consumer Credit Protection Act, which state that the client had three days to exercise the right of rescission, but that won't be helpful here since the timeline has passed. Knowing the rules about lost or stolen credit cards can help you guide this client to appropriate action of notifying the credit and debit card companies. One can limit potential risks through this process. Knowing that the client can ask for this information to be corrected and all creditors who have run requests to be notified is helpful. Knowing that employers are asking for credit checks as part of a typical background check could be helpful. The son can contact the credit reporting agencies, review and ask for corrections, and have correct reports sent to any employers to whom he has applied in the last two years.

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) Allowing Chloe to read information regarding financial topics before engaging in any discussions B) Having detailed discussions regarding goals before they are included in a written financial plan C) Allowing Chloe to write down her goals and objectives using bullet points as she expresses them D) Using flowcharts and graphics to relate important concepts

C) 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.

If the practitioner is unable to obtain sufficient and relevant quantitative information and documents to form a basis for recommendations, the practitioner must do which of these? 1. Restrict the scope of the engagement. 2. Terminate the engagement. A) I only B) II only C) Both I and II D) Neither I nor II

C) Both I and II. According to the Code and Standards, "[i]f the practitioner is unable to obtain sufficient and relevant quantitative information and documents to form a basis for recommendations, the practitioner shall either restrict the scope of the engagement to those matters for which sufficient information is available; or terminate the engagement."

Which of the following statements concerning the effect of income taxes on time value of money problems is(are) CORRECT? The rate of return nominally realized on most investments should be adjusted downward to an after-tax basis. The nominal size of a payment or interest rate on a loan should be adjusted downward by the borrower if the payments are deductible for income tax purposes. A) II only B) I only C) Both I and II D) Neither I nor II

C) Both I and II. Both statements I and II are correct.

Which of the following statements regarding the forms of representativeness is CORRECT? 1. Sample-size neglect makes the initial classification based on an overly small and potentially unrealistic sample of data. 2. Base rate neglect occurs when a stock is classified as a growth stock even though new information asserts this may no longer be the case. A) I only B) Neither I nor II C) Both I and II D) II only

C) Both I and II. The answer is both I and II. To avoid sample-size neglect, sample-size neglect classifications should be based on adequate, realistic data samples. Base-rate neglect occurs when the base rate (probability) of the initial classification is not adequately considered. Essentially, the classification is taken as being 100% correct with no consideration that it could be wrong.

Select the group to which CFP Board's Fitness Standards apply. A) CFP® professionals B) CFP® practitioners C) Candidates for the CFP®exam D) CFP® certificants

C) Candidates for the CFP® exam. The Fitness Standards apply to candidaes for the CFP® exam and Professionals Eligible for Reinstatement (PER). PER includes both individuals who are not currently certified but have been certified by CFP Board in the past and individuals are eligible to reinstate their certification without being required to pass the current CFP® Certification Examination.

Which of the following are representative of a kinesthetic learning style? 1. He prefers to learn by using a hands-on approach. 2. He responds well to graphs, charts, and visual presentations. 3. He retains information by hearing or speaking. 4. He prefers his goals and objectives to be presented as a to-do-list in bullet form. A) I, II, III, and IV B) I only C) I and IV D) II, III, and IV

C) I and IV. The correct answer is I and IV. Statement I is correct because people who prefer to learn through a hands-on approach have a kinesthetic learning style. Statement II is incorrect because people who respond well to graphs, charts, and visual presentations have a visual learning style. Statement III is incorrect because this is characteristic of an auditory learning style. Statement IV is correct because those individuals who prefer goals and objectives to be presented in bullet form exhibit a kinesthetic learning style.

Which of the following statements regarding savings and loan associations (S&Ls) is CORRECT? 1. S&Ls are also known as trust companies. 2. One function of S&Ls is to provide home loans. 3. Federally chartered S&Ls are regulated by the Federal Deposit Insurance Corporation (FDIC). 4. Both checking and savings accounts are offered by S&Ls. A) I and II B) III and IV C) II only D) II and III

C) II only. An S&L is not a trust company, which specializes in managing estates and serving as trustee for various types of trusts. The main purposes of an S&L are to accept savings and provide home loans. S&Ls are not permitted to provide demand deposits, such as checking accounts. However, they can offer interest-bearing NOW accounts, which are similar to demand deposit accounts. As a result of the Dodd-Frank Act, federal and many state-chartered S&Ls once regulated by the Office of Thrift Supervision are now regulated by the Office of the Comptroller of the Currency.

Which of the following statements regarding emotional biases is CORRECT? 1. Self-control bias occurs when individuals have self-discipline and favor deferred gratification over short-term goals. 2. Individuals with regret-aversion bias attach undue weight to actions of commission and do not consider actions of omission. A) I only B) Both I and II C) II only D) Neither I nor II

C) II only. Self-control bias occurs when individuals lack self-discipline and favor immediate gratification over long-term goals. Those with regret-aversion bias attach undue weight to actions of commission (doing something) and do not consider actions of omission (doing nothing).

Which of the following is NOT characteristic of status quo bias? A) Individuals may hold investments that are not suited for their risk tolerances. B) Clients generally are comfortable with their current circumstances. C) It can be relatively easy for clients to overcome if better investment options are presented. D) Clients may choose the option to maintain their current asset allocation even though it is not optimal.

C) It can be relatively easy for clients to overcome if better investment options are presented. Status quo bias is very hard to overcome. Status quo bias is represented by an unwillingness to make changes because individuals are comfortable with the current situation. Status quo choices are more likely if investment choices include the option to maintain existing choices, or if a choice will happen unless the participant opts out. Status quo is very hard to overcome. Therefore, educating clients regarding reasonable risk-return combinations and other similar strategies is essential.

Andy and Harriet, ages 50 and 48 respectively, have two adult children. One of their children, Joseph, has decided to open a bed-and-breakfast located on lakefront property in a tourist region. He has asked his parents for a $25,000 loan to help furnish the building. The couple has a large investment portfolio, but they are concerned about the stock market declining in the near future. They want to refinance an existing high interest rate mortgage with a new lower rate mortgage before interest rates go higher, as predicted. In addition, the couple would like to retire when Andy reaches age 67. Assuming the CFP® professional already has a long-standing planning relationship with this couple, what is the best course of action? A) Identify sources of capital for the loan to Joseph. B) Refer the couple to a mortgage broker to handle the refinance and lock in a lower interest rate. C) Offer to review and make appropriate changes and recommendations to their financial plan. D) Discuss the impact of the loan on their retirement planning goal.

C) Offer to review and make appropriate changes and recommendations to their financial plan. Monitoring the financial planning recommendations is a critical part of the client-planner relationship. CFP® professionals should make themselves available to assist clients when circumstances change. After reviewing their existing financial plan, the planner may advise them on ways to refinance, make funds available for the loan, and discuss the impact of the loan on their retirement planning goal.

Sarah, a CFP® professional, completed a life insurance application for her client, Chase. When Chase called her two weeks later about the status of the application, Sarah realized she had not submitted it to the insurance company. Which of the following ethical principles has Sarah violated? A) Standard A.7 (Professionalism) B) Standard A.2 (Integrity) C) Standard A.4 (Diligence) D) Standard A.6 (Sound and Objective Professional Judgment)

C) Standard A.4 (Diligence). Sarah violated Standard A.4 (Diligence) as she did not provide services in a reasonably prompt and thorough manner. Standard A.4, Diligence, of the Code and Standards, says that "[a] CFP® professional must provide Professional Services, including responding to reasonable Client inquiries, in a timely and thorough manner."

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) Individual changes in attitudes, beliefs, or behaviors to reduce discomfort B) Rationalizing actions in order to adhere to the original course C) Taking credit for individual successes and blaming others or external influences for failures D) Registering only information that appears to affirm an already chosen decision

C) 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.

If the demand for a product is inelastic, it means that A) an increase in the price would lead to a decrease in the total amount spent on purchases of the product. B) the price of the product cannot be increased or decreased. C) an increase in the price would lead to an increase in the total amount spent on purchases of the product. D) an increase in the price would have no effect on the total amount spent on purchases of the product.

C) an increase in the price would lead to an increase in the total amount spent on purchases of the product. Theoretically, if a product exhibits inelastic demand characteristics, an increase in the price would lead to an increase in the total amount spent to purchase the product.

Making an irrational decision based on information that should have no influence on the decision at hand is known as A) confirmation bias. B) herding. C) anchoring. D) mental accounting.

C) anchoring. Making an irrational decision based on information that should have no influence on the decision at hand is known as anchoring. Herding is the tendency to follow the actions of a larger group, whether rational or not. Confirmation bias is the tendency to pay attention to information that supports one's preconceived opinions while disregarding accurate, unsupportive information. Mental accounting involves the tendency of individuals to put their money into separate "accounts" based on the function of these accounts.

According to prospect theory, investors are generally more concerned with: A) diminishing marginal utility, which suggests that expected return is more important than risk to these investors. B) paying more attention to information that supports their preconceived opinions and poorly made decisions, while disregarding accurate, unsupportive information. C) avoiding losses, which suggests that risk of loss may be the best measure of risk. D) fear of regret, which suggests that the prospect for outperforming a benchmark is the primary concern for these investors.

C) avoiding losses, which suggests that risk of loss may be the best measure of risk. Behavioral investors are generally more concerned with avoiding losses, which implies that risk of loss may be the best measure of risk.

All of the following statements regarding interpersonal communication between financial planners and their clients are correct except A) body language can impact how clients receive and interpret messages more than any other type of communication. B) mirroring is accomplished by imitating the client's body language or verbal style. C) effective interpersonal communication involves the application of oral skills; it does not involve non-verbal skills. D) emotional intelligence includes the ability to recognize emotional expressions and select socially appropriate responses.

C) effective interpersonal communication involves the application of oral skills; it does not involve non-verbal skills. This statement is incorrect, because effective interpersonal communication involves both oral and non-verbal skills, such as the effective use of body language.

Claudia understands the importance of recognizing facial and body expressions in herself and her clients. She realizes this practice will allow her to select socially appropriate responses to the circumstances and her clients. This best describes A) mirroring. B) body language. C) emotional intelligence. D) active listening.

C) emotional intelligence. Claudia's ability to recognize facial and body expressions in herself and her clients and to select socially appropriate responses to the circumstances and her clients is known as emotional intelligence. Active listening involves paying full attention to what the client is saying and responding by paraphrasing the client's comments. Body language involves facial expressions, eye contact, gestures, and body posture. Mirroring is imitating the client's body language or verbal style.

The tendency of individuals to take a course of action based on the consequences of prior events is known as A) confirmation bias. B) overconfidence. C) outcome bias. D) anchoring.

C) outcome bias. This represents outcome bias. This behavior is the tendency of individuals to take a course of action based on the outcomes of prior events. Confirmation bias is the tendency to pay attention to information that supports one's preconceived opinions, while disregarding accurate, unsupportive information. Overconfidence occurs when an investor considers their abilities to be much better than they actually are. Anchoring occurs when a person makes an irrational decision based on information that should have no influence on the decision.

All of these represent the general categories of communication except A) intrapersonal. B) interpersonal. C) private. D) group.

C) private. The four general categories of communication are: 1) intrapersonal, 2) interpersonal, 3) group, and 4) mass. Private communication is not considered a general category of communication.

One of your clients, Phil, has a tendency to follow the actions of a larger group of people when making financial decisions, whether those actions are rational or not. Phil's behavior is an example of A) anchoring. B) confirmation bias. C) overconfidence. D) herding.

D) herding. The answer is herding. This behavior is known as herding. Confirmation bias is the tendency to pay attention to information that supports one's preconceived opinions, while disregarding accurate, unsupportive information. Overconfidence occurs when an investor considers his abilities to be much better than they actually are. Anchoring occurs when a person makes an irrational decision based on information that should have no influence on the decision.

Hannah has the following assets, some of which are deposited at National Bank. Assets / Ownership / Balance Savings account (National Bank) Hannah $250,000 Traditional IRA (National Bank is custodian) Hannah $275,000 Checking account (National Bank) Joint with sister $10,000 Certificate of deposit (National Bank) Hannah $50,000 Savings account (National Bank) Joint with son $50,000 Money Market mutual fund (National Bank Advisors) Hannah$80,000 What amount of Hannah's assets is currently insured by the Federal Deposit Insurance Corporation (FDIC)?

D) $530,000. The answer is $530,000. The amount currently insured by the FDIC for Hannah is $530,000. FDIC insurance coverage is $250,000 for the account owned solely by Hannah and the CD (the values total $300,000; however, the maximum FDIC coverage for assets with the same ownership is $250,000). Hannah's FDIC insurance covers 50% of the joint checking account ($5,000), 50% of the joint savings account ($25,000), and the IRA up to the $250,000 limit for IRAs. The money market mutual fund is not a money market deposit account and, therefore, is not covered. ($250,000 + $5,000 + $25,000 + $250,000 = $530,000)

Which of the following correctly describes important interpersonal communication skills that financial planners should possess? 1. Use of leading responses, which guide clients to provide general information regarding their financial status. 2. Active listening, which involves paying full attention to what the client is saying and responding by paraphrasing the client's comments. 3. Emotional intelligence, which includes selecting socially appropriate responses to both the client's circumstances and the client's emotions. 4. Verbal communication, which has more impact on how clients receive messages than any other type of communication. A) 1, 2, 3, and 4 B) 3 and 4 C) 1 only D) 2 and 3

D) 2 and 3. Active listening is a key to effective communication. Emotional intelligence involves the planner's ability to recognize emotional expressions in herself and the client. Planners guide clients to provide more detailed-not general-information regarding a given subject. Body language as well as the tone, inflection, and quality of a person's voice have more impact on the message than verbal communication.

Which of the following statements regarding compensation under the Investment Advisers Act of 1940 are CORRECT? Compensation must be made in the form of a separate fee charged for investment advisory activities. Compensation is satisfied by the receipt of any economic benefit. Compensation may be in the form of commissions. The adviser's compensation must be paid directly by the person receiving investment advisory services. A) 3 and 4 B) 1, 2, 3, and 4 C) 1, 2, and 3 D) 2 and 3

D) 2 and 3. Compensation does not have to be in the form of a separate fee charged for investment advisory activities. Also, the adviser's compensation does not have to be paid directly by the person receiving investment advisory services; rather, the investment adviser need only receive compensation from some source.

Joel is a financial planner who uses the strategic management financial counseling process with his clients. Which of the following statements regarding Joel's approach to financial counseling is(are) CORRECT? 1. Joel attempts to replace clients' negative beliefs that lead to poor financial decisions with positive attitudes that lead to better results. 2. Joel conducts a SWOT analysis (identifying strengths, weaknesses, opportunities, and threats) early in the financial planning process. 3. Joel uses the clients' goals and values to drive the client-planner relationship. A) 1, 2, and 3 B) 1 only C) 1 and 2 D) 2 and 3

D) 2 and 3. Statements 2 and 3 are correct. Statement 1 is incorrect because it represents the cognitive-behavioral approach to financial counseling.

Robert and his long-time companion, Ted, have come to you for estate planning advice. Robert would like to put an estate plan into place that will ensure that Ted will be taken care of in the event of Robert's untimely death. Which of the following recommendations would you make to Robert, assuming the couple is not legally married? 1. Transfer the ownership of Robert's real estate investments into tenancy by the entirety. 2. Name Ted as the beneficiary of Robert's retirement plan. 3. Make sure Robert creates a will, specifically bequeathing his property to Ted. 4. Name Ted as the beneficiary of Robert's life insurance policy. A) 1, 2, and 4. B) 2 and 3. C) 1, 3, and 4. D) 2, 3, and 4.

D) 2, 3, and 4. Statement 1 is incorrect because tenancy by the entirety is available only to married couples. Statements 2, 3, and 4 are all good planning suggestions.

A generally accepted rule in personal financial planning is that the consumer debt ratio should NOT exceed A) 36%. B) 28%. C) 33%. D) 20%.

D) 20%. This ratio, which is monthly consumer debt divided by monthly net income, refers to debt other than mortgage indebtedness and should not exceed 20%.

Which of the following interest rates does the Federal Reserve Board control in the exercise of its monetary policy? 1. Prime rate 2. Federal funds rate 3. Discount rate A) 2 and 3 B) 1 and 2 C) 1, 2, and 3 D) 3 only

D) 3 only. The Federal Reserve Board can adjust the discount rate (the rate one Federal Reserve Bank charges to others) in its efforts to control the money supply. Statements 1 and 2 are incorrect. The Fed does not control the prime rate, which is the rate commercial banks charge their best customers, or the federal funds rate, which is the rate charged between banks on short-term loans.

Which of the following statements regarding emotional biases is CORRECT? 1. They are more difficult to overcome than cognitive biases. 2. They are a result of feelings, intuition, or impulse and are not related to conscious thought. A) Neither I nor II B) II only C) I only D) Both I and II

D) Both I and II. The answer is both I and II. Emotional biases are not related to conscious thought and stem from feelings, impulses, or intuition. As such, they are more difficult to overcome and may have to be accommodated.

Clients' psychological ability to deal with uncertain outcomes include risk tolerance, risk capacity, and risk perception. During what step in the financial planning process, should financial planners measure these important abilities? A) Analyzing data B) Monitoring the recommendations C) Communicating recommendations D) Data gathering

D) Data gathering. The answer is data gathering. As the financial planner collects data from clients, the planner should discuss the clients' ability to accept uncertain outcomes. All of the other answer choices are steps that are too late in the process for this measurement.

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? A) education or other accumulation goals B) Wills and trust documents C) Employee benefits and pension plan information D) Education or other accumulation goals

D) Education or other accumulation goals. Completed documents, such as a will or trust, Social Security statements, and business-sponsored employee benefit plan information involve measurable amounts and therefore quantitative.

When preparing a cash flow statement for a client, what is the correct way to indicate the period covered? A) From January 20XX to December 20XX B) For the period January to December 20XX C) As of December 31, 20XX D) For the period January 1, 20XX, to December 31, 20XX

D) For the period January 1, 20XX, to December 31, 20XX. Usually the cash flow statement is prepared for the calendar year period.

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 1. Fiduciary Duty. 2. the Code of Ethics. 3. the Practice Standards for the Financial Planning Process. 4. the Suitability Standard. A) IV only B) I only C) I, II, and III D) I and II

D) I and II. 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 statements regarding counseling theory is CORRECT? 1. 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. 2. Planners using the economic and resource approach assume clients are rational and will change to the most favorable behavior if given the appropriate counseling. 3. Financial counseling is a process in which the planner helps a client change poor financial behavior by making recommendations to improve financial status. 4. The cognitive-behavioral approach to financial counseling asserts that clients' attitudes, beliefs, and values influence their behavior. A) II, III, and IV B) II only C) I and IV D) I, II, and IV

D) I, II, 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. The cognitive-behavioral approach to financial counseling believes that clients' behaviors are influenced by their attitudes, beliefs, and values. Financial counseling is a process that helps clients change their poor financial behavior through education and guidance. Making recommendations to improve clients' financial statuses is not part of financial counseling.

Which of these types of accounts are covered by Federal Deposit Insurance Corporation (FDIC) insurance? Securities Certificates of deposit Money market mutual funds Money market deposit accounts A) II, III, and IV B) III and IV C) I, II, and III D) II and IV

D) II and IV. The answer is II and IV. Certificates of deposit are afforded FDIC protection; securities are not. Money market deposit accounts, not money market mutual funds, are covered by FDIC insurance.

When Michael, a CFP® professional, was preparing an income tax return for Jules and Lois, a married couple who file jointly, he noticed some investment income items whose sources were not reflected on the Statement of Financial Position he had prepared six months ago while preparing estate and retirement planning recommendations for the couple. There is $4,000 of dividend income, $1,000 of bond interest income, and a $2,000 long-term capital loss on a sale of stocks that Michael was unaware the couple owned. What should Michael do at this point in the tax return preparation process? A) Michael should ascertain whether there are any expenses associated with the income items that could reduce the taxable income reported before he finishes the tax return. B) Michael should withdraw from the engagement because the clients failed to disclose all of their assets six months ago at the beginning of the engagement. C) As long as all income items have been given to Michael, he should limit his questions to what is needed to complete the income tax return. D) Michael should ask for all documents concerning the new income items, and also ascertain whether any other assets were acquired or disposed of since the last statements were compiled and in what manner (purchase, sale, inheritance, or gift) the assets were acquired or disposed.

D) Michael should ask for all documents concerning the new income items, and also ascertain whether any other assets were acquired or disposed of since the last statements were compiled and in what manner (purchase, sale, inheritance, or gift) the assets were acquired or disposed. The new income items suggest a change in circumstances for the client. The assets generating the income may have been purchased, inherited, or given to the clients as a gift. They may also have disposed of assets since the statements were produced. Michael should ask the couple for all documentation regarding transactions that impact their financial situation, as well as interview them, asking leading questions to make certain the couple remembers to give him all the information he needs to not only do the tax return, but also to continue to monitor their needs and make recommendations.

Lewis and Justine are meeting with Vincent, a CFP® professional, to review their new, comprehensive financial plan. During the meeting, Vincent has proposed a number of strategies that will help the couple reach their retirement goals. The couple has agreed with Vincent to transfer some of their assets to a portfolio of mutual funds based on a specific allocation. What should Vincent do next? A) Review their most recent account statements. B) Complete the account application. C) Discuss the financial planning process. D) Provide Lewis and Justine with the proper product disclosures.

D) Provide Lewis and Justine with the proper product disclosures. At this point in the financial planning process, Vincent should provide the couple with the proper product disclosures, including prospectuses and other required documentation. After the couple has been presented with the disclosures, then Vincent may proceed with completing the account application.

In determining a client's psychological ability to deal with uncertain outcomes, which of the following refers to a client's assessment of the magnitude of the risks being traded off? A) Risk capacity B) Risk tolerance C) Emotional intelligence D) Risk perception

D) Risk perception. The answer is risk perception. A client's assessment of the magnitude of the risks being traded off is known as risk perception. Risk tolerance refers to the trade-offs clients are willing to make between potential risks and rewards. Risk capacity is the degree to which a client's financial resources can cushion risks. 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.

In order to give the stock price a boost a corporate officer posts favorable, yet slightly inaccurate information, about his company's earnings in an internet chat room. After a few days of posting and blogging, the stock starts to rise a couple of points and the officer decides to exercise a number of stock options in order to make a sizable profit. Which of the following acts did this officer violate by his actions? A) The Investment Advisers Act of 1940 B) The Investment Company Act of 1940 C) Securities Act of 1933 D) Securities Exchange Act of 1934

D) Securities Exchange Act of 1934. This officer may have violated the price manipulation provisions of the Securities Exchange Act of 1934. Price manipulation includes schemes such as wash sales, pools, circulation of manipulative information, and false and misleading statements about securities.

Which of the following regulations established the Securities Investor Protection Corporation (SIPC)? A) Securities Act of 1933 B) Investment Company Act of 1940 C) Securities Exchange Act of 1934 D) Securities Investor Protection Act of 1970

D) Securities Investor Protection Act of 1970. The answer is Securities Investor Protection Act of 1970. The SIPC was created by the Securities Investor Protection Act of 1970 to insure investors against losses arising from the failure of any brokerage firm.

In his financial planning practice, Robert conducts a strengths, weaknesses, opportunities, and threats (SWOT) analysis with each client early in the financial planning process. He believes that a client's goals and values should drive the client-planner relationship, and the planner should serve as a consultant. Robert's approach to financial counseling is an example of which of the following approaches? A) Classical economics approach B) Economic and resource approach C) Cognitive behavioral approach D) Strategic management approach

D) Strategic management approach. Robert's approach is an example of the strategic management approach to financial counseling. In the classical economics approach, clients choose among alternatives based on objectively defined cost-benefit and risk-return tradeoffs. In the cognitive behavioral approach, planners attempt to substitute negative beliefs with positive attitudes that should result in better financial results. In the economic and resource approach, the financial planner is the agent of change, and the focus is on obtaining and analyzing quantitative data.

Which of the following protections is not provided by the Fair Credit Reporting Act? A) If there are errors in the report, the bureau must correct them and, if requested by the consumer, submit the corrected report to any recipient of the report in the last six months. B) If the consumer and credit bureau do not agree regarding the facts contained in the report, the consumer has the right to include his or her version of the facts in the report. C) If a consumer is denied credit, he or she has the right to receive a copy of the credit report provided by the credit bureau free of charge. D) The consumer is given the right to review his or her report at any time free of charge.

D) The consumer is given the right to review his or her report at any time free of charge. The answer is the consumer is given the right to review his or her report at any time free of charge. A consumer who is denied credit has the right to receive a copy of the credit report provided by the credit bureau free of charge. However, the consumer may review his or her report at any time for a nominal charge, not for free. The credit bureau must correct errors in the credit report and submit the corrected report to any recipient of the report in the last six months. Where the consumer and the credit bureau do not agree regarding the facts contained in the credit report, the consumer is permitted to include his or her version of the facts in the report.

All of the following statements regarding the National Credit Union Share Insurance Fund (NCUSIF) are correct except A) The NCUSIF insures member accounts of all federal credit unions. B) The NCUSIF is backed by the full faith and credit of the U.S. government. C) The fund is administered by the National Credit Union Administration (NCUA). D) Up to $500,000 of a member's account balances are insured by the NCUSIF.

D) Up to $500,000 of a member's account balances are insured by the NCUSIF. The correct answer is up to $500,000 of a member's account balances are insured by the NCUSIF. The NCUSIF insures member accounts of all federal and most state-chartered credit unions up to $250,000, not $500,000.

The following statements regarding behavioral finance concepts are CORRECT except A) a client's profile is largely influenced by context, which includes past history or any conditions that presently exist. B) beliefs are a type of attitude because they reveal a person's understanding of some aspect of his life. C) a planner should recognize his own attitudes, values, biases, and behaviors and be certain they do not impact recommendations made to clients. D) a client's context represents what he believes to be right.

D) a client's context represents what he believes to be right. A client's strong attitudes and beliefs are considered values and represent what the client believes to be right.

All of the following conduct is deemed unacceptable and will always bar an individual from becoming certified as a CFP® professional EXCEPT: A) a felony conviction for embezzlement B) a felony conviction for tax fraud C) a felony conviction for murder D) a felony conviction for perjury

D) a felony conviction for perjury. A felony conviction for a non-violent crime, including perjury, within the last 5 years is presumed to be unacceptable and will bar an individual from becoming certified unless the individual petitions the Disciplinary and Ethics Commission (DEC) for consideration and the DEC grants the petition. All of the other choices involve conduct that will always bar an individual from becoming certified.

Savings and loan associations (S&Ls) A) provide small business loans as a primary line of business. B) are permitted to provide demand deposits. C) are also known as trust companies. D) are regulated by the Office of Comptroller of the Currency, if federally chartered.

D) are regulated by the Office of Comptroller of the Currency, if federally chartered. S&Ls are also known as thrift institutions, not trust companies. S&Ls are not permitted to provide demand deposits, such as checking accounts. However, they can offer interest-bearing NOW accounts, which are similar to demand deposit accounts. As a result of the Dodd-Frank Act, federal and many state-chartered S&Ls once regulated by the Office of Thrift Supervision are now regulated by the Office of the Comptroller of the Currency. The main purposes of S&Ls are to accept savings and provide home loans.

To interpret communication signs, it is most important to have the CORRECT A) intrapersonal communication. B) mirroring skills. C) form. D) deciphering codes.

D) deciphering codes. Deciphering codes best help the receiver interpret communication signs. Form refers to the method of communication. Mirroring involves imitating another's body language or verbal style. Intrapersonal communication refers to the dialague we all have in our own minds.

Greg assumes that his clients are rational and will change to the most favorable behavior if given the appropriate counseling. He sees himself as the agent of change and focuses on obtaining and analyzing quantitative data such as cash flow, assets, and debt. Greg's approach to financial counseling is known as the A) cognitive-behavioral approach. B) strategic management approach. C) classical economics approach. D) economic and resource approach.

D) economic and resource approach. The answer is economic and resource approach. Greg's approach is the economic and resource approach. In the classical economics approach, planners attempt to achieve better financial outcomes by increasing financial resources or reducing expenditures. The cognitive-behavioral approach believes a client's attitudes, beliefs, and values influence their behavior and tries to replace negative beliefs with positive attitudes that should result in better financial results. In the strategic management approach, the client's goals and values drive the client-planner relationship and the planner serves as a consultant.

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) herding. B) the framing bias. C) anchoring. D) loss aversion theory.

D) 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.

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

D) loss aversion theory. The correct answer is loss aversion theory. The client's decision reflects the loss aversion theory, which states that people make decisions based on perceived gains rather than perceived losses. 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.

Doug has the following amounts on deposit at the same bank. Account Ownership Balance Savings account Doug $200,000 Traditional IRA Doug $300,000 Certificate of Deposit Joint with spouse $400,000 How much Federal Deposit Insurance Corporation (FDIC) insurance coverage does Doug have for his accounts at the bank?

The answer is $650,000. Each category of ownership (e.g., individual, joint, or retirement account) in the same institution is subject to a separate limit of $250,000. Doug has $200,000 of coverage on his individual savings account, $250,000 of coverage on the traditional IRA, and $200,000 of coverage on the joint account, for a total of $650,000.