CFP Section Fundamentals

Joe, a CERTIFIED FINANCIAL PLANNERTM professional, has prepared financial statements and conducted ratio analysis. Which step in the financial planning process is he in? A: Develop the Financial Planning Recommendations. B: Analyzing the Client's Current Course of Action and Potential Alternative Courses of Action C: Understanding the Client's Personal and Financial Circumstances. D: Implement Financial Plan Recommendations.

B

The balance sheet equation is: A: Total Assets / Total Liabilities = Net Worth. B: Total Assets × Total Liabilities = Net Worth. C: Total Assets - Total Liabilities = Net Worth. D: Total Assets + Total Liabilities = Net Worth.

C

Which of the following approaches provides the planner and client with a methodology in order to reach goals by covering risks, short term and long term savings and investments: A: Pie chart. B: Ratio analysis. C: Three panel approach. D: The strategic approach.

C

Which of the following is/are a Duty Owed to Clients as part of the CFP Board Standards of Conduct? 1. Independence 2. Professionalism 3.Competence 4. Fairness A: I only B: II only C: II and III D: I, II, III, and IV

C

A CFP® professional agrees to be bound by Continuing Education (CE) Requirements established by Certified Financial Planner Board of Standards. The CE Requirements for a regular continuing professional (not a new certificant or a certificant who has been inactive) are as follows: A- 40 hours of CE every year. B- The number of CE hours required by other designations the certificant may hold. C- 30 hours of CE every year. D- 30 hours of CE every two years.

D

A client in the asset accumulation phase is characterized by: A: Discretionary cash flow for investing is low and debt to net worth is low. B: Discretionary cash flow for investing is high and debt to net worth is high. C: Discretionary cash flow for investing is high and debt to net worth is low. D: Discretionary cash flow for investing is low and debt to net worth is high.

D

Which of the following terms for defining a CFP® professional's method of compensation are not allowable according to the CFP Board? A- Fee contingent B- Fee only C- Fee based D- Sales related compensation

Solution: The correct answer A. Fee-Only, Fee-Based and Sales Related Compensation are defined (Duties owed to clients 12 a 1.2 and b).

Sue is a CFP® professional with her own financial planning practice. Bob was referred to Sue, as Bob was looking to purchase a disability insurance policy. Sue gathers data from Bob to complete an application to submit to the insurance underwriter. Sue also explains, in detail, the tax implications of purchasing a private disability insurance policy. What duty of care does Sue owe Bob, according to the CFP Board of Standard's Code of Ethics? A- Sue is required to provide product recommendations that are suitable for Bob. B- Sue owes Bob the duty of a fiduciary. C- Sue must place Bob's interest ahead of her own but does not owe Bob a fiduciary duty of care. D- Sue is not engaged in the material elements of financial planning and does not owe Bob any duty of care.

Solution: The correct answer B. Sue owes Bob a fiduciary duty when recommending financial assets or engaging in financial planning. Her fiduciary duty requires adhering to a standard of care, loyalty and following client instructions ((Duties owed to clients 1.a, 1.b and 1.c) A is incorrect. While a suitability standard is required from an insurance regulation standpoint a CFP® professional owns a fiduciary duty of care to clients. C is incorrect. Sue owes a fiduciary duty of care. D is incorrect. A fiduciary duty is owed when a CFP® professional engages a client to sell financial assets or perform financial planning.

When does a material conflict of interest exist for CFP® professionals? A- When it could cause harm or impact potential advice B- When it causes a material change in the scope of a client relationship C- When it requires that the services of another professional be included in a client engagement D- When it causes a material disagreement between the CFP® professional and the client

Solution: The correct answer is A. Duties owed to clients (5 a) defines material conflicts as ones that could impact advice or cause harm.

When should you provide your client with Form ADV? A- After entering into an agreement to provide financial planning. B- As part of the financial planning engagement disclosures. C- Prior to purchasing any securities as part of the plan implementation. D- As part of the data gathering process.

Solution: The correct answer is B. Form ADV is appropriate to be part of multiple written documents governing the financial planning services that will be provided, as part of the engagement letter. A is incorrect because a CFP® professional is required to make certain disclosures prior to entering into a financial planning agreement. All required disclosures are not satisfied by providing Form ADV. C is incorrect because Form ADV should be provided well before the implementation phase. D is incorrect because Form ADV is not appropriate during the data gathering phase. Form ADV is appropriate when providing information to a client is part A of the Standards.

Which of the following would most likely require a CFP® professional to follow practice standards for the financial planning process with their clients? A- Activity related solely to the sale of a specific category of products B- Investment advisory services as defined by applicable state or federal regulations C- Completing an application and opening a brokerage account D- Acting as an instructor in a financial planning continuing education class

Solution: The correct answer is B. Investment advisory services are procedural and require a discussion of goals, risk and optimization. Option A - It does not rise to financial planning based on the relevant elements and integration factors. Option C - It does not rise to financial planning. Don't confuse with "Know Your Customer" rules. Option D - Education does not need to follow the FP process as there are no relevant elements or integration of client information.

A small business owner wants to create a business succession plan, but the CFP® professional does not have any experience with succession planning for small businesses. However, his colleague has extensive experience. What should the CFP® professional do? A- Turn down the engagement B- Disclose to the Client the use of a third party and prepare the plan, with the help of his colleague as a resource C- Explain to the business owner that it's outside the scope of his expertise D- Do the necessary research and figure out how to prepare a succession plan

Solution: The correct answer is B. The duty of competence requires the planner to either refer the client to an expert or bring an expert into the engagement. Preparing the plan with the help of an expert is acceptable under the Code and Standards. A is incorrect because the Code of Ethics and Standards of Conduct simply require the planner to either refer the client to an expert or bring an expert into the engagement. C is incorrect because the planner can still accept the engagement, but must bring an expert into the engagement. D is incorrect because the principle of competence requires the planner to refer the client to an expert or bring an expert into the engagement.

A CFP® professional is a Registered Investment Advisor, managing $120,000,000 in assets. One of the CFP® professional's clients sends a complaint letter to the CFP® professional, complaining that certain trades were not properly executed. During the investigation, it is discovered that the client never received the firm's Form ADV. Which governing body has ultimate authority over lack of regulatory disclosure for this matter (CFP® Certification Examination, released 8/2012)? A- FINRA B- CFP Board C- The firms' compliance department D- SEC

Solution: The correct answer is D. The SEC regulates form ADV. A is incorrect because FINRA does not regulate form ADV, the SEC does. B is incorrect because the CFP Board does not regulate form ADV, the SEC does. C is incorrect because the firm's compliance department does not regulate form ADV, the SEC does.

Salina, a CFP® professional, agreed to prepare a financial plan for Rodriquez, who was 85 years old at the time. Salina did not prepare the financial plan. Salina requested and received from Rodriquez a $1,000 loan. Salina recommended that Rodriquez invest $75,000 in a viatical settlement agreement investment. The amount comprised approximately two-thirds of Rodriquez's life savings and was estimated to lead to a profit in five years. Rodriquez filed a grievance with the CFP Board. According to the securities regulator in the state where Salina provided services ("State"), only a licensed broker-dealer is authorized to sell viaticals in the State. Salina was not licensed as a broker or dealer in the State. Salina did not respond in a timely manner to the following communications by CFP Board: 1) a Notice of Investigation; 2) a Second Request Letter; 3) a telephone call; 4) an Order to Show Cause; and 5) CFP Board's Complaint. In a telephone conversation with CFP Board, Rodriquez informed CFP Board that Salina was aware of CFP Board's investigation and had asked him to withdraw his grievance. According to the CFP Board's disciplinary procedures, which of the following is the most lik

Solution: The correct answer is D. The following answers are taken from pre-June 2020 rule changes but reflect the outcome of an actual disciplinary case. The Commission deemed that the above facts and violations be admitted because Respondent did not file an Answer to the Complaint. The Commission issued an Order of Revocation pursuant to Article 7.4 of the Disciplinary Rules, revoking Respondent's right to use the CFP® marks, CERTIFIED FINANCIAL PLANNER™ and certification marks. A is false since the Board may act upon violations of the Code of Ethics whether or not a legal conviction has occurred. B is false because failure to respond to the Board's inquiries regarding serious violations of the Code results in revocation. C might have been a valid answer had Salina responded to the Board's inquiries. After June 2020 rule changes, the outcome of the case would likely have been similar for the CFP® professional. Salina did not act as a fiduciary, required when selling a financial asset. Salina did not act with integrity, competence, manage conflicts of interest or comply with the law.

Calculate the IRR of a machine that is purchased for $5,000, sold at the end of year 4 for $2,500, and produces the following cash flows: Year 1) $700 Year 2) $800 Year 3) $900 Year 4) $1,000 A: 5.3% B: 6.0% C: 6.5% D: 7.3%

The correct answer is A. HP 10BII or HP 10BII+ 5000 +/- CFj 700 CFj 800 CFj 900 CFj 1,000 + 2,500 CFj Orange shift key IRR/YR Answer: 5.3258 HP 12c 5000 CHS g CF0 700 g CFj 800 g CFj 900 g CFj 1,000 + 2,500 g CFj f IRR

Trusts can be very beneficial in many financial planning situations. Many trust benefits, such as asset protection and control, are appropriate considerations for a family with a special needs person. Which of the following types of trusts would generally be used to protect an award from winning a lawsuit or an inheritance on behalf of a special needs child? A: Family trust or third party trust B: A trust under 42 U.S.C. Sec 1396p(d)(4)(A) C: A pooled trust D: A qualified trust

The correct answer is B. A trust under 42 U.S.C. Sec. 1396p(d)(4)(A) can be used to hold assets that are owned by the beneficiary, such as from a lawsuit or an inheritance.

Which of the following debts are discharged in bankruptcy? A: Student loans. B: Child support. C: Alimony. D: Consumer debt.

The correct answer is D. Consumer debt is discharged during bankruptcy. All the other choices are not discharged.

Which of the following is/are true regarding revocation? 1. Revocation is permanent unless due to a felony conviction that is subsequently overturned. 2. A CFP® certificant may petition CFP Board for reinstatement after revocation if the certificant proves that he or she has been rehabilitated by clear and convincing evidence. 3. Suspension is not always permanent. A: I and II B: III only C: II and III D: I only

The correct answer is D. May petition the Board if the marks are suspended for more than one year. If a felony conviction is overturned, the certificant may petition for reinstatement, but it is not guaranteed. Suspension is never permanent, it either ends in revocation or re-instatement of CFP® Mark use.

Anthony has been investing $1,000 at the end of each year for the past 20 years. How much has accumulated assuming he has earned 10.5% compounded annually on his investment? A:$20,303.72. B:$23,349.28. C:$33,060.04. D:$60,630.81.

The correct answer is D. N = 20 I = 10.5 PV = 0 PMT = 1,000 FV = ? 60,630.8080

Kasey wants to give her daughter $25,000 in 8 years to start her own business. How much should she invest today at an annual interest rate of 7.5% compounded annually to have $25,000 in 8 years? A: $12,802.95. B: $13,506.72. C: $13,347.70. D: $14,017.56.

The correct answer is D. N = 8 I = 7.5 PV = ? PMT = 0 FV = 25,000 14,017.5558

Balance sheet liabilities should be recorded at their: A: Current outstanding balance. B: Fair market value. C: Depreciated value. D: Appraised value.

A

If your financial planning client talks about situations, expresses emotions verbally, enjoys listening (but cannot wait to talk), and tends to move lips or sub-vocalize when reading, then, their learning style is most likely A: Auditory. B: Visual. C: Both auditory and visual. D: None of the choices.

A

Which of the following approaches provides the planner and client a visual representation of their balance sheet and budget: A: Pie chart. B: Ratio analysis. C: Three panel approach. D: The strategic approach.

A

Which of the following is/are not a principle of the Board of Standards Code of Ethics and Professional Responsibility? 1. Integrity 2. Fairness 3. Diligence 4. Continuing Education A: I only B: II only C: II and IV D: I, II and III

C

Which of the following statements concerning a CFP® professional's disclosure of confidential client data is generally correct? 1. Disclosure may be made to any state agency with subpoena. 2. Disclosure may be made to any party on consent of the client. 3. Disclosure may be made to comply with an IRS audit request. A: I only B: II only C: I and II D: I, II, and III

C

If the Federal Reserve wants to increase interest rates, which of the following actions might they take? A: Buy government securities. B: Sell government securities. C: Decrease the reserve requirement D: Decrease the prime lending rate.

Solution: The correct answer is B. To increase interest rates, the Fed needs to decrease the money supply or sell government securities. If the fed buys government securities, the money supply will increase and interest rates will decrease.

Which of the following is not a Conflict of Interest that must be disclosed? A- The offering of proprietary products and Material limitations on the universe of products. B- The CFP® professional's public disciplinary history. C- The receipt of additional compensation when the Client increases the amount of assets under management. D- Receipt of third-party payments for recommending products.

Solution: The correct answer is B. Public disciplinary history must be disclosed to a Client when providing Financial Advice, but it is not an example of a Conflict of Interest.

Which of the following are necessary inputs to determine a client's goals? I- Client's attitude II- Clients values III- Client's current income IV- Client's expectations of the future A- I and II only. B- II, III, and IV only. C- I, II and IV only. D- I, II and III only.

Solution: The correct answer is C. A client's attitudes, values, expectations, and time horizon are all necessary to determine financial goals, needs, and priorities. Income will come in as part of the analysis phase; can (and how) they meet they their goals and needs? A wealthy couple may want their child to fund their own education to learn the value of money and education. Their goal has little to do with their income level. Choice A is incorrect because it is lacking the client's expectations. Choice B is incorrect because using a client's current income is not a variable for determining goals and it is missing the client's attitude. Choice D is incorrect because using the client's current income is not a variable for determining goals and it is missing the client's expectations.

Holly's salary is $80,000 per year. She contributes 10% of her salary to her 401(k) plan. Her employer contributes 5% of her salary to a profit share plan. She also contributes $2,500 per year to an IRA. Holly's savings ratio is? A- 5%. B- 10%. C- 15%. D- 18%.

Solution: The correct answer is D. (8,000 + 4,000 + 2,500)/80,000 = 18%

Brian purchased 10 shares of an aggressive growth mutual fund at $90 per share, for a total of $900, 7 years ago. Today he sold all 10 shares for $4,500. What was his average annual compound rate of return on this investment before tax? A:17.46%. B:19.58%. C:21.73%. D:25.85%

Solution: The correct answer is D. N = 7 I = ? PV = <900> PMT = FV = 4,500 Answer: 25.8499

Which of the following is necessary for a certificant to disclose to a client if providing financial planning? A- That you own 50% of a corporation. B- Your secondary education. C- The IRS has a lien on your personal property. D- An active FINRA license suspension.

Solution: The correct answer is D. D is the best answer. A CFP® professional must disclose significant information to a client prior or when engaging in a financial planning relationship. This includes compensation information, how a client pays, disclosing conflicts of interest and Existence of any public discipline and locations of any Self Regulatory Organization (SRO) or government websites where the CFP® professional is a control person. A license suspension is an example of public discipline.

Calculate the NPV of a machine that is purchased for $5,000, sold at the end of year 4 for $2,500, and produces the following cash flows: Year 1) $700 Year 2) $800 Year 3) $900 Year 4) $1,000 Assume the discount rate is 6%. A: <$99.64> B: $99.64 C: <$2,079.87> D: $2,079.87

The correct answer is A. 12c 5000 CHS g CF0 700 g CFj 800 g CFj 900 g CFj 1,000 + 2,500 g CFj 6 i f NPV 10BII 5000 +/- CFj 700 CFj 800 CFj 900 CFj 1,000 + 2,500 CFj 6 i Orange shift key NPV Answer: <99.64>

Jennifer has the transactions below, what is the combined impact on her net worth when considering all of the transactions? I. She purchases $5,000 worth of a mutual fund with cash from her savings account. II. She spends $6,000 on a two-week vacation to Italy using funds in her money market account. III. She purchases $10,000 worth of furniture for her house and uses her credit card to finance the purchase. A: $21,000 decrease in net worth B: $6,000 decrease in net worth C: $15,000 increase in net worth D: $6,000 increase in net worth

The correct answer is B. I- No change. Decrease in current assets of $5,000 and increase in invested assets of $5,000 II- Decrease of $6,000 in current assets III- No change. Personal use assets increases by $10,000 and current liabilities increase by $10,000

Phoebe purchased a car for $19,500. She is financing the auto at 11% annual interest rate, compounded monthly for 3 years. What payment is required at the end of each month to finance Phoebe's car? A:$606.71. B:$638.40. C:$632.61. D:$684.97.

The correct answer is B. N = 3 × 12 I = 11 / 12 PV = 19,500 PMT = ? FV = 0 Answer: 638.40

Which of the following is/are forms of discipline? 1. Private Censure 2. Revocation 3. Suspension 4. Public Letter of Admonition A: I and II B: I, II and III C: II, III and IV D: I, II, III, and IV

The correct answer is D.

Which of the following statements concerning investment strategies to accomplish education-funding goals is (are) correct? 1.The time horizon is probably the most important factor (besides risk tolerance) to consider in deciding what securities to invest in, how much to invest, and when to invest. 2. QSTPs generally increase the risk level of investment the closer a child gets to college. A: I only B: II only C: Both I and II D: Neither I nor II

A

Which of the following statements is true regarding compensation disclosure requirements? A- Disclosures of compensation methods must remain accurate throughout each client engagement. B- If the disclosure is required in writing, the certificant may refer a client to their website to meet the compensation disclosure requirement. C- The CFP® professional is only obligated to disclose compensation information at the initiation of a client engagement. D- The CFP Board audits CFP® professionals to determine the adequacy of compensation disclosures.

Solution: The correct answer A.

Jonathon got divorced in 2017 and subsequently had severe financial problems. Two years later he filed a chapter seven bankruptcy. After getting back on his feet, he graduated from college and got a job selling life insurance for a large national insurer three years following his bankruptcy. During his first year on the job, he received a large number of customer complaints, his insurance license was suspended for one month and he was discharged by his employer. During his unemployment, he completed all of the requirements for the CFP® certification. In August, four years following his bankruptcy, he made his application to the CFP Board. Which of the following is correct under the Board's revised policy regarding bankruptcy? A- Jonathan's behavior falls on the presumed unacceptable list and he will be denied the right to use the marks unless he files a successful consideration request with the CFP Board. B- Jonathan's behavior falls on the always bar list and he will be denied the right to use the marks. C- Jonathan's behavior will prevent him from applying for the CFP® certification for the five year period following his actions D- Jonathan's bankruptcy will be disclosed on the CFP® p

Solution: The correct answer A. This answer was correct under the pre-October 2019 practice standards and remains correct under 2012 fitness standards. One complexity to the question rationale is that if Jonathan were to successfully petition the discipline and ethics committee, he would be required to report the bankruptcy to clients when providing professional services. An expanded rationale is below: A is correct under the revised Candidate Fitness Standards effective July 2012. Although the bankruptcy alone would not constitute presumed unacceptable behavior, it is a consideration when accompanied by any other behavior on the list, such as the suspension of his insurance license. B is not correct because revocation of a financial professional license is required to move to the always bar list. C is incorrect because there is no five year expiration period on the suspension of the insurance license D is not correct because although the bankruptcy alone would not constitute presumed unacceptable behavior, it is a consideration when accompanied by any other behavior on the list, such as the suspension of the insurance license.

Kim and Mark make $65,000 per year combined gross income. Their housing costs are $1,625 per month, while another $300 covers the balance of any other debt they currently owe. Other household expenses bring their total expenses to $3,200 per month. The total portion of their obligations that are monthly interest payments (included in the mortgage and other debt amounts) is $1,000. Their take home averages $3,500 per month. Over the last several years, they have managed to save 3% to 5% of their income. They have set aside $22,400 in money market funds. Select "A" if their housing costs can be considered a strength. Select "B" if their housing costs can be considered a weakness. A- Their housing costs are a strength. B- Their housing costs are a weakness.

Solution: The correct answer B. $1,625/(65,000/12) =30%. They are paying more than the recommended 28% of gross monthly income for housing costs.

Sally recently had her tax return prepared by her CPA. The CPA recommended that Sally increase her employer sponsored 401(k) retirement savings to 10%. Around the same time, Sally was working with Bob, a CFP® professional, who recommended specific asset allocation percentages and amounts allocated to various asset classes for her retirement and investment assets. Sally has come to you, a CFP® professional, for assistance implementing the recommendations from both her CPA and financial planner. Under which circumstances are you considered engaged in financial planning? A- You recommend a new asset allocation for Sally. B- You engage in a collaborative process that helps maximize Sally's potential for meeting life goals through financial advice that integrates relevant elements of Sally's personal and financial circumstances. C- Since Sally is working with a CFP® professional, by implementing recommendations, you are also engaging in financial planning. D- You recommend that Sally contribute any federal income tax refunds to a Roth IRA and any state income tax refunds to a traditional IRA.

Solution: The correct answer B. B is the best answer and CFP Board definition of financial planning. A and D are financial recommendations but not necessarily integrative or requiring communicating and prioritizing with Sally. C is not correct, a client can have multiple advisers, some financial planners and some not.

Bill is a CFP® professional with an insurance license and he received a call today from John, a prospective client. John was referred to Bill by one of Bill's current clients. John explained that he and his wife recently had their first child and he would like to purchase a twenty-year term life insurance policy from Bill with a face value of one million dollars from an AA or higher rated Insurer. According to the Code of Ethics, which of the following would be acceptable actions for Bill as a CFP® professional? A- Gather sufficient information about the client to complete the application and execute the transaction after John signs a letter acknowledging the limited nature of the engagement. B- Act as a fiduciary, complete the life insurance application and submit to underwriting after providing information about compensation, any potential conflicts of interest, contact information and any other material information about Bill and his firm. C- The Code of Ethics require Bill to provide written information about his compensation, material conflicts of interest, contact information and any other material information about Bill and his firm to John. D- Submit the client's life insurance

Solution: The correct answer B. B is the best answer. Bill is able to sell a financial product as a CFP® professional without engaging in financial planning. He owes John the duties to a client selling a financial asset including acting as a fiduciary (1. a. b. and c) as well as providing the client with information (10). A Is not the best answer a written scope of engagement is not required in this circumstance. This transaction is not financial planning and does not require integration. C is not the best answer material conflicts of interest do not need to be in writing. D is not the best answer, the CFP® professional is required to provide information and act as a fiduciary, making (B) a better option than (D).

Which of the following is a CFP® professional not required to disclose to a client? A- Renewal commissions on an insurance product. B- 12b-1 fees received from a broker/dealer. C- A personal inheritance from an uncle who was also a client of the CFP® professional. D- First-year commissions on the sale of mutual funds.

Solution: The correct answer C. A personal inheritance does not need to be disclosed.

As a rule of thumb, it is best if consumer debt does not exceed: A- 20% of net income. B- 20% of gross income. C- 3 to 6 months of expenses. D- 36% of gross monthly income.

Solution: The correct answer is A. As a rule of thumb, consumers should not be spending more than 20% of their take home pay (net income) on consumer debt (credit cards). This rule of thumb should factor along with the other recommendations for housing debt to be limited to 28% of gross income, and total debt not to exceed 36% of gross income.

If the maximum loan-to-value ratio on a $100,000 home is 80%, this means that the lender would accept: A- A minimum down payment of $20,000 plus closing costs. B- A minimum down payment including closing costs of $20,000. C- Closing costs plus points of $20,000. D- A maximum down payment of $20,000

Solution: The correct answer is A. Closing costs are not included in the loan-to-value ratio calculations of the lender. Closing costs are in additional to the minimum down payment.

Which of the following industries are typically more affected by recession with regard to production and employment? I- Capital goods. II- Consumer durable goods. III- Consumer non-durable goods. IV- Services. A- I and II only. B- I, II and IV only. C- I, II and III only. D- II, III and IV only.

Solution: The correct answer is A. Long-term capital intensive durable goods and capital investments are most affected when recession occurs. The impact is felt in terms of employment in these areas. Non-durables, consumer, and service areas are less impacted by these events. In other words, we may wait to buy a new car, but we will still buy groceries.

Mary is a CFP® professional and is in the Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action step of the financial planning process. Mary is developing a capital needs analysis for her client and has established assumptions for tax rates, investment returns and inflation rates. Her client disagrees with Mary's assumptions regarding inflation and other economic variables used in the retirement needs analysis calculation. What should Mary do next? A- If Mary and her client are unable to agree on the assumptions used for the retirement capital needs analysis, Mary should limit the scope of the engagement and exclude retirement capital needs analysis from her recommendations. B- Mary should use the assumptions that result in the most conservative recommendations for retirement funding. C- The CFP Board's Standards of Professional Conduct require Mary to disengage from the client. D- Mary should provide her client with multiple projections, consistent with all varying assumptions.

Solution: The correct answer is A. The best answer is A. Mary can continue with the client. The principle of integrity allows for differences of opinions with client relationships. However without the client and planner agreeing to an outcome Selecting and Implementing Actions, Products, or Services (Practice standard 6.d) would be inappropriate.

Kevin, a 55-year-old corporate executive, wants advice as to when he can retire. His current salary is $240,000 and he receives an annual bonus of $300,000; he also has annual stock options and restricted stock awards valued at $100,000. His employer contributes to a cash balance pension plan and matches his contributions to a 401(k). Kevin owns a whole life insurance policy with a $500,000 death benefit and is considering the purchase of a term policy with a $2,000,000 death benefit. He and his wife, Anne, also age 55, believe they can live on an after-tax income of $180,000. Assume a federal income tax rate of 35%. Kevin is in the 42% marginal tax bracket (combined federal and state). Kevin wants to contribute $100,000 towards his child's education in the next 3 years. Which of the following approaches minimizes his taxable gift (CFP® Certification Examination, released 8/2012)? A- Paying the college directly. B- Contributing the funds to a Section 529 Qualified Tuition Plan. C- Contributing to a Uniform Transfers to Minors Act (UTMA) account for the child. D- Contributing to a Coverdell Education Savings Account plan.

Solution: The correct answer is A. The client wishes to contribute $100,000 to his child's education. Watch the wording of the question; contribute to education, not savings for education. Paying the school directly does not utilize any annual exclusion or credit equivalent because this is a qualified payment. Choice B is incorrect because the contributions over 3 years will exceed the annual exclusion amount. Front loading would provide $17,000 x 5 = $85,000. The question does not indicate he will gift split. Even if it did, $170,000 is more than he wanted to contribute. Also recall this would be funding savings. Choice C is incorrect because it uses both the annual exclusion and credit equivalent, even with gift splitting. The most would be $34,000 x 3 = $102,000. Also recall this would be funding savings. Choice D is incorrect because he is not eligible to contribute due to his income level

Alfonzo Albondigo wants to purchase a new car in 3 years. He plans on putting $12,000 cash down on the car he decides to purchase, and will finance the balance. He will be putting a sum away at the beginning of each month to accumulate this amount in an account paying 12% that compounds monthly. What payment will he have to make to reach his goal for his cash down payment? A- $275.81 B- $278.57 C- $285.24 D- $296.35

Solution: The correct answer is A. The key to the correct answer is to be certain that the calculator is first set in BEGIN mode. N = 3 x 12 = 36 i = 12 / 12 = 1 PV = 0 PMT = ? FV = 12,000 Answer = $275.81 If you calculated $278.57, you incorrectly solved this using END mode.

What should a CFP® Professional disclose to a financial planning client at the first meeting? A- The CFP® Professional's areas of expertise B- The CFP® Professional's CFP Board identification number C- The CFP® Professional's involvement in community activities D- 10 years of employment history of the CFP® Professional

Solution: The correct answer is A. The planner should disclose areas of expertise to help define the scope of any engagement. The planner's expertise (or lack of expertise) could reasonably be expected to materially affect the client's decision to engage the certificant. B is incorrect because the ID number is not information that must be disclosed. C and D are incorrect because your community activities and employment history are not required disclosures.

A shift "up and to the left" of the supply curve occurs when: A- Some firms leave the industry. B- Government reduces regulations on production. C- The cost of inputs goes down. D- Taxes go down. E- Competition increases.

Solution: The correct answer is A. The supply curve shifts up and to the left, resulting in a decrease of a good or service being supplied, when firms leave an industry or market. When firms leave an industry, less of a good or service is produced at all price levels.

Kim and Mark make $65,000 per year combined gross income. Their housing costs are $1,625 per month, while another $300 per month covers the balance of any other debt they currently owe. Other household expenses bring their total expenses to $3,200 per month. The total portion of their obligations that are monthly interest payments (included in the mortgage and other debt amounts) is $1,000. Their take home averages $3,500 per month. Over the last several years, they have managed to save 3% to 5% of their income. They have set aside $22,400 in money market funds. Select "A" if their total debt can be considered a strength. Select "B" if their total debt can be considered a weakness. A- Their total debt can be considered a strength. B- Their total debt can be considered a weakness.

Solution: The correct answer is A. Their total amount of obligation is reasonable. Total debt should not exceed 36% of gross income of the client. Total debt is $1,625 + $300 = $1,925. Total $1,925 / (65,000/12) = 35.5%. As their total debt is less than 36%, it is considered a strength.

Suppose you have structured a budget with monthly periods as your budget intervals. Since certain expenditures such as auto insurance or a Thanksgiving charity donation do not occur every budget interval, they may be best incorporated by: A- Estimating them into every budget interval. B- Estimating them in the budget only when incurred. C- Counting on increases in income. D- Using tax refund.

Solution: The correct answer is A. These types of varied or periodic expenses should be accounted each recording period. An annual expense may be too large to account for at the time it is paid, better to save a little towards that goal as you go.

As a CFP® Professional, all of the following are considered ethical practices, EXCEPT: A- Avoid providing advice or services outside the scope of a CFP® professionals expertise. B- Informing a client that their employer (also a client) is about to lay off a significant number of employees. C- Produce records and account statements provided by a client to the planner, in order to defend against a malpractice suit by the client against the planner. D- Charge fees which are higher than another planner's fees for the same services.

Solution: The correct answer is B. A CFP® professional is prohibited disclosing private information about a client to another client. Duties Owed to Clients (9 a). A CFP® professional should not provide advice without competence (3). A CFP® professional is allowed to use client information to defend themselves (9 a). CFP Board does not limit compensation.

What is the client's responsibility during the financial planning process? A- To interpret all the information that is gathered. B- To provide the professional with all requested information. C- To pay their fees. D- To implement the financial plan.

Solution: The correct answer is B. A planner is required to limit the scope of an engagement or disengage a client, if a client does not provide all of the necessary documents and information. This is the primary responsibility of a client during the financial planning process. A is incorrect as that describes the planner's responsibility during the financial planning process. C is incorrect because paying fees is not detailed as a requirement of the client during an engagement. Although there is a moral and legal obligation to pay the fees, it's not a responsibility during the financial planning process. D is incorrect because the client and planner will decide the extent to which the client will assist with implementation of the plan.

When the economy experiences a decline in real GDP for two or more successive quarters, what stage of the economic cycle does this indicate? A- Trough. B- Recession. C- Peak. D- Recovery.

Solution: The correct answer is B. A recession is characterized by a decline in Gross Domestic Product (GDP) for two or more successive quarters. Other characteristics of a recession include decline in consumer purchases, expansion of inventory, decrease in labor demand, and decline in capital investment and business profits.

Charles Cornwall needs an income stream equivalent to $30,000 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 5% over the long run and that he can earn a 7% compound annual after tax return on investments. What lump sum does Charles need to invest today to fund his needs? A- $319,123.10 B- $325,202.39 C- $317,260.24 D- $323,605.44

Solution: The correct answer is B. Begin Mode N = 12 i = [(1.07/1.05) - 1] × 100 = 1.9048 PV = ? PMT = 30,000 FV = 0 If you thought $319,123.10 was correct, your calculator is likely in END mode when it should be in BEGIN mode. Charles needs an income stream at the beginning of the year.

If a client does not provide a CFP® professional with sufficient information to fulfill the terms of the planning engagement, what is the best course of action for the CFP® professional? A- Develop and present a financial plan based on the information provided. B- Restrict or terminate the engagement. C- Refer the client to another advisor. D- Draft a new letter of engagement, documenting the missing information.

Solution: The correct answer is B. If a client does not provide adequate information to a CFP® professional, the CFP® professional must restrict or terminate the engagement. The choice to restrict or terminate will be subjective based on the question's facts. You will need to make a decision based on what is presented, how much financial planning could be done. If income cannot be verified and no source is provided, this could be trouble for multiple areas of financial planning. If a statement cannot be found, this could be worked around by limiting the scope.

A CFP® professional meets a prospective client who is prepared to discuss his retirement accounts from a former employer. The client is concerned that those accounts are too aggressive, given his age and risk tolerance. He states that he and his wife would like to retire when he is 65 and that they have recently been leveraging themselves to support their adult son, who has ongoing issues. After further analysis, the CFP® professional determines that the client does not have the cash flow to retire when he is 65 while continuing to support his son. How should the CFP® professional proceed (CFP® Certification Examination, released 8/2012)? A- Communicate to the client that his retirement goals are unrealistic, that he should plan to work until age 70, and that he should stop helping his son financially. B- Help the client to review his goals and prioritize them before continuing into implementation. C- Review the client's current and potential income streams to identify ways to solve his immediate cash flow problem. D- Recommend a conservative asset allocation to reduce the risk in his retirement accounts and suggest that he stop helping his son.

Solution: The correct answer is B. It is important to help the client to reassess priorities before making specific recommendations. A is incorrect because it's important for the planner to help the client prioritize their goals, then move to the implementation phase. C is incorrect because solving the immediate cash flow is an issue, but the client's goal is to retire at age 65; The planner needs to assist the client in prioritizing their goals. D is incorrect because it's the client and planner's responsibility to prioritize the goals and continuing to help his son may be a high priority goal.

Julie Christie has been dollar cost averaging in a mutual fund investing $2,200 at the beginning of every quarter for the past seven years. She has been earning an average annual return of 9% compounded quarterly on this investment. How much is the fund worth today? A- $20,240.96 B- $86,435.29 C- $84,533.29 D- $248,530.08

Solution: The correct answer is B. Making a timeline helps when dealing with cashflows. 7 years ago she began saving. Today (future value of the past 7 years of savings/cashflows) = 86,435.2869 Calculate in BEGIN Mode N= 7 x 4 = 28 i= 9/4 = 2.2500 PV = 0 PMT = 2,200 FV = ? Answer is 86,435.2869 If you reached 84,533.2879 as an answer, you incorrectly used END mode to answer this question.

On December 31st Lisa purchased a home with a 20-year mortgage for $150,000 and an 8% interest rate. What is Lisa's principal reduction for the first year? A- $15,278 B- $3,171 C- $12,000 D- $10,635

Solution: The correct answer is B. N = 20 × 12 = 240 i = 8/12 = .6667 PV = 150,000 PMT = ? FV = 0 PMT = 1,254.66 On the 10BII enter 1 input, 12 Orange shift AMORT = On the 12c 12, f, AMORT column 1: interest $11,885.42 To go to the next column hit the X<>Y key. Now you see column 2: the total principal paid $3,170.49 To see the remaining balance hit RCL, PV and you will go to column 3: $146,829.50 TI BAII+ 2nd AMORT (PV key) Screen will show P1 =, key in 1 for the start of the mortgage, ENTER Down arrow Screen will show P2 =, key in 12 for the first 12 months, ENTER Down arrow shows balance Down arrow again shows principal Down arrow again shows interest Tips: Ensure your calculator is in the END mode and you've cleared previous work.

John, age 58, has been using a CFP® practitioner for the last 15 years. The CFP® practitioner recently retired and, as a result, John has decided to engage Tom, who is also a CFP® practitioner, but unaffiliated with John's original practitioner. After analyzing and evaluating John's current financial position, Tom made his recommendations. Those recommendations differed from that of John's original practitioner. According to Tom's Duty to John, how should differences in recommendations be handled? A- The Code of Ethics requires a CFP® practitioner to act in a professional manner and recommendations should not conflict with other CFP® practitioners. B- Significant differences in recommendations between planners are acceptable, as long as the recommendations reasonably meet the client's goals, needs and priorities. C- The Code of Ethics require Tom to contact John's prior practitioner to reconciled differences in their recommendations. D- Tom must exercise professionalism, limit the scope of the engagement to recommendations that are consistent with the John's previous practitioner.

Solution: The correct answer is B. Practice Standards 4(b) do not require uniform recommendations between advisers. The basis for making the recommendation, including how the recommendation is designed to maximize the potential to meet the Client's goals, the anticipated material effects of the recommendation on the Client's financial and personal circumstances, and how the recommendation integrates relevant elements of the Client's personal and financial circumstances.

A CFP® professional meets with two new clients who would like advice about their mortgage. In the review, the CFP® professional finds that their essential expenses exceed their income. Mortgage rates have come down significantly and they intend to refinance their current 30-year mortgage to a 15-year mortgage. Their payments will be higher than their current payment. However, they will pay off the mortgage 5 years earlier than the current amortization schedule allows. What should the CFP® professional do (CFP® Certification Examination, released 8/2012)? A- Suggest they stay with their current mortgage, as the higher interest is tax deductible. B- Suggest they refinance to a 30-year fixed mortgage and begin funding savings. C- Suggest they refinance to the 15-year mortgage, which would reduce the amount of interest paid over the life of the loan. D- Suggest they meet with their mortgage broker.

Solution: The correct answer is B. The clients have a negative cash flow, and should reduce their payments as much as possible and establish a cash reserve. A is incorrect because they need to reduce their expenses below their current income. C is incorrect because a 15-year mortgage will increases their cash outflows, which already exceed their current income. D is incorrect because meeting with their mortgage broker may or may not result in a lower mortgage payment, thereby lowering their overall expenses.

What is the first step in the active financial planning process? A- Provide Information to a Client. B- Understanding the Client's Personal and Financial Circumstances. C- Identifying and selecting goals D- Disclose and Manage conflicts of interest

Solution: The correct answer is B. The first step in the active financial planning process (C. Practice Standards for the Financial Planning Process) is to gather data and analyze the information to understand the personal and financial circumstances of the client. A and D are incorrect because information should be provided as part of Standard A. Duties Owed to Clients. C is incorrect because identifying and selecting goals is step 2

The husband of one of your clients had his wallet stolen. He had five credit cards in his wallet when this occurred. He reported the cards as missing the next morning, but the following transactions had already occurred: (JCPenney - $350) (MasterCard - $100) (VISA - $425) (Sears - $25) (Marshall Fields - $685) What is the client's liability for the fraudulent transactions on these cards? A- $50 B- $225 C- $250 D- $1,235

Solution: The correct answer is B. The maximum on any missing card that the client would have to pay would be $50. But remember the thief only charged $25 on the Sears Card. Therefore, the total is 4 cards times $50 plus $25, which equals $225. If the physical card is stolen, the maximum the holder can be held responsible for is up to $50 in fraudulent charges. If the credit card number is stolen and the holder still has possession of the card (such as a data breach), the holder isn't responsible for any fraudulent charges. (Fair Credit Billing Act)

Kim and Mark make $65,000 per year combined gross income. Their housing costs are $1,625 per month, while another $300 covers the balance of any other debt they currently owe. Other household expenses bring their total expenses to $3,200 per month. The total portion of their obligations that are monthly interest payments (included in the mortgage and other debt amounts) is $1,000. Their take home averages $3,500 per month. Over the last several years, they have managed to save 3% to 5% of their income. They have set aside $22,400 in money market funds. Select "A" if their savings level can be considered a strength. Select "B" if their savings level can be considered a weakness. A- Their savings level is a strength. B- Their savings level is a weakness.

Solution: The correct answer is B. They should be saving 10% to 12% of their gross income.

Gwyneth currently earns a salary of $30,000 per year with ABC Company. She has the opportunity to attend a full-time training program for two years, if she is willing to quit her job and forgo her current salary. If she chooses to attend the training program, she will earn a salary of $40,000 per year after graduation, for the next 18 years. The cost of the training program is $9,000 annually. Gwyneth is currently earning a 6% rate of return on her investments, and inflation is 3%. Gwyneth will be unable to earn any income while she completes the training. What is the net present value to Gwyneth if she chooses to attend the training program? A- $26,354. B- $57,739. C- $116,890. D- $461,645.

Solution: The correct answer is B. This problem requires utilizing an uneven cash flow function on a financial calculator. Time Period 0 (-9,000 and - 30,000) outflow - Gwyneth is not working and will forsake the $30,000 she could have earned as well as pay training costs of $9,000. The total cash outflow is $39,000. Time Period 1 (-9,000 and - 30,000) outflow - Gwyneth is not working and will forsake the $30,000 she could have earned as well as pay training costs of $9,000. The total cash outflow is $39,000. Time Period 2-19 - $10,000 inflow (18 years - Gwyneth will give up a salary of $30,000, but instead will earn $40,000 for 18 years. Therefore, her net increase in income is $10,000 per year if she attends the training program) I/YR - (1+.06)/(1.03) - 1 x 100 = 2.9126 [utilizes an inflation adjusted rate of return] NPV - $57,739. A is incorrect. It does not factor inflation (using 6 as the interest rate rather than 2.9126) and solves for 26354 C is incorrect. It does not include the opportunity cost of attending the training program and uses 9,000 instead of 39,000 as initial outflows. D is incorrect. It incorrectly utilizes 40,000 as the cash flow into Gwyneth; however 40,000 does not take into consideration wages Gwyneth would have earned (30,000)

Cathy and John Gonnerman would like to retire in twelve years. At that time, they would like to have accumulated $350,000 in today's dollars. To achieve this goal, they plan to invest a sum at the end of each year that will remain constant in purchasing power. They anticipate average inflation at 6% and have an after tax investment earning capacity of 9%. What payment is required at the end of the first year for them to reach their goal? A- $34,806.25 B- $26,394.63 C- $27,978.31 D- $50,104.88 E- $45,563.97

Solution: The correct answer is B. The payments increasing each year will keep pace with inflation at the end of 12 years. N=12 i=[(1.09/1.06)-1] × 100=2.83 PMT=24,900 × 1.06=26,394 FV=350,000 Since the payment you solved for is made at the end of the period (one year from today), we need to account for the year of inflation before we make the first payment. The calculator inflates from the first payment forward, it does not account for the time between today and the first payment. Further information to verify the above calculation: $350,000 today, inflated at 6%, is equal to 704,269 in 12 yearsPV = 350,000N = 12I = 6solve for FV$704,269solve for the serial payment amount:N=12I = (1.09/1.06) - 1 × 100FV = 350,000note: the inflation is being accounted for in the PMTsolve forPMT$24,900.59since the first payment is not being made until the end of the year, you have to multiply by (1 + inflation rate) because you have to "make up" for the first year of inflation24,900.59 × 1.06 = 26,394.63here is what is happening:End of YearPayment amountearnings at 9%ending balance 1 26,394.63 2,375.52 28,770.15 2 27,978.31 5,107.36 61,855.82 3 29,657.01 8,236.15 99,748.98 4 31,436.43 11,806.69 142,992.09 5 33,322.61 15,868.32 192,183.02 6 35,321.97 20,475.45 247,980.44 7 37,441.29 25,687.96 311,109.68 8 39,687.76 31,571.77 382,369.22 9 42,069.03 38,199.44 462,637.69 10 44,593.17 45,650.78 552,881.64 11 47,268.76 54,013.54 654,163.94 12 50,104.89 704,268.83

Six months ago, a client purchased a new bedroom suite for $6,500. For purposes of preparing accurate financial statements, this purchase would appear as a (an): (CFP® Certification Examination released 3/95) 1- Personal use asset on the client's net worth statement. 2- Investment asset on the client's net worth statement. 3- Variable outflow on a client's historic cash flow statement. 4- Fixed outflow on the client's cash flow statement. A- 1, 2 and 3 B- 1 and 3 C- 4 only D- 2 and 4

Solution: The correct answer is B. Variable outflow because it's not a recurring expense, such as a debt payment.

Your client wants to receive payments of $2,500 from her investments at the beginning of each month during her retirement to supplement her pension plan benefits. Your client estimates she will need to receive this monthly payment for 35 years. If an 8.5% annual return is earned on investments, compounded monthly, what amount does your client need to have at the time of her retirement to fund her needs? A- $334,734 B- $337,106 C- $6,488,916 D- $6,534,879

Solution: The correct answer is B. You are solving for the PV of a future cashflow. Use BEGIN mode for this calculation N=35 × 12 = 420 i = 8.5/12 = .7083 PV = ? PMT = 2,500 FV = 0 Solve for PV = 337,105.5360 If you chose $334,734, your calculator is in END mode when it should be in BEGIN mode.

What is the first point during a client relationship that a CFP® professional must disclose conflicts of interest? A- When coordinating the financial planning recommendations with other professionals B- During the client data-gathering process C- At the initiation of the client relationship, before providing services D- Upon presenting financial planning recommendations

Solution: The correct answer is C.

Which of the following statements is true regarding CFP® professionals? A- A comprehensive written plan must be developed for every client of a financial planner. B- Financial planning engagements must be comprehensive and cover, at a minimum, retirement planning, risk management and cash flow planning. C- Financial planning engagements require the application and integration of the planner's knowledge, skills, and decision-making in service to clients. D- Financial planning requires that a CFP® professional create a cash flow statement and statement of financial position for their clients.

Solution: The correct answer is C.

Which of the following would constitute a material conflict of interest? A- The client specifically asks about it. B- It is reasonably expected to be permanent. C- It could cause harm or impact potential advice. D- It has the potential to cost the client more money.

Solution: The correct answer is C.

Which of the following would likely be a violation of the Code of Ethics and Standards of Conduct as it relates to the third Practice Standard (Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action)? A- Developing more than one alternative to meet the client's goals, needs, and priorities. B- Developing alternatives that differ from those of other practitioners. C- Not developing any alternatives and, as a result, changing the course of action using trial and error. D- Not developing any alternatives that warrant a change in the client's current course of actions.

Solution: The correct answer is C. A CFP® professional must consider and analyze one or more potential alternative courses of action, including the material advantages and disadvantages of each alternative, whether each alternative helps maximize the potential for meeting the Client's goals, and how each alternative integrates the relevant elements of the Client's personal and financial circumstances. Trial and error does not meet this standard of care.

During an annual review with Anna and Lawrence Harvey, a CFP® professional discusses their retirement objectives. Because of weak market performance over the past few years, it appears that they are no longer on track for retirement. How should the CFP® professional best direct discussion of this situation (CFP® Certification Examination, released 8/2012)? A- Tell the Harveys that they must increase their monthly savings. B- Recommend no changes since the market is likely to recover in the long term. C- Discuss alternatives currently available to increase their likelihood of success. D- Suggest that they postpone their retirement date until the economy recovers.

Solution: The correct answer is C. It is important to explore all available alternatives in order to revise their retirement expectations. A is incorrect because a planner should discuss alternatives, the advantages, disadvantages and together with the client determine the strategies to implement. B is incorrect because a planner does not know that the market will recover, but instead should discuss alternatives, the advantages, disadvantages and together with the client determine the strategies to implement. D is incorrect because a planner should discuss alternatives, the advantages, disadvantages and together with the client determine the strategies to implement.

If Billy-Bob Owens put $125,000 into an account eight years ago, that paid 6% interest compounded on a monthly basis, the value of the account today would be: A- $195,534.29 B- $199,231.01 C- $201,767.83 D- $208,001.29

Solution: The correct answer is C. N = 8 x 12 i = 6/12 PV = 125,000 PMT = 0 FV = ? FV = $201,767.83 If you calculated $199,231.01, then you didn't account for the monthly compounding.

Jamal Knight purchased a plot of raw land for $25,000 this week. His real estate agent is confident the land will appreciate at an average annual compound rate of 14.72% per year. Jamal wants to sell the land for $75,000. Approximately how many years must he own the property to receive $75,000 when he sells it? A- Six years. B- Seven years. C- Eight years. D- Nine years.

Solution: The correct answer is C. N = ? i = 14.72 PV = (25,000) PMT = 0 FV = 75,000 Solve for N: 8

In a situation where an employee has accepted workers compensation benefits, an employer is protected from the following: A- A suit by the employee's family. B- A third party suit. C- A suit by the employee. D- A suit by the employee's spouse.

Solution: The correct answer is C. Options "A", "B", and "D" are exposures for an employer even when the employee has already accepted Workers Compensation.

John, a CFP® professional, works for a firm requiring that any investment products offered to a client be proprietary products of the firm. Jack, his client, is 55 years old and has a moderate risk tolerance. John's firm has an S&P500 index fund with a reasonable fee structure. John has discussed the fund's performance and costs with Jack and they have agreed that 60% of his equity portfolio will be allocated to this index fund. Which of the following is true according to the CFP Code of Ethics and Standards of Conduct? A- John may engage in the financial planning process but is prohibited from selling proprietary funds to Jack. B- John is prohibited from using the CFP® certification due to the investment product constraints of his current firm. C- John may engage in the financial planning process and sell proprietary funds to Jack, as long as he discloses material conflict of interests and compensation information prior to the sale. D- John may engage in the financial planning process and sell proprietary funds to Jack, however he must provide Jack non proprietary options offered by another CFP® professional.

Solution: The correct answer is C. Proprietary mutual funds are not specifically excluded under the Code of Ethics and Standards of Professional conduct, allowing John to plan and sell them to Jack. However these funds will certainly require disclosures (Duties to Clients 10) including Jack understanding clear conflicts of interest and receiving information about John's compensation. A is incorrect John can sell these funds to Jack. B is incorrect John can hold the CFP® certification. D is incorrect "selling away" from his employer likely violates John's duties to his employer as defined by CFP Board.

A young couple, John and Mary Bartlett, are thinking about purchasing a new home using one of the following mortgages: Mortgage #1 - 8.5% interest with 4 discount points to be paid at the time of closing. Mortgage #2 - 9.5% interest with 2 discount points to be paid at the time of closing. Assuming the couple qualifies for both mortgages, which of the following aspects should be considered in deciding between these two mortgages? I- Gross income of the couple. II- Estimated length of ownership. III- Real estate tax liability. IV- Cash currently available. A- I and II only. B- II only. C- II and IV only. D- I, II, III and IV.

Solution: The correct answer is C. The question is asking to decide between two mortgages. Real estate taxes and the client's income does not change regardless of which loan is chosen. Therefore, the only relevant considerations are how long the client anticipates being in the house and available cash to pay additional closing costs. The question is not asking to evaluate the preparedness of the client to purchase a house or an appropriate purchase price. The question eliminates the need to include gross income as a consideration by stating that the couple could qualify for both mortgages; we can assume the financial ratios have been satisfied.

According to CFP Board practice standards, the first step in the financial planning process is? A- Developing the Financial Planning Recommendation(s) B- Implementing the Financial Planning Recommendation(s) C- Identifying and Selecting Goals D- Understanding The Client's Personal and Financial Circumstances

Solution: The correct answer is D

Morgan, a prospective client, recently approached Mike, a CFP® professional with significant estate planning needs. Mike does not feel like he can adequately fulfill all of Morgan's needs so he refers Morgan to a colleague who specializes in estate planning. What principle did Mike most clearly demonstrate? A- Objectivity B- Fairness C- Professionalism D- Competence

Solution: The correct answer is D. A competent financial planner focuses on maintaining and applying adequate skills and knowledge when providing services to clients. Competence also includes the planner's ability to recognize his or her limitations. Answer A is incorrect because objectivity is about providing professional services objectively and Mike did not perform any services. Answer B is incorrect because although Mike is being fair to Morgan, he is better demonstrating competence, and the question asks what principle did Mike MOST clearly demonstrate. Answer C is incorrect because much like answer B, competence is most clearly demonstrated over professionalism.

Sally, age 28, is a CFP® professional and is just starting her own financial planning practice. Sally is concerned about the liability associated with practicing financial planning and would like to take the appropriate steps to minimize her liability. Which action should Sally take that would help her to minimize her liability? A- Sally should use a suitability standard when evaluating and recommending investment alternatives, and other financial planning advice, for clients. B- Sally should partner with other CFP® professionals and offer financial planning services as part of a team of practitioners to minimize her liability. C- Sally should purchase a general liability insurance policy and an errors and omissions policy. D- Sally should provide services with the duty of a fiduciary.

Solution: The correct answer is D. According to the CFP Board's Standard of Professional Conduct FAQs, the CFP Board believes that compliance with the Standards, including the requirement that financial planning services be provided with the duty of a fiduciary, is a way to reduce liability. A is incorrect Sally must provide professional services with a Fiduciary Duty (Duties owed to clients 1 a. b. and c.) B and C are strong choices, but practicing with a duty of care, loyalty and following client instructions should lead to fewer infractions and liability than other business models.

Bob Blazek comes to you, his financial planner and a CFP® certificant, with a question about a recent agreement he made. His brother Bill asked to borrow $10,000 to start a new business. What advice do you give Bob to help make this a successful transaction? I- Make a formal arrangement specifying the interest rate and repayment schedule. II- State in writing that this is a loan, NOT a gift, and have Bill sign the document. III- Explain to Bob his options in case of default. IV- Make sure Bob approves of the business venture prior to making the loan. A- I and IV only. B- II and III only. C- II and IV only. D- I, II and III only.

Solution: The correct answer is D. All choices are good advice, except for Option "IV." If Bob does not approve of the business venture, he need not loan Bill the money. Based on the facts, he has already decided to loan the money by coming to you for information on how to accomplish it.

Which of the following terms best describes assets such as savings accounts, stocks, bonds, mutual funds? A- Tangible assets. B- Liquid assets. C- Use assets. D- Financial assets.

Solution: The correct answer is D. All of the above are financial assets, also known as intangible assets. Tangible assets could be your furniture. Liquid assets can quickly be turned into cash with little to no loss of principal (unlike stocks, bonds and mutual funds due to market movement, commissions, and possible surrender charges). Use assets could be your car or home.

Which of the following is (are) reasons for a change in consumer demand? I- Changes in consumer tastes, advertising, news reports, trends, and seasons. II- Changes in consumer income. III- Change in the price of substitutes products. A- I only. B- III only. C- I and II only. D- I, II, and III.

Solution: The correct answer is D. All of the above are reasons for changes in consumer demand.

Which of the following acts is prohibited by Section 206 of the Investment Advisers Act of 1940? A- Performance fees. B- Fulcrum fees. C- Use of the term investment counsel. D- Fraud or deceit.

Solution: The correct answer is D. Answers "A," "B" and "C" are permitted under certain circumstances.

A CERTIFIED FINANCIAL PLANNER™ obtains a new client. During the fact-finding process, the CFP® professional discovers that the client's previous advisor, also a CFP® professional, had filed several tax forms incorrectly with computational errors. The CFP® professional's initial duty to the client should be which of the following: A- Contacting the other financial planner. B- Contacting the CFP Board. C- Contacting the IRS. D- Informing the client of the situation.

Solution: The correct answer is D. Begin with the client and allow them the opportunity to decide what course of action they would like to pursue. A CFP® professional is not required to report the errors of a competing CFP® professional to CFP board.

Which of the following would be an effective form of communication for obtaining information from a client? A- Will you take a vacation this year? B- Are you planning to take a vacation this year? C- Will you use vacation time from work this year? D- Tell me about any vacation plans you have this year.

Solution: The correct answer is D. Choice D is a form of open-ended questions which leads to more detail than a closed end question. This form of obtaining information allows the client to expound on ideas, opinions feelings and desires. Choices A, B and C are representative of closed end questions which are structured to elicit a yes or no, or other short answer. This is not an effective means of obtaining detailed information from a client.

The CFP Board Code of Ethics and Standards of Conduct prohibits a CFP® professional from doing which of the following activities? I- Commingling client funds with funds of the financial planning firm. II- Misleading a client. III- Receiving referral fees from a qualified attorney. IV- Using the initials RIA after his or her name. A- I and II only. B- I and IV only. C- II and III only. D- I, II, and IV only.

Solution: The correct answer is D. Commingling is prohibited, Duties Owed to Clients (15b). A CFP® professional is prohibited from misleading a client or act without integrity (Duties Owed to Clients 2). A CFP® professional is not prohibited from receiving a referral fee, though they will need to disclose the fee when performing financial planning and potentially when selling financial assets. A CFP® professional may not (8 b) intentionally or recklessly participate or assist in violation of these standards or the laws, rules and regulations governing professional services. D is a prohibited activity because RIA is not a certfication or designation and cannot be used to imply it is. A CFP® professional must comply with the laws, rules, and regulations governing Professional Services.

In analyzing the financial statements of a client's business, you notice the collection period for accounts receivable has been increasing. What does this increase suggest about the firm's credit policy? A- The firm's current ratio is also increasing. B- The collection period has NO relationship to a firm's credit policy. C- The firm is losing qualified customers. D- The credit policy is too lenient.

Solution: The correct answer is D. Longer periods of time for collection of receivables indicates less money collected, and less to use by your client's firm.

Sam Peterson wants an additional $24,000 per year income after his retirement. Sam can earn 8% interest. How much will he need to invest to reach his goal? A- $192,800 B- $240,000 C- $277,835 D- $300,000

Solution: The correct answer is D. Sam does not mention how he wants the money. He may want it either in terms of capital utilization (like an annuity) or capital conservation where the principle is never touched (only interest is used). Since the facts don't state Sam's age, years until retirement, or expected mortality, the capital conservation model makes sense here. With the information provided you can back into the number by figuring 24,000 income based on 8% of your answer set. This would be the capital conservation model. Or an easy step would be 24,000 / .08 = 300,000. A: $192,800 × 8% = 15,424 B: $240,000 × 8% = 19,200 C: $277,835 × 8% = 22,226 D: $300,000 × 8% = 24,000 $300,000 at 8% interest will generate $24,000 per year indefinitely without touching the principal.

Which statement best fits the CFP Board Code of Ethics for CFP Board professionals and registrants? A- CFP Board Code of Ethics are a means to avoid disciplinary action. B- CFP Board Code of Ethics state a CFP® Professional must follow the practice standards if they are performing financial planning, but not when simply recommending or transacting financial assets. C- CFP Board Code of Ethics are a guide to the personal financial planning process. D- The code of ethics is not specifically defined, remains aspirational and leads to more detailed rules and obligations through the planning process.

Solution: The correct answer is D. The Code and Standards are general statements expressing the ethical and professional ideals certificants and registrants are expected to display in their professional activities. As such, they are aspirational in character and provide a source of guidance for certificants and registrants.

A measure of the way people feel about their financial future may be obtained from the: A- Investment Advisers' Index. B- Consumer Price Index. C- Initial Claims for Unemployment Compensation. D- Consumer Confidence Index.

Solution: The correct answer is D. The Consumer Confidence Index measures how secure individuals are feeling with regard to future economic expectations.

You have approved a prospect and completed your presentation. It is incumbent upon you (based on the brochure rule) to: A- Provide the client with all of the information as required within 48 hours after the meeting. B- Provide the client with all of the information as required five days before the meeting. C- Provide the client with all of the information as required at the meeting if they are given a 48 hour time period to change their mind. D- Provide the client with all of the information at or before the time you enter into a contract.

Solution: The correct answer is D. The brochure rule requires that a planner, or advisor, provide the client with all of the information as required at the meeting, or before, you enter into contract with them.

Jordan was meeting with Cecelia, a CFP® professional, to review her financial statements. These statements are developed to reflect Jordan's: A- Income and balance sheet. B- Cash flows and income. C- Assets and cash flows. D- Cash flows and balance sheet.

Solution: The correct answer is D. The financial statements are designed to reflect income and expenses (cash flow statement), as well as assets and liabilities (balance sheet). A is incorrect. Financial statements also reflect expenses. B is incorrect. Financial statements also reflect assets and liabilities. C is incorrect. Financial statements also reflect liabilities.

Which of the following statements accurately describes a financial advisor's communication with a client? 1. One of the main responsibilities of the advisor is to extract the goals of the client through verbal and nonverbal communication. 2. Clarifying and restating a client's statement is not part of the process of feedback under active listening. A: I only. B: II only. C: I and II. D: None.

The correct answer is A. Both statements are accurate regarding how a financial advisor communicates with a client.

Marge has been dollar cost averaging in a mutual fund by investing $2,000 at the end of every quarter for the past 7 years. She has been earning an average annual compound return of 11% compounded quarterly on this investment. How much is the fund worth today? A: $82,721.95. B: $93,902.42. C: $91,389.22. D: $84,996.80.

The correct answer is A. End N = 7 × 4 I = 11 / 4 PV = 0 PMT = 2,000 FV = ? 82,721.95

Which of the following statements concerning educational funding is correct? A: A student must submit a FAFSA (Free Application for Federal Student Aid) form to become eligible for federal financial aid. B: The EFC (Expected Family Contribution) is a formula that indicates how much financial aid a student's family can expect to receive. C: There are only 2 factors used in calculating the EFC-taxable income and assets. D: A common method for reducing a family's EFC is creating a trust for the parents and increasing the family's estate.

The correct answer is A. FAFSA will start the financial aid process and should be completed for the first time while the student is completing their final year in high school. EFC is what the family is expected to contribute. Many factors are used to calculated EFC. Increasing the family's estate will lead to a larger EFC.

Phoebe purchased a car for $19,500. She is financing the auto at 11% annual interest rate, compounded monthly for 4 years. What payment is required at the end of each month to finance Phoebe's car? A: $503.99. B: $638.40. C: $632.61. D: $684.97

The correct answer is A. N = 4 × 12 I = 11 / 12 PV = 19,500 PMT = ? FV = 0

A client invested $10,000 in an interest bearing promissory note earning an 11% annual rate of interest compounded monthly. How much will the note be worth at the end of 7 years assuming all interest is reinvested at the 11% rate? A:$13,788.43. B:$20,761.60. C:$21,048.52. D:$21,522.04.

The correct answer is D. Your calculator should be set to 1 payment per year. Dividing the N and I by 12 accounts for monthly compounding. N = 7 × 12 I = 11 / 12 PV = 10,000 PMT = 0 FV = ? Answer for FV is $21,522.036124, rounded to $21,522.04

Thomas, a CFP® certificant, is employed by a registered investment advisor that is under common ownership with a broker-dealer. How should Thomas describe his relationship with the broker-dealer? A- Unaffiliated organization B- Fiduciary partner C- Disinterested third party D- Related party

Solution: Correct answer is D.

You are meeting with a new client. During your discussion, you notice your client leans in when you are showing them graphical information, but seems to be struggling to hear you. Which learning style would you be led to believe would serve your client best in future meetings? A- Auditory B- Visual C- Kinesthetic D- Leading Responses

Solution: The Correct Answer is B. Your client leans in when shown visuals. Leaning in is a sign of attentiveness. Choice A is incorrect. It represents someone that prefers hearing information. Since you are noticing signs of your client struggling to follow when you speak, this would not be their preferred learning style. Choice C is incorrect. Kinesthetic learners like hands on activities. You will find these individuals don't remain seated, or may shift in their seat often. Choice D is incorrect. This options is a way to lead a client to a new idea or topic, generally used when counseling a client.

Mitt, age 25, is a CFP® professional and is starting his own financial planning firm. Mitt is licensed in his state to sell insurance and has passed all appropriate security exams to sell investment securities. Mitt's compensation model is to not charge clients for creating a financial plan, but he will receive commissions based on any products he sells clients as part of implementing his recommendations. Mitt anticipates, that he will sell various insurance policies through limited engagements, as he builds his financial planning practice. According to the Code of Ethics, when would Mitt be engaged in financial planning? A- If a client is under the impression Mitt is providing financial planning services, Mitt must follow the CFP Board practice standards. B- Selling either a mutual fund or insurance product will result in Mitt being engaged in financial planning. C- As a CFP® professional, engaging in providing brokerage and insurance products require Mitt to charge a financial planning fee. D- Based on Mitt's compensation model of "sales related compensation", he is at all times engaged in financial planning when working with a client.

Solution: The correct answer A. A is the best answer. If The Client has a reasonable basis to believe the CFP® professional will provide or has provided Financial Planning and must follow the CFP Board practice standards. Selling products does not require Mitch to charge fees (C) or immediately cause a financial planning relationship to occur (B). D is incorrect as well, compensation model does not dictate the nature of a planning engagement.

John, age 25, is a CFP® professional and is opening his own financial planning practice next week. John is concerned about minimizing his risk of loss of personal assets resulting from liability associated with his practice. What should John do to minimize his risk of loss of personal assets? A- John should follow CFP Board guidelines on acting as a fiduciary with a duty of care, loyalty and following client instructions. B- John should form a multi party LLC to insulate liability. C- John should purchase a general liability insurance policy and an errors and omissions policy. D- John should use a suitability standard when evaluating and recommending investment alternatives, and other financial planning advice, for clients.

Solution: The correct answer A. Acting as a fiduciary forces John to follow a process putting his client's best interest first and integrating sound decision making in his practice. Doing something to keep yourself out of trouble is proactive. Insurance is reactive. It only comes into play after there is a problem, it does not stop or prevent a problem from happening. Car insurance does not stop an accident, safe driving does. Insurance is there to indemnify. Setting up a practice following a fiduciary standard and putting the clients best interest ahead of your own will keep you out of trouble. E&O should be purchased as a best practice for if something goes wrong. No one buys insurance with the thought it will go wrong, at least we hope not. Being a fiduciary is a proactive solution to risk management. B, C and D are great answers, but reactive.

An anonymous informant filed a complaint against Jerry and another CFP® professional regarding Jerry's involvement in a Securities and Exchange Commission ("SEC") and state regulatory authority investigation. Jerry entered into a Letter of Acceptance, Waiver and Consent agreement ("AWC") with Financial Industry Regulatory Authority, Inc. ("FINRA," f/k/a National Association of Securities Dealers or "NASD") regarding violations of NASD Rules 2110 and 3010. The AWC arose out of FINRA's investigation of Jerry's sale of shares in a private placement offering ("Offering") conducted in 20XX pursuant to a private placement memorandum ("PPM") that offered shares of Jerry's company ("Company"). Jerry discovered inaccuracies in the financial projections set forth in the PPM but did not disclose the inaccuracies to the purchaser because he determined that the inaccuracies were not material. In the AWC, Jerry consented to paying a $20,000 fine and to a 15-day suspension by FINRA. According to the Code of Ethics and Standards of Conduct, which of the following statements are true: A- Jerry is required to notify the CFP Board of the FINRA investigation within 30 days and outcome of the event within 3

Solution: The correct answer A. Duties to CFP Board require CFP® professionals to disclose FINRA investigations and outcomes other than an uncontested minor rule violation (under $2,500 award).

Which of the following is not one of the "buckets" of compensation the CFP Board states must be considered when determining compensation disclosure? A- Compensation the CFP® professional's other clients receive or are entitled to receive from any association with the CFP® professional B- How the client pays for products, services and additional incurred costs including surrender charges and sales loads C- How the CFP® professional and their firm are compensated for providing products and services D- Disclosure of Economic Benefit for Referral or Engagement of Additional Persons

Solution: The correct answer A. Other answer options (B, C and D) are required to be provided to clients when a CFP® provides financial advice or financial planning services.

Ralph, a CFP® professional and independent registered investment adviser, has been working with his new client Jack over the last few months. He has completed all required disclosures and provided all information required for a financial planning engagement. Jack is 32, married, and has 3 children. Ralph discussed Jack's insurance coverage following a thorough review of Jack's policies and recommended Jack purchase a disability policy, additional term life insurance through his employer and a personal liability umbrella policy. Ralph also performed a retirement needs analysis and developed an investment plan he believes will help Jack achieve his goals. While presenting the retirement and investment plan, Jack mentioned that he was rejected for the life insurance for medical reasons that he does not wish to discuss with Ralph. To comply with the Practice Standards of the Code of Ethics and Professional Conduct Ralph must: A- Gather appropriate information from Jack's spouse to determine if Jack's condition may affect the retirement and investment plan. B- Inform Jack that without more information on his medical condition Ralph will not be able to properly address his situation and he wo

Solution: The correct answer B. B is the best answer. Ralph should encourage the client to share the cause of the rejection as a terminal issue would drastically change planning. Health and longevity are factors in retirement planning. It would also need to be taken into account in investment selection. Time horizons factor into asset selection. The planner would need to understand the health issue to appropriately allocate cash and investments with appropriate timelines. The planner cannot use the retirement or investment analysis created prior to knowing about the client's health issue since the underlying assumptions may have changed. Ralph should start the retirement and investment analyses over using new assumptions or re-define the engagement. Ralph is then required (Under element six of Financial Planning and the Application of Practice Standards for The Financial Planning Process) to not enter into an engagement, terminate the engagement, limit the scope of engagement or limit services provided to the client.

Sidney, a CFP® professional, has been working with his new client Rachel over the last few months. He has completed all required disclosures and provided all written documents required for a financial planning engagement. After gathering and analyzing Rachel's financial information, Sidney developed and presented a comprehensive financial plan. Rachel agreed with most of his recommendations, but wants her uncle, a local attorney, to implement the estate planning components of the plan, rather than an attorney that Sidney normally works with and trusts to do a thorough job. Sidney does not know Rachel's uncle and is unfamiliar with his qualifications. According to the Practice Standards of the Code of Ethics, Sidney could take all of the following actions EXCEPT: A- Contact Rachel's uncle and coordinate the delivery of any information needed to implement the estate planning component of the plan. B- Inform Rachel that if she used her uncle for estate planning he would need to restrict the scope of the engagement to exclude responsibility for the estate planning implementation. C- Inform Rachel that if she used her uncle for estate planning, Sidney is required to have the documents review

Solution: The correct answer C. A CFP® professional is not required to have the documents reviewed, but it would be in the best interest of the client (Duties to Client 8 - Complying with the Law). A CFP® professional may not intentionally or recklessly participate or assist in violation of these standards or the laws, rules and regulations governing professional services. Sidney may be acting recklessly if he does not push for Rachel to have documents reviewed by a qualified estate planning attorney. A is a correct statement as Sidney does need to follow the clients instructions and wishes. B is a correct statement, Sidney should comply with Rachel and provide the information requested, but does not need to be part of the implementation. D is a correct statement as Sidney should explain that a credentialed attorney in the area of planning she needs would be in her best interest, but will follow the client's wishes.

Ronald, a CFP® professional, has been invested in real estate rental properties for the past 15 years. Unfortunately, many of his properties have declined in value significantly and he has been unable to rent the properties. Four years ago, Ronald was forced into personal bankruptcy, due to his real estate investments. What is a likely action of the CFP Board, as a result of Ronald's personal bankruptcy filing? A- Include Ronald's name in a news release with other CFP® professionals that have filed bankruptcy within the past 7 years. B- The CFP Board reviews bankruptcies prior to certification, through the Candidate Fitness Standards. Therefore, there will be no further action by the CFP Board since Ronald is already certified. C- CFP Board disciplinary actions will consider if the bankruptcy was a result of Ronald's inability to manage his personal finances. D- Immediate Suspension of the CFP® marks for one year and one day.

Solution: The correct answer C. CFP Board will consider the bankruptcy. Ronald can provide a rebuttal along with his disclosure showing the bankruptcy does not demonstrate an inability to manage responsibly the CFP® professional's or the business's financial affairs. A and D are incorrect CFP Board does not make immediate bankruptcy related decisions. B is incorrect active CFP® certificants must report control bankruptcies and may be subject to discipline.

Thomas, a CFP® professional, has been Shelley's financial advisor for over 20 years and is very familiar with her family situation, goals, objectives and needs. Thomas has just completed a meeting with Shelley and Gertrude, Shelley's mother, who is 79. During the meeting, Thomas entered into an oral agreement with Shelley to manage Gertrude's financial affairs. Gertrude offered no objections to this arrangement. Thomas did not complete a client profile for Gertrude since he was already fully aware of the family's and Gertrude's situation. Gertrude collects a small amount from social security but must supplement that with the interest from her investment portfolio of $100,000. She indicated she would like to provide for her remaining life and establish education funds to send her six grandchildren to college. The grandchildren range in age from 2 - 15. According to the provisions of the Practice Standards, Thomas should take all of the following actions before initiating any action on behalf of Gertrude, EXCEPT: A- Schedule a meeting to discuss material conflicts of interest with Gertrude. B- Understanding The Client's Personal and Financial Circumstances by Obtaining Qualitative and Qua

Solution: The correct answer C. Duties owed to clients (10) outlines information that must be provided to a client when a CFP® professional is providing financial advice or engaging in financial planning. This information must be provided prior to the process beginning. B is the first step of the planning process and comes after A. C is not sufficient before any investments begins. D is a step in the planning process that comes after Information is provided.

John, a CFP® professional, works for a bank that requires all investment products, or loans, offered to a client must be proprietary products of the bank. One of John's clients, "Jack" that he has been providing financial planning services to for the past 10 years asked John to recommend a loan, because the client would like to purchase a vacation home. John is still engaged in the financial planning process with this client. According to the CFP Board Code of Ethics, what action is John required to take? A- John may engage in the financial planning process but is prohibited from selling proprietary funds to Jack. B- John is prohibited from using the CFP® certification due to the investment product constraints of his current firm. C- John may engage in the financial planning process and sell proprietary funds to Jack, as long as he discloses material conflict of interests and compensation information prior to the sale. D- John may engage in the financial planning process to buy and sell proprietary funds to Jack, however he must provide Jack non proprietary options offered by another CFP® professional.

Solution: The correct answer C. Proprietary products are not specifically excluded under the Code of Ethics and Standards of Professional conduct, allowing John to plan and sell them to Jack. However these products will certainly require disclosures (Duties to Clients 10) including Jack understanding clear conflicts of interest and receiving information about John's compensation. A is incorrect John can sell these funds to Jack. B is incorrect John can hold the CFP® certification. D is incorrect "selling away" from his employer likely violates John's duties to his employer as defined by CFP Board.

According to her letterhead, Fella Neeus, CFP®, worked for Fleesum Investments from 201X to 202X. She specialized in highly lucrative annuity contracts which she sold to elderly, inexperienced investors. When renewing her CFP® certification during this time frame, she disclosed a series of FINRA arbitrations and civil suits brought against her by former clients. As detailed in the following summary of a civil lawsuit, George and Betty, former clients of Fella, alleged actions that were typical of all of Fella's recommendations. George and Betty met with a Mortgage Broker to refinance their home. These clients were in their late 70s and had no income and no source of cash other than retirement benefits, social security and rental income from a small house. In June 2019, based on the Mortgage Broker's advice, the clients borrowed $600,000 against their home instead of the $285,000 they had initially sought to borrow. In July 2019, based on Fella's recommendation, the clients placed the excess funds of $314,000 in a variable annuity contract. All of the funds in the variable annuity were invested in equity index investments. Fella did not inform the clients that their funds would be investe

Solution: The correct answer D. "Fella Neeus, CFP®" is correct usage when part of the letterhead, or signature. At all other times, CFP® professional (or other acceptable noun), is the correct usage. A, B and C were violated in this case.

Jonathan got divorced in 20XX and subsequently had severe financial problems. Two years later, he filed for chapter seven bankruptcy. After getting back on his feet, he graduated from college and got a job selling life insurance for a large national insurer. Five years following the bankruptcy, he completed all of the requirements for the CFP® certification. In August of that year, he made his application to CFP Board. Which of the following is correct under the Board's revised policy regarding bankruptcy? A- Jonathan's bankruptcy falls on the presumed unacceptable list because it is within five years preceding his application. He will be denied the right to use the marks unless he files a successful consideration request with the CFP Board. B- Jonathan's bankruptcy falls on the always bar list because it is within five years preceding his application. He will be denied the right to use the marks. C- Jonathan's bankruptcy is no longer a concern of the CFP Board as long as he discloses it in writing to all potential clients for the five-year period following the bankruptcy. D- Jonathan's bankruptcy must be disclosed to CFP Board, but will not likely prevent him from becoming a CFP® profe

Solution: The correct answer D. D is correct under the revised Candidate Fitness Standards effective July 2012, and as stated in the CFP Board Code and Standards E.3.l. His name will also be included in a press release disclosing the bankruptcy. A is incorrect because that was the prior requirement before the standards were revised. B is incorrect because two or more bankruptcies are on the presumptive bar list. C is incorrect because the Board must still be informed and will take the proactive measures listed in Item D to ensure proper disclosure. Jonathan should also make written disclosure of this event, but that alone is not sufficient.

Ralph, a CFP® professional, has been working with his new client Jack over the last few months. He has completed all required disclosures and provided all written documents required for a financial planning engagement. Jack is 32, married, and has 3 children. Ralph discussed Jack's insurance coverage following a thorough review of Jack's policies and recommended Jack purchase a disability policy, additional term life insurance through his employer and a personal liability umbrella policy. Ralph is in the process of performing a retirement needs analysis and developing an investment plan he believes will help Jack achieve his goals. While talking to Jack on the phone about his current company retirement plan, Jack mentioned that his father had been diagnosed with cancer and Jack thinks he and his sister might inherit a large sum of money sometime in the next couple of years because his father has more than enough money to provide for his second wife and still leave some to his children. Jack did not know the specifics of the estate and was uncomfortable contacting his father right now about the details. To comply with the Practice Standards of the Code of Ethics and Professional Conduct,

Solution: The correct answer D. D is the best course of action for Ralph. Jack's financial situation is fluid. Monitoring the situation as outlined in the practice standards would provide Jack with the best outcome. A potentially violates a CFP® professional's duty of confidentiality to a client. B and C are not required, financial planning is fluid and dynamic. Additional information or circumstances will always change a client relationship.

Ralph, a CFP® professional, has been working with Jack over the last few months. He has completed all required disclosures and provided all written documents required for a financial planning engagement. Jack is 32, married, and has 3 children. Ralph discussed Jack's insurance coverage following a thorough review of Jack's policies and recommended Jack purchase a disability policy, additional term life insurance through his employer and a personal liability umbrella policy. Ralph also performed a retirement needs analysis and developed an investment plan he believes will help Jack achieve his goals. To comply with the Practice Standards of the Code of Ethics and Professional Conduct, Ralph must provide all of the following information EXCEPT: A- How the client pays for products, services and additional incurred costs including surrender charges and sales loads B- A disclosure of economic benefit for referral or Engagement of additional persons as any are engaged in the process. C- The advantages and disadvantages of the recommended solutions along with the risks inherent in each alternative. D- Reiterate any material conflicts of interest in writing that Ralph has related to products be

Solution: The correct answer D. Duties to the client (10) providing information require that A and B are provided. C must be provided through the financial planning process standards. While D may be a great idea, it is not required by the Code of Ethics and Professional Conduct.

Mitt, is a broker for a large national broker dealer firm. In addition to all of his appropriate security licenses, Mitt is also a CFP® professional. His security licenses require him to ensure investment selections are in his client's best interests. Mitt executes security orders for his clients on a daily basis. Mitt is aware of the standard of care requirements of the CFP Board of Standards Code of Ethics and he is concerned about meeting his ethical requirements. How would you describe Mitt's duty of care responsibilities for his clients? A- Mitt is only required to meet the security license duty of care, which requires investments to be suitable for a client. B- Mitt is required to provide a suitability standard and to put his client's interest ahead of his own. C- Mitt is required to provide a process oriented fiduciary duty of care. D- Mitt is required to ensure he is working in the best interest of his clients and provides a fiduciary duty of care.

Solution: The correct answer D. Mitt owes a Fiduciary Duty to his Client's (Duties to clients 1a. b and c). Mitt also must comply with the law (Duties to clients 8). A CFP® professional must comply with laws, rules and regulations governing professional services. As such Mitt must meet both the Reg BI rules and fiduciary duty of care.

Walter is a CFP® professional and recently met with a prospective client, Bob. Bob is the owner of a chain of retail hardware stores throughout the southeast. Bob was referred to Walter through a mutual friend. Bob is considering rolling out a new 401(k) plan to his employees and has asked Walter to review his current plan and make a recommendation on improving the plan. All of the following are required to be provided to Bob according to the Code of Ethics EXCEPT? A- A Description of services and products to be provided. B- Any other information about Walter or his firm that is material for Bob to engage Walter. C- Disclosure of Economic Benefit for Referral or Engagement of Additional Persons compensated or utilized by Walter. D- A summary of fund prospectuses and investment policy statement included in the new retirement plan.

Solution: The correct answer D. The CFP Board does not mandate business models nor delivering an investment policy statement. The board requires a CFP® professional provide A, B and C when providing any professional advice or making financial recommendations.

You are a CFP® professional and you have been working with a husband and wife client over the past 5 years. The wife is 42 years old and her husband is 46 years old. They have a moderate risk tolerance for their investments. They have no children and are primarily planning for their retirement. Last week, the wife requested a private meeting between you and her. During this meeting she explained that over the past 3-6 months, her husband has become a compulsive gambler, often gambling illegally. As a result of significant gambling losses, he has depleted all retirement savings they managed to accumulate. She asked that you keep her meeting with you confidential and not disclose it to her husband. After reviewing recent financial statements, you determine that they are unlikely to reach any of their financial goals, due to the husbands gambling problem. According to the CFP Board's Code of Ethics, what should you do next? A- Disengage the client because you are unable to help them attain their goals. B- Contact the appropriate authorities regarding the husband's suspected illegal gambling activities. C- Contact the husband to inform him about the private meeting with his wife. D- Encoura

Solution: The correct answer D. The CFP® professional must act with care and loyalty with the clients. They are not required to disengage, though disengagement may be an eventual outcome of this situation. Additional information can change a planning engagement and recommendations. A is not the best answer, the CFP® may need to revise goals but does not need to disengage. B is incorrect a CFP® is not required to inform authorities about illegal behavior. C violates the wife's confidentiality.

Sally, a CFP® professional, was discussing the prior year's investment results with her long standing client Deidra as part of their semi-annual meeting to review the status and progress of a comprehensive financial plan Sally had developed for Deidra a number of years ago. The initial plan included a risk tolerance assessment of moderately aggressive for Deidra and over the years, her reactions to market ups and downs had supported this assessment in Sally's opinion. As a result, well diversified equity investments comprised about 70-75% of Deidra's portfolio, on average. It had not been a good year in the market. The S&P 500 had declined slightly more than 30%, as the economic recovery faltered and concerns about the European debt crisis mounted. Deidra's portfolio lost 35% of its value over the last 12 months. Deidra became very concerned as she began to recognize the extent of the losses, and was bordering on becoming hysterical. As they talked, Sally discovered that Deidra had become pregnant, was getting married next month and had planned to use some of her investments to help support the family while she stayed home for the first six months of the child's life. According to the Co

Solution: The correct answer D. The question is looking for the false statement. A CFP® professional would need to create a new financial planning engagement to add Deidra's new husband as a client. B and C are conversation that will need to be had as part of Monitoring and Updating. However a new scope of engagement is not required when a client changes their risk aversion.

Which of the following is/are true regarding registering as an investment adviser? A- No one is exempt from the fraud provisions in the Uniform Securities Act. B- Accountants do not need to register under the Investment Advisers Act of 1940. C- Bank holding companies must register under the Investment Advisers Act of 1940. D- Brokers with more than 2 clients in a neighboring state must register in that state. 1- A only. 2- A and B only. 3- B and C only. 4- B and D only.

Solution: The correct answer is 2 Lawyers, Accountants, Teachers and Engineers (LATE) do not need to register as investment advisers. Banks do not need to register. You can have less than 5 clients outside your state and not need to register. Even if an exemption is available, they do not get out of the Anti-fraud regulations.

All of the following are considered core subject areas for financial planning by CFP® professionals EXCEPT: A- Housing sustainability and lines of credit B- Investment planning C- Financial statement preparation D- Retirement planning

Solution: The correct answer is A.

Which of the following statements is true regarding the CFP Board's Code of Ethics and Standards of Conduct? A- The standards apply to all CFP® professionals at all times, regardless of the insurance or securities licenses or registrations held. B- The standards are waived when CFP® professionals are limited to proprietary products. C- The standards apply to all CFP® professionals unless they hold another license or other registration. D- The standards apply only to CFP® professionals who provide financial planning or material elements of financial planning.

Solution: The correct answer is A. A CFP® professional must follow the code of ethics when providing professional services.

All of the following are Rules of the Code of Ethics except: A- A certificant shall refrain from borrowing or lending money and commingling financial assets. B- A certificant shall at all times act in the client's best interest. C- A certificant shall not engage in conduct, which reflects adversely on his integrity or fitness as a certificant. D- A certificant shall exercise due care.

Solution: The correct answer is A. A certificant shall not borrow or commingle funds as stated under the Standards of Conduct. The question was asking about the Code of Ethics.B, C and D are all in the Code of Ethics.

When a CFP® certificant is unsure whether a specific service or activity rises to the level of financial planning, the best course of action is? A- Apply the practice standards as though the client had engaged in a financial planning engagement. B- Limit recommendations to a specific product. C- Require the client to sign a waiver of responsibility. D- Disengage from the client engagement.

Solution: The correct answer is A. A financial planner may always enter into a meaningful process with their client.

Which of the following statements is true regarding financial planning by CFP® professionals? A- The client relationship becomes financial planning when the planner and client engage in a collaborative process that helps maximize a Client's potential for meeting life goals through financial advice. B- The agreed-upon services to be provided must be narrowly defined and limited in scope to be considered financial planning, C- An engagement must involve more than one CFP® certificant to be considered financial planning. D- When any of the core subject areas (retirement planning, risk management or cash flow management) are not addressed in a client engagement, the engagement cannot be considered financial planning.

Solution: The correct answer is A. A is the CFP Board definition of financial planning.

A young couple wants to save for their child's college education. What does the financial planner need to disclose to them during their engagement? A- How the client pays for products, services and additional incurred costs including surrender charges and sales loads. B- A written description of conflicts of interest along with a written confidentiality statement. C- Future investments or mutual funds. D- List of client references.

Solution: The correct answer is A. A is the best answer. A CFP® professional must provide clients with information about how a client pays for services when providing financial advice or planning. B is incorrect, a written description conflicts of interest is not required. C is incorrect a list of assets is likely unknown prior to engaging in the financial planning process. D is incorrect and not required.

For many years, Samuel has been employed as a financial advisor at a leading brokerage firm where he conducts suitability reviews and makes investment recommendations for his clients. He recently obtained his CFP® certification and has just signed an agreement with Thomas, a new client, for a comprehensive financial plan. According to the Code of Ethics and Standards of Conduct, all of the following represent requirements for Samuel in his engagement with Thomas EXCEPT: A- Samuel must address if he has implementation responsibilities. B- Samuel must act as a fiduciary in his relationship with Thomas. C- Samuel must disclose to Thomas the existence of any bankruptcy where Samuel was a control person. D- Samuel must provide Thomas with information regarding how Thomas pays for products, services and additional incurred costs including surrender charges and sales loads.

Solution: The correct answer is A. A is the best answer. Implementation is a required step, and only needs to be addressed in the beginning if it is specifically excluded from the engagement. B, C and D are required of any CFP® professional selling a financial asset or providing professional advice.

When you are establishing an engagement for financial planning with a client, what information may you provide orally? A- Material Conflicts of Interest B- Privacy Policy C- How the Client pays D- Terms of the engagement

Solution: The correct answer is A. A planner may provide Material Conflicts of Interest orally or in writing.B is incorrect because a planner must provide their privacy policy in writing.C is incorrect because all types of compensation disclosures must be in writing for a financial planning engagement.D is incorrect because terms of the engagement must be in writing.

Which of the following is required of a CFP® certificant engaging in financial planning with their client? A- Act as a fiduciary B- Forgo commissions associated with selling or placing a financial product C- Address all of the core financial planning subject areas D- Document all steps in the planning process with a written financial plan

Solution: The correct answer is A. All CFP® professionals engaging in financial planning must act as fiduciaries.

Derek Faust, age 47, has worked for XYZ Company the past 12 years. XYZ Company has lost a major contract and must begin downsizing immediately. Derek was laid off yesterday. What should Derek do first? A- File for unemployment benefits. B- Rollover his company 401(k) plan. C- Convert disability coverage under COBRA provisions. D- Notify the bank holding the mortgage on his house.

Solution: The correct answer is A. All the other options have 30 or more days before elections must be made, but Derek should secure his cash flow resources as soon as possible.

Jennifer recently applied for CFP® Certification. Which of the following would "always" bar her from certification? A- Felony conviction of tax fraud or other tax-related crimes. B- One personal or business bankruptcy within the last five years. C- Suspension of a professional license. D- Felony conviction for non-violent crimes within the last five years.

Solution: The correct answer is A. Answers "B," "C," and "D" are on the "presumed" to be unacceptable list. Choice "A" is on the "always" bar list.

Which of the following would most likely indicate that interest rates will rise in the future? A- An increase in consumer confidence. B- A decrease in the federal deficit. C- An increase in manufacturer inventories. D- A decrease in the demand for credit.

Solution: The correct answer is A. B is incorrect. A decrease in the federal deficit may indicate that government spending has declined or taxes have increased. Both of these events reduce the money supply. This would not specifically cause interest rates to rise. C is incorrect. When inventories increase, that generally indicates consumer spending has declined. A decline in consumer spending would potentially lead to a decline in interest rates. D is incorrect. Interest rate levels are a factor of the supply and demand of credit. An increase in the demand for credit will raise interest rates, while a decrease in the demand for credit will decrease them.

Gilligan's 52-year-old father opened a Uniform Transfers to Minors Act (UTMA) account for Gilligan, to help save for college. Gilligan is age 16, and plans on matriculating in two years. Which of the following is an accurate statement regarding college savings vehicles? A- Gilligan could own bonds, cash or securities in the UTMA account, but the income may be subject to kiddie tax. B- Gilligan's father can use his traditional IRA to make a tax-free distribution when paying college costs. C- A scholarship that paid for tuition, fees, room, board, books and a travel stipend would be income tax-free. D- Room and board are not considered qualified distributions from a Section 529 college savings plan.

Solution: The correct answer is A. B is incorrect. IRA distributions are taxable when used for college. However, they are not subject to the 10% early withdrawal penalty. C is incorrect. Amounts used for incidental expenses, such as room and board, or travel, are taxable. D is incorrect. Room and board are qualified expenses.

An increase in the price of product A causes a decrease in the demand for product B. What are the two products? A- Complement products. B- Substitute products. C- Unrelated products. D- Demand-elastic products.

Solution: The correct answer is A. By definition, products are complements if an increase in the price of good A causes a decrease in the demand for its complementary good B. For example: If I increase the price of hot dogs, what happens to the demand of hot dogs? The demand will fall as the price rises. What else will fall as the price rises? How about hot dog buns? Hot dogs and hot dog buns are complements. As the price of hot dogs increase, demand for hot dog buns will fall since less people will buy hot dogs.

Indranil is age 58 and has recently inherited $2,000,000 from his father. He has given two weeks' notice to his employer and would like to retire permanently. He has never previously mentioned his father's wealth, or a desire to retire, to his CFP® professional in any of their financial planning meetings over the years. What is the most appropriate next step for the CFP®professional? A- Evaluate the client's retirement assets and cash flow needs. B- Utilize Monte Carlo software to help establish an appropriate withdraw rate for the client. C- Encourage the client to recant their retirement until additional analysis has been completed. D- Revisit duties to be performed by the CFP® professional now that the client has retired.

Solution: The correct answer is A. CFP Board Code and Standards states the planner is responsible for all steps in the financial planning process. If no limits to the scope are mentioned, there are none and you answer based on comprehensive financial planning engagement. Any significant change in assets would require returning the data gathering. A, B and C are important in the retirement planning process. However, revisiting the cashflow needs should be the starting point. The CFP® professional does not need to revisit the duties to perform since they have a comprehensive planning relationship already.

Walter and Sons is a large brokerage firm that employs a number of CFP® professionals. The brokerage firm is in compliance with all FINRA, federal, and state laws. However, since they employ a number of CFP® professionals, the firm is concerned about their responsibilities according to CFP Board's Standards of Professional Conduct. Which statement accurately reflects the firm's responsibility regarding the CFP Board's Code of Ethics and Standards of Conduct? A- Firms themselves are not required to abide by the Standards, as CFP Board certifies individuals, not firms. B- According to the Standards of Professional Conduct, firms owe CFP Board and CFP® certification holders the duty to abide by the Code of Ethics and Practice Standards. C- The firm should sponsor continuing education courses for their CFP® practitioners, including 2 hours of ethics training every two years. D- Since the firm is in compliance with FINRA, federal and state laws, then the firm is also in compliance with CFP Board's Standards of Professional Conduct.

Solution: The correct answer is A. CFP Board cannot and does not require broker/dealer firms to uphold any standards of care. Duties Owed to Clients and CFP Board are held by CFP® professionals, not their employers. However, if a CFP® professional was a control person of a business entity they would need to report compensation from the entity as well as any entity bankruptcies to CFP Board.

If the demand for a product is inelastic, it means that: A- An increase in the price would lead to an increase in the total amount spent on purchases of the product. B- An increase in the price would lead to a decrease in the total amount spent on purchases of the product. C- An increase in the price would have no effect on the total amount spent on purchases of the product. D- The demand and supply are in equilibrium.

Solution: The correct answer is A. Choice "B" is the description of a product whose demand is elastic. Choice "C" describes the demand of a product that is perfectly elastic. Choice "D" is a description of the equilibrium point in supply and demand. For example: If demand is 100 units and the price is $5, then total spent on the product is 100 × $5 = $500. If price is increased to $7 and demand is still 100 units (inelastic = qty. demanded does not change when price changes), then total spent is 100 × $7 = $700.

Which of the following are included among the tools available to the Federal Reserve (the Fed) to accomplish its responsibilities? I- Open market operations. II- Deficit spending. III- Discount rate change. IV- Treasury bill issuance. A- I and III only. B- I, II and III only. C- I, III and IV only. D- I, II, III and IV.

Solution: The correct answer is A. Choice "IV" - Issuing Treasury bills is the domain of the Treasury Department, not the Federal Reserve. Choice "II" - Deficit spending falls under fiscal policy which is governed by the executive and legislative branches of government, not the Federal Reserve.

If interest on an investment account were to be compounded semiannually, the effective rate of interest will be: A- Higher than the nominal rate. B- Lower than the nominal rate. C- The same as the simple rate. D- Equal to the nominal rate.

Solution: The correct answer is A. Due to the increased frequency of compounding (semi-annual), the effective rate (or rate paid) will be higher than the nominal (or stated rate) of interest.

In engagements where financial planning services are to be provided, which of the following is not required to be provided to a client? A- Disclosure of reasonable and customary fees paid for custodial services. B- Any arrangement by which someone who is not the Client will compensate or provide some other material economic benefit to the CFP® professional, the CFP® Professional's Firm, or a Related Party for the recommendation or Engagement. C- How the client pays for products, services and additional incurred costs including surrender charges and sales loads. D- Existence of any bankruptcy, public discipline and locations of any Self Regulatory Organization (SRO) or government websites where the CFP® professional is a control person.

Solution: The correct answer is A. Duties owed to clients require disclosing referral benefits, how products will be paid for and existence of any bankruptcies. Reasonable and customary fees for custodial services are not sales-based compensation (12.b.ii) and are not required to be specifically disclosed.

Which of the following statements is true regarding a CFP® professional's duty to disclose conflicts of interest? A- The duty to disclose material conflicts of interest applies to any professional client engagement of the CFP® professional. B- The conflict must be material and directly financially harm the client or client's family. C- The conflict must be monetary to rise to the disclosure requirement. D- The conflict must be apparent and long lasting.

Solution: The correct answer is A. Duties to clients apply when providing financial advice or financial planning services.

Ed Riddle purchased a piece of property for $125,000 in a booming real estate market. He plans to sell it in five years and hopes to realize a 12% annualized return on his investment. What must Ed's selling price be to realize that return? A- $220,293 B- $224,482 C- $251,419 D- $270,928

Solution: The correct answer is A. Ed must realize a selling price of $220,293 to attain that level of return. N = 5 i = 12 PV = <125,000> PMT = 0 FV = ?

Which of the following are included in the first step of the financial planning process (Understanding the Client's Personal and Financial Circumstances) I- Identifying Potential Goals II- Obtaining Qualitative and Quantitative Information III- Analyzing Information IV- Addressing Incomplete Information A- II, III and IV only. B- I, II and IV only. C- II and IV only. D-I, II, III and IV.

Solution: The correct answer is A. Elements II, III and IV are required in the first step of the financial planning process. Step 1 included analyzing information, not to be confused with Step 3, Analyzing the Client's Current Course of Action. Element I - Identifying Potential Goals, should occur in the second step of the planning process (Identifying and Selecting Goals).

Kim and Mark make $65,000 per year combined gross income. Their housing costs are $1,625 per month, while another $300 covers the balance of any other debt they currently owe. Other household expenses bring their total expenses to $3,200 per month. The total portion of their obligations that are monthly interest payments (included in the mortgage and other debt amounts) is $1,000. Their take home averages $3,500 per month. Over the last several years, they have managed to save 3% to 5% of their income. They have set aside $22,400 in money market funds. Select "A" if their emergency fund can be considered a strength. Select "B" if their emergency fund can be considered a weakness. A- Their emergency fund is a strength. B- Their emergency fund is a weakness.

Solution: The correct answer is A. Emergency funds can be used to cover 3-6 months of income or 3-6 months of non-discretionary expenses. Using income allows current savings goals to still be accomplished. They have a very respectable 3-6 months of emergency funds. 3 - 6 months of take home pay of $3,500 over the three to six months is a range of 10,500 - 21,000 3 - 6 month non-discretionary expenses of 3,200 over the three to six months is a range of 9,600 - 19,200 (the CFP® exam leans this way) Had the question asked about the emergency fund ratio, you would then use cash and cash equivalents divided by monthly non-discretionary cash flows

Harry and Deidre Salinger are both age 59 and plan to work to age 65. They have been filling their "bucket list" with all of the things they plan to do in retirement and are really looking forward to getting started on it, but are also concerned about outliving their money. They have saved diligently in their company's 401(k) plan. In addition to the 401(k)s, the Salingers each have variable universal life insurance policies with $50,000 of cash value. They maintain their checking and savings accounts at the bank where Deidre works, and have a total of $35,000 in those two accounts. The Salingers have asked you to guide them regarding their asset allocation in the 401(k) plans and whether they can afford to retire at 65 and do the things on their bucket list. Which of the following is the most important piece of additional information that you will need to gather to assist them with these issues? A- Investment risk tolerance B- Summary of current income and expenses C- Copy of their tax return D- Whether either of their employers offers continuation of health insurance benefits for retirees

Solution: The correct answer is A. In order to determine the appropriate asset allocation, you must have an understanding of the client's risk tolerance. Risk tolerance is also necessary to make assumptions regarding investment return, which will affect the analysis of whether they can afford to retire at age 65 and live the kind of lifestyle they desire. Answers B and C are other items of information you will need to gather to complete the financial plan, but in terms of the question being asked, A is the most important piece of additional information. D would be least important because if they retire at age 65 as planned they will be eligible for Medicare.

Sorel Parks, CFP®, met with Dorian and Griffin, Dorian's father. During the meeting, Sorel entered into an oral agreement with Dorian to manage Griffin's financial affairs. Sorel did not complete a client profile of Griffin. Sorel offered to review and make recommendations on Griffin's then-current living trust. Sorel prepared a Last Will, Revocable Trust and Durable Power of Attorney for management of Property and Personal Affairs, and charged Griffin $400 per hour for preparing the documents. Griffin had not requested such documents. Griffin asked Sorel to provide him with all the documents pertaining to his investments. As of the hearing date with the Disciplinary and Ethics Commission, Sorel had not provided the requested documents to Griffin. The Commission issued an Order to Revoke Permanently Sorel's right to use the CFP®, CERTIFIED FINANCIAL PLANNER™ and certification marks. The Commission ordered Sorel to verify that he was not using the marks by submitting copies of letterhead and business cards within 30 days of the Order. To comply with the Code of Ethics, before providing any services to Griffin, Sorel was required to take all of the following steps, Except: A- Review imple

Solution: The correct answer is A. It is important to understand the steps in order and identify what step they are currently in; the step that comes before and after the step that comes after. The question asked what should have happened before providing services (implementation). Remember the acronym UIADPIM. The plan should have been presented to the client and next steps/responsibilities addressed. Implementation responsibilities are done after the client agrees to one of the courses of action the CFP® professional has presented. Duties owed to clients (10) outlines information that must be provided to a client when a CFP® professional is providing financial advice or engaging in financial planning. This information must be provided prior to the process beginning. B is the first step of the active financial planning process and comes after item C. D is a step in the planning process that comes after Information is provided.

John Hendrick wants to pay one-half of the college costs for his daughter, Ruth. She will be attending a private college with annual costs of $20,000 today. Ruth is 10 years old and will be starting college in 8 years. If these costs are expected to increase annually by 8%, how much will Mr. Hendrick need to provide for her first year of college? A- $18,509 B- $23,409 C- $27,371 D- $37,019 E- $74,037

Solution: The correct answer is A. N = 8 i = 8 PV = 10,000 (20,000/2) he only wants to pay half. PMT = 0 FV = ? Answer is 18,509.3021 Note: The question is asking what is needed for the first year of college only (not her entire college education).

John Becker expects to receive $100,000 from a trust fund in nine years. What is the current value of this fund if it is discounted at 8% compounded semiannually? A- $49,362.81 B- $50,024.90 C- $51,278.94 D- $82,500.29

Solution: The correct answer is A. N = 9 x 2 = 18 i = 8/2 = 4 PV = ? PMT = 0 FV = 100,000 Tip: Prior to solving, make sure your calculator is cleared and payments per year = 1.

The First Practice Standard - Understanding The Client's Personal and Financial Circumstances is a good place to: A- Construct and send the client an information organizer. B- Establish which services will be provided during the engagement. C- Undertake teambuilding and networking with other professionals who are already working with the client. D- Modify goals if need be during this step.

Solution: The correct answer is A. Option "B" is prior to step one. Options "C" and "D" are step three - trend analysis and information evaluation

Jake contacted Robert, a CFP® professional who provides investment services and has worked with Jake in the past. He requested that Robert purchase 2,500 shares of DEF stock for Jake. The call came in at 1:32PM. Immediately following the call, Robert became seriously ill and was out of work for the next week. Upon his return, Robert executed Jake's purchase order, however, the stock had appreciated 11% during the week Robert was out. Which of the following statements is correct? A- Robert violated the CFP Board's Code of Ethics Duty of Diligence. B- Robert did not maintain the CFP Board's Financial Planning Practice Standards by executing Jake's purchase of DEF stock. C- Robert violated the CFP Board Code of Ethics Duty of Professionalism. D- Robert did not violate any CFP Board ethical guidelines.

Solution: The correct answer is A. Robert's illness is not an issue, but his execution of a trade (DEF stock) at a higher price may not have been the goal of his client. Robert should have contacted the client and confirmed the trade was still appropriate. Diligence requires services provided in a reasonable and prompt manner.

A young married couple, who both work, recently had a baby. What should be their primary financial concern? A- To purchase life insurance B- To save up 3 months of cash reserves C- To prepare a long-term retirement plan D- To create an education fund for their child

Solution: The correct answer is A. Since both parents work, there is likely a need for both incomes. The fact pattern does not state they have insurance. Keep in mind the CFP Board is conservative in nature and believes the most disastrous issues should be solved first. The biggest financial risk that they face is likely premature death of one of the wage earners, therefore purchasing life insurance is likely the primary financial concern. The emergency fund would be the second issue, then retirement and education. Time frame wise you may believe education should come before retirement, but you can get loans for education, not retirement. B is incorrect because the married couple may have other funds to access for an emergency fund. It's also a smaller financial risk than premature death of a primary wage earner. C is incorrect because it's likely they already have some sort of retirement savings plan in place, through their employers. D is incorrect because we do not know if the married couple has intention of paying for the child's education. In addition, if there is a premature death of a primary wage earner, funding a college education may become significantly more difficult without a life insurance policy in place.

Which of the following services is not provided at the State and Local level when planning for special needs? A- Social Security Benefits B- Transportation Services C- Respite Care Services D- Residential Services

Solution: The correct answer is A. Social Security benefits are provided at the Federal Level. Transportation Services allow individuals with restricted mobility to obtain assistance for transportation to doctor's appointments and other needs. Respite care provides families, that are primary caregivers , a professional to ensure their loved one is taken care of while they run errands, go to their own appointments, or take time to rest while their family member still receives the care they need. Residential services help individuals choose, obtain, and remain in community settings that enable them to live as independently as possible

Which of the following would not likely be considered a financial planning engagement: A- Fact-finding to meet regulatory "Know Your Client" suitability requirements B- Detailed data-gathering and analysis regarding multiple aspects of a client's financial situation C- Reviewing multiple financial planning areas to analyze a client's situation D- Analyzing a client's data and making wide-ranging recommendations

Solution: The correct answer is A. Suitability fact finding likely does not rise to requiring the financial planning process or implementation of the practice standards. The Practice Standards set forth the Financial Planning Process. A CFP® professional must comply with the Practice Standards when: a.The CFP® professional agrees to provide or provides: i. Financial Planning; or ii. Financial Advice that requires integration of relevant elements of the Client's personal and/or financial circumstances in order to act in the Client's best interests ("Financial Advice that Requires Financial Planning"); or b.The Client has a reasonable basis to believe the CFP® professional will provide or has provided Financial Planning.

Which of the following individuals or entities is/are responsible for ensuring that CFP® professionals are adhering to CFP Board's Code of Ethics and Standards of Professional Conduct? I. The CFP® professional. II. The CFP® professional's employer. III. The CFP® professional's clients. A- I only. B- I and II. C- I and III. D- I, II, and III.

Solution: The correct answer is A. The CFP® professional is responsible for adhering to CFP Board's Code of Ethics Standards of Professional Conduct. However, the employer is not responsible for ensuring the CFP®professional adheres to CFP Board's Code and Standards. CFP Board certifies individuals, not firms.

A CFP® professional and an advisor who is advertising multiple financial designations are having a discussion about the differences between CFP® certification and other designations. The CFP® professional explains the difference between the CFP® marks and the other designations. Is this conversation allowed under the CFP Board's Code of Ethics and Standards of Conduct? A- Yes, if everything that the CFP® Professional said was factual. B- Yes, because CFP® marks are the superior designation. C- No, because this conversation violates professionalism. D- No, because CFP Board restricts discussing other professional designations.

Solution: The correct answer is A. The CFP® professional may discuss the differences between the CFP® certification and other designations as long as the statements are factual and accurate. B is incorrect because the code of ethics require objectivity, which precludes a CFP® professional from making this statement. C is incorrect because the principle of professionalism requires a certificant to behave with dignity and courtesy to clients, fellow professionals others in business-related activities. Describing factual differences between the CFP® mark and other designations is not a violation of professionalism. D is incorrect as the code ethics are meant to differentiate those advisors that have demonstrated a higher level of competency through education, exam, experience and practicing in compliance with the code of ethics.

After analyzing and evaluating the client's information to understand financial circumstances, an evaluation should be made to determine the client's goals, relevant personal, and economic assumptions. By undertaking this task in a responsible prompt and thorough manner, a practitioner is adhering to which of the following Code of Ethics Principles? A- Diligence B- Integrity C- Competence D- Upholding a fiduciary duty

Solution: The correct answer is A. The best answer is A. Duties owed to clients (4) requires that a CFP® professional must provide services in a timely and thorough manner. Integrity, competence and upholding a fiduciary reflect the nature, appropriateness and scope of advice provided.

Becky is 55 years old and has decided to purchase a tract of land which will be used for her retirement home. She plans to start construction in five years when she retires. She owns her current home outright, and her other assets consist of a $3,000 checking account, a 401(k) plan, and some personal assets. Which of the following represents the best alternative for Becky to pay for the land purchase? A- Home equity loan. B- Margin loan. C- 401(k) loan. D- Construction loan.

Solution: The correct answer is A. The home equity loan would be the best alternative for the current land purchase. A construction loan may be difficult to obtain and is typically a very short-term loan (one year or less). Since she is not starting construction for five years, the home equity loan would be a better option. She cannot take out a loan (or have a loan) while retired. She is not starting the building until she retires. The typical rate on a 401k loan is 8%, home equity loan is much lower and can be paid back in 10 years.

Which of the following is NOT a fact that would be considered qualitative data? A- Copies of trust documents and wills. B- Client health status. C- Risk tolerance levels. D- Changes in current lifestyles.

Solution: The correct answer is A. This is an except question. If data contains names or numbers, it is quantitative. All other information is considered qualitative. From CFP Board:

Billy Smith, age 55, has been a member of the union for 30 years, and as a result, has been excluded from his employer's retirement plan. Billy has been offered a management position with his firm, which will make him eligible to participate in the company's 401(k) plan. Billy's objective is to retire at age 65 with $2,000 in monthly retirement income, exclusive of Social Security benefits. He assumes a life expectancy of age 95. The union retirement plan will provide him with $1,000 monthly. (There are NO matching contributions from Billy's employer to the 401(k) plan and his income is adequate to have the required level of contributions fall within the deferral limits of the 401(k) plan. Contributions and payments, as appropriate, are made at the beginning of each month.) If the return in the company's 401(k) plan is 10%, what monthly amount will Billy have to contribute to that plan for 10 years to meet his objective? A- $556 B- $566 C- $576 D- $747

Solution: The correct answer is A. This question is intended to test several time-value-of-money calculations, and is NOT intended to imply a level retirement income or savings approach. Set calculator on "Begin" mode. N = 30 × 12 = 360; i = 10 / 12 = .8333; PV = ?; PMT = 1000; FV = 0. Solve for PV of annuity due ($114,900). Then use the PVAD (stay In begin mode) figure of 114,900 as a FV, where N = 10 × 12 = 120; i = 10 / 12 = .833; PMT = ?; FV = 114,900; Answer for payment = $556.

If a prospective client implies that they are unable to reveal certain sources of their income to you as you begin undertaking the process of building and developing their Statement of Earnings, what should you do? A- Terminate the interview immediately and do not engage them as a client. B- Continue the questioning and assume that they will answer your questions later when they are more comfortable with you and know you better. C- Estimate from previous information and assign any additional income to previously identified sources. D- Call the authorities and report your suspicions of possible illegal activities such as money laundering or drug dealing.

Solution: The correct answer is A. This would not be a favorable client. Anyone who cannot provide you with adequate information to assist them in formulating a plan represents an unacceptable risk!

For purposes of the Free Application for Federal Student Aid (FAFSA), which of the following is/are considered includible assets? I. Cash. II. Life insurance. III. Investment real estate. IV. Annuities. A- I and III only. B- III and IV only. C- I only. D- I, II, III, and IV.

Solution: The correct answer is A. Under the Free Application for Federal Student Aid: Assets include: Money in cash, savings, and checking accounts Businesses Investment farms Real estate (other than a personal residence) Other investments Assets do not include: A personal residence Life insurance Retirement plans (401(k) plans, pension funds, annuities, IRAs, Keogh plans, etc.)

Doug, a CFP® professional, has enjoyed a 10-year relationship with Stephen and Danielle, a married couple. Doug is compensated exclusively from hourly financial planning fees. Both Stephen and Danielle are Doug's clients. Danielle calls Doug and shares that she is planning on leaving Stephen and filing for divorce within the next week. Danielle asks Doug to prepare a balance sheet and develop recommendations to help protect Danielle's assets from creditor claims. Stephen is unaware of Danielle's divorce plans. Which of the following describes Doug's best course of action? A- Withdraw from the engagement. B- Call Stephen and ask for his authorization to work on a separation plan. C- Offer to act as mediator between Stephen and Danielle. D- Move forward creating recommendations for Danielle.

Solution: The correct answer is A. Under the Standards of Professional Conduct, Doug is obligated to act in the best interests of his clients. Since Doug is practicing financial planning, he is also obligated to carry a fiduciary duty to both Stephen and Danielle. Moving forward with recommendations for Danielle would breach his fiduciary duty to Stephen. Doug is not a counselor or mediator, and would be over-stepping the financial planning relationship by acting as such.

In which of the following circumstances would a CFP® professional owe a client a fiduciary standard of care? A- The CFP® professional recommends a Roth IRA for a client as part of a comprehensive financial plan. B- The CFP® professional conducts an educational seminar on the advantages of contributing to a 401k plan. C- The CFP® professional explains mutual fund fees to a client. D- The CFP® professional, who is also a broker, executes a directed stock trade for a client.

Solution: The correct answer is A. When recommending specific actions or strategies for a client, the CFP® professional is acting in a fiduciary capacity. General financial information is not considered financial advice. Responses to directed orders will not be financial advice.

Of the following situations, when should a pre-marital agreement NOT be considered by individuals contemplating marriage? A- When one or both parties are unwilling to make a full disclosure of all their income and assets to the other party. B- When each party has significant wealth and wishes to protect his/her financial independence. C- When there is a significant difference in wealth of each party. D- When one or both parties have ongoing obligations, rights and/or children from a previous marriage.

Solution: The correct answer is A. Without full disclosure of the assets of both parties, it is not possible to arrive at a fair arrangement for a prenuptial agreement. All other answers are suitable for premarital agreements

John and Jane have a net worth of $20,000 and total assets of $150,000. If their revolving credit and unpaid bills total $8,000, how much are their total liabilities? A: $122,000 B: $130,000 C: $138,000 D: $150,000

Solution: The correct answer is B. A - L = Net Worth 150,000 - L = 20,000 L = 130,000

Which of the following is/are not a duty owed by a CFP® professional under the CFP Board Code of Ethics and Standards of Conduct? A- Duties Owed to CFP Board B- Duties Owed to other CFP® Professionals C- Duties Owed to Clients D- Duties Owed to Firms and Subordinates

Solution: The correct answer is B. A CFP® professional has duties owed to the Client, CFP Board, their firm and subordinates. CFP® professionals must act in a manner that reflects positively on the profession and certifications, though there is no direct obligation for other financial planning professionals.

A client is involved in a potentially litigious matter and asks to confide legally sensitive information to a CFP® professional under the protection of advisor-client privilege. This information may affect another one of the CFP® professional's clients, who happens to be a business partner of the first client. How should the CFP® professional respond to this situation (CFP® Certification Examination, released 8/2012)? A- Ensure that the client signs the required Privacy Policy before having any discussions. B- Caution the client that there is no such thing as advisor-client privilege. C- Document the information and, as required by CFP Board's fiduciary standard, debrief the second client on the details that pertain to her. D- Document the information as required by CFP Board's Rule on Reciprocal Disclosure.

Solution: The correct answer is B. A CFP® Professional's duties to clients, confidentiality and privacy (rule 9) provides examples of when a CFP® may be compelled to share information without the active consent of the client including a civil, criminal, exam, subpoena or summons. The CFP® may be pulled into a civil disclosure and should share as much at the onset of a relationship. A is incorrect because a CFP® professional will be required to disclose information that may impact another client or disengage the client. C is incorrect because debriefing the second client would not be in the best interest of the first client D is incorrect because there is no such rule as Reciprocal Disclosure

A CFP® professional owes a client the duty of service as a fiduciary in which of the following situations? A- When talking with a prospect at a professional networking event B- When recommending financial assets or engaging in the financial planning process C- As a realtor, assuming the CFP® professional is appropriately licensed and appointed D- When speaking about opportunities in the profession to a group of college students

Solution: The correct answer is B. A CFP® professional must act as a fiduciary when providing professional services. A realtor relationship is outside the scope of a CFP® professional's professional services.

Snidely, a CFP® professional, met with Dudley and Geezer, Dudley's father. During the meeting, Snidely entered into an oral agreement with Dudley to manage Geezer's financial affairs. Snidely did not complete a client profile of Geezer. Based on Snidely's advice, Geezer liquidated his personal savings account and issued a personal check for the same amount payable to Snidely's company ("Company"). Snidely cashed the check in the Company's account and did not create a separate account for Geezer. On Snidely's advice, Geezer later liquidated his money market account and gave the proceeds to Snidely to manage. About six months later, Snidely opened an escrow account on a deed of trust using a check made out to Snidely and the Company. Geezer did not authorize the opening of the escrow account. Geezer subsequently stopped receiving monthly distributions from a broker-dealer acting as custodian of Geezer's assets as a result of Snidely's failure to properly fund the account. On April 1, Geezer asked Snidely to provide him with all the documents pertaining to his investments. As of July 10, the hearing date with the Disciplinary and Ethics Commission, Snidely had not provided the requested doc

Solution: The correct answer is B. A CFP® professional owes a duty of diligence to their clients. "A CFP® professional must provide services in a timely and thorough manner" There is no arbitrary 3 month limit. The following answers are taken from pre-October 2019 rule changes but reflect the outcome of an actual disciplinary case. Answer A: The Commission found that Respondent engaged in conduct which reflects adversely on his integrity and fitness, upon the marks and upon the profession because he billed the Client's Father in a manner that mischaracterized the actual costs charged to the Client and the Client's Father. Answer C: The Commission found that there was no evidence to conclude that Respondent secured any information that the client's needs and objectives were met. As a result, the Commission found that Respondent entered into a financial planning engagement with the Client's Father without gathering sufficient information to meet the Client's Father's needs and objectives. Answer D: The Commission found that Respondent failed to exercise reasonable and prudent professional judgment because he: 1) failed to clearly outline the scope of the engagement with the Client's Father; and 2) failed to clearly identify who his client was. An updated rationale would find the CFP® professional commingled funds - which is prohibited under duties owed to a client (15). The CFP® professional failed to act as a fiduciary (1 a. b. and c.) The CFP® professional violated practice standards on gathering qualitative and quantitative information and the CFP® professional acted recklessly without integrity.

Your client, Helen, owns a joint account with her sister. The account was established and contributed to by their mother years ago. Helen comes into the CFP® Professional's office requesting to withdraw her half of the money from the account. The professional feels that she is making an emotional decision at the time, what should he do? A- Contact the mother and advise her to schedule a meeting with both of her daughters. B- Talk to Helen and ask her why she does not want to keep her money with her sister anymore. C- Tells Helen to contact her attorney. D- Tells Helen to contact her sister and have her sign a document saying that she can withdraw the money.

Solution: The correct answer is B. A discussion with Helen is the best approach. If there are no withdrawal restrictions on the account, contacting another party is not appropriate. A is incorrect because it would be a violation of the duty of confidentiality to contact Helen's mother regarding her request. C is incorrect because Helen does not need authorization from the attorney to make the withdrawal. D is incorrect because Helen does not require authorization from her sister to withdraw the money.

A rule of thumb with regard to the emergency fund of a client is that it should contain at a minimum: A- One to two months worth of monthly expenses. B- Three to six months worth of monthly expenses. C- Six to nine months worth of expenses. D- Nine month's to one years worth of expenses.

Solution: The correct answer is B. A rule of thumb with regard to the emergency fund of a client is that it should contain at a minimum three to six months worth of monthly expenses.

Which of the following is not included in the ethical principles guiding a CFP® certificant? A- Diligence B- Experience C- Competence D- Integrity

Solution: The correct answer is B. A, C and D are duties owed to clients.

Which of the following is not an integrating factor CFP Board will consider in determining if a CFP® professional has engaged in financial planning with a client? A- The number of relevant elements of the Client's personal and financial circumstances that the Financial Advice may affect. B- The net worth and income of the client and how those may be affected by the Financial Advice. C- The length of time the Client's personal and financial circumstances may be affected by the Financial Advice. D- The portion and amount of the Client's Financial Assets that the Financial Advice may affect.

Solution: The correct answer is B. A, C and D are integration factors provided by CFP Board's Financial Planning and the Application of Practice Standards for The Financial Planning Process (4 a, b and c).

Today, Walter is submitting his Initial Application for CFP® certification with the CFP Board of Standards. Four years earlier, Walter signed a Letter of Acceptance, Waiver and Consent with FINRA, as part of FINRA arbitration hearing. As part of the arbitration settlement, Walter consented to a 30-day suspension, a fine of $100,000 and 20 hours of continuing education. Which action is most appropriate for Walter to take when completing his Initial Application for CFP® Certification? A- Walter cannot disclose the FINRA arbitration because if he reports the arbitration to the CFP Board, he would be violating duties owed to clients (9 - confidentiality) by disclosing confidential client information. B- Walter should disclose the FINRA arbitration to the CFP Board. C- Walter may disclose the FINRA arbitration, but is not required to disclose the arbitration, because the matter was settled more than five years prior to Walter applying for initial certification as a CFP® Certificant. The Candidate Fitness Standards look back period is up to five years. D- CFP Board Practice Standards require Walter is to disclose any and all arbitration, civil or criminal suits.

Solution: The correct answer is B. According to Anonymous Case History #16726 by not reporting the FINRA arbitration settlement, the candidate for CFP® certification violated their Obligations to Clients (2 b- Integrity) A CFP® Professional may not professionally engage in conduct to defraud, make any untrue statement, omission, mislead or engage in fraud or deceit. Answer A is incorrect, obligations to CFP Board require disclosure and reporting. The infraction is greater than $2,500 and not considered "Minor" (Duties owed to CFP Board 1 g.) C is incorrect fitness standard look-back elements apply to criminal events not financial events. D is incorrect the practice standards do not govern confidentiality and disclosure, those elements are controlled by Duties to CFP Board and Duties to Clients.

John, a CFP® professional, raises his compensation charged for assets under management by 50 basis points, does John have to inform his clients? A- Yes, he must disclose the change in compensation with 10 days. B- Yes, he must timely disclose the change in compensation. C- Yes, he must immediately disclose the change in compensation. D- Yes, he must disclose the change in compensation within 45 days.

Solution: The correct answer is B. According to the CFP Board Code and Standards, the certificant shall timely disclose to the client any material changes to compensation. A is incorrect because there is not a 10 day requirement. C is incorrect because "immediately" is not required, not defined in the code of ethics. D is incorrect because there is not a 45 day requirement.

Bob is a CFP® professional and has entered into a signed engagement letter to provide a limited scope of engagement for financial planning to a client. Once Bob has made the insurance and investment recommendations, the client chose another planner for implementation of Bob's plan. Six months after Bob provided a client with his recommendations, the client approached Bob about purchasing life insurance, which was one of the recommendations in his plan. Is Bob still engaged with the client? A- No, the engagement letter limited the scope of the services to be provided. Bob is no longer engaged in the financial planning process with the client. Bob is now selling product beyond the scope of the engagement. B- Yes, Bob is still engaged with the client because Bob previously established a professional relationship and is now providing implementation services to the client by selling life insurance. C- No, a planner is not engaged with a client when only selling a single product. The planner would be engaged if applying multiple steps in the financial planning process. D- Yes, because he provided financial advice and is considered engaged with a client.

Solution: The correct answer is B. According to the Code of Ethics and Standards of Conduct Bob is able to limit a scope and duration of engagement. Bob is required to follow through with the initial client recommendation unless the scope of engagement specifically relieves Bob of this obligation. A is not correct, Bob must state up front he will not be assisting with an insurance purchase. C is not correct Bob is engaged in financial planning. D is incorrect financial advice does not always constitute a financial planning engagement.

A CFP® professional was asked by a client to appropriately address the following questions. 1- How large of a deductible should be on the umbrella policy covering my home? 2- How much do I need to save so my spouse and I will have a secure retirement? 3- What is the S&P 500 and why is it down by 2% today? 4- What is the financial strength of XYZ insurance company? 5- Which of these questions considered individually would likely be considered the practice of financial planning under the Code of Ethics? A- Question 1 B- Question 2 C- Question 3 D- Question 4

Solution: The correct answer is B. According to the Financial Planning and the Application of Practice Standards for The Financial Planning Process, Financial Planning is a collaborative process that helps maximize a Client's potential for meeting life goals through Financial Advice that integrates relevant elements of the Client's personal and financial circumstances. The remaining questions are factual and can be answered without any integration of client information or facts.

What document must be disclosed in writing whether providing Financial Advice or providing Financial Planning? A- The date and duration of the plan. B- The Privacy Policy. C- The names of each party involved. D- The terms of terminating the agreement.

Solution: The correct answer is B. According to the Standards of Conduct, the Privacy Policy is required to be in writing. A, C and D are incorrect because these items may be disclosed in writing or orally for Financial Advice according to the Standards of Conduct.

Which of the following can the Federal Reserve do to increase the money supply? I- Decrease the reserve requirements for banks from 8% to 6%. II- Increase expenditures of the federal government, thereby increasing the money supply in the economy. III- Conduct open-market transactions. A- I only. B- I and III only. C- II only. D- I and II only.

Solution: The correct answer is B. All of the above have the potential to increase the money supply; however, the Federal Reserve does not control the expenditures of the federal government. Increasing expenditures of the federal government would be fiscal policy, not monetary policy.

Which of the following would adequately describe the role(s) a CFP® professional would have with clients when providing an estate plan? I- Maintain a fiduciary relationship with clients. II- Fully inform clients as to material facts which may affect their estate plan. III- Keep a large and current overview of economic, tax, and other factors to recognize deficiencies in a plan. IV- Know when to consult with, or bring into the engagement, experts in an area where the practitioner may need assistance. A- II and IV only. B- I, II, III and IV. C- II, III and IV only. D- I, II and IV only.

Solution: The correct answer is B. All of the reasons above fall under Duties Owed to Clients under the CFP® Board Code and Standards.

In which of the following situations is a CFP® professional not permitted by the CFP Board to use or disclose information related to a client or the client's affairs? A- Within the CFP® professionals firm or to other persons with whom the CFP® professional is providing services with to clients. B- To the compliance officer of a broker/dealer where the client's accounts were held in the past. C- As necessary to support or defend a civil claim made by a client. D- As necessary to provide information between attorneys, accountants and auditors.

Solution: The correct answer is B. All other situations are authorized by duties owed to clients (9) Confidentiality and Privacy. The compliance officer where an account was held in the past does not have the authority to compel a CFP® professional to provide confidential information.

Which of the following statements is true regarding a Coverdell Education Savings Account? A- An individual can be the beneficiary of only one Coverdell ESA, and the total contribution to the account in any year can't exceed $2,000. B- There's no limit to the number of accounts that can be established for a particular beneficiary; however, the total contribution to all accounts on behalf of a beneficiary in any year can't exceed $2,000. C- The Coverdell ESA must be established in the names of the parents, who must be at least 24 years old at the time the account is created. D- There may be multiple contributors to a Coverdell ESA, however the total contribution per contributor cannot exceed $2,000 in any year.

Solution: The correct answer is B. Answer A is incorrect because an individual can be the beneficiary of multiple accounts. Answer C is incorrect because it describes the education requirements for Series EE bonds, not Coverdell. Answer D is incorrect because the $2,000 limit is per beneficiary, not per contributor or per account.

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

Solution: The correct answer is B. Assets and liabilities show up on a balance sheet, while cash flows are demonstrated on a statement of earnings also known as a personal cash flow statement (statement of income and expenses).

What is the purpose of the CFP Board Code of Ethics and Standards of Conduct? A- They are the basis for legal liability. B- To reflect the high standards of the profession and ultimately benefit the Public. C- To thoroughly explain the purpose of financial planning. D- To show they can be done separately, but not in conjunction with each other.

Solution: The correct answer is B. CFP Board's Code of Ethics and Standards of Conduct reflects the commitment that all CFP® professionals make to high standards of competency and ethics. CFP Board's Code and Standards benefits and protects the public, provides standards for delivering financial planning, and advances financial planning as a distinct and valuable profession. A is incorrect because the Code and Standards are not designed to be a basis for legal liability to any third party. C is incorrect because the Standards do not explain the purpose of financial planning, but instead provide a level of professionalism in practice that is expected and required of all CFP® professionals. D is incorrect because the Code of Ethics is reflected throughout the Standards and they work inconjunction with each other.

A CFP® professional is required to place the interest of their clients ahead of their own and their firm(s): A- Only when the certificant holds no license or other registration B- At all times C- Only when the certificant's method of compensation is fee only D- Only when the certificant provides financial planning

Solution: The correct answer is B. Duties Owed to Clients (1 a i.) Place the interests of the Client above those of the CFP® Professional or the firm of the CFP® professional.

How does the CFP Board define a material conflict of interest? A- A conflict that requires the CFP® to enter mediation or arbitration with their employer. B- A conflict that could impact advice given by the CFP® professional or cause potential harm. C- A conflict that is apparent to the client. D- A conflict that will last through the planning relationship.

Solution: The correct answer is B. Duties owed to clients (5 a) defines material conflicts as ones that could impact advice or cause harm.

Esteban is 63, very wealthy and has one child from his current marriage with Tisha. He also has a child from a previous relationship that Tisha is unaware of. Esteban's investment portfolio and pension assets are held in a variety of accounts for which no overall plan has been developed. Esteban has asked Ginger, a CFP® professional, to assist him in maximizing his children's inheritance while ensuring that Tisha is financially comfortable for the remainder of her life. All of the following items are relevant to determining if Ginger must provide Esteban with the following information prior to providing financial advice EXCEPT: A- How the CFP® professional and her firm are compensated for providing products and services. B- A glossary of relevant estate planning terms and techniques to educate and further Esteban's understanding of the financial planning process. C- How Esteban pays for products, services and additional incurred costs including surrender charges and sales loads. D- Any other information about the CFP® professional or their firm that is material for a client to engage the CFP® professional.

Solution: The correct answer is B. Duties owed to the Client (10) require elements A, C and D provided to the client. B is not required.

Workers' compensation is a federally and state mandated program which provides benefits for: A- Unemployed workers. B- Workers suffering injury or illness on the job. C- All injuries and illnesses workers contract. D- Inability to continue work.

Solution: The correct answer is B. Employers bear the cost of the workers' compensation programs whose rates are based on merit (previously claim experience). Thus, the incentive is provided to reduce on-the-job accidents.

Adherence by CFP Board professionals and registrants to the Code of Ethics and Standards of Conduct is as follows: A- Duties owed to clients are voluntary for all professionals, and the Practice Standards are mandatory for all financial planning professionals. B- Practice Standards are mandatory for certificants who engage in a collaborative process that helps maximize a Client's potential for meeting life goals through Financial Advice that integrates relevant elements of the Client's personal and financial circumstances. C- Duties owed to clients are binding on all certificants, Practice Standards are only enforced for CFP® professionals who represent their compensation as "fee only". D- Duties owed to Clients, Duties owed to CFP Board and Practice Standards are mandatory for all CFP®certificants.

Solution: The correct answer is B. Financial Planning is defined as "engaging in a collaborative process that helps maximize a Client's potential for meeting life goals through Financial Advice that integrates relevant elements of the Client's personal and financial circumstances". CFP® certificants must adhere to practice standards when performing financial planning.

If you have product with inelastic demand, which of the following is TRUE? A- As the price increases, revenue decreases. B- As the price increases, revenue increases. C- As the price increases, revenue is unchanged. D- None of the above.

Solution: The correct answer is B. If the demand is inelastic, price increases raise revenues.

A client is recommended to a CFP® professional. The client is middle aged with 2 grown children, and mentions to the professional that he lives an "alternative lifestyle." The professional does not know what this means. What should he do? A- Just ignore it since he can tell that the client is embarrassed. B- He should ask the client what he means by "alternative lifestyle." C- He should ask the client's children. D- He should ask his colleague, who sent him the referral.

Solution: The correct answer is B. In order to provide the client with the most appropriate recommendations, the CFP® professional needs to know what the client means by "alternative lifestyle" and the best person to answer that question in the actual client. A is incorrect because in order to provide the duty of care of a fiduciary and the best interest of the client, the professional needs to know what the client means by "alternative lifestyle". C is incorrect because the CFP® professional is bound by the duty of confidentiality. D is incorrect because the best source of what the client means, is the actual client.

Hannah currently has $915,000 saved. She will retire in 10 years and wants to take $80,000 income for 25 years at the beginning of each year. She also wishes to have $1,000,000 35 years from now to leave to her heirs. What is the internal rate of return needed to accomplish this? A- 5.99% B- 4.96% C- 3.13% D- 4.75%

Solution: The correct answer is B. Income needs to begin at the beginning of year 10, make end of year 9 the last year of inactivity. The 1,000,000 is entered separately as it is not part of the retirement income stream. If you are struggling with cashflows, please reference the recorded lectures on education and retirement funding methodology. Making a timeline is also very helpful. 10BII and 10BII+ (zeros were truncated to speed up calculation) 915 +/-CF 0 CF 9 [OS] Nj [OS] means Orange Shift 80 Cf 25 [OS] Nj 1000 CF [OS] IRR/YR HP 12c 915 CHS [g] CFo 0 [g] CFj 9 [g] Nj 80 [g] CFj 25 [g] Nj 1000 [g] CFj [f] IRR =4.9649 TI BAII Plus CF 915,000 +/- enter Down arrow CF1 0 enter Down arrow F1 9 enter Down arrow CF2. 80,000 enter Down arrow F2 25 enter Down arrow CF3 1,000,000 enter Down arrow F3 1 enter IRR CPT

Hannah currently has $715,000 saved. She will retire in 10 years and wants to take $100,000 income for 25 years at the beginning of each year. She also wishes to have $1,000,000 35 years from now to leave to her heirs. What is the internal rate of return needed to accomplish this? A- 6.99% B- 7.09% C- 7.13% D- 7.26%

Solution: The correct answer is B. Income needs to begin at the beginning of year 10, make end of year 9 the last year of inactivity. The 1,000,000 is entered separately as it is not part of the retirement income stream. If you are struggling with the cashflow methodology, watch the pre-recorded lecture on retirement and education funding methodology. Creating a timeline is helpful also. 10BII and 10BII+ (zeros were truncated to speed up calculation) 715 +/-CF 0 CF 9 [OS] Nj [OS] means Orange Shift 100 Cf 25 [OS] Nj 1000 CF [OS] IRR/YR 12c Users 715 CHS [g] CFo 0 [g] CFj 9 [g] Nj 100 [g] CFj 25 [g] Nj 1000 [g] CFj [f] IRR =7.0898 TI BAII Plus CF 715,000 +/- enter Down arrow CF1 0 enter Down arrow F1 9 enter Down arrow CF2. 100,000 enter Down arrow F2 25 enter Down arrow CF3 1,000,000 enter Down arrow F3 1 enter IRR CPT

Federal authorities govern or influence the insurance industry in the following manner: I- The federal government NEVER influences insurance regulations. That is left to the individual states. II- Through the Internal Revenue Codes. III- Through the Securities Exchange Commission. IV- Through the Employees Retirement Income Securities Act. A- I only. B- II, III and IV only, C- III and IV only D- II and IV only.

Solution: The correct answer is B. Insurance is regulated by the states from the prospective of what policies can be issued in a particular state, what companies can do business in a particular state. Keep in mind, if an insurance company wants to offer tax benefits, retirement benefits, or variable investments, other governing bodies will be involved. Federal authorities govern the insurance industry in the following instances and manner: I. is false if the insurance companies want to offer any extra benefits, tax or otherwise. II. If insurance policies want to keep the tax benefits, they must follow IRS Codes. III. If the policy is a variable policy, the Securities Exchange Commission will govern the variable investments. IV. If Insurance is offered as an employee benefit, the policy must abide by rules set by the Employees Retirement Income Securities Act.

Ethics in planning can be used for each of the following, EXCEPT: A- Establishing standards by which conduct can be measured. B- Forcing a uniform method of conducting business on professionals. C- Balancing the power of knowledge of the professional with the rights of the client. D- Providing a practical guideline for practice standards.

Solution: The correct answer is B. Practical ethics leaves much latitude for practicing the profession of financial planning.

Ruby, a CFP® professional works for a life insurance company and sells only life insurance products. She met with her new client Sally, a single parent, for the first time today. She had already collected data from Sally concerning her income, needs, priorities and age of her children. During the meeting, Ruby discussed the distinctions between term, universal and variable life insurance with Sally. She subsequently evaluated Sally's needs concerning life insurance and plans to discuss the advantages and disadvantages of two approaches: (1) purchasing a universal policy designed to provide sufficient coverage for Sally's insurance needs while building cash value for the long term, and (2) purchasing a term policy to cover insurance needs until her children become independent and recommending another CFP® professional who Ruby is confident could assist Sally with building her investment portfolio for the long term. Which of the following would be correct under the CFP Board's Practice Standards? A- Ruby is not engaged in a financial planning with Sally and does not have to follow the CFP Board practice standards. B- Ruby is not engaged in financial planning with Sally, but is providing f

Solution: The correct answer is B. Ruby is giving advice that requires integration of priorities, goals and objectives. The fiduciary duty applies, but she is not required to apply the practice standards for the financial planning process. This engagement does not meet the level integration for Financial Planning; number of relevant elements, portion and amount of assets, etc. A CFP® professional must follow the full practice standards whenever Financial Planning; or Financial Advice that requires integration of relevant elements of the Client's personal and/or financial circumstances in order to act in the Client's best interests ("Financial Advice that Requires Financial Planning"); or The Client has a reasonable basis to believe the CFP® professional will provide or has provided Financial Planning.

The CFP Board's definition of "more than any de minimis benefit tied to the sale of a financial asset" describes which of the following? A- Fee-only B- Sales related compensation C- Performance-based fee D- Affiliated fee and commission

Solution: The correct answer is B. Sales Based Compensation is defined more than any de minimis benefit tied to the sale of a financial asset. Specific examples include bonuses, front end or trailing commissions, ongoing 12b-1 fees, transaction fees, revenue sharing or solicitor fees.

Virginia created a Section 529 plan for her granddaughter Molly. Currently, the account has sufficient funds to pay for one year of Molly's college expenses. Which of the following would qualify Molly for the most financial aid? A- Paying for Molly's first year of college with Virginia's 529 plan assets. B- Paying for Molly's last year of college with Virginia's 529 plan assets. C- Transferring ownership of the Section 529 plan to Molly. D- Transferring ownership of the Section 529 plan to Molly's father.

Solution: The correct answer is B. Section 529 plan assets owned by a grandparent are not included in a FAFSA calculation - only the distribution would be considered. Waiting to distribute the assets would allow them to grow and not jeopardize financial aid in Molly's first years at college. A is incorrect. Paying for the first year may jeopardize Molly's student owned assets (by raising the amount) and limit further aid. C is incorrect. The assets would become an asset of the child and would count against Molly's future financial aid. D is incorrect. The assets would become an asset of the parent and would count against Molly's future financial aid.

You receive a phone call from an individual you have NOT spoken with previously. The caller is excited, just having heard that a new mutual fund is positioned to deliver large gains in the coming year. The caller wishes to purchase shares of the fund through you. According to the Code of Ethics and standards of practice, which of the following would be acceptable actions for a CFP® professional? A- Gather sufficient information about the client to establish a brokerage account and execute the transaction after the client signs a letter acknowledging the limited nature of the engagement. B- Understanding The Client's Personal and Financial Circumstances as well as Identifying and Selecting Goals before analyzing and making recommendations. C- Gather sufficient information about the client to establish a brokerage account and execute the transaction only after providing written information about your compensation, potential conflicts of interest, contact information and any other material information about you and your firm. D- Inform the potential client that although you are willing to execute the transaction, you are certain you could improve their risk portfolio and overall financial

Solution: The correct answer is B. Selling a financial asset requires a CFP® professional to act with a Duty of Care and Loyalty. Selling the shares will require an analysis or risk and financial goals, likely creating a situation where the CFP® professional is required to follow practice standards. The first practice standard is to understand client circumstances and selecting financial goals.

Mrs. Hoffman is an 80-year old widow whose liquid assets are on deposit at a small FDIC-insured bank. She has the following on deposit: - $75,000 in various Certificates of Deposit - $50,000 in a Money Market Mutual Fund - $200,000 in an IRA Rollover - $25,000 Passbook Savings (Joint with son) - $25,000 Checking Account (Joint with daughter) How much is currently insured by the FDIC? A- $100,000 B- $125,000 C- $250,000 D- $375,000

Solution: The correct answer is B. The $75,000 CDs are insured under Mrs. Hoffman (Single). The $50,000 Money Market Mutual Fund is not insured by the FDIC. It may be insured under the SIPC but that is not what the question is asking. The $200,000 could be insured but we do not know what the IRA is invested in as it must be cash to receive FDIC coverage. The Passbook Savings is FDIC insured jointly with her son ($12,500 for each Mrs. Hoffmann and her son) for a total of $25,000 coverage. The Checking account is FDIC insured jointly with her daughter ($12,500 for each Mrs. Hoffmann and her daughter) for a total of $25,000 coverage. In Summary: $75,000 in various Certificates of Deposit - Covered by FDIC $50,000 in a Money Market Mutual Fund - Not Covered $200,000 in an IRA Rollover - We don't know if it would be covered. No investment was stated, do not assume. $25,000 Passbook Savings (Joint with son) - Covered $25,000 Checking Account (Joint with daughter) Covered TOTAL FDIC COVERAGE: 125,000 The question asked "How much is currently insured by FDIC", NOT what Mrs. Hoffman was covered for. IF the question had asked "How much is Mrs. Hoffman insured for under the FDIC?" the answer would be: $75,000 + $12,500 + $12,500 = $100,000, due to the joint accounts with her children.

A CFP® professional gathers all necessary information from a new client and then goes on vacation. While away on vacation, he asks his Paraplanner to put together the financial plan and present it to his client. What Standard of Conduct did he violate? A- The Duty of Confidentiality. B- A certificant shall provide reasonable and prudent professional supervision or direction to any subordinate or third party to whom the certificant assigns responsibility for any client services. C- Both rules as stated above. D- He did not violate any rules of conduct.

Solution: The correct answer is B. The CFP® professional violated the Duty to Use Reasonable Care When Supervising.A is incorrect because a paraplanner working for a CFP® Professional is reasonably expected to be involved in the course of doing business

The primary function of the Federal Reserve System (central bank) is to: A- Implement fiscal policy. B- Carry out monetary policy. C- Issue bonds to the general public. D- Manage the revenues and expenditures of the federal government.

Solution: The correct answer is B. The Federal Reserve controls the supply of money, enabling it to significantly impact interest rates. The Fed will follow a loose, or easy, monetary policy when it wants to increase the money supply to expand the level of income and employment. However, in times of inflation and when it wants to restrict the supply of money, the Fed follows a tight monetary policy.

Six months ago, Joel Madison purchased new dining room and living room furniture for $8,000. For purposes of preparing an accurate financial statement, how would this purchase appear? I- Use asset on the client's net worth statement. II- Investment asset on the client's net worth statement. III- Variable outflow on the client's historic cash flow statement. IV- Fixed outflow on the client's cash flow statement. A- I, II and III only. B- I and III only. C- II and IV only. D- IV only.

Solution: The correct answer is B. The client's home is an asset; its contents in this case the furniture, will be used regularly. Therefore, it is a "use asset." Since Joel won't be buying furniture on a regular and reoccurring basis, it is a variable expense.

A woman does not want to give all necessary income related information, but she wants the CFP® professional to provide services in all areas. What step should the CFP® professional do next? A- He must disclose in writing the services that will be provided. B- He must disengage the client. C- He should not inform the client of any and all material deficiencies. D- He should refer the client to a planner who is not a CFP® professional.

Solution: The correct answer is B. The planner is required to limit the scope or disengage the client if the documentation provided is inadequate. In this case, not having adequate information on income would impact all areas of financial planning. A is incorrect because the planner is required to limit the scope of the engagement or disengage if complete documentation is not provided. The planner is required to limit the scope or disengage the client if the documentation provided is inadequate. C is incorrect because the planner should inform the client of material deficiencies in documentation. D is incorrect because the Code and Standards do not require the CFP® professional to refer the client to a non CFP® professional.

As a direct result of a prolonged bull market and rising economy, the Chair of the Federal Reserve sees the possibility of problems looming on the horizon. Which of the following are among the issues the Chair may be anticipating, and what are the related actions might the Chair take to alleviate these circumstances? I- Stagnation; raise the Federal Reserve rate. II- Inflation; raise the Federal Reserve rate. III- Deflation; raise the required reserve. IV- Recession; raise the opening bid at T-bill auctions. V- Irrational exuberance; print less money. A- I only. B- II only. C- II and IV only. D- III and V only

Solution: The correct answer is B. The situation described presents a strong possibility of inflation. One way to control inflation is by raising interest rates. Raising required reserve is another, but it is incorrectly paired with deflation. The Federal Reserve does not print money, the Treasury Department does.

When should a financial planning client immediately contact their CFP® Professional? A- When the client has an additional child. B- If there is a change in the client's marital status. C- If there is a change in the client's tax rate. D- If there is a change in the client's employer.

Solution: The correct answer is B. This is a difficult question to choose one correct answer. The best answer is B, as a change in marital status likely results in a major impact to current and future financial planning. The engagement will need to be updated to reflect who the client is (additional client if married or removal of a client in the case of divorce). A is incorrect because while the client should contact their CFP® professional regarding a new child, the additional child will not change the scope of the engagement. The child is not a new client, and they are already engaged for comprehensive financial planning. C is incorrect because a change in tax rates is likely expected, unless it's related to a significant change in income. This will not change the scope of the engagement. D is incorrect because simply changing jobs is immaterial, unless it accompanies a significant change in insurance benefits and/or income. This will not change the scope of the engagement.

David has won the Illinois state lottery. He must decide whether to receive annual payments of $250,000 at the beginning of each year for the next 20 years, or a lump sum payout. What lump sum amount does David need to receive to equal the $250,000 payments for the next 20 years, if he can earn an 8% return on his investments, assuming inflation is 3%? A- $2,454,537 B- $2,650,900 C= $2,875,900 D- $3,307,511

Solution: The correct answer is B. This is a present value of an annuity due problem. So, N = 20, I = 8, PV = ?, PMT = 250,000, FV = 0. Put your calculator in BEGIN mode and solve for PV. Inflation is not necessary in this calculation, lotto winnings income streams will not increase for inflation, they are the equivalent to a fixed annuity.

A local businessperson approaches a CFP® practitioner for assistance with an investment-related tax problem. The client's previous tax preparer had suggested the purchase of a variety of tax-advantaged investments to reduce the client's current and future tax burden. Time passed, the client's income dropped, and the tax laws changed. The client does NOT feel the tax preparer misrepresented the situation on the initial sale, but would still like to know what recourse is available with respect to the tax preparer. The CFP® practitioner should: I- Explain to the client that this issue is beyond the scope of the CFP® practitioner's professional expertise. II- Advise the client that NO recourse is available. III- Advise the client to contact an attorney. IV- Contact the tax preparer. A- IV only. B- I and III only. C- II and IV only. D- I, II and III only.

Solution: The correct answer is B. This problem does not deal with another CFP® practitioner, thus the CFP® practitioner must advise that this situation goes beyond the scope of CFP Board. Though there may be recourse, it is not within the CFP® practitioner domain to advise such or contact the former tax preparer. The client may wish to contact an attorney for further advice.

Which of the following is/are a Duty Owed to Clients in the CFP Board Standards of Conduct? I- Independence II- Professionalism III- Competence IV- Fairness A- I only B- II only C- II and III D- I, II, III, and IV

Solution: The correct answer is C. Fairness is not specifically listed in the Standards of Conduct but is a value to uphold while dealing with clients and fellow professionals.

Which of the following statements concerning investment strategies to accomplish education-funding goals is (are) correct? 1. The time horizon is probably the most important factor (besides risk tolerance) to consider in deciding what securities to invest in, how much to invest, and when to invest. 2. QTPs generally reduce the risk level of investment the closer a child gets to college. A- I only B- II only C- Both I and II D- Neither I nor II

Solution: The correct answer is C. Qualified Tuition plans, such as the 529 savings plan, have age banded investment options. The Investments will re-allocate as the child gets older and closer to their goal.

Ralph, a CFP® professional, was the financial advisor for Sue and her husband Bob, who had recently passed away. Bob's assets included an IRA with Sue as the named beneficiary. Ralph advised Sue that she could disclaim her interest as beneficiary of the IRA, which would allow its value to pass to her two children. However, Ralph did not notify the custodian issuer of the IRA that Sue had disclaimed her interest in the IRA. Ralph acknowledged during his hearing with the Disciplinary and Ethics Commission that he could have annuitized the existing annuity in the IRA, which would have been less costly for Sue than purchasing a new annuity for each of her children. The Commission determined that annuitizing the existing annuity would have avoided early withdrawal penalties and the effects on taxable income on Sue's children, and issued a Public Letter of Admonition to Ralph. The Commission ordered Ralph to complete, in addition to the 30 hours of continuing education for renewal, 12 hours of continuing education, including four hours each in estate planning, investments and estate distributions. Ralph violated all of the following provisions of his obligations to clients EXCEPT? A- Failed t

Solution: The correct answer is C. (Anonymous Case History 19334) Ralph did not violate this rule because there was no information provided to indicate that Ralph treated the client without dignity or respect. The question was looking for the false statement. A incorrectly answers the question as Ralph did fail to act with competence. B incorrectly answers the question as Ralph did not act with a duty of loyalty or care, creating a more expensive and complicated situation for the client and not maximizing their legacy. D incorrectly answers the question as the CFP® professional acted recklessly.

You have been working with your clients, Jonas and Mila, who are married with one child. Their child Finn, who is 4 years old, has special needs that require around the clock care. Mila stays home to care for him while Jonas provides their only source of income. They have a good schedule and have respite care services to give Mila a break once a week so that she can take care of all her errands. They have come to you to start ensuring their own financial future along with planning for Finn's future care. They have identified obtaining life insurance as one of their goals. Based on their family dynamics, who should you propose have life insurance policies purchased as part of your plan presentation? 1. Finn 2. Jonas 3. Mila A- Finn only B- Finn and Jonas C- Jonas and Mila D- All of the above

Solution: The correct answer is C. A special needs individual will often be uninsurable or not cost effective. The wage earning parent should be insured as they provide the major funding resources for the family. The care giver parent should be insured because the cost to replace their service will likely be expensive.

All of the following CFP® certificants are likely required to follow process practice standards EXCEPT: A- Jennifer is performing detailed data-gathering on multiple aspects of her client's financial situation B- Rachel is helping her client determine whether and how to implement financial recommendations made by the client's accountant C- Ralph is executing transactions recommended by his client's attorney D- Jack is analyzing a client's data and making wide-ranging recommendations

Solution: The correct answer is C. A, B and D are practicing integrative and collaborative services.

Bill is a CFP® professional and is working with his clients, Sally and Harry. Bill arranged and attended a meeting between Sally, Harry and Bill's brother, who is an attorney. Bill's brother presented an investment opportunity to Sally and Harry. Sally and Harry decided to invest $250,000 as part of a loan secured by a promissory note. Although the investment was offered by Bill's brother, the clients were led to believe Bill and his firm were involved with the investment. Bill's brother signed the promissory note. As a result, Bill violated the Code of Ethics, and his usage of the marks were suspended for two years. The most appropriate action for Bill to take would have been? A- Bill should have structured the investment as an equity investment, rather than a loan, because the Code of Ethics forbids borrowing from a client. B- Bill has an inherent conflict of interest because his brother offered the investment. The Code of Ethics do not permit Bill to have material conflicts of interest. C- Bill should have disclosed in writing that Bill and his firm were not involved in the investment with minimal industry jargon, clearly representing a material conflict. D- Bill was obligated to kee

Solution: The correct answer is C. According to Anonymous Case History #15982 by not disclosing in writing to the clients that both the CFP® professional and his firm were not involved in the investment, the planner violated rules regarding disclosure, failing to exercise reasonable and prudent professional judgment and failing to provide services in compliance with laws and regulations. The planner's action runs afoul of the October, 2019 rule update in multiple areas. Duties to clients including violating: Integrity, disclosure of a material conflict of interest, not disclosing and economic benefit of a referral or related party. While the new Code and Standards allow for oral disclosure of material conflicts of interest, it is better to put them in writing the more complicated they are. A is not the best answer, the loan itself was not problematic, the investment and atmosphere around the investment. B is incorrect Bill can have conflicts, he needs to better manage and disclose them. D is incorrect if the client's gave consent to share information with Bill's brother.

Cheryl is an insurance agent and a CFP® professional that works for a large, national insurance company. Recently, attorneys for the insurance company have required that any employees using the CFP® marks must remove the marks from their business cards, websites and promotional materials. The attorneys are concerned about potential lawsuits from customers alleging the CFP® professionals did not exercise the duty of a fiduciary. Based on this information, how should Cheryl proceed when working with clients? A- Cheryl must disclose in writing to her clients that although she is a CFP® professionals, her firm requires her to use the suitability standard and not the duty of a fiduciary. B- By complying with the attorney's request and removing the marks from all marketing materials, then Cheryl will no longer hold herself out as a CFP® professional, she must only provide clients with a suitability duty of care. C- Cheryl should remove the CFP® marks as requested by the company attorneys, however she is still required to fulfill her professional obligations to follow the Standards of Professional Conduct and she still owes the duty of care of a fiduciary. D- As long as Cheryl removes the mark

Solution: The correct answer is C. According to the CFP Board's Standard of Professional Conduct FAQs, removal of the CFP® marks from one's business cards or stationery does not relieve a CFP® professional of the obligation to follow the Standards of Professional Conduct. Answer A is incorrect because even though Cheryl does not hold herself out as a CFP® professional, she is still bound to the duties required by the Standards of Professional Conduct, including a fiduciary standard of care. Answer B is incorrect because Cheryl must still abide by the Standards of Professional Conduct, which require a fiduciary responsibility. Answer D is incorrect because the Standards of Professional Conduct still obligate Cheryl, even though she does not hold herself out as a CFP® professional.

On the Statement of Financial Position of the client, the following would NOT be considered a liquid or current asset: A- Cash on hand. B- Money market funds. C- Certificates of deposit with a three year maturity. D- Cash in a savings account.

Solution: The correct answer is C. All are liquid or current assets except for the three-year CDs. A current asset matures in 12 months or less.

Becca applied for CFP® Certification and was denied. Her prior conduct falls under the "presumed" list and she wants to appeal. All of the following are true regarding the review process EXCEPT: A- She must submit a written petition for reconsideration to Professional Review staff and sign a form agreeing to CFP Board's jurisdiction. B- A fee will be charged to all candidates submitting a reconsideration request. C- Staff will review the request to ensure the transgression falls within the "always" bar list. D- She may appeal this decision to the Appeals Committee of the Board.

Solution: The correct answer is C. All other statements are true. Staff will review the request to ensure the transgression falls within the "presumed" list. The "always" bar list cannot be petitioned unless the revocation of a license is vacated or a felony conviction is overturned.

In accordance with CFP Board's Code of Ethics and Standards of Professional Conduct, which of the following must be in writing for financial advice and financial planning? A- Material Conflicts of interest. B- Investment policy statement. C- Privacy Policy. D- Monitoring responsibilities.

Solution: The correct answer is C. Although all of the items listed should be in writing (as a best practice), the privacy policy must be in writing pursuant to CFP Board's Code and Standards.

In a typical business cycle, which of the following phases would exhibit periods of increasing employment and increasing output? A- Recession. B- Trough. C- Expansion. D- Peak.

Solution: The correct answer is C. An expansion is indicated by rising employment and output. When employment and output are no longer rising, the cycle is in its peak. If employment and output begins to decrease, this indicates a recession. Finally, when employment and output are no longer decreasing, the cycle has reached a trough.

For a CFP® certificant working with a client in just a single core subject area, could the engagement rise to the level of financial planning or otherwise require the CFP® professional to apply practice standards? A- No, financial planning requires a comprehensive plan integrating at least three of the core subject areas. B- No, financial planning requires a client engagement involving all six core subject areas. C- Yes, if the Client has a reasonable basis to believe the CFP® professional will provide or has provided Financial Planning. D- Yes, working in any core subject area automatically elevates a client engagement to that of financial planning.

Solution: The correct answer is C. B.3.b of the Practice Standards states that if a client has a reasonable basis to believe the CFP® professional will provide planning, the CFP® professional must follow the practice standards.

Tom, a CFP® professional, has developed a financial plan for his client.; Based on the CFP Board Practice Standards which of the following should Tom do next? A- Review the plan with the client's CPA and Attorney. B- Implement the financial plan. C- Present the financial plan to his client. D- Develop financial planning recommendations.

Solution: The correct answer is C. Based on the CFP® practice standards, the next step for a CFP® certificant after developing the financial plan is presenting the plan. Choice A is incorrect because reviewing the plan with the client's CPA and Attorney is not required in the Practice Standards. Choice B is incorrect because Tom must first present the plan to the client before implementing the plan. Choice D is incorrect because Tom would have already developed financial planning recommendations at this point of the financial planning process.

Which of the following is required of a CFP® professional engaging in financial planning? A- Providing the client with an approximate commission total the CFP® professional will receive if all recommendations are executed. B- Provide the client with an ownership chart of the CFP® employer, Broker/Dealer or Registered Investment Adviser. C- Provide a client with terms of their engagement including the scope of the engagement with any limitations, the period services will be provided and responsibilities of the Client. D- Providing list of client references.

Solution: The correct answer is C. C is required disclosure (Duties Owed to Clients, 10b) when a CFP® professional provides financial planning. A is incorrect a CFP® must provide information about how a client pays for services but does not need to outline specific commissions received. B is incorrect an ownership breakdown is not required unless it includes a material conflict of interest. D is incorrect references may but are not required to be provided.

Sidney, who is not a CFP® certificant, asks Alison, who is a CFP® certificant and licensed insurance broker, to execute a $1 million term life policy to Sidney's client, Sally. For this specific transaction, what is Alison's standard of care duty as a CFP® professional? A- Meet her state insurance suitability duty requirements. B- Follow the prudent investor rule. C- Act as a fiduciary. D- Alison should decline to provide the policy since Sally is not her client.

Solution: The correct answer is C. CFP® professionals are required to hold a fiduciary duty when they recommend financial assets (life insurance) or engage in financial planning. Alison will recommend a specific term policy, making her a fiduciary. B is incorrect the prudent investor rule does not apply in this circumstance.

For CFP® professionals practicing financial planning, which of the following statements is true? A- When a CFP® certificant implements another professional's recommendations, the certificant is, by definition, not providing financial planning. B- Applying one product or subject area at a time to avoid having the client relationship deemed financial planning is acceptable practice for a CFP® professional. C- Financial Planning is a collaborative process that helps maximize a Client's potential for meeting life goals through Financial Advice that integrates relevant elements of the Client's personal and financial circumstances. D- A CFP® Professional is encouraged to follow practice standards if they are performing financial planning, but not when simply recommending or transacting financial assets.

Solution: The correct answer is C. Correct answer, and CFP Board definition of financial planning is C. A, B and D are incorrect and violate Duties owed to a Client as well as Practice Standards required for CFP® professionals providing financial planning services.

Which of the following best describes "Fee-Only" compensation as defined by the CFP Board Code of Ethics and Standards of Conduct? A- 12b-1 fees, Flat fees, AUM fees, Direct Fees paid by a client or custodian platform. B- Front-load, back-load, 12b-1 fees, insurance product commissions, sales based noncash travel incentives, salary or bonus based related to sales or production goals, direct or indirect benefits from related entity receiving sales-based compensation. C- Hourly fees, flat fees, subscription fees, asset under management fees, custodial platform fees, salary or bonus not related to sales or production goals, travel to custodian or research conference. D- Hourly fees, flat fees, subscription fees, asset under management fees, custodial platform fees, salary or bonus related to sales and production.

Solution: The correct answer is C. Duties Owed to a Client (12 a. 1. Fee-Only is a compensation type absent of commissions and sales charges. a) The CFP® Professional or their firm do not receive any sales or product-based compensation. b) Related parties (such as referring professionals or allied professionals) receive no sales-based compensation in connection with professional services.

If a CFP® professional works for an investment advisor that charges only fees for her professional activities and a party affiliated with the investment advisor receives sales based compensation, how must the CFP® professional describe her method of compensation? A- Salary B- Fee only C- Fee Based D- Sales Related

Solution: The correct answer is C. Duties owed to clients (12) defines fee-based as a compensation type allowing client fees, commissions and sales charges. Fee-Based should not be used to mislead clients and imply a fee only relationship. a) May not use "Fee Based" in a manner that suggest a CFP® Professional or their firm is "Fee Only". b) Must clearly state a CFP® Professional or their firm can receive fees and commissions.

A CFP® certificant is required to operate under the fiduciary standard of care when: A- The CFP® certificant charges the client an asset management, flat, hourly or retainer fee for his or her work. B- An engagement is comprehensive in nature and requires the integration of two or more core financial planning elements. C- At all times, when providing financial advice to a client, a CFP® professional must adhere to a fiduciary duty and act in the best interest of their client. D- At all times, when providing any kind of advice (financial or otherwise) to a client.

Solution: The correct answer is C. Duties owed to clients 1. At all times, when providing financial advice to a client, a CFP® professional must adhere to a fiduciary duty and act in the best interest of their client.

Esteban is 63, very wealthy and has one child from his current marriage with Tisha. He also has a child from a previous relationship that Tisha is unaware of. Esteban's investment portfolio and pension assets are held in a variety of accounts for which no overall plan has been developed. Esteban has asked Ginger, a CFP® professional, to assist him in maximizing his children's inheritance while ensuring that Tisha is financially comfortable for the remainder of her life. All of the following items are relevant to determining if Ginger must follow the CFP Board's practice standards EXCEPT: A- Esteban believing he and Ginger have entered into a financial planning relationship. B- The extent Ginger and Esteban collaborate and integrate qualitative, quantitative data and Esteban's financial goals. C- Ginger's perception if she and Estaban have entered into a financial planning relationship. D- A written scope of engagement between Esteban and Ginger describing the relationship as financial planning.

Solution: The correct answer is C. Ginger's perception of the relationship does not have bearing on if she must follow the planning process. CFP Board requires Ginger to follow the practice standards if the engagement is financial planning (choice D), if Esteban believes the process is financial planning (choice A) or if the relationship is integrative and collaborative (choice B).

Johan is a CFP® professional and a Registered Investment Advisor with $48,000,000 of assets under management. In the past, he has charged a 1% fee for assets under management, but last quarter he increased his fee to 1.25% of assets under management. He did not notify his clients of this change. Which of the following statements is correct regarding Johan's actions in light of CFP Board's Rules of Conduct? A- This is not a violation, since minimal increases in fees are not considered material under the Standards of Conduct and therefore do not require disclosure to the client. B- This is a violation of Standard A.2, which addresses the ethical standards of fairness, integrity, and objectivity. C- This is a violation of Standard A.12, which addresses disclosure of compensation to a client. D- This is a violation of Standard A.1, which addresses the CFP professional acting with the duty of care of a fiduciary as defined by CFP Board.

Solution: The correct answer is C. If a CFP® professional increases their investment advisory fees, they must notify the clients.

A prospective client comes to you and he wants you to do some financial planning for him, but he is unwilling to disclose relevant information. What should you do? A- Refer the prospective client to another planner. B- Have the client sign a waiver. C- Ask the client for more information or terminate the engagement. D- Limit the scope of the engagement and work with the information provided.

Solution: The correct answer is C. In this situation, the appropriate response is to ask the client for the relevant information; if the information is not provided, then terminate the engagement. A planner must gather all relevant data and would be unable to provide appropriate recommendations without all relevant data, which makes "D" incorrect.

Your client has asked you to assist her in examining possible funding methods for her daughter who is planning on attending graduate school for her MBA. Which of the following can you advise your client is/are available to assist in covering expenses? I- Perkins Loan II- Supplemental Education Opportunity Grant III- Supplemental Loan for Students (Stafford Unsubsidized) IV- Parent PLUS Loan V- Lifetime Learning Credit A- I and II only. B- III and IV only. C- III only. D- II, III and V only.

Solution: The correct answer is C. No grants are available to graduate students, only loans. Lifetime Learning Credit is a credit for tax purposes, not financial assistance direct for education. Parent PLUS Loans are loans for parents to pay for undergraduate course work. Graduate parent loans are available for graduate school, but is not an answer choice. Perkins loan program ended September 2017.

A young, single client approaches a CFP® professional with $5,000 stating that he would like to develop a financial plan and invest in the market. This is his first experience investing and he would like help choosing an appropriate account. What is the CFP® professional's most appropriate course of action (CFP® Certification Examination, released 8/2012)? A- Open a brokerage account with margin. B- Open and fund a Roth IRA for the current year. C- Determine whether the client has any consumer debt. D- Determine whether the client has adequate life insurance.

Solution: The correct answer is C. Of the answer options provided, reviewing debt (answer C) is the best fit. The CFP® professional needs additional information from the client before taking an action involving increasing client risk, such as opening a margin account. Reviewing life insurance may be appropriate for the client, but does not appear to be a goal of the client. The CFP® professional does not have enough information to determine if a Roth IRA is appropriate. A is incorrect because a brokerage account with margin increases the client's risk, which the planner needs to gather more information on the client's ability and willingness to accept more risk. B is incorrect because the planner needs additional information to determine if a Roth IRA is appropriate or not. D is incorrect because the client did not indicate that life insurance is a goal of the client's.

Which of the following can the Federal Reserve do to reduce the money supply? I- Purchase Treasury securities. II- Decrease the reserve requirements for banks. III- Raise the discount rate. A- I only. B- II only. C- III only. D- I and III only.

Solution: The correct answer is C. Only increasing the discount rate will reduce the money supply. Raising the discount rate will result in the bank keeping more on deposit to cover their reserve requirement, and lending less. Purchasing Treasury securities from the banks (putting more cash into the banks) and decreasing the reserve requirements for banks will increase the money supply, as they will be able to lend more.

The client's "Emergency Fund Ratio" reveals: A- How readily a client would be able to meet all current obligations immediately. B- The level of debt that has been used to finance the present lifestyle. C- The client's level of preparedness for job loss or short-term disability. D- The client's savings and spending patterns over a period of time.

Solution: The correct answer is C. Option "A" is the current ratio. Option "B" is the debt ratio. Option "D" is provided by budget reconciliation.

Paul Simmons has passed the CFP® exam but not yet satisfied his experience requirements to become a CFP® professional. Paul recently had his series 6 license suspended by FINRA for five years. The cause of suspension relates to an unsuitable annuity sale to a client. Which of the following statements is correct regarding the ability of Paul to achieve his CFP®certification? A- Paul will be able to receive the CFP® certification upon satisfying his experience requirement. B- Paul will be barred from receiving his CFP® certification because of his suspension. C- Paul will be barred from receiving his CFP® certification unless he petitions CFP Board's Disciplinary and Ethics Commission. D- Paul will automatically receive the CFP® certification at the time his FINRA suspension is lifted.

Solution: The correct answer is C. Paul must petition the Disciplinary and Ethics Commission and be granted the ability to move forward with acquiring the marks. A is incorrect. Paul must overcome the presumptive bar he is facing for having a SUSPENSION of a professional designation. B Is incorrect. Paul is not deemed unacceptable but is instead presumptively barred. D is incorrect. Paul remains presumptively barred until petitioning the DEC.

Which of the following statements is correct concerning the effect of prepaid tuition plans on federal financial aid? A-The amount of prepaid tuition is not treated as an asset of the parent or child when determining financial aid. B- The current value of the prepaid account is included in the student's assets. C- The current value of the prepaid account is included in the parents' assets when calculating expected family contributions. D- The amount of prepaid tuition has no impact on the expected family contribution formula.

Solution: The correct answer is C. Prepaid tuition is not a student asset for federal financial aid purposes. Prepaid tuition is treated as an asset of the parents' and is included in the expected family contribution formula.

Harold and Mary Anne Miller are a married couple in their early 40s with three children, ages 7, 10, and 12. Harold earns $350,000 per year as General Counsel of a mid-sized IT firm and Mary Anne is a homemaker. They have major assets of $1,500,000 cash and $1,000,000 in stock options. They have done no estate planning. Harold has life insurance of two times his salary from his employer. Harold plans on working full-time until age 62. Harold has the potential to receive more options and restricted stock based on his company's performance, but has requested that this not be included in his assets for now given the uncertainty. College planning is of great concern to the Millers, currently they have no plan in place. They estimate that they will need $150,000 for each child in current dollars to fund their education. The Millers have constructed a budget and have determined that their household expenses are currently $12,000 per month, after tax. Assume that the Millers are in the 35% federal tax bracket and 6% state tax bracket. The Millers would like to set aside money to cover all of the required funding for their children's education. They are not confident the children will be able to

Solution: The correct answer is C. Section 529 plans allow for the family to save for all qualified costs, not just tuition. A is incorrect because the UTMA account causes loss of control at the age of majority. B is incorrect because the Coverdell ESA (formally Education IRA) would not be able to fully fund education given contribution limits. D is incorrect because the Prepaid Tuition plan only covers tuition.

Which of the following statements are true regarding Form ADV and the disclosure requirements for a financial planning engagement? I- An investment advisor may be able to use their Form ADV Part II to meet the CFP Board disclosure requirements. II- An investment advisor may provide the client Form ADV Part II prior to contracting with the client. III- An investment advisor must disclose compensation calculations and services provided to their clients. IV- Once Form ADV is approved by the SEC, an investment advisor can describe their disclosure as approved by the SEC and distribute to clients that the disclosure was approved by the SEC. A- I only. B- I and II. C- I, II and III D- I, II, III and IV

Solution: The correct answer is C. Statements I, II and III are correct. Statement IV is incorrect because the SEC approves the applicant as an investment advisor, without regard to any literature that may be used to satisfy the disclosure requirement.

A client, Tom, informs a CFP® professional that his daughter, Susie, graduated from college last month and landed her first job. Tom wants to establish a Roth IRA for Susie. Tom wants to make a $6,000 contribution for Susie and explains that she does not know about investing and probably would not have the extra money to contribute. How could the CFP® professional best accomplish Tom's objective (CFP® Certification Examination, released 8/2012)? A- Open the account in Susie's name and then have Tom gift the assets to Susie. B- Explain to Tom that he can contribute to an IRA for Susie. C- Request Tom set up a joint meeting with Susie to complete the planning process with her. D- Explain to Tom that Susie must complete a risk questionnaire before Tom can open the account.

Solution: The correct answer is C. Susie will be the client and account owner and will need to be involved in this process. A is incorrect because the planner must meet with Susie to open an account for her. B is incorrect Susie must use earned income to make a contribution to a Roth or Traditional IRA. D is incorrect because Tom must meet with Susie before opening the Roth IRA and include her in the process.

A principal in your financial planning office, who is a CFP® professional, has been tried and convicted of securities fraud and malfeasance of funds by virtue of the fact that he commingled client funds with funds of the financial planning firm and with his own funds, as well. The CFP Board Code of Ethics prohibits a CFP® professional from doing such. As a result, which of the following is the CFP Board likely to undertake? A- Private censure. B- Public letter of admonition. C- Revocation. D- Temporary suspension of right to use the marks (up to 5 years). E- The CFP Board has no jurisdiction in this case, as it is a matter for the SEC to determine.

Solution: The correct answer is C. The Board could use suspension, but since it seems to be an offense that has been ongoing, and not an error or misjudgment, it is far more likely to go with the revocation in this case. The Board does have jurisdiction over its own, and the other options are simply too light for the level of offense.

The provision that all credit reports are required to contain accurate, relevant, and current information is a part of: A- The Truth in Lending Act. B- The Consumer Credit Protection Act. C- The Fair Credit Reporting Act. D- The Fair Credit Billing Act.

Solution: The correct answer is C. The Fair Credit Reporting Act (FCRA) also allows individuals to challenge information deemed to be incorrect on their credit report and provides for changing that information if the creditor does not respond with a specific time period.

All of the following economic activities represent governmental fiscal policy EXCEPT: A- The government increases purchases of goods and services. B- The government cuts taxes. C- The government cuts the Federal Funds Rate. D- The government uses higher taxes to dampen consumption and private investment.

Solution: The correct answer is C. The Federal Reserve sets the discount rate, upon which the Federal Funds Rate is based. The Fed will lower the discount rate when it wants to increase the money supply. Choices "A" and "B" represent expansionary fiscal policy. Choice "D" represents restrictive fiscal policy.

A new CFP® professional with not much experience is offered a rather lucrative engagement. He does not have experience in everything that needs to be done, but he is confident he can figure it out. What should he do? A- He turns down the engagement even though he knows he will lose the money. B- He takes the engagement, and when he needs help he asks for it and lets his client know when he's asking for outside help. C- He tells the client that part of the work is beyond the scope of his expertise and he will need help, but he lets the client decide if he wants to still use the CFP® professional. D- He tells the client that it's beyond his expertise and refers him to another CFP® professional.

Solution: The correct answer is C. The code of ethics requires the CFP® professional to disclose any third parties that will be used during the engagement (Standard C.13.). A is incorrect because the CFP® professional is required to disclose any information that may materially impact the client's decision whether to use the CFP® professional or not. The CFP® professional is not required to completely disengage, but instead make disclosures to the client and bring experts into the engagement when necessary. B is incorrect because the CFP® professional is required to make the disclosure about third parties and areas of expertise prior to entering a planning agreement. D is incorrect because the CFP® professional is required to disclose any information that may materially impact the client's decision whether to use the CFP® professional or not. The CFP® professional is not required to completely disengage, but instead make disclosures to the client and bring experts into the engagement when necessary.

You receive a phone call from an individual you have NOT spoken with previously. The caller is excited, just having heard that a new mutual fund is positioned to deliver large gains in the coming year. The caller wishes to purchase shares of the fund through you. Keeping in mind stages of the overall personal financial planning process, which of the following questions that address the financial planning process and standards of practice should you ask the caller? I- What are your goals for this investment? II- What other investments do you have? III- What is your date of birth? IV- Do you want your dividends reinvested? A- I and III only. B- II and IV only. C- I, II and III only. D- I, II and IV only.

Solution: The correct answer is C. The financial planning professional is required to Understanding the Client's Personal and Financial Circumstances as well as Identifying and Selecting Goals before analyzing and making recommendations. I, II and III reflect meaningful information about establishing facts and the intent of the client. Answer choice IV will not be discussed until the implementation phase.

Sean, a CFP® professional, and Alice worked together at Big Money Advisory Firm. After Alice was terminated by the firm, she asked Sean to retrieve some of her files to provide Alice access to her personal records. Alice's clients had not given permission for their information to be shared with Sean. Sean removed Alice's files from the office without the knowledge or permission of Big Money's owner. According to Big Money's owner, the files at issue were client files that, as the broker of record, the firm was required to retain for seven to ten years. Sean was terminated when Big Money's owner discovered the files were missing. According to the Code of Ethics, which of the following statements are true? A- No violation of the Code of Ethics occurred since Alice was not a CFP® professional and no client information was disclosed to a third party by Sean. B- Sean violated the Duty of Confidentiality and privacy owed to Alice's clients. C- Sean violated Duties owed to his firm by not Complying with Lawful Objectives of CFP® Professional's Firm. D- Big Money Advisory Firm violated the Duty of Confidentiality and privacy owed to Alice's clients.

Solution: The correct answer is C. The following answers are taken from pre-October 2019 rule changes but reflect the outcome of an actual disciplinary case. The Commission determined that by removing confidential client files without first obtaining the permission of the client or Sean's employer, Sean violated the confidentiality agreement of his employer. The Commission issued a Private Censure to Respondent and directed Respondent to complete five hours of continuing education in Ethics, in addition to the two hours in Ethics required to maintain his certification. The Commission considered as a mitigating factor that Respondent acted upon a reasonable request by a colleague to retrieve her personal files. A is false since the issue wasn't the disclosure of client information, but the violation of a certificant's legal obligation to his employer. B is false because Sean did not disclose client information. D is false because the CFP Board certifies individuals, not firms, and imposes no obligations upon firms. After October, 2019 rule changes the outcome of the case would likely have been similar for the CFP® professional. Sean is required to comply with lawful objectives and following the policies and procedures of his firm (Duties owed to Firms and Subordinates 2. b.)

A client complained about a CFP® professional because he took too long to do something and the client lost 10% of his investment in a stock. Who does the CFP® professional have to report this complaint to? A- CFP Board B- FINRA C- His manager D- The Securities and Exchange Commission

Solution: The correct answer is C. The manager should be notified and the firm will take appropriate steps to resolve the issue with the client, typically either through arbitration or negotiations. A is incorrect because the CFP Board must be notified when a CFP® Professional is charged, convicted or named in criminal, civil or regulatory action including the suspension of a professional license. B is incorrect because FINRA must be notified if there is a violation of securities law. D is incorrect because the SEC must be notified if there is a violation of securities law.

Mary, a CFP® professional, feels that her client Julie has unrealistic goals. What is the most appropriate action for Mary to take? A- Mary should not discourage Julie's goals and include her parameters in the plan. B- Mary should agree with Julie and have Julie sign a liability waiver and new risk tolerance questionnaire. C- When appropriate, Mary shall try to assist Julie in recognizing the implications of unrealistic goals and objectives. D- Mary should immediately terminate the engagement with Julie.

Solution: The correct answer is C. The role of the practitioner is to facilitate the goal-setting process in order to clarify, with the client, goals and objectives. When appropriate, the practitioner shall try to assist clients in recognizing the implications of unrealistic goals and objectives. A CFP® professional should help clients state goals clearly and accurately.

The economy has had high unemployment, manufacturing capacity utilization has been low, and consumer and investor confidence is low. The Federal Reserve can be expected to: A- Decrease the money supply and lower interest rates to decrease capital spending and encourage consumer spending. B- Decrease the money supply and raise interest rates to encourage capital investment. C- Increase the money supply and lower interest rates to encourage capital investment and consumer spending. D- Increase the money supply and raise interest rates to reduce inflation and increase spending.

Solution: The correct answer is C. These are actions that the Federal Reserve will take in order to try to stimulate the economy by encouraging business growth and spending activities. Decreasing the money supply would slow the economy.

Norman Peterson earned 15 percent on the $100,000 he invested in a special account at his credit union. Interest was paid semi-annually. His effective rate of interest was: A- 15.00% B- 15.31% C- 15.56% D- 15.75%

Solution: The correct answer is C. To calculate the growth: N=1×2 i=15/2 PV=<100,000> PMT=0 FV=? Answer is 115,562.50. The account made 15,562.50 on a $100,000 investment. Divide the amount made 15,562 by the amount invested ($100,000) to arrive at the effective rate 15.56%.

Julie White, a CFP® professional, has proof that Susan Porter, another CFP® professional in her office, has utilized clients' funds under management to cover gambling debts. Susan returned the funds to the clients' accounts and made them whole, including the earnings that would have accrued during the time the funds were withdrawn. Under the Code of Ethics and Professional Responsibility and Disciplinary Rules and Procedures, Julie is obligated to: A- Report Susan's actions to the local Financial Planning Association Chapter for proper processing. B- Report Susan's action to the CFP Board because Susan has violated her duty of confidentiality to the client. C- Report Susan's action to the CFP Board because Susan has violated her fiduciary duty to the client. D- NOT report Susan's action to the CFP Board because Julie would violate the Confidentiality Principle.

Solution: The correct answer is C. While a CFP® professional is not required to initiate a complaint against another CFP® professional, they are able to and such a report may help the integrity of the designation. Misusing funds is a violation of fiduciary duty. A CFP® professional may not make false or misleading representations to CFP Board or obstruct CFP Board in the performance of its duties. A CFP® professional must satisfy the cooperation requirements set forth in CFP Board's Procedural Rules, including by cooperating fully with CFP Board's requests, investigations, disciplinary proceedings, and disciplinary decisions.

Which of the following, when proactively put in place, will help maximize funds available when dealing with a crisis event? A- Emergency Funds B- Estate Planning Documents C- Life Insurance D- Investment Portfolio

Solution: The correct answer is C. While all the answer choices provided could help if in place prior to a crisis event, the life insurance would MAXIMIZE the amount available if death of a loved one was the crisis event. There are many other types of crisis events. While life insurance is the most obvious for maximization, Auto, home and umbrella policies would be the same concept. Paying a small amount in premium in comparison to the larger death benefit would provide additional funds for final expenses, adjustment period, and future expenses (college, home, etc). Examples of Maximizing dollars: Paying $100-$200 a year for an umbrella policy that provides $1,000,000 in coverage is the same concept of maximizing available funds. Paying an annual premium for health insurance that would greatly help cover a $250,000 surgery. Paying $2,000 a year for a Long Term Care Policy that provides you 3 years of nursing home coverage at $10,000 a month ($360,000 over all).

Which of the following is not required of a CFP® professional under the fiduciary standard? A- Exercise a duty of loyalty with their client. B- Exercise a duty of care with their client. C- Report co-fiduciary breaches to their client. D- Follow client instructions.

Solution: The correct answer is C. While generally an element of fiduciary duty, reporting co-fiduciary breaches is not required in duties owed to clients (1 a, b and c).

Regulation Z, issued by the Federal Reserve Board, is a part of the Consumer Credit Protection Act. Regulation Z requires that: A- Lenders must disclose the items purchased. B- Lenders must be given a "cooling off" period. C- The dollar amount of finance charges and the annual percentage rate be disclosed. D- The length of time to pay the debt be disclosed.

Solution: The correct answer is C. With the advent of Regulation Z, consumers were able to see the actual cost (including finance changes) that they were paying in any transaction they were making.

Wyatt, a CFP® professional, has determined a conflict of interest exists in the relationship with his new client, Jan. After carefully reviewing the issue, he believes that he can fairly, impartially, and objectively serve Jan's best interests. However, he is not sure how Jan would react if she became aware of the conflict. What should Wyatt do? Wyatt should proceed with the relationship, obtain Jan's agreement in writing to the services he will provide, and then disclose the conflict to Jan. Because he can fairly, impartially, and objectively serve Jan's best interest, Wyatt should not disclose the conflict and should continue his relationship with Jan. Provide written disclosure of the conflict, obtain Jan's acknowledgment, and proceed with the engagement or relationship. Wyatt must end his relationship with Jan since it would be unprofessional to disclose the conflict.

Solution: The correct answer is C. Wyatt must ensure Jan understands the conflict and his ability to navigate it. C is the only answer where Jan provides consent. While disclosing conflicts is not required to be in writing, having written disclose satisfies Wyatt's obligation to Jan.

What portion of a CFP® certificant's compensation from client work must come exclusively in the form of fees to meet the requirements of fee only? A- 75 percent B- 85 percent C- 90 percent D- 100 percent

Solution: The correct answer is D

Pilar's son was diagnosed with a medical condition that will require him to receive medical care, physical therapy, occupational, and speech therapy for the remainder of his life. She is gathering her expense receipts for her accountant. Which of the following may not be considered a medical expense for a special needs individual? A- Moving or modifying electrical outlets and fixtures B- Tuition for attendance at a special needs school C- Admission and transportation to a medical conference D- Management fees of special needs trust

Solution: The correct answer is D Choice D is an incorrect statement as management fees are not a medical expense. Choices A, B, and C are all medical expenses for an individual with special needs.

Mr and Mrs. Bellet have 9 year old twins together, Milly and Millan. Millan has special needs and is not anticipated to recover from the disabilities during life. The Bellets have managed to grow their net worth upwards of a couple million dollars. Which of the following issue should they be least concerned with? A- Existing wills leaving the assets to the children equally per stirpes. B- Creating a $500k revocable trust with Milly and Millan as income beneficiaries and Milly as remainderman. C- Naming Milly as future guardian and Grandma as guardian of assets. D- Millan named as beneficiary for health, education, maintenance and support.

Solution: The correct answer is D Choice D is correct, naming an individual with special needs to a trust that provides distributions for only health, education, maintenance, and support will not effect the child's ability to qualify for federal or state benefits. Choice A is incorrect as leaving assets through the will likely disqualify Millan for federal and or state benefits. Choice B is incorrect, the income generated from a revocable trust can jeopardize income based benefits. Choice C is incorrect, documents should be created naming a current guardian in addition to Milly being a minor. Concern may also include the grandmother as guardian as her age and longevity may not allow for time as a guardian.

How are 12b-1 fees described as part of a CFP® professional's compensation? A- As salary B- As trivial compensation that does not have to be disclosed C- As a professional fee D- As sales related compensation

Solution: The correct answer is D.

When must conflicts of interest be disclosed by a CFP® professional? A- Upon presentation of financial planning recommendations B- Upon selecting products and services to implement a financial plan C- During the client data-gathering process D- Before providing services and as material conflicts occur

Solution: The correct answer is D.

Ross is employed as a loan officer at a local bank. Ross recently sat down and visited with his financial planner Julie, a CFP® professional. Ross was in need of cash and borrowed $9,500 from Julie. Based on Julie's duties to her clients' according to the Code of Ethics and Standards of Conduct: A- Julie is not in violation of her duties to clients because Ross is in the business of lending money. B- Julie is in violation of her duties to clients because a CFP® certificant must never lend money to a client. C- Julie is not in violation of her duties because she loaned Ross less than $10,000. D- Julie has violated her duties to her clients by making a loan to Ross.

Solution: The correct answer is D. A CFP® professional may not, directly or indirectly, borrow money from or lend money to a Client unless: i. The Client is a member of the CFP® professional's Family; or ii. The lender is a business organization or legal entity in the business of lending money. Ross is not a bank (making A incorrect). B is incorrect Julie can lend in some circumstances and C is incorrect.

A client should plan on saving the following percentage of income: A- Two to three percent. B- Three to five percent. C- Five to ten percent. D- Ten to twelve percent.

Solution: The correct answer is D. A client should plan on saving 10 to 12 percent of income for retirement, if they start early.

Which of the following is a disciplinary action available to CFP Board? A- Public trial. B- Suspend the CFP® certification for up to 7 years. C- Monetary fine, up to $5,000. D- Revocation of CFP® certification

Solution: The correct answer is D. A is incorrect. CFP Board disciplinary action is handled by the Disciplinary and Ethics Commission. B is incorrect. The CFP® certification can be suspended for up to 5 years. C is incorrect. CFP Board cannot impose a monetary fine.

If a CFP® professional has violated CFP Board's Code of Ethics and Rules of Conduct, CFP Board's Disciplinary and Ethics Commission can do which of the following? A- Fine the CFP® professional no less than $500 per offense. B- Contact the CFP® professional's employer. C- Hold a public trial. D- Issue a public letter of admonition.

Solution: The correct answer is D. A is incorrect. CFP Board does not impose fines on CFP® professionals. B is incorrect. CFP Board does not enforce its rules and regulations through a CFP®professional's employer. C is incorrect. CFP Board handles everything through the Disciplinary and Ethics Commission.

The Sampsons, Dave, age 52 and Debbi, age 49, have been married for 13 years. Debbi approached George, a CFP®professional who has done extensive financial planning for the couple for the past five years. She confides to George that her marriage is in trouble and she plans on filing for legal separation from Dave. She needs $7,000 for the attorney fees. The Sampson's assets include: · Joint brokerage account - $640,000 in mutual funds and cash · Debbi's 401(k) plan - $120,000 · Dave's traditional IRA - $185,000 · Life insurance on Dave's life, owned by Dave - $500,000 death benefit, $32,000 cash value Which of the following actions would be the most appropriate for George to recommend to Debbi? A- Withdraw $7,000 from the brokerage account without obtaining consent from Dave. B- Withdraw $7,000 from the brokerage account after obtaining consent from Dave. C- Borrow $7,000 from the life insurance policy. D- None of the above.

Solution: The correct answer is D. A is incorrect. While it is not necessary to obtain Dave's approval, since the account is owned jointly, you are violating your fiduciary duty to Dave by making this transaction for Debbi. Both are your clients. You cannot make a transaction on behalf of one client that will knowingly cause harm to another client. Standards A. 1, A. 2, A.5, B is incorrect. Consent is not needed on the joint account, the issue is a violation of your fiduciary duty to Dave. C is incorrect. Debbi is not the owner of the life insurance policy, and therefore she would not be able to access the cash value without obtaining authorization from Dave.

Tricia, a new client for Stephan, a CFP® professional, has asked for Stephan's help with her financial planning. Specifically, she wants a complete analysis of her retirement situation including retirement projections, and wants Stephan to evaluate how much and what type of investments she should purchase. Which of the following is correct according to the Practice Standards? A- Stephan is not providing material elements of financial planning and should insure that any products recommended are suitable for the client. B- Stephan is engaged in financial planning if he receives a direct fee from the client, such as AUM, Hourly or Retainer compensation. C- Stephan may be engaged in financial planning but is not required to follow practice standards at this time. D- Stephan is engaged in financial planning and is required to follow practice standards through this engagement.

Solution: The correct answer is D. D is the best answer. Stephen must apply practice standards if (Practice Standards 3.a) he is practicing financial planning or (3. B) Financial advice requires integration of the client's facts and circumstances or (3. B) the client has a reasonable basis to believe the CFP® professional is engaging in financial planning. A is irrelevant with the October 2019 rule change. Financial planning is presumed if the planner and client engage in collaborative discussion and fact finding. B is incorrect compensation does not dictate planning. C is incorrect Stephen is performing financial planning or at a minimum giving financial advice that requires integrating client facts.

Herman is a CFP® professional and Registered Investment Advisor. A few weeks ago, he had been drinking at a happy hour, and was pulled over by the police while driving home. He hadn't realized his tire blew, and the rim of his tire caused damage to the road. He was charged with a DUI and fined $4,000 for damaging public roadways. Early this morning he was convicted. Assuming this is his second DUI conviction, which of the following statements is correct regarding Herman's responsibilities with respect to this conviction? A- He is not required to report the charges to CFP Board, and is not required to disclose the conviction on his Form ADV. B- He is not required to report the conviction to CFP Board, but must disclose the conviction on his Form ADV. C- He is required to report the conviction to CFP Board, but is not required to disclose the conviction on his Form ADV. D- He is required to report being charged and convicted to CFP Board and must also disclose the conviction on his Form ADV.

Solution: The correct answer is D. DUIs (or any engagement in potentially problematic conduct listed in Standard E. 3) must be reported to CFP Board. The fine greater than $1,000 is the triggering factor on the first DUI under CFP Board Code and Standards. This must also be disclosed on his Form ADV and U4 if FINRA licensed.

What is the duty of care that a CFP® professional owes his or her clients when performing professional services? A- Practice and negotiate at arm's length. Ensure the client is well informed, educated and capable of making financial decisions. B- Apply reasonable judgment and maintain a suitability standard of care. C- Follow the prudent investor rule. D- Act as a fiduciary upholding a duty of care, loyalty and following client instructions.

Solution: The correct answer is D. Duties owed to clients (1 a. b. and c.)

The fiduciary standard required of CFP® professionals providing financial advice or financial planning is based upon which of the following? A- The size of the fee the certificant charges B- CFP Board's review and approval of any recommendation C- Evaluating at least three different planning scenarios D- Meeting duties of loyalty, care and following client instructions

Solution: The correct answer is D. Duties owed to clients (1a, b and c)

Within what period must conflicts arising during the course of a client engagement be disclosed to the client by a CFP® professional? A- 30 days B- 21 days C- 10 days D- When engaging a client or diligently as conflicts emerge

Solution: The correct answer is D. Duties to clients (5 b.) Manage Conflicts of Interest A CFP® professional must establish business practices that prevent compromising a CFP® professional's ability to mitigate conflicts.

Consumer demand for sugar at $.80 per pound results in $1,000 in company revenue, and a drop in price to $.50 per pound results in $1,250 in revenue. Which of the following may be concluded about demand for sugar? A- It is unit elastic. B- It is inelastic. C- It would overtake supply. D- It is highly elastic.

Solution: The correct answer is D. Elasticity indicates a lower price will increase overall revenues.

With regard to debt management, a good rule of thumb is to: A- Keep 3 to 6 months expenses available for an emergency fund. B- Total debt should not exceed 28% of gross monthly income. C- Consumer debt should not exceed 28% of net monthly income. D- Housing debt should not exceed 28% of gross monthly income.

Solution: The correct answer is D. Emergency fund rule is correct, at 3 to 6 months, but has nothing to do with debt management. Total debt should not exceed 36% of gross income. Consumer debt should not exceed 20% of net income.

Which of the following are exceptions under the definition of "investment advisor"? I-Banks that are NOT investment companies. II-Accountants or lawyers whose investment advice is "solely incidental" to the practice of their profession. III-Persons whose advice relates only to securities issued or guaranteed by the U.S. government. IV- Publishers of financial publications that have regular and general circulation. A- I and III only. B- II and IV only. C- I, II and IV only. D- I, II, III and IV.

Solution: The correct answer is D. Exceptions do not come under the jurisdiction of the Investment Advisor's Act and need not register as investment advisors.

George is a CFP® professional who is appointed with a large federally covered adviser that is also a mutual insurance company. George is limited to selling a suite of proprietary mutual funds whose costs are higher than other options offered by his competition. Which of the following principles of the Code of Ethics allows George to hold the CFP® designation and requires him to disclose his constraints with clients? A- Act in a manner that reflects positively on the financial planning profession and CFP® certification B- Maintain the confidentiality and protect the privacy of client information C- Act with honesty, integrity, competence, and diligence D- Avoid or disclose and manage conflicts of interest

Solution: The correct answer is D. George's constraints are a material conflict of interest which must be disclosed and managed.

If a potential client implies that they are unable to confide certain elements of their business to you during the fact-finding phase of the interview, what should you do? A- Continue and hope they will answer your questions later. B- Fill in the blank spaces using estimates. C- Call the authorities and report possible illegal activities. D- Thank them for their time, close up the interview and do not engage them as clients.

Solution: The correct answer is D. If a client does not feel comfortable discussing details which are pertinent to developing a financial plan with a planner, then this is not a relationship that should be pursued.

John is a CFP® professional and is engaged in the financial planning process with his client Frank. John is in the data gathering process and has collected bank statements, insurance policies, estate documents, and all other relevant information with the exception of tax returns. Frank refuses to supply the tax returns or any documents that support his income claims. John's best course of action is to? A- Disengage from the client until such time Frank is willing to supply tax returns or other documents to support his income. B- If John suspects that Frank is evading taxes or underreporting his income, John is required by Duties to CFP Board to report his suspicions to the appropriate regulatory authorities. C- John should contact the IRS and request a copy of tax returns for the past three years, with or without the consent of the client. D- John may limit the scope of the engagement to recommendations for which he has sufficient and relevant information or disengage from the client.

Solution: The correct answer is D. John must Obtain Qualitative and Quantitative Information (practice standard 1). A CFP® professional must describe to the Client the qualitative and quantitative information concerning the Client's personal and financial circumstances needed to fulfill the Scope of Engagement and collaborate with the Client to obtain the information. If unable to obtain information necessary to fulfill the Scope of Engagement, the CFP® professional must either limit the Scope of Engagement to those services the CFP® professional is able to provide or terminate the Engagement.

Tom, age 51, wants to purchase a small bus so he can conduct historical tours in his hometown on the weekends. The bus has a purchase price of $60,000. He has $15,000 in a savings account at his local bank, and a FICO score of 700. He works for a manufacturing company and has a current 401(k) plan balance of $120,000. Tom is committed to growing the tour business and believes he will be able to separate from his full-time job in approximately 18 months. Given this fact pattern, which one of the following represents the best option for financing the purchase of the bus? A- Make a $10,000 down payment from his savings account and finance the remaining purchase price over three years. B- Make a $5,000 down payment from his savings account, borrow $10,000 from his retirement plan, and finance the remaining purchase price over three years. C- Take $10,000 from his savings account and borrow $50,000 from his retirement plan to purchase the bus outright. D- Lease the bus for three years with an option to purchase at the end of the lease term.

Solution: The correct answer is D. Leasing the bus will have a minimal impact on cash flow. A is incorrect. This will limit Tom's emergency fund and commit him to a high monthly payment. B is incorrect. This will limit both Tom's emergency fund and create two additional cash flows - one paying back the loan and a second on the bus. Upon separation of service the loan will need to be paid back sooner than anticipated. C is incorrect. This will eliminate a large portion of Tom's emergency fund and potentially jeopardize his retirement

Monthly housing costs including principal, interest, insurance, and taxes should not exceed: A- 36% of the client's gross monthly income. B- 20% of the client's net monthly income. C- 20% of the client's gross monthly income. D- 28% of the client's gross monthly income.

Solution: The correct answer is D. Monthly housing costs including principal, interest, insurance, and taxes should not exceed 28% of the client's gross monthly income. Monthly housing costs including principal, interest, insurance, and taxes should not exceed 28% of the client's gross monthly income.

Which of the following will fit into the category of qualitative data? A- Tax returns and related information. B- Investment information. C- Cash inflows and outflows. D- Risk tolerance levels.

Solution: The correct answer is D. Names and numbers are quantitative. Everything else is qualitative.

According to the first financial planning practice standard (Understanding The Client's Personal and Financial Circumstances) all of the following are qualitative data except: A- Client health status. B- Any potential changes in current lifestyle. C- Risk tolerance levels. D- Assets and liabilities.

Solution: The correct answer is D. Names and numbers are usually indicators of quantitative data.

The index of leading economic indicators is used to forecast: A- Potential future inflation. B- Future changes in security prices. C- Consumer behavior. D- Economic expansions and contractions.

Solution: The correct answer is D. Option "A" is the consumer price index. Option "B" is non-existent, and what every broker wishes they had. Option "C" is the consumer confidence index.

Which of the following statements about the selected industry relative to its regulatory body and the relationship between the two are true? I- The insurance industry is primarily regulated by each of the 50 states. II- The majority of banks are subject to federal regulation by the Federal Reserve System and the Federal Deposit Insurance Corporation. III- Pension plan funds are primarily subject to federal regulation. IV- The organized stock exchanges, such as the New York Stock Exchange, are primarily regulated by the federal government. A- I, II and III only. B- I and III only. C- II and IV only. D- I, II, III and IV.

Solution: The correct answer is D. Option "III" - Pension funds are governed by PBGC (also known as the Pension Benefit Guarantee Corporation) and ERISA (also known as the Employees Retirement Income Security Act) rules as to reporting and requirements on the federal level. Option "IV" - Organized stock exchanges are regulated by the U.S. Government agency, the Securities Exchange Commission (SEC).

Robert Smith asks for your help in preparing his cash flow statement. He tells you that his salary before taxes is $250,000 and that he has NO mortgage on his home. Which of the following statements is true about Robert's cash flow statement? A- The value of the home would be an income source, since there is NO mortgage. B- The value of the home would be an asset. C- The taxes on his salary would be a liability. D- The taxes on his salary would be an expense.

Solution: The correct answer is D. Option A - Home equity would not provide a source of income. Option B - The value of the home is an asset, but this has nothing to do with cash flow statements. Option C - Taxes on his salary are an expense. Also, liabilities are shown on the state of financial position, not the cash flow statement.

A young couple (both age 30) comes to the financial planner with the desire for assistance in improving their family's financial position. They have two healthy children, ages 3 and 6. The husband is a foreman for a manufacturer of auto parts. His current salary is $30,000 per year. The wife is a marketing professor for a state university. Her current salary is $40,000 per year. The couple recently purchased a riverfront home for $100,000 using their entire savings of $20,000 as a down payment. In addition to an $80,000 mortgage, the couple's only debt is an automobile loan having a balance of $12,000. Both husband and wife have very good family health insurance from their employers. The wife has employer-paid life insurance equal to two times her annual salary. The couple wants to start an investment program as soon as possible. To correct the weakness in their financial planning before beginning the investment program, the client should: I- Establish an emergency fund with stock mutual funds. II- Start a college savings fund for their children. III- Purchase disability insurance for the wife and the husband. IV- Have wills prepared for the wife and the husband. V- Secure credit life i

Solution: The correct answer is D. Options I, II and V can be ruled out because: Option I - An emergency fund must be liquid and not subject to the market fluctuations that come with stock mutual funds. Option II - This is part of investing, and the question asks for corrections needed prior to investing. Option V - The auto loan is small and is their only debt other than the mortgage. Credit life is a life insurance policy tied to the amount owed on the underlying debt. The wife has insurance already; therefore, this is not a priority yet. The other two options are correct. Note that the facts state the client should have wills prepared, not the financial planner.

During the Understanding The Client's Personal and Financial Circumstances and Identifying and Selecting Goals steps in the Financial Planning Process, personal values and attitudes shape the clients goals and objectives, and the priority placed on them. The goals and objectives must be consistent with the client's values and attitudes in order to: A- Determine the client's and practioner's responsibilities. B- Determine what fees should be charged. C- Establish the duration of the agreement. D- Ensure that the client will make the commitment necessary to accomplish the goals and objectives.

Solution: The correct answer is D. Practice standards 1.a requires collecting qualitative and quantitative information before goal setting and prioritization can be effective. Values and attitudes are qualitative elements critical to goal setting and prioritizing.

Becca, age 24, applied for CFP® Certification. The Disciplinary and Ethics Commission denied her application because she had been convicted of second degree assault and battery and served nine months of her two year sentence in the county jail at the age of 18, while she was a member of a street gang. She has served her time, graduated from college and has decided to appeal the decision of the Disciplinary and Ethics Commission. All of the following are true regarding the review process EXCEPT: A- She must submit a written petition for consideration to Professional Review staff and sign a form agreeing to CFP Board's jurisdiction. B- Staff will review the request to ensure the transgression falls within the "presumed unacceptable" list. C- Her prior conduct falls under the "presumed unacceptable" category and therefore, she may appeal the denial of certification. D- The Disciplinary and Ethics Commission's decision regarding a petition for consideration is final.

Solution: The correct answer is D. Reason: The DEC's decision regarding a petition for consideration may be appealed to the Appeals Committee of the Board of Directors, in accordance with the Disciplinary Rules and Procedures. All the other statements are true.

What would likely rise to the standard of a material conflict of interest, and need to be disclosed by a CFP® professional? A- That the CFP® professional recommended his personal accountant who gives the CFP® professional discounted accounting services. B- The CFP® professional received an undisclosed fee for a referral to a municipal bond broker. C- A client who is an attorney bought him a $50 fruit basket as a thank you for the referral. D- The CFP® professional gave the name of his lawyer (also a high revenue client of the CFP® professional) to one of his clients who was wishing to divorce his wife.

Solution: The correct answer is D. Referring one client to another is rife with potential conflicts of interest. Especially if both clients provide active revenue for the CFP® professional. A is not the best answer, a discounted accounting service is a conflict of interest but not likely material. B is incorrect a fee paid by a broker is a conflict of interest, but not immediately material as the CFP® professional is a fiduciary. C is not material.

Robert, a CFP® professional, performed a needs analysis concerning Jack's life insurance situation last year and sold him a universal life policy under a limited scope engagement. This year, Jack wants Robert to evaluate his investment allocation, risk tolerance and recommend some mutual funds. All of the following information is required to be provided to Jack according to the Code of Ethics and Standards of Conduct EXCEPT? A- Terms of the engagement including the scope of the engagement with any limitations, the period services will be provided and responsibilities of the Client. B- Disclosure of Economic Benefit for Referral or Engagement of Additional Persons. C- How the CFP® professional and their firm are compensated for providing products and services. D- A written agreement covering the specific obligations and responsibilities of each party.

Solution: The correct answer is D. Robert's obligations of disclosure to Jack require (Obligations to clients 10) disclosing answers B and C. As the engagement will require a discussion of client goals and working to meet those goals this is a financial planning engagement. As such any limitations, end date and a scope of engagement must be provided.

Sean is a CFP® professional and appropriately licensed to participate in insurance, brokerage, and fee-based relationships. Sean is employed by a nationally known broker-dealer firm who is also a registered investment advisor. Sean is a CFP®professional but does not display the mark on his business cards or advertising materials. Mary Beth has engaged Sean and opened two accounts at his firm. One of the accounts has a wrap fee, and the other account is transactional. Which of the following best represents Sean's requirement to act as a fiduciary with respect to Mary Beth? A- Sean is required to maintain a fiduciary standard only with respect to the account that imposes a wrap fee. B- Sean is not required to maintain a fiduciary standard because he does not hold himself out to the public as a CFP®professional. C- Sean can opt out of upholding a fiduciary standard at the request of his broker/dealer. D- Sean is required to maintain a fiduciary relationship with respect to both accounts.

Solution: The correct answer is D. Sean is a CFP® professional and must act as a Fiduciary when providing financial advice or financial planning. A is incorrect - Sean cannot partition his duty. B is incorrect - Sean is a CFP® professional and required to meet all ethical elements if he holds himself out to the public or not. C is incorrect - Sean is a fiduciary under the SEC when charging fees on a wrap account and is unable to waive this duty.

Cara has entered into a comprehensive planning engagement with Stan, a CFP® professional and registered representative. The letter of engagement that Cara signed indicates that Stan will monitor his investment recommendations on an annual basis, every June. In June of the current year, Cara received the update from Stan's annual review. In September of the current year, the mutual funds that Stan recommended experienced a 20% decline in value due to a market selloff. What additional responsibilities does Stan owe to Cara as a result of the poor investment performance? A- Stan must revise the asset allocation within 30 days. B- Stan must update the letter of engagement to include more frequent monitoring of the investment portfolio. C- Stan must return a portion of his fee since Cara's portfolio lost money. D- Stan has no additional responsibilities with respect to the engagement.

Solution: The correct answer is D. Since the monitoring standards were established and agreed upon in the letter of engagement, and Stan has satisfied those responsibilities, he is under no further obligation to Cara. He could work with Cara to update the letter of engagement to include more frequent monitoring, but does not owe that duty.

Which of the following is a liquid asset rather than a saved or use asset? A- Certificates of Deposit maturing in five years. B- Collectible art hung on the living room wall. C- Automobile driven daily. D- Money market mutual funds.

Solution: The correct answer is D. The 5-year CD is a saved asset. The art on display is a use asset, as is the auto driven daily.

Herb Goldman is a friend and he has come to you seeking advice. He suspects that his prior investment advisor, who was not a CFP® professional, was taking higher commissions than he should have been. He asks you what he should do? As Herb's friend and as a CFP® professional, you advise him that he should: A- Contact the CFP Board of Standards so that appropriate action can be taken. B- Contact the SEC and ask them to investigate this individual. C- Hire a private investigator to find out more about this individual's background. D- Gather the evidence that caused suspicion and suggest Herb contact an attorney to review his circumstances.

Solution: The correct answer is D. The CFP Board has no jurisdiction unless the individual in question is a CFP® practitioner himself. The SEC cannot investigate based on Herb's suspicions. Confrontation and private investigation are risky, could create a liability situation for Herb, and could prove to be costly and fruitless. Herb needs proof and he needs his suspicions confirmed before action should be taken.

A CFP® professional's client, Jim, was previously married and had 2 children. He set up an irrevocable trust for those two children, naming his brother Harry as the trustee. Jim remarries a woman named Laura who has no children. Laura comes into the CFP® professional's office saying that Jim is concerned about losing money in the trust due to the recent drop in the market, so he wants to change some things. What should the professional do? A- Provide her with the trading forms that will require Jim's signatures, allowing her to make the changes requested. B- Tell her that because she is not the trustee, she is not authorized to make any charges. C- Tell her that he will contact Harry, the trustee, and let him handle it. D- Contact Jim to discuss the meeting with Laura.

Solution: The correct answer is D. The CFP® Professional owes a duty to the client, who is Jim. The Code of Ethics require the CFP® Professional to discuss Jim's concerns with Jim, not Laura. In addition, the conversation with Jim needs to address that Jim does not have control over the trust assets, the trustee does. A is incorrect because Jim is the client and the planner owes the duty of a fiduciary and confidentiality to Jim since Laura is not the client. B while true, the CFP® Professional should first tell Laura that Jim is the client and Jim should discuss his concerns, because the CFP® professional may only speak to the client about the trust. C is incorrect because the CFP® professional must talk to the client about the trust, not Laura or Harry, unless Harry instructs the CFP® professional differently.

A client, Sam, seems to be suffering from dementia and wants to remove his children from his will and give all of his wealth to Susan, the head of a non-profit organization who is very nice to Sam. What should the CFP® professional do? A- He should contact Sam's children to let them know. B- He should do what Sam asks. C- He should contact the doctor to confirm if he is suffering from dementia or not. D- He should contact Sam's attorney.

Solution: The correct answer is D. The CFP® professional owes a duty of confidentiality to his client. Duties owed to clients 9.A.1.c allows the CFP® professional "As necessary to provide information between attorneys, accountants and auditors". A is incorrect because disengaging in this situation may be a breach of fiduciary duty. B is incorrect because CFP® professional owes a fiduciary duty to the client to act in their best interest. Prior to suffering from dementia, the client intended to transfer assets to his children, per his will. Therefore, the planner should seek legal advice before proceeding. C is incorrect the CFP® professional owes the duty of confidentiality, as does the doctor, who will not be able to disclose medical conditions to the planner.

Which of the following are available to full-time graduate students? I- Pell Grants. II- Subsidized Stafford Loans. III- Supplemental Education Opportunity Grants (SEOG). A- I only. B- II only. C- I and III only. D- None of the above

Solution: The correct answer is D. The Federal Pell Grant is usually awarded to undergraduates who have a high degree of unmet financial need. Subsidized loans are not available to graduate students, only unsubsidized loans are available for graduate students. A Federal Supplemental Educational Opportunity Grant (FSEOG) is a grant for undergraduate students with exceptional financial need.

Tools of the Federal Reserve used for executing monetary policy include: I- Selling commercial paper on the open market. II- Adjusting the reserve requirement. III- Printing additional money as required. IV- Raising or lowering the discount rate. A- I only. B- II only. C- I and III only. D- II and IV only.

Solution: The correct answer is D. The Federal Reserve does not sell commercial paper. Only corporations sell commercial paper. Printing money is the domain of the U.S. Treasury Department.

Janice, age 42, recently graduated from college and began working for a soda bottling company as a marketing specialist. She worked as a staff accountant at a small accounting firm for 19 years before going back to school to get her Marketing degree. She earns $60,000 per year at her new job, and she feels as though she can use $1,500 of her income per month towards repayment of debt. Her debt includes a $110,000 student loan with an interest rate of 5% and a bank loan of $15,000 at 4%. She has a portfolio of stocks valued at approximately $500,000, with a cost basis of $400,000, and a 401(k) plan balance from her old job in the amount of $75,000 that she will be rolling into her new plan. She is in the 32% income tax bracket. Assuming she would like to pay off her student loans as soon as possible, what is the best option for a CFP® professional to suggest to Janice? A- Use the $1,500 per month toward the bank loan until it is paid off, then apply the $1,500 towards the student loans until they are paid off, at which time add any excess earnings to the investment portfolio. B- Use the $1,500 per month toward the bank loan until it is paid off, then apply the $1,500 towards the student

Solution: The correct answer is D. The best option would be to sell the stock and pay off the debt. One of her main goals is to pay off the student loans and selling the stock and paying off debt and taxes would clear her from debt and allow her to utilize her free cash flow to enhance savings. Additional information: You don't want to create debt to pay off debt if possible. Look at this a bit more long term:110,000 student loan with an interest rate of 5% bank loan of $15,000 at 4% total of 125,000 at a combined rate of 4.5% to simplify the mathTo pay off the loans using 1,500 a month will take approximately 8 years, and is approximately 24,078 paid in interestShe is in the 32% income tax bracket, that tells us she has over 100,000 of income (at minimum) that is not coming from salary. Stock worth $500,000, with a cost basis of $400,000 she can sell shares at very little gain by identifying shares, and pay capital gains rate versus ordinary income. That frees up the 1,500 per month to invest in her 401k, which lowers her taxable income and defers taxes until retirement. That is approximately 144,000 invested in her 401k (not including growth and employer matching) in the time it takes to pay off her student loan. That is 3% of her salary as a contribution. If the employer matches 3%, that is an additional 144,000. In 8 years she will have 288,000 plus growth.It makes up for selling 125,000 of the stock to pay off the loans.

Which of the following is the correct definition of "financial planning" as stated by the CFP Board in the Code of Ethics and Standards of Conduct? A- Financial Planning denotes the process of determining how a Client's financial goals can be met through the proper management of their Financial Assets. B- Financial Planning is a process that integrates a Client's life goals with Material elements of Financial Planning subject areas. C- Financial Planning denotes a process that advises Clients on meeting life goals through application of the Practice Standards. D- Financial Planning is a collaborative process that helps maximize a Client's potential for meeting life goals through Financial Advice that integrates relevant elements of the Client's personal and financial circumstances.

Solution: The correct answer is D. The definition of Financial Planning makes clear that it is a collaborative process for maximizing a Client's potential for meeting their life goals. Financial Advice must integrate relevant elements of a Client's personal and financial circumstances.

Hershel, a client of Jonah, deposited $40,000 into a securities account at Jonah's firm. At the time, Jonah's only services to Hershel involved investment recommendations and executing transactions. Over the next two years, Jonah conducted numerous trades in Hershel's account without Hershel's approval, including during a month when Hershel was hospitalized. Jonah and the Firm received commissions from the trades that exceeded Hershel's initial deposit. By this time, Hershel's account was only worth $15,000. The New York Stock Exchange ("NYSE") initiated an inquiry regarding Hershel's matter. Jonah and the NYSE entered into a Stipulation and Consent to Penalty. Jonah consented to the following findings: 1. Respondent engaged in conduct inconsistent with just and equitable principles of trade when he: 1) recommended transactions in the accounts of a customer which were unsuitable in light of his investment objectives, investment experience and/or financial resources; and 2) effected excessive transactions in the accounts of a customer of his member firm employer; and 2. Jonah violated NYSE Rule 408(a) when he exercised discretion in the accounts of a customer without first obtaining writt

Solution: The correct answer is D. The following answers are taken from pre-October 2019 rule changes but reflect the outcome of an actual disciplinary case. Since at the time of the conduct Jonah was not a CFP® professional and was not engaged in financial planning, he was not held to the duty of care of a fiduciary to act in the best interest of the client. The Commission issued a Private Censure to Jonah and considered the mitigating factors Jonah provided at his hearing. All of the other Rules were clearly violated by Jonah. Post October 2019 rule changes CFP Board may have acted the same, however with an emphasis on fiduciary duty a more substantial outcome may be levied (suspension or revocation of CFP® certification).

G Washington, a CFP® certificant ("Grievant") contacted CFP Board to file a grievance against A Burr, another CFP® professional ("Respondent"). The day prior, Grievant had an initial, information-gathering meeting with Thom and Martha, a married couple who were prospective clients (collectively, "Clients"). During the meeting, Grievant found a promissory note related to a margin loan from Thom's account with Burr to a business owned and controlled by A Burr's wife ("Business"). Grievant informed CFP Board that the Clients declined to get involved in the grievance and asked to be left out of any investigation. Burr visited Grievant's office on several occasions without an appointment. Upon Grievant's request, CFP Board sent a letter to Burr recommending that he refrain from further contact with Grievant, his staff and his clients. Burr sent CFP Board a response stating that there were no transaction authorization forms for the margin loan but at about the same time, he sent Thom an e-mail message regarding the wire request for the promissory note. Burr provided a program from a Business event as evidence of the advertising Burr's firm did with the Business. Burr's response included a lett

Solution: The correct answer is D. The following answers are taken from pre-October 2019 rule changes but reflect the outcome of an actual disciplinary case. The Commission presumed that Respondent was not acting in Husband's best interest because Respondent: 1) borrowed funds from Husband; and 2) was neither a family member of the Clients nor a financial institution. The Commission found that by not acting in Husband's best interest and by recommending the investment, Respondent failed to exercise reasonable and prudent judgment in providing professional services. A is not correct since the clients did not forbid Washington from submitting the complaint, although they were clearly not in support. B is not correct because the Board considered Burr's email to Thom to indicate his involvement in the loan to his wife's business. C is not correct. Although the Board considered the support of Thom to be a mitigating factor, they did not overcome Burr's actions. The Commission issued a Private Censure to Respondent. After October, 2019 rule changes the outcome of the case would likely have been less favorable for the CFP® professional. Additional duties as a fiduciary, including the duty to report compensation from or to related businesses (owned by the CFP® professional's wife) were violated.

Mr. and Mrs. Jones come to you for advice on the financing of their daughter's college education at their state university. Even though their annual family income exceeds $70,000, they have NOT saved enough for her college expenses. Upon studying the situation, you advise that their best opportunity to acquire education funds would be through: A- Pell Grants. B- Subsidized Stafford Student Loans. C- Supplemental education opportunity grants. D- Parent loans for undergraduate students (PLUS).

Solution: The correct answer is D. The income of the Jones' will disqualify them from grant money Therefore, one of the loans must be considered. Their daughter can apply for "B" and "C", but they are eligible as parents for the PLUS loan.

Which of the following is an exemption from registration status of the Investment Advisers Act of 1940? A- Banks and bank holding companies that are not investment companies. B- Lawyers, accountants and teachers whose advice is solely incidental to the practice of their profession. C- Advisers whose advice and services is related to strictly to securities which are obligations of the U.S. government. D- Advisors whose only clients are insurance companies.

Solution: The correct answer is D. The parties in Option "D" are exemptions, but must abide by Section 206 of the Act (the anti-fraud provision.) All of the other answers are exceptions; that is, they need not register at all, and are not governed by the Act.

Arrange the following financial planning steps into the proper sequence in which these functions are performed by a CFP® Professional: I- Understanding The Client's Personal and Financial Circumstances II- Presenting the Financial Planning Recommendation(s) III- Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action IV- Developing the Financial Planning Recommendation(s) V- Identifying and Selecting Goals A- I, III, V, IV and then II. B- V, I, III, II and then IV. C- I, V, IV, III and then II. D- I, V, III, IV and then II.

Solution: The correct answer is D. The proper sequence of practice standard steps is to - Understanding The Client's Personal and Financial Circumstances, Identifying and Selecting Goals, Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action, Developing the Financial Planning Recommendation(s), Presenting the Financial Planning Recommendation(s), Implementing the Financial Planning Recommendation(s), Monitoring Progress and Updating

According to the cash flow approach, all of the following recommendations may have a positive impact to cash flow except: A- Raise insurance deductibles. B- Reduce the amount of insurance coverage. C- Payoff existing debt with balance sheet assets. D- Purchase new insurance to cover an existing risk.

Solution: The correct answer is D. The purchase of a new insurance product will have a negative cash flow impact.

Which one of the following actions might the Federal Reserve take when using open market operations to regulate the supply of money and the availability of credit? A- Raise or lower the discount rate that influences market purchases and sales of fixed-income securities. B- Call high-coupon Treasury bonds and allow investors to purchase newly issued Treasury bonds with lower coupons. C- "Put" corporate bonds owned by the Fed to the issuing corporation to reduce the quantity of money in the hands of businesses. D- Purchase Treasury bonds from bank investment departments.

Solution: The correct answer is D. The tools of the Federal Reserve include changing the discount rate, changing reserve requirements, and open market operations (which consist of either buying or selling Treasury securities depending on the Federal Reserve's desired objective). This question is asking specifically about the Federal Open Market actions, which eliminates option A, as that is not an action of the FOMC. The FOMC deals with buying and selling treasuries with banking institutions (not businesses or individual investors). That eliminates options B and C.

A client having a real estate asset in his portfolio wishes to know its value. The estimated value of this real estate asset in the financial statement prepared by you as a Professional Financial Planner should be based upon the: A- Basis of the asset, after taking into account all straight line and accelerated depreciation. B- Client's estimate of current value. C- Current replacement value of the asset. D- Value that a well-informed buyer is willing to accept from a well-informed seller where NEITHER is compelled to buy or sell.

Solution: The correct answer is D. The value of all assets should have their basis in current market value which is defined best in Option "D."

Martina Flower, CFP® is dually registered under the Investment Advisers Act of 1940. For which one of the following activities would this planner be in violation of the act? A- She received, with the client's knowledge, both a fee for advice given to the client and a commission from the client transactions. B- She included the cost of preparing the client's income tax returns as part of the annual fee charged the client. C- She gave clients planning advice that was NOT achievable, given the current economic conditions. D- She distributed to clients the written disclosure brochure two weeks after an investment advising contract was duly signed.

Solution: The correct answer is D. This question is challenging because of option C. However, future planning (holistic and lifecycle planning) is acceptable. It does not imply that her projections were inappropriate. Option D is a violation because the disclosure brochure must be given to clients at or before the time an advisory engagement is entered into. Note: there is nothing wrong with a CFP® professional preparing a tax return if they are qualified; there is nothing that prohibits one from preparing a return and charging a fee for the service as part of the engagement.

If your total income were $30,000 and the total of your expenditures including income taxes came to $26,000, your savings ratio would be: A- 86% B- 45% C- 33.3% D- 13.3%

Solution: The correct answer is D. Total income minus total expenditures is net savings. Net savings divided by total income equals savings ratio.

Florence Hollingsworth purchases an automobile for $14,500. She financed the auto at 14% compounded monthly for three years. What payment is required at the end of each month for Florence's automobile? A- $489.86 B- $456.55 C- $412.39 D- $495.58

Solution: The correct answer is D. Use END mode for this calculation. Loans are disbursed, and the first loan payment is due 30 days later. N= 3 x 12 = 36 i = 14/12 =1.1667 PV = 14,500 PMT = ? FV = 0 Answer $495.5756 If you calculated $489.8606, you incorrectly used Begin mode for this calculation. If you calculated $410.0632, your HP 10BII+ is set to 12 payments per year and should be set to 1 payment per year. The instructions to change this are in the calculator basics pre-study lecture for the HP10BII+. If you calculated $409.6650, your HP 10BII+ is set to 12 payments per year and you incorrectly used Begin mode. Your HP 10BII+ should be set to 1 payment per year. The instructions to change this are in the calculator basics pre-study lecture for the HP10BII+.

Ron and his wife Susan, both 61 years of age, ask a CFP® professional to provide a recommendation on whether or not Susan should start to draw Social Security benefits when she first becomes eligible at age 62. Which of the following would be the least important to obtain in order to provide a recommendation (CFP® Certification Examination, released 8/2012) A- Family longevity and health history. B- Social Security earning statement for each. C- Other retirement assets or financial needs. D- Long-term disability coverage.

Solution: The correct answer is D. When to begin drawing social security requires consideration of multiple issues such as financial needs, health/life expectancy, survivor benefits and higher wage earner analysis. Disability coverage is not a factor. A is incorrect because family longevity and health history is a consideration. B is incorrect because wage earner analysis is an important consideration. C is incorrect because available assets and financial needs is an important consideration.

Snidely, a CFP® professional, met with Dudley and Geezer, Dudley's father. During the meeting, Snidely entered into an oral agreement with Dudley to manage Geezer's financial affairs. Snidely did not complete a client profile of Geezer. Based on Snidely's advice, Geezer liquidated his personal savings account and issued a personal check for the same amount payable to Snidely's company ("Company"). Snidely cashed the check in the Company's account and did not create a separate account for Geezer. On Snidely's advice, Geezer later liquidated his money market account and gave the proceeds to Snidely to manage. About six months later, Snidely opened an escrow account on a deed of trust using a check made out to Snidely and the Company. Geezer did not authorize the opening of the escrow account. Geezer subsequently stopped receiving monthly distributions from a broker-dealer acting as custodian of Geezer's assets as a result of Snidely's failure to properly fund the account. Snidely offered to review and make recommendations on Geezer's then-current living trust. Snidely prepared a Last Will, Revocable Trust and Durable Power of Attorney for management of Property and Personal Affairs, and ch

Solution: The correct answer is E. (Anonymous Case History 19075) The original answer takes into account existing duties of care to clients before October of 2019. Answer A: The Commission found that Respondent commingled client funds with his own funds when he deposited the Client's Father's funds into the Company's account, which Respondent controlled and used as the Company's checking account. Answer B: The Commission found that Respondent failed to act in the interest of the client by: 1) creating unnecessary estate planning documents; 2) disrupting the Client's Father's cash flow; and 3) not investing the Client's Father's funds. Answer C: The Commission found that there was no evidence to conclude that Respondent secured any information that the client's needs and objectives were met. As a result, the Commission found that Respondent entered into a financial planning engagement with the Client's Father without gathering sufficient information to meet the Client's Father's needs and objectives. Answer D: The Commission found that Respondent failed to exercise reasonable and prudent professional judgment because he: 1) failed to clearly outline the scope of the engagement with the Client's Father; 2) failed to clearly identify who his client was; and 3) failed to establish an adequate billing system. An updated rationale would find the CFP® professional commingled funds - which is prohibited under duties owed to a client (15). The CFP® professional failed to act as a fiduciary (1 a. b. and c.) The CFP® professional violated practice standards on gathering qualitative and quantitative information and the CFP® professional acted recklessly without integrity. A, B, C and D would be violated by today's interpretation of the rules.

Darrin and Kathi recently gave you the following financial information. Current Liabilities $6,921 Monthly Non-discretionary Expenses $4,693 Yearly Income $70,000 Annual Debt Expenses (excluding monthly housing costs) $22,084 Which of the following lender thresholds will Darrin and Kathi meet assuming their monthly housing costs will be $1,500? 1. The 28% benchmark 2. The 36% benchmark A: I only B: II only C: I and II D: Neither I nor II

The correct answer is A. 28% Benchmark = 1,500 / (70,000/12) = 25.7% YES 36% Benchmark = (1,500 + (22,084/12)) / (70,000/12) = 57.2% NO

Which of the following is not necessary to identify the client's life cycle position? A: Attitudes (beliefs). B: Marital Status. C: Dependents. D: Income Level. E: Net Worth

The correct answer is A. Age, marital status, dependents, income and net worth determine a client's life cycle position.

Holly would like to plan for her daughter's college education. She would like for her daughter, who was born today, to attend college for 4 years, beginning at age 18. Tuition is currently $10,000 per year and tuition inflation is 7%. Holly can earn an after-tax rate of return of 10%. How much must Holly save at the end of each year, if she wants to make the last payment at the beginning of her daughter's first year of college? A:$2,845.81 B:$3,345.31 C:$4,009.87 D:$4,900.78

The correct answer is A. HP 10BII or HP 10BII+ 0 CFj (starting amount) 0 CFj (first year cashflow) 17 Nj (times to repeat first year cashflow) 10,000 CFj (year 18 starts the tuition payments) 4 Nj (1.10/1.07) - 1 × 100, i Orange shift key NPV Answer: 23,339.62 N = 18 I = 10 PV = 23,339.62 PMT = ? FV = 0 Answer: 2,845.80 HP 12c 0 g CF0 0 g CFj 17 g Nj 10,000 g CFj 4 g Nj (1.10 / 1.07) - 1 × 100 f NPV = ? 23,339.62 N = 18 I = 10 PV = 23,339.62 PMT = ? FV = 0

Ann recently purchased a house for $220,000. She made a down payment of $20,000 and financed the balance over 15 years at 6%. If Ann's first payment is due on October 1st of the current year, how much interest will she pay in the current year? A:$2,989.67 B: $5,885.09 C:$3,288.63 D:$2,073.47

The correct answer is A. HP 10BII or HP 10BII+ Your calculator should be set to 1 payment per year. Loans are always in END mode. N = 15 × 12 I = 6 / 12 PV = 200,000 PMT = ? FV = 0 1 INPUT 3 Orange shift key, AMORT, = = INT answer: 2,989.6671 12c N = 15 × 12 I = 6 / 12 PV = 200,000 PMT = ? FV = 0 3 f AMORT

Which of the following is a primary responsibility of the Federal Reserve (Fed)? A: Maintain sustainable long-term economic growth. B: Maintain fair practices between securities dealers. C: Maintain competition between member banks. D: Maintain a balanced budget.

The correct answer is A. One of the Federal Reserve's main priorities is controlling the money supply. Maintaining a stable money supply will aid in long-term economic growth. The SEC monitors security dealers. The states and banking association monitors the bank channels. A balance budget is a Federal government responsibility.

Which of the following is true regarding demand? 1. The average income or standard of living is a key determinant of demand. 2. Downward sloping demand indicates that if the price is decreased, the quantity demanded will fall. A: Only statement I is correct. B: Only Statement II is correct. C: Statements I and II are both correct. D: Neither Statements I or II are correct.

The correct answer is A. Statement I is a true statement. Demand for products will be greater when disposable income is greater. Statement II is a false statement. The correct version of the statement is: Downward sloping demand curve indicates that as price decrease, quantity demanded will INCREASE.

Which of the following debts are not discharged in bankruptcy? A: Student loans. B: Credit Card debt. C: Medical bills. D: Consumer debt

The correct answer is A. Student loans are not discharged.

If the Federal Reserve wants to decrease interest rates, which of the following actions might they take? A:Buy government securities. B: Sell government securities. C: Increase the reserve requirement. D: Decrease the prime lending rate.

The correct answer is A. To decrease interest rates, the Fed needs to increase the money supply or buy government securities. If the fed sells government securities, the money supply will decrease and interest rates will increase.

Which of the following is not correct regarding the Federal Reserve? A: The Bank Borrowing Rate is the overnight lending rate between member banks. B: The Federal Reserve discount rate is the rate at which member banks can borrow funds from the Federal Reserve to meet reserve requirements. C: The reserve requirement for a member bank of the Federal Reserve is the percent of deposit liabilities that must be held in reserve. D: Open market operations is the process by which the Federal Reserve purchases and sells government securities in the open market.

The correct answer is A. The Fed controls the overnight or discount rate. The lending rate between banks is called the Fed Funds Rate.

Which one of the following statements is not true regarding insurance planning for an individual with special needs? A: Term insurance is not the best choice for life insurance protection due to long term needs. B: In calculating the death benefit of the policy, one generation's need is considered. C: The individual with special needs should not be named as a beneficiary. D: Life insurance can be purchased in a trust that will benefit an individual with special needs .

The correct answer is B Choice B is a false statement because two generations should be considered, the generation of the individual with special needs and their parent's generation. Choices A, C, and D are all true statements.

Which of the following statements concerning a CFP® professional's disclosure of confidential client data is generally correct? I- Disclosure may be made to any state agency without subpoena. II- Disclosure may be made to any party on consent of the client. III- Disclosure may be made to comply with an IRS audit request. A- I only B- II only C- III only D- I, II, and III

The correct answer is B.

Trusts can be very beneficial in many financial planning situations. Many trust benefits, such as asset protection and control, are appropriate considerations for a family with a special needs person. Which of the following types of trusts would generally be used to protect an award from winning a lawsuit or an inheritance on behalf of a special needs child? A:Family trust or third party trust B:A trust under 42 U.S.C. Sec 1396p(d)(4)(A) C:A pooled trust D:A qualified trust

The correct answer is B. A trust under 42 U.S.C. Sec. 1396p(d)(4)(A) can be used to hold assets that are owned by the beneficiary, such as from a lawsuit or an inheritance.

Which of the following is not a primary responsibility of the Federal Reserve (Fed)? A:Maintain sustainable long-term economic growth. B:Maintain fair practices between securities dealers. C:Maintain price levels that are supported by economic growth. D:Maintain full employment.

The correct answer is B. Choice B is the job of the SEC.

All of the following statements concerning financial aid programs for education funding are correct EXCEPT A: A Pell Grant is a grant from the federal government awarded to undergraduate students who have not earned a bachelors or professional degree. B: The EFC calculation, which is based on one's ACT score, is used to determine a student s eligibility for a Pell Grant and how much is awarded to a student. C: One type of Stafford Loan is the Direct Stafford Loan that is provided to the student directly from the Department of Education. D: One type of Stafford Loan is the FFEL Stafford Loan where funds are lent to the student through a lender (such as a bank or other approved financial institution) that participates in the FFEL program.

The correct answer is B. EFC is based on Free Application for Federal Student Aid (FAFSA).

Kasey wants to give her daughter $25,000 in 8 years to start her own business. How much should she invest today at an annual interest rate of 8% compounded annually to have $25,000 in 8 years? A:$12,802.95. B:$13,506.72. C:$13,347.70. D:$13,210.34.

The correct answer is B. N = 8 I = 8 PV = ? PMT = 0 FV = 25,000 Answer: 13,506.72

What are the responsibilities of a CFP® professional who does not have a client agreement to engage in financial planning? A- Perform transactional services for the client but do not receive any direct or indirect fee based compensation. B- Limit the Scope of Engagement to services that do not require application of the Practice Standards, and describe to the Client the services the Client requests that the CFP® professional will not be performing. C- Help the Client select and prioritize goals. The CFP® professional must discuss with the Client any goals the Client has selected that the CFP® professional believes are not realistic. D- A CFP® professional must present to the Client the selected recommendations and the information that was required to be considered when developing the recommendation(s).

The correct answer is B. B is one of the options provided to a CFP® professional who does not have a client agreement to engage in financial planning. A is irrelevant, compensation models do not impact practice standards. C and D are practice standards, which are not required if a CFP® professional is not performing financial planning.

Darrin and Kathi recently gave you the following financial information. Current Assets $9,243 Current Liabilities $6,921 Monthly Non-discretionary Expenses $4,693 Yearly Income $70,000 Annual Debt Expenses (excluding monthly housing costs) $22,084 What would Darrin and Kathi's Emergency Fund Ratio be? A:1.2430 months B:1.3355 months C:1.9695 months D:3.1697 months

The correct answer is C. 9,243 / 4,693

Which of the following statements accurately describes a financial advisor's communication with a client? I: One of the main responsibilities of the advisor is to extract the goals of the client through verbal and nonverbal communication. II: Clarifying and restating a client's statement is part of the process of feedback under active listening. A: I only. B: II only. C: I and II. D: None.

The correct answer is C. Both statements are accurate regarding how a financial advisor communicates with a client.

Which of the following is not correct regarding the Federal Reserve? A: The Federal Funds rate is the overnight lending rate between member banks. B: The Federal Reserve discount rate is the rate at which member banks can borrow funds from the Federal Reserve to meet reserve requirements. C: The reserve requirement for a member bank of the Federal Reserve is the percent of deposits that member banks are required to lend out to consumers. D: Open market operations is the process by which the Federal Reserve purchases and sells government securities in the open market

The correct answer is C. Reserve Requirement is the percentage the bank needs to keep on hand, not lend out.

You are a CFP® professional who has been approached by the general partner of Silky Industries (SI) to provide financial planning services to the top executives at SI. Your sister has a fifteen percent limited partnership interest in SI. Can you accept this engagement? A: No, because your integrity is impaired. B: No, because your objectivity is impaired. C: Yes, but only after proper disclosure. D: Yes, because your integrity and objectivity are not impaired; no disclosure is needed

The correct answer is C. Yes, just make sure you disclose the conflict of interest.

During which step of the financial planning process would a planner review financial statement information? A: Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action B: Identifying and Selecting Goals C: Understanding the Client's Personal and Financial Circumstances. D: Developing the financial plan recommendations.

The correct answer is C. From the CFP Board Code and Standards 1. Understanding the Client's Personal and Financial Circumstances A: Obtaining Qualitative and Quantitative Information. ACFP® professional must describe to the Client the qualitative and quantitative information concerning the Client's personal and financial circumstances needed to fulfill the Scope of Engagement and collaborate with the Client to obtain the information. 1:Examples of qualitative or subjective information include the Client's health, life expectancy, family circumstances, values, attitudes, expectations, earnings potential, risk tolerance, goals, needs, priorities, and current course of action. 2:Examples of quantitative or objective information include the Client's age, dependents, other professional advisors, income, expenses, cash flow, savings, assets, liabilities, available resources, liquidity, taxes, employee benefits, government benefits, insurance coverage, estate plans, education and retirement accounts and benefits, and capacity for risk. B: Analyzing Information. ACFP® professional must analyze the qualitative and quantitative information to assess the Client's personal and financial circumstances. C: Addressing Incomplete Information. If unable to obtain information necessary to fulfill the Scope of Engagement, the CFP® professional must either limit the Scope of Engagement to those services the CFP® professional is able to provide or terminate the Engagement.

Anthony has been investing $1,000 at the end of each year for the past 15 years. How much has accumulated assuming he has earned 10.5% compounded annually on his investment? A:$20,303.72. B:$23,349.28. C:$33,060.04. D:$36,531.34

The correct answer is C. N = 15 I = 10.5 PV = 0 PMT = 1,000 FV = ? 33,060.0354

John and Jane have a net worth of $20,000 and total assets of $170,000. If their revolving credit and unpaid bills total $8,000, how much are their total liabilities? A: $122,000 B: $130,000 C: $138,000 D: $150,000

The correct answer is D. A - L = Net Worth 170,000 - L = 20,000 L = 150,000

Which of the following situations would cause a shift in the demand curve, as opposed to a change in the quantity demanded? A: Federal income tax rates are decreased. B: Auto sales increase due to increased employment. C: Gasoline consumption decreases as the taxes on gasoline increase. D: Both a and b.

The correct answer is D. Anytime income increases, the demand curve will shift up and to the right. More consumers employed, more discretionary income, therefore the demand curve shifts up and to the right. Choice C is a movement along the demand curve.

Gathering client data includes gathering which of the following? A: Bank statements B: Tax returns C: Beliefs, attitude and desires of the client D: All of the above

The correct answer is D. Gathering client data includes both gathering the numbers, but also a client's beliefs, attitude and desires to determine if goals and objectives are reasonable or unreasonable.

Gathering client data includes gathering which of the following? A: Bank statements B- Tax returns C- Beliefs, attitude and desires of the client D- All of the above

The correct answer is D. Gathering client data includes both gathering the numbers, but also a client's beliefs, attitude and desires to determine if goals and objectives are reasonable or unreasonable.

Gathering client data includes gathering which of the following? A: Bank statements B: Tax returns C: Beliefs, attitude and desires of the client D: All of the above

The correct answer is D. Gathering client data includes both gathering the numbers, but also a client's beliefs, attitude and desires to determine if goals and objectives are reasonable or unreasonable.

Kevin owns 1 share of Acme, Inc. stock. He purchased the stock three years ago for $25. The stock is currently trading for $29.50 per share. The stock has paid the following dividends over the past three years. Year 1) $1.50 Year 2) $2.00 Year 3) $2.50 What is the compounded rate of return (IRR) that Kevin has earned on this investment? A: 10.10% B: 5.60% C: 6.60% D: 13.11%

The correct answer is D. HP 10BII or HP 10BII+ 25 +/- CFj 1.50 CFj 2.00 CFj 2.50 + 29.50 CFj Orange shift key IRR/YR Answer: 13.11 HP 12c 25 CHS g CFo 1.50 g CFj 2.00 g CFj 29.50 + 2.50 g CFj f IRR

All of the following statements regarding NPV are true EXCEPT A: A positive NPV indicates the present value of the cash flows exceeds the initial investment. B: A negative NPV indicates the present value of the cash flows is less than the initial investment. C: An NPV equal to zero indicates the present value of the cash flows is equal to the initial investment. D: The internal rate of return is the discount rate that causes the initial investment to exceed the present value of the cash flows.

The correct answer is D. IRR sets the initial investment equal to the present value of the cash flows.

Paul recently applied for CFP® Certification. Which of the following would always bar him from certification? A: One or more personal bankruptcies. B: Felony conviction for perjury last year. C: Felony conviction for aggravated assault. D: Felony conviction of embezzlement.

The correct answer is D. One or more personal bankruptcies is on the presumed list. Felony conviction of a financially based crime, like embezzlement, will always bar.

All of the following statements concerning educational funding are correct EXCEPT: A: QTPs allow individuals to participate in prepaid tuition plans whereby tuition credits are purchased for a designated beneficiary for payment or waiver of higher education expenses, or participate in savings plans whereby contributions of money are made to an account to eventually pay for higher education expenses of a designated beneficiary. B: Prepaid Tuition Plans are plans where prepayment of college tuition is allowed at a fixed price for enrollment in the future. C: A Savings Plan is a type of QTP where the owner of the account contributes cash to the account so that the contributions can grow tax deferred. D: One of the disadvantages of QTPs is that the owner/contributor shares control of the account with the student/beneficiary.

The correct answer is D. The owner controls the account, not with the beneficiary.

All of the following statements concerning educational funding is correct EXCEPT A: A student must submit a FAFSA (Free Application for Federal Student Aid) form to become eligible for federal financial aid. B: The EFC (Expected Family Contribution) is a formula that indicates how much of a student's family's resources ought to be available to assist in paying for the student's college education. C: Factors used in calculating the EFC include taxable and nontaxable income, assets, and benefits, such as unemployment and Social Security. D: A common method for reducing a family's EFC is creating a trust for the parents and increasing the family's estate.

The correct answer is D. The trust should be for the child, thus reducing the family's estate.

All of the following statements concerning educational funding are correct EXCEPT: A: The American Opportunity Tax is a tax credit available for qualified tuition and enrollment fees incurred in the first four years of post-secondary education for the taxpayer, spouse, or dependent. B: The Lifetime Learning Credit is a tax credit available to pay for tuition and enrollment fees for undergraduate, graduate or professional degree programs. C: If used to pay for qualified higher education expenses at an eligible institution or state tuition plan, Series EE United States Savings Bonds bestow significant tax savings. D: The Uniform Gift to Minor's Act (UGMA) allows parents the option to put assets in a custodial account for a child once the child exceeds the age of 14.

The correct answer is D. UGMA accounts will allow the child to access the funds when they reach age 18 or 21 depending on state law.

Marge has been dollar cost averaging in a mutual fund by investing $2,000 at the beginning of every quarter for the past 7 years. She has been earning an average annual compound return of 11% compounded quarterly on this investment. How much is the fund worth today? A:$82,721.95. B:$93,902.42. C:$91,389.22. D:$84,996.80

The correct answer is D. Begin mode N = 7 × 4 I = 11 / 4 PV = 0 PMT = 2,000 FV = ? Answer: 84,996.80

Ann recently purchased a house for $220,000. She made a down payment of $20,000 and financed the balance over 15 years at 6%. If Ann's first payment is due on October 1st of the current year, how much of her current year's payments will be applied to the outstanding principal on the loan? A:$2,989.67 B:$5,885.09 C:$3,288.63 D:$2,073.47

The correct answer is D. HP 10BII or HP 10BII+ Your calculator should be set to 1 payment per year. Loan payments are in END mode. N = 15 × 12 I = 6 / 12 PV = 200,000 PMT = ? FV = 0 1 INPUT 3 Orange shift key, AMORT, = PRIN answer: 2,073.4740 HP 12c N = 15 × 12 I = 6 / 12 PV = 200,000 PMT = ? FV = 0 3 f AMORT X < > Y