1 - GP

Question 1

A certificant shall notify CFP Board in writing of any charge of a felony or relevant misdemeanor within ____ days.

Answer 1

30 calendar days after the date on which the certificant is notified of the charge, suspension, or bar

Question 2

Code of Ethics

Principle of Professionalism

Answer 2

CFP® must conduct business in a professional manner

Violated failing to supervise subordinates

Violated by bashing competitor CFP® professionals

Question 3

Commingle Client Funds

Permitted / Not Permitted

Answer 3

Permitted: Commingling one or more client’s funds or other property together is permitted, subject to compliance with applicable legal requirements and provided accurate records are maintained for each client. Client funds can be commingled in a common client investment account.

Not Permitted: CFP® certificant may not commingle client funds with the funds of the financial planning firm.

Question 4

Written Agreement Specifications

Answer 4

1. The parties to the Agreement,
2. The date of the Agreement,
3. How and on what terms each party can terminate the
   Agreement, and
4. The services to be provided as part of the
   Agreement.

Question 5

Form ADV

Part 2 Components

Answer 5

Fee structure
Types of clients
Method of analysis
Investment strategies
Educational background
Security affiliations
Other business activities
Conditions for managing accounts
Participation in securites transactions
Investment discretion
Balance sheet (specific circumstances)

Question 6

General Principles Flashcards

March 2020

Answer 6

Side left blank.

Question 7

Code of Ethics

Principle of Competence

Answer 7

CFP® must stay current with new rules and products

Violated if 30 hours of continuing education is not completed every 2 years

Question 8

Fee Based vs. Fee Only

Answer 8

Fee based:

cannot call themselves fee based
can derive income from fees and sales related compensation like:
commissions
referrals
loads, etc.
Fee only:

No income is derived from sales-related compensation to the CFP® professional, their firm, or related parties.
can charge only fees:
Hourly, fixed, or flat rate
Percentage or asset based fees
Performance based fees

Question 9

Financial Industry Regulatory Authority (FINRA)

Key Licenses

Answer 9

Series 6: Sells mutual funds, UITs, and variables (only new UITs)

Series 7: Sells all general securities EXCEPT commodities and certain options

Series 63: Uniform Securities Agent State Law Exam; designed to qualify candidates as securities agents

Series 65: Uniform Investment Advisor Law Exam; designed to qualify candidates as investment adviser representatives

Series 66: Uniform Combined State Law Exam; designed to qualify candidates as both securities agents and investment adviser representatives

Question 10

Financial Industry Regulatory Authority (FINRA)

formerly National Association of Security Dealers (NASD)

Registration Process

Answer 10

Anyone seeking to sell securites must register with FINRA.
Associates with a broker/dealer
Registers with FINRA through broker/dealer on Form U-4
Passes appropriate required exam
Receives a CRD Number (Central Registration Depository System)

Question 11

Prior to entering into an agreement, the certificant shall provide written information or discuss what?

Answer 11

CFP® professionals are required to disclose/discuss the obligations and responsibilities of each party under the agreement with respect to:
1. Gathering and providing appropriate data,
2. Defining goals, needs, and objectives,
3. Examining the result of the current course of action
without changes,
4. The formulation of any recommended actions,
5. Implementation responsibilities, and
6. Monitoring responsibilities.

Question 12

Education Needs Analysis

(calculation steps to determine amount
to deposit to fund at age 18)

Answer 12

Determine …

How much the first year of college will cost - End mode
Amount that must be available when child is age 18 - Begin mode and inflation adjusted
How much the parent needs to save either lump sum PV or yearly PMT - Begin or End mode
Reference: Calculator Section

Question 13

College Savings vs. Prepaid Tuition

Answer 13

College Savings: Prepaid Tuition:
1. Market based performance Tracks tuition inflation
2, Risk tolerant investor Risk averse investor
3. Aid: parent’s/grandparent’s Same
asset
4. Open enrollment Limited enrollment
5. Includes graduate school May be limited to
undergrad
6. Not restricted to tuition / fees Restricted tuition
7. Not restricted for out-of-state May restrict out-of
state
8. Not state guaranteed May/may not be state
guaranteed
9. School choice does not impact School choice impacts
10. Refunds = return on investment; Refunds = investment
earnings subject to penalty + low interest
11. May use up to $10K per year (n/a)
for K-12 tuition

Prepaid Tuition: N/A

Question 14

Discipline and Ethics Commission Investigative and Hearing Process

Answer 14

Grievance
Notice to investigate - response due within 30 days
Issue complaint - answer due within 20 days
Pre-hearing
Decision order within 45 days
Petition to appeal with 15 days of decision

Question 15

Saving Strategies

percentage of gross income

Answer 15

A family should save at least 5-8% of gross income.

Question 16

Code of Ethics

Answer 16

1. Act with honesty, integrity, competence, and diligence
2. Act in the client’s best interests
3. Exercise due care
4. Avoid or disclose and manage conflicts of interest
5. Maintain the confidentiality and protect the privacy of
   client information
6. Act in a manner that reflects positively on the financial
   planning profession and CFP® professionals

Question 17

Standards of Conduct

Answer 17

1. Duties Owed to Clients
2. Financial Planning and Application of the Practice Standards for the Financial Planning Process.
3. Practice Standards for the Financial Planning Process.
4. Duties Owed to Firms and Subordinates
5. Duties Owed to CFP Board
6. Prohibition of Circumvention

Question 18

Who can own EE education bonds?

Can EE education bonds be owned
by an UTMA account?

Answer 18

Only a person over 24, normally a parent.

No, only a person over 24 or a parent.

Question 19

Client Responsibilities

Answer 19

1. Active role in their financial future
2. Realistic goals
3. Treat planner in professional manner
4. Share relevant personal financial information
5. Provide contact information of other advisers to create overview

Question 20

Conflict of Interest

Answer 20

A CFP® certificant who is a Registered Representative at the very minimum must disclose his/her broker-dealer relationship to the client. The CFP® certificant who has an insurance license should disclose that relationship with the client.

Question 21

Ordinary Annuity
and
Annuity Due (Payments)

(calculator inputs: begin/end mode)

Answer 21

Begin

College tuition
Retirement benefits
Family needs
End

401(k) deferrals
Profit sharing contributions
Bond interest
Mortgage payments
Reference:  Calculator Section

Question 22

Use of Initials
Certified Financial Planner
(How to use CFP Marks)

Answer 22

John Smith, Inc. CFP® (prohibited)
John Smith, CFP® (OK)
C.F.P. (prohibited)
CERTIFIED FINANCIAL PLANNER™ (OK)
CFP™ (prohibited)

Question 23

Avoiding Gift Tax on 529 Funding

Answer 23

Up to 5 times annual gift tax exclusion ($15,000 in 2019) or $75,000 may be deposited to 529 with no gift tax
- presumes donor lives 5 years
Gift splitting results in a $150,000 deposit without gift tax

Question 24

Kiddie Tax

General Principles

Answer 24

Will now be taxed like trust income
The parents rates do not apply
Not over $2,600 taxed at 10%
$2,601 - $9,300 taxed at $255 + 24% over $2,600
$9,301 - $12,750 taxed at $1,868 + 35% over $9,300
over $12,750 taxed at $3,075.50 + 37% over $12,750

Question 25

Forms of Discipline

Answer 25

``` Private censure Public censure Suspension - up to 5 years Revocation - permanent Possibly additional Continuing Education ```

Question 26

Allowable expenses of a Coverdell ESA

Answer 26

Tuition, fees, tutoring, special needs services, books, and supplies Room and board, uniforms, transportation, and extended day programs Computer technology or certain equipment or internet access

Question 27

Main sources of compensation | that must be disclosed

Answer 27

``` Compensation is defined as the following: 12b-1 fees Cash bonuses Trailing commissions Compensation from wrap-free programs Ticket charges Fees on mutual funds Solicitation fees ```

Question 28

What is in a mutual funds prospectus?

Answer 28

``` Investment objectives Investment strategies Risks of investing in the fund Past performance Distribution policy Fees and expenses Fund management No future projections ```

Question 29

529 Rollover

Answer 29

If the owner rolls over the value of the prepaid account to another beneficiary in a generation below that of the current beneficiary, rollover will be treated as a taxable gift. If the rollover stays in the same generation, there is no taxable gift.

Question 30

Steps in | Financial Planning Process

Answer 30

1 Understanding the Client's Personal and Financial Circumstances 2 Identifying and Selecting Goals 3 Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action 4 Developing the Financial Planning recommendation(s) 5 Presenting the Financial Planning recommendation(s) 6 Implementing the Financial Planning recommendation(s) 7 Monitoring Progress and Updating

Question 31

Exceptions for | Filing as Investment Adviser

Answer 31

Banks that are not also investment companies Lawyers, Accountants, Teachers - advice is incidental Broker/dealers or registered reps whose performance is incidental and who receives no special compensation for advice Publishers of bona fide newspaper or financial publication One who gives advice only relating to U.S. government securities Adviser's clients are in one state Adviser whose only clients are insurance companies The family office

Question 32

Form ADV | Part 1 Components

Answer 32

``` Applicant Background of applicant Location Form of business Disciplinary action Investment philosophy ```

Question 33

Change of 529 Beneficiary

Answer 33

``` The owner can change the beneficiary Approved beneficiaries if a family member of original beneficiary: Parent / Stepparent Grandparent / Grandchild Child / Stepchild Sibling Stepbrother / stepsister Niece / nephew Aunt / uncle Brother-in-law / sister-in-law Father-in-law / mother-in-law Daughter-in-law / son-in-law First cousin Spouse ```

Question 34

Establishing Emergency Fund 3 months vs. 6 months

Answer 34

3 months: Single with 2nd source of income Married both work and have similar wages Married, only 1 spouse works but has 2nd source of income 6 months: Single wage earner Married, only 1 spouse works

Question 35

Recession vs. Depression

Answer 35

Recession: two consecutive quarters of decline in real GDP Depression: severe or long recession (6 quarters)

Question 36

Economic Policies

Answer 36

Fiscal Policy: federal taxation and spending designed to level out the business cycle Monetary Policy: Federal Reserve Board influences the growth of money supply

Question 37

Code of Ethics Principle of Confidentiality

Answer 37

Client information not to be shared with third parties unless: Client grants permission CFP® receives court or regulatory order (IRS/SEC/FINRA) Information needed for CFP® to defend self against charges from client

Question 38

What is a Fiduciary

Answer 38

Person, company, or association holding assets in trust for a beneficiary Charged with the responsibility of investing money wisely for the beneficiary's benefit Owes utmost good faith EXAMPLES Executors of wills and estates Receivers in bankruptcy Trustees Those who administer the assets belonging to underage or incompentent beneficiaries

Question 39

Education Saving Bonds EE Bonds (for tax-free EE bond redemption)

Answer 39

Bonds are normally purchased in the parent's name Savings bonds can be in an UTMA account, but then cannot qualify for the educational expense exclusion. If redeemed for college tuition, interest is taxable. Bonds must be redeemed in a year in which the owner pays qualified higher education expenses, defined as tuition and fees only. Interest fully exempt from federal income tax only For parents to receive full benefit as tax-free status, parent's adjusted gross income must be below certain thresholds

Question 40

Code of Ethics Principle of Objectivity

Answer 40

CFP® must be objective as to his/her abilities Planner must recommend product in light of each clients needs Violated by failing to call in other experts needed or recommending same products to all clients

Question 41

``` Debt Management Ratios Housing Expenses (PITI) ```

Answer 41

< 28% of gross income PITI

Question 42

Types of Bankruptcy

Answer 42

Chapter 11: not qualified for Chapter 13 because debt exceeds limitations or do not have regular source of income Chapter 13: reorganization; debtor is not required to relinquish assets Chapter 7: permits debtor to claim either federal or state exemptions Debts that are not cancelable by bankruptcy are students loans, government loans, child support, or alimony. NOTE: Only Chapter 7 is covered and tested.

Question 43

Code of Ethics Principle of Integrity

Answer 43

Client's interest first and foremost Violated by generating excessive compensation to the CFP® professional

Question 44

Fitness Standards regarding Candidate Bankruptcies Consequences of Bankruptcy

Answer 44

1. One bankruptcy does not generally result in revocation 2. Two or more bankruptcies result in denial, however applicant may explain circumstances to seek a reversal. NOTE: One bankruptcy may result in a public censure but Respondent can request a hearing.

Question 45

Financial Aid Options

Answer 45

Pell Grants: Available to full-time students as well as those carrying six or more credit hours; maximum award $6,095 maximum Parent Loan for Undergraduate Students PLUS: non-need based as anyone can apply Subsidized Stafford Student Loans: Available to students who show financial need; loan is limited Supplemental Education Opportunity Grants: Available for Pell Grants recipients only and offer up to $4,000 per year

Question 46

``` Coverdell ESAs (Educaton Savings Accounts) Contributions Characteristics Limitations ```

Answer 46

Contributions Up to $2K/yr Coverdell ESA to benefit each child under age 18 Not deductible Earnings accumulate tax-deferred Amounts are distributed free of tax & penalities - qualified use Characteristics Set up in custodial type account Contributions for taxable year can be made up to file due date Limitations Limited to $2K per year, per student in 2019 May be made by child, parents, grandparents, or others Made to qualified program and Coverdell in same year - no excise tax Single $95-110K of MAGI; Married jointly $190-220K

Question 47

Ordinary Annuity and Annuity Due (Payments) (calculator inputs: positive / negative)

Answer 47

When one of the inputs or the solution is a payment, the calculator must be in the proper mode (begin or end). Payments are either positive (+) / negative (-). Positive: money deposited into the client's checking account CD or bond interest rec'd by client Dividends rec'd by client Pension or IRA distributions rec'd by client, not pension deposits Withdrawals from mutual funds rec'd by client Negative: Checks written from client's checking account Investments into mutual funds, stocks, bonds, IRAs Repair to investment property owned by client Pension or 401(k) deposits made by client's employer Reference: Calculator Section

Question 48

Repo vs. Reverse Repo

Answer 48

One of the tools of the Federal Reserve Board that influences short-term Repo: Fed buys securities - expansionary / easy money policy Reverse Repo: Fed sells securities - contractionary / tight money policy

Question 49

Major Federal Securities Acts

Answer 49

Securites Act of 1933 - Requires that new issues purchasers be provided with a detailed prospectus before a purchase was completed. Securites Act of 1934 - Regulates the secondary market (trading of issued securities). Act also created the SEC to enforce securities laws. Investment Company Act of 1940 - Authorized the SEC to regulate unit investment trusts (UITs) and managed investment companies (closed-end and open-end funds) plus variable products. Securities Investors Protection Act of 1970 - Established the SIPC to supervise securities firms that get into financial difficulties. The SIPC insures investors against losses arising from the failure of a brokerage firm.

Question 50

Loan between Board certificant - client rules and Recognized Exceptions

Answer 50

Standard A.15 A CFP® professional may not directly or indirectly borrow money from or lend money to a client Exceptions to Borrowing (client loaning to practitioner) When client is a family member When client is a financial institution with normal business activity in lending money.

Question 51

Code of Ethics Principle of Diligence

Answer 51

CFP® must research products CFP® must research other professionals before recommending them Violated by recommending an investment without understanding its risk Violated by recommending an attorney without knowing his/her experience

Question 52

Buy vs. Lease / Rent

Answer 52

Buying a Home - Advantages Tax deductions for interest and property taxes Capital gains on the sale of the in excess of the exclusion ($250,000 single/married filing separately; $500,000 MFJ) Renting a Home - Advantages Rent could be lower than a mortgage payment, this would equate to additional savings. NOTE: Normally the higher the marginal tax bracket, the greater the advantage of owning a home. You must also consider the time frame. Living in an area for a short period of time would favor renting, whereas a long period would favor ownership.