Exam Tips - Ethics, Fundamentals, & Insurance Flashcards

Question

Three-Panel Approach (Long-Term Savings & Investments): Legacy Documents

Answer 1

Will, Durable Power of Attorney for Healthcare, and Advanced Medical Directive

Answer 2

Inflation - Highest Interest Rates - Highest Unemployment - Lowest GDP - Highest

Answer 3

Inflation- Decreasing Interest Rates - Decreasing Unemployment - Increasing GDP - Decreasing

Answer 4

Inflation - Lowest Interest Rates - Lowest Unemployment - Highest GDP - Lowest

Answer 5

Inflation - Increasing Interest Rates - Increasing Unemployment - Decreasing GDP - Increasing

Answer 6

6 months / 2 quarters

Answer 7

18 months / 6 quarters

Answer 8

- Initial unemployment claims - Stock prices - Money supply (M2) - New manufacturing orders - New private housing units - Consumer sentiment

Answer 9

- Employees on payroll - Personal Income - Industrial protection - Manufacturing sales

Answer 10

- Average duration of unemployment - Change in the CPI - Change in labor cost per unit - Consumer credit to income - Value of outstanding loans - Average prime rate charged by banks

Answer 11

Overnight interest rate at which member banks can borrow from the Federal Reserve to meet their reserve requirements

Answer 12

Overnight borrowing rate between banks

Answer 13

Money Supply - DECREASE Interest Rates - INCREASE Policy - CONTRACTIONARY

Answer 14

Money Supply - NO CHANGE Interest Rates - INCREASE Policy - CONTRACTIONARY

Answer 15

Money Supply - DECREASE Interest Rates - INCREASE Policy - CONTRACTIONARY

Answer 16

Money Supply - DECREASE Interest Rates - INCREASE Policy - CONTRACTIONARY

Answer 17

Money Supply - INCREASE Interest Rates - DECREASE Policy - EXPANSIONARY

Answer 18

Money Supply - NO CHANGE Interest Rates - DECREASE Policy - EXPANSIONARY

Answer 19

Money Supply - INCREASE Interest Rates - DECREASE Policy - EXPANSIONARY

Answer 20

Money Supply - INCREASE Interest Rates - DECREASE Policy - EXPANSIONARY

Answer 21

- Student loans - 3 years of back taxes - Alimony - Child support - Debts related to fraud are not discharged but debts associated with negligence are discharged

Answer 22

- Contributory traditional and Roth IRAs up to $1M - Qualified plans along with converted IRAs have an unlimited exemption (Converted IRAs, aka rollover, must be clearly marked rollover and have no other contributions commingled

Answer 23

Provide relief through liquidation

Answer 24

Provides relief through reorganization for businesses or the self-employed

Answer 25

Provides relief through adjusting debts

Answer 26

D. Prime Lending Rate | - The Fed does NOT control the prime lending rate, only the overnight or discount rate

Answer 27

I, II, and III

Answer 28

- Federal Reserve - 1) Reserve Requirement - 2) Discount Rate - 3) Open Market Operations - 4) Excess Reserves

Answer 29

- Congress - 1) Taxation - 2) Spending - 3) Debt Management

Answer 30

b) Life cycle position impacts a client's goals and behavior | - Definition of life cycle position.

Answer 31

Ex) Cash, checking accounts, money market, CD (12 months or less maturity - Laddered CDs set to mature every 6 months - Anything client expects to convert to cash within one year - Does NOT include EE savings bonds

Answer 32

Ex) stocks, bonds, mutual funds, retirement accounts, business ownership and any assets maturing in greater than 12 months

Answer 33

Ex) personal residence, car, furniture, boat and clothing | - Include assets used to maintain the client's lifestyle

Answer 34

Obligations that are due within the next 12 months It excludes interest unless already incurred ex) credit cards, taxes payable and any unpaid bills such as utilities, cable cell phone bills, etc

Answer 35

The remaining balance on any outstanding debt beyond 12 months Ex) Includes the balance on a loan for a client's house, car, boat or any other outstanding loan

Answer 36

Performance Ratio 10-12% Annual Savings (EE + ER Contributions) / Annual Gross Income

Answer 37

Performance Ratio (Ending Investments - Beginning Investments - Savings - Gifts Received) / (Average Invested Assets) Avg Invested Assets = (Beg Inv + End Inv) / 2

Answer 38

d) Pay off the credit card debt by liquidating the money market mutual fund first, then payoff the balance of the credit card debt using the certificate of deposit - Use the money market mutual fund, as it has the lower rate of return, followed by the certificate of deposit, as it pays a higher rate of return. The question asks about “maximizing” overall cash flow, so taking a home equity loan is not the “best” answer, and after 12/15/2017 the interest would not be deductible.

Answer 39

c) The most appropriate time to use a variable rate mortgage is when income is expected to significantly increase in the future or you anticipate staying in the house for a short period of time.

Answer 40

a) A reserve liability account for taxes owed on the sale of assets should be listed

Answer 41

- Strictly NEED based and dependent on the EFC (Expected Family Contribution) amount - The EFC determines a student's eligibility and how much is awarded - Only students that have not earned a bachelors or professional degree qualify

Answer 42

- Primary type of financial aid provided by the US Department of Education - Stafford loans are student loans - Repayment begins after a 6-month grace period of leaving school or falling below part-time status (6 semester hours) - Not appropriate if the parents intend to repay them loans

Answer 43

- The interest is paid for by the federal government while the student is in school - NEED based

Answer 44

- Interest begins to accrue when the funds are disbursed | - NOT need based

Answer 45

- Loan for parents to pay for their children's undergrad studies - NOT need based, but depends on the parent's credit score - Are not subsidized - Appropriate for parents who can afford to make a loan payment, but may not have saved anything for education

Answer 46

- A graduate or professional student enrolled at least half-time at an eligible school in a program leading to a professional or graduate degree or certificate - Depend on student credit score - Maximum PLUS loan amount you can borrow is the cost of attendance minus any other financial assistance you receive - Begin making payments six months after you graduate, leave school, or drop below half-time enrollment - Interest accrues as you go, you can pay it as you go or let it be added to your balance

Answer 47

- Is for students with exceptionally low EFC - Is NEED based - Program expired on 9/30/17

Answer 48

- An individual MAY claim an AOTC or LLC in the same year as a distribution from a 529 plan, just NOT for the same expenses - An individual may NOT claim both an AOTC and LLC for the same child, in the same year - An individual may NOT use an AOTC or LLC for the SAME expense paid by a qualified tuition program - An individual MAY use the AOTC or LLC in the same year a distribution from a qualified tuition plan, just NOT the same expenses

Answer 49

- B: Pay for college credit in today's dollars - LPY: None - AE: Tuition & fees

Answer 50

- B: Tax free if used for qualified education expenses - LPY: State dependent - AE: tuition & fees, books & supplies, equipment, room & board (if >= 1/2 time)

Answer 51

- B: tax-free growth if used for qualified education expenses - LPY: $2,000 - AE: tuition & fees, books & supplies, equipment, room & board

Answer 52

- B: no 10% penalty if used for qualified education expenses - LPY: $6,000 - AE: tuition & fees, books & supplies, equipment, room & board (if >= 1/2 time)

Answer 53

- B: Interest excluded from income if used for qualified educational expenses - LPY: None - AE: tuition & fees

Answer 54

- B: Deduct student loan interest before AGI | - LPY: $2,500

Answer 55

- B: 20% tax credit on $10,000 worth of education expenses - LPY: $2,000 - AE: tuition & fees*, books & supplies*, equipment* * (paid directly to the University)

Answer 56

- B: 100% of first $2,000 and 25% of second $2,000 in expense - applies to first four years - LPY: $2,500 - AE: tuition & fees*, books & supplies, equipment * (paid directly to the university)

Answer 57

529 Savings Plan

Answer 58

b) The Lifetime Learning Credit is only available for the first two years of post-secondary education. - AOTC is good for first 4 years - LLC is available throughout your life-time - AOTC is per student - LLC is per family

Answer 59

d) A 529 Saving Plan allows 5-year proration of contributions - Both the Coverdell and the 529 Savings Plan can be used for private elementary, middle, or high school - A 529 Savings Plan does not have a phase-out - A 529 Savings Plan allows a 5-year proration of contributions; a Coverdell does not.

Answer 60

Actual dollar amount of a loss

Answer 61

Specifies that when more units are exposed to a similar loss the predictability of such a loss to the entire pool increases

Answer 62

The actual cause of a loss | - Ex) fire, wind, tornado, earthquake, burglary, and collision

Answer 63

Condition that increases the likelihood of a loss occurring

Answer 64

- A character flaw - A character flaw would lead to a filing a false claim - Ex) A famous Ohio State running back claimed his car was broken into and $10,000 worth of CDs were stolen. There certainly wasn't $10,000 worth of CDs in his car and thus is an example of a moral hazard

Answer 65

- The indifference created because a person is insured - Ex) Beth goes to the convenience store to get milk for her baby. Beth leaves the keys in her car and the car running while she goes into the store, not concerned that her car may get stolen because she has car insurance

Answer 66

- Tangible condition that increases the probability of a peril occurring - Ex) Icy or wet roads, poor lighting, or defective equipment

Answer 67

CHAD - not Catastrophic for the insurer - Homogeneous exposure - Accidental from the insured's POV - measurable and Determinable

Answer 68

COALL - Competent parties - Offer and - Acceptance - Legal consideration - Lawful purpose

Answer 69

- An insured must have an emotional or financial hardship resulting from damage, loss, or destruction - Property and Liability Insurance - the insured must have insurable interest at the time of policy inception and at time of loss - Life Insurance - the insured only needs an insurable interest at the time of policy inception - Life insurance policies are considered long-term investments

Answer 70

Adhesion Aleatory Unilateral Conditional

Answer 71

- An insurance policy is basically "take it or leave it." There are no negotiations over terms and conditions - As a result, any ambiguities in an insurance contract are found in favor of the insured

Answer 72

- The money exchanged may be unequal | - In other words, there's a small premium, but the insured may receive a large benefit

Answer 73

- Only one promise is made by the insurer which is to pay in the event of a loss - The insured is not obligated to pay premiums. If the premiums are not paid, then there's no promise by the insurer.

Answer 74

- The insured must abide by the terms and conditions of the insurance contract. If terms and conditions are not followed, the insurer may not pay a claim

Answer 75

- Given through an agency or written agreement | - Insurer is responsible for acts of an agent based on express authority

Answer 76

- Authority that the public perceives, and a valid agency agreement exists - The actual delivering of an insurance contract and accepting a premium is an example of implied authority - Insurer is still responsible even if a client is misled

Answer 77

- When the insured believes that the agent has authority to act on behalf of the insurer when in fact, no authority actually exists - Could be inferred based on business cards or a sign on the wall, but the agency agreement actually expired - If an agent represents that insured can pay the premium late, but is wrong, then the insurer is still responsible

Answer 78

- Provides a watch list of insurance companies based on financial ratio analysis - Ratios measure the financial health of insurance companies - NAIC has NO regulatory power over the insurance industry, but is involved in accrediting state insurance regulatory offices - NAIC issues "model legislation" that state legislatures may or may not adopt - Regulation occurs at the state level

Answer 79

DIE DIE 1. ) Determine the objectives of the risk management program 2. ) Identify the risks to which the client is exposed 3. ) Evaluate the identified risks as to probability of occurrence and potential loss 4. ) Determine alternatives for managing risks, and select the most appropriate alternative for each 5. ) Implement the program 6. ) Evaluate, monitor, and review (control)

Answer 80

Use for the most serious types of risk

Answer 81

Using insurance where the financial risk is severe but the frequency is low

Answer 82

Appropriate where the financial risk is low and frequency is high because it would be too expensive to insure Ex) Dings in your car, minor injuries/illnesses and deductibles

Answer 83

d) Morale Hazard - Moral hazard is a character flaw or dishonesty (ex: burning your house down) - Morale hazard is the indifference a person has towards loss because of insurance (ex: leaving the keys in the car and the car running)

Answer 84

b) Implied Authority - Implied Authority is based upon the agents business card, letterhead, and insurance company sign on the door - Express Authority is the agency agreement between the insurance agent and insurance company - Apparent Authority is when no authority actually exists

Answer 85

(Face Value / Coinsurance) x Loss - Deductible | Coinsurance = 80% x Replacement Cost

Answer 86

c) Variable whole life - Variable whole life has fixed premium, death benefit can fluctuate based on investment performance. No such thing as variable renewable term.

Answer 87

c) $8,000 $1,500 x 12 x 20 = $360,000 $200,000 / $360,000 = 0.555 exclusion and 0.444 inclusion Inclusion: 0.444 x $18,000 = $8,000

Answer 88

d) $10,000 $1,500 x 12 x 20 = $360,000 $200,000 / $360,000 = 0.555 exclusion and 0.444 inclusion Exclusion: 0.555 x $18,000 = $10,000

Answer 89

b) $18,000 - Once basis has been recovered, 100% of annuity payments are taxable - Note: If a life insurance annuity, then the proration would continue. Different law regarding life insurance annuity.

Answer 90

d) A residual benefit clause provides the insured with benefits that extend beyond the disability period. - Residual benefit makes up the difference between wages before disability and wages after disability

Answer 91

c) Termination of employment requires 36 months of coverage | - Termination of employment only requires 18 months of coverage

Answer 92

d) Tornado - Termite damage results due to negligence so it is excluded - Flood and earthquake are definitely excluded

Answer 93

b) Section II | - Liability and Medical Payments are identical

Answer 94

d) Payment for punitive damages - Does not pay for punitive damages - Cannot sue yourself for liability

Answer 95

d) Collision, which includes contact with an animal or bird | - D is coverage under comprehensive

Answer 96

a) Individuals over age 62 who receive SS benefits automatically qualify for Medicare - Automatically qualify for Medicare at age 65

Answer 97

c) If a worker applies for retirement or survivors benefits before his or her 65th birthday, he or she must file a separate application for Medicare - If this is the case, there is no need to file a separate application for Medicare.

Answer 98

a) Do nothing, coverage starts immediately at age 65 - Coverage starts automatically - If you receive retirement benefits early, there is no need to file a separate application

Answer 99

d) Benefits can be paid to the dependent parents of a deceased insured worker at age 59 or over - Benefits can be paid to dependent parents of a deceased worker at age 62 or older

Answer 100

b) 1 and 2 | - Capital goods and consumer durables are cyclical and fluctuate directly with the economy and GDP

Answer 101

a) 1, 2 and 3 | - Statement 4 is false because equilibrium price will fall if demand decreases and supply remains constant

Answer 102

e) 2 only - T-bills, zero coupons and GNMA funds are all taxable. EE bonds are tax exempt if used for qualified education expenses.

Answer 103

a) 1, 2 and 3 - Statements 1, 2 and 3 are true. Statement 4 is false because the Investment Advisors Act of 1940 requires an investment advisor to register with the SEC. - It does not address investor safety with regards to trading in securities.

Answer 104

a) Selling of dollar-denominated assets by foreign investors - Interest rates will rise anytime the money supply decreases. - If dollar denominated assets are being sold, US dollars are being sent overseas as the assets are being sold. This results in the money supply decreasing and interest rates increasing. - Decreasing deficits means the US government is demanding less dollars. - Decreasing inflation will result in lower interest rates - Weak credit demand means that businesses are requiring less dollars, therefore, the demand for dollars is low. If demand for dollars is low, then interest rates will decrease.

Answer 105

d) She distributed to clients the written disclosure brochure 2 weeks after an investment advising contract was duly signed - Submitting the disclosure brochure must be done no more than 48 hours before entering into the contract or at the time of entering the contract with a 5-day "look-see"

Answer 106

a) File for unemployment benefits - The question asks what the client should do first. Filing for unemployment benefits will provide the client with some income replacement, which is the highest priority.

Answer 107

c) 1, 3 and 4 - The maximum contribution to a Coverdell ESA is $2,000 per year, per beneficiary. All other accounts are eligible for a contribution.

Answer 108

A. Reformation - The ideal result here, because both parties agree, would be reformation. - Recission occurs when no agreement can be reached and is usually carried out by a court of law.

Answer 109

D. Absolute liability - In a situation where someone has undertaken activities or actions that bring about extraordinary hazardous circumstances, the term that would best describe this situation is absolute liability.

Answer 110

B. Parol evidence rule - Option "a" - the thing speaks for itself - no need to prove negligence - Option "C" - If a right has been waived, the company will be stopped from denying a claim - Option "D" - The company representatives cannot change the contract

Answer 111

A. Estimating them into every budget interval - 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.

Answer 112

A. 20% of net income - This is a rule of thumb, along with the others that recommend housing debt be limited to 28% of gross income, and total debt not to exceed 36% of gross income.

Answer 113

``` B. $337,106 BEGIN N = 35 x 12 = 420 I = 8.5/12 PV = ? PMT = 2,500 FV = 0 ```

Answer 114

``` A. $556 - This question is intended to test several time-value-of-money calculations, and is NOT intended to imply a level of retirement income or savings approach. BEGIN N = 12 x 30 = 360 I = 10/12 = .833 PV = ? => $114,900 PMT = 1000 FV = 0 ``` ``` BEGIN N = 10 x 12 = 120 I = 10/12 = .833 PMT = ? => $556 FV = 114900 ```

Answer 115

``` B. $2,2650,900 - This is a present value of an annuity due problem. BEGIN N = 20 I = 8 PV = ? => PMT = 250,000 FV = 0 - Inflation is not necessary in this calculation, lotto winnings income streams will not increase with inflation, they are equivalent to a fixed annuity ```

Answer 116

D. $300,000 - 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 Sam does not know how long he will live. - With the information provided you could back into a number by figuring 24,000 income based on 8% of your answer set. This would be the capital preservation model. Or an easy step would be 24,000 / .08 = 300,000 - $300,000 x 8% = 24,000 - He has decided to put aside $300,000 which at 8% interest will generate $24,000 per year indefinitely without toughing the principle

Answer 117

A. Construct and send the client an information organizer - Option "B" is prior to step one - Options "C" and "D" are step three - trend analysis and information evaluation.

Answer 118

B. I and III only - 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.

Answer 119

A. I and III only - 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.

Answer 120

C. Increase the money supply and lower interest rates to encourage capital investment and consumer spending - 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 money supply would slow the economy

Answer 121

B. II only - 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 other choices make no sense

Answer 122

D. Purchase Treasury bonds from bank investment departments - 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.)

Answer 123

B. II, III, and IV only - Federal authorities govern the insurance industry in the following instances and manner, through the Internal Revenue Codes, through the SEC, and through ERISA

Answer 124

D. Advisors whose only clients are insurance companies - 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.

Answer 125

D. I, II, III and IV - Exceptions do not come under the jurisdiction of the Investment Advisor's Act and need not register as investment advisors

Answer 126

D. I, II, III and IV - 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 SEC.

Answer 127

D. Provide the client with all of the information at or before the time you enter into a contract - The brochure rule requires that a planner or advisor provide the client with all of the information as required at the meeting, or before the meeting, you enter into contract with them

Answer 128

C. A suit by the employee - Options "A", "B", and "D" are exposures for an employer even when the employee has already accepted Workers Compensation

Answer 129

B. $125,000 - 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. - 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.

Answer 130

C. The dollar amount of finance charges and the annual percentage rate be disclosed - 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

Answer 131

C. II and IV only - The question tries to eliminate the need to include gross income as part of the answer by stating that the couple could qualify for both mortgages. - Real estate taxes will be the same regardless of their financing.

Answer 132

B. 4.96% - 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 ``` 915 +/- Cfj 0 CFj 9Nj 80 CFj 25 Nj 1000 Cfj IRR/YR = 4.9649% ```

Answer 133

A. A minimum down payment of $15,000 plus closing costs - 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.

Answer 134

A. A certificant shall refrain from borrowing or lending money and commingling financial assets - A certificant shall not borrow or commingle funds as stated under the Standards of Conduct. B, C and D are all in the Code of Ethics

Answer 135

C. His manager - 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

Answer 136

A. Jerry is required to notify the CFP Board of the FINRA investigation within 30 days and outcome of the event within 30 days. - Duties to CFP Board require CFP® professionals to disclose FINRA investigations and outcomes other than an uncontested minor rule violation (under $2,500 award)

Answer 137

D. The CFP® professional gave the name of his lawyer to one of his clients who was wishing to divorce his wife, whom was also a high revenue client of the CFP® professional - 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

Answer 138

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 - 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

Answer 139

None of the above | - Perkins loan program ended September 2017

Answer 140

III only - 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.

Answer 141

C. The current value of the prepaid account is included in the parents' assets when calculating expected family contributions - 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.

Answer 142

B. As the price increases, revenue increases. | - If the demand is inelastic, price increases raise revenues

Answer 143

A. Some firms leave the industry - 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.

Answer 144

B. You engage in a collaborative process that helps maximize a Sally’s potential for meeting life goals through financial advice that integrates relevant elements of the Sally’s personal and financial circumstances. - b is the best answer and the 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.

Answer 145

C. Determine whether the client has any consumer debt. - 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.

Answer 146

D. Long-term disability coverage. - 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.

Answer 147

B. Suggest they refinance to a 30-year fixed mortgage and begin funding savings - 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.

Answer 148

b) If you are licensed to sell life insurance and fixed annuities in your own state, you can sell those same products in all states except New York without additional licensing - Individual states regulate the insurance industry. An insurance agent must be licensed by that state to sell insurance in that state

Answer 149

c) 4 months - Betty currently has $21,000 in assets that will cover the first 3 months of care (21,000/7,000 = 4). She gifted a total of 28,000 to Jasmine in the prior 5 years (600 x 12 = 7,200 x 4 years = $28,800). The penalty period would 4 months ($28,800 / $7,000 = 4.1143) plus the 3 months she covered out of pocket, tells us Medicaid will pick up the costs after 7 months.

Answer 150

b) A taxable gift of the life insurance proceeds has been made from the client to the son - This is an example of the so-called “unholy trinity” where the owner, insured and beneficiary are all different. If insured dies, owner has made a gift to the beneficiary.

Answer 151

c) 3 and 5. - The NAIC only provides guidance and recommendations to the state insurance commissioners. While they only provide recommendations, the NAIC has no actual control over the state insurance regulations

Answer 152

e) 1, 2, 3, and 4. | - All of the beneficiaries are eligible for COBRA benefits.

Answer 153

e) 1, 2, 3 and 4 | - The proceeds from a life insurance policy are tax free, so the tax liability on the proceeds are not an issue.

Answer 154

e) None of the above - Since Bill is not 65 and has not been disabled for two years, he will not be eligible for Medicare. Bill is not fully insured (40 quarters of coverage); therefore, he is not entitled to any disability benefits. A spouse is not entitled to any disability benefit either, because he is not fully insured and there’s no information regarding minor children.

Answer 155

a) $1,300. - 40,000 / 12 = $3,333 gross pay - $3,333 x 0.60 = 2,000 disability benefit - $2,000 x (1 - 0.35) = $1,300 net of taxes benefit

Answer 156

b) Estimated annual Social Security benefits after retirement - Average annual earnings prior to retirement, cost of self-maintenance, remaining work life expectancy and an appropriate capitalization rate.

Answer 157

c) Hazards. | - Hazards increase the frequency of a loss. Perils are the proximate cause of a loss.

Answer 158

a) Flood | - Flood is always excluded and needs a separate policy.

Answer 159

c) Coverage is usually provided on a valued basis. | - Fine arts and antiques need an appraised or agreed-upon value. The closest choice is “valued basis.”

Answer 160

d) If a person purchased a life and 20-year term-certain immediate annuity at age 50, there would be no premature distribution penalty. - The term extends beyond 591⁄2 and the immediate annuity is a substantially equal payment. - Below is CFP Board of Examiners’ (Now Council on Examinations) response to a candidate’s question regarding this exam item. “D is indeed the correct answer because immediate annuities are not subject to a premature distribution penalty tax. This only applies to deferred annuities.”

Answer 161

d) 4 only. - An insurable interest must only exist at the time of policy inception for life insurance. An insurable interest does not have to exist at the time of loss. A policy can be issued to anyone with an insurable interest.

Answer 162

c) 2 and 4 - A private medical policy will not pay for custodial care because he is unable to perform some ADLs. Medicare also does not pay for custodial care. - Below is CFP Board of Examiners’ (Now Council on Examinations) response to a candidate’s question regarding this exam item. - “The clarification on why (3) above is incorrect is that a comprehensive major medical policy would pay for treatments for the arthritis but not for the custodial care which is required because he cannot perform the functions of daily living; i.e., dressing, feeding, bathing, etc. “

Answer 163

a) Hospice benefits for terminally ill persons. - The correct answer was hospice care. There is no stop loss with Medicare and it does not provide custodial care. Drug coverage is available in Part D or Part C.

Answer 164

b) $110,000. - There is no need to insure the value of the land. The minimum amount is 80% of replacement. currently the home is worth $110,000 (150,000 - 40,000) and at an 80% coinsurance for full coverage of loss, the amount would be $88,000.

Answer 165

d) Jones is bound by Smith’s actions since he ratified her action by using the loan proceeds for his business. - Tom ratified Jill’s actions by using the funds she borrowed. Actually having the authority to purchase supplies and equipment does not obligate Tom since Jill only has the authority to buy supplies and equipment. Had Tom not used the funds, he would not be obligated to payback the loan.

Answer 166

c) The entire premium cost is paid by the employer. - The entire premium is paid by the employee for a group life policy. An employee may be allowed to borrow from a group universal plan. It does provide permanent coverage.

Answer 167

a) 1, 2, and 3 - There is no need for Part D coverage since the car probably cost less than $500. Recall that insurance is best for low frequency and high severity. The value of the property is a low severity risk whereas all others could be high severity.

Answer 168

d) II and III only. | - Only Options "II" and "III" are dividend options. The others are non-forfeiture options.

Answer 169

a) Universal life insurance. - In all of these coverages, the monies above and beyond mortality and expenses are invested by the company in its general fund. Only variable life allows the investor to select investments. A universal policy is unbundled. The way this question is asked ("unbundled and selected by the company") points one toward the correct answer of universal life.

Answer 170

a) Guaranteed purchase option. - Guaranteed purchase options cannot be purchased with guaranteed purchase option provisions. It would be like making the third wish for three more wishes.

Answer 171

d) Lisa can only borrow from the cash value with Tracy's written approval because she has a conditionally vested interest in the policy. - Even though Lisa is the owner of the policy, she can be denied permission to borrow from the cash value since Tracy (the irrevocable beneficiary) has a vested interest in the policy.

Answer 172

a) The insured were suffering from a terminal illness. | - Viatication becomes an important issue if the insured were suffering from a terminal illness.

Answer 173

b) Extended term insurance. - An extended term insurance is correct because extended term insurance is the only choice that is a non-forfeiture option. Option "A" - Although this is a non-forfeiture provision, the amount of insurance coverage would be reduced. Option "C" is a settlement option, and Option "D" is a dividend option.

Answer 174

b) A joint and last-to-die life insurance policy owned by an irrevocable trust. - The "last-to-die" will pay on the second death, and if it is held in a trust, it will not add to the insured estate tax due because it will not increase the taxable estate

Answer 175

a) $10.80 - Dave is paying $115.20 each year for the coverage ($120 × 0.08 × 12). The Table I cost is calculated by subtracting $50,000 (the tax-free amount allowed under Section 79) from the $120,000 actually purchased, dividing the remainder by $1,000, multiplying the Table 1 rate of 0.15 times 12. ($120,000 - $50,000 / $1,000 × 0.15 × 12). So, the Table 1 premium is $126 (rounded.) Subtract the $115.20 already paid by Dave from the $126 Table 1 premium to determine the additional taxable income ($126 - $115.20 = $10.80).

Answer 176

c) Is an arrangement that is sometimes known as the network model. - The group model of the HMO is an arrangement that is sometimes known as the network model. Option "A" describes a staff model. Option "B" describes an IPA. Option "D" is incorrect as ALL HMOs employ gatekeepers.

Answer 177

b) The IPA model - The IPA allows the greatest flexibility among HMO coverages - IPA = Independent Physician Association

Answer 178

d) Risk sharing - incorporation. - Incorporating is an example of risk sharing. Option "A" - Installing sprinklers is risk reduction, as is Option "B", protective clothing. Option "C" - Establishing a general partnership is risk sharing.

Answer 179

d) The insured's name. - Option "A" is the insuring agreement. Option "B" is the coverage section. Option "C" pertains to policy exclusions. The insured's name appears on the "declaration" page.

Answer 180

c) Dynamic risk; in which the core of risk resides in the change in the environment caused by the changing human condition. - Dynamic risk is the only one correctly paired with its definition

Answer 181

c) Collateral source rule. - This is the collateral source rule. The survival of a tort action means that even in the event of death of the victim or the tortfeasor, the tort will remain actionable. Negligence per se regards a violation of a legal standard.

Answer 182

c) Upon death of an insured under a life insurance policy, federal regulators are able to secure income tax proceeds prior to lump sum payments. - Generally, there is no income tax on life insurance proceeds except in the case of transfer for value sales of a policy.

Answer 183

a) FDIC: Federal Deposit Insurance Corporation. | - FDIC is coverage for bank deposits. The rest are indirect federal government involvement.

Answer 184

b) Executive. - The key word here is "enforcing." That is what the executive branch does. Had the question asked about interpreting and rendering opinions, it would have been referring to the state judicial branch.

Answer 185

d) II and IV only. | - Options "I" and "III" are under the purview of the state courts

Answer 186

d) I, II and IV only. - Lump sum is single premium. Annuity beginning one payment interval later is immediate (this effectively eliminates Options "III" - deferred annuity), and market rates refers to variable rather than fixed annuities.

Answer 187

d) The hull of the ship. - The hull of the ship is covered under ocean marine insurance. An inland marine insurance is a category of insurance that protects against property losses to goods in transit.

Answer 188

a) 'Own occupation' changing to 'modified any occupation'. - At first, the insured is considered disabled if he or she cannot perform his or her specific occupation. After a period of time (usually 2 to 3 years), the definition is broadened to include any occupation to which the insured is fit to undertake based education or training.

Answer 189

b) Modified Any Occupation. - Option "A" - Any occupation would say you are employable even in the severest disabilities. Option "C" - Split definition uses own occupation to begin with and moves toward modified any occupation. This allows for training in a new field. Option "D" - Loss of income avoids having to define disability.

Answer 190

b) I and II only. | - If one is on disability and the company cancels the policy, coverage is still continued

Answer 191

d) The change of occupation provision will permit the insurer to reduce benefits payable. - In the case of increased risk on a disability policy the insurer will generally reduce coverage to match what the premium will purchase at the new, riskier position.

Answer 192

c) The period of time the insured must wait before specified illnesses or injuries are covered. - The probation period, when included in a Disability Income policy, is the time the insured must wait after the issue of the policy before specified conditions will be covered.

Answer 193

b) $5,750 - The amount carried divided by the amount required (80% of current value) times the loss, minus the deductible equals the payment. One of the tricks on this one is that he purchased $80,000 of coverage initially (80% of the purchase price). So, the covered loss equals [$80,000 / (.80 × $160,000)] × $10,000 = $6,250. The insurer will pay $6,250 - $500 = $5,750.

Answer 194

a) I and II only. - Options "I" and "II" are roles of an adjuster. Option "III" is incorrect because the classification is the underwriter's job. Option "IV" is incorrect because the adjuster determines the amount of loss. An arbiter would enter into the situation only if the two sides cannot agree

Answer 195

b) Verbal threshold: Law suits may be allowed when there is a fatal injury. - There is no "pure no-fault" in existence in any state in the U.S. Modified no-fault allows suits when verbal and dollar thresholds have been crossed. Dollar threshold is damage occurring above a certain amount, not a limit to actionable compensatory amounts.

Answer 196

b) Modified no-fault coverage. - Modified no-fault coverage is the plan where injured parties do not give up the right to sue, but simply refrain from such action until either a dollar threshold or a verbal threshold is reached.

Answer 197

c) A car involved in flooding. - Personal auto policies are the only ones that offer coverage for flooding. On a homeowners policy, water damage is covered "from the sky coming down," but not "from the ground coming up."

Answer 198

d) Coverage D, other structures. | - There is no "other structures" coverage on a CGL contract.

Answer 199

b) $373,000 - (Face value ÷ coinsurance) × Loss - Deductible [400,000 ÷ (.80 × 800,000)] × 600,000 - 2,000 [(400,000 ÷ 640,000) × 600,000] - 2,000 (.6250 × 600,000) - 2,000 375,000 - 2,000 373,000

Answer 200

d) Life Insurance Policy Rider. - Continuing Care Retirement communities are structured specifically for Long-Term Care (LTC) coverage, as are the individual policies. Association arrangements are also LTC specific. These three all provide excellent means to obtain LTC coverage. The disability income policy rider takes a coverage that can no longer be carried after age 65 and converts it to useful LTC coverage, another excellent plan. The least favorable is to have diminished coverage that one will most definitely need at some point - life insurance.

Answer 201

c) I and II only. | - Meal preparation and walking are not activities of daily living. Therefore, III and IV are wrong.

Answer 202

c) II and IV only. - Option "I" - Medicare will not pay because the client has no possibility of recovery and this is a "must" to secure Medicare payment. Option "III" - Private medical insurance does not pay for custodial nursing home stays, except possibly in a convalescent situation. The clarification on why Option "III" above is incorrect in that a comprehensive major medical policy would pay for treatments for the arthritis, but not for the custodial care which is required because Fred cannot perform the functions of daily living (i.e., dressing, feeding, bathing, etc.)

Answer 203

d) It provides the surviving owners with the option to buy the deceased’s business interest. - A buy-sell agreement should provide for a commitment of the surviving owners to buy the deceased’s interest, not just an option to buy. The owner wants to be assured that there will be a sale of the interest at the time of death, not just an option. The other statements are benefits of a buy-sell agreement.

Answer 204

a) The use of existing insurance to fund the agreement causes a transfer-for-value problem if an entity agreement is selected, but does NOT cause this problem if a cross-purchase approach is used. - Transfer-for-value problems can be created if existing policies are transferred between shareholders of a corporation in a cross-purchase agreement. An exception to transfer-for-value exists for transfers from a shareholder or officer to the corporation (to fund an entity purchase agreement), but not for transfers between shareholders.

Answer 205

a) Stock redemptions (entity agreements) increase the cost basis of the surviving shareholders. - The cost basis of surviving shareholder does not increase in an "entity" or stock redemption buy-sell, but would increase, in part, in a cross-purchase.

Answer 206

b) Life insurance and/or disability insurance premiums to fund the agreement are tax deductible as an ordinary business expense. - Insurance premiums to fund buy-sell agreements in a cross-purchase plan are not tax deductible. In the case of an entity agreement, where the firm owns the policies, the premium would also NOT be tax deductible.

Answer 207

a) Contingent business interruption. - You would go to collect from your contingent business interruption insurance because it is a business which you do not own that has a direct effect on your own business.

Answer 208

b) All policy values and benefits of a split-dollar life insurance policy are subject to the claims of company general creditors. - Only the portion of benefit in the policy that is attributable to the actual contributions of the company are subject to the claims of company creditors.

Answer 209

c) Malpractice insurance. - CPA liability, fiduciary liability and even lawyers' liability are specializations of Errors & Omissions coverage involving loss or damage of property or money. Malpractice covers bodily injury.

Answer 210

a) A stock redemption plan must have a corporation as a party to the contractual arrangement. - The corporation must be a party to the stock redemption plan. A stock redemption plan is a stock purchase by a corporation, so the cost basis of the surviving shareholders are not affected, thus they do not receive a step up in basis. Proceeds of a policy owned by a surviving shareholder are not includible in the decedent's gross estate. Premiums are not tax deductible.

Answer 211

c) I, II and III only. | - There are no survivor benefits to a surviving spouse with no qualifying child.

Answer 212

b) No stop-loss limits. - Medicare is an 80/20 split without stop-loss limits. Medicare does not provide custodial care coverage, eye care or dental coverage.

Answer 213

d) 40 quarters - The disability recipient must have worked 40 quarters (or periods) in total to be eligible for benefits, and of these, 20 quarters must have occurred in the 40 quarters immediately before becoming disabled.

Answer 214

c) Her daughter, Nora, age 18 and in high school. - Since she was only currently insured Robert and Joy are not entitled to survivorship benefits. Her daughter is still eligible for benefits even though she is 18 because she is in high school.

Answer 215

c) A 68-year old proprietor filing Schedule F. - Persons "A" and "B" are too young. Person "D" did not receive any income which was ever subject to self-employment or social security taxes, therefore, did not ever become qualified

Answer 216

Financial planning engagements require the application and integration of the planner’s knowledge, skills, and decision-making in service to clients.

Answer 217

Competence - 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

Answer 218

Disclosures of compensation methods must remain accurate throughout each client engagement.

Answer 219

Tom, or his employer, should review government motor vehicle records to corroborate and verify the answers on the client’s policy application. - According to anonymous case #17554, the planner should corroborate and verify the client’s answers regarding potential DUI convictions. If the client dies in an accident the insurance company will not pay a claim on the life insurance policy if the client was in fact, convicted of DUI in the past five years. The Disciplinary and Ethics Commission found this planner negligent in failing to review governmental motor vehicle records and violated old Rule 701 of the CFP Board’s Code of Ethics. Under the October 2019 rule revision Tom owes a duty to his firm to comply with lawful objectives. This extends to an agent and insurer relationship. A CFP® professional must act with a duty of care and loyalty to his client. Having false information on an application violates those duties making options B and D incorrect. Option C is incorrect because the CFP® professional is violating a duty to his employer not CFP Board.

Answer 220

Talk to Helen and ask her why she does not want to keep her money with her sister anymore. - 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.

Answer 221

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. - 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.

Answer 222

The code of ethics is not specifically defined, remains aspirational and leads to more detailed rules and obligations through the planning process. - 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.

Answer 223

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 you and your firm. - B is the best answer. John is able to sell a financial product as a CFP® professional without engaging in financial planning. He owes Bill 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).

Answer 224

Avoid or disclose and manage conflicts of interest | - George’s constraints are a material conflict of interest which must be disclosed and managed.

Answer 225

If there is a change in the client’s marital status. - 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. C is incorrect because a change in tax rates is likely expected, unless it’s related to a significant change in income. D is incorrect because simply changing jobs is immaterial, unless it accompanies a significant change in insurance benefits and/or income.

Answer 226

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. - 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.

Answer 227

A. Review implementation responsibilities with Griffin. - 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.

Answer 228

Investment advisory services as defined by applicable state or federal regulations - Investment advisory services are procedural and require a discussion of goals, risk and optimization.

Answer 229

Sally should provide services with the duty of a fiduciary. - 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.

Answer 230

II, III and IV only. - 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).

Answer 231

Caution the client that there is no such thing as advisor-client privilege. - 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

Answer 232

The standards apply to all CFP® professionals at all times, regardless of the insurance or securities licenses or registrations held. - A CFP® professional must follow the code of ethics when providing professional services.

Answer 233

Revocation. - 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.

Answer 234

Contact Jim to discuss the meeting with Laura. - 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.

Answer 235

The Disciplinary and Ethics Commission's decision regarding a petition for consideration is final. - 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 Article 11 of the Disciplinary Rules and Procedures. All the other statements are true.

Answer 236

Disclosure of reasonable and customary fees paid for custodial services. - 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.

Answer 237

A certificant shall provide reasonable and prudent professional supervision or direction to any subordinate or third party to whom the certificant assigns - 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

Answer 238

Use the marks in compliance with the rules and regulations of CFP Board. - “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.

Answer 239

None of the above is required by the Code of Ethics. - CFP Board requires material conflicts of interest to be disclosed. They can be delivered either orally or in writing, and are not require to be provided in writing. B and C are not required of a CFP® professional.

Answer 240

John may limit the scope of the engagement to recommendations for which he has sufficient and relevant information or disengage from the client. - 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.

Answer 241

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. - 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.

Answer 242

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. - 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.

Answer 243

Request Tom set up a joint meeting with Susie to complete the planning process with her. - 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.

Answer 244

Inform Rachel that if she used her uncle for estate planning, Sidney is required to have the documents reviewed by a qualified estate planning attorney to ensure they are legal and accurate or Sidney may need to terminate the engagement. - 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.

Answer 245

Provide information to a client outlined in Duties to a Client including but not limited to How the client pays for products, services and additional incurred costs including surrender charges and sales loads iii. How the CFP® professional and their firm are compensated for providing products and services. - 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 an engagement begins. D is a step in the planning process that comes after Information is provided.

Answer 246

Samuel must address if he has implementation responsibilities. - A is the best answer. A is found in the CFP® practice standards, step four. As a practice standard this step only needs to be applied if Samuel is subject to the Practice Standards, which would be the case if he is engaging in a comprehensive financial planning relationship. 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.

Answer 247

Sally must modify the scope of the engagement based on Deidra’s risk aversion. - A CFP® professional would need to re-establish the financial planning engagement to add the 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.

Answer 248

IV only. - Option "I" - An individual with an insurable interest in the insured can purchase a policy. Option "II" - Policy assignments can be made regardless of the insured's health as long as the policy is in force. Option "III" - The policy owner can name anyone a beneficiary.

Answer 249

III and IV only - Option "I" - Switching from a permanent to a term product is not a conversion available in any group life insurance. Option "II" - These group plan term-to-permanent conversions will occur without evidence of insurability.

Answer 250

Cash value. - Non-forfeiture rights (or provisions) arrange an orderly legal structure to assure monies paid on an insurance policy are not simply absorbed by the company without recourse in the event that an insured decides to terminate coverage. Two other such provisions include "reduced paid-up" and "extended term."

Answer 251

The cash dividends received by Jerry to date are treated as non-taxable. - Dividends which are less than the amount of premiums paid are considered a return of that excess premium to the payor and are therefore non-taxable. Dividends paid to the premium payor above the amount of premium paid are fully taxable as income when earned.

Answer 252

II and III only. - Option "I" is false because once all the earnings are withdrawn and tax and penalty paid on them, the basis is not taxed, nor is there a penalty. Option "IV" is false because even loans from a MEC are taxable and the penalty is applied.

Answer 253

John can only borrow from the cash value with Jennifer's written approval because she has a conditionally vested interest in the policy. - Irrevocable beneficiaries have all of the rights of the policy owner. In this case, the insured must secure permission from the irrevocable beneficiary with regard to any activity or dispositive change in the policy.