FP511 Flashcards
Rule of 72
Can calculate # of years for an investment to double OR req’d int rate for a set number of years
72/9% = 8 years to double initial investment @ 9% ROR
OR
72/10 years = 7.2% needed to double init invest in 10 years
Fixed versus serial payments
Fixed are unchanging over entire period.
Serial may change each year (or period) by amount of inflation.
The result is that the initial serial payment is less than its respective fixed payment.
Ordinary annuity vs Annuity Due
Ordinary Annuity- payments made at end of period
Annuity Due- payments made at beginning of period.
*making systematic investments at the beginning versus end of a period will yield higher results.
IRR
Compound return
Calculating IRR
-Use CFj button on calc (cash flow key)
-Cash flows to investor are positive #s, cash outflows are negative
-A cash flow or zero must be entered for every compounding period.
-First cash outflow might be the purchase of an
investment
- Equal consecutive cash flows can be input together using the Nj key (shift CFj)
-IRR/YR is shift CST key
- If Net Present Value (NPV) is being calculated, initial CF entry is zero.
-NPV key = shift PRC key
- IMPORTANT: last payment is added to the final amount being returned- common mistake!
(otherwise you are adding on an extra time period).
NPV
Net Present Value =
Difference between the total PV of the cash flows and the amount of the initial investment =
PV of cash flows - cost of investment = NPV
- If positive, investment earns a return greater than the req’d rate of return (discount rate).
- If negative, investor earns a return lower than rror.
ex: asking price for home $725k, calc max price to be $786k (intrinsic value for req’d 9% ror)- difference is $61k or NPV.
National banks are subject to regulation by which of the following independent federal agencies?
Federal Reserve Board
Securities and Exchange Commission (SEC)
Federal Deposit Insurance Corporation (FDIC)
Office of the Comptroller of the Currency (OCC)
Federal Reserve Board
Federal Deposit Insurance Corporation (FDIC)
Office of the Comptroller of the Currency (OCC)
Securities and Exchange Commission (SEC) regulates securities markets.
Which of the following statements regarding annuity payments is CORRECT?
A) A serial payment is a set payment that does not change.
B) An ordinary annuity with level payments is called a serial payment annuity.
C) An annuity due has payments at the beginning of each period.
D) An ordinary annuity can have payments at the beginning or end of a period.
C)An annuity due has payments at the beginning of each period.
The answer is an annuity due has payments at the beginning of each period.
In contrast, an ordinary annuity has payments at the end of each period.
A level payment does not change, and a serial payment increases for inflation.
Annuity Due
Has payments at beginning of each period
Ordinary Annuity
Has payments due at the end of each period
Level payment
Does not change
Serial payment
Increases for inflation
Which of the following statements regarding financial institutions is CORRECT?
I. A trust company is also known as a thrift institution.
II. A brokerage company facilitates transactions involving the sale of investments or real estate.
III.A credit union, owned by its members, is a financial institution that accepts deposits and makes loans.
IV.A brokerage company is an intermediary that facilitates transactions involving sales of investments or real estate.
The answer is II, III, and IV. A savings and loan association (S&L), not a trust company, is also referred to as a thrift institution.
Darrin and Marlene Pruett are going to establish an education fund for their daughter. They want to know the best method for accumulating the most money by the time their daughter is ready for college.
Assuming the same return is earned on all of the options, which of the following will provide the greatest accumulation over a specified period of time?
A)$100 per month invested on the first of the month, starting today
B)$1,200 per year invested annually starting one year from now
C)$100 per month invested on the first of the month, starting in 30 days
D)$1,200 per year invested annually starting today
The answer is $1,200 per year invested annually starting today. This lump sum will earn interest all year. If the first payment is made in one year, a full year’s return will be lost. If payments are made monthly, only one-twelfth of the money will earn interest for the entire year.
LO 4.1.1
Candace is a financial planner who advises clients about specific securities and issues written financial plans. Candace will occasionally sell a client some mutual funds. Candace does not sell insurance, but she does give in-depth advice to her clients about their insurance needs.
With what regulatory agencies is it likely that Candace must register?
I. Securities Exchange Commission (SEC), or her state, as an investment adviser
II. Financial Industry Regulatory Authority (FINRA), Series 6
III.FINRA, Series 24
A) I only
B) II and III
C) I, II, and III
D) I and II
The answer is I and II.
The SEC requires anyone (who does not fall into one of the exception categories) doing the work of an investment adviser to register as one, either with the SEC or their state of domicile. Candace gives specific investment advice as an integral part of her practice, so she needs to register. Also, mutual fund sales require a Series 6 license (Series 63 may also be required). Series 24 is for a registered principal.
5.1.3
Which of the following types of information must be included in loan documents under Regulation Z of the Truth in Lending law?
A) Charges for late payments
B) Prepayment information
C) Right of rescission
D) All of these
D). All of these
The answer is all of these. Charges for late payments, the lender’s right of rescission, and prepayment information are all part of the information required. Other required information includes when payments begin, the amount financed, and the annual percentage rate.
7.2.2
The type of bankruptcy in which a person is freed from most debts in exchange for giving creditors assets that legally may be seized is called
A) Chapter 13 bankruptcy.
B) Chapter 7 bankruptcy.
C) Chapter 9 bankruptcy.
D) Chapter 11 bankruptcy.
The answer is Chapter 7 bankruptcy. Chapter 11 applies mostly to businesses and Chapter 13 is one in which a plan is created for the debtor to repay outstanding debts within a specified time period.
7.2.1
Bernie made off with 5% of his client’s accounts and was convicted for the act. At a hearing with the CFP Board’s Hearing Panel, Bernie makes a $100,000 settlement offer. Bernie’s settlement offer details his embezzlement, his admission that he did indeed commit the crime in question, and an apology. Bernie proposes that the Board suspend his marks for one year instead of revoking his right to use the credentials. Which of the following is not an allowable action in response to Bernie’s offer?
A) The Commission rejects Bernie’s offer and revokes Bernie’s right to use the CFP® marks.
B) The Commission accepts Bernie’s offer.
C) The Hearing Panel makes a counter-offer: Bernie must pay a fine of $200,000 and the suspension will run for one year.
D) Subject to final approval by the commission, the Hearing Panel counters with an offer to suspend Bernie’s right to use the mark for 10 years instead of the one year Bernie proposed.
The answer is subject to final approval by the commission, the Hearing Panel counters with an offer to suspend Bernie’s right to use the mark for 10 years instead of the one year Bernie proposed. Article 4.3 of the CFP Board’s Disciplinary Rules and Procedures states that the “Commission may order suspension for a specified period of time, not to exceed five (5) years, for those individuals it deems can be rehabilitated.” Under Article 13 of the Rules and Procedures, the Hearing Panel may negotiate settlements and endorse the Offer of Settlement to the Commission. The Commission has the final decision-making authority to accept or reject an Offer of Settlement according to Article 13.1.
6.2.2
Which of the following provisions are not part of the Fair Credit Reporting Act of 1971 (as amended)?
I. A standard method of reporting interest must be used.
II. The issuer of installment credit must provide written disclosures in easy-to-understand language.
III. A creditor who has denied credit must notify the consumer about which credit reporting agency provided information to the potential creditor.
IV. Obsolete information must be deleted from a consumer’s credit report.
The answer is I and II.
The Fair Credit Reporting Act requires potential creditors who have denied credit to notify the consumer about which reporting agency provided information to the creditor, and it requires that obsolete information be deleted from a consumer’s credit report.
The establishment of a standard method of reporting interest and the written disclosure requirement both refer to Truth in Lending (Consumer Credit Protection Act).
Which of the following statements is true concerning bankruptcy?
A) A debtor is generally not required to relinquish Social Security payments, unemployment insurance, royalties, and alimony payments.
B) A debtor may not file for bankruptcy again under Chapter 7 for six years.
C) Planners can rely on state laws to supersede federal laws in regard to property retention.
D) Student loan debt is often reduced in bankruptcy.
C.
The answer is planners can rely on state laws to supersede federal laws in regard to property retention. It is true that planners can rely on state laws to supersede federal laws on property retention. Planners should rely on state laws versus federal laws for property retention. Debtors may be required to relinquish royalties.
The federal funds rate will tend to move upward under which of the following conditions?
A) The Federal Reserve is buying government securities.
B) A few banks have reserve deficiencies, and the rest have ample excess reserves.
C) The Federal Reserve lowers the discount rate.
D) A few banks have excess reserves, and the rest have significant reserve deficiencies.
D) The answer is a few banks have excess reserves, and the rest have significant reserve deficiencies.
Short-term interest rates increase when the money supply is being tightened. Among the reasons why the money supply is tight is when banks are unable to meet their reserve requirements and must borrow from the Fed.
If the banks have excess liquidity, then monetary policy is accommodative. When the Fed buys government securities or lowers the discount rate, it is increasing the money supply and interest rates will decrease.
BEST
B- buy
E-expand: int rates go down
S- sell
T- tighten: Int rates go up
Which of the following statements regarding emotional biases is CORRECT?
I. Self-control bias occurs when individuals lack self-discipline and favor immediate gratification over long-term goals.
II. Individuals with regret-aversion bias attach undue weight to actions of omission and do not consider actions of commission.
A) Both I and II
B) I only
C) Neither I nor II
D) II only
The answer is I only. Those with regret-aversion bias attach undue weight to actions of commission (doing something) and do not consider actions of omission (doing nothing). Self-control bias occurs when individuals lack self-discipline and favor immediate gratification over long-term goals.
LO 2.1.2
In 2010, the average national gas price was $2.79 per gallon. In 2012, the gas price national average rose to $3.64 per gallon. Responses to gas prices were generally negative. Prices fell to an average per gallon of $3.37 in 2014, and the reaction to the decreased price was positive, even though the price was higher than the 2012 price per gallon of $2.79. This behavior is known as
A) confirmation bias.
B) anchoring.
C) herding.
D) mental accounting.
The answer is anchoring. When average gas prices rose in 2012 to a $3.64-per-gallon threshold, individuals reset their psychological anchors to that price. As the price declined in 2014 to $3.37, the reaction was positive because it was considered in light of the higher 2012 price.
Which of the following statements regarding behavioral finance is CORRECT?
I It relates behavioral and cognitive psychology to financial planning.
II It asserts that individuals generally make rational decisions regarding their finances. A) I only B) II only C) Neither I nor II D) Both I and II
The answer is I only. Traditional financial theory asserts that individuals generally make rational decisions regarding their finances. Yet financial planners often encounter cases where emotions and psychology have caused clients to make irrational choices when managing their money. Behavioral finance is a relatively new field of study which relates behavioral and cognitive psychology to financial planning and economics in an attempt to understand why people often act irrationally during the financial decision-making process.
Which of the following statements regarding a client’s attitudes, beliefs, and values are CORRECT?
I. Values are attitudes and beliefs for which the client feels strongly.
II. The client’s attitudes reflect his opinions, values, and wants.
III. Beliefs are a type of attitude because they reveal the client’s understanding of some aspect of his life.
IV The planner should pay attention to a client’s attitudes, beliefs, and values during the financial planning process.
A) II, III, and IV
B) I and IV
C) I, II, III, and IV
D) I and II
The answer is I, II, III, and IV. The planner must take into account the impact the client’s attitudes, values, and beliefs may have throughout the financial planning process, especially during client-planner communication and when developing and presenting the financial plan.
When making financial decisions, Bruce tends to pay more attention to information that supports his preconceived opinions and poorly made decisions, while disregarding accurate, unsupportive information. Bruce’s behavior is an example of
A) anchoring.
B) confirmation bias.
C) herding.
D) framing bias.
The answer is confirmation bias. Bruce’s behavior illustrates confirmation bias.
The framing effect states that people are given a frame of reference, a set of beliefs or values, which they use to interpret facts or conditions as they make decisions.
Anchoring is making irrational decisions based on information that should have no influence on the decision at hand.
Herding is following the actions of a larger group, whether rational or not.
Ernie sees himself as a consultant to his clients and allows their goals and values to drive his relationships with them. What is his approach to financial counseling?
A) Cognitive-behavioral approach
B) Economic and resource approach
C) Strategic management approach
D) Classical economics approach
The answer is strategic management approach.
Ernie uses the strategic management approach. In this approach, the client’s goals and values drive the client-planner relationship and the planner serves as a consultant.
The cognitive-behavioral approach believes a client’s attitudes, beliefs, and values influence their behavior and tries to replace negative beliefs with positive attitudes that should result in better financial results.
In the classical economics approach, planners attempt to achieve better financial outcomes by increasing financial resources or reducing expenditures.
Which of the following statements regarding the loss aversion theory is CORRECT?
I. This theory asserts that investors generally fear losses much more than they value gains.
II. It occurs when individuals lack self discipline and favor immediate gratification over long-term goals.
A) Neither I nor II
B) I only
C) Both I and II
D) II only
The answer is I only. Under the loss aversion theory, investors generally fear losses more than they value gains. This theory also asserts that individuals prefer avoiding losses to acquiring the same amount in gains. Statement II describes self-control bias.
Rochelle is presented with two equal investment opportunities. The first is stated in terms of potential losses, and the second is stated in terms of potential gains. Without having any additional information, Rochelle selects the second investment. Her decision reflects
A) anchoring.
B) loss aversion theory.
C) herding.
D) the framing bias.
The answer is loss aversion theory. Rochelle’s decision reflects the loss aversion theory, which states that people fear losses much more than they value gains, and they prefer avoiding losses to acquiring the same amount in gains. Herding occurs when a person follows the actions of a larger group, whether rational or not. Anchoring is making irrational decisions based on information that should have no influence on the decision at hand. The framing bias states that people are given a frame of reference, a set of beliefs or values, which they use to interpret facts or conditions as they make decisions.
Which of the following statements regarding behavioral finance concepts is CORRECT?
I.A client’s values represent what he believes to be right.
II. Beliefs are a type of attitude because they reveal a person’s understanding of some aspect of his life.
III. A client’s profile is largely influenced by context, which includes past history or any conditions that presently exist.
IV. A planner should recognize his own attitudes, values, biases, and behaviors and be certain they do not impact recommendations made to clients.
A) II, III, and IV
B) I, II, III, and IV
C) II and IV
D) III only
B- all are correct
As a planner, you have just finished developing and presenting your recommendations to your client. These steps being completed, what would be one of the next steps that you would expect to undertake?
A) Select and prioritize goals.
B) Identify, analyze, and select actions, products, and services.
C) Analyze the information.
D) Monitor the client’s progress.
The answer is identify, analyze, and select actions, products, and services. The step following development and presentation is implementation, and only identifying, analyzing, and selecting actions, products, and services is part of the implementation step. Selecting and prioritizing goals is actually part of the identify and prioritize step in the process. Analyzing the information is part of step one of the financial planning process, and monitoring the client’s progress is carried out in step seven of the financial planning process.
After having worked as the financial planner with both husband and wife through their divorce, and managing to successfully keep them both as clients, the husband later admits to you that he hid assets during the divorce proceedings. As a CFP® certificant, what should you do?
A) Advise the husband that he should reveal this to his former spouse, and if he does not do so, then terminate the engagement.
B) End the engagement with the ex-husband immediately while keeping the ex-wife as a client, and reveal to her what has transpired.
C) Do nothing because to do otherwise would be a breach of client confidentiality since both of the former spouses are your clients.
D) Reveal this information to the former spouse because she is also your client and should be informed of this dishonesty.
The answer is advise the husband that he should reveal this to his former spouse, and if he does not do so, then terminate the engagement. To do nothing would be a breach of the Standards of Conduct, duty of integrity. To inform one client of another’s activities would breach the Standards of Conduct, duties of confidentiality and privacy, as they are no longer married. To fire the ex-husband in order to tell the wife would also violate the duty of confidentiality.
Which of the following is a requirement of one of the Standards of Conduct?
A) A CFP® professional must keep confidential and may not disclose any non-public personal information about any prospective, current, or former client, except as necessary to defend against allegations of wrongdoing made by a governmental authority.
B) In any area of financial planning where a CFP® certificant has minimal professional competence, only general information may be included in any plan presented to a client. Under no circumstances may the planner provide additional information.
C) A CFP® certificant’s compensation shall reflect the average charges for similar services in the same geographic area.
D) A CFP® certificant who obtains any information, not required to be kept confidential by the code, which may raise a question of unprofessional, fraudulent, or illegal conduct by another CFP® certificant or other financial professional, shall not disclose that information.
The answer is a CFP® professional must keep confidential and may not disclose any non-public personal information about any prospective, current, or former client, except as necessary to defend against allegations of wrongdoing made by a governmental authority. A CFP® certificant may reveal personally identifiable information relating to a client relationship under specific circumstances as outlined in the Standards of Conduct.
You have been the financial planner for Bob and Mary for almost 10 years. It has recently come to your attention that Bob and Mary have become embroiled in what looks to evolve into a very hostile divorce. Mary has shown up at your office and has asked if you would continue to be her planner after all of this legal business is completed, but in the meantime could you please let her know about any financial interests that Bob may have of which she may not currently be aware. As a CFP® certificant you should do which of the following?
A) Make an appointment to meet with Bob and Mary together for possible reconciliation and to go over all of their financial information with them.
B) Provide information that they request only as it pertains to their own personal financial plan, and do not take either Bob or Mary on separately as clients.
C) Remain impartial and neutral throughout the entire process and provide information only as requested by attorneys for legal purposes and as required by law.
D) Tell Mary that you cannot assist her in any capacity until all of the legal proceedings are completed, then you would be happy to be her financial planner.
The answer is provide information that they request only as it pertains to their own personal financial plan, and do not take either Bob or Mary on separately as clients.
This answer directly addresses the Standards of Conduct, duties of confidentiality and privacy. Though one is required to turn over materials properly and legally requested by attorneys, there is no restriction preventing a planner from providing information directly to clients. Though it would be best practice to provide information to the requesting party, if there is a legal separation in place or divorce proceedings have begun, it is appropriate to provide only materials that are proprietary to that party in order to maintain confidentiality.
Also, it would be ill-advised to take sides or take either one or both of these former clients on as a future client.
The following question was previously used on the CFP® Certification Examination, and is used with permission of CFP Board.
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 $5,000 contribution for Susie and explains that she does not know about investing and probably would not have the money to contribute. How could the CFP® professional best accomplish Tom’s objective?
A) Open the account in Susie’s name and then gift the assets to Susie.
B) Explain to Tom that Susie must complete a risk questionnaire before Tom can open the account.
C) Explain to Tom that he can contribute to an IRA for Susie.
D) Request Tom set up a joint meeting with Susie to complete the planning process with her.
The answer is 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 the process and also “known” by the CFP® professional.
Joyce has become more risk averse and is not focused on accumulating assets, but maintaining the values of the ones she has. Joyce is in which financial life cycle phase?
A) Distribution/gifting phase
B) Conservation/protection phase
C) Asset accumulation phase
D) Preretirement phase
The answer is conservation/protection phase. People generally become more risk averse in the conservation/protection phase and become aware of the risks that were ignored in the asset accumulation phase.
Harry Harris owns a financial planning firm with $8 million under management. The CFP Board recently told Harry that his rights to use the CFP marks were being suspended for six months. Harry immediately removed the marks from his stationery, business cards, and website. Thirty calendar days before the suspension was over, Harry filed an affidavit with the board stating that he had fully complied with the terms of the suspension, then immediately added the marks back. Did Harry violate any Rules of Conduct?
A) Yes, Harry did not notify his employees that his right to use the marks had been suspended.
B) Yes, Harry did not notify his existing clients that his right to use the marks had been suspended.
C) Yes, Harry must wait for written confirmation that the suspension ended before adding the marks back to his business.
D) No, he immediately removed the marks from all aspects of his business.
The answer is B) yes, Harry did not notify his existing clients that his right to use the marks had been suspended.
According to Rule 4.7 of the Rules of Conduct, Harry must advise all current clients of any suspension or revocation received from the CFP Board. If Harry had been an employee he would have an obligation to report the suspension to his employer, but as the owner there is no obligation to notify the employees. Any suspension that lasts less than one year will automatically end upon the certificant’s filing with the CFP Board within 30 calendar days of the expiration of the period of suspension an affidavit stating that the suspended certificant has fully complied with the order of suspension unless such condition was waived by the Commission.
Which of the following is NOT a correct use of the CFP marks?
A) CFP® planner
B) CFP® practitioner
C) CFP® exam
D) CFP® certificant
The answer is CFP® planner.
The Guide to Use of the CFP Certification Marks clearly lists the correct usage of the marks.
CFP® certification marks must be followed by one of the approved nouns: “certificant,” “professional,” “practitioner,” “certification,” “mark,” or “exam.”
Candace is a financial planner who advises clients about specific securities and issues written financial plans. Candace will occasionally sell a client some mutual funds. Candace does not sell insurance, but she does give in-depth advice to her clients about their insurance needs.
With what regulatory agencies is it likely that Candace must register?
I. Securities Exchange Commission (SEC), or her state, as an investment adviser
II. Financial Industry Regulatory Authority (FINRA), III. Series 6
IV. FINRA, Series 24
A) I, II, and III
B) I and II
C) II and III
D) I only
The answer is I and II.
The SEC requires anyone (who does not fall into one of the exception categories) doing the work of an investment adviser to register as one, either with the SEC or their state of domicile. Candace gives specific investment advice as an integral part of her practice, so she needs to register. Also, mutual fund sales require a Series 6 license (Series 63 may also be required). Series 24 is for a registered principal.
Which of the following statements regarding the National Credit Union Share Insurance Fund (NCUSIF) are CORRECT?
I. The NCUSIF is backed by the full faith and credit of the U.S. government.
II. The fund is administered by the National Credit Union Administration (NCUA).
III. Up to $500,000 of a member’s account balances are insured by the NCUSIF.
IV. The NCUSIF insures member accounts of all federal credit unions.
A) I and IV
B) I, II, and III
C) III and IV
D) I, II, and IV
The answer is I, II, and IV.
The NCUSIF insures member accounts of all federal and most state-chartered credit unions up to $250,000. All of the other statements are correct.
Trenton, age 59, is unmarried and retired. He has the following assets on deposit at Riverview Bank, an
FDIC-insured financial institution:
Account Ownership Balance
Checking account Trenton $70,000
Savings account Joint w daughter, Bailey. $80,000
Certificate of deposit (CD) Trenton $225,000
Rollover traditional IRA Trenton $150,000
What amount is insured by the FDIC?
A) $525,000
B) $325,000
C) $250,000
D) $480,000
The answer is $480,000.
The FDIC insures separate legal categories of accounts of a legal institution. As a result, the individual accounts owned by Trenton (CD and checking account) are aggregated and are insured up to a total of $250,000.
The joint account is insured for $80,000.
The individual retirement account (IRA) will be insured up to $250,000.
Total amount insured is $480,000 ($250,000 max on CD and checking account + $80,000 joint savings account because titled differently + $150,000 rollover traditional IRA).
Which of the following types of accounts are covered by Federal Deposit Insurance Corporation (FDIC) insurance?
I. Securities
II. Certificates of deposit
III. Money market mutual funds
IV. Money market deposit accounts
A) III and IV
B) II and IV
C) II, III, and IV
D) I, II, and III
The answer is II and IV.
Certificates of deposit are afforded FDIC protection. Securities are not. Money market deposit accounts, not money market mutual funds, are covered by FDIC insurance.
Identify the number of steps in the Practice Standards for the Financial Planning Process.
A) Eight
B) Six
C) Seven
D) Fifteen
c) seven
Which activity that takes place during the financial planning process is generally the most demanding?
A) Communicating the recommendations
B) Analyzing and evaluating the client’s current financial status
C) Gathering information necessary to fulfill the engagement
D) Prospecting for new clients
B)
Identify the steps included CFP Board’s Practice Standards for the Financial Planning Process.
I. Mutually Defining the Terms
II. Presenting Goals
III. Establishing and Defining the Client-Planner Relationship
IV. Developing the Financial Planning Recommendation(s)
A) III and IV
B) IV only
C) II and III
D)I, II, III, and IV
B) The answer is IV only.
CFP Board’s Practice Standards for the Financial Planning Process are as follows:
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
The Code of Ethics is composed of ____ principles.
A) 7
B) 3
C) 15
D) 6
D) 6
Select the principles that are included in the Code of Ethics.
I. Act in the client’s best interests.
II. Maintain the confidentiality and protect the privacy of client information.
III. Exercise due process.
IV. Avoid conflicts of interest.
A) III and IV
B) II only
C) I, II, III, and IV
D) I and II
D) The answer is I and II.
Statement III and statement IV are incorrect.
The six principles of the Code of Ethics are as follows:
Act with honesty, integrity, competence, and diligence.
Act in the client’s best interests.
Exercise due care.
Avoid or disclose and manage conflicts of interest.
Maintain the confidentiality of and protect the privacy of client information.
Act in a manner that reflects positively on the financial planning profession and CFP® certification.
A person in the conservation/protection phase of the financial life cycle is likely to have which of the following goals?
A) Short-term goals, such as protection and maintenance of current lifestyle
B) Long-term goals, such as estate planning and preservation of capital
C) Long-term goals, such as investing for retirement
D) Short-term goals, such as saving for a down payment on a home
C) The answer is long-term goals, such as investing for retirement.
In the accumulation phase of the financial life cycle, individuals have only limited discretionary income and, as a result, they are likely to focus on short-term, cost-of-living goals.
In the conservation/protection phase, individuals’ financial goals are likely to change to longer-term goals, such as investing to provide for future retirement income.
Finally, in the distribution/gifting phase, estate planning and capital preservation become most important.
1.1.2
When a client-planner engagement involves Financial Advice for which Financial Planning is required, and the client agrees to enlist the planner for services, the Planner must abide by
I. the Fiduciary Duty.
II. the Code of Ethics.
III. the Practice Standards for the Financial Planning Process.
IV. the Suitability Standard.
I,II & III
Analyze the list to determine CFP Board’s approved nouns to use following “CERTIFIED FINANCIAL PLANNER™.”
I. professional
II. certificant
III. candidate
IV. test
all of these
Johnny, a CFP® professional, is speaking to Jamie about a Financial Planning donation he made to his daughter’s preschool fundraiser. Their conversation covers broad planning topics, none related to Jaime’s personal or financial situation, and Johnny correctly determines neither Financial Advice nor Financial Planning are occurring. Identify the correct application of rules from the Code and Standards based on Johnny and Jaime’s interaction.
A) While not necessary, due to the lack of Financial Advice and Financial Planning, Johnny should consider applying important principles from the Code of Ethics.
B) Neither Financial Advice or Financial Planning are occurring, Johnny is not bound to uphold the Code of Ethics.
C) Fiduciary Duty must be upheld in this instance, observation of the Code of Ethics is unnecessary due to the lack of Financial Advice or Financial Planning.
D) Although Financial Advice and Financial Planning are not occurring in his conversation, Johnny is still required to uphold the principles of the Code of Ethics.
D)
Standard A.1 states that at all times when providing Financial Planning to a Client, a CFP® professional must act as a fiduciary and, therefore, act in the best interests of the client. Identify the circumstances under which the Code of Ethics principle to “Act in the client’s best interests” must be upheld.
A) When providing Financial Advice
B) At all times
C) When providing Financial Advice that requires Financial Planning
D) When providing Financial Planning
C)
