Fundamentals Lesson 1

Question 1

The Code of Ethics is or is not specifically defined?

Answer 1

The Code of Ethics is NOT specifically defined, remains aspirational and leads to more detailed rules and obligations through the planning process.

Question 2

Duties Owed to Clients

Answer 2

1. Fiduciary Duty
2. Integrity
3. Competence
4. Diligence
5. Disclose & Manage Conflicts of Interest
6. Sound & Objective Professional Judgment
7. Professionalism
8. Comply with the Law
9. Confidentiality & Privacy
10. Provide Information to a Client
11. Communicating with a Client
12. Duties when Representing Compensation
13. Recommending, Engaging, or Working with Additional Persons
14. Selecting & Using Technology
15. Refrain from Borrowing or Lending Money & Comingling

Question 3

Elements of Financial Advice

Answer 3

1. Description
2. Pay
3. Compensation
4. Bankruptcies/Regulatory Events
5. Conflicts of Interest
6. Economic Benefit of Referrals
7. Other Material Information

Question 4

Elements of Financial Planning

Answer 4

All 7 in Financial Advice AND:

1. Scope of Engagement
2. Limitations & Responsibilities
   * Monitoring is assumed unless excluded

Question 5

Example Exam Question:
Karen, a CFP professional, is disappointed about the disclosure requirements of the CFP Board Code of Ethics. Karen voices her opinion by publishing a negative article about the CFP certification on an industry website. Has Karen possibly violated the CFP Board Code of Conduct?
A. Yes, violates duty of loyalty owed to CFP Board.
B. Yes, acted in matter that does not reflect positively on CFP certification.
C. No, action is outside the financial planning process.
D. No, only public media outlets are reviewed by CFP Board.

Answer 5

B

Question 6

3 Duties of Fiduciary Duty to Clients

Answer 6

1. Duty of Loyalty
2. Duty of Care
3. Duty to Follow Client Instructions

Question 7

How many hours of CE/how often?

Amount for Ethics?

Answer 7

30 hours every 2 years.

2/30 hours must be Ethics.

Question 8

Example Exam Question:
CM appoints licensed agents to sell proprietary auto & homeowners policies. CM requires agent exclusivity, pays agents commissions for selling their products, and top agents are paid additional bonus compensation & invited for an all expense paid Hawaiian vacation. Which best describes CFP Professionals ability to engage CM?

A. As a fiduciary CFP prohibited from selling proprietary products.
B. CFP must provide holistic financial planning advice & is unable to work exclusively with a property/casualty insurance company.
C. With appropriate disclosure & mitigating conflicts of interest, CFP can be appointed as an agent of CM but cannot participate in insurance-based reward trips.
D. With appropriate disclosure & mitigating conflicts of interest, CFP can be appointed as an agent & participate in insurance-based reward trips.

Answer 8

D

Question 9

Example Exam Question:
Stan mistyped client information into financial planning software; error resulted in overestimating client’s insurance need. Once discovered, Stan contacted client, informed them of the error, and adjusted his recommendation. Has Sam violated CFP Board Standards of Conduct?

A. Yes, violated obligation of integrity to client.
B. Yes, violated obligation of competence to client.
C. Yes, violated obligation of diligence to client.
D. No, allowance made for innocent error.

Answer 9

D

Question 10

Example Exam Question:
Yu Yan is CFP & state registered investment advisor. Plans annual luxury cruise for top clients. While on cruise, Yu will host investment & retirement planning workshops. If more than 10 clients commit & pay for cruise, Yu relieves complementary suite. If fewer than 10, Yu will pay for her room. Which best describes Yu’s obligation to her clients disclosing her arrangement with the cruise line?

A. Conflict of interest is not material & does not need to be disclosed.
B. Yu should disclose the conflict prior to client’s booking their cruise.
C. Yu is prohibited from accepting suite from cruise line.
D. Conflict should be mitigated & Yu should consider alternative venues.

Answer 10

B

Question 11

Example Exam Question:
CFP refers clients to local accountant with reputation of aggressively lowering client federal income tax obligations. Accountant has clients sign a no disclosure agreement preventing CFP from understanding techniques, credits, & deductions taken. Which best describes a potential violation of the CFP Board Standards of Conduct?

A. Standard of Complying with the Law
B. Standard of Professionalism
C. Standard of Competence
D. Not violating any standards

Answer 11

A

Question 12

Practice Standards for Financial

Planning Process

Answer 12

1. Understanding client’s personal & financial circumstances
2. Identifying & selecting goals
3. Analyzing client’s current course of action & potential alternative courses of action
4. Developing financial planning recommendations
5. Presenting financial planning recommendations
6. Implementing financial planning recommendations
7. Monitoring progress & updating

Question 13

Example Exam Question:
Luke is CFP & real estate agent. Ben & Maria meet with Luke to talk downsizing and their desire to funnel more toward retirement instead of a mortgage. Luke uses financial calculator to briefly analyze cash flow & establish their debt service & liquify rations. After the meeting Luke sets a 2nd appointment to look at 5 houses. What best describes Luke’s relationship to Financial Planning Practice Standard outlined in the CFP Board Code of Ethics & Standards of Conduct?

A. Luke is representing as a realtor & not required to follow financial planning practice standards even if he charges a fee for initial meeting.
B. Ben & Maria responsible for determining if engagement falls within scope of financial planning.
C. Luke is subject to practice standards because he is providing integrative financial advice.
D. Luke is subject to practice standards only if he receives commission from representing Ben & Maria in real estate transaction.

Answer 13

C

Question 14

What business or compensation model does CFP prefer?

Answer 14

CFP Board & CFP exam does not prefer one business or compensation model over another but instead requires professionals to act according to the Code of Ethics & Professional Standards.

Question 15

Example Exam Question:
Mary currently saving $550 bi-weekly through employer’s retirement plan. Employer matches 100% of her contribution & Mary is vested. Invested 70/30. Mary engages Stephanie (CFP) to review her retirement journey. Stephanie performs calculation on financial calculator & determines Mary should increase contribution to $600 every paycheck & invest in less aggressive mutual fund. Is Stephanie possibly in violation of CFP Board Practice Standards?

A. No, Stephanie gathered information & goals before performing an analysis.
B. No, Stephanie considered qualitative & quantitative data in her analysis.
C. Yes, Stephanie did not consider advantages/disadvantages of current retirement plan.
D. Yes, Stephanie used financial calculator rather than software tool.

Answer 15

C

Question 16

Example Exam Question:
When is a CFP who is also licensed insurance agent required to review calculations used to determine death benefit amount with their client?

A. When gathering qualitative & quantitative information.
B. When analyzing life insurance coverage.
C. Before developing a life insurance recommendation.
D. Before implementing a life insurance recommendation.

Answer 16

D

Question 17

Example Exam Question:
Amar, agent of regional broker-dealer has been suspended by CFP Board for 6 months. Suspension is result of repeatedly incorrectly identifying himself as fee-only financial planner. Which best describes Amar’s obligation to employer relating to this suspension?

A. Must report suspension, cause & investigation paperwork to employer within 30 days.
B. Can report suspension to employer by calling his compliance hotline.
C. Must repost suspension promptly in writing to employer.
D. Not required to report suspension to employer as long as he’s not paid a regular salary

Answer 17

C

Question 18

Relevant vs. Not Relevant Duties to CFP Board

Answer 18

Relevant: Tax & Financial Misdemeanors
Not Relevant: Driving Offenses, Tickets, Misdemeanors that don’t involve alcohol/drugs. (1st alcohol or drug misdemeanor is also not relevant)

Question 19

Provide notice to CFP Board within ? days for reporting initial charge/investigation/outcome?

Answer 19

30

Question 20

Example Exam Question:
Which of the following is considered a felony by CFP Board?

A. Class D driving reckless driving citation resulting in a fine of $5000.
B. Driving under influence citation resulting in 1 month in jail.
C. Federal income tax lien of $100000.
D. Charge of perjury during federal trial resulting in week of detention & $500 fine.

Answer 20

A

Question 21

Example Exam Question:
Scott is CFP & CPA. He was listed by name in federal income tax investigation for fraud. Which best describes Scott’s obligation to CFP Board?

A. If investigation is result of accounting practice, does not need to disclose investigation to CFP Board.
B. Does not need to disclose investigation but will need to disclose result in writing within 30 days.
C. Needs to disclose investigation within 30 days. Also disclose any eventual plea deal, conviction, or civil outcome to CFP Board.
D. Needs to disclose investigation within 30 days, but by doing so eliminates any requirement to disclose an outcome.

Answer 21

C

Question 22

Prohibition on Circumvention

Answer 22

CFP may not do indirectly or through another person or entity any act of thing that Code & Standards prohibit CFP from doing directly.

Question 23

Example Exam Question:
Which of the following is the proper use of CFP marks?

A. Mark is a CFP(R).
B. Our firm has 10 CFPs on staff.
C. Sam Jacobs, CFP(R) works at our firm.
D. Cory is a certified financial planner.

Answer 23

C

Question 24

Example Exam Question:
A CFP certification must disclose compensation:

A. Once, during engagement letter.
B. Annually.
C. Ongoing, as necessitated by services & products provided.
D. Every meeting with the client.

Answer 24

C

Question 25

Example Exam Question:
Steve, CFP, works for a firm that requires any insurance products offered be limited to proprietary products of the firm. Which of the following is true according to CFP Board Code of Ethics?

I. Steve is prohibited from engaging in financial planning relationship because he is unable to uphold duty of loyalty & act as fiduciary.
II. Steve May engage in financial planning & receive sales based commission. Steve’s proprietary relationship with employer is not material conflict of interest and his is not required to disclose his compensation arrangement to clients.
III. Steve may engage in financial planning & receive sales based compensation. Steve’s proprietary relationship with employer is likely a material conflict of interest & he is required to disclose this conflict to clients.
IV. Steve is prohibited from engaging in financial planning relationships because he is unable to uphold duty of care & act as fiduciary.

A. I only.
B. III only.
C. II & IV.
D. III & IV.

Answer 25

B

Question 26

Interim Suspension Order: Certificanf must respond showing compliance within ? calendar days.
Motion for interim suspension order must be answered by respondent within ? calendar days.

Answer 26

45

14

Question 27

Suspension of use of marks may last ?

Answer 27

90 days to 5 years

Question 28

Notify CFP Board of change of mailing or email address within ? calendar days

Answer 28

30

Question 29

Always Bar Items

Answer 29

Felony conviction for theft, embezzlement, or other financially based crimes.
Felony conviction for tax fraud or other tax-related crimes.
Revocation of a financial professional license unless administrative in nature.
Felony conviction for any degree of murder or rape.
Felony conviction for any other violent crime within the last 5 years.

Question 30

Presumed Bar Items

Answer 30

Two or more personal or business bankruptcies.
Revocation if suspension of no financial professional license unless administrative in nature.
Suspension of financial professional license unless administrative in nature.
Felony conviction for nonviolent crimes (including perjury) within the last 5 years.
Felony conviction for violent crimes other than murder or rape that occurred more than 5 years ago.

Question 31

Example Exam Question:
Paul recently applied for CFP certification. Which of the following would always bar him from certification?

A. Revocation of a financial professional license.
B. Felony conviction of perjury last year.
C. Felony conviction for aggravated assault 7 years ago.
D. Prior revocation of real estate license.

Answer 31

A

Question 32

Example Exam Question:
If a potential client implies they are unable to confide certain elements of their business to you during the fact finding phase of the interview, what should you do?

A. Continue & hope they will answer your questions later.
B. Fill in the blank spaces using estimates.
C. Call the authorities & repost possible illegal activities.
D. Thank them for their time, close up the interview, and do not engage them as clients.

Answer 32

D

Question 33

Example Exam Question:
Husband & wife hire you as planner. After meeting husband pulls you aside & advises he is going to divorce with but wants to retain your services for himself. He asks you not to tell wife. What do you do?

A. Accept current engagement with husband & wife & don’t tell wife.
B. Disengage from husband & wife & don’t accept engagement.
C. Accept engagement & tell wife about conversation with husband.
D. Call divorce attorney & advise husband & wife of your actions.

Answer 33

B

Question 34

Lesson 1 Review:
Which of the following is not an element of the CFP Board Code of Ethics?

A. Exercise due care
B. Manage conflicts of interest
C. Maintain confidentiality
D. Act with knowledge & skill

Answer 34

D

Question 35

Lesson 1 Review:
Which of the following is not an element of the CFP Board Code of Ethics?

A. Act with honesty
B. Act with integrity
C. Act with accuracy
D. Act with competence

Answer 35

C

Question 36

Lesson 1 Review:
When is a CFP held to CFP Board Code of Ethics?
1. When recommending financial assets
2. When practicing financial planning

A. 1 only
B. 2 only
C. Both
D. Neither

Answer 36

C

Question 37

Lesson 1 Review:
When is a CFP required to act as a fiduciary with their clients?

A. At all times when providing financial advice
B. When recommending financial products
C. When providing financial planning
D. When charging clients hourly, subscription, or asset management fees

Answer 37

A

Question 38

Lesson 1 Review:
Which of the following is not an element of CFP Board requirement of Fiduciary Duty?

A. Duty of Diligence
B. Duty of Loyalty
C. Duty of Care
D. Duty to Follow Client Instructions

Answer 38

A

Question 39

Lesson 1 Review:
Which best describes the Duty of Integrity a CFP owes their clients?

A. CFP must strive to be honest and upstanding
B. CFP must act with skill & care, avoiding quantitative mistakes
C. CFP cannot make any untrue statement or engage in fraud, but May omit non-material facts
D. Integrity applies only to individual or household clients, this duty does not extend to clients who are corporations or trusts

Answer 39

A

Question 40

Lesson 1 Review:
The Duty requiring a CFP to reasonably investigate financial products recommended to clients is?

A. Maintain financial planning expertise
B. Act in client’s best interest
C. Maintain confidentiality
D. Act in a manner that reflects positively on the profession

Answer 40

B

Question 41

Lesson 1 Review:
A CFP May share client & account details in the course of ordinary business with each of the following except:

A. Affiliated/partner firms owned by CFP’s employer
B. Any persons/businesses the client has provided oral or written consent
C. As necessary to provide information between attorneys, accountants, & auditors
D. Person acting as a representative capacity to the client such as a power of attorney

Answer 41

A

Question 42

Lesson 1 Review:
Amber applied for CFP certification and was denied. Her prior conduct falls under presumed list and she wants to appeal. Which of the following is true regarding the review process?

A. She must call Professional Review staff within 15 days & tell them she plans to submit to the review process
B. A fee will be charged
C. A final decision whether to deny or grant the petition will be make within 120 days of application
D. The Disciplinary & Ethics Commission’s decision regarding a petition for consideration is final & May never be appealed

Answer 42

B

Question 43

Lesson 1 Review:
Jim has done many bad things over his life but decided to become an upstanding citizen. He is concerned about his prior bad acts. Which of the following is presumed to bar him from certification?

A. Personal bankruptcy 10 years ago
B. Suspension of a law license for failing to pay the required fees
C. Suspension of a securities license
D. Felony conviction for perjury seven years ago

Answer 43

C

Question 44

Lesson 1 Review:
Which of the following is true regarding the candidate fitness standards?

A. Felony conviction for theft, embezzlement, or other financially based crimes 8 years ago will presumably bar a person from certification
B. They only identify issues that will bar a person from certification
C. Felony conviction of 2nd degree murder will always bar a person from being certified
A significant number of employment terminations will presumably bar a person from certification

Answer 44

C

Question 45

Lesson 1 Review:
Which of the following may rarely result in the delay or denial of certification?
1. Customer complaints
2. Misdemeanor convictions
3. Employer investigations & terminations

A. 1 only
B. 2 only
C. 1 & 3
D. 1, 2, & 3

Answer 45

D

Question 46

Lesson 1 Review:
Which body of the CFP Board is responsible for reviewing & making finals decisions regarding a petition for reconsideration under the Candidate Fitness Standards?

A. Board of Governors
B. Disciplinary & Ethics Commission
C. Board of Professional Review
D. Candidate Fitness Commission

Answer 46

B

Question 47

Lesson 1 Review:
New client Tricia has asked for Stephen (CFP) for help with her financial planning. Specifically she desires a comprehensive retirement plan & review of her investments. What disclosures must Stephen provide at the onset of their engagement?

A. Terms of their engagement including scope with any limitations
B. Written description of all material conflicts of interest
C. Oral description of specific compensation models
D. Stephen is not required to provide any disclosures to Tricia as he is not performing financial planning

Answer 47

A

Question 48

Lesson 1 Review:
Ralph (CFP) was advisor for Sue & Bob. Bob passed away. Assets included IRA with Sue as beneficiary. Ralph advised Sue that she could disclaim her interest as beneficiary of the IRA, which would allow its value to pass to her 2 children. Ralph did not notify custodian that Sue had disclaimed her interest. Ralph acknowledged that he could have annuitized which would have been less costly for Sue. The Commission determined annuitizing would have avoided early withdrawal penalties & effects of taxable income on Sue’s children. Ralph violated all of the following provisions in the Code of Ethics except:

A. Exercise reasonable & prudent professional judgment in providing professional services
B. Act in best interest of the client
C. Modify scope of engagement & bring in estate attorney
D. Make and/or implement only recommendations that were suitable for the client

Answer 48

C

Question 49

Lesson 1 Review:
Snidely (CFP) met with Dudley & Geezer. Entered into oral agreement. Did not complete client profile. Based on Snidely’s advice, Geezer liquidated personal savings & issued check for same amount payable to Snidely’s company. Snidely deposited into the company’s account & did not make a separate account for Geezer. Snidely advised and Geezer did liquidate monkey market & give proceeds to Snidely to manage. 6 months later Snidely opened escrow account on a deed of trust made out to Snidely & the company. Geezer did not authorize escrow account. Geezer stopped receiving distributions. Snidely offered to review & make recommendations on Geezer’s then current living trust. He prepared will, trust, dpoa for management of property & personal affairs & charged $400. Geezer did not request those documents. Geezer asked him to provide all documents pertaining to his investments. Snidely had not. Snidely violated which of the following duties to his client & practice standards?

A. Commingled client funds with own funds
B. Failed to act according to duties of care & loyalty by creating unnecessary estate documents
C. Failed to identify client’s personal financial circumstances
D. Failed to analyze current course of action & potential alternative courses of action
E. Snidely violated all of the above provisions

Answer 49

E

Question 50

Lesson 1 Review:
Samuel recently obtained CFP & signed agreement with Thomas for a comprehensive financial plan. According to Code of Ethics & Standards of Conduct, which of the following represents an additional requirement for Samuel in his engagement with Thomas compared to other clients?

A. Samuel must understand new clients personal & financial circumstances by gathering qualitative & quantitative information
B. Samuel must identify & prioritize goals through the financial planning process
C. Thomas must receive a written disclaimer identifying Samuel’s sources of compensation
D. Thomas must receive written notice of confidentiality policies at time of engagement

Answer 50

C

Question 51

Lesson 1 Review:
Jack requests a needs analysis concerning his life insurance situation. He is 42, married, with 2 kids he plans to send to college. He was Robert to evaluate how much & what type of insurance he should purchase. Which of the following is required to be provided to Jack according to the Code of Ethics?

A. Written IPS discussing goals, objectives, & risk tolerance
B. Written summary & action plan to mitigate conflicts of interest faced
C. Terms of engagement including the scope & limitations
D. None of the above

Answer 51

C

Question 52

Lesson 1 Review:
Juan is licensed and appointed agent for mutual insurance agency. Compensation is based on number and magnitude of insurance policies he places. Employer advertises “free comprehensive financial planning”. What is Juan’s obligation to CFP Board & his clients?

A. Notify CFP board but not discuss with clients
B. Not required to notify CFP board but must correct firm misrepresentations & accurately represent their compensation to clients
C. Notify CFP Board & correct firm misrepresentations & accurately represent their compensation to clients
D. Does not need to address with either

Answer 52

B

Question 53

Lesson 1 Review:
Brokerage firm employs CFPs. In compliance with FINRA, federal, & state laws. Concerned about responsibilities to CFP Board. Which accurately describes firm’s responsibility?

A. Firms don’t need to abide by standards as CFP only certified individuals not firms
B. Firms owe CFP Board & holders duty to abide by Code of Ethics & Practice Standards
C. Firm should sponsor CE for practitioners including 2 hours of ethics every 2 years
D. Since firm is in compliance with other laws then firm is in compliance with CFP Standards

Answer 53

A

Question 54

Lesson 1 Review:
Becca working with Paul for investment & retirement consultation. Becca recommends Paul purchase portfolio of front-load mutual funds. 6 months later market corrects & Paul loses 10%. Paul requests meeting to discuss losses. The scope did not discuss monitoring responsibilities. What is Becca’s obligation to Paul?

A. Code of Ethics does not require Becca to meet with Paul or monitor his portfolio
B. In absence of discussing monitoring, Becca is required to monitor
C. Becca is in violation of Code of Ethics due to Paul’s losses
D. Becca is not required to meet with Paul or monitor because she works for FINRA member firm

A.

Answer 54

B

Question 55

Lesson 1 Review:
Attorneys for insurance company require employees using CFP marks must remove from business materials. Attorneys are concerned about potential lawsuits that CFPs did not exercise duty of fiduciary. How should Cheryl proceed when working with clients?

A. Cheryl must disclose in writing that although she is CFP, her firm requires suitability standard not duty of fiduciary
B. By complying with attorney’s request, Cheryl will no longer hold self as CFP professional, must only provide suitability duty of care
C. Cheryl should remove marks as requested but still required to fulfill professional obligations to follow Code of Ethics & Standards of conduct as she still owes duty of care of a fiduciary
D. As long as Cheryl removes all marks & does not hold self out to public as CFP, not bound by Code of Ethics and Standards of Conduct

Answer 55

C

Question 56

Lesson 1 Review:
John engaged in financial planning with client Frank. John is data gathering all info except tax returns with Frank won’t supply (along with any other docs) to support income claims. John’s best course of action is to?

A. Disengage until Frank is willing to supply documents
B. If suspecting Frank is evading taxes or underreporting income, John must report suspicions to appropriate regulatory authorities
C. Contact IRS to request copy of tax returns with or without consent of client
D. Limit scope of engagement to recommendations for which he has sufficient & relevant information or disengage from client

Answer 56

D

Question 57

Lesson 1 Review:
Mary analyzing & evaluating capital needs analysis & has established assumptions for taxes, investment returns, & inflation. Client disagree with Mary regarding assumptions. What should Mary do next?

A. If unable to agree, limit scope of engagement & exclude retirement capital needs analysis from recommendations
B. Use assumptions that result in most conservative recommendations for retirement funding
C. Code of Ethics & Standards of Conduct require Mary disengage from client
D. Provide client with multiple projections consistent with all varying assumptions

Answer 57

A

Question 58

Lesson 1 Review:
You & client regularly communicate if social media. One day sent trade order via social media. Which is best option?

A. Process the trade as any other
B. Call to confirm trade
C. Contact colleague to assist
D. Make the trade & send receipt next day

Answer 58

B