Fundamentals of Financial Planning

Question 1

Exceptions under the definition of “investment advisor”?

Answer 1

Banks that are NOT investment companies.
Accountants or lawyers whose investment advice is “solely incidental” to the practice of their profession.
Persons whose advice relates only to securities issued or guaranteed by the U.S. government.
Publishers of financial publications that have regular and general circulation.

Question 2

What is the difference (and what is contained in) between the code of ethics and standard of conduct

Answer 2

research and put answer here

Question 3

How many months for an emergency fund?

Total debt (incl. housing, credit card, etc) should be less than what of gross income?

Monthly housing costs should not exceed what % of monthly income?

Monthly consumer debt payment should not exceed what % of net income

Answer 3

The emergency fund rule is correct at 3 to 6 months; this is about having non-discretionary expense coverage

Total debt payments should not exceed 36% of gross income.

Housing costs (principal, interest, taxes, insurance) should not exceed 28% of gross monthly income.

Monthly consumer debt payments should not exceed 20% of net income (note this is NET INCOME, others are gross)

Question 4

A client should plan on saving the following percentage of income:

Answer 4

10-12%

Question 5

Budgeting

Answer 5

estimating expenses like big charity donation or auto insurance payment into every budget interval.

Question 6

Describe what is not a liquid asset

Answer 6

Liquid assets can quickly be turned into cash with little to no loss of principal (unlike stocks, bonds and mutual funds due to market movement, commissions, and possible surrender charges).

Question 7

What is Current ratio:
Debt ratio
Emergency fund ratio

Answer 7

Current ratio: How readily a client would be able to meet all current obligations immediately. (Current assets / current liabilities)
Debt ratio: The level of debt that has been used to finance the present lifestyle. (Total liabilities / total assets)
Emergency fund ratio: The client’s level of preparedness for job loss or short-term disability

Question 8

Stolen credit cards /numbers rules

Answer 8

If the physical card is stolen, the maximum the holder can be held responsible for is up to $50 in fraudulent charges. If the credit card number is stolen and the holder still has possession of the card (such as a data breach), the holder isn’t responsible for any fraudulent charges. (Fair Credit Billing Act)

Question 9

What is reg Z of the consumer financial credit protection act

Answer 9

Regulation Z, consumers were able to see the actual cost (including finance changes) that they were paying in any transaction they were making.

Question 10

What Education funding grants are available to graduate students? To undergraduate. What loans? What tax credits?

Answer 10

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

Question 11

Draw a supply, demand, price, quantity graph

Answer 11

x-axis: Quantity
y-axis: Price
Supply line curves bottom left to top right
demand curves from top left to bottom right

Question 12

Code of ethics

Answer 12

CODE OF ETHICS
A CFP® professional must:
• Act with honesty, integrity, competence, and diligence.
Act in the client’s bestinterests.
Exercise due care.
Avoid or disclose and manage conflicts of interest.
•
•
Maintain the confidentiality and protect the privacy of client information.
Act in a manner that reflects positively on the financial planning profession and CFP® certification.

Question 13

Duties owed to clients

Answer 13

Fiduciary
Allows for innocent mistakes and differences of opinion
A CFp does not have to master all areas of planning but has to gain competence or obtain assistance or limit engagement in areas competence is lacking.

Consent does not need to be in writing. Greater potential harm the need for greater disclosure.

Assume financial conflicts are material

Making poor referrals can be considered reckless

Ordinary biz requires consent.
Confidentiality policies must be in writing and shared every year if they change.

Carve out on policy delivery for Regulation S-P; B/D, F eral Covered RIAs
Financial Advice requires seven elements (Description, P Compensation, Bankruptcies/Regulatory Events, Conflic of Interest, Economic Benefit of Referrals, Other Materia Information)

Question 14

What are 6 points of code of ethics

Answer 14

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