General Principles

Question 1

Use of initials registered investment advisor and certified financial planner

Answer 1

1. RIA (prohibited)
2. C.F.P. (prohibited)
3. CFP®️ (ok)
4. CERTIFIED FINANCIAL PLANNER™️ (ok)

Question 2

When can a CFP®️ licensee release a client file to other persons?

Answer 2

1. When an attorney or court subpoenas the file
2. At the clients request
3. As a defense against charges of wrongdoing

Question 3

Determining an emergency fund (use 3 or 6 months if…)

Answer 3

3 months:

• Single w/ second source of income
• married, both work
• married, only one spouse works, but have a second source of income

6 months:

• Single wage earner
• married, only one spouse works

Question 4

PITI

Answer 4

< or = to 28% gross income

Question 5

Total monthly debt

Answer 5

Less than or equal to 36% of gross income

Question 6

Consumer debt

Answer 6

Less than or equal to 20% net income

Question 7

Current ratio

Answer 7

Current assets divided by current liabilities

Question 8

Current assets

Answer 8

Cash equivalents, marketable securities, accounts receivable, inventory

Question 9

Current liabilities

Answer 9

Accounts payable, credit card debt, tax payable

Question 10

Securities act of 1933

Answer 10

Required that new issues purchasers be provided with detailed perspectus before a purchase was completed

Question 11

Securities act of 1934

Answer 11

Passed to regulate the secondary market (trading of issued securities). This act also created the SEC to enforce securities laws.

Question 12

Investment company act of 1940

Answer 12

Authorize the SEC to regulate unit investment trusts (UITs) and managed investment companies (open-end and closed-end funds) plus variable products.

Question 13

Securities investors protection act of 1970

Answer 13

Established by the SIPC to supervise securities firms that get into financial difficulties. The SIPC insures investors against losses arising from the failure of a brokerage firm. 

Question 14

Steps of financial planning

Answer 14

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