General Principles

Question 1

What is the Financial Planning Process?

Answer 1

• Understanding the Client’s Personal and Financial Circumstances.
• Identifying and Selecting Goals
• Analyze the client’s current course of action and potential alternative courses of action
• Developing the Financial Plan Recommendations
• Presenting the Financial Planning Recommendations
• Implementing Financial Plan Recommendations
• Monitoring the Plan

Utterly Impossible Acronyms Do Produce Impeccable Memory

Question 2

Describe the shape of an elastic demand curve and an inelastic demand curve.

Answer 2

Elastic:

An elastic demand curve is almost horizontal, sloping down and to the right.

When there’s a small change in price there’s a large change in quantity demanded.

Inelastic:

An inelastic demand curve is almost vertical, sloping down and to the right.

When there’s a small change in price there’s very little change in quantity demanded.

*Remember the “I” in Inelastic and that should help remember the shape of the inelastic demand curve.

Question 3

Business Life Cycle Components

Expansion

Peak

Contraction

Trough

Recession

Answer 3

Peak—the point at the end of the expansion phase when most businesses are operating at capacity and gross domestic product (GDP) is increasing rapidly. The peak is the point at which GDP is at its highest point and exceeds the long-run average GDP. Usually, employment peaks at this point.

Trough—the point at the end of the contraction phase where businesses are operating at their lowest capacity levels. Unemployment is rapidly increasing and peaks because sales fall rapidly. GDP growth is at its lowest or negative.

Contraction phase—leads to trough. Business sales fall. Unemployment increases. GDP growth falls.

Expansion phase—leads to the peak. Business sales rise. GDP grows. Unemployment declines. Also called the recovery phase.

Recession—occurs when the GDP has experienced a decrease in real terms for two consecutive quarters or a minimum of six months from a baseline of zero, characterized by the following

Question 4

What direction are the following variables headed in at each phase in the business life cycle:

Inflation

Interest Rates

Unemployment

GDP

Answer 4

Question 5

Definition of a Depression

Answer 5

A recession becomes a depression if the recession lasts for 18 months or six consecutive quarters.

Question 6

Definition of Deflation

Answer 6

Deflation is the opposite of inflation, where prices are falling.

During periods of deflation, individuals prefer to hold cash because cash becomes more valuable as it can buy more goods and services and prices decrease.

Question 7

Definition of Disinflation

Answer 7

Disinflation is a decline or slowdown in the rate of inflation.

For example: If annual inflation has been running at 4% each year for the past three years, then slows to 3.0 – 3.5% that would be a slowdown in the rate of inflation.

Question 8

What are the three main goals of the Federal Reserve?

Answer 8

Maintain long-term economic growth.

Maintain price levels supported by the economy.

Maintain full employment

Question 9

Describe the four tools used by the Federal Reserve to influence the money supply and interest rates:

Reserve Requirement

Discount Rate

Open Market Operations

Excess Reserves

Answer 9

1. Reserve Requirement (First Tool).

The reserve requirement is a percentage of deposits a bank must maintain in cash.

As the reserve requirement increases, there’s less cash available to lend, therefore the money supply decreases and interest rates increase.

As the reserve requirement decreases, there’s more cash available to lend, therefore the money supply increases and interest rates decrease.

2. Discount Rate (Second Tool).

The discount rate is the overnight interest rate at which member banks can borrow from the Federal Reserve to meet their reserve requirements.

As the discount rate increases, short-term interest rates increase as well.

As the discount rate decreases, short-term interest rates decrease as well.

3. Open Market Operations (Third Tool).

As the Federal Reserve buys or sells government securities, the money supply is influenced and places pressure on interest rates.

To increase interest rates the fed will sell government securities, effectively reducing the money supply.

To decrease interest rates the fed will buy government securities, effectively increasing the money supply.

4. Excess Reserves (Fourth Tool).

Excess reserves are monies that a bank holds at the Federal Reserve (or central bank) in excess of the required reserve amount.

An increase in the excess reserves rate will cause more banks to hold excess reserves, which takes money out of the economy - this is contractionary.

A decrease in the excess reserves rate will cause fewer banks to hold excess reserves, which means they will have more money to lend into the economy - this is expansionary.

Question 10

FDIC Insurance

Answer 10

Each depositor has a total of $250,000 of insurance per type of account ownership.

Four types of ownership:

Individual accounts. (including sole props)

Joint accounts. (All Account owners must be natural persons)

Trust accounts.

Self-directed retirement accounts. (Accounts must be in bank investment products, not securities)

Accounts at separate banks each receive $250,000 of insurance.

Each person is deemed to own 50% of joint accounts

Question 11

FDIC Insurance (Trust Accounts)

Answer 11

• Due to per owner, per beneficiary, the math is 5 X 250K= 1,250,000. Per owner and up to the rule of five (Unequal interest rule).
• Five or fewer we do not care about if they have unequal interest, they all have a value of 250K in FDIC
• Due to there being more than five beneficiaries; we need to take the proportional interest rule into account (limited to 250K per beneficiary). In addition, we now follow the greater of 1,250,000 or the aggregate of all the beneficiary’s interest.

Question 12

Bankruptcy Ch. 11

Answer 12

Reorganization (Chapter 11)

a. Any individual, business firm, or corporate debtor who is eligible for Chapter 7 liquidation (except stockbrokers, commodities brokers, and railroads) is eligible for Chapter 11 reorganization
b. A voluntary or involuntary petition may be filed; the automatic stay and entry or order for relief provisions apply
c. The debtor remains in possession and may continue to operate the debtor’s business

Question 13

Bankruptcy Ch. 7

Answer 13

Discharge of debts (Chapter 7)

a. Voluntary liquidation
1. ) Commenced by any natural person, firm, association, or corporation (except certain organizations under other chapters)
2. ) Petitioning debtor need not be insolvent unless it is a partnership
3. ) The debtor will be granted an order for relief if the petition is proper and if the debtor has not been discharged in bankruptcy within the past six years
b. Involuntary liquidation
1. ) Commenced against any debtor, except railroad, banking, insurance, or munici-pal corporations; building or savings and loan associations; credit unions; non-profit organizations; ranchers; or farmers
2. ) Creditors who have noncontingent, unsecured claims in the amount of $5,000 or more may file a petition with the Bankruptcy Court
a. ) If there are 12 or more creditors, three of them must join in the petition
b. ) If there are fewer than 12 creditors, one must file the petition

Question 14

Bankruptcy Ch. 13

Answer 14

Adjustment of debts of an individual with regular income (Chapter 13)

a. An individual debtor who is a wage earner or engaged in business may voluntarily file a petition for adjustment of debts
1. Automatic stay provisions apply
2. ) The debtor submits a plan that may provide for a reduction in the amount of obligations or for additional time within which to pay debts, or both

A reasonable plan that provides for timely payments and is made in good faith will be confirmed by the court. In most instances, the plan will have to be approved by all secured creditors.

Question 15

Examples of debt that cannot be discharged under Chapter 7:

Answer 15

1. ) Back taxes (up to three years)
2. ) Debts associated with fraudulent activities, embezzlement, or misappropriation
3. ) Alimony and child support
4. ) Debt due to intentional tort claims
5. ) Student loans
6. ) Consumer debts of more than $650 for luxury goods or services owed to a single creditor within 90 days of the order for relief

Question 16

Consumer Debt Ratios

Answer 16

1. Consumer debt ratio = non-housing monthly debt payments ÷ monthly net income ≤20%

Monthly net income: monthly gross income less monthly taxes

2. Housing cost ratio = all monthly nondiscretionary housing costs ÷ monthly gross income ≤ 28%
3. Debt-to-income ratio (total debt ratio) = all monthly debt payments and housing costs ÷ gross monthly income ≤ 36%

Question 17

Emergency Fund Ratio

Answer 17

1. Cash and cash equivalents ÷ Nondiscretionary expenses (those expenses that remain after a job loss)
   e. g., mortgage, car loans, credit card loans, and taxes

Clients need 3 – 6 months in nondiscretionary expenses in an emergency fund.

If two or more sources of income, then 3 months in emergency fund.

If one source of income, then 6 months in emergency fund.

Nondiscretionary expenses include only those expenses that do not go away if you lose your job: Mortgage, utilities, food, car loan, property taxes and insurance premiums.

Nondiscretionary expenses do not include: income taxes, payroll taxes and contributions to a retirement savings account.

Question 18

Definition of Workers Compensation

Answer 18

• Workers compensation is an absolute form of liability.
• Regardless of fault if injured at work the employee will collect benefits.
• Worker compensation benefits are not taxable income.

Question 19

Characteristics of a Balance Sheet

Answer 19

• A Balance Sheet is a listing of assets, liabilities and net worth.
• A balance sheet is a snapshot of account balances at a “moment in time.”
• Proper dating is “As of December 31, 20xx.”
• Be sure to memorize the following formula: Assets – Liabilities = Net Worth

Question 20

What is the Savings Ratio?

Answer 20

Annual Savings (Employee + Employer Contributions) ÷ Annual Gross Income

A benchmark savings ratio target is 10-12% of gross income if the client starts saving before age 32.

If a client waits to begin saving at 45 or 50, the rate may be 20-25% of gross income.

It’s important to include employer contributions to 401k, profit sharing plans, etc., as part of the savings ratio calculation.

Question 21

Characteristics of a Federal Pell Grant

Answer 21

• Strictly “Need” based and dependant on the EFC 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.

Question 22

Characteristics of a Stafford Loan

Answer 22

The primary type of financial aid provided by the U.S. Department of Education.

Stafford loans are student loans.

Repayment begins after a six month grace period of leaving school or falling below part-time status (6 semester hours).

There are two types of a Stafford Loan (Subsidized versus Unsubsidized).

With a Subsidized Stafford Loan the interest is paid for by the federal government while the student is in school.

With an Unsubsidized Stafford Loan the interest begins to accrue when the funds are disbursed.

The Subsidized Stafford is “Need” based.

The Unsubsidized Stafford is NOT need based.

Stafford Loans are not appropriate if the parents intend to repay the loans.

Question 23

Characteristics of the PLUS Loan

Answer 23

• The PLUS loan is a loan for parents to pay for their children’s education.
• The PLUS loan is NOT need based, but depends on the parents credit score.
• PLUS loans are not subsidized.
• PLUS loans are appropriate for parents who can afford to make a loan payment, but may not have saved anything for education.
• TIP: Wealthy parents are a “PLUS.”

Question 24

Characteristics of the Federal Perkins Loan Program

Answer 24

• The Federal Perkins Loan Program is for students with exceptionally low EFC amounts.
• The Federal Perkins Loan Program is “Need” based.
• This program was allowed to expire in September 2017, but it could possibly still appear on the exam.

Question 25

Characteristics of Prepaid Tuition

Advantages

Disadvantages

Answer 25

Prepaid tuition is considered an asset of the parent for financial aid purposes.

Prepaid tuition can be used to pay for in state college credit at today’s cost.

Basically purchasing college credits today and using them when your child goes to college.

Advantage:

Lock in tuition cost in today’s dollars.

Disadvantages:

Only earn a return equal to tuition inflation.

The child may receive a scholarship and not use the tuition credits.

Parents may return the tuition credits but they only receive principal back, typically without interest.

The state schools may have less than desirable curriculum in the student’s area of interest.

Question 26

Characteristics of a Savings Plan or 529 Savings Plan

Answer 26

Savings plan (529 Plan) is considered an asset of the parent for financial aid purposes.

Typically for parents or grandparents but anyone can contribute to a savings plan that invests in a diversified portfolio of stocks and bonds based upon your child’s age.

Any appreciation in the asset value is tax-free if used for qualified education expenses.

Contributions are recognized as being made pro ratably over a five year period.

An individual can contribute up to $80,000 (5 x $16,000) in one year, without any gift tax consequences. It’s 5 x the annual gift tax exclusion amount.

A couple that elects gift splitting can contribute $160,000 ($16,000 x 2 x 5) in one year.

Question 27

Characteristics of a Savings Plan or 529 Savings Plan (continued)

Advantages

Disadvantages

Answer 27

Advantages:

Possible state income tax deduction for contributions if the clients’ state has a state income tax and the client lives in the state in which they opened the 529 plan.

There is no AGI phase out for who can participate so regardless of income level, anyone can take advantage of 529 Savings Plans.

The account owner controls the assets, typically a parent or grandparent.

The account owner can change the beneficiary anytime.

The contributor can remove assets from their gross estate.

Beginning in 2018, up to $10,000 of annual distributions may be taken from a 529 Plan to pay for tuition in connection with enrollment or attendance at an elementary or secondary public, private, or religious school.

Beginning in 2020, qualified distributions can be made for Registered Internships; books, fees, tuition and tools.

$10,000 aggregate for payment student loans.

Disadvantages:

There is a 10% penalty on the earnings and the earnings are included in gross income if not used for qualified education expenses.

Exceptions to the 10% penalty include distributions on account of death, disability

Question 28

Characteristics of a Coverdell Education Savings Account (ESA)

Answer 28

Assets in a Coverdell ESA are considered an asset of the parent for financial aid purposes.

Contributions are limited to $2,000 per year, per beneficiary. A parent and grandparent can contribute to a Coverdell ESA for the same child but contributions cannot exceed $2,000 per year. See current year income phase outs for contributions.

Contributions grow tax-deferred unless used for qualified education expenses. If used for qualified education expenses, then earnings are tax free.

A Coverdell ESA can be used for both private elementary or secondary education.

The account owner may change the beneficiary anytime.

The funds in a Coverdell ESA must be used or distributed by age 30 to the beneficiary.

There is a 10% penalty on the earnings and earnings are included in gross income if not used for qualified education expenses.

An account owner cannot make contributions beyond the beneficiary’s 18th birthday.

Question 29

Characteristics of a Series EE Savings Bond

Answer 29

Series EE savings bonds are purchased for face value.

Parents must own the bonds and parents must be 24 years old or older when purchased.

Series EE savings bonds may be rolled into a 529 Plan or Coverdell ESA.

There’s no federal income tax on interest if the bond is used to pay for qualified education expenses (subject to AGI limits).

The bond must be redeemed in same year as education expenses are incurred.

Question 30

Uniform Gift to Minor’s Act/Uniform Transfers to Minors Act (UGMA/UTMA)

Answer 30

Assets are considered an asset of the child when determining financial aid.

Taxation of unearned income (interest, dividends and capital gains) may be subject to the kiddie tax.

If the child is less than 19 then the unearned income may be taxed using brackets that the parents follow.

If the child is 19 or older then unearned income is taxed at child’s rate.

Exception: A full time dependent student age 23 or less is subject to the kiddie tax rules.

The primary risk is that a child can use assets for something other than education.

An UTMA may include real estate as an investment, plus stocks, mutual funds or bonds.

An UGMA only includes stocks, mutual funds and bonds but it does not include real estate.

Question 31

Deductibility of Student Loan Interest

Answer 31

Interest on student loans is deductible above the line (before Adjusted Gross Income) and is limited to $2,500.

The loan must have been used for:

Tuition, room, board, supplies or other necessary expenses.

Education student loan interest expense is deductible for the life of the loan.

Question 32

Lifetime Learning Credit

Answer 32

The lifetime learning tax credit is available for tuition and fees related to undergraduate, graduate, or professional programs.

The tax credit amount is:

20% of up to $10,000 in qualified expenses per year.

The maximum lifetime learning credit “Per Family” is $2,000 per year.

It can be claimed for an unlimited number of years.

Question 33

American Opportunity Tax Credit

Answer 33

The American Opportunity Tax Credit applies to tuition and fees for the first four years of post-secondary education.

The tax credit consists of:

100% of first $2,000 in qualified expenses.

25% of second $2,000 in qualified expenses.

The maximum tax credit “Per Student” is $2,500 per year.

The per student tax credit is based on the number of dependent students on the family’s tax return.

The limit is good for the first four years of a degree or certificate program.

Question 34

What are the coordination rules for using the American Opportunity Tax Credit and Lifetime Learning Credit in the same year?

Answer 34

An individual may not claim both an American Opportunity Tax Credit and Lifetime Learning Credit for the same child in the same year.

An individual may not use an American Opportunity Tax Credit or Lifetime credit for the SAME expense paid by a qualified tuition program.

An individual may use the American Opportunity Tax Credit or Lifetime credit in the same year a distribution from a qualified tuition plan, just not the same expenses.

Note: An individual may claim an American Opportunity Tax Credit or Lifetime Learning credit in the same year as a distribution from a 529 Plan, just not for the same expenses.

Question 35

Employer Education Assistance

Answer 35

An employer may pay for or reimburse an employee for education expenses.

An employer may pay (directly or to the employee) eligible student loan repayments after March 27, 2020 and before January 1, 2026.

Not included in employee income

Only for employee (not spouse or dependents)

Employer paid Interest will not qualify for an above-the-line deduction

Any benefit or reimbursement is not included in income up to $5,250.

Question 36

Variables impacting EFC include

Answer 36

Income:

A. Parent(s)

1) 22%–47% of modified adjusted gross income (MAGI) above the in- come protection allowance. *Distributions from parent-owned ac- counts for education (including 529s) is NOT considered income in EFC calculations.*
i) Protected amount – factors household size and number of stu- dents attending college in the household

b. Student

50% of income above protected amount

i. Protected amount = $7,040 (2022–2023)

ASSETS:

A. Parents—includes nonretirement accounts over income protection allowance, savings, and investment accounts (529); home value and retirement accounts are not included.

1) Maximum 5.64% of parent(s) assets included in EFC

B) Student—includes brokerage, UGMA/UTMA, bank, savings accounts, CDs

1) 20% of student assets included in EFC

ASSETS SUMMARY:

Education Funding Accounts and EFC

529 Accounts

A) If parent owner with student beneficiary, account is included in EFC calculation at parents rate.

B) If other family members establish an account as owners with the student as beneficiary, assets are NOT counted for EFC calculation.

Coverdell (CESA)
A) Assets of the account holder

If parent-owned counts toward EFC at the parent’s rate UGMA/UTMA

Asset of the student, receives higher percentage of inclusion in EFC calculation

Trusts

Considered asset of the student, higher percentage of inclusion in EFC calculation

Question 37

Additional EFC considerations

Answer 37

Additional EFC considerations

i. Assets owned by relatives (grandparents, aunts, cousins) on which the student is beneficiary are included at a rate of 0% for purposes of EFC calculation/ financial aid eligibility

Distributions for college from relative-owned accounts, reduce future financial aid eligibility by 50% of the distribution amount (two years following distribution)

1) Proper timing of relative-owned account distributions is of the high- est importance to optimize financial aid eligibility.
2) Due to the two-year FAFSA look back for income and assets for fi- nancial aid consideration, relative-owned accounts should be distrib- uted later in college (i.e., Junior and Senior years).
i. This allows the account to remain outside of the EFC calcula- tion, and the distributions will not impact future eligibility in undergraduate studies.

Question 38

Student Loans Considerations

Answer 38

D. Student Loan Forgiveness

See IRS Publication 970 (Chapter 5)

General rule: forgiven amount is taxable income

a. Exceptions

Death

Disability

Cancellation due to a provision in the loan that all or part of the debt will be canceled if you work:

A) For a certain period of time

B) In certain professions

C) For any of a broad class of employers

Certain student loan repayment assistance programs

Question 39

Defaulting Student Loans

Answer 39

Federal Student Loan Default

Loan is delinquent on first day after a payment is missed

Most federal student loans default if no payments occur for 270 days

Question 40

What is Financial Planning?

Answer 40

• 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.

Question 41

What is Financial Advice?

Answer 41

A communication that, based on its content, context, and presentation, would reasonably be viewed as a recommendation that the Client take or refrain from taking a particular course of action with respect to:

1. The development or implementation of a financial plan;
2. The value of or the advisability of investing in, purchasing, holding, gifting, or selling Financial Assets;
3. Investment policies or strategies, portfolio composition, the management of Financial Assets, or other financial matters; or
4. The selection and retention of other persons to provide financial or Professional Services to the Client; or

The exercise of discretionary authority over the Financial Assets of a Client.

Question 42

What three duties make up the Fiduciary Duty owed to Clients?

Answer 42

• Duty of Loyalty. A CFP® professional must:

Place the interests of the Client above the interests of the CFP® professional and the CFP® Professional’s Firm;

Avoid Conflicts of Interest, or fully disclose Material Conflicts of Interest to the Client, obtain the Client’s informed consent, and properly manage the conflict; and

Act without regard to the financial or other interests of the CFP® professional, the CFP® Professional’s Firm, or any individual or entity other than the Client, which means that a CFP® professional acting under a Conflict of Interest continues to have a duty to act in the best interests of the Client and place the Client’s interests above the CFP® professional’s.

• Duty of Care. A CFP® professional must act with the care, skill, prudence, and diligence that a prudent professional would exercise in light of the Client’s goals, risk tolerance, objectives, and financial and personal circumstances.
• Duty to Follow Client Instructions. A CFP® professional must comply with all objectives, policies, restrictions, and other terms of the Engagement and all reasonable and lawful directions of the Client.

Question 43

Duties Owed to Clients - Integrity

Answer 43

A CFP® professional must perform Professional Services with integrity. Integrity demands honesty and candor, which may not be subordinated to personal gain or advantage. Allowance may be made for innocent error and legitimate differences of opinion, but integrity cannot co-exist with deceit or subordination of principle.

A CFP® professional may not, directly or indirectly, in the conduct of Professional Services:

Employ any device, scheme, or artifice to defraud;

Make any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading; or

Engage in any act, practice, or course of business that operates or would operate as a fraud or deceit upon any person.

Question 44

Duties Owed to a Client - Professionalism

Answer 44

A CFP® professional must treat Clients, prospective Clients, fellow professionals, and others with dignity, courtesy, and respect.

Question 45

Duties Owed to Clients - Diligence

Answer 45

A CFP® professional must provide Professional Services, including responding to reasonable Client inquiries, in a timely and thorough manner.

Question 46

What written documentation must be provided to the Client in a Financial Planning Engagement?

Answer 46

Privacy Policy

Services and Products

How the Client Pays

How you, your Firm, and Related Parties are Compensated

Public Discipline and Bankruptcy

Referral Compensation

Terms of Engagement (Implementing, Monitoring and Updating is Required Unless Explicitly Excluded)

Question 47

What written documentation must be provided to the Client in a Financial Advice Engagement?

Answer 47

• Privacy Policy
• Most disclosures can be provided orally in a Financial Advice Engagement.

Question 48

What must a CFP® professional do when selecting, using, and recommending Technology?

Answer 48

Exercise reasonable care and judgment when selecting, using, or recommending any software, digital advice tool, or other technology while providing Professional Services to a Client.

Have a reasonable level of understanding of the assumptions and outcomes of the technology employed.

Must have a reasonable basis for believing that the technology produces reliable, objective, and appropriate outcomes.

Question 49

Requirements of Written Disclosures

Answer 49

The written disclosures may consist of multiple written documents. Written disclosures used by a certificant or certificant’s employer that are used in compliance with state or federal laws, or the rules or requirements of any applicable self-regulatory organization, such as a Form ADV or other disclosure documents, shall satisfy some of the requirements of this Rule.

A certificant may use a current copy of SEC Form ADV Part 2 to satisfy the compensation and/or conflict of interest disclosure requirement

Question 50

Exceptions to the rule that forbids a certificant from borrowing money from a client

Answer 50

The client is a member of the certificant’s immediate family, or

The client is an institution in the business of lending money and the borrowing is unrelated to the professional services performed by the certificant.

Question 51

Exceptions to the rule that forbids a certificant from lending money to a client

Answer 51

• The client is a member of the certificant’s immediate family, or
• The certificant is an employee of an institution in the business of lending money and the money lent is that of the institution, not the certificant.

Question 52

What must a CFP® professional do on a recurring basis to retain the right to use the CFP® marks?

Answer 52

A certificant shall meet all CFP Board requirements, including continuing education requirements, to retain the right to use the CFP® marks.

Continuing education requirement for CFP® Certificants are 30 hours every two years, of which, 2-hours must be CFP Board ethics.

Question 53

Which of the Practice Standards for the Financial Planning Process are required for a CFP® professional to complete?

Answer 53

All 7 Practice Standards for Financial Planning Process are required when engaging in Financial Planning. Steps 6 and 7, Implementing and Monitoring, can be excluded from the scope of engagement if specifically addressed.

Question 54

What are the rules for notifying the CFP Board in the case of being charged, convicted or involved with adverse conduct

Answer 54

A certificant shall notify CFP Board in writing of any charge or conviction of a crime, except misdemeanor traffic offenses or traffic ordinance violations unless such offense involves the use of alcohol or drugs, or of any professional suspension or bar within thirty (30) calendar days after the date on which the certificant is notified of the charge, conviction, suspension or bar.

Question 55

Conduct Deemed Unacceptable

Examples of conduct that will ALWAYS bar an individual from being certified

Answer 55

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 (registered securities representative, broker/dealer, insurance, accountant, investment advisor, financial planner) license, unless the revocation is administrative in nature.

Example: the result of the individual determining not to renew the license by not paying the required fees.

Felony conviction for any degree of murder or rape.

Felony conviction for any other violent crime within the last five years.

Question 56

Conduct Deemed a Presumptive Bar

Examples of conduct that is PRESUMED to be unacceptable

Answer 56

Two or more personal or business bankruptcies.

Revocation or suspension of a non-financial professional (real estate, attorney) license, unless the revocation is administrative in nature.

Suspension of a financial professional (registered securities representative, broker/dealer, insurance, accountant, investment advisor, financial planner) license, unless the suspension is administrative in nature.

Felony conviction for non-violent crimes (including perjury) within the last five years.

Felony conviction for violent crimes other than murder or rape that occurred more than five years ago.

Question 57

Other Adverse Conduct

Examples of conduct that may reflect adversely upon the individual’s integrity or fitness

Answer 57

Customer complaints

Arbitrations and other civil proceedings

Felony convictions for non-violent crimes that occurred more than five years ago

Misdemeanor convictions

Employer reviews and terminations

Question 58

What do the CFP Board Code of Ethics and Standards of Conduct establish?

Answer 58

CFP Board’s Code of Ethics and Standards of Conduct reflects the commitment that all CFP® professionals make to high standards of competency and ethics. CFP Board’s Code and Standards benefits and protects the public, provides standards for delivering financial planning, and advances financial planning as a distinct and valuable profession. Compliance with the Code and Standards is a requirement of CFP® certification that is critical to the integrity of the CFP® marks. Violations of the Code and Standards may subject a CFP® professional to discipline

Question 59

Prohibition on Circumvention

Answer 59

A CFP® professional may not do indirectly, or through or by another person or entity, any act or thing that theCode and Standards prohibit the CFP® professional from doing directl

Question 60

What are the exceptions to Registration with the SEC?

Answer 60

Any broker/dealer whose advisory services are solely incidental to the conduct of business.

Lawyers, accountants, teachers and engineers whose advice is solely incidental to their profession.

Banks and bank holding companies that are not investment companies.

Publisher of a bonafide newspaper, magazine or periodical of regular circulation.

Advisers whose advice and services are related strictly to securities guaranteed by the United States government.

Such person not within the intent of the law as the SEC may designate by rules, regulations or order.

Question 61

What are some exemptions from Registration?

Answer 61

Advisers whose client’s reside in their state of business and who don’t provide advice, services, analyses or reports regarding nationally listed securities.

Advisers whose only clients are insurance companies.

Advisers solely to venture capital funds.

Advisers solely to private funds less than $150 million.

Foreign advisers without a place of business in the United States.

Question 62

Characteristics of the Brochure Rule

Answer 62

Requires written disclosures to every client of the following:

Advisory services that are provided and the fees pertaining to those services.

Types of securities that are part of investments.

Education background of advisor.

Participation/interest in securities transactions.

This information must be provided to the client at or before the time of entering into a contract.

Compliance with the brochure rule is accomplished by providing client with a separate written narrative comprised of information in Part 2 A and B (outlines fees) and Part 3.

Question 63

What are the six standards of conduct? What are they Meant for?

Answer 63

Question 64

What are the Six Codes of Ethics?

Answer 64

Question 65

Define: (AOTC, Life Time Learning Credit, Coverdell, Traditional-Roth-SEP-SIMPLE-IRAs, Student Loan Interest, 529, Education savings Bonds, Employer Education Assitance Programs)

What is your benefit?

What is the Annual Limit?

What expenses qualify besides tuition and required enrollment fees?

Answer 65