LESSON 1

Question 1

1. 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 and skill.

Answer 1

1. Answer:

D CFP® professional’s Duties Owed to Clients states to make recommendations with skill and care. This is not an element of the Code of Ethics.

Question 2

2. 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 2

2. Answer:

C Accuracy is not an element of the CFP Board Code of Ethics.

Question 3

3. When is a CFP® professional held to the CFP Board Code of Ethics?

I. When recommending Financial Assets
II. When practicing Financial Planning

a) I Only
b) II Only
c) I and II
d) Neither I nor II

Answer 3

3. Answer:

C A CFP® professional is held to the Code of Ethics when providing professional services. These include both recommending financial assets and practicing financial planning.

Question 4

4. When is a CFP® Professional 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 4

4. Answer:

A When providing financial advice, A CFP® Professional is required to act as a fiduciary with their clients at all times. The advice may take the form of selling financial assets or financial planning.

Question 5

5. Which of the following is not an element of the 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 5

5. Answer:

A The duty of Diligence requires a CFP® professional to provide services to their clients in a timely and thorough manner. Diligence is not a required element of Fiduciary Duty.

Question 6

6. Which best describes the Duty of Integrity a CFP® professional owes their clients?

a) A CFP® Professional must strive to be honest and upstanding.
b) A CFP® Professional must act with skill and care, avoiding quantitative mistakes.
c) A CFP® Professional 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 6

6. Answer:

A Integrity requires a CFP® professional to be honest and outstanding in their professional obligations. A CFP® professional is allowed innocent, unintentional, mistakes. They must disclose facts to the client, and a client can be defined as a non-person entity.

Question 7

7. The Duty requiring a CFP® professional to reasonably investigate financial products recommended to clients is?

a) Maintain financial planning expertise.
b) Act in the client’s best interests.
c) Maintain confidentiality.
d) Act in a manner that reflects positively on the profession.

Answer 7

7. Answer:

B Acting in the client’s best interest requires a CFP® professional to act objectively when reviewing products and making a recommendation. A CFP® professional is not required to be an expert in all areas of financial planning, but to know their limits and when to bring in an expert. Confidentiality and professionalism are elements of the CFP Board code of ethics, but are not relevant to reviewing products.

Question 8

8. A CFP® Professional may share client and account details in the course of ordinary business with which of the following except:

a) Any affiliated or partner firms owned by the CFP® professional’s employer
b) Any persons or businesses the client has provided oral or written consent
c) As necessary to provide information between attorney’s accountants and auditors
d) To a person acting as a representative capacity to the client such as a power of attorney

Answer 8

8. Answer:

A A Client must provide consent before their information can be shared with affiliated firms. Consent may be written or oral.

Question 9

9. Amber applied for CFP® certification and was denied. Her prior conduct falls under the “presumed list” and she wants to appeal. Which of the following is true regarding the review process?

a) She must call the Professional Review staff within 15 days and tell them that 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 made within 120 days of application.
d) The Disciplinary and Ethics Commission’s decision regarding a petition for consideration is final and may never be appealed.

Answer 9

9. Answer:

B There is no requirement to call, nor is there any set day in which a decision must be made, a written petition for reconsideration must be submitted. A decision may be appealed if relevant professional revocation or suspension is vacated or the relevant felony conviction is overturned.

Question 10

10. Jim has done many “bad” things over the span of his life; however, several years ago he decided to become an upstanding citizen. He is now concerned that his prior bad acts will prevent him from becoming a CFP® certificant. Which of the following is “presumed” to bar him from certification?

a) 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 10

10. Answer:

C A suspension of a law license for administrative reasons and a single bankruptcy are not on the presumed list. A felony conviction of a non-violent crime is only on the presumed list if it occurred within the last 5 years.

Question 11

11. Which of the following is true regarding the candidate fitness standards?

a) 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) A felony conviction of 2nd degree murder will always bar a person from being certified.
d) A significant number of employment terminations will “presumably” bar a person from certification.

Answer 11

11. Answer:

C A felony conviction of any degree for murder or rape, will always bar certification. A financial crime will Always bar certification, regardless of the time elapsed. The Standards identify issues that will bar or delay a person from being certified. A significant number of employment terminations will very rarely bar a person from certification.

Question 12

12. Which of the following may rarely result in the delay or denial of certification?

I. Customer complaints
II. Misdemeanor convictions
III. Employer reviews and terminations

a) I only
b) II only
c) I and III
d) I, II, and III

Answer 12

12. Answer:

D All of the these may rarely result in the delay or denial of certification.

Question 13

13. Which body of CFP Board is responsible for reviewing and making final decisions regarding a petition for reconsideration under the Candidate Fitness Standards?

a) Board of Governors
b) Disciplinary and Ethics Commission
c) Board of Professional Review
d) Candidate Fitness Commission

Answer 13

13. Answer:

B The Disciplinary and Ethics Commission has been tasked with reviewing petitions for reconsideration. Note: Board of Professional Review is responsible for interpreting and applying the Code of Ethics.

Question 14

14. Tricia, a new client for Stephan, a CFP® professional, has asked for Stephan’s help with her financial planning. Specifically, she desires a comprehensive retirement plan and review of her investments. What disclosures must Stephen provide Tricia at the onset of their engagement?

a) Terms of their engagement including the scope of the engagement with any limitations
b) A written description of all material conflicts of interest
c) An oral description of specific compensation models
d) Stephan is not required to provide any disclosures to Tricia as he is not performing financial planning

Answer 14

14. Answer:

A Tricia requires a comprehensive retirement plan which will meet the CFP Board definition of financial planning (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). Financial planning requires the planner disclose terms of engagement including the scope of engagement with any limitations. While compensation, confidentiality and privacy disclosures must be in writing, other disclosures are not required to be in writing.

Question 15

15. Ralph, a CFP® professional, was the financial advisor for Sue and her husband Bob, who had recently passed away. Bob’s assets included an IRA with Sue as the named beneficiary. Ralph advised Sue that she could disclaim her interest as beneficiary of the IRA, which would allow its value to pass to her two children. However, Ralph did not notify the custodian issuer of the IRA that Sue had disclaimed her interest in the IRA. Ralph acknowledged during his hearing with the Disciplinary and Ethics Commission that he could have annuitized the existing annuity in the IRA, which would have been less costly for Sue than purchasing a new annuity for each of her children. The Commission determined that annuitizing the existing annuity would have avoided early withdrawal penalties and the effects on taxable income on Sue’s children, and issued a Public Letter of Admonition to Ralph. The Commission ordered Ralph to complete, in addition to the 30 hours of continuing education for renewal, 12 hours of continuing education, including four hours each in estate planning, investments and estate distributions. Ralph violated all of the following provisions of the Code of Ethics EXCEPT?

a) Failed to exercise reasonable and prudent professional judgment in providing professional services
b) Failed to act in the best interest of the Client
c) Failed to modify the scope of the agreement and to bring in an estate planning attorney
d) Failed to make and/or implement only recommendations that were suitable for the Client

Answer 15

15. Answer:

C Ralph failed to apply knowledge and skill in Bob’s passing. Ralph did not act as a fiduciary nor recommend options to maximize the potential of meeting client goals. The fact pattern does not indicate Ralph failed to identify and select goals.

Question 16

16. Snidely, a CFP® professional, met with Dudley and Geezer, Dudley’s father. During the meeting, Snidely entered into an oral agreement with Dudley to manage Geezer’s financial affairs. Snidely did not complete a client profile of Geezer. Based on Snidely’s advice, Geezer liquidated his personal savings account and issued a personal check for the same amount payable to Snidely’s company (“Company”). Snidely cashed the check in the Company’s account and did not create a separate account for Geezer. On Snidely’s advice, Geezer later liquidated his money market account and gave the proceeds to Snidely to manage. About six months later, Snidely opened an escrow account on a deed of trust using a check made out to Snidely and the Company. Geezer did not authorize the opening of the escrow account. Geezer subsequently stopped receiving monthly distributions from a broker-dealer acting as custodian of Geezer’s assets as a result of Snidely’s failure to properly fund the account.

Snidely offered to review and make recommendations on Geezer’s then-current living trust. Snidely prepared a Last Will, Revocable Trust and Durable Power of Attorney for management of Property and Personal Affairs, and charged Geezer $400 per hour for preparing the documents. Geezer had not requested such documents. Geezer asked Snidely to provide him with all the documents pertaining to his investments. As of the hearing date with the Disciplinary and Ethics Commission, Snidely had not provided the requested documents to Geezer.

The Commission issued an Order to Revoke Permanently Snidely’s right to use the CERTIFIED FINANCIAL PLANNER™ and CFP® marks. The Commission ordered Snidely to verify that he was not using the marks by submitting copies of letterhead and business cards within 30 days of the Order. Snidely violated which of the following duties to his client and practice standards?

a) Commingled client finds with his own funds.
b) Failed to act according to the duties of care and loyalty by creating unnecessary estate planning documents
c) Failed to identify the client’s personal financial circumstances
d) Failed to analyze the current course of action and potential alternative courses of action
e) Snidely violated all of the above provisions

Answer 16

16. Answer:

E Snidely is prohibited from commingling funds with his clients under his obligations to clients, obligation A.15 (refrain from borrowing or lending money with commingling financial assets). Snidely did not identify circumstances or analyze those circumstances, as evidenced by unnecessary estate planning services.

Question 17

17. For many years, Samuel has been employed as a financial advisor at a leading brokerage firm where he conducts suitability reviews and makes investment recommendations for his clients. He recently obtained his CFP® certification and has just signed an agreement with Thomas, a new client, for a comprehensive financial plan. According to the Code of Ethics, all of the following represent additional requirements for Samuel in his engagement with Thomas compared with his other clients EXCEPT:

a) Samuel must understand the new client’s personal and financial circumstances by gathering qualitative and quantitative information.
b) Samuel must Identify and prioritize goals through the financial planning process.
c) Thomas must receive an oral disclaimer identifying Samuel’s sources of compensation.
d) Thomas must receive a written notice of confidentiality policies at the time of engagement.

Answer 17

17. Answer:

C A CFP® professional engaged for Financial Planning must clearly describe and provide clients with their methods of compensation in writing.

Question 18

18. Jack, a new client for Robert, a CFP® professional, requests a needs analysis concerning Jack’s life insurance situation. Jack is 42, married and has two children he plans to send to college. He wants Robert to evaluate how much and 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) A written investment policy statement discussing goals, objectives and risk tolerance.
b) A written summary and action plan to mitigate conflicts of interest faced.
c) Terms of the engagement including the scope and limitations
d) None of the above

Answer 18

18. Answer: C

A CFP® professional must provide their client with terms of their engagement including the scope of the engagement with any limitations, the period services will be provided and responsibilities of the Client. The CFP® professional is not required to provide an investment policy statement nor written summary of conflicts of interest. Obligations to Clients 5.a.iii “Evidence of an oral disclosure may be an acceptable disclosure, written consent to a conflict is not required.”

Question 19

19. Juan is a CFP® professional who works as a licensed and appointed agent for a mutual insurance agency. Juan’s compensation is based on the number and magnitude of insurance policies he places. This month Juan’s employer advertises “Free Comprehensive Financial Planning” in an online advertisement. What is Juan’s obligation to CFP Board and his clients?

a) Juan must notify CFP Board of the misleading advertisement but is not required to discuss the advertisement with his clients.
b) Juan is not required to notify CFP Board of the misleading advertisement but must correct firm misrepresentations and accurately represent their compensation model to their clients.
c) Juan must notify CFP Board of the misleading advertisement and correct firm misrepresentations and accurately represent their compensation model to their clients.
d) Juan does not need to address the advertisement with CFP Board or his clients.

Answer 19

19. Answer: B CFP® board does not require Juan to report employer advertisements. Juan is required to correct misrepresentations to his clients.

Question 20

20. Walter and Sons is a large brokerage firm that employees a number of CFP® professionals. The brokerage firm is in compliance with all FINRA, federal and state laws. However, since they employee a number of CFP® professionals, the firm is concerned about their responsibilities according to CFP Board’s Standards of Professional Conduct. Which statement accurately reflects the firm’s responsibility regarding the CFP Board’s Standards of Professional Conduct?

a) Firms themselves are not required to abide by the Standards, as CFP Board certifies individuals, not firms.
b) According to the Standards of Professional Conduct, firms owe CFP Board and CFP® certification holders the duty to abide by the Code of Ethics and Practice Standards.
c) The firm should sponsor continuing education courses for their CFP® practitioners, including 2 hours of ethics training every two years.
d) Since the firm is in compliance with FINRA, federal and state laws, then the firm is also in compliance with CFP Board’s Standards of Professional Conduct.

Answer 20

20. Answer: A

According to the CFP Board’s Standard of Professional Conduct FAQs, the CFP Board certifies individuals, not firms. As a condition of CFP® certification, CFP® professionals are required to abide by CFP Board’s Standards. Firms themselves are not required to abide by the Standards, but many have undertaken efforts to assist the CFP® professionals they employ, or with whom they are affiliated, to comply with their responsibilities as CFP® professionals. Answer B is incorrect because firms do not owe the CFP Board or CFP® professionals any duty according to the Code of Ethics. CFP® certification holders owe the Board and their employers the duty to abide by the Code of Ethics and all laws and regulatory requirements. Answer C is incorrect because the ethical standards are for individuals, not firms. Sponsoring continuing education or ethics courses would be a benefit to employees, but not necessary under the Standards of Professional Conduct. Answer D is incorrect because the ethical standards are for individuals, not firms. Firms do not owe a duty to CFP Board under the Standards of Professional Conduct

Question 21

21. Becca is a CFP® professional working with a federally covered advisor and FINRA broker/dealer. She engages a new client, Paul for an investment and retirement consultation. After following financial planning practice standards Becca recommends Paul purchase a portfolio of front-loaded mutual funds. Six months later the market corrects and Paul loses 10% of his investment. Paul requests a meeting to discuss the losses. The scope of engagement Becca provided Paul did not discuss any ongoing monitoring responsibilities. What is Becca’s obligation to Paul?

a) The CFP Board Code of Ethics does not require Becca to meet with Paul or monitor the portfolio.
b) In the absence of a discussion of monitoring in the scope of engagement, Becca is required to monitor client recommendations.
c) Becca is in violation of the CFP Board Code of Ethics due to Paul’s losses.
d) Becca is not required to meet with Paul or monitor the portfolio because she works for a FINRA member firm.

Answer 21

CFP Board under the Standards of Professional Conduct. 21. Answer: B

Becca is required to monitor unless she has specifically waived monitoring responsibilities in the scope of engagement. C is incorrect, losses are not cause for reporting violations. D is incorrect, FINRA does not waive CFP® professional responsibility.

Question 22

22. Cheryl is an insurance agent and a CFP® professional that works for a large, national insurance company. Recently, attorneys for the insurance company have required that any employees using the CFP® marks must remove the marks from their business cards, websites and promotional materials. The attorneys are concerned about potential lawsuits from customers alleging the CFP® professionals did not exercise the duty of a fiduciary. Based on this information, how should Cheryl proceed when working with clients?

a) Cheryl must disclose in writing to her clients that although she is a CERTIFIED FINANCIAL PLANNER™, her firm requires her to use the suitability standard and not the duty of a fiduciary.
b) By complying with the attorney’s request and removing the marks from all marketing materials, then Cheryl will no longer holds herself out as a CFP® professional, she must only provide clients with a suitability duty of care.
c) Cheryl should remove the CFP® marks as requested by the company attorneys, however she is still required to fulfill her professional obligations to follow the Code of Ethics and Standards of Conduct and she still owes the duty of care of a fiduciary.
d) As long as Cheryl removes the marks from all business cards, stationary, brochures, websites and does not hold herself out to the public as a CFP® professional, she is not professionally bound by the CFP Board’s Code of Ethics and Standards of Conduct.

Answer 22

22. Answer: C

According to the CFP Board’s Standard of Professional Conduct FAQs, removal of the CFP® marks from one’s business cards or stationery does not relieve a CFP® professional of the obligation to follow the Standards of Professional Conduct. Answer A is incorrect because even though Cheryl does not hold herself out as a CFP® professional, she is still bound to the duties required by the Standards of Professional Conduct, including a fiduciary standard of care. Answer B is incorrect because Cheryl must still abide by the Standards of Professional Conduct, which require a fiduciary responsibility. Answer D is incorrect because the Standards of Professional Conduct still obligate Cheryl, even though she does not hold herself out as a CFP® professional.

Question 23

23. John is a CFP® professional and is engaged in the financial planning process with his client Frank. John is in the data gathering process and has collected bank statements, insurance policies, estate documents, and all other relevant information with the exception of tax returns. Frank refuses to supply the tax returns or any documents that support his income claims. John’s best course of action is to?

a) The CFP Board’s Code of Ethics and Standards of Conduct require John to disengage from the client until such time Frank is willing to supply tax returns or other documents to support his income.
b) If John suspects that Frank is evading taxes or underreporting his income, John is required by the Code of Ethics and Standards of Conduct to report his suspicions to the appropriate regulatory authorities.
c) John should contact the IRS and request a copy of tax returns for the past three years, with or without the consent of the client.
d) John may limit the scope of the engagement to recommendations for which he has sufficient and relevant information or disengage from the client.

Answer 23

23. Answer: D

According to Practice Standard 1.ii: Obtaining Quantitative Information and Documents, if the practitioner is unable to obtain sufficient and relevant quantitative information and documents to form a basis for recommendations, the practitioner shall either: restrict the scope of the engagement to those matters for which sufficient and relevant information is available or terminate the engagement. Answer A is incorrect because the Practice Standard permits the practitioner to either limit the scope of the engagement or disengage. Answer B is incorrect because the Standards of Professional Conduct do not require a CFP® professional to report suspicions to the appropriate regulatory authority. Answer C is incorrect because John must receive the information from his client. He cannot request copies of the tax returns without the consent of his client.

Question 24

24. Mary is a CFP® professional and is in the analyzing and evaluating step of the financial planning process. Mary is developing a capital needs analysis for her client and has established assumptions for tax rates, investment returns and inflation rates. Her client disagrees with Mary’s assumptions regarding inflation and other economic variables used in the retirement needs analysis calculation. What should Mary do next?

a) If Mary and her client are unable to agree on the assumptions used for the retirement capital needs analysis, Mary should limit the scope of the engagement and exclude retirement capital needs analysis from her recommendations.
b) Mary should use the assumptions that result in the most conservative recommendations for retirement funding.
c) The CFP Board’s Code of Ethics and Standards of Conduct require Mary to disengage from the client.
d) Mary should provide her client with multiple projections, consistent with all varying assumptions.

Answer 24

24. Answer: A

According to Practice Standard 2.a. Identifying Potential Goals. A CFP® professional must discuss with the Client the CFP® professional’s assessment of the Client’s financial and personal circumstances, and help the Client identify goals, noting the effect that selecting a particular goal may have on other goals. In helping the Client identify goals, the CFP® professional must discuss with the Client, and apply, reasonable assumptions and estimates. These may include life expectancy, inflation rates, tax rates, investment returns, and other Material assumptions and estimates.”

Question 25

25. You and your client communicate regularly via social media. One day the client sends you a trade order via social media. Which of the following is the best option?

a) Process the trade as any other.
b) Call the client to confirm the trade.
c) Contact a colleague to assist.
d) Make the trade and send receipt to the client the next day.

Answer 25

25. Answer: B

The planner should contact the client and confirm they indeed want to make the trade.