Missed Lesson Review Questions Flashcards
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: 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.
Which best describes the Duty of Integrity a CFP® professional owes to 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: A
Integrity requires a CFP® professional to be honest and upstanding 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.
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:
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.
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 engagement including the scope and limitations
d) None of the above
Answer: C
A CFP® professional must provide their client with terms of engagement including the scope of 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.”
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 requires 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 o 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: 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 practitioners 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 this client.
Brad, just out of college, has finished studying for his series exams. Brad passed both the Series 6 & 7 securities licensing exams. Brad can now sell all of the following except
a) Mutual Funds
b) Options
c) Variable Life Insurance
d) UIT
Answer: C
Based on the question, we can infer that Brad has not passed a state insurance licensing exam. We know that he can now sell mutual funds, options, and UITs.
Which of the following are methods a planner may increase a client’s trust in the planner? a) Frequent communication and disclosure b) Provide the client with a formal written document explaining the data gathering process. c) None of the above d) A and B only
Answer: D
As a planner, it’s critical to determine a client’s life cycle position because:
a) Must know how many dependents the client has
b) Life cycle position impacts a client’s goals and behavior.
c) Net worth is critical to the planning process.
d) Life cycle position impacts risk tolerance and time horizon.
Answer: B
Definition of life cycle position
How do you figure emergency fund?
Current assets / monthly nondiscretionary expenses
How do you figure Housing & All Other Debt Ratio?
Monthly Housing Costs (P+I+T+I) + All Other Recurring Debt Payments / Monthly Gross Income
When preparing a client’s statement of financial position, which of the following is true?
a) A reserve liability account for taxes owed on the sale of assets should be listed.
b) Assets with more volatility should be listed first in the investment assets section.
c) All expenditures should be categorized as fixed or variable.
d) Anticipated liabilities, such as a potential car purchase in 10 years should be reported and recorded at its net present value.
Answer: A
A - Reserve liability account for taxes owed on the sales of assets should be listed. B - Assets should be listed as liquid to least liquid. C - Expenditures would be on the cash flow statement. D - Statement of financial position is a snapshot in time, a pro-forma statement would account for future assets/debt.
Donna has a son, Colin (age 18), a freshman at Tulane University with tuition of $30,000 per year. Donna’s AGI is $45,000 and takes a withdrawal of $20,000 from her 529 Plan. She pays the remaining $10,000 in tuition out of her checking account. Which of the following would you recommend? a) Take a Lifetime Learning Credit of $2,000. b) Take an American Opportunity Tax Credit of $2,500. c) Cannot take American Opportunity Tax Credits or Lifetime Learning Credits because she took a 529 distribution.
Answer: B Donna should take the American Opportunity Tax Credit because it offers a larger tax credit than the Lifetime Learning Credit.
Which of the following factors would be the strongest indication that interest rates might rise?
a) Selling of dollar-denominated assets by foreign investors
b) Decreasing United States government deficits
c) Decreasing rates of inflation
d) Weak credit demand by the private sector of the United States economy
Answer: A
Interest rates will rise anytime the money supply decreases. If dollar-denominated assets are being sold, US dollars are being sent overseas as the assets are being sold. This results in the money supply decreasing and interest rates increasing. Decreasing deficits means the US government is demanding less dollars. Decreasing inflation will result in lower interest rates. weak credit demand means that businesses are requiring less dollars, therefore, the demand for dollars is low. If demand for dollars is low, then interest rates will decrease.
A client provides a current personal balance sheet to the financial planner during the initial data-gathering phase of the financial planning process. This financial statement will enable the financial planner to gain an understanding of all of the following except the:
a) Diversification of the client’s assets
b) Size of the client’s net cash flow
c) Client’s liquidity position
d) Client’s use of debt
Answer: B
Net cash flow will be on the statement of income and expenses or statement of cash flow. Assets, liabilities, and net worth will all be included on the balance sheet.
Which of the following statements regarding the characteristics of an insurance contract is false?
a) They are a contract of adhesion, which means the insured must take it or leave it.
b) They are aleatory contracts, which means amounts exchanged may be unequal.
c) They are unilateral, meaning there is only one promise, which is a promise by the insured to pay the premium.
d) The contracts are conditional, which means the terms are under the condition that premiums are paid.
Answer: C
The promise is by the insurer to pay if a loss occurs.
* You missed this one because of the word “false”!
Chris walks into his insurance agent’s office and notices his agent’s name on a business card and the insurer’s name on letterhead. If the agent has a valid agency agreement, what type of authority does Chris believe his agent has to enter into an insurance contract?
a) Express Authority
b) Implied Authority
c) Apparent Authority
d) None of the above
Answer: B
Implied authority is based upon the agent’s business card, letterhead, and insurance company sign on the door. Express authority is the agency agreement between the insurance agent and insurance company. Apparent Authority is when no authority actually exists.
Which of the following statements regarding loss frequency is true?
a) Loss frequency is the expected number of losses that will occur within a given period.
b) Loss frequency is the potential size or amount of a loss.
c) Loss frequency is a measure of the total amount of losses incurred by an insurer.
d) Loss frequency is a measure of variability between actual and expected losses.
Answer: A
Frequency measures the number of losses expected to occur. Severity measures the potential size in dollars.
All of the following statements concerning universal life insurance are true except?
a) The insured has the flexibility to adjust premiums, face value, and cash value of the policy.
b) Insured has flexibility without the investment responsibility of the cash value.
c) Cash value of the policy can be used to pay the premiums.
d) The death benefit of a universal life policy is fixed.
Answer: D
Universal policies have a death benefit that depends on investment performance and premiums paid. The death benefit is not fixed. All other statements are true.
John has a major medical policy with a $250 annual deductible and an 80/20 coinsurance provision, with a $2,000 stop-loss limit. John has emergency surgery that cost $12,000. How much will he have to pay for the surgery?
a) $250
b) $2,000
c) $2,250
d) $2,600
Answer: C
$12,000 - deductible = covered loss $12,000 - $250 = $11,750 Insured’s portion $11,750 x 0.20 = $2,350 + $250 deductible = $2,600. Stop loss is $2,000 plus deductible of $250 for a total of $2,250. For a major medical, he pays ductible and stop loss. For an ACA-compliant group plan, he only pays the max out-of-pocket amount of $2,000.
Section II of an HO-3 policy provides what type of protection for the homeowner?
a) Dwelling
b) Damage to Others’ Property
c) Loss of Use
d) Personal Property
Answer: B
A, C, and D are in Section 1.
All of the following statements are correct regarding a Personal Auto Policy Part D (Coverage for Damage to Your Auto) coverage except?
a) Collision with other vehicles
b) Comprehensive, which is fire, theft, or vandalism
c) Collision damages to a borrowed or rented vehicle
d) Collision, which includes contact with an animal or bird
Answer: D
D is coverage under comprehensive
All of the following statements regarding the Social Security system are correct except?
a) Individuals over age 62 who receive Social Security benefits, automatically qualify for Medicare.
b) For workers entitled to retirement or disability benefits, an ex-spouse may be eligible for benefits under the former spouse’s work record.
c) Medicare Part A is paid for by a portion of Social Security taxes collected, while premiums are charged for Part B.
d) Disability benefits are paid to any age worker who meets the definition of disability and has earned enough credits, given their age.
Answer: A
Automatically qualify for Medicare at age 65. All other statements are true.
Sydney works at Joe’s Stone Crabs in Miami. Because of the seasonal nature of the business, Sydney only works two months out of the year and earns $100,000 in wages subject to Social Security. How many quarters of coverage does Sydney earn by working at Joe’s Stone Crabs two months out of each year? a) 1 b) 2 c) 3 d) 4
Answer: D A worker can earn up to 4 quarters a year, and they can be earned all in one day if wages subject to Social Security are $5,880 (4 x $1,470). Total earnings required are $1,470 per quarter to earn one quarter of coverage.
Temporary insurance coverage, contingent on an applicant’s ability to present evidence of insurability can be provided by:
a) Evidence of consideration
b) Conditional receipt
c) Delivery of contract
d) Initial premium payment
Answer: B
Below is CFP Board Council on Examinations response to a candidate’s question regarding this exam item: “Not that while the conditional receipt sets forth certain terms of temporary life insurance coverage, it will not be issued without a competed application and payment of an initial premium.”
