Professional Conduct & Regulation 8%

Question 1

Which of the following are applicable FINRA examinations for registered investment advisers (RIAs) that plan to sell securities?

1.*Series 65: Uniform Registered Investment Advisor Examination.
2. *Series 7: General Securities Registered Representative.
3. *Series 66: Uniform Combined State Law Examination.
4. *Series 63: Uniform Securities Agent State Law Exam.

Answer 1

1, 2, 3, & 4

Question 2

SNOWBALL DEBT MANAGEMENT:
Jennifer has the following debts and would like to start a process to pay them off, starting with the debt with the lowest balance. She currently has $70 in excess monthly cash flow to start this process. Using the snowball technique, what would she be able to pay on the Fourth Bank credit card once the smaller loans have been paid off?

Debt Balance Minimum Payment
Bank CC $225 $25
2nd Bank CC $575 $35
3rd Bank CC $1,000 $50
4th Bank CC $3,200 $120
Auto loan $12,000 $300

Answer 2

$300.
Jen would have the $70 she can start with plus $110 once the first, second, and third credit cards are paid off, plus the $120 she has been paying all along on the fourth card for a total of $300.

Question 3

Luanne is a CFP® professional in a wealth management practice that works with medium to large employers. She offers comprehensive financial planning advice and specializes in Section 401(k) plan asset allocations for a nominal hourly fee. Based on the information provided, which of the following statements regarding the registration requirements for Luanne is(are) CORRECT?

I. Luanne will not be required to register as an investment adviser under the Investment Advisers Act of 1940 because she charges only a nominal fee.

II. Luanne’s firm will not be required to provide a Form ADV Part 2A to her clients because she is working primarily with employer groups.

Answer 3

Neither statement I nor II is correct.

Luanne is required to register as an investment adviser under the Investment Advisers Act of 1940 because she is in the business of providing advice regarding securities for a fee, regardless of the amount she actually charges. Also, she will be required to furnish her clients with a copy of her Form ADV Part 2A

Question 4

According to the Code and Standards, Standard A.1 (Fiduciary Duty) must be upheld in every situation except

Answer 4

interactions in which general observations about financial matters are discussed.

Question 5

The three-step test used to determine if registration as an investment advisor required is:

A- Analysis or advice concerning securities
B- Business of advisory services
C- Compensation for advisory services

Answer 5

1. Does the adviser provide analysis or advice concerning securities?
2. Is the adviser in-the-business of providing investment advisory services?
3. Does the adviser receive any compensation for providing investment advisory services?

*Remember A-B-C, Analysis-Business-Compensation.

Question 6

Under the bankruptcy laws, which of the following will NOT be discharged?

1. Credit card debt used to pay college tuition (within the past 3 years)
2. Taxes from four years ago in which the taxpayer purposely failed to report $10,000 of self-employment income
3. Alimony

Answer 6

2 & 3

Alimony or back taxes resulting from failure to report income cannot be discharged.

*Credit card debt may be discharged.

Question 7

Which of the following claims will NOT be discharged in bankruptcy?

Answer 7

Alimony, Maintenance, & Child Support will NOT be discharged in bankruptcy court. This does not include lump-sum property settlement awards.

Question 8

Under common law, which of the following circumstances could cause a financial planner to be liable for damages to a third person?

Answer 8

Answer: The third person relied on statements prepared by the financial planner.

*Traditionally, a financial planner does not owe contractual duties to a third person. However, an exception exists when a third party relied on statements prepared by the financial planner.

Question 9

Which of these is NOT a state law exemption found in Chapter 7 of the Federal Bankruptcy Code?

A)
Pension and retirement plan rights (ERISA plans)

B)
An exemption for one’s homestead

C)
Some limited amount of personal property

D)
Child support

Answer 9

CHILD SUPPORT

Other state law exemptions include the existing cash value of any life insurance policies, the proceeds of any annuity contracts, disability income benefits, and property that is held as tenants by the entirety.

Question 10

According to the Investment Advisers Act of 1940, which of these are NOT included in the definition of an investment adviser?

Lawyers
Accountants
Teachers
Engineers

Answer 10

L-A-T-E
persons who are excluded from the definition of investment adviser are Lawyers, Accountants, Engineers, or Teachers whose performance of advisory services is solely incidental to the practice of their professions; brokers or dealers whose performance of advisory services is SOLELY INCIDENTAL to their conduct as brokers or dealers and who receive no special compensation for advice; and other persons designated by Securities and Exchange Commission (SEC).

Question 11

All of the following statements regarding the provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 are correct except

A)
people who have the ability to pay their debts can choose between filing under Chapter 7 or filing under Chapter 13.

B)
debtors who want to file for Chapter 7 must first undergo credit counseling.

C)
the use of Chapter 7 is limited to the liquidation of credit bills or loans that are not secured.

D)
lenders must provide consumer information about the dangers of paying only minimum required payments on credit card debt.

Answer 11

A) People who have the ability to pay their debts can choose between filing under Chapter 7 or filing under Chapter 13.

Under the 2005 Bankruptcy Act, people who have the ability to pay their debts MUST file under Chapter 13 (reorganization) rather than having their debts canceled entirely under Chapter 7.

Question 12

Select the category of conduct defined in the Fitness Standards for which a petition for consideration is NOT permitted.

A) Conduct Deemed a Temporary Bar

B) Conduct Deemed a Presumptive Bar

C) Conduct Deemed Adverse

D) *Conduct Deemed Unacceptable

Answer 12

D) Conduct Deemed Unacceptable is the category of conduct defined in the Fitness Standards under which an individual may not submit a petition for consideration.

Question 13

Which of these statements regarding financial institutions is CORRECT?

I. *A savings and loan association (S&L) = a thrift institution.
II. *A credit union, owned by its members, is a financial institution that accepts deposits and makes loans.
III. *A brokerage company is an intermediary that facilitates transactions involving sales of investments or real estate.
IV. *A credit union allocates earnings from loan interest and investments to its members in the form of dividends.

Answer 13

All of the statements are correct.

Question 14

Which of these statements regarding credit unions are CORRECT?

I. *Loans are typically offered at reduced interest rates.
II. Earnings from loan interest and investments are paid to members in the form of shares.
III. Deposits in a credit union are insured up to $100,000 per qualifying account by the National Credit Union Share Insurance Fund (NCUSIF).
IV. *Each credit union member may use a vote to elect the board of directors.

Answer 14

Answer: I & IV

*Statement II is not correct because earnings from loan interest and investments are paid to members in the form of dividends, not shares.

*Statement III is not correct because deposits in a credit union are insured up to $250,000 per qualifying account by the NCUSIF.

Question 15

Dave is planning to refinance his mortgage with a local bank. While meeting with his banker, he is given a loan packet detailing the amount to be financed, the annual percentage rate (APR), and the loan’s terms and conditions. What legislation requires the bank to disclose this information to Dave?

Answer 15

The Consumer Credit Protection Act aka Truth in Lending Act

*Requires lenders, before extending credit, to disclose both the dollar amount of finance charges and the annual percentage rate (APR), as well as other loan terms and conditions. The Act also limits consumer liability for a lost or stolen credit card to the amount charged or a maximum of $50 per card, whichever is less. The requirements of this Act are often encountered when a consumer enters into a mortgage agreement with a lender and closes on a personal residence.

Question 16

Which of the following compensation arrangements are based upon the earnings of the client’s *Investment *Portfolio?

I. Performance
II. Incentive
III. Commission
IV. Fee-for-service

Answer 16

I & II

*Commission and fee-for-service are not based on earnings of the client’s portfolio.

Question 16

What is the CE requirement for a CFP professional?

Answer 16

30 TOTAL HOURS

28 hours of general CE + 2 hours of CFP Board–approved ethics CE

Question 17

When must Standard A.1—Fiduciary Duty be upheld?

Answer 17

At all times when providing financial advice, regardless of whether financial planning is required

Question 18

Which of these types of accounts are covered by Federal Deposit Insurance Corporation (FDIC) insurance?

I. Securities
II. *Certificates of deposit
III. Money market mutual funds
IV. *Money market deposit accounts

Answer 18

II. Certificates of Deposit
IV. Money market deposit accounts

Question 19

Justin has the following accounts on deposit in the same bank.

Account Ownership Balance
Savings account Justin $300,000
Checking account Justin $25,000
Savings account Justin w/ spouse
$400,000
Savings account Justin w/ son
$100,000

How much Federal Deposit Insurance Corporation (FDIC) insurance coverage does Justin currently have for his accounts?

Each category of ownership (e.g., individual, joint, or retirement account) in the same institution is subject to a separate limit of $250,000.

Answer 19

$500K
Each category of ownership (e.g., individual, joint, or retirement account) in the same institution is subject to a separate limit of $250,000. Justin has $250,000 of coverage on his individual accounts and $250,000 of coverage ($200,000 with his spouse + $50,000 with his son) on his joint accounts, for a total of $500,000 of coverage.

Question 20

Archie, age 60, is unmarried and retired. He has the following assets on deposit at General Bank, an Federal Deposit Insurance Corporation (FDIC)-insured financial institution.

Account Owner Type of Account Balance
Archie CD $225,000
Archie and his son, Arnie Joint savings
$70,000
Archie Rollover traditional IRA
$150,000
Archie Checking $80,000

What amount is insured by the FDIC?

Answer 20

$470K
The answer is $470,000. The FDIC insures separate legal categories of accounts of a legal institution. As a result, the individual retirement account (IRA) will be insured up to $250,000. The individual accounts owned by Archie are aggregated and are insured up to a total of $250,000. The joint account is insured for $70,000. Total amount insured is $470,000 ($150,000 + $250,000 + $70,000).

Question 21

CFP Board’s Procedural Rules

1. Private Censure

Answer 21

Unpublished written reproach mailed by the DEC to a censured respondent

Question 22

CFP Board’s Procedural Rules

2. Public Letter of Admonition

Answer 22

publishable written reproach of the behavior
1) Standard procedure is to publish the Letter of Admonition in a press release or in such other form of publicity selected by the DEC
2) If there are mitigating circumstances, the DEC may decide to withhold public notification

Question 23

CFP Board’s Procedural Rules

3. Suspension

Answer 23

1) For a specified period of time, NOT to exceed 5 years, for those Respondents the DEC believes can be rehabilitated

2) Information regarding the suspension together with identification of the Respondent is often published in a press release or another form as selected by the DEC

• Respondents who are suspended may qualify for reinstatement to use the marks

Question 24

CFP Board’s Procedural Rules

4. Permanent revocation of right to use CFP® marks

Answer 24

Fact of the revocation together with identification of the Respondent is published in a press release or another form as selected by the DEC

*Revocation is permanent

Question 25

Which of these are integration factors that the CFP Board will weigh in determining whether a CFP® professional has agreed to provide or provided Financial Advice that requires Financial Planning?

Answer 25

1. The number of relevant elements of the client’s personal and financial circumstances that the Financial Advice may affect
2. The portion and amount of the client’s Financial Assets that the Financial Advice may affect
3. The length of time the client’s personal and financial circumstances may be affected by the Financial Advice
4. The effect on the client’s overall exposure to risk if the client implements the Financial Advice
5. The barriers to modifying the actions taken to implement the Financial Advice

Question 26

According to the Code and Standards, which of these activities would usually be carried out in a review of the progress of the financial plan?

I. Complete an entirely new data gathering questionnaire
II. *Update goals, recommendations, or implementation decisions
III. *Analyze the plan relative to changes in tax law
IV. *Establish updating responsibilities

Answer 26

II & III & IV

A review of the existing data gathering questionnaire is made when evaluating the progress of the plan, but under most circumstances, starting a new form would be unnecessary.

*All of the other statements describe elements of Step 7 of the financial planning process, Monitoring Progress and Updating.

Question 27

Which of the following statements regarding the initial registration process with FINRA are CORRECT?

I. The individual registers with FINRA through a broker/dealer on Form ADV.
II. *The individual associates with a broker/dealer firm prior to registering as a representative.
III. *The individual must take and pass appropriate examinations.
IV. *The Central Registration Depository (CRD) System makes registration with FINRA uniform throughout the states.

Answer 27

II & III & IV

Only statement I is incorrect.
The individual registers with FINRA through a broker/dealer on Form U-4.

Investment advisers register with the SEC using Form ADV.

Question 28

Under the liquidation provisions of Chapter 7 of the Federal Bankruptcy Code, which of the following apply to a person who has voluntarily filed for and received a discharge in bankruptcy?

Answer 28

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 6 years.

Question 29

Landry Plumbing, Inc. filed for bankruptcy under the reorganization provisions of Chapter 11 of the Federal Bankruptcy Code. A plan of reorganization was confirmed and a final decree closing the proceedings was entered.
Which of the following statements is CORRECT?

Answer 29

Landry Plumbing, Inc. will have negotiated with all creditors, except as otherwise provided in the plan and applicable law.

Question 30

Which of these statements regarding financial institutions is CORRECT?

I. *A brokerage company is an intermediary that facilitates transactions involving sales of investments or real estate.
II. *A credit union, owned by its members, is a financial institution that accepts deposits and makes loans
III. *Federally chartered S&Ls are regulated by the Office of the Comptroller of the Currency.
IV. A trust company is also known as a thrift institution.

Answer 30

I & II & III

Question 31

Which of the following uses of the CFP® certification marks is CORRECT?

I. John Doe, C.F.P.
II. John Doe, a CFP
III. *John Doe, CERTIFIED FINANCIAL PLANNER™
IV. *John Doe, CFP®

Answer 31

III & IV

III. John Doe, CERTIFIED FINANCIAL PLANNER™
IV. John Doe, CFP®

Question 32

The function of an investment bank may include all of the following except

A) Raising capital for issuers by distributing new securities.
B) Purchasing securities from the public and reselling them to the issuers.
C) Distributing large blocks of stock to the public and to institutions.
D) Advising corporations regarding the best ways to raise long-term capital.

Answer 32

B) purchasing securities from the public and reselling them to the issuers.

Question 33

Which of the following persons would be required to register with FINRA?

I. *Jennifer, a CFP® professional, wants to market IRAs funded with mutual funds.
II. Louis, a CPA, is planning to add fixed insurance products to his portfolio of client offerings.
III. *Jordan, an attorney, wants to provide private money management services, including securities trading, to his clients for a fee and/or commission.
IV. *Hannah, a life insurance agent, who wishes to sell variable universal life insurance policies.

Answer 33

I & III & IV

A person must be registered with FINRA in order to sell securities.

INSURANCE NOT REQUIRED

Question 34

What options does the Discipline and Ethics Commission (DEC) have when reviewing the Hearing Panel’s findings and recommendations.

Accept
Reject or
Modify

Answer 34

Accept
Reject or
Modify

The DEC may accept, reject, or modify the Hearing Panel’s findings and recommendations.

Question 35

What is required in a Prospectus to investors?

I. Composition of the investment portfolio.
II. The fund’s investment objectives
III. The composition of the fund’s board of directors.
IV. Any fees and expenses that the investor pays.

Answer 35

All The Above

C-O-B-E

Question 36

ADV Requirements

Answer 36

I. MUST provide each client with either a copy of Part 2A of Form ADV or a separate brochure that contains every piece of information in Part 2A of Form ADV.

II. If a registered investment adviser does not deliver Part 2A of Form ADV or a separate brochure to a client at least 48 hours before entering into an investment advisory contract, the client has the right to terminate the contract without penalty for a period of 5 business days.

Question 37

The Fair Debt Collection Practices Act does not allow debt collectors to engage in all of the following practices except.

A)
contacting third parties about the payment of the debt without court authorization.
B)
harassing or intimidating a debtor or using false and misleading approaches.
C)
seeking a court order for wage garnishment to satisfy a legal judgment.
D)
contacting a debtor at his place of employment if the employer objects.

Answer 37

C)
seeking a court order for wage garnishment to satisfy a legal judgment.

A state court may issue an order for garnishment of a portion of a debtor’s wages in order to satisfy a legal judgment that was obtained by a creditor.

Question 38

Identify the situations in which Standard A.1, Fiduciary Duty, must be upheld.

I. At all times
II. Anytime financial matters are discussed with current or prospective clients
III. *At all times when providing Financial Advice
IV. *At all times when providing Financial Advice that does not require Financial Planning

Answer 38

III. At all times when providing Financial Advice
IV. At all times when providing Financial Advice that does not require Financial Planning

Question 39

Which of these statements regarding the National Credit Union Share Insurance Fund (NCUSIF) are CORRECT?

I. *The NCUSIF is an agency of the federal government.
II. The NCUSIF is backed by the full faith and credit of the state governments.
III. Up to $500,000 of a member’s account balances are insured by the NCUSIF.
IV. *The fund is administered by the National Credit Union Administration (NCUA).

Answer 39

I. The NCUSIF is an agency of the federal government.
IV. The fund is administered by the National Credit Union Administration (NCUA).

The NCUSIF is an agency of the federal government and is administered by the National Credit Union Administration (NCUA). It is backed by the full faith and credit of the U.S government. The NCUSIF insures member accounts of all federal and most state-chartered credit unions up to $250,000.

Question 40

When a client-planner engagement involves Financial Advice for which Financial Planning is required, and the client DOES NOT enlist the planner for services, the Planner must abide by

I. *Fiduciary Duty.
II. *Code of Ethics.
III. the Practice Standards for the Financial Planning Process.
IV. the Suitability Standard.

Answer 40

I. Fiduciary Duty.
II. Code of Ethics.
In instances where the engagement involves Financial Advice that requires Financial Planning, but the client does not enlist the planner’s services, the planner must uphold the fiduciary duty and abide by the Code of Ethics.

*Following the Practice Standards for the Financial Planning Process is not required.

Question 41

What is true concerning bankruptcy in regards to State laws vs. Federal gov’t laws?

State laws > Federal gov’t laws

Answer 41

Planners can rely on state laws to supersede federal laws in regard to property retention.

Question 42

Which of the following are NOT included in the definition of an investment adviser?

I. *Banks or bank holding companies.
II. *Persons whose advice is limited to securities issued and guaranteed by the U.S. government.
III. *Publishers of bona fide newspapers or financial publications of general and regular circulation.
IV. *Lawyers whose performance of advisory services is solely incidental to the practice of their profession.

Answer 42

ALL THE ABOVE

Question 43

Which of the following is the act that provides applicable procedures for issuing an initial public offering (IPO) of securities while specifying which securities are exempt from registration requirements?
A) Investment Advisers Act of 1940
B) Securities Exchange Act of 1934
C) Investment Company Act of 1940
D) *Securities Act of 1933

Answer 43

D) Securities Act of 1933

*The Securities Act of 1933 also addresses the paperwork involved in offering new securities to potential investors. It also requires the registration of new issues of securities in the primary market.

Question 44

To give the stock price a boost, a corporate officer posts favorable, yet slightly inaccurate information about his company’s earnings in an internet chat room. After a few days of posting and blogging, the stock starts to rise a couple of points, after which the officer decides to exercise a number of stock options to make a sizable profit. Which of the following acts did this officer violate by his actions?

A) Securities Act of 1933
B) Securities Exchange Act of 1934
C) The Investment Company Act of 1940
D)The Investment Advisers Act of 1940

Answer 44

B) Securities Exchange Act of 1934

Question 45

Cornerstone Company, owned by a bank, specializes in managing estates. The company is

A) a thrift institution.
B) *a trust company.
C) a brokerage company.
D) an investment bank.

Answer 45

B) Trust company.

*A trust company is typically owned by one of three entities: an independent partnership, a bank, or a law firm, each of which specializes in managing estates and serving as trustee for various types of trusts.