Quizzes - All Chapters (Dalton)

Question 1

An appropriate Emergency Fund Ratio is:

A. Three to six months of non-discretionary expenses depending on the number of wage earners in the family.
B. Three to six months of gross income, depending on the number of wage earners in the family.
C. Three to six months of discretionary income, depending on the number of wage earners in the family.
D. None of the choices.

Answer 1

Solution: The correct answer is A.

Question 2

Katie owns 1 share of stock that was purchased 5 years ago for $20. The stock paid dividends of:

Year 1: 2.00

Year 2: 3.00

Year 3: 3.50

Year 4: 4.00

Year 5: 4.50

At the end of Year 5, the stock was worth $25. What is Katie’s compounded rate of return (IRR)?

A. 4.6
B. 8.5
C. 12.4
D. 19.3

Answer 2

Solution: The correct answer is D.

CFo = \<20\>
CFj = 2.00

CFj = 3.00

CFj = 3.50

CFj = 4.00

CFj = 4.50 + 25 = 29.50

IRR = 19.3%

Question 3

Your client wants to receive payments of $2,500 from her investments at the beginning of each month during her retirement to supplement her pension plan benefits. Your client estimates she will need to receive this monthly payment for 35 years. If an 8.5% annual return is earned on investments, compounded monthly, what amount does your client need to have at the time of her retirement to fund her needs?

$334,734
$337,106
$6,488,916
$6,534,879

Answer 3

Solution: The correct answer is B.

Your calculator should be set to 1 P_Yr.

Switch your calculator to BEGIN mode to account for investments at the beginning of each month.

orange shift BEG/END (use Begin mode)

N=35x12=420

i=8.5/12=.7083

PV=?

PMT=2,500

FV=0

Question 4

If Billy-Bob Owens put $125,000 into an account eight years ago, that paid 6% interest compounded on a monthly basis, the value of the account today would be:

A. $195,534.29
B. $199,231.01
C. $201,767.83
D. $208,001.29

Answer 4

Solution: The correct answer is C.

N=8x12

i=6/12

PV=125,000

PMT=0

FV=?

Instructor note: You can use -125,000 as PV as a cash outflow, it will not change your numerical answer. The cashflows need to be followed when using both PV and FV as inputs or credit card pay down calculations.

Question 5

On December 31st Lisa purchased a home with a 20-year mortgage for $150,000 and an 8% compounding interest rate. What is Lisa’s principal reduction for the first year?

A. $1,814
B. $3,171
C. $2,507
D. $3,912

Answer 5

Solution: The correct answer is B.

N = 20 × 12 = 240

i = 8/12 = .6667

PV = 150,000

PMT = ?

FV = 0

PMT = 1,254.66 12C 12f AMORT X/Y Key

On the 10BII, enter 1 input, 12 Orange shift AMORT =

Question 6

Morgan, a prospective client, recently approached Mike, a CFP® professional with significant estate planning needs. Mike does not feel like he can adequately fulfill all of Morgan’s needs so he refers Morgan to a colleague who specializes in estate planning. What duty did Mike most clearly demonstrate?
A. Objectivity
B Integrity
C. Professionalism
D. Competence

Answer 6

Solution: The correct answer is D.

A competent financial planner focuses on maintaining and applying adequate skills and knowledge when providing services to clients. Competence also includes the planner’s ability to recognize his or her limitations.

Answer A is incorrect because objectivity is about providing professional services objectively and Mike did not perform any services.

Answer B is incorrect because although Mike is being honest to Morgan, he is better demonstrating competence, and the question asks what principle did Mike MOST clearly demonstrate.

Answer C is incorrect because much like answer B, competence is most clearly demonstrated over professionalism.

Question 7

Tom, a CFP® professional, has developed a comprehensive financial plan for his client. Based on the CFP Board Practice Standards which of the following should Tom do next?
A. Review the plan with the client’s CPA and Attorney prior to contacting the client.
B. Implement the financial planning recommendations.
C. Present the financial planning recommendations to his client.
D. Develop financial planning recommendations.

Answer 7

Solution: The correct answer is C.

A CFP® professional must present to the Client the selected recommendations and the information that was required to be considered when developing the recommendation(s). A is incorrect, this level of diligence is not required of a CFP® professional. B is incorrect, this step occurs after presentation. D is incorrect, this step occurs before presentation.

Question 8

Which of the following are forms of discipline according to CFP Board’s Code of Ethics:

I. Suspension
II. Public Letter of Admonishment
III. Private Censure Released on CFP Board’s Public Website
IV. Temporary Revocation

A. I and II
B. I, II and IV
C. III and IV
D. II and III

Answer 8

Solution: The correct answer is A.

A private censure made public is a public letter of admonishment. Revocation is always permanent.

Question 9

Jimmy, a 49-year-old corporate executive, has been saving for his son’s college tuition in a 529 for the last 18 years. He had high hopes his son would go to medical school. His son Marco is now 18 and has chosen not to attend college as his father had hoped. He has accepted a registered apprenticeship as an underwater welder. The equipment he needs for the apprenticeship is expensive. What is Jimmy’s best option for the balance of the 529 plan?

A. Take a qualified distribution for the equipment Marco will need.
B. Take a non-qualified distribution for the equipment Marco will need, resulting in a 10% penalty and income taxes on the gains.
C. Close out the 529 plan.
D. Change the beneficiary to his brother’s son going to medical school.

Answer 9

Solution: The correct answer is A.

SECURE Act 2019 added qualified distributions for expenses for fees, books, supplies, and equipment required for the participation of a designated beneficiary in an apprenticeship program registered and certified with the Secretary of Labor under section 1 of the National Apprenticeship Act (29 U.S.C. 50).

B is does state what would happen for a non-qualified distribution, but Jimmy will not have to take that option.

C is not a great option, there is no need to close it out.

D is an available option, but Jimmy can utilize the money to help Marco.

Question 10

What is the net present value of the cash flows from a piece of equipment that is purchased for $10,000 and over a 4 year period generates the following cash flows:

Year 1: $2,000

Year 2: $2,500

Year 3: $3,500

Year 4: $4,000

Assume the equipment can be sold at the end of the 4th year for $1,000 and assume the required rate of return is 7%.

A. <724>
B. 724
C. <674>
D. 674

Answer 10

Solution: The correct answer is B.

CFo = \<10,000\>
CFj = 2,000

CFj = 2,500

CFj = 3,500

CFj = 4,000+1,000=5,000

i = 7

NPV = 724

Question 11

Which one of the following are false regarding Coverdell ESA and a 529 Savings Plan?

A. A 529 Plan allows 5-year proration of contributions.
B. A Coverdell has a phase-out limit for participation.
C. A 529 Plan does not have a phaseout limit for participation.
D. Distributions from an ESA or 529 can be used for private elementary, middle school, high school, college or trade school and qualified apprenticeships.

Answer 11

Solution: The correct answer is D.

As of 2018, a 529 Plan may also be used for private elementary, middle or high school as can an ESA.

SECURE Act 2019 added qualified distributions from a 529 plan for trade schools and qualified apprenticeships. ESAs did not see the same changes from this Act.

Question 12

On the Statement of Financial Position of the client, the following would NOT be considered a liquid or current asset:

A. Cash on hand.
B. Money market funds.
C. Certificates of deposit with a three year maturity.
D. Cash in a savings account.

Answer 12

Solution: The correct answer is C.

All are liquid or current assets except for the three-year CDs. A current asset matures in 12 months or less.

Question 13

Robert Smith asks for your help in preparing his cash flow statement. He tells you that his salary before taxes is $250,000 and that he has NO mortgage on his home. Which of the following statements is true about Robert’s cash flow statement?

A. The value of the home would be an income source, since there is NO mortgage.
B. The value of the home would be an asset.
C. The taxes on his salary would be a liability.
D. The taxes on his salary would be an expense.

Answer 13

Solution: The correct answer is D.

Option “A” - Home equity would not provide a source of income. Option “B” - The value of the home is an asset, but this has nothing to do with cash flow statements. Option “C” - Taxes on his salary are an expense. Liabilities are shown on the state of financial position, not the cash flow statement.

Question 14

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. 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 Duties to CFP® Board 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 14

Solution: The correct answer is D.

John must Obtain Qualitative and Quantitative Information (practice standard 1). A CFP® professional must describe to the Client the qualitative and quantitative information concerning the Client’s personal and financial circumstances needed to fulfill the Scope of Engagement and collaborate with the Client to obtain the information. If unable to obtain information necessary to fulfill the Scope of Engagement, the CFP® professional must either limit the Scope of Engagement to those services the CFP® professional is able to provide or terminate the Engagement.

Question 15

Ross is employed as a loan officer at a local bank. Ross recently sat down and visited with his financial planner Julie, a CFP® professional. Ross was in need of cash and borrowed $9,500 from Julie. Based on duties owed to a client (15- Refrain from Borrowing or Lending Money and Commingling Financial Assets) is Julie in violation of this rule?

A. Julie is not in violation of the rule because Ross is in the business of lending money
B. Julie is in violation of the rule because a CFP® certificant must never lend money to a client.
C. Julie is not in violation since she loaned Ross less than $10,000.
D. Julie is in violation of the rule.

Answer 15

Solution: The correct answer is D.

CFP® professional may not, directly or indirectly, borrow money from or lend money to a Client unless:

i. The Client is a member of the CFP® professional’s Family; or
ii. The lender is a business organization or legal entity in the business of lending money.

Ross is not a business organization.

Instructor Note: Watch the wording on answer choice B. Never is an absolute, which makes this statement false. A CFP® Professional can lend to family members.

Question 16

Robert, a CFP® professional, performed a needs analysis concerning Jack’s life insurance situation last year and sold him a universal life policy under a limited scope engagement. This year, Jack wants Robert to evaluate his investment allocation, risk tolerance and recommend some mutual funds. All of the following information is required to be provided to Jack according to the Code of Ethics and Standards of Conduct EXCEPT?

A. Terms of the engagement including the scope of the engagement with any limitations, the period services will be provided and responsibilities of the Client.
B. Disclosure of Economic Benefit for Referral or Engagement of Additional Persons.
C. How the CFP® professional and their firm are compensated for providing products and services.
D. A written agreement covering the specific obligations and responsibilities of each party.

Answer 16

Solution: The correct answer is D.

Robert’s obligations of disclosure to Jack require (Obligations to clients 10) disclosing answers B and C. As the engagement will require a discussion of client goals and working to meet those goals this is a financial planning engagement. As such any limitations, end date and a scope of engagement must be provided.

*Key above is that terms of the engagement requires only the clients responsibilities to be listed, NOT the CFP professional. That is why D is wrong.

Question 17

Engagement Letter contains:

Answer 17

A description of the mutually agreed upon services.
The time horizon for the work to be completed.
A description of the fees and costs.
The obligation and responsibilities of each party such as:
Who is expected to implement which elements of the plan (this can be subject to revision at the implementation
phase of the process).
Defining who has monitoring responsibilities.
Understanding concerning the use of proprietary products and/or other professionals or entities during the financial planning process or implementation.
Delineating services that are not provided, such as legal documents or income, gift, or estate tax return preparation.

An engagement letter is not required to satisfy a CFP® professional’s Duty to Provide Information under the Code and Standards. However, a CFP® professional providing financial planning must provide the required information in one or more documents.

Question 18

Code of Ethics and Standards of Conduct

Question 19

How to correctly use CFP marks

Answer 19

Question 20

Review Thoroughly Duties Owed to Clients https://www.cfp.net/ethics/compliance-resources/2020/09/duties-owed-to-clients

Question 21

Jennifer recently applied for CFP® Certification. Which of the following would “always” bar her from certification?

A. Felony conviction of tax fraud or other tax-related crimes.
B. One personal or business bankruptcy within the last five years.
C. Suspension of a professional license.
D. Felony conviction for non-violent crimes within the last five years.

Answer 21

Solution: The correct answer is A.

Answers “B,” “C,” and “D” are on the “presumed” to be unacceptable list. Choice “A” is on the “always” bar list.

Question 22

Arrange the following financial planning steps into the proper sequence in which these functions are performed by a CFP® professional:

I. Understanding The Client’s Personal and Financial Circumstances
II. Presenting the Financial Planning Recommendation(s)
III. Analyzing the Client’s Current Course of Action and Potential Alternative Course(s) of Action
IV. Developing the Financial Planning Recommendation(s)
V. Identifying and Selecting Goals

A. I, III, V, IV and then II.
B. V, I, III, II and then IV.
C. I, V, IV, III and then II.
D. I, V, III, IV and then II.

Answer 22

Solution: The correct answer is D.

The proper sequence of practice standard steps is to – Understanding The Client’s Personal and Financial Circumstances, Identifying and Selecting Goals, Analyzing the Client’s Current Course of Action and Potential Alternative Course(s) of Action, Developing the Financial Planning Recommendation(s), Presenting the Financial Planning Recommendation(s), Implementing the Financial Planning Recommendation(s), Monitoring Progress and Updating

Question 23

Which of the following information must be provided to a client before or upon engaging with a CFP® professional?

a. Providing the client with a list of ten existing clients for references.
b. Verbally outlining the confidentiality processes followed at the CFP® professional’s firm.
c. Existence of any bankruptcy, public discipline and locations of any Self Regulatory Organization (SRO) or government websites where the CFP® professional is a control person.
D. Existence of any bankruptcy, public discipline and locations of any Self Regulatory Organization (SRO) or government websites about the CFP® professional’s employer, custodian or Broker/Dealer.

Answer 23

Solution: The correct answer is C.

A CFP® professional must provide information to clients (Duties owed to clients 10) including Existence of any bankruptcy, public discipline and locations of any Self Regulatory Organization (SRO) or government websites where the CFP® professional is a control person. A is incorrect. References are not required. B is incorrect. Verbally discussing confidentiality is not allowed, processes must be in writing. D is incorrect. A CFP® does not need to inform a client about infractions of their firm, unless those infractions create a material conflict of interest

The Confidentiality and Privacy standard requires adoption and implementation of policies regarding the protection, handling, and sharing of a Client’s non-public personal information and written notice to Clients of those policies. These steps and policies for protecting a Client’s non-public personal information may be implemented either directly by the CFP® professional or through the CFP® Professional’s Firm. AKA need to provide privacy policy

Question 24

True/False: Privacy Policy must always be provided in writing in both Financial Advice Situations or Financial Planning situations?

Answer 24

True

Question 25

Price-Earnings Ratio

Answer 25

Price per share / EPS
OR Price per share = PE x EPS

Question 26

PEG Ratio

Answer 26

PEG Ratio = Stocks PE Ratio / 3 -5 Yr. GRowth Rate in Earnings

-used to determine if the stock’s P/E ratio is keeping pace with the firm’s grwoth rate
PEG Ratio of 1 suggests stock is fairly valued because the PE ratio is in line with the grwoth rate
greater than 1 suggeest fully priced or even overvalued
less than 1 = undervalued

Question 27

book value

Answer 27

• represents the amount of shareholder’s equity in the firm or how much the companies shareholders would receive if the firm was liquidated

Question 28

Dividend Payout Ratio

Answer 28

-amount of earnings paid to shareholders in the form of a dividend relative to EPS

Formula = stock dividend/EPS

The higher the dividend payour ratio, the more mature the company

*formula not on CFP Exam sheet

Question 29

Return on Equity (ROE)

Answer 29

ROE = EPS/SE per share

measures the overall profitability of a company
*Formula not on CFP sheet
Pg. 72 of pre study book

Question 30

Dividend Yield

Answer 30

= annual dividends/stock price

Question 31

Dollar Cost Averaging

Answer 31

-allows an investor to invest the same dollar amount on a periodic basis (typically monthly)

Question 32

Fundamental Aalyiss

Answer 32

the process of conduction ratio analyos n the balance sheet and CF of a coompanyt to determing future financial performance and a forecasted stock price

Question 33

Technical Analsysi

Answer 33

process of charting and pl otting a stock’s trading volume

does not involve ratio analysis

beleief that supply and demand drive stock price

Question 34

Efficient Market Hypothesis

Answer 34

• investors cannot consistently achieve above-average market returns
• prices reflect all info that is available and will change very quickly to new info
• stocks follow a “random walk”
• believe that a passive investment style such as “buy and hold”

Random Walk Theory: - behavior of stock prices resembles a random walk.

Prices of stocks are unpredictable but Not arbitarry

Question 35

Three Form of EMH

Answer 35

1. Weak Form

• historical info will NOT help investors achive above avg. returns
• rejects technical analysis and asserts fundamental analysis is best
• security prices reflect all price and volume data
• in direct contradiction with technical analysis
• • • • 2) SEmi-Strong Form
• both historical and public info will not help acehieve abive avg. returns
• rejects both technical and fundamental anslsysi but inside info will lead to above avg. returns

3) Strong Form

• historical, public and private info will NOT help achieve above avg. returns
• suggests that stock prices reflect all available info and react immediately to any new info

Question 36

January Effect

Answer 36

January tends to be a better month because tax loss sellings end and people get back into the mkt.

Question 37

Small Firm Effect

Answer 37

small caps tend to outperform large caps

Question 38

Value line Effect

Answer 38

stocks that receive VL’s hihgest ranking outperofrm the lowest ranking ones

Question 39

P/E Effect

Answer 39

stocks with a low P/E tend to outperform those with a high PE

Question 40

Active Investment Strategy

Answer 40

-believes that markets are inefficient

belives that investors can achieve above avg. returns by active investing and market timing

Question 41

Strategic Asset ALlocaiton vs Tactical

Answer 41

• Strategic Asset Allocation
• strategy that involves assessing the likely outcomes for various allocation mixes between asset classes
• done every few years
• is an ACTIVE allocation strategy

Tactical Asset Allocation

• active allocation strategy whereby the investors determining expected return for for asset classes and then rebalances the portfolio to take advantage of the expected return
• is performed frequently
• remember: tactical = rebalical

See Pg. 7

Question 42

US Treasury Securities

Answer 42

All US Treasuries are nontaxable at the state and local level

NonMarketable US Treasury Issues are EE Bonds, Series HH Bonds, and I Bonds

Marketable US Treasury Issues

Remember Bil’N’Bo

Bills - have maturities less than 1 yr. (do not pay interest, but the mature at par value)

Notes - maturities between 2 and 10 years. Int paid semi annually

Bonds - maturity greater than 10 yrs. Int. Paid semi annually

All bills, notes and bonds are sold in denomination of $100 or more.

Treasuries are sold on an “auction” with lowest yield winning the auction

Question 43

Original Issue Dicsount (OID) Bond

Answer 43

-OID is a bond issued at a discount from par value

Ex: zero coupon bond that is sold at a deep discount to par value. A $1K par value zero coupon bond may sell for $600. THe bond will then increase in value ove the term of the bond until it matures at par.

*Zero coupon bond holders must recognize int. income every year, even though no int is rec’d. AKA “phantom income”/imputed income

Question 44

TIPS

Answer 44

• provide inflation and purchasing power protection
• the principal adjusts for inflation and then the coupon is applied to the new principal amount
• the coupon rate DOES NOT change

Question 45

Agency bonds are moral obligations of the U.S. government but are not backed by the full faith and credit of the US Govt.

What are some examples?

Answer 45

Fannie Mae, Freddit mAC, sALLIEmae, MBs

Note Exception: GNMAs (Ginnie mae) are a direct obligation of the govt and backed by full faith and credit of u.s. govt

Biggest risk with MBS is interest rates falling becasue that would cause people to re0finance and retire the debt early.

Question 46

Corporate Bonds

Answer 46

1)Secured Bonds

• MBS
• MBS are backed by a pool of mortgages
• Payments are both int. and princ
• Biggest risk to hodlers is prepayment risk
• Collateral Trust Bonds
• -backed by an asset owned by the company issuing the bonds (like cc debt)
• Asset is held in trust by a third party

2) Collaterizled Mortgage Obligiation (CMO)

• investors are divided into tranches which determine which investors will receive prin payments
• Investors from the pool of mortgagees is distrusted pro-rat and prin repayments are used to retire trances sequentially (A-Z)
• -investors in the short-term tranche receive prin repayment before the intermediate and LT Tranche
• meant to mitigate against pre-payment risk associated with MBS

3) Unsecured Corp Bonds

Debentures -unsecured debt not backed by an asset. Backed by belief of creditworthiness of company/govt

Subordinated debentures - have a lower claim on assets than other secured debt. Have more risk b/c of that

Income Bonds - stipulate that int. is paid only when a specific level of income is attained

Question 47

Bonds Raitings Agencies

Answer 47

the higher the ratingt the lower the yield

rating agnecies analyze a firm’s liqudity, total amount of debt, and earnings/stablility of those earnigns

Moody’s AAa- Baa are investment quality. Ba and below are junk

Standard and Poor: AAA-BBB are investment quality. BB and below are junk

Question 48

Guranteed Investment Contract (GIC)

Answer 48

-issued by insurance companies with a guaranteed rate of return

insurance company agrees to repay the prin and granted rate for a period f time

Yield is higher than treasuries

Question 49

Muni Bonds

Answer 49

Not taxed at federal level and not taxed at state and local level if you live in the issuing state/municiapl

Thre TYypes

General Obligaiton - backed by FFC of the taxing authorityh of the municipal issuing the bond

Revenue bond - backed by the revenue of a specific project. NOT backed by FFC of taxing authority

Private Activity bonds- used to financne construction of stadiums

Insured Muni bOnds= AMBAC and MBIA.

Question 50

Fixed Income Risks

Answer 50

Corporate Bond Risk

• default risk
• reinvestment rate risk
• interest rate risk
• purchasing power risk

US Govt Bond Risks

• reinvestment risk
• interest rate risk
• purchasing power risk

(U.S. govt bonds are not subject to default risk)

Question 51

Which of the following statements about the selected industry relative to its regulatory body and the relationship between the two are true?

1. The insurance industry is primarily regulated by each of the 50 states.
2. The majority of banks are subject to federal regulation by the Federal Reserve System and the Federal Deposit Insurance Corporation.
3. Pension plan funds are primarily subject to federal regulation.
4. The organized stock exchanges, such as the New York Stock Exchange, are primarily regulated by the federal government.

Answer 51

Ansewer: ALL ARE TRUE

Option “III” - Pension funds are governed by PBGC (also known as the Pension Benefit Guarantee Corporation) and ERISA (also known as the Employees Retirement Income Security Act) rules as to reporting and requirements on the federal level. Option “IV” - Organized stock exchanges are regulated by the U.S. Government agency, the Securities Exchange Commission (SEC).

Question 52

Hannah currently has $715,000 saved. She will retire in 10 years and wants to take $100,000 income for 25 years at the beginning of each year. She also wishes to have $1,000,000 35 years from now to leave to her heirs. What is the internal rate of return needed to accomplish this?

A, 6.99%

B. 7.09%

C. 7.13%

D. 7.26%

Answer 52

Solution: The correct answer is B.

Income needs to begin at the beginning of year 10, make end of year 9 the last year of inactivity. The 1,000,000 is entered separately as it is not part of the retirement income stream. If you are struggling with the cashflow methodology, watch the pre-recorded lecture on retirement and education funding methodology. Creating a timeline is helpful also.

10BII and 10BII+ (zeros were truncated to speed up calculation)

715 +/-CF

0 CF

9 [OS] Nj [OS] means Orange Shift

100 Cf

25 [OS] Nj

1000 CF

[OS] IRR/YR

Question 53

For a CFP^® certificant working with a client in just a single core subject area, could the engagement rise to the level of financial planning or otherwise require the CFP® professional to apply practice standards?

A. No, financial planning requires a comprehensive plan integrating at least three of the core subject areas.

B. No, financial planning requires a client engagement involving all six core subject areas.

C. Yes, if the Client has a reasonable basis to believe the CFP® professional will provide or has provided Financial Planning.

D. Yes, working in any core subject area automatically elevates a client engagement to that of financial planning.

Answer 53

Solution: The correct answer is C.

B.3.a of the Practice Standards states that if a client has a reasonable to belief the CFP® professional will provide planning, the CFP® professional must follow the practice standards.

Question 54

A young couple wants to save for their child’s college education. What does the financial planner need to disclose to them during their engagement?

1. How the client pays for products, services and additional incurred costs including surrender charges and sales loads.
2. A written description of conflicts of interest along with a written confidentiality statement.
3. Future investments or mutual funds
4. List of client references.

Answer 54

Solution: The correct answer is A.

A is the best answer. A CFP® professional must provide clients with information about how a client pays for services when providing financial advice or planning. B is incorrect, a written description conflicts of interest is not required. C is incorrect a list of assets is likely unknown prior to engaging in the financial planning process. D is incorrect and not required.

Question 55

Salina, a CFP® professional, agreed to prepare a financial plan for Rodriquez, who was 85 years old at the time. Salina did not prepare the financial plan. Salina requested and received from Rodriquez a $1,000 loan. Salina recommended that Rodriquez invest $75,000 in a viatical settlement agreement investment. The amount comprised approximately two-thirds of Rodriquez’s life savings and was estimated to lead to a profit in five years. Rodriquez filed a grievance with the CFP Board.

According to the securities regulator in the state where Salina provided services (“State”), only a licensed broker-dealer is authorized to sell viaticals in the State. Salina was not licensed as a broker or dealer in the State. Salina did not respond in a timely manner to the following communications by CFP Board: 1) a Notice of Investigation; 2) a Second Request Letter; 3) a telephone call; 4) an Order to Show Cause; and 5) CFP Board’s Complaint.

In a telephone conversation with CFP Board, Rodriquez informed CFP Board that Salina was aware of CFP Board’s investigation and had asked him to withdraw his grievance. According to the CFP Board’s disciplinary procedures, which of the following is the most likely result of Salina’s conduct?

1. The Board would not likely take action unless a conviction on a State securities regulation occurred.
2. A Public Censure until such time as there was a conviction on a State securities regulation.
3. A suspension of at least one year based upon Salina’s recommendation of an unregistered investment product to the 85-year-old Client that involved two-thirds of the Client’s life savings and a five-year period of maturity.
4. A revocation of Salina’s right to use the CFP® marks since she failed to respond to the Board’s inquiries.

Answer 55

Solution: The correct answer is D.

The following answers are taken from pre-June 2020 rule changes but reflect the outcome of an actual disciplinary case. The Commission deemed that the above facts and violations be admitted because Respondent did not file an Answer to the Complaint. The Commission issued an Order of Revocation pursuant to Article 7.4 of the Disciplinary Rules, revoking Respondent’s right to use the CFP® marks, CERTIFIED FINANCIAL PLANNER™ and certification marks. A is false since the Board may act upon violations of the Code of Ethics whether or not a legal conviction has occurred. B is false because failure to respond to the Board’s inquiries regarding serious violations of the Code results in revocation. C might have been a valid answer had Salina responded to the Board’s inquiries. After June 2020 rule changes, the outcome of the case would likely have been similar for the CFP® professional. Salina did not act as a fiduciary, required when selling a financial asset. Salina did not act with integrity, competence, manage conflicts of interest or comply with the law.

Question 56

What is the first point during a client relationship that a CFP^® professional must disclose conflicts of interest?

1. When coordinating the financial planning recommendations with other professionals
2. During the client data-gathering process
3. At the initiation of the client relationship, before providing services
4. Upon presenting financial planning recommendations

Answer 56

Solution: The correct answer is C

Question 57

Which of the following is necessary for a certificant to disclose to a client if providing financial planning?

1. That you own 50% of a corporation.
2. Your secondary education.
3. The IRS has a lien on your personal property.
4. An active FINRA license suspension.

Answer 57

Solution: The correct answer is D.

D is the best answer. A CFP® professional must disclose significant information to a client prior or when engaging in a financial planning relationship. This includes compensation information, how a client pays, disclosing conflicts of interest and Existence of any public discipline and locations of any Self Regulatory Organization (SRO) or government websites where the CFP® professional is a control person. A license suspension is an example of public discipline.

Question 58

Question

A CFP® professional is a Registered Investment Advisor, managing $120,000,000 in assets. One of the CFP® professional’s clients sends a complaint letter to the CFP® professional, complaining that certain trades were not properly executed. During the investigation, it is discovered that the client never received the firm’s Form ADV. Which governing body has ultimate authority over lack of regulatory disclosure for this matter (CFP® Certification Examination, released 8/2012)?

1. FINRA
2. CFP Board
3. The firms’ compliance department
4. SEC

Answer 58

Solution: The correct answer is D.

The SEC regulates form ADV.

A is incorrect because FINRA does not regulate form ADV, the SEC does.

B is incorrect because the CFP Board does not regulate form ADV, the SEC does.

C is incorrect because the firm’s compliance department does not regulate form ADV, the SEC does.

Question 59

Which of the following are included in the first step of the financial planning process (Understanding The Client’s Personal and Financial Circumstances )

1. Identifying Potential Goals
2. Obtaining Qualitative and Quantitative Information.
3. Analyzing Information
4. Addressing Incomplete Information
5. II, III and IV only.
6. I, II and IV only.
7. II and IV only.
8. I, II, III and IV

Answer 59

Solution: The correct answer is A.

Elements II, III and IV are required in the first step of the financial planning process. Step 1 included analyzing information, not to be confused with Step 3, Analyzing the Client’s Current Course of Action. Element I – Identifying Potential Goals, should occur in the second step of the planning process (Identifying and Selecting Goals).

Question 60

A client is involved in a potentially litigious matter and asks to confide legally sensitive information to a CFP® professional under the protection of advisor-client privilege. This information may affect another one of the CFP® professional’s clients, who happens to be a business partner of the first client. How should the CFP® professional respond to this situation (CFP® Certification Examination, released 8/2012)?

1. Ensure that the client signs the required Privacy Policy before having any discussions.
2. Caution the client that there is no such thing as advisor-client privilege.
3. Document the information and, as required by CFP Board’s fiduciary standard, debrief the second client on the details that pertain to her.
4. Document the information as required by CFP Board’s Rule on Reciprocal Disclosure.

Answer 60

Solution: The correct answer is B.

A CFP® Professional’s duties to clients, confidentiality and privacy (rule 9) provides examples of when a CFP® may be compelled to share information without the active consent of the client including a civil, criminal, exam, subpoena or summons. The CFP® may be pulled into a civil disclosure and should share as much at the onset of a relationship.

A is incorrect because a CFP® professional will be required to disclose information that may impact another client or disengage the client.

C is incorrect because debriefing the second client would not be in the best interest of the first client.

D is incorrect because there is no such rule as Reciprocal Disclosure.

Question 61

After analyzing and evaluating the client’s information to understand financial circumstances, an evaluation should be made to determine the client’s goals, relevant personal, and economic assumptions. By undertaking this task in a responsible prompt and thorough manner, a practitioner is adhering to which of the following Code of Ethics Principles?

1. A.Diligence.
2. B.Integrity.
3. C.Competence
4. D.Upholding a fiduciary duty

Answer 61

Solution: The correct answer is A.

The best answer is A. Duties owed to clients (4) requires that a CFP® professional must provide services in a timely and thorough manner. Integrity, competence and upholding a fiduciary reflect the nature, appropriateness and scope of advice provided.

Question 62

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?

1. Cheryl must disclose in writing to her clients that although she is a CFP® professionals, her firm requires her to use the suitability standard and not the duty of a fiduciary.
2. By complying with the attorney’s request and removing the marks from all marketing materials, then Cheryl will no longer hold herself out as a CFP® professional, she must only provide clients with a suitability duty of care.
3. 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 Standards of Professional Conduct and she still owes the duty of care of a fiduciary.
4. As long as Cheryl removes the marks from all business cards, stationary, brochures, websites and does not hold her self out to the public as a CFP® professional, she is not professionally bound by the CFP Board’s Standards of Professional Conduct.

Answer 62

Solution: The correct answer is 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 63

All of the following are part of the Code of Ethics except:

1. A certificant shall refrain from borrowing or lending money and commingling financial assets.
2. A certificant shall act in the client’s best interest.
3. A certificant shall not engage in conduct, which reflects adversely on his integrity or fitness as a certificant.
4. A certificant shall exercise Due Care.

Answer 63

Solution: The correct answer is A.

A certificant shall not borrow or commingle funds as stated under the Standards of Conduct. The question was asking about the Code of Ethics.
B, C and D are all in the Code of Ethics.

Question 64

Ronald, a CFP® professional, has been invested in real estate rental properties for the past 15 years. Unfortunately, many of his properties have declined in value significantly and he has been unable to rent the properties. Four years ago, Ronald was forced into personal bankruptcy, due to his real estate investments. What is a likely action of the CFP Board, as a result of Ronald’s personal bankruptcy filing?

1. Include Ronald’s name in a news release with other CFP® professionals that have filed bankruptcy within the past 7 years.
2. The CFP Board reviews bankruptcies prior to certification, through the Candidate Fitness Standards. Therefore, there will be no further action by the CFP Board since Ronald is already certified.
3. CFP Board disciplinary actions will consider if the bankruptcy was a result of Roland’s inability to manage his personal finances.
4. Immediate suspension of the CFP® marks for one year and one day.

Answer 64

Solution: The correct answer C.

CFP Board will consider the bankruptcy. Roland can provide a rebuttal along with his disclosure showing the bankruptcy does not demonstrate an inability to manage responsibly the CFP® professional’s or the business’s financial affairs. A and D are incorrect CFP Board does not make immediate bankruptcy related decisions. B is incorrect active CFP® certificants must report control bankruptcies and may be subject to discipline.

Question 65

All of the following are part of the Code of Ethics except:

1. A certificant shall refrain from borrowing or lending money and commingling financial assets.
2. A certificant shall act in the client’s best interest.
3. A certificant shall not engage in conduct, which reflects adversely on his integrity or fitness as a certificant.
4. A certificant shall exercise Due Care.

Answer 65

Solution: The correct answer is A.

A certificant shall not borrow or commingle funds as stated under the Standards of Conduct. The question was asking about the Code of Ethics.
B, C and D are all in the Code of Ethics.

Question 66

A CFP^® professional’s client, Jim, was previously married and had 2 children. He set up an irrevocable trust for those two children, naming his brother Harry as the trustee. Jim remarries a woman named Laura who has no children. Laura comes into the CFP^® professional’s office saying that Jim is concerned about losing money in the trust due to the recent drop in the market, so he wants to change some things. What should the professional do?

1. Provide her with the trading forms that will require Jim’s signatures, allowing her to make the changes requested.
2. Tell her that because she is not the trustee, she is not authorized to make any charges.
3. Tell her that he will contact Harry, the trustee, and let him handle it.
4. Contact Jim to discuss the meeting with Laura.

Answer 66

Solution: The correct answer is D.

The CFP^® Professional owes a duty to the client, who is Jim. The Code of Ethics require the CFP^® Professional to discuss Jim’s concerns with Jim, not Laura. In addition, the conversation with Jim needs to address that Jim does not have control over the trust assets, the trustee does.

A is incorrect because Jim is the client and the planner owes the duty of a fiduciary and confidentiality to Jim since Laura is not the client.

B while true, the CFP^® Professional should first tell Laura that Jim is the client and Jim should discuss his concerns, because the CFP® professional may only speak to the client about the trust.

C is incorrect because the CFP® professional must talk to the client about the trust, not Laura or Harry, unless Harry instructs the CFP® professional differently.

Question 67

A client complained about a CFP® professional because he took too long to do something and the client lost 10% of his investment in a stock. Who does the CFP® professional have to report this complaint to?

1. CFP Board
2. FINRA
3. His manager
4. The Securities and Exchange Commission

Answer 67

Solution: The correct answer is C.

The manager should be notified and the firm will take appropriate steps to resolve the issue with the client, typically either through arbitration or negotiations.

A is incorrect because the CFP Board must be notified when a CFP® Professional is charged, convicted or named in criminal, civil or regulatory action including the suspension of a professional license.

B is incorrect because FINRA must be notified if there is a violation of securities law.

D is incorrect because the SEC must be notified if there is a violation of securities law.

Question 68

A local businessperson approaches a CFP® practitioner for assistance with an investment-related tax problem. The client’s previous tax preparer had suggested the purchase of a variety of tax-advantaged investments to reduce the client’s current and future tax burden. Time passed, the client’s income dropped, and the tax laws changed. The client does NOT feel the tax preparer misrepresented the situation on the initial sale, but would still like to know what recourse is available with respect to the tax preparer. The CFP® practitioner should:

1. Explain to the client that this issue is beyond the scope of the CFP® practitioner’s professional expertise.
2. Advise the client that NO recourse is available.
3. Advise the client to contact an attorney.
4. Contact the tax preparer.
5. IV only.
6. I and III only.
7. II and IV only.
8. I, II and III only.

Answer 68

Solution: The correct answer is B.

This problem does not deal with another CFP® practitioner, thus the CFP® practitioner must advise that this situation goes beyond the scope of the CFP Board. Though there may be recourse, it is not within the CFP® practitioner domain to advise such or contact the former tax preparer. The client may wish to contact an attorney for further advice.

Question 69

John, a CFP® professional, raises his compensation charged for assets under management by 50 basis points, does John have to inform his clients?

1. Yes, he must disclose the change in compensation within 10 days.
2. Yes, he must timely disclose the change in compensation.
3. Yes, he must immediately disclose the change in compensation.
4. Yes, he must disclose the change in compensation within 45 days.

Answer 69

Solution: The correct answer is B.

According to the CFP Board Code and Standards, the certificant shall timely disclose to the client any material changes to compensation.

A is incorrect because there is not a 10 day requirement.

C is incorrect because “immediately” is not required, not defined in the code of ethics.

D is incorrect because there is not a 45 day requirement.

Question 70

Which of the following are necessary inputs to determine a client’s goals?

1. Client’s attitude
2. Clients values
3. Client’s current income
4. Client’s expectations of the future
5. I and II only.
6. II, III, and IV only.
7. I, II and IV only.
8. I, II and III only.

Answer 70

Solution: The correct answer is C.

A client’s attitudes, values, expectations, and time horizon are all necessary to determine financial goals, needs, and priorities. Income will come in as part of the analysis phase; can (and how) they meet they their goals and needs? A wealthy couple may want their child to fund their own education to learn the value of money and education. Their goal has little to do with their income level.

Choice A is incorrect because it is lacking the client’s expectations.

Choice B is incorrect because using a client’s current income is not a variable for determining goals and it is missing the client’s attitude.

Choice D is incorrect because using the client’s current income is not a variable for determining goals and it is missing the client’s expectations.

Question 71

Ralph, a CFP® professional and independent registered investment adviser, has been working with his new client Jack over the last few months. He has completed all required disclosures and provided all information required for a financial planning engagement. Jack is 32, married, and has 3 children. Ralph discussed Jack’s insurance coverage following a thorough review of Jack’s policies and recommended Jack purchase a disability policy, additional term life insurance through his employer and a personal liability umbrella policy. Ralph also performed a retirement needs analysis and developed an investment plan he believes will help Jack achieve his goals. While presenting the retirement and investment plan, Jack mentioned that he was rejected for the life insurance for medical reasons that he does not wish to discuss with Ralph. To comply with the Practice Standards of the Code of Ethics and Professional Conduct Ralph must:

1. Gather appropriate information from Jack’s spouse to determine if Jack’s condition may affect the retirement and investment plan.
2. Inform Jack that without more information on his medical condition Ralph will not be able to properly address his situation and he would have to restrict the scope of the engagement to the already completed insurance review.
3. Inform Jack that without more information on his medical condition Ralph will not be able to properly address his situation and he would have to restrict the scope of the engagement to the already completed insurance review and retirement and investment analyses.
4. Inform Jack in writing that his medical condition could affect Ralph’s conclusions and recommendations.

Answer 71

Solution: The correct answer B.

B is the best answer. Ralph should encourage the client to share the cause of the rejection as a terminal issue would drastically change planning. Health and longevity are factors in retirement planning. It would also need to be taken into account in investment selection. Time horizons factor into asset selection. The planner would need to understand the health issue to appropriately allocate cash and investments with appropriate timelines.

Ralph is then required (Under element six of Financial Planning and the Application of Practice Standards for The Financial Planning Process) to not enter into an engagement, terminate the engagement, limit the scope of engagement or limit services provided to the client.

Question 72

For a CFP^® certificant working with a client in just a single core subject area, could the engagement rise to the level of financial planning or otherwise require the CFP® professional to apply practice standards?

1. No, financial planning requires a comprehensive plan integrating at least three of the core subject areas.
2. No, financial planning requires a client engagement involving all six core subject areas.
3. Yes, if the Client has a reasonable basis to believe the CFP® professional will provide or has provided Financial Planning.
4. Yes, working in any core subject area automatically elevates a client engagement to that of financial planning.

Answer 72

Solution: The correct answer is C.

B.3.a of the Practice Standards states that if a client has a reasonable to belief the CFP® professional will provide planning, the CFP® professional must follow the practice standards.

Question 73

Bob is a CFP® professional and has entered into a signed engagement letter to provide a limited scope of engagement for financial planning to a client. Once Bob has made the insurance and investment recommendations, the client chose another planner for implementation of Bob’s plan. Six months after Bob provided a client with his recommendations, the client approached Bob about purchasing life insurance, which was one of the recommendations in his plan. Is Bob still engaged with the client?

1. No, the engagement letter limited the scope of the services to be provided. Bob is no longer engaged in the financial planning process with the client. Bob is now selling product beyond the scope of the engagement.
2. Yes, Bob is still engaged with the client because Bob previously established a professional relationship and is now providing implementation services to the client by selling life insurance.
3. No, a planner is not engaged with a client when only selling a single product. The planner would be engaged if applying multiple steps in the financial planning process.
4. Yes, because he provided financial advice and is considered engaged with a client.

Answer 73

Solution: The correct answer is B.

According to the Code of Ethics and Standards of Conduct Bob is able to limit a scope and duration of engagement. Bob is required to follow through with the initial client recommendation unless the scope of engagement specifically relieves Bob of this obligation. A is not correct, Bob must state up front he will not be assisting with an insurance purchase. C is not correct Bob is engaged in financial planning. D is incorrect financial advice does not always constitute a financial planning engagement.

Question 74

The CFP Board Code of Ethics and Standards of Conduct prohibits a CFP® professional from doing which of the following activities?

1. Commingling client funds with funds of the financial planning firm.
2. Misleading a client.
3. Receiving referral fees from a qualified attorney.
4. Using the initials RIA after his or her name.
5. I and II only.
6. I and IV only.
7. II and III only.
8. I, II, and IV only.

Answer 74

Solution: The correct answer is D.

Commingling is prohibited, Duties Owed to Clients (15b). A CFP® professional is prohibited from misleading a client or act without integrity (Duties Owed to Clients 2). A CFP® professional is not prohibited from receiving a referral fee, though they will need to disclose the fee when performing financial planning and potentially when selling financial assets. A CFP® professional may not (8 b) intentionally or recklessly participate or assist in violation of these standards or the laws, rules and regulations governing professional services. D is a prohibited activity because RIA is not a certfication or designation and cannot be used to imply it is. A CFP^®professional must comply with the laws, rules, and regulations governing Professional Services.

Question 75

Sean, a CFP® professional, and Alice worked together at Big Money Advisory Firm. After Alice was terminated by the firm, she asked Sean to retrieve some of her files to provide Alice access to her personal records. Alice’s clients had not given permission for their information to be shared with Sean. Sean removed Alice’s files from the office without the knowledge or permission of Big Money’s owner. According to Big Money’s owner, the files at issue were client files that, as the broker of record, the firm was required to retain for seven to ten years. Sean was terminated when Big Money’s owner discovered the files were missing. According to the Code of Ethics, which of the following statements are true?

1. No violation of the Code of Ethics occurred since Alice was not a CFP® professional and no client information was disclosed to a third party by Sean.
2. Sean violated the Duty of Confidentiality and privacy owed to Alice’s clients.
3. Sean violated Duties owed to his firm (2) by not Complying with Lawful Objectives of CFP® Professional’s Firm
4. Big Money Advisory Firm violated the Duty of Confidentiality and privacy owed to Alice’s clients.

Answer 75

Solution: The correct answer is C.

The following answers are taken from pre-October 2019 rule changes but reflect the outcome of an actual disciplinary case. The Commission determined that by removing confidential client files without first obtaining the permission of the client or Sean’s employer, Sean violated the confidentiality agreement of his employer. The Commission issued a Private Censure to Respondent and directed Respondent to complete five hours of continuing education in Ethics, in addition to the two hours in Ethics required to maintain his certification. The Commission considered as a mitigating factor that Respondent acted upon a reasonable request by a colleague to retrieve her personal files. A is false since the issue wasn’t the disclosure of client information, but the violation of a certificant’s legal obligation to his employer. B is false because Sean did not disclose client information. D is false because the CFP Board certifies individuals, not firms, and imposes no obligations upon firms.

After October, 2019 rule changes the outcome of the case would likely have been similar for the CFP® professional. Sean is required to comply with lawful objectives and following the policies and procedures of his firm (Duties owed to Firms and Subordinates 2. b.)

Answer 76

Which of the following is not an integrating factor CFP Board will consider in determining if a CFP^® professional has engaged in financial planning with a client?

1. The number of relevant elements of the Client’s personal and financial circumstances that the Financial Advice may affect.
2. The net worth and income of the client and how those may be affected by the Financial Advice.
3. The length of time the Client’s personal and financial circumstances may be affected by the Financial Advice.
4. The portion and amount of the Client’s Financial Assets that the Financial Advice may affect.

Solution: The correct answer is B.

A, C and D are integration factors provided by CFP Board’s Financial Planning and the Application of Practice Standards for The Financial Planning Process (4 a, b and c).

Question 77

Within what period must conflicts arising during the course of a client engagement be disclosed to the client by a CFP^® professional?

1. 30 days
2. 21 days
3. 10 days
4. When engaging a client or diligently as conflicts emerge

Answer 77

Solution: The correct answer is D.

Duties to clients (5 b.) Manage Conflicts of Interest A CFP® professional must establish business practices that prevent compromising a CFP® professional’s ability to mitigate conflicts.

Question 78

George is a CFP® professional who is appointed with a large federally covered adviser that is also a mutual insurance company. George is limited to selling a suite of proprietary mutual funds whose costs are higher than other options offered by his competition. Which of the following principles of the Code of Ethics allows George to hold the CFP® designation and requires him to disclose his constraints with clients?

1. Act in a manner that reflects positively on the financial planning profession and CFP® certification
2. Maintain the confidentiality and protect the privacy of client information
3. Act with honesty, integrity, competence, and diligence
4. Avoid or disclose and manage conflicts of interest

Answer 78

Solution: The correct answer is D.

George’s constraints are a material conflict of interest which must be disclosed and managed.

Question 79

An anonymous informant filed a complaint against Jerry and another CFP® professional regarding Jerry’s involvement in a Securities and Exchange Commission (“SEC”) and state regulatory authority investigation. Jerry entered into a Letter of Acceptance, Waiver and Consent agreement (“AWC”) with Financial Industry Regulatory Authority, Inc. (“FINRA,” f/k/a National Association of Securities Dealers or “NASD”) regarding violations of NASD Rules 2110 (now FINRA 2010) and 3010 (now FINRA 3130). The AWC arose out of FINRA’s investigation of Jerry’s sale of shares in a private placement offering (“Offering”) conducted in 2004 pursuant to a private placement memorandum (“PPM”) that offered shares of Jerry’s company (“Company”). Jerry discovered inaccuracies in the financial projections set forth in the PPM but did not disclose the inaccuracies to the purchaser because he determined that the inaccuracies were not material. In the AWC, Jerry consented to paying a $20,000 fine and to a 15-day suspension by FINRA. According to the Code of Ethics and Standards of Conduct, which of the following statements are true:

1. Jerry is required to notify the CFP Board of the FINRA investigation within 30 days and outcome of the event within 30 days.
2. Jerry is not required to notify the CFP Board of the FINRA investigation or outcome.
3. Jerry is required to notify the CFP Board of the outcome of the FINRA investigation within 30 days , but not the initial investigation.
4. Jerry is not required to notify the CFP Board of the investigation or outcome, as the fine is under $50,000.

Answer 79

Solution: The correct answer A.

Duties to CFP Board require CFP® professionals to disclose FINRA investigations and outcomes other than an uncontested minor rule violation (under $2,500 award).

Question 80

A principal in your financial planning office, who is a CFP® professional, has been tried and convicted of securities fraud and malfeasance of funds by virtue of the fact that he commingled client funds with funds of the financial planning firm and with his own funds, as well. The CFP Board Code of Ethics prohibits a CFP® professional from doing such. As a result, which of the following is the CFP Board likely to undertake?

1. Private censure.
2. Public letter of admonition.
3. Revocation.
4. Temporary suspension of right to use the marks (up to 5 years).
5. The CFP Board has no jurisdiction in this case, as it is a matter for the SEC to determine.

Answer 80

Solution: The correct answer is C.

The Board could use suspension, but since it seems to be an offense that has been ongoing, and not an error or misjudgment, it is far more likely to go with the revocation in this case. The Board does have jurisdiction over its own, and the other options are simply too light for the level of offense.

Question 81

A CERTIFIED FINANCIAL PLANNER™ obtains a new client. During the fact-finding process, the CFP® professional discovers that the client’s previous advisor, also a CFP® professional, had filed several tax forms incorrectly with computational errors. The CFP® professional’s initial duty to the client should be which of the following:

1. Contacting the other financial planner.
2. Contacting the CFP Board.
3. Contacting the IRS.
4. Informing the client of the situation.

Answer 81

Solution: The correct answer is D.

Begin with the client and allow them the opportunity to decide what course of action they would like to pursue. A CFP® professional is not required to report the errors of a competing CFP® professional to CFP board.

Question 82

Which of the following is necessary for a certificant to disclose to a client if providing financial planning?

1. That you own 50% of a corporation.
2. Your secondary education.
3. The IRS has a lien on your personal property.
4. An active FINRA license suspension.

Answer 82

Solution: The correct answer is D.

D is the best answer. A CFP® professional must disclose significant information to a client prior or when engaging in a financial planning relationship. This includes compensation information, how a client pays, disclosing conflicts of interest and Existence of any public discipline and locations of any Self Regulatory Organization (SRO) or government websites where the CFP® professional is a control person. A license suspension is an example of public discipline.

Question 83

If a CFP^® professional works for an investment advisor that charges only fees for her professional activities and a party affiliated with the investment advisor receives sales based compensation, how must the CFP^® professional describe her method of compensation?

1. “I am a Salaried employee of the firm”
2. “Our firm is Fee only, and receives no sales related compensation”
3. “Our firm is Fee based, receiving fees and sales related compensation”
4. “Our firm receives Sales related compensation”

Answer 83

Solution: The correct answer is C.

Duties owed to clients (12) defines fee-based as a compensation type allowing client fees, commissions and sales charges. Fee-Based should not be used to mislead clients and imply a fee-only relationship.

a) May not use “Fee-Based” in a manner that suggest a CFP® Professional or their firm is “Fee-Only”.

b) Must clearly state a CFP® Professional or their firm can receive fees and commissions.

Question 84

What are the responsibilities of a CFP® professional who does not have a client agreement to engage in financial planning?

1. Perform transactional services for the client but do not receive any direct or indirect fee based compensation
2. Limit the Scope of Engagement to services that do not require application of the Practice Standards, and describe to the Client the services the Client requests that the CFP® professional will not be performing
3. Help the Client select and prioritize goals. The CFP® professional must discuss with the Client any goals the Client has selected that the CFP® professional believes are not realistic
4. A CFP® professional must present to the Client the selected recommendations and the information that was required to be considered when developing the recommendation(s).

Answer 84

Solution: The correct answer is B.

B is one of the options provided to a CFP® professional who does not have a client agreement to engage in financial planning. A is irrelevant, compensation models do not impact practice standards. C and D are practice standards, which are not required if a CFP® professional is not performing financial planning

Question 85

Which of the following are included in the first step of the financial planning process (Understanding The Client’s Personal and Financial Circumstances )

1. Identifying Potential Goals
2. Obtaining Qualitative and Quantitative Information.
3. Analyzing Information
4. Addressing Incomplete Information
5. II, III and IV only.
6. I, II and IV only.
7. II and IV only.
8. I, II, III and IV.

Answer 85

Solution: The correct answer is A.

Elements II, III and IV are required in the first step of the financial planning process. Step 1 included analyzing information, not to be confused with Step 3, Analyzing the Client’s Current Course of Action. Element I – Identifying Potential Goals, should occur in the second step of the planning process (Identifying and Selecting Goals).

Question 86

Which statement best fits the CFP Board Code of Ethics for CFP Board professionals and registrants?

CFP Board Code of Ethics are a means to avoid disciplinary action.

CFP Board Code of Ethics state a CFP® Professional must follow the practice standards if they are performing financial planning, but not when simply recommending or transacting financial assets.

CFP Board Code of Ethics are a guide to the personal financial planning process.

The code of ethics is not specifically defined, remains aspirational and leads to more detailed rules and obligations through the planning process.

Answer 86

Solution: The correct answer is D.

[The] Principles are general statements expressing the ethical and professional ideals certificants and registrants are expected to display in their professional activities. As such, the Principles are aspirational in character and provide a source of guidance for certificants and registrants.

Question 87

A new CFP® professional with not much experience is offered a rather lucrative engagement. He does not have experience in everything that needs to be done, but he is confident he can figure it out. What should he do?

1. He turns down the engagement even though he knows he will lose the money.
2. He takes the engagement, and when he needs help he asks for it and lets his client know when he’s asking for outside help.
3. He tells the client that part of the work is beyond the scope of his expertise and he will need help, but he lets the client decide if he wants to still use the CFP® professional.
4. He tells the client that it’s beyond his expertise and refers him to another CFP® professional.

Answer 87

Solution: The correct answer is C.

The Standards of Conduct require the CFP® professional to disclose any third parties that will be used during the engagement (Standard C.13.).

A is incorrect because the CFP® professional is required to disclose any information that may materially impact the client’s decision whether to use the CFP® professional or not. The CFP® professional is not required to completely disengage, but instead make disclosures to the client and bring experts into the engagement when necessary.

B is incorrect because the CFP® professional is required to make the disclosure about third parties and areas of expertise prior to entering a planning agreement.

D is incorrect because the CFP® professional is required to disclose any information that may materially impact the client’s decision whether to use the CFP® professional or not. The CFP® professional is not required to completely disengage, but instead make disclosures to the client and bring experts into the engagement when necessary.

Question 88

Which of the following is not a Conflict of Interest that must be disclosed?

1. The offering of proprietary products and Material limitations on the universe of products.
2. The CFP^® professional’s public disciplinary history.
3. The receipt of additional compensation when the Client increases the amount of assets under management.
4. Receipt of third-party payments for recommending products.

Answer 88

Solution: The correct answer is B.

Public disciplinary history must be disclosed to a Client when providing Financial Advice, but it is not an example of a Conflict of Interest.

Question 89

In engagements where financial planning services are to be provided, which of the following is not required to be provided to a client?

Disclosure of reasonable and customary fees paid for custodial services.

Any arrangement by which someone who is not the Client will compensate or provide some other material economic benefit to the CFP® professional, the CFP® Professional’s Firm, or a Related Party for the recommendation or Engagement.

How the client pays for products, services and additional incurred costs including surrender charges and sales loads.

Existence of any bankruptcy, public discipline and locations of any Self Regulatory Organization (SRO) or government websites where the CFP® professional is a control person.

Answer 89

Solution: The correct answer is A.

The answer is A. Duties owed to clients require disclosing referral benefits, how products will be paid for and existence of any bankruptcies. Reasonable and customary fees for custodial services are not sales based compensation (12.b.ii) and are not required to be specifically disclosed.

Question 90

What document must be disclosed in writing whether providing Financial Advice or providing Financial Planning?

1. The date and duration of the plan.
2. The Privacy Policy.
3. The names of each party involved.
4. The terms of terminating the agreement.

Answer 90

Solution: The correct answer is B.

According to the Standards of Conduct, the Privacy Policy is required to be in writing.

C and D are incorrect because these items may be disclosed in writing or orally for Financial Advice according to the Standards of Conduct

Question 91

Becca applied for CFP® Certification and was denied. Her prior conduct falls under the “presumed” list and she wants to appeal. All of the following are true regarding the review process EXCEPT:

1. She must submit a written petition for reconsideration to Professional Review staff and sign a form agreeing to CFP Board’s jurisdiction.
2. A fee will be charged to all candidates submitting a reconsideration request.
3. Staff will review the request to ensure the transgression falls within the “always” bar list.
4. She may appeal this decision to the Appeals Committee of the Board.

Answer 91

Solution: The correct answer is C.

All other statements are true. Staff will review the request to ensure the transgression falls within the “presumed” list. The “always” bar list cannot be petitioned unless the revocation of a license is vacated or a felony conviction is overturned.

Question 92

Bill is a CFP® professional with an insurance license and he received a call today from John, a prospective client. John was referred to Bill by one of Bill’s current clients. John explained that he and his wife recently had their first child and he would like to purchase a twenty-year term life insurance policy from you with a face value of one million dollars from a AA or higher rated insurer. According to the Code of Ethics, which of the following would be acceptable actions for Bill as a CFP® professional?

1. Gather sufficient information about the client to complete the application and execute the transaction after John signs a letter acknowledging the limited nature of the engagement.
2. Act as a fiduciary, complete the life insurance application and submit to underwriting after providing information about compensation, any potential conflicts of interest, contact information and any other material information about you and your firm.
3. The Code of Ethics require Bill to provide written information about his compensation, material conflicts of interest, contact information and any other material information about Bill and his firm to John.
4. Submit the client’s life insurance application to the underwriter and inform John that Bill can provide a comprehensive risk management plan that will reduce the client’s overall risk exposure for little to no increase in annual premiums.

Answer 92

Solution: The correct answer B.

B is the best answer. John is able to sell a financial product as a CFP® professional without engaging in financial planning. He owes Bill the duties to a client selling a financial asset including acting as a fiduciary (1. a. b. and c) as well as providing the client with information (10). A Is not the best answer a written scope of engagement is not required in this circumstance. This transaction is not financial planning and does not require integration. C is not the best answer material conflicts of interest do not need to be in writing. D is not the best answer, the CFP® professional is required to provide information and act as a fiduciary, making (B) a better option than (D).

Question 93

You receive a phone call from an individual you have NOT spoken with previously. The caller is excited, just having heard that a new mutual fund is positioned to deliver large gains in the coming year. The caller wishes to purchase shares of the fund through you. According to the Code of Ethics and standards of practice, which of the following would be acceptable actions for a CFP® professional?

1. Gather sufficient information about the client to establish a brokerage account and execute the transaction after the client signs a letter acknowledging the limited nature of the engagement.
2. Understanding The Client’s Personal and Financial Circumstances as well as Identifying and Selecting Goals before analyzing and making recommendations.
3. Gather sufficient information about the client to establish a brokerage account and execute the transaction only after providing written information about your compensation, potential conflicts of interest, contact information and any other material information about you and your firm.
4. Inform the potential client that although you are willing to execute the transaction, you are certain you could improve their risk portfolio and overall financial plan if they would engage you to undertake a comprehensive financial planning review.

Answer 93

Solution: The correct answer is B.

Selling a financial asset requires a CFP® professional to act with a duty of care and loyalty. Selling the shares will require an analysis of risk and financial goals, likely creating a situation where the CFP® professional is required to follow practice standards. The first practice standard is to understand client circumstances and selecting financial goals.

Question 94

Jennifer recently applied for CFP® Certification. Which of the following would “always” bar her from certification?

1. Felony conviction of tax fraud or other tax-related crimes.
2. One personal or business bankruptcy within the last five years.
3. Suspension of a professional license.
4. Felony conviction for non-violent crimes within the last five years.

Answer 94

Solution: The correct answer is A.

Answers “B,” “C,” and “D” are on the “presumed” to be unacceptable list. Choice “A” is on the “always” bar list

Question 95

What would likely rise to the standard of a material conflict of interest, and need to be disclosed by a CFP® professional?

1. A.That the CFP® professional recommended his personal accountant who gives the CFP® professional discounted accounting services.
2. B.The CFP® professional received an undisclosed fee for a referral to a municipal bond broker.
3. C.A client who is an attorney brought him a $50 fruit basket as a thank you for the referral.
4. D.The CFP® professional gave the name of his lawyer (also a high revenue client of the CFP® professional) to one of his clients who was wishing to divorce his wife.

Answer 95

Solution: The correct answer is D.

Referring one client to another is rife with potential conflicts of interest. Especially if both clients provide active revenue for the CFP® professional. A is not the best answer, a discounted accounting service is a conflict of interest but not likely material. B is incorrect a fee paid by a broker is a conflict of interest, but not immediately material as the CFP® professional is a fiduciary. C is not material.

Question 96

Sorel Parks, CFP®, met with Dorian and Griffin, Dorian’s father. During the meeting, Sorel entered into an oral agreement with Dorian to manage Griffin’s financial affairs. Sorel did not complete a client profile of Griffin. Sorel offered to review and make recommendations on Griffin’s then-current living trust. Sorel prepared a Last Will, Revocable Trust and Durable Power of Attorney for management of Property and Personal Affairs, and charged Griffin $400 per hour for preparing the documents. Griffin had not requested such documents. Griffin asked Sorel to provide him with all the documents pertaining to his investments. As of the hearing date with the Disciplinary and Ethics Commission, Sorel had not provided the requested documents to Griffin. The Commission issued an Order to Revoke Permanently Sorel’s right to use the CFP®, CERTIFIED FINANCIAL PLANNER™ and certification marks. The Commission ordered Sorel to verify that he was not using the marks by submitting copies of letterhead and business cards within 30 days of the Order. To comply with the Code of Ethics, before providing any services to Griffin, Sorel was required to take which of the following steps:

1. Review implementation responsibilities with Griffin.
2. Understanding The Client’s Personal and Financial Circumstances by Obtaining Qualitative and Quantitative Information
3. Provide information to a client outlined in Duties to a Client including but not limited to How the client pays for products, services and additional incurred costs including surrender charges and sales loads. How the CFP® professional and their firm are compensated for providing products and services.
4. Analyzing the Client’s Current Course of Action and Potential Alternative Course(s) of Action prior to making any financial planning recommendations.
5. Sorel must do all of the above.

Answer 96

Solution: The correct answer is A.

It is important to understand the steps in order and identify what step they are currently in; the step that comes before and after the step that comes after. The question asked what should have happened before providing services (implementation). Remember the acronym UIADPIM. The plan should have been presented to the client and next steps/responsibilities addressed.

1. Implementation responsibilities are done after the client agrees to one of the courses of action the CFP® professional has presented. Duties owed to clients (10) outlines information that must be provided to a client when a CFP® professional is providing financial advice or engaging in financial planning. This information must be provided prior to the process beginning. B is the first step of the active financial planning process and comes after item C. D is a step in the planning process that comes after Information is provided.

Question 97

When you are establishing an engagement for financial planning with a client, what information may you provide orally?

1. Material Conflicts of Interest.
2. Privacy Policy.
3. How the Client pays.
4. Terms of the engagement.

Answer 97

Solution: The correct answer is A.

A planner may provide Material Conflicts of Interest orally or in writing.

B is incorrect because a planner must provide their privacy policy in writing.

C is incorrect because all types of compensation disclosures must be in writing for a financial planning engagement.

D is incorrect because terms of the engagement must be in writing.

Question 98

Becca, age 24, applied for CFP^® Certification. The Disciplinary and Ethics Commission denied her application because she had been convicted of second degree assault and battery and served nine months or her two year sentence in the county jail at the age of 18, while she was a member of a street gang. She has served her time, graduated from college and has decided to appeal the decision of the Disciplinary and Ethics Commission. All of the following are true regarding the review process EXCEPT:

1. She must submit a written petition for consideration to Professional Review staff and sign a form agreeing to CFP Board’s jurisdiction.
2. Staff will review the request to ensure the transgression falls within the “presumed unacceptable” list.
3. Her prior conduct falls under the “presumed unacceptable” category and therefore, she may appeal the denial of certification.
4. The Disciplinary and Ethics Commission’s decision regarding a petition for consideration is final.

Answer 98

Solution: The correct answer is D.

Reason: The DEC’s decision regarding a petition for consideration may be appealed to the Appeals Committee of the Board of Directors, in accordance with the Disciplinary Rules and Procedures. All the other statements are true.

Question 99

Your client has asked you to assist her in examining possible funding methods for her daughter who is planning on attending graduate school for her MBA. Which of the following can you advise your client is/are available to assist in covering expenses?

1. Perkins Loan
2. Supplemental Education Opportunity Grant
3. Supplemental Loan for Students (Stafford Unsubsidized)
4. Parent PLUS Loan
5. Lifetime Learning Credit
6. I and II only.
7. III and IV only.
8. III only.
9. II, III and V only.

Answer 99

Solution: The correct answer is C.

No grants are available to graduate students, only loans. Lifetime Learning Credit is a credit for tax purposes, not financial assistance direct for education. Parent PLUS Loans are loans for parents to pay for undergraduate course work. Graduate parent loans are available for graduate school, but is not an answer choice. Perkins loan program ended September 2017.

Question 100

Which of the following are available to full-time graduate students?

1. Pell Grants.
2. Subsidized Stafford Loans.
3. Supplemental Education Opportunity Grants (SEOG).
4. I only.
5. II only.
6. I and III only.
7. None of the above

Answer 100

Solution: The correct answer is D.

The Federal Pell Grant is usually awarded to undergraduates who have a high degree of unmet financial need.

Subsidized loans are not available to graduate students, only unsubsidized loans are available for graduate students.

A Federal Supplemental Educational Opportunity Grant (FSEOG) is a grant for undergraduate students with exceptional financial need.

Question 101

Kevin, a 55-year-old corporate executive, wants advice as to when he can retire. His current salary is $240,000 and he receives an annual bonus of $300,000; he also has annual stock options and restricted stock awards valued at $100,000. His employer contributes to a cash balance pension plan and matches his contributions to a 401(k). Kevin owns a whole life insurance policy with a $500,000 death benefit and is considering the purchase of a term policy with a $2,000,000 death benefit. He and his wife, Anne, also age 55, believe they can live on an after-tax income of $180,000. Assume a federal income tax rate of 35%.

Kevin is in the 42% marginal tax bracket (combined federal and state). Kevin wants to contribute $100,000 towards his child’s education in the next 3 years. Which of the following approaches minimizes his taxable gift (CFP® Certification Examination, released 8/2012)?

1. Paying the college directly.
2. Contributing the funds to a Section 529 Qualified Tuition Plan.
3. Contributing to a Uniform Transfers to Minors Act (UTMA) account for the child.
4. Contributing to a Coverdell Education Savings Account plan.

Answer 101

Solution: The correct answer is A.

The client wishes to contribute $100,000 to his child’s education. Watch the wording of the question; contribute to education, not savings for education.

Paying the school directly does not utilize any annual exclusion or credit equivalent because this is a qualified payment.

B is incorrect because the contributions over 3 years will exceed the annual exclusion amount. Front loading would provide 15,000 x 5 = 75,000. The question does not indicate he will gift split. Even if it did, $150,000 is more than he wanted to contribute. Also recall this would be funding savings.

C is incorrect because it uses both the annual exclusion and credit equivalent, even with gift splitting. The most would be $30,000 x 3 = $90,000. Also recall this would be funding savings.

D is incorrect because he is not eligible to contribute due to his income level.

Question 102

Mr. and Mrs. Jones come to you for advice on the financing of their daughter’s college education at their state university. Even though their annual family income exceeds $70,000, they have NOT saved enough for her college expenses. Upon studying the situation, you advise that their best opportunity to acquire education funds would be through:

1. Pell Grants.
2. Subsidized Stafford Student Loans.
3. Supplemental education opportunity grants.
4. Parent loans for undergraduate students (PLUS).

Answer 102

Solution: The correct answer is D.

The income of the Jones’ will disqualify them from grant money Therefore, one of the loans must be considered. Their daughter can apply for “B” and “C”, but they are eligible as parents for the PLUS loan.

Question 103

Which of the following statements is correct concerning the effect of prepaid tuition plans on federal financial aid?

1. A.The amount of prepaid tuition is not treated as an asset of the parent or child when determining financial aid.
2. B.The current value of the prepaid account is included in the student’s assets.
3. C.The current value of the prepaid account is included in the parents’ assets when calculating expected family contributions.
4. D.The amount of prepaid tuition has no impact on the expected family contribution formula.

Answer 103

Solution: The correct answer is C.

Prepaid tuition is not a student asset for federal financial aid purposes. Prepaid tuition is treated as an asset of the parents’ and is included in the expected family contribution formula.

Question 104

Which of the following statements is true regarding a Coverdell Education Savings Account?

1. An individual can be the beneficiary of only one Coverdell ESA, and the total contribution to the account in any year can’t exceed $2,000.
2. There’s no limit to the number of accounts that can be established for a particular beneficiary; however, the total contribution to all accounts on behalf of a beneficiary in any year can’t exceed $2,000.
3. The Coverdell ESA must be established in the names of the parents, who must be at least 24 years old at the time the account is created.
4. There may be multiple contributors to a Coverdell ESA, however the total contribution per contributor cannot exceed $2,000 in any year.

Answer 104

Solution: The correct answer is B.

Answer A is incorrect because an individual can be the beneficiary of multiple accounts. Answer C is incorrect because it describes the education requirements for Series EE bonds, not Coverdell. Answer D is incorrect because the $2,000 limit is per beneficiary, not per contributor or per account.

Question 105

John Hendrick wants to pay one-half of the college costs for his daughter, Ruth. She will be attending a private college with annual costs of $20,000 today. Ruth is 10 years old and will be starting college in 8 years. If these costs are expected to increase annually by 8%, how much will Mr. Hendrick need to provide for her first year of college?

1. A.$18,509
2. B.$23,409
3. C.$27,371
4. D.$37,019
5. E.$74,037

Answer 105

Solution: The correct answer is A.

N=8

i=8

PV=10,000 (20,000/2) he only wants to pay half.

PMT=0

FV=?

Answer is 18,509.3021

Question 106

Harold and Mary Anne Miller are a married couple in their early 40s with three children, ages 7, 10, and 12. Harold earns $350,000 per year as General Counsel of a mid-sized IT firm and Mary Anne is a homemaker. They have major assets of $1,500,000 cash and $1,000,000 in stock options. They have done no estate planning. Harold has life insurance of two times his salary from his employer. Harold plans on working full-time until age 62. Harold has the potential to receive more options and restricted stock based on his company’s performance, but has requested that this not be included in his assets for now given the uncertainty. College planning is of great concern to the Millers, currently they have no plan in place. They estimate that they will need $150,000 for each child in current dollars to fund their education. The Millers have constructed a budget and have determined that their household expenses are currently $12,000 per month, after tax. Assume that the Millers are in the 35% federal tax bracket and 6% state tax bracket.

The Millers would like to set aside money to cover all of the required funding for their children’s education. They are not confident the children will be able to handle money by age 21. Which of the following is most appropriate for the Millers (CFP® Certification Examination, released 8/2012)?

1. Uniform Transfers to Minors Act (UTMA) account in the name of each child
2. Coverdell Education Savings Account
3. Section 529 Qualified College Savings plan
4. Section 529 Prepaid Tuition plan

Answer 106

Solution: The correct answer is C.

Section 529 plans allow for the family to save for all qualified costs, not just tuition.

A is incorrect because the UTMA account causes loss of control at the age of majority.

B is incorrect because the Coverdell ESA (formally Education IRA) would not be able to fully fund education given contribution limits.

D is incorrect because the Prepaid Tuition plan only covers tuition.

Question 107

Mr and Mrs. Bellet have 9 year old twins together, Milly and Millan. Millan has special needs and is not anticipated to recover from the disabilities during life. The Bellet’s have managed to grow their net worth upwards of a couple million dollars. Which of the following issue should they be least concerned with?

A. Existing wills leaving the assets to the children equally per stirpes.

B. Creating a $500k revocable trust with Milly and Millan as income beneficiaries and Milly as remainderman.

C. Naming Milly as future guardian and Grandma as guardian of assets.

D. Millan named as beneficiary for health, education, maintenance and support.

Answer 107

Solution: The correct answer is D

Choice D is correct, naming an individual with special needs to a trust that provides distributions for only health, education, maintenance, and support will not effect the child’s ability to qualify for federal or state benefits, therefore is of least concern to the parents.

Choice A is incorrect as leaving assets through the will likely disqualify Millan for federal and or state benefits.

Choice B is incorrect, the income generated from a revocable trust can jeopardize income based benefits.

Choice C is incorrect, documents should be created naming a current guardian in addition to Milly being a minor. Concern may also include the grandmother as guardian as her age and longevity may not allow for time as a guardian.

Question 108

Which of the following services is not provided at the State and Local level when planning for special needs?

A. Social Security Benefits

B. Transportation Services

C. Respite Care Services

D. Residential Services

Answer 108

Solution: The correct answer is A.

Social Security benefits are provided at the Federal Level.

Transportation Services allow individuals with restricted mobility to obtain assistance for transportation to doctor’s appointments and other needs.

Respite care provides families that are primary caregivers a professional to ensure their loved one is taken care of while they run errands, go to their own appointments, or take time to rest while their family member still receives the care they need.

Residential services help individuals choose, obtain, and remain in community settings that enable them to live as independently as possible

Question 109

Which one of the following statements is not true regarding insurance planning for an individual with special needs?

A. Term insurance is not the best choice for life insurance protection due to long term needs.

B. In calculating the death benefit of the policy, one generation’s need is considered.

C. The individual with special needs should not be named as a beneficiary.

D. Life insurance can be purchased in a trust that will benefit an individual with special needs.

Answer 109

Solution: The correct answer is B

Choice B is a false statement because two generations should be considered, the generation of the individual with special needs and their parent’s generation.

Choices A, C, and D are all true statements.

Question 110

Which of the following, when proactively put in place, will help maximize funds available when dealing with a crisis event?

A. Emergency Funds

B. Estate Planning Documents

C. Life Insurance

D. Investment Portfolio

Answer 110

Solution: The correct answer is C.

While all the answer choices provided could help if in place prior to a crisis event, the life insurance would maximize the amount available if death of a loved one was the crisis event. While life insurance is the most obvious, Auto, home and umbrella policies would be the same concept. Paying a small amount in premium in comparison to the larger death benefit would provide additional funds for final expenses, adjustment period, and future expenses (college, home, etc). Paying $100 a year for an umbrella policy that provides $1,000,000 in coverage is the same concept of maximizing available funds.

Question 111

Pilar’s son was diagnosed with a medical condition that will require him to receive medical care, physical therapy, occupational, and speech therapy for the remainder of his life. She is gathering her expense receipts for her accountant. Which of the following may not be considered a medical expense for a special needs individual?

A. Moving or modifying electrical outlets and fixtures

B. Tuition for attendance at a special needs school

C. Admission and transportation to a medical conference

D. Management fees of special needs trust

Answer 111

Solution: The correct answer is D

Choice D is an incorrect statement as management fees are not a medical expense.

Choices A, B, and C are all medical expenses for an individual with special needs.

Question 112

Sally recently had her tax return prepared by her CPA. The CPA recommended that Sally increase her employer sponsored 401(k) retirement savings to 10%. Around the same time, Sally was working with Bob, a CFP® professional, who recommended specific asset allocation percentages and amounts allocated to various asset classes for her retirement and investment assets. Sally has come to you, a CFP® professional, for assistance implementing the recommendations from both her CPA and financial planner. Under which circumstances are you considered engaged in financial planning?

1. You recommend a new asset allocation for Sally.
2. You engage in a collaborative process that helps maximize Sally’s potential for meeting life goals through financial advice that integrates relevant elements of Sally’s personal and financial circumstances.
3. Since Sally is working with a CFP® professional, by implementing recommendations, you are providing financial planning.
4. You recommend that Sally contribute any federal income tax refunds to a Roth IRA and any state income tax refunds to a traditional IRA.

Answer 112

Solution: The correct answer B.

B is the best answer and CFP Board definition of financial planning. A and D are financial recommendations but not necessarily integrative or requiring communicating and prioritizing with Sally. C is not correct, a client can have multiple advisers, some financial planners and some not.

Question 113

Robert, a CFP® professional, performed a needs analysis concerning Jack’s life insurance situation last year and sold him a universal life policy under a limited scope engagement. This year, Jack wants Robert to evaluate his investment allocation, risk tolerance and recommend some mutual funds. All of the following information is required to be provided to Jack according to the Code of Ethics and Standards of Conduct EXCEPT?

1. Terms of the engagement including the scope of the engagement with any limitations, the period services will be provided and responsibilities of the Client.
2. Disclosure of Economic Benefit for Referral or Engagement of Additional Persons.
3. How the CFP® professional and their firm are compensated for providing products and services.
4. A written agreement covering the specific obligations and responsibilities of each party.

Answer 113

Solution: The correct answer is D.

Robert’s obligations of disclosure to Jack require (Obligations to clients 10) disclosing answers B and C. As the engagement will require a discussion of client goals and working to meet those goals this is a financial planning engagement. As such any limitations, end date and a scope of engagement must be provided.

Question 114

A client, Tom, informs a CFP® professional that his daughter, Susie, graduated from college last month and landed her first job. Tom wants to establish a Roth IRA for Susie. Tom wants to make a $6,000 contribution for Susie and explains that she does not know about investing and probably would not have the extra money to contribute. How could the CFP® professional best accomplish Tom’s objective (CFP® Certification Examination, released 8/2012)?

1. Open the account in Susie’s name and then have Tom gift the assets to Susie.
2. Explain to Tom that he can contribute to an IRA for Susie.
3. Request Tom set up a joint meeting with Susie to complete the planning process with her.
4. Explain to Tom that Susie must complete a risk questionnaire before Tom can open the account.

Answer 114

Solution: The correct answer is C.

Susie will be the client and account owner and will need to be involved in this process.

A is incorrect because the planner must meet with Susie to open an account for her.

B is incorrect Susie must use earned income to make a contribution to a Roth or Traditional IRA.

D is incorrect because Tom must meet with Susie before opening the Roth IRA and include her in the process.

Question 115

Thomas, a CFP® professional, has been Shelley’s financial advisor for over 20 years and is very familiar with her family situation, goals, objectives and needs. Thomas has just completed a meeting with Shelley and Gertrude, Shelley’s mother, who is 79. During the meeting, Thomas entered into an oral agreement with Shelley to manage Gertrude’s financial affairs. Gertrude offered no objections to this arrangement. Thomas did not complete a client profile for Gertrude since he was already fully aware of the family’s and Gertrude’s situation. Gertrude collects a small amount from social security but must supplement that with the interest from her investment portfolio of $100,000. She indicated she would like to provide for her remaining life and establish education funds to send her six grandchildren to college. The grandchildren range in age from 2 - 15. According to the provisions of the Practice Standards, Thomas should take all of the following actions before initiating any action on behalf of Gertrude, EXCEPT:

1. Schedule a meeting to discuss material conflicts of interest with Gertrude
2. Understanding The Client’s Personal and Financial Circumstances by Obtaining Qualitative and Quantitative Information.

Analyzing the Client’s Current Course of Action and Potential Alternative Course(s) of Action prior to making any financial planning recommendations.

1. Provide information to the client outlined in Duties Owed to a Client including but not limited to; How the client pays for products, services and additional incurred costs including surrender charges and sales loads. How the CFP® professional and their firm are compensated for providing products and services.

Answer 115

Solution: The correct answer C.

Duties owed to clients (10) outlines information that must be provided to a client when a CFP® professional is providing financial advice or engaging in financial planning. This information must be provided prior to the process beginning. B is the first step of the planning process and comes after A. D is should be provided before any investments begins. C is a step in the planning process that comes after Information is provided.

Question 116

A CFP® professional meets a prospective client who is prepared to discuss his retirement accounts from a former employer. The client is concerned that those accounts are too aggressive, given his age and risk tolerance. He states that he and his wife would like to retire when he is 65 and that they have recently been leveraging themselves to support their adult son, who has ongoing issues. After further analysis, the CFP® professional determines that the client does not have the cash flow to retire when he is 65 while continuing to support his son. How should the CFP® professional proceed (CFP® Certification Examination, released 8/2012)?

1. Communicate to the client that his retirement goals are unrealistic, that he should plan to work until age 70, and that he should stop helping his son financially.
2. Help the client to review his goals and prioritize them before continuing into implementation.
3. Review the client’s current and potential income streams to identify ways to solve his immediate cash flow problem.
4. Recommend a conservative asset allocation to reduce the risk in his retirement accounts and suggest that he stop helping his son.

Answer 116

Solution: The correct answer is B.

It is important to help the client to reassess priorities before making specific recommendations.

A is incorrect because it’s important for the planner to help the client prioritize their goals, then move to the implementation phase.

C is incorrect because solving the immediate cash flow is an issue, but the client’s goal is to retire at age 65. The planner needs to assist the client in prioritizing their goals.

D is incorrect because it’s the client and planner’s responsibility to prioritize the goals and continuing to help his son may be a high priority goal.

Question 117

Mary is a CFP® professional and is in the Analyzing the Client’s Current Course of Action and Potential Alternative Course(s) of Action 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?

1. 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.
2. Mary should use the assumptions that result in the most conservative recommendations for retirement funding.
3. The CFP Board’s Standards of Professional Conduct require Mary to disengage from the client.
4. Mary should provide her client with multiple projections, consistent with all varying assumptions.

Answer 117

Solution: The correct answer is A.

The best answer is A. Mary can continue with the client. The principle of integrity allows for differences of opinions with client relationships. However without the client and planner agreeing to an outcome Selecting and Implementing Actions, Products, or Services (Practice standard 6.d) would be inappropriate.

Question 118

Hershel, a client of Jonah, deposited $40,000 into a securities account at Jonah’s firm. At the time, Jonah’s only services to Hershel involved investment recommendations and executing transactions. Over the next two years, Jonah conducted numerous trades in Hershel’s account without Hershel’s approval, including during a month when Hershel was hospitalized. Jonah and the Firm received commissions from the trades that exceeded Hershel’s initial deposit. By this time, Hershel’s account was only worth $15,000. The New York Stock Exchange (“NYSE”) initiated an inquiry regarding Hershel’s matter. Jonah and the NYSE entered into a Stipulation and Consent to Penalty. Jonah consented to the following findings: 1. Respondent engaged in conduct inconsistent with just and equitable principles of trade when he: 1) recommended transactions in the accounts of a customer which were unsuitable in light of his investment objectives, investment experience and/or financial resources; and 2) effected excessive transactions in the accounts of a customer of his member firm employer; and 2. Jonah violated NYSE Rule 408(a) when he exercised discretion in the accounts of a customer without first obtaining written authorization from him. Following the events above, Jonah completed the requirements and became certified to use the CFP® marks. At his hearing with the Disciplinary and Ethics Commission, Jonah:

・ expressed a commitment to the financial planning process;

・ noted that his actions took place several years before he began to pursue CFP® certification;

・ had made changes to his practice to prevent similar occurrences in the future; and

・ advocated CFP® certification to employees under his supervision.

Jonah’s conduct violated all of the following provisions of the Rules of Conduct EXCEPT?

1. A certificant shall treat prospective clients and clients fairly and provide professional services with integrity.
2. A certificant may not intentionally or recklessly participate or assist in violation of these standards or the laws, rules and regulations governing professional services.
3. A CFP® professional must be objective. A CFP® professional must exercise judgment that is not subordinated in the interest of the CFP® professional or others.
4. At all times, when providing financial advice to a client, a CFP® professional must adhere to a fiduciary duty and act in the best interest of their client.

Answer 118

Solution: The correct answer is D.

The following answers are taken from pre-October 2019 rule changes but reflect the outcome of an actual disciplinary case.

Since at the time of the conduct Jonah was not a CFP® professional and was not engaged in financial planning, he was not held to the duty of care of a fiduciary to act in the best interest of the client. The Commission issued a Private Censure to Jonah and considered the mitigating factors Jonah provided at his hearing. All of the other Rules were clearly violated by Jonah.

Post October 2019 rule changes CFP Board may have acted the same, however with an emphasis on fiduciary duty a more substantial outcome may be levied (suspension or revocation of CFP® certification).

Question 119

Sally, a CFP® professional, was discussing the prior year’s investment results with her long standing client Deidra as part of their semi-annual meeting to review the status and progress of a comprehensive financial plan Sally had developed for Deidra a number of years ago. The initial plan included a risk tolerance assessment of moderately aggressive for Deidra and over the years, her reactions to market ups and downs had supported this assessment in Sally’s opinion. As a result, well diversified equity investments comprised about 70-75% of Deidra’s portfolio, on average. It had not been a good year in the market. The S&P500 had declined slightly more than 30%, as the economic recovery faltered and concerns about the European debt crisis mounted. Deidra’s portfolio lost 35% of its value over the last 12 months. Deidra became very concerned as she began to recognize the extent of the losses, and was bordering on becoming hysterical. As they talked, Sally discovered that Deidra had become pregnant, was getting married next month and had planned to use some of her investments to help support the family while she stayed home for the first six months of the child’s life. According to the Code of Ethics and Standards of Conduct, Sally must take the following actions EXCEPT:

1. Establish with Deidra whether her new husband will be added to their Financial Planning engagement.
2. Sally must communicate to Deidra when she (Sally) will update financial planning recommendations
3. Sally and Deidra must discuss the temporary change in income, and how to plan for it.
4. Sally must modify the scope of the engagement based on Deidra’s risk aversion.
5. Sally must do all of the above.

Answer 119

Solution: The correct answer D. The question is looking for the false statement.

A CFP® professional would need to create a new financial planning engagement to add Deidra’s new husband as a client. B and C are conversation that will need to be had as part of Monitoring and Updating. However a new scope of engagement is not required when a client changes their risk aversion.

Question 120

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 and Standards of Conduct, all of the following represent requirements for Samuel in his engagement with Thomas EXCEPT:

Answer 120

Solution: The correct answer is A.

A is the best answer. Implementation is a required step, and only needs to be addressed in the beginning if it is specifically excluded from the engagement. B, C and D are required of any CFP® professional selling a financial asset or providing professional advice.

Question 121

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?

1. Disengage from the client until such time Frank is willing to supply tax returns or other documents to support his income.
2. If John suspects that Frank is evading taxes or under-reporting his income, John is required by Duties to CFP Board to report his suspicions to the appropriate regulatory authorities.
3. 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.
4. John may limit the scope of the engagement to recommendations for which he has sufficient and relevant information or disengage from the client.

Answer 121

Solution: The correct answer is D.

John must Obtain Qualitative and Quantitative Information (practice standard 1). A CFP® professional must describe to the Client the qualitative and quantitative information concerning the Client’s personal and financial circumstances needed to fulfill the Scope of Engagement and collaborate with the Client to obtain the information.
If unable to obtain information necessary to fulfill the Scope of Engagement, the CFP® professional must either limit the Scope of Engagement to those services the CFP® professional is able to provide or terminate the Engagement.

Question 122

Jonathan got divorced in 20XX and subsequently had severe financial problems. Two years later, he filed for chapter seven bankruptcy. After getting back on his feet, he graduated from college and got a job selling life insurance for a large national insurer. Five years following the bankruptcy, he completed all of the requirements for the CFP® certification. In August of that year, he made his application to the CFP Board. Which of the following is correct under the Board’s revised policy regarding bankruptcy?

1. Jonathan’s bankruptcy falls on the presumed unacceptable list because it is within five years preceding his application. He will be denied the right to use the marks unless he files a successful consideration request with the CFP Board.
2. Jonathan’s bankruptcy falls on the always bar list because it is within five years preceding his application. He will be denied the right to use the marks.
3. Jonathan’s bankruptcy is no longer a concern of the CFP Board as long as he discloses it in writing to all potential clients for the five year period following the bankruptcy.
4. Jonathan’s bankruptcy must be disclosed to CFP Board, but will not likely prevent him from becoming a CFP® professional. It must be disclosed to clients when Jonathan is providing financial advice or financial planning.

Answer 122

Solution: The correct answer D.

D is correct under the revised Candidate Fitness Standards effective July 2012 and the CFP Code and Standards effective October 2019. His name will also be included in a press release disclosing the bankruptcy. A is incorrect because that was the prior requirement before the standards were revised. B is incorrect because two or more bankruptcies are on the presumptive bar list. C is incorrect because the Board must still be informed and will take the proactive measures listed in Item D to ensure proper disclosure. Jonathan should also make written disclosure of this event, but that alone is not sufficient.

Question 123

Jonathon got divorced in 2017 and subsequently had severe financial problems. Two years later he filed a chapter seven bankruptcy. After getting back on his feet, he graduated from college and got a job selling life insurance for a large national insurer three years following his bankruptcy. During his first year on the job, he received a large number of customer complaints, his insurance license was suspended for one month and he was discharged by his employer. During his unemployment, he completed all of the requirements for the CFP® certification. In August, four years following his bankruptcy, he made his application to the CFP Board. Which of the following is correct under the Board’s revised policy regarding bankruptcy?

1. Jonathan’s behavior falls on the presumed unacceptable list and he will be denied the right to use the marks unless he files a successful consideration request with the CFP Board.
2. Jonathan’s behavior falls on the always bar list and he will be denied the right to use the marks.
3. Jonathan’s behavior will prevent him from applying for the CFP® certification for the five year period following his actions
4. Jonathan’s bankruptcy will be disclosed on the CFP® professional’s public profile displayed on the CFP Board’s website for 10 years. He will need to request a consideration from the Disciplinary and Ethics Commission for the suspension, but the bankruptcy will not be a factor in their decision.

Answer 123

Solution: The correct answer A.

This answer was correct under the pre-October 2019 practice standards and remains correct under 2012 fitness standards. One complexity to the question rationale is that if Jonathan were to successfully petition the discipline and ethics committee, he would be required to report the bankruptcy to clients when providing professional services. An expanded rationale is below:

A is correct under the revised Candidate Fitness Standards effective July 2012. Although the bankruptcy alone would not constitute presumed unacceptable behavior, it is a consideration when accompanied by any other behavior on the list, such as the suspension of his insurance license. B is not correct because revocation of a financial professional license is required to move to the always bar list. C is incorrect because there is no five year expiration period on the suspension of the insurance license D is not correct because although the bankruptcy alone would not constitute presumed unacceptable behavior, it is a consideration when accompanied by any other behavior on the list, such as the suspension of the insurance license.

Question 124

Sidney, a CFP® professional, has been working with his new client Rachel over the last few months. He has completed all required disclosures and provided all written documents required for a financial planning engagement. After gathering and analyzing Rachel’s financial information, Sidney developed and presented a comprehensive financial plan. Rachel agreed with most of his recommendations, but wants her uncle, a local attorney, to implement the estate planning components of the plan, rather than an attorney that Sidney normally works with and trusts to do a thorough job. Sidney does not know Rachel’s uncle and is unfamiliar with his qualifications. According to the Practice Standards of the Code of Ethics, Sidney could take all of the following actions EXCEPT:

1. Contact Rachel’s uncle and coordinate the delivery of any information needed to implement the estate planning component of the plan.
2. Inform Rachel that if she used her uncle for estate planning he would need to restrict the scope of the engagement to exclude responsibility for the estate planning implementation.
3. Inform Rachel that if she used her uncle for estate planning, Sidney is required to have the documents reviewed by a qualified planning attorney to ensure they are legal and accurate or Sidney may need to terminate the engagement.
4. Inform Rachel of the name, contact information and the expertise and credentials of his attorney, and ask her to consider using his services rather than her uncle because Sidney believed his expertise would be valuable to Rachel.

Answer 124

Solution: The correct answer C.

A CFP® professional is not required to have the documents reviewed, but it would be in the best interest of the client (Duties to Client 8 – Complying with the Law). A CFP® professional may not intentionally or recklessly participate or assist in violation of these standards or the laws, rules and regulations governing professional services. Sidney may be acting recklessly if he does not push for Rachel to have documents reviewed by a qualified estate planning attorney.

A is a correct statement as Sidney does need to follow the clients instructions and wishes. B is a correct statement, Sidney should comply with Rachel and provide the information requested, but does not need to be part of the implementation. D is a correct statement as Sidney should explain that a credentialed attorney in the area of planning she needs would be in her best interest, but will follow the client’s wishes.