FP511 Practice Exam |Questions with
Complete Solutions Rated A+
Melissa has $8,000 in a savings account, which she has earmarked for an Australian vacation
later this year. The roof of her house was damaged recently and it requires considerable
repairs. Melissa does not want to spend the money in her savings account to make the repairs
because she believes that money is for her upcoming vacation. Instead, she withdraws $4,000
from her traditional IRA to make the repairs. She has to pay income tax of $1,120 plus a penalty
of $400 on the IRA withdrawal. This is an example of which of the following behaviors? - Ans
Mental accounting
Melissa's irrational financial decision resulted from mentally putting her money into separate
"accounts" based on the function of those accounts. Self-control bias occurs when an
individual lacks self-discipline and favors immediate gratification over long-term goals. Herding
occurs when a person follows the actions of a larger group, whether rational or not.
Confirmation bias means people tend to pay attention to information that supports their
preconceived opinions while disregarding accurate, unsupportive information.
Mark is meeting with a new client, Macy. It is important that Mark understand Macy's
psychological ability to deal with uncertain outcomes includes risk tolerance, risk capacity, and
risk perception. During what step in the financial planning process should Mark measure
Macy's abilities? - Ans Understanding Macy's personal and financial circumstances
*** Wendy, a CFP® professional, is meeting with her client, Chrissy, to discuss her goals. Chrissy
advises Wendy that one of her goals is to take an expensive hiking trip in the Alps, something her
mother and grandfather had done when they were young. She'd like to keep this tradition in her
family. Wendy believes that, because of Chrissy's financial circumstances, this is not the best use of
Chrissy's money. What should Wendy do to best serve her client, Chrissy?
1 Wendy should understand that expensive trips like hiking in the Alps is an important family
tradition to Chrissy.
2 Wendy should consider the trip as one of Chrissy's goals and explain how such a goal
would impact her overall financial plan.
,3 Wendy should share her opinion with Chrissy and persuade her to abandon this as one of
her goals.
4 Because Wendy, as Chrissy's financial planner, does not feel taking the trip is a wise
financial decision, she sh - Ans 1-2
Wendy should respect Chrissy's wishes and understand that such a trip is part of a family
tradition. She should consider the trip as one of Chrissy's goals; however, she should also let her
know how such a goal would impact Chrissy's overall financial plan. Wendy should not share
her opinion with Chrissy or try to persuade her to abandon it as one of her goals.
In his financial planning practice, Frank allows his clients' goals and values to drive his
relationships with them. He sees himself as a consultant. Frank's approach to
financial counseling is known as - Ans the strategic management approach.
In this approach, the client's goals and values drive the client-planner relationship and the
planner serves as a consultant. In the classical economics approach, planners attempt to
,achieve better financial outcomes by increasing financial resources or reducing expenditures.
The cognitive-behavioral approach believes a client's attitudes, beliefs, and values influence
their behavior and tries to replace negative beliefs with positive attitudes that should result
in better financial results.
Which of these statements regarding the classical economics approach to financial counseling
is CORRECT?
1 This approach features the use of a SWOT analysis.
2 This approach is based on the use of psychoanalytic theory such as Freudian or
Gestalt theory.
3 Clients choose among alternatives based on objectively defined cost-benefit and risk-return
tradeoffs.
4 This approach believes that increasing financial resources or reducing financial
expenditures results in improved financial outcomes. - Ans 3-4
Statement I is incorrect; the strategic management approach features the use of a SWOT
analysis. Statement II is incorrect; the financial counseling approach that is based on the use
of psychoanalytic theory such as Freudian or Gestalt theory is the psychoanalytic approach.
Which of the following statements regarding open-ended and closed-ended questions is
CORRECT?
1 Planners should use as many open-ended questions as possible when developing client goals
and expectations.
2 Closed-ended questions facilitate effective communication between the client and planner
because they require the client to answer in her own words. - Ans 1
, Planners should use as many open-ended questions as possible when developing client goals and
expectations. These types of questions require clients to answer in their own words. Open-ended
questions facilitate effective communication between clients and planners. Statement II is
incorrect. Closed-ended elicit "yes" or "no" answers, and this can restrict communication.
Bernie is meeting with his clients, Mike and Alyssa, to define their goals. Mike tells Bernie that
one of his goals is purchasing a hunting camp in two years and Alyssa shakes her head. What is
the best action for Bernie to take next? - Ans Ask Alyssa if the camp is a mutually agreed-upon
goal.
Alyssa's body language (shaking her head) may express that she does not agree with this
goal. Therefore, Bernie should clarify whether or not she is on board with Mike's idea. If
Alyssa is agreeable, Bernie should then get more details regarding the purchase of the camp.
Bernie should not move on to other goals before Mike and Alyssa are in agreement regarding
this particular one. Lastly, this is not the time to make recommendations without
comprehensive information.
Which of the following statements regarding interpersonal communication between
financial planners and their clients are CORRECT?
1 Mirroring is accomplished by imitating the client's body language or verbal style.
2Body language can impact how clients receive and interpret messages more than any
other type of communication.
3 Emotional intelligence includes the ability to recognize emotional expressions and
select socially appropriate responses. - Ans all
Also, effective interpersonal communication involves the application of both oral and non-
verbal skills, such as the effective use of body language.
Oscar and Kathryn have a net worth of $250,000 before each of the following transactions:
Purchased $3,000 of appliances on credit
Complete Solutions Rated A+
Melissa has $8,000 in a savings account, which she has earmarked for an Australian vacation
later this year. The roof of her house was damaged recently and it requires considerable
repairs. Melissa does not want to spend the money in her savings account to make the repairs
because she believes that money is for her upcoming vacation. Instead, she withdraws $4,000
from her traditional IRA to make the repairs. She has to pay income tax of $1,120 plus a penalty
of $400 on the IRA withdrawal. This is an example of which of the following behaviors? - Ans
Mental accounting
Melissa's irrational financial decision resulted from mentally putting her money into separate
"accounts" based on the function of those accounts. Self-control bias occurs when an
individual lacks self-discipline and favors immediate gratification over long-term goals. Herding
occurs when a person follows the actions of a larger group, whether rational or not.
Confirmation bias means people tend to pay attention to information that supports their
preconceived opinions while disregarding accurate, unsupportive information.
Mark is meeting with a new client, Macy. It is important that Mark understand Macy's
psychological ability to deal with uncertain outcomes includes risk tolerance, risk capacity, and
risk perception. During what step in the financial planning process should Mark measure
Macy's abilities? - Ans Understanding Macy's personal and financial circumstances
*** Wendy, a CFP® professional, is meeting with her client, Chrissy, to discuss her goals. Chrissy
advises Wendy that one of her goals is to take an expensive hiking trip in the Alps, something her
mother and grandfather had done when they were young. She'd like to keep this tradition in her
family. Wendy believes that, because of Chrissy's financial circumstances, this is not the best use of
Chrissy's money. What should Wendy do to best serve her client, Chrissy?
1 Wendy should understand that expensive trips like hiking in the Alps is an important family
tradition to Chrissy.
2 Wendy should consider the trip as one of Chrissy's goals and explain how such a goal
would impact her overall financial plan.
,3 Wendy should share her opinion with Chrissy and persuade her to abandon this as one of
her goals.
4 Because Wendy, as Chrissy's financial planner, does not feel taking the trip is a wise
financial decision, she sh - Ans 1-2
Wendy should respect Chrissy's wishes and understand that such a trip is part of a family
tradition. She should consider the trip as one of Chrissy's goals; however, she should also let her
know how such a goal would impact Chrissy's overall financial plan. Wendy should not share
her opinion with Chrissy or try to persuade her to abandon it as one of her goals.
In his financial planning practice, Frank allows his clients' goals and values to drive his
relationships with them. He sees himself as a consultant. Frank's approach to
financial counseling is known as - Ans the strategic management approach.
In this approach, the client's goals and values drive the client-planner relationship and the
planner serves as a consultant. In the classical economics approach, planners attempt to
,achieve better financial outcomes by increasing financial resources or reducing expenditures.
The cognitive-behavioral approach believes a client's attitudes, beliefs, and values influence
their behavior and tries to replace negative beliefs with positive attitudes that should result
in better financial results.
Which of these statements regarding the classical economics approach to financial counseling
is CORRECT?
1 This approach features the use of a SWOT analysis.
2 This approach is based on the use of psychoanalytic theory such as Freudian or
Gestalt theory.
3 Clients choose among alternatives based on objectively defined cost-benefit and risk-return
tradeoffs.
4 This approach believes that increasing financial resources or reducing financial
expenditures results in improved financial outcomes. - Ans 3-4
Statement I is incorrect; the strategic management approach features the use of a SWOT
analysis. Statement II is incorrect; the financial counseling approach that is based on the use
of psychoanalytic theory such as Freudian or Gestalt theory is the psychoanalytic approach.
Which of the following statements regarding open-ended and closed-ended questions is
CORRECT?
1 Planners should use as many open-ended questions as possible when developing client goals
and expectations.
2 Closed-ended questions facilitate effective communication between the client and planner
because they require the client to answer in her own words. - Ans 1
, Planners should use as many open-ended questions as possible when developing client goals and
expectations. These types of questions require clients to answer in their own words. Open-ended
questions facilitate effective communication between clients and planners. Statement II is
incorrect. Closed-ended elicit "yes" or "no" answers, and this can restrict communication.
Bernie is meeting with his clients, Mike and Alyssa, to define their goals. Mike tells Bernie that
one of his goals is purchasing a hunting camp in two years and Alyssa shakes her head. What is
the best action for Bernie to take next? - Ans Ask Alyssa if the camp is a mutually agreed-upon
goal.
Alyssa's body language (shaking her head) may express that she does not agree with this
goal. Therefore, Bernie should clarify whether or not she is on board with Mike's idea. If
Alyssa is agreeable, Bernie should then get more details regarding the purchase of the camp.
Bernie should not move on to other goals before Mike and Alyssa are in agreement regarding
this particular one. Lastly, this is not the time to make recommendations without
comprehensive information.
Which of the following statements regarding interpersonal communication between
financial planners and their clients are CORRECT?
1 Mirroring is accomplished by imitating the client's body language or verbal style.
2Body language can impact how clients receive and interpret messages more than any
other type of communication.
3 Emotional intelligence includes the ability to recognize emotional expressions and
select socially appropriate responses. - Ans all
Also, effective interpersonal communication involves the application of both oral and non-
verbal skills, such as the effective use of body language.
Oscar and Kathryn have a net worth of $250,000 before each of the following transactions:
Purchased $3,000 of appliances on credit
