CFP FINANCIAL PLANNING EXAM
QUESTIONS WITH 100% CORRECT
ANSWERS
Develop/Present Recommendations - Answer-Identify strategies and products available
for meeting financial goals.
Select the most appropriate options from those available.
Monitor the plan. - Answer-Periodically review the plan to determine the significance of
any changes in tax law, economic conditions, and investment techniques.
Schedule review sessions with client to evaluate progress towards achieving goals.
Modify as appropriate.
2 Types of Personal Financial Statements to Prepare - Answer-1. Statement of financial
position (balance sheet).
2. Cash flow statement.
Statement of Financial Position - Answer-Balance Sheet
Snapshot of client's financial position at a point in time (as of 12/31/2015, for example).
Pro Forma Statement - Answer-Shows estimated bales for a point in the future.
3 major components of financial position - Answer-1. Assets
2. Liabilities
3. Net worth
3 categories of assets - Answer-1. Cash/CE
2. Invested Assets
3. Use Assets
Cash/CE - Answer-Savings Account, Checking Account, Money Market and U.S. T-bills
(can include LI cash value)
Invested Assets - Answer-Common and Preferred Stock, Corporate and Government
Bonds, Mutual Funds, etc. (can include LI cash value).
Use Assets - Answer-Family residence, vacation or second home, furniture, cars, etc.
Short Term Liabilities - Answer-Due in 1 year or less
,Long Term Liabilities - Answer-Due in more than 1 year.
Net worth can grow if... - Answer-Assets rise in vale (appreciation)
Liabilities are forgiven
Income is used to increase assets
Additional Assets are received by gift or inheritance.
Net worth does not grow if... - Answer-Debt is paid off using assets like cash.
An asset is purchased using cash.
Cash Inflows - Answer-Salaries, wages, dividends from investments, interest from bank
accounts, proceeds from a bond maturing, etc.
3 types of Cash Out lows - Answer-1. Fixed Outflows
2. Variable Outflows
3. Savings and Investments
Fixed Outflows - Answer-Mortgage Payments, taxes, installment loan payments,
insurance premiums
Variable Outflows - Answer-Food, clothing, entertainment, utilities, recreation, medical
care, etc.
Savings/investment Outflows - Answer-The purchasing of an investment (treated as an
outflow but does not change net worth)
On the flip sides the sale of an investment is treated as an inflow but does not change
net worth.
Encumbrance - Answer-
Cash Flow Statement - Answer-Presents cash receipts and disbursements over a
period of time (usually 1 year).
Usually a historical record but can be prepared pro forma.
Debt rules - Answer-Consumer Debt should not exceed 20% of after tax income.
Monthly housing payments should not exceed 28% of gross income (or 1 week of after
tax income).
Total monthly payment of debt should not exceed 36% of monthly gross income.
The more diversified the sources of income... - Answer-The more secure the client's
financial position.
, Footnotes in financial statements - Answer-May be used to indicate circumstances or
values not otherwise disclosed:
A pending lawsuit
An anticipated inheritance
etc.
Percent of income that goes into current consumption - Answer-No more than 90%.
Liquidity Ratio - Answer-Current Assets/Current Debts
Solvency Ratio - Answer-Net Worth/Total Assets
Measures the percentage of assets that the client actually owns.
First Priority of Financial Planning - Answer-Remove financial uncertainty:
Insurance Planning, emergency fund, writing a will.
Second Priority of Financial Planning - Answer-Wealth Accumulation through
Investment Planning.
Third Priority of Financial Planning - Answer-Retirement and Estate Planning.
The Pyramid Approach - Answer-Base: Remove Uncertainty
Second: Accumulate Wealth
Third: Retire and Plan for Wealth Transfer
3 types of structured financial counseling - Answer-Interviewing, counseling, advising
Directive Interview - Answer-Controlled and structured by the interviewer who gathers
data, completes forms, and asks questions
Nondirective Interview - Answer-Gives the person interviewed the opportunity to be a
peer with the financial planner as they both pursue questions and topics
Counseling - Answer-Long-term, informal, unstructured exploration of the client's
present situation with the objective of helping the client with a problem.
Advising - Answer-An assumed expert prescribes and directs in an attempt to help the
client solve a problem.
3 primary communication elements in financial counseling - Answer-Structure, Rapport,
and the need to recognize and deal with client resistance.
QUESTIONS WITH 100% CORRECT
ANSWERS
Develop/Present Recommendations - Answer-Identify strategies and products available
for meeting financial goals.
Select the most appropriate options from those available.
Monitor the plan. - Answer-Periodically review the plan to determine the significance of
any changes in tax law, economic conditions, and investment techniques.
Schedule review sessions with client to evaluate progress towards achieving goals.
Modify as appropriate.
2 Types of Personal Financial Statements to Prepare - Answer-1. Statement of financial
position (balance sheet).
2. Cash flow statement.
Statement of Financial Position - Answer-Balance Sheet
Snapshot of client's financial position at a point in time (as of 12/31/2015, for example).
Pro Forma Statement - Answer-Shows estimated bales for a point in the future.
3 major components of financial position - Answer-1. Assets
2. Liabilities
3. Net worth
3 categories of assets - Answer-1. Cash/CE
2. Invested Assets
3. Use Assets
Cash/CE - Answer-Savings Account, Checking Account, Money Market and U.S. T-bills
(can include LI cash value)
Invested Assets - Answer-Common and Preferred Stock, Corporate and Government
Bonds, Mutual Funds, etc. (can include LI cash value).
Use Assets - Answer-Family residence, vacation or second home, furniture, cars, etc.
Short Term Liabilities - Answer-Due in 1 year or less
,Long Term Liabilities - Answer-Due in more than 1 year.
Net worth can grow if... - Answer-Assets rise in vale (appreciation)
Liabilities are forgiven
Income is used to increase assets
Additional Assets are received by gift or inheritance.
Net worth does not grow if... - Answer-Debt is paid off using assets like cash.
An asset is purchased using cash.
Cash Inflows - Answer-Salaries, wages, dividends from investments, interest from bank
accounts, proceeds from a bond maturing, etc.
3 types of Cash Out lows - Answer-1. Fixed Outflows
2. Variable Outflows
3. Savings and Investments
Fixed Outflows - Answer-Mortgage Payments, taxes, installment loan payments,
insurance premiums
Variable Outflows - Answer-Food, clothing, entertainment, utilities, recreation, medical
care, etc.
Savings/investment Outflows - Answer-The purchasing of an investment (treated as an
outflow but does not change net worth)
On the flip sides the sale of an investment is treated as an inflow but does not change
net worth.
Encumbrance - Answer-
Cash Flow Statement - Answer-Presents cash receipts and disbursements over a
period of time (usually 1 year).
Usually a historical record but can be prepared pro forma.
Debt rules - Answer-Consumer Debt should not exceed 20% of after tax income.
Monthly housing payments should not exceed 28% of gross income (or 1 week of after
tax income).
Total monthly payment of debt should not exceed 36% of monthly gross income.
The more diversified the sources of income... - Answer-The more secure the client's
financial position.
, Footnotes in financial statements - Answer-May be used to indicate circumstances or
values not otherwise disclosed:
A pending lawsuit
An anticipated inheritance
etc.
Percent of income that goes into current consumption - Answer-No more than 90%.
Liquidity Ratio - Answer-Current Assets/Current Debts
Solvency Ratio - Answer-Net Worth/Total Assets
Measures the percentage of assets that the client actually owns.
First Priority of Financial Planning - Answer-Remove financial uncertainty:
Insurance Planning, emergency fund, writing a will.
Second Priority of Financial Planning - Answer-Wealth Accumulation through
Investment Planning.
Third Priority of Financial Planning - Answer-Retirement and Estate Planning.
The Pyramid Approach - Answer-Base: Remove Uncertainty
Second: Accumulate Wealth
Third: Retire and Plan for Wealth Transfer
3 types of structured financial counseling - Answer-Interviewing, counseling, advising
Directive Interview - Answer-Controlled and structured by the interviewer who gathers
data, completes forms, and asks questions
Nondirective Interview - Answer-Gives the person interviewed the opportunity to be a
peer with the financial planner as they both pursue questions and topics
Counseling - Answer-Long-term, informal, unstructured exploration of the client's
present situation with the objective of helping the client with a problem.
Advising - Answer-An assumed expert prescribes and directs in an attempt to help the
client solve a problem.
3 primary communication elements in financial counseling - Answer-Structure, Rapport,
and the need to recognize and deal with client resistance.
