CFP EXAM QUESTIONS AND ANSWERS
CFP Standards of Conduct Sections (6) - Answers -A. Duties owed to clients.
B. Fin. Planning and Application of Practice Standards
C. Practice Standards for Fin. Planning Process
D. Duties owed to firms/subordinates
E. Duties owed to CFP Board
F. Prohibition on Circumvention
Section A of CFP Standards of Conduct - Answers -Duties owed to Client:
1. Fiduciary Duty
2. Integrity
3. Competence
4. Diligence
5. Disclose and Manage Conflicts of Interest
6. Sound and Objective Professional Judgment
7. Professionalism
8. Comply with the Law
9. Confidentiality and Privacy
10. Provide information to client
11. Duties when communicating with a client
12. Duties when representing compensation method
13. Duties when recommending/working with other persons
14. Duties when selecting/using Technology
15. Refrain from borrowing money/ commingling assets
Section B of CFP Standards of Conduct - Answers -Definition and standard for
compliance when practicing financial planning: Financial Planning is a collaborative
process that helps maximize a Client's potential for meeting life goals through Financial
Advice that integrates relevant elements of the Client's personal and financial
circumstances. Must limit scope of engagement if only giving financial ADVICE, not
financial PLANNING.
Section C of CFP Standards of Conduct - Answers -Practice standards for the FP
process (7):
1. Understand Client's Personal and Financial circumstances
2. Identify and Select Goals
3. Analyse Current Course of Action and Potential Alternatives
4. Develop FP Recommendations
5. Present FP Recommendations
6. Implement FP Recommendations
7. Monitor Progress and Update
Section D of CFP Standards of Conduct - Answers -Duties owed to Firm/Subordinates
(3):
1. Use Reasonable Care when Supervising
,2. Comply with Lawful Objectives of the Firm
3. Provide Notice of Public Discipline to the Firm
Section E of CFP Standards of Conduct - Answers -Duties owed to CFP Board:
Cannot engage in conduct that reflects adversely on CFP marks or upon the profession.
5 types of conduct that violate CFP standard, 14 reportable events.
- Must report to CFP board within 30 days
- Provide Board with a narrative statement
- Cooperate with Board and comply with Certification and TM license and terms
Section F of CFP Standards of Conduct - Answers -Prohibition on Circumvention
Cannot act indirectly or through another person to violate CFP Practice Standards
Types of conduct that violate CFP practice standards (5) - Answers -1. Felony or
relevant misdemeanor
2. Fraud, theft, misrepresentation, other dishonesty
3. Bankruptcy
4. Federal tax lien
5. Other lien or civil judgment that has not been satisfied
Chapter 7 Bankruptcy Exemptions (7) - Answers -1. Primary homestead
2. Vehicle (limited)
3. Retirement savings/pension
4. Wages to provide for dependents
5. Limited personal property
6. Life insurance/annuity
7. Disability
Chapter 7 Bankruptcy NOT EXEMPTED assets (3) - Answers -1. ESA/529s if
contributions are within 2 years of bankruptcy
2. Inherited IRAs
3. IRA assets over $1M
Can you use 529s for non-tuition? How about Coverdell ESAs? - Answers -NO - 529
tuition only.
YES - Coverdell can be used for almost all school related expenses
ERISA - what is it and who enforces it? - Answers -Employee Retirement Income
Security Act of 1974
- defines fiduciary conduct for ppl associated with qualified corporate retirement plans
- the DoL enforces ERISA
Types of Bankruptcy (3) - Answers -Chapter 7 (liquidation-closes business), Chapter 11
(reorganization -stays in business - if you exceed debt limitations for Ch 13), Chapter 13
(adjustment-arranges payment plan with debtors and tries to stay in business)
,FINRA - Answers -Financial Industry Regulatory Authority. Self imposed regulation
agency of NYSE NASDAQ and CFTC (Commodities Futures Trading Commission)
FINRA Licenses (6) - Answers -SIE (Securities Industry Essentials - prerequisite to 6 or
7)
Series 6 - can sell mutual funds, new UITs, variable life ins, variable annuities
Series 7 - can sell all securities except commodities
Series 63 - meets requirement to be licensed in states other than state of residence
Series 65 - RIA (state req)
Series 66 - Uniform Combined State Law exam (combines Series 63 and 65)
FINRA Series License exam procedure (4) - Answers -1. Associate with broker/dealer
2. Register with FINRA through B/D on form U4
3. Pass appropriate exams
4. Register with CRD - Central Registration Depository - makes FINRA requirements
uniform across states
When and how does an investment advisor register with the SEC? - Answers -You can
start registering at $100M AUM. *Required* for RIAs >$110M AUM, must keep 5 years
of records
1. File ADV form
2. Pay $150 fee
3. File ADV Part 1 updates annually with SEC
How does an RIA withdraw from SEC? - Answers -File form ADV-W
To sell variable annuities, what licenses do you need? (2) - Answers -1. Series 6 OR 7
2. appropriate state variable life insurance license
CFP suspension of marks is for how long? - Answers -Up to 5 years
After final order of discipline has been given by CFP Board, how long do you have to
appeal? - Answers -15 days
Chapter 7 means test for income - Answers -1 . Monthly income >$10k: NOT allowed
2. Monthly income <$6k: Allowed
3. Monthly income btw $6-10k: Allowed only if income < 25% of unsecured debts
Contract Requirements (5) - Answers -1. Offer
2. Acceptance
3. Consideration
4. Lawful Purpose
5. Principal must have legal capacity (no incompetent/intoxicated adults, minors can
only contract for necessities)
NOTE: Contract is valid but voidable by the incompetent party only
, educational savings bonds rules and taxability - Answers -U.S. bonds whose proceeds
are used for qualified higher educational expenses for the taxpayer, the taxpayer's
spouse, or a dependent.
- Purchased in name of the parent (or other adult)
- Must be redeemed DURING college, only for tuition and fees (NOT room and board)
- The interest may be excluded from gross income, provided the taxpayer's adjusted
gross income does not exceed certain amounts.
Series EE vs Series I bonds - Answers -Series EE has fixed interest rate, doubles face
value at 20 year mark
Series I has fixed rate plus inflation adjustment
Both are exempt from state and local taxes. I bonds may also be exempt from federal
taxes if used for education.
Kiddie tax - Answers -Passive income, such as interest and dividends, that is
recognized by a child under age 19 (or under age 24 if a full-time student) is taxed to
him or her at the rates that would have applied had the income been incurred by the
child's parents, generally to the extent the income exceeds $2,200 for 2020. First $1100
is at 0%, next $1100 is at 10%, then the rest is subject to the parent's marginal rate.
UGMA/UTMA - Answers --ASSET OF THE CHILD for financial aid purposes
-UNEARNED INCOME:
a. taxed at child's rate if greater than 19
b. MAY be taxed at parent's rate if less than 19
-ASSETS:
a. UTMA: real estate, stocks, mutual funds, and bonds
b. UGMA: same but NO REAL ESTATE
-RISK:
-child uses assets for something other than education
- UTMA released up to age 25
- UGMA released at age of maturity (18 or 21)
Who regulates banks? (3) - Answers -1. The OCC (Office of the Comptroller of
Currency)
2. The Federal Reserve
3. The Federal Deposit Insurance Corporation (FDIC)
Who regulates mutual funds? - Answers -SEC (Securities and Exchange Commision)
Who regulates securities brokers? - Answers -FINRA (Financial INdustry Regulatory
Authority)
Investment Advisers Act of 1940 - Answers -Legislation governing who must register
with the SEC as an investment adviser. Defines "investment advice."
CFP Standards of Conduct Sections (6) - Answers -A. Duties owed to clients.
B. Fin. Planning and Application of Practice Standards
C. Practice Standards for Fin. Planning Process
D. Duties owed to firms/subordinates
E. Duties owed to CFP Board
F. Prohibition on Circumvention
Section A of CFP Standards of Conduct - Answers -Duties owed to Client:
1. Fiduciary Duty
2. Integrity
3. Competence
4. Diligence
5. Disclose and Manage Conflicts of Interest
6. Sound and Objective Professional Judgment
7. Professionalism
8. Comply with the Law
9. Confidentiality and Privacy
10. Provide information to client
11. Duties when communicating with a client
12. Duties when representing compensation method
13. Duties when recommending/working with other persons
14. Duties when selecting/using Technology
15. Refrain from borrowing money/ commingling assets
Section B of CFP Standards of Conduct - Answers -Definition and standard for
compliance when practicing financial planning: Financial Planning is a collaborative
process that helps maximize a Client's potential for meeting life goals through Financial
Advice that integrates relevant elements of the Client's personal and financial
circumstances. Must limit scope of engagement if only giving financial ADVICE, not
financial PLANNING.
Section C of CFP Standards of Conduct - Answers -Practice standards for the FP
process (7):
1. Understand Client's Personal and Financial circumstances
2. Identify and Select Goals
3. Analyse Current Course of Action and Potential Alternatives
4. Develop FP Recommendations
5. Present FP Recommendations
6. Implement FP Recommendations
7. Monitor Progress and Update
Section D of CFP Standards of Conduct - Answers -Duties owed to Firm/Subordinates
(3):
1. Use Reasonable Care when Supervising
,2. Comply with Lawful Objectives of the Firm
3. Provide Notice of Public Discipline to the Firm
Section E of CFP Standards of Conduct - Answers -Duties owed to CFP Board:
Cannot engage in conduct that reflects adversely on CFP marks or upon the profession.
5 types of conduct that violate CFP standard, 14 reportable events.
- Must report to CFP board within 30 days
- Provide Board with a narrative statement
- Cooperate with Board and comply with Certification and TM license and terms
Section F of CFP Standards of Conduct - Answers -Prohibition on Circumvention
Cannot act indirectly or through another person to violate CFP Practice Standards
Types of conduct that violate CFP practice standards (5) - Answers -1. Felony or
relevant misdemeanor
2. Fraud, theft, misrepresentation, other dishonesty
3. Bankruptcy
4. Federal tax lien
5. Other lien or civil judgment that has not been satisfied
Chapter 7 Bankruptcy Exemptions (7) - Answers -1. Primary homestead
2. Vehicle (limited)
3. Retirement savings/pension
4. Wages to provide for dependents
5. Limited personal property
6. Life insurance/annuity
7. Disability
Chapter 7 Bankruptcy NOT EXEMPTED assets (3) - Answers -1. ESA/529s if
contributions are within 2 years of bankruptcy
2. Inherited IRAs
3. IRA assets over $1M
Can you use 529s for non-tuition? How about Coverdell ESAs? - Answers -NO - 529
tuition only.
YES - Coverdell can be used for almost all school related expenses
ERISA - what is it and who enforces it? - Answers -Employee Retirement Income
Security Act of 1974
- defines fiduciary conduct for ppl associated with qualified corporate retirement plans
- the DoL enforces ERISA
Types of Bankruptcy (3) - Answers -Chapter 7 (liquidation-closes business), Chapter 11
(reorganization -stays in business - if you exceed debt limitations for Ch 13), Chapter 13
(adjustment-arranges payment plan with debtors and tries to stay in business)
,FINRA - Answers -Financial Industry Regulatory Authority. Self imposed regulation
agency of NYSE NASDAQ and CFTC (Commodities Futures Trading Commission)
FINRA Licenses (6) - Answers -SIE (Securities Industry Essentials - prerequisite to 6 or
7)
Series 6 - can sell mutual funds, new UITs, variable life ins, variable annuities
Series 7 - can sell all securities except commodities
Series 63 - meets requirement to be licensed in states other than state of residence
Series 65 - RIA (state req)
Series 66 - Uniform Combined State Law exam (combines Series 63 and 65)
FINRA Series License exam procedure (4) - Answers -1. Associate with broker/dealer
2. Register with FINRA through B/D on form U4
3. Pass appropriate exams
4. Register with CRD - Central Registration Depository - makes FINRA requirements
uniform across states
When and how does an investment advisor register with the SEC? - Answers -You can
start registering at $100M AUM. *Required* for RIAs >$110M AUM, must keep 5 years
of records
1. File ADV form
2. Pay $150 fee
3. File ADV Part 1 updates annually with SEC
How does an RIA withdraw from SEC? - Answers -File form ADV-W
To sell variable annuities, what licenses do you need? (2) - Answers -1. Series 6 OR 7
2. appropriate state variable life insurance license
CFP suspension of marks is for how long? - Answers -Up to 5 years
After final order of discipline has been given by CFP Board, how long do you have to
appeal? - Answers -15 days
Chapter 7 means test for income - Answers -1 . Monthly income >$10k: NOT allowed
2. Monthly income <$6k: Allowed
3. Monthly income btw $6-10k: Allowed only if income < 25% of unsecured debts
Contract Requirements (5) - Answers -1. Offer
2. Acceptance
3. Consideration
4. Lawful Purpose
5. Principal must have legal capacity (no incompetent/intoxicated adults, minors can
only contract for necessities)
NOTE: Contract is valid but voidable by the incompetent party only
, educational savings bonds rules and taxability - Answers -U.S. bonds whose proceeds
are used for qualified higher educational expenses for the taxpayer, the taxpayer's
spouse, or a dependent.
- Purchased in name of the parent (or other adult)
- Must be redeemed DURING college, only for tuition and fees (NOT room and board)
- The interest may be excluded from gross income, provided the taxpayer's adjusted
gross income does not exceed certain amounts.
Series EE vs Series I bonds - Answers -Series EE has fixed interest rate, doubles face
value at 20 year mark
Series I has fixed rate plus inflation adjustment
Both are exempt from state and local taxes. I bonds may also be exempt from federal
taxes if used for education.
Kiddie tax - Answers -Passive income, such as interest and dividends, that is
recognized by a child under age 19 (or under age 24 if a full-time student) is taxed to
him or her at the rates that would have applied had the income been incurred by the
child's parents, generally to the extent the income exceeds $2,200 for 2020. First $1100
is at 0%, next $1100 is at 10%, then the rest is subject to the parent's marginal rate.
UGMA/UTMA - Answers --ASSET OF THE CHILD for financial aid purposes
-UNEARNED INCOME:
a. taxed at child's rate if greater than 19
b. MAY be taxed at parent's rate if less than 19
-ASSETS:
a. UTMA: real estate, stocks, mutual funds, and bonds
b. UGMA: same but NO REAL ESTATE
-RISK:
-child uses assets for something other than education
- UTMA released up to age 25
- UGMA released at age of maturity (18 or 21)
Who regulates banks? (3) - Answers -1. The OCC (Office of the Comptroller of
Currency)
2. The Federal Reserve
3. The Federal Deposit Insurance Corporation (FDIC)
Who regulates mutual funds? - Answers -SEC (Securities and Exchange Commision)
Who regulates securities brokers? - Answers -FINRA (Financial INdustry Regulatory
Authority)
Investment Advisers Act of 1940 - Answers -Legislation governing who must register
with the SEC as an investment adviser. Defines "investment advice."
