CALCULATIONS TO KNOW EXAM
QUESTIONS WITH VERIFIED CORRECT
ANSWERS
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.
A married couple, who both work, recently had a baby. What should be their primary
financial concern?
To purchase life insurance
To save up 3 months of cash reserves
To prepare a long-term retirement plan
To create an education fund for their child - ANSWER-Solution: The correct answer is
A.
Since both parents work, there is likely a need for both incomes. The biggest financial
risk that they face is likely premature death of one of the wage earners, therefore
purchasing life insurance is likely the primary financial concern.
B is incorrect because the married couple may have other funds to access for an
emergency fund. It's also a smaller financial risk than premature death of a primary
wage earner.
C is incorrect because it's likely they already have some sort of retirement savings plan
in place, through their employers.
D is incorrect because we do not know if the married couple has intention of paying for
the child's education. In addition, if there is a premature death of a primary wage earner,
funding a college education may become significantly more difficult without a life
insurance policy in place.
Ralph, a CFP® professional, has been working with his new client Jack over the last
few months. He has completed all required disclosures and provided all written
documents 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 is in the
process of performing a retirement needs analysis and developing an investment plan
he believes will help Jack achieve his goals. While talking to Jack on the phone about
,his current company retirement plan, Jack mentioned that his father had been
diagnosed with cancer and Jack thinks he and his sister might inherit a large sum of
money sometime in the next couple of years because his father has more than enough
mon - ANSWER-Solution: The correct answer D.
D is the best course of action for Ralph. Jack's financial situation is fluid. Monitoring the
situation as outlined in the practice standards would provide Jack with the best
outcome. A potentially violates a CFP® professional's duty of confidentiality to a client.
B and C are not required, financial planning is fluid and dynamic. Additional information
or circumstances will always change a client relationship.
When must conflicts of interest be disclosed by a CFP®professional?
Upon presentation of financial planning recommendations
Upon selecting products and services to implement a financial plan
During the client data-gathering process
Before providing services and as material conflicts occur - ANSWER-Solution: The
correct answer is D.
Esteban is 63, very wealthy and has one child from his current marriage with Tisha. He
also has a child from a previous relationship that Tisha is unaware of. Esteban's
investment portfolio and pension assets are held in a variety of accounts for which no
overall plan has been developed. Esteban, has asked Ginger, a CFP®professional, to
assist him in maximizing his children's inheritance while ensuring that Tisha is financially
comfortable for the remainder of her life. All of the following items are relevant to
determining if Ginger must follow the CFP Board's practice standards EXCEPT:
Esteban believing he and Ginger have entered into a financial planning relationship.
The extent Ginger and Esteban collaborate and integrate qualitative, quantitative data
and Esteban's financial goals.
Ginger's perception if she and Esteban have entered into a financial planning
relationship.
A written scope of engagement between E - ANSWER-Solution: The correct answer is
C.
Ginger's perception of the relationship does not have bearing on if she must follow the
planning process. CFP Board requires Ginger to follow the practice standards if the
engagement is financial planning (choice D), if Esteban believes the process is financial
planning (choice A) or if the relationship is integrative and collaborative (choice B)
Which of the following individuals or entities is/are responsible for ensuring that CFP®
professionals are adhering to CFP Board's Code of Ethics and Standards of
Professional Conduct?
I. The CFP® professional.
II. The CFP® professional's employer.
III. The CFP® professional's clients.
A. I only.
B. I and II.
C. I and III.
D. I, II, and III. - ANSWER-Solution: The correct answer is A.
,The CFP® professional is responsible for adhering to CFP Board's Code of Ethics
Standards of Professional Conduct. However, the employer is not responsible for
ensuring the CFP®professional adheres to CFP Board's Code and Standards. CFP
Board certifies individuals, not firms.
Indranil is age 58 and has recently inherited $2,000,000 from his father. He has given
two weeks' notice to his employer and would like to retire permanently. He has never
previously mentioned his father's wealth, or a desire to retire, to his CFP® professional
in any of their financial planning meetings over the years. What is the most appropriate
next step for the CFP®professional?
A. Evaluate the client's retirement assets and cash flow needs.
B. Utilize Monte Carlo software to help establish an appropriate withdraw rate for the
client.
C. Encourage the client to recant their retirement until additional analysis has been
completed.
D. Revisit duties to be performed by the CFP® professional now that the client has
retired. - ANSWER-Solution: The correct answer is A.
A, B and C are important in the retirement planning process. However, revisiting the
cashflow needs should be the starting point. The CFP® professional does not need to
revisit the duties to perform since they have a comprehensive planning relationship
already.
Which of the following would likely be a violation of the Code of Ethics and Standards of
Conduct as it relates to the third Practice Standard (Analyzing the Client's Current
Course of Action and Potential Alternative Course(s) of Action)?
Developing more than one alternative to meet the client's goals, needs, and priorities.
Developing alternatives that differ from those of other practitioners.
Not developing any alternatives and, as a result, changing the course of action using
trial and error.
Not developing any alternatives that warrant a change in the client's current course of
actions. - ANSWER-Solution: The correct answer is C.
A CFP® professional must consider and analyze one or more potential alternative
courses of action, including the material advantages and disadvantages of each
alternative, whether each alternative helps maximize the potential for meeting the
Client's goals, and how each alternative integrates the relevant elements of the Client's
personal and financial circumstances. Trial and error does not meet this standard of
care.
Martina Flower, CFP® is dually registered under the Investment Advisers Act of 1940.
For which one of the following activities would this planner be in violation of the act?
She received, with the client's knowledge, both a fee for advice given to the client and a
commission from the client transactions.
, She included the cost of preparing the client's income tax returns as part of the annual
fee charged the client.
She gave clients planning advice that was NOT achievable, given the current economic
conditions.
She distributed to clients the written disclosure brochure two weeks after an investment
advising contract was duly signed. - ANSWER-Solution: The correct answer is D.
This question is challenging because of option "C." However, future planning (holistic
and lifecycle planning) is acceptable. It does not imply that her projections were
inappropriate. Option "D" is correct because the disclosure brochure must be given to
clients at or before the time an advisory engagement is entered into.
Bill is a CFP® professional and is working with his clients, Sally and Harry. Bill arranged
and attended a meeting between Sally, Harry and Bill's brother, who is an attorney. Bill's
brother presented an investment opportunity to Sally and Harry. Sally and Harry
decided to invest $250,000 as part of a loan secured by a promissory note. Although the
investment was offered by Bill's brother, the clients were led to believe Bill and his firm
were involved with the investment. Bill's brother signed the promissory note. As a result,
Bill violated the Code of Ethics, and his usage of the marks were suspended for two
years. The most appropriate action for Bill to take would have been?
Bill should have structured the investment as an equity investment, rather than a loan,
because the Code of Ethics forbids borrowing from a client.
Bill has an inherent conflict of interest because his brother offered the investment. The
Code - ANSWER-Solution: The correct answer is C.
According to Anonymous Case History #15982 by not disclosing in writing to the clients
that both the CFP®professional and his firm were not involved in the investment, the
planner violated rules regarding disclosure, failing to exercise reasonable and prudent
professional judgment and failing to provide services in compliance with laws and
regulations. The planner's action runs afoul of the October, 2019 rule update in multiple
areas. Duties to clients including violating: Integrity, disclosure of a material conflict of
interest, not disclosing and economic benefit of a referral or related party.
While the new Code and Standards allow for oral disclosure of material conflicts of
interest, it is better to put them in writing the more complicated they are.
A is not the best answer, the loan itself was not problematic, the investment and
atmosphere around the investment.
B is incorrect Bill can have conflicts, he needs to better manage and disclose them.
D is incorrect if the client's gave consent to share information with Bill's brother.
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 principle did Mike most clearly demonstrate?
Objectivity
Fairness
Professionalism
Competence - ANSWER-Solution: The correct answer is D.
QUESTIONS WITH VERIFIED CORRECT
ANSWERS
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.
A married couple, who both work, recently had a baby. What should be their primary
financial concern?
To purchase life insurance
To save up 3 months of cash reserves
To prepare a long-term retirement plan
To create an education fund for their child - ANSWER-Solution: The correct answer is
A.
Since both parents work, there is likely a need for both incomes. The biggest financial
risk that they face is likely premature death of one of the wage earners, therefore
purchasing life insurance is likely the primary financial concern.
B is incorrect because the married couple may have other funds to access for an
emergency fund. It's also a smaller financial risk than premature death of a primary
wage earner.
C is incorrect because it's likely they already have some sort of retirement savings plan
in place, through their employers.
D is incorrect because we do not know if the married couple has intention of paying for
the child's education. In addition, if there is a premature death of a primary wage earner,
funding a college education may become significantly more difficult without a life
insurance policy in place.
Ralph, a CFP® professional, has been working with his new client Jack over the last
few months. He has completed all required disclosures and provided all written
documents 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 is in the
process of performing a retirement needs analysis and developing an investment plan
he believes will help Jack achieve his goals. While talking to Jack on the phone about
,his current company retirement plan, Jack mentioned that his father had been
diagnosed with cancer and Jack thinks he and his sister might inherit a large sum of
money sometime in the next couple of years because his father has more than enough
mon - ANSWER-Solution: The correct answer D.
D is the best course of action for Ralph. Jack's financial situation is fluid. Monitoring the
situation as outlined in the practice standards would provide Jack with the best
outcome. A potentially violates a CFP® professional's duty of confidentiality to a client.
B and C are not required, financial planning is fluid and dynamic. Additional information
or circumstances will always change a client relationship.
When must conflicts of interest be disclosed by a CFP®professional?
Upon presentation of financial planning recommendations
Upon selecting products and services to implement a financial plan
During the client data-gathering process
Before providing services and as material conflicts occur - ANSWER-Solution: The
correct answer is D.
Esteban is 63, very wealthy and has one child from his current marriage with Tisha. He
also has a child from a previous relationship that Tisha is unaware of. Esteban's
investment portfolio and pension assets are held in a variety of accounts for which no
overall plan has been developed. Esteban, has asked Ginger, a CFP®professional, to
assist him in maximizing his children's inheritance while ensuring that Tisha is financially
comfortable for the remainder of her life. All of the following items are relevant to
determining if Ginger must follow the CFP Board's practice standards EXCEPT:
Esteban believing he and Ginger have entered into a financial planning relationship.
The extent Ginger and Esteban collaborate and integrate qualitative, quantitative data
and Esteban's financial goals.
Ginger's perception if she and Esteban have entered into a financial planning
relationship.
A written scope of engagement between E - ANSWER-Solution: The correct answer is
C.
Ginger's perception of the relationship does not have bearing on if she must follow the
planning process. CFP Board requires Ginger to follow the practice standards if the
engagement is financial planning (choice D), if Esteban believes the process is financial
planning (choice A) or if the relationship is integrative and collaborative (choice B)
Which of the following individuals or entities is/are responsible for ensuring that CFP®
professionals are adhering to CFP Board's Code of Ethics and Standards of
Professional Conduct?
I. The CFP® professional.
II. The CFP® professional's employer.
III. The CFP® professional's clients.
A. I only.
B. I and II.
C. I and III.
D. I, II, and III. - ANSWER-Solution: The correct answer is A.
,The CFP® professional is responsible for adhering to CFP Board's Code of Ethics
Standards of Professional Conduct. However, the employer is not responsible for
ensuring the CFP®professional adheres to CFP Board's Code and Standards. CFP
Board certifies individuals, not firms.
Indranil is age 58 and has recently inherited $2,000,000 from his father. He has given
two weeks' notice to his employer and would like to retire permanently. He has never
previously mentioned his father's wealth, or a desire to retire, to his CFP® professional
in any of their financial planning meetings over the years. What is the most appropriate
next step for the CFP®professional?
A. Evaluate the client's retirement assets and cash flow needs.
B. Utilize Monte Carlo software to help establish an appropriate withdraw rate for the
client.
C. Encourage the client to recant their retirement until additional analysis has been
completed.
D. Revisit duties to be performed by the CFP® professional now that the client has
retired. - ANSWER-Solution: The correct answer is A.
A, B and C are important in the retirement planning process. However, revisiting the
cashflow needs should be the starting point. The CFP® professional does not need to
revisit the duties to perform since they have a comprehensive planning relationship
already.
Which of the following would likely be a violation of the Code of Ethics and Standards of
Conduct as it relates to the third Practice Standard (Analyzing the Client's Current
Course of Action and Potential Alternative Course(s) of Action)?
Developing more than one alternative to meet the client's goals, needs, and priorities.
Developing alternatives that differ from those of other practitioners.
Not developing any alternatives and, as a result, changing the course of action using
trial and error.
Not developing any alternatives that warrant a change in the client's current course of
actions. - ANSWER-Solution: The correct answer is C.
A CFP® professional must consider and analyze one or more potential alternative
courses of action, including the material advantages and disadvantages of each
alternative, whether each alternative helps maximize the potential for meeting the
Client's goals, and how each alternative integrates the relevant elements of the Client's
personal and financial circumstances. Trial and error does not meet this standard of
care.
Martina Flower, CFP® is dually registered under the Investment Advisers Act of 1940.
For which one of the following activities would this planner be in violation of the act?
She received, with the client's knowledge, both a fee for advice given to the client and a
commission from the client transactions.
, She included the cost of preparing the client's income tax returns as part of the annual
fee charged the client.
She gave clients planning advice that was NOT achievable, given the current economic
conditions.
She distributed to clients the written disclosure brochure two weeks after an investment
advising contract was duly signed. - ANSWER-Solution: The correct answer is D.
This question is challenging because of option "C." However, future planning (holistic
and lifecycle planning) is acceptable. It does not imply that her projections were
inappropriate. Option "D" is correct because the disclosure brochure must be given to
clients at or before the time an advisory engagement is entered into.
Bill is a CFP® professional and is working with his clients, Sally and Harry. Bill arranged
and attended a meeting between Sally, Harry and Bill's brother, who is an attorney. Bill's
brother presented an investment opportunity to Sally and Harry. Sally and Harry
decided to invest $250,000 as part of a loan secured by a promissory note. Although the
investment was offered by Bill's brother, the clients were led to believe Bill and his firm
were involved with the investment. Bill's brother signed the promissory note. As a result,
Bill violated the Code of Ethics, and his usage of the marks were suspended for two
years. The most appropriate action for Bill to take would have been?
Bill should have structured the investment as an equity investment, rather than a loan,
because the Code of Ethics forbids borrowing from a client.
Bill has an inherent conflict of interest because his brother offered the investment. The
Code - ANSWER-Solution: The correct answer is C.
According to Anonymous Case History #15982 by not disclosing in writing to the clients
that both the CFP®professional and his firm were not involved in the investment, the
planner violated rules regarding disclosure, failing to exercise reasonable and prudent
professional judgment and failing to provide services in compliance with laws and
regulations. The planner's action runs afoul of the October, 2019 rule update in multiple
areas. Duties to clients including violating: Integrity, disclosure of a material conflict of
interest, not disclosing and economic benefit of a referral or related party.
While the new Code and Standards allow for oral disclosure of material conflicts of
interest, it is better to put them in writing the more complicated they are.
A is not the best answer, the loan itself was not problematic, the investment and
atmosphere around the investment.
B is incorrect Bill can have conflicts, he needs to better manage and disclose them.
D is incorrect if the client's gave consent to share information with Bill's brother.
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 principle did Mike most clearly demonstrate?
Objectivity
Fairness
Professionalism
Competence - ANSWER-Solution: The correct answer is D.
