CFP CHAPTER 1 EXAM QUESTIONS
WITH COMPLETE SOLUTIONS
The areas you may explore with clients in a comprehensive plan would include -
ANSWER-retirement, education or other accumulation goals, emergency reserves
goals, debt management goals and concerns, investment management concerns,
health insurance concerns, a disability contingency plan, a loss-of-life contingency plan,
a long-term care needs contingency plan, property and liability concerns, a legal
documents and estate planning distribution plan, and anticipated changes in lifestyle,
family, health, or other concerns.
Quantitative data to collect through the interview process includes - ANSWER-cash flow
statements (most clients won't have one, but the planner should construct one);
benefit package descriptions; copies of personal insurance policies and latest
statements; investment and bank statements, including retirement accounts; a Social
Security statement; liability contracts/debt statements including family loans; and copies
of wills, durable powers of attorney, trusts, prenuptial agreements, divorce decrees,
business entity formation, gift tax returns, and other legal documents.
What type of questions should a financial planner ask? Open-ended or close-ended? -
ANSWER-The planner should make the questions as open ended as possible,
prompting the client to answer in the client's own words.
Personal assumptions - ANSWER-based on client-related variables, such as retirement
age(s), life expectancy(ies), income needs, risk factors, time horizon, and special needs
Economic assumptions, - ANSWER-based on economic-based data or performance
(current and/or historic), such as inflation rates and investment returns
Due to its importance in the financial planning process, this item is regularly tested on
the CFP® exam, particularly in case studies. - ANSWER-Before making
recommendations to a client, the financial planning practitioner must assess the client's
financial situation and determine the likelihood of reaching the stated objectives by
continuing present activities. By analyzing and evaluating the client's current course of
action, a financial planner can accurately identify a client's financial strengths and
weaknesses.
The recommendation(s) must be consistent with and will be directly affected by the
following: - ANSWER-Mutually defined scope of the engagement Mutually defined client
goals, needs, and priorities Quantitative and qualitative data provided by the client
Personal and economic assumptions Practitioner's analysis and evaluation of client's
current situation Alternative(s) selected by the practitioner.
, Asset Accumulation Phase - ANSWER-a client is usually in this phase until
approximately age 45 or later if the client's children are not yet independent.
The beginning of this phase is characterized by the following: Limited excess funds for
investing, High degree of debt to net worth, Low net worth, Lack of concern for risks
As the person moves through this phase, there is increased cash available for
investments, reduced use of debt as a percentage of total assets, and increased net
worth.
Conservation or protection phase - ANSWER-a client is usually in this phase from
approximately age 45-60 or immediately preceding the client's planned retirement date.
This may last throughout the client's working life or, in some cases, until death.
This phase is characterized by the following: Increases to cash flow, assets, and net
worth Decreases in proportionate use of debt
People generally become more risk averse as more assets are acquired. Thus, they
are more concerned about losing what they have acquired than acquiring more; and
become aware of and are concerned with many risks they ignored at the beginning of
the asset accumulation phase, including an increased awareness of life's risks (e.g.,
untimely death, unemployment, or disability)
Distribution or gifting phase - ANSWER-a client is usually in this phase from
approximately age 60, or the planned retirement date, until the date of death. At the
beginning of this phase, a person may remain in both the asset accumulation and the
conservation or protection phases. For many people, there is a period when they are
being influenced by all three phases simultaneously, although not necessarily to the
same degree. When clients purchase new cars for adult children, pay for a grandchild's
private school tuition, or treat themselves to expensive vacations, they are likely to be in
the distribution or gifting phase. Generally, this phase is characterized by the following:
Distribution strategies (e.g., lifetime gifts to heirs) Implementation of estate planning
strategies High net worth and cash flow Low debt
For CFP® marks, do the following: - ANSWER-Always use capital letters. Never use
periods. Always use the ® symbol. Always use with one of CFP Board's approved
nouns (certificant, professional,
practitioner, certification, mark, or exam) unless directly following the name of the
individual certified by CFP Board.
Always associate with the individual(s) certified by CFP Board.
For CERTIFIED FINANCIAL PLANNERTM marks, do the following: - ANSWER-Always
use capital letters or small-cap font. Always use the TM symbol. Always use with one of
CFP Board's approved nouns (certificant, professional,
practitioner, certification, mark, or exam) unless directly following the name of the
individual certified by CFP Board.
Always associate with the individual(s) certified by CFP Board.
WITH COMPLETE SOLUTIONS
The areas you may explore with clients in a comprehensive plan would include -
ANSWER-retirement, education or other accumulation goals, emergency reserves
goals, debt management goals and concerns, investment management concerns,
health insurance concerns, a disability contingency plan, a loss-of-life contingency plan,
a long-term care needs contingency plan, property and liability concerns, a legal
documents and estate planning distribution plan, and anticipated changes in lifestyle,
family, health, or other concerns.
Quantitative data to collect through the interview process includes - ANSWER-cash flow
statements (most clients won't have one, but the planner should construct one);
benefit package descriptions; copies of personal insurance policies and latest
statements; investment and bank statements, including retirement accounts; a Social
Security statement; liability contracts/debt statements including family loans; and copies
of wills, durable powers of attorney, trusts, prenuptial agreements, divorce decrees,
business entity formation, gift tax returns, and other legal documents.
What type of questions should a financial planner ask? Open-ended or close-ended? -
ANSWER-The planner should make the questions as open ended as possible,
prompting the client to answer in the client's own words.
Personal assumptions - ANSWER-based on client-related variables, such as retirement
age(s), life expectancy(ies), income needs, risk factors, time horizon, and special needs
Economic assumptions, - ANSWER-based on economic-based data or performance
(current and/or historic), such as inflation rates and investment returns
Due to its importance in the financial planning process, this item is regularly tested on
the CFP® exam, particularly in case studies. - ANSWER-Before making
recommendations to a client, the financial planning practitioner must assess the client's
financial situation and determine the likelihood of reaching the stated objectives by
continuing present activities. By analyzing and evaluating the client's current course of
action, a financial planner can accurately identify a client's financial strengths and
weaknesses.
The recommendation(s) must be consistent with and will be directly affected by the
following: - ANSWER-Mutually defined scope of the engagement Mutually defined client
goals, needs, and priorities Quantitative and qualitative data provided by the client
Personal and economic assumptions Practitioner's analysis and evaluation of client's
current situation Alternative(s) selected by the practitioner.
, Asset Accumulation Phase - ANSWER-a client is usually in this phase until
approximately age 45 or later if the client's children are not yet independent.
The beginning of this phase is characterized by the following: Limited excess funds for
investing, High degree of debt to net worth, Low net worth, Lack of concern for risks
As the person moves through this phase, there is increased cash available for
investments, reduced use of debt as a percentage of total assets, and increased net
worth.
Conservation or protection phase - ANSWER-a client is usually in this phase from
approximately age 45-60 or immediately preceding the client's planned retirement date.
This may last throughout the client's working life or, in some cases, until death.
This phase is characterized by the following: Increases to cash flow, assets, and net
worth Decreases in proportionate use of debt
People generally become more risk averse as more assets are acquired. Thus, they
are more concerned about losing what they have acquired than acquiring more; and
become aware of and are concerned with many risks they ignored at the beginning of
the asset accumulation phase, including an increased awareness of life's risks (e.g.,
untimely death, unemployment, or disability)
Distribution or gifting phase - ANSWER-a client is usually in this phase from
approximately age 60, or the planned retirement date, until the date of death. At the
beginning of this phase, a person may remain in both the asset accumulation and the
conservation or protection phases. For many people, there is a period when they are
being influenced by all three phases simultaneously, although not necessarily to the
same degree. When clients purchase new cars for adult children, pay for a grandchild's
private school tuition, or treat themselves to expensive vacations, they are likely to be in
the distribution or gifting phase. Generally, this phase is characterized by the following:
Distribution strategies (e.g., lifetime gifts to heirs) Implementation of estate planning
strategies High net worth and cash flow Low debt
For CFP® marks, do the following: - ANSWER-Always use capital letters. Never use
periods. Always use the ® symbol. Always use with one of CFP Board's approved
nouns (certificant, professional,
practitioner, certification, mark, or exam) unless directly following the name of the
individual certified by CFP Board.
Always associate with the individual(s) certified by CFP Board.
For CERTIFIED FINANCIAL PLANNERTM marks, do the following: - ANSWER-Always
use capital letters or small-cap font. Always use the TM symbol. Always use with one of
CFP Board's approved nouns (certificant, professional,
practitioner, certification, mark, or exam) unless directly following the name of the
individual certified by CFP Board.
Always associate with the individual(s) certified by CFP Board.
