CFP Exam 1 - Fundamentals of Financial
Planning Questions and Multiple
Choices and Verified Answers 2025
Which step in the financial planning process comes before "Monitoring Progress
and Updating"?
A)
Presenting the Financial Planning Recommendation(s)
B)
Analyzing the Client's Current Course of Action and Potential Alternative Course(s)
of Action
C)
Understanding the Client's Personal and Financial Circumstances
D)
Implementing the Financial Planning Recommendation(s) - CORRECT ANSWERS
Implementing the Financial Planning Recommendations
An example of internal data is
A)
The current tax rates.
B)
The expected inflation.
C)
The client's goals.
D)
The planner's education. - CORRECT ANSWERS The client's goals.
Tax rates and expected inflation rates are examples of external data. A planner's
education is neither internal nor external data.
Which of the following is NOT considered a critical element of an engagement
letter?
A)
The agreed-upon scope of the work
B)
The time horizon for the completion of the work
C)
A description of the fees and costs
D)
,A summary of the planner's assumptions - CORRECT ANSWERS A summary of the
planner's assumptions
The scope of the work to be performed, the time horizon for the completion of the
work, and a description of the fees and costs are all considered to be critical
elements of an engagement letter.
During which step of the financial planning process would a planner prepare and
analyze financial statements?
A)
Identifying and Selecting Goals
B)
Understanding the Client's Personal and Financial Circumstances
C)
Analyzing the Client's Current Course of Action and Potential Course(s) of Action
D)
Developing the Financial Planning Recommendation(s) - CORRECT ANSWERS
Analyzing the Client's current course of action and potential course of actions
The benefits that accrue to a client from using a financial planner to prepare a
financial plan include all the following except:
A)
The financial planner is subjective and knowledgeable.
B)
A professional planner will include metrics in the financial plan.
C)
A financial planner will identify risks in the process.
D)
The use of a financial planner will provide the client with an increased awareness of
opportunity costs. - CORRECT ANSWERS The financial planner is subjective and
knowledgeable.
Financial planners are objective, not subjective.
Which of the following statements correctly describes the regulatory environment
of the financial planning profession?
A)
A comprehensive financial planner may be subject to regulations from many state
and federal regulators across a variety of planning agencies.
B)
The U.S. Securities and Exchange Commission (SEC) is the primary regulatory
authority of the financial planning industry and, for most advisors, the only relevant
authority.
C)
Independent advisors must decide whether to be subject to state or federal
regulatory authorities.
,D)
The Dodd Frank Act of 2010 unified and centralized regulation of
the financial planning industry at the federal level. - CORRECT ANSWERS A) A
comprehensive financial planner may be subject to regulations from many state and
federal regulators across a variety of planning agencies.
All of the following are considered to be in line with the developmental paradigm, or
the developmental school of thought, EXCEPT:
A)
Human development occurs in stages over time.
B)
Humans develop and progress in a predictable sequence.
C)
Results of disruptions in any stage of an individual's development are completely
unpredictable.
D)
Being mindful of a client's age and life situation can help inform a planner's
recommendations and communication style. - CORRECT ANSWERS Results of
disruptions in any stage of an individual's development are completely
unpredictable.
The developmental paradigm assumes that all humans develop and progress in a
predictable sequence. regardless of their cause, disruptions at a particular stage of
that individual's development will result in predictable problems, symptoms and
behavior.
The developmental, humanistic, and cognitive-behavioral approaches to
counseling are commonly applied in the financial planning context. Which of the
following skills or behaviors is uniquely found amount planners who employ the
humanistic approach?
A)
Active listening
B)
Emphasizing freedom of choice and personal responsibility
C)
Identifying environmental causes of behavior
D)
A focus on childhood experiences - CORRECT ANSWERS Emphasizing freedom of
choice and personal responsibility.
The other approaches instead tend to emphasize the relative importance of the
environment (cognitive-behavioral) or past family dynamics (developmental). All
approaches support active listening, reflection, and the supportive challenging of
clients' ideas and behaviors.
One of the most reported interruptions or disruptions in passive listening is when
, A)
a seminar moderator interrupts the presentation.
B)
a friend asks you questions about the presenter's speech.
C)
instead of actively listening, the listener is thinking about what he or she may say in
response to what is being discussed.
D)
the speaker takes too many breaks. - CORRECT ANSWERS instead of actively
listening, the listener is thinking about what he or she may say in response to what
is being discussed.
All of the following describe anchoring except:
A)
Anchoring involves attaching one's thoughts to a reference point even though the
reference point may not be logically relevant or pertinent to the issue in question.
B)
Anchoring is also known as conservatism or belief perseverance.
C)
Anchoring is fairly common in situations in which decisions are being made that are
repetitive and customary.
D)
Anchoring is fairly common in situations in which decisions are being made that are
novel to the decision maker. - CORRECT ANSWERS Anchoring is fairly common in
situation in which decisions are being made that are repetitive and customary.
Anchoring, also known as conservatism or belief perseverance, involves attaching
one's thoughts to a reference point even though the reference point may not be
logically relevant or pertinent to the issue in question. Anchoring is fairly common
in situations where decisions are being made that are novel, not repetitive, to the
decision maker.
All of the following are differences between traditional and behavioral finance
theories EXCEPT:
A)
Only in traditional finance theory is the scientific method applied to understanding
investor behavior.
B)
Only in behavioral finance theory are investors said to make errors and have biases.
C)
Only according to traditional finance theory are markets assumed to be efficient.
D)
Only in traditional finance theory are investors said to act rationally. - CORRECT
ANSWERS Only in traditional finance theory is the scientific method applied to
understanding investor behavior.
Planning Questions and Multiple
Choices and Verified Answers 2025
Which step in the financial planning process comes before "Monitoring Progress
and Updating"?
A)
Presenting the Financial Planning Recommendation(s)
B)
Analyzing the Client's Current Course of Action and Potential Alternative Course(s)
of Action
C)
Understanding the Client's Personal and Financial Circumstances
D)
Implementing the Financial Planning Recommendation(s) - CORRECT ANSWERS
Implementing the Financial Planning Recommendations
An example of internal data is
A)
The current tax rates.
B)
The expected inflation.
C)
The client's goals.
D)
The planner's education. - CORRECT ANSWERS The client's goals.
Tax rates and expected inflation rates are examples of external data. A planner's
education is neither internal nor external data.
Which of the following is NOT considered a critical element of an engagement
letter?
A)
The agreed-upon scope of the work
B)
The time horizon for the completion of the work
C)
A description of the fees and costs
D)
,A summary of the planner's assumptions - CORRECT ANSWERS A summary of the
planner's assumptions
The scope of the work to be performed, the time horizon for the completion of the
work, and a description of the fees and costs are all considered to be critical
elements of an engagement letter.
During which step of the financial planning process would a planner prepare and
analyze financial statements?
A)
Identifying and Selecting Goals
B)
Understanding the Client's Personal and Financial Circumstances
C)
Analyzing the Client's Current Course of Action and Potential Course(s) of Action
D)
Developing the Financial Planning Recommendation(s) - CORRECT ANSWERS
Analyzing the Client's current course of action and potential course of actions
The benefits that accrue to a client from using a financial planner to prepare a
financial plan include all the following except:
A)
The financial planner is subjective and knowledgeable.
B)
A professional planner will include metrics in the financial plan.
C)
A financial planner will identify risks in the process.
D)
The use of a financial planner will provide the client with an increased awareness of
opportunity costs. - CORRECT ANSWERS The financial planner is subjective and
knowledgeable.
Financial planners are objective, not subjective.
Which of the following statements correctly describes the regulatory environment
of the financial planning profession?
A)
A comprehensive financial planner may be subject to regulations from many state
and federal regulators across a variety of planning agencies.
B)
The U.S. Securities and Exchange Commission (SEC) is the primary regulatory
authority of the financial planning industry and, for most advisors, the only relevant
authority.
C)
Independent advisors must decide whether to be subject to state or federal
regulatory authorities.
,D)
The Dodd Frank Act of 2010 unified and centralized regulation of
the financial planning industry at the federal level. - CORRECT ANSWERS A) A
comprehensive financial planner may be subject to regulations from many state and
federal regulators across a variety of planning agencies.
All of the following are considered to be in line with the developmental paradigm, or
the developmental school of thought, EXCEPT:
A)
Human development occurs in stages over time.
B)
Humans develop and progress in a predictable sequence.
C)
Results of disruptions in any stage of an individual's development are completely
unpredictable.
D)
Being mindful of a client's age and life situation can help inform a planner's
recommendations and communication style. - CORRECT ANSWERS Results of
disruptions in any stage of an individual's development are completely
unpredictable.
The developmental paradigm assumes that all humans develop and progress in a
predictable sequence. regardless of their cause, disruptions at a particular stage of
that individual's development will result in predictable problems, symptoms and
behavior.
The developmental, humanistic, and cognitive-behavioral approaches to
counseling are commonly applied in the financial planning context. Which of the
following skills or behaviors is uniquely found amount planners who employ the
humanistic approach?
A)
Active listening
B)
Emphasizing freedom of choice and personal responsibility
C)
Identifying environmental causes of behavior
D)
A focus on childhood experiences - CORRECT ANSWERS Emphasizing freedom of
choice and personal responsibility.
The other approaches instead tend to emphasize the relative importance of the
environment (cognitive-behavioral) or past family dynamics (developmental). All
approaches support active listening, reflection, and the supportive challenging of
clients' ideas and behaviors.
One of the most reported interruptions or disruptions in passive listening is when
, A)
a seminar moderator interrupts the presentation.
B)
a friend asks you questions about the presenter's speech.
C)
instead of actively listening, the listener is thinking about what he or she may say in
response to what is being discussed.
D)
the speaker takes too many breaks. - CORRECT ANSWERS instead of actively
listening, the listener is thinking about what he or she may say in response to what
is being discussed.
All of the following describe anchoring except:
A)
Anchoring involves attaching one's thoughts to a reference point even though the
reference point may not be logically relevant or pertinent to the issue in question.
B)
Anchoring is also known as conservatism or belief perseverance.
C)
Anchoring is fairly common in situations in which decisions are being made that are
repetitive and customary.
D)
Anchoring is fairly common in situations in which decisions are being made that are
novel to the decision maker. - CORRECT ANSWERS Anchoring is fairly common in
situation in which decisions are being made that are repetitive and customary.
Anchoring, also known as conservatism or belief perseverance, involves attaching
one's thoughts to a reference point even though the reference point may not be
logically relevant or pertinent to the issue in question. Anchoring is fairly common
in situations where decisions are being made that are novel, not repetitive, to the
decision maker.
All of the following are differences between traditional and behavioral finance
theories EXCEPT:
A)
Only in traditional finance theory is the scientific method applied to understanding
investor behavior.
B)
Only in behavioral finance theory are investors said to make errors and have biases.
C)
Only according to traditional finance theory are markets assumed to be efficient.
D)
Only in traditional finance theory are investors said to act rationally. - CORRECT
ANSWERS Only in traditional finance theory is the scientific method applied to
understanding investor behavior.
