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CFP Exam Prep - Fundamentals of
Financial Planning (15%)-Graded A
A prospective client comes to you and he wants you to do some financial planning for him, but he is unwilling to disclose relevant information. What should you do? A. Refer the prospective client to another planner. B. Have the client sign a waiver. C. Ask the client for more information or terminate the engagement. D. Limit the scope of the engagement and work with the information provided. - ANSWER-Solution: The correct answer is C. In this situation, the appropriate response is to ask the client for the relevant information; if the information is not provided, then terminate the engagement. A planner must gather all relevant data and would be unable to provide appropriate recommendations without all relevant data, which makes "D" incorrect. A shift "up and to the left" of the supply curve occurs when: A. Some firms leave the industry. B. Government reduces regulations on production. C. The cost of inputs goes down. D. Taxes go down. E. Competition increases. - ANSWER-Solution: The correct answer is A. The supply curve shifts up and to the left, resulting in a decrease of a good or service being supplied, when firms leave an industry or market. When firms leave an industry, less of a good or service is produced at all price levels. A small business owner wants to create a business succession plan, but the CFP® professional does not have any experience with succession planning for small businesses. However, his colleague has extensive experience. What should the CFP® professional do? A. Turn down the engagement B. Disclose to the Client the use of a third party and prepare the plan, with the help of his colleague as a resource C. Explain to the business owner that it's outside the scope of his expertise D. Do the necessary research and figure out how to prepare a succession plan - ANSWER-Solution: The correct answer is B. The duty of competence requires the planner to either refer the client to an expert or bring an expert into the engagement. Preparing the plan with the help of an expert is acceptable under the Code and Standards. A is incorrect because the Code of Ethics and Standards of Conduct simply require the planner to either refer the client to an expert or bring an expert into the engagement.
C is incorrect because the planner can still accept the engagement, but must bring an expert into the engagement. D is incorrect because the principle of competence requires the planner to refer the client to an expert or bring an expert into the engagement. As a rule of thumb, it is best if consumer debt does not exceed: A. 20% of net income. B. 20% of gross income. C. 3 to 6 months of expenses. D. 36% of gross monthly income. - ANSWER-Solution: The correct answer is A. As a rule of thumb, consumers should not be spending more than 20% of their take home pay (net income) on consumer debt (credit cards). This rule of thumb should factor along with the other recommendations for housing debt to be limited to 28% of gross income, and total debt not to exceed 36% of gross income. Bill is a CFP® professional with an insurance license and he received a call today from John, a prospective client. John was referred to Bill by one of Bill's current clients. John explained that he and his wife recently had their first child and he would like to purchase a twenty-year term life insurance policy from Bill with a face value of one million dollars from an AA or higher rated Insurer. According to the Code of Ethics, which of the following would be acceptable actions for Bill as a CFP® professional? A. Gather sufficient information about the client to complete the application and execute the transaction after John signs a letter acknowledging the limited nature of the engagement. B. Act as a fiduciary, complete the life insurance application and submit to underwriting after providing information about compensation, any potential conflicts of interest, contact information and any other material informatio - ANSWER-Solution: The correct answer B. B is the best answer. Bill is able to sell a financial product as a CFP® professional without engaging in financial planning. He owes John the duties to a client selling a financial asset including acting as a fiduciary (1. a. b. and c) as well as providing the client with information (10). A Is not the best answer a written scope of engagement is not required in this circumstance. This transaction is not financial planning and does not require integration. C is not the best answer material conflicts of interest do not need to be in writing. D is not the best answer, the CFP® professional is required to provide information and act as a fiduciary, making (B) a better option than (D). Cathy and John Gonnerman would like to retire in twelve years. At that time, they would like to have accumulated $350,000 in today's dollars. To achieve this goal, they plan to invest a sum at the end of each year that will remain constant in purchasing power. They anticipate average inflation at 6% and have an after tax investment earning capacity of 9%. What payment is required at the end of the first year for them to reach their goal? A. $34,806. B. $26,394.
If you thought $319,123.10 was correct, your calculator is likely in END mode when it should be in BEGIN mode. Charles needs an income stream at the beginning of the year. David has won the Illinois state lottery. He must decide whether to receive annual payments of $250,000 at the beginning of each year for the next 20 years, or a lump sum payout. What lump sum amount does David need to receive to equal the $250, payments for the next 20 years, if he can earn an 8% return on his investments, assuming inflation is 3%? A. $2,454, B. $2,650, C. $2,875, D. $3,307,511 - ANSWER-Solution: The correct answer is B. This is a present value of an annuity due problem. So, N = 20, I = 8, PV = ?, PMT = 250,000, FV = 0. Put your calculator in BEGIN mode and solve for PV. Inflation is not necessary in this calculation, lotto winnings income streams will not increase for inflation, they are the equivalent to a fixed annuity. Federal authorities govern or influence the insurance industry in the following manner: I. The federal government NEVER influences insurance regulations. That is left to the individual states. II. Through the Internal Revenue Codes. III. Through the Securities Exchange Commission. IV. Through the Employees Retirement Income Securities Act. A. I only. B. II, III and IV only, C. III and IV only D. II and IV only. - ANSWER-Solution: The correct answer is B. Insurance is regulated by the states from the prospective of what policies can be issued in a particular state, what companies can do business in a particular state. Keep in mind, if an insurance company wants to offer tax benefits, retirement benefits, or variable investments, other governing bodies will be involved. Federal authorities govern the insurance industry in the following instances and manner: I. is false if the insurance companies want to offer any extra benefits, tax or otherwise. II. If insurance policies want to keep the tax benefits, they must follow IRS Codes. III. If the policy is a variable policy, the Securities Exchange Commission will govern the variable investments. IV. If Insurance is offered as an employee benefit, the policy must abide by rules set by the Employees Retirement Income Securities Act. For many years, Samuel has been employed as a financial advisor at a leading brokerage firm where he conducts suitability reviews and makes investment recommendations for his clients. He recently obtained his CFP® certification and has just signed an agreement with Thomas, a new client, for a comprehensive financial
plan. According to the Code of Ethics and Standards of Conduct, all of the following represent requirements for Samuel in his engagement with Thomas EXCEPT: A. Samuel must address if he has implementation responsibilities. B. Samuel must act as a fiduciary in his relationship with Thomas. C. Samuel must disclose to Thomas the existence of any bankruptcy where Samuel was a control person. D. Samuel must provide Thomas with information regarding how Thomas pays for products, services and additional incurred costs including surrender charges and sales loads. - ANSWER-Solution: The correct answer is A. A is the best answer. Implementation is a required step, and only needs to be addressed in the beginning if it is specifically excluded from the engagement. B, C and D are required of any CFP® professional selling a financial asset or providing professional advice. G Washington, a CFP® certificant ("Grievant") contacted CFP Board to file a grievance against A Burr, another CFP® professional ("Respondent"). The day prior, Grievant had an initial, information-gathering meeting with Thom and Martha, a married couple who were prospective clients (collectively, "Clients"). During the meeting, Grievant found a promissory note related to a margin loan from Thom's account with Burr to a business owned and controlled by A Burr's wife ("Business"). Grievant informed CFP Board that the Clients declined to get involved in the grievance and asked to be left out of any investigation. Burr visited Grievant's office on several occasions without an appointment. Upon Grievant's request, CFP Board sent a letter to Burr recommending that he refrain from further contact with Grievant, his staff and his clients. Burr sent CFP Board a response stating that there were no transaction authorization form - ANSWER- Solution: The correct answer is D. The following answers are taken from pre-October 2019 rule changes but reflect the outcome of an actual disciplinary case. The Commission presumed that Respondent was not acting in Husband's best interest because Respondent: 1) borrowed funds from Husband; and 2) was neither a family member of the Clients nor a financial institution. The Commission found that by not acting in Husband's best interest and by recommending the investment, Respondent failed to exercise reasonable and prudent judgment in providing professional services. A is not correct since the clients did not forbid Washington from submitting the complaint, although they were clearly not in support. B is not correct because the Board considered Burr's email to Thom to indicate his involvement in the loan to his wife's business. C is not correct. Although the Board considered the support of Thom to be a mitigating factor, they did not overcome Burr's actions. The Commission issued a Private Censure to Respondent. After October, 2019 rule changes the outcome of the case would likely have been less favorable for the CFP® professional. Additional duties as a fiduciary, including the duty to report compensation from or to related businesses (owned by the CFP® professional's wife) were violated. Hannah currently has $715,000 saved. She will retire in 10 years and wants to take $100,000 income for 25 years at the beginning of each year. She also wishes to have
exceeded Hershel's initial deposit. By this time, Hershel's account was only worth $15,000. The New York Stock Exchange ("NYSE") initiated an inquiry regarding Hershel's matter. Jonah and the NYSE entered into a Stipulation and Consent to Penalty. Jonah consented to the following findings: 1. Respondent engaged in conduct inconsistent with just and equitable principles of trade when he: 1) recommended transactions in the accounts of a customer which were unsuitable in light of his investment objectives, - ANSWER-Solution: The correct answer is D. The following answers are taken from pre-October 2019 rule changes but reflect the outcome of an actual disciplinary case. Since at the time of the conduct Jonah was not a CFP® professional and was not engaged in financial planning, he was not held to the duty of care of a fiduciary to act in the best interest of the client. The Commission issued a Private Censure to Jonah and considered the mitigating factors Jonah provided at his hearing. All of the other Rules were clearly violated by Jonah. Post October 2019 rule changes CFP Board may have acted the same, however with an emphasis on fiduciary duty a more substantial outcome may be levied (suspension or revocation of CFP® certification). If a CFP® professional works for an investment advisor that charges only fees for her professional activities and a party affiliated with the investment advisor receives sales based compensation, how must the CFP® professional describe her method of compensation? A. Salary B. Fee only C. Fee Based D. Sales Related - ANSWER-Solution: The correct answer is C. Duties owed to clients (12) defines fee-based as a compensation type allowing client fees, commissions and sales charges. Fee-Based should not be used to mislead clients and imply a fee only relationship. a) May not use "Fee Based" in a manner that suggest a CFP® Professional or their firm is "Fee Only". b) Must clearly state a CFP® Professional or their firm can receive fees and commissions. In a situation where an employee has accepted workers compensation benefits, an employer is protected from the following: A. A suit by the employee's family. B. A third party suit. C. A suit by the employee. D. A suit by the employee's spouse. - ANSWER-Solution: The correct answer is C. Options "A", "B", and "D" are exposures for an employer even when the employee has already accepted Workers Compensation. Jamal Knight purchased a plot of raw land for $25,000 this week. His real estate agent is confident the land will appreciate at an average annual compound rate of 14.72% per year. Jamal wants to sell the land for $75,000. Approximately how many years must he own the property to receive $75,000 when he sells it?
A. Six years. B. Seven years. C. Eight years. D. Nine years. - ANSWER-Solution: The correct answer is C. N =? i = 14. PV = (25,000) PMT = 0 FV = 75, Solve for N: 8 John, a CFP® professional, raises his compensation charged for assets under management by 50 basis points, does John have to inform his clients? A. Yes, he must disclose the change in compensation with 10 days. B. Yes, he must timely disclose the change in compensation. C. Yes, he must immediately disclose the change in compensation. D. Yes, he must disclose the change in compensation within 45 days. - ANSWER- Solution: The correct answer is B. According to the CFP Board Code and Standards, the certificant shall timely disclose to the client any material changes to compensation. A is incorrect because there is not a 10 day requirement. C is incorrect because "immediately" is not required, not defined in the code of ethics. D is incorrect because there is not a 45 day requirement. John, age 25, is a CFP® professional and is opening his own financial planning practice next week. John is concerned about minimizing his risk of loss of personal assets resulting from liability associated with his practice. What should John do to minimize his risk of loss of personal assets? A. John should follow CFP Board guidelines on acting as a fiduciary with a duty of care, loyalty and following client instructions. B. John should form a multi party LLC to insulate liability. C. John should purchase a general liability insurance policy and an errors and omissions policy. D. John should use a suitability standard when evaluating and recommending investment alternatives, and other financial planning advice, for clients. - ANSWER- Solution: The correct answer A. Acting as a fiduciary forces John to follow a process putting his client's best interest first and integrating sound decision making in his practice. Doing something to keep yourself out of trouble is proactive. Insurance is reactive. It only comes into play after there is a problem, it does not stop or prevent a problem from happening. Car insurance does not stop an accident, safe driving does. Insurance is there to indemnify. Setting up a practice following a fiduciary standard and putting the clients best interest ahead of your own will keep you out of trouble. E&O should be purchased as a best practice for if something goes wrong. No one buys insurance with the thought it will go wrong, at least we hope not.
professional license is required to move to the always bar list. C is incorrect because there is no five year expiration period on the suspension of the insurance license D is not correct because although the bankruptcy alone would not constitute presumed unacceptable behavior, it is a consideration when accompanied by any other behavior on the list, such as the suspension of the insurance license. Mary is a CFP® professional and is in the Analyzing the Client's Current Course of Action and Potential Alternative Course(s) of Action step of the financial planning process. Mary is developing a capital needs analysis for her client and has established assumptions for tax rates, investment returns and inflation rates. Her client disagrees with Mary's assumptions regarding inflation and other economic variables used in the retirement needs analysis calculation. What should Mary do next? A. If Mary and her client are unable to agree on the assumptions used for the retirement capital needs analysis, Mary should limit the scope of the engagement and exclude retirement capital needs analysis from her recommendations. B. Mary should use the assumptions that result in the most conservative recommendations for retirement funding. C. The CFP Board's Standards of Professional Conduct require Mary to disengage from the client - ANSWER-Solution: The correct answer is A. The best answer is A. Mary can continue with the client. The principle of integrity allows for differences of opinions with client relationships. However without the client and planner agreeing to an outcome Selecting and Implementing Actions, Products, or Services (Practice standard 6.d) would be inappropriate. The provision that all credit reports are required to contain accurate, relevant, and current information is a part of: A. The Truth in Lending Act. B. The Consumer Credit Protection Act. C. The Fair Credit Reporting Act. D. The Fair Credit Billing Act. - ANSWER-Solution: The correct answer is C. The Fair Credit Reporting Act (FCRA) also allows individuals to challenge information deemed to be incorrect on their credit report and provides for changing that information if the creditor does not respond with a specific time period. Which of the following are exceptions under the definition of "investment advisor"? I. Banks that are NOT investment companies. II. Accountants or lawyers whose investment advice is "solely incidental" to the practice of their profession. III. Persons whose advice relates only to securities issued or guaranteed by the U.S. government. IV. Publishers of financial publications that have regular and general circulation. A. I and III only. B. II and IV only. C. I, II and IV only. D. I, II, III and IV. - ANSWER-Solution: The correct answer is D.
Exceptions do not come under the jurisdiction of the Investment Advisor's Act and need not register as investment advisors. Which of the following are included in the first step of the financial planning process (Understanding the Client's Personal and Financial Circumstances) I. Identifying Potential Goals II. Obtaining Qualitative and Quantitative Information III. Analyzing Information IV. Addressing Incomplete Information A. II, III and IV only. B. I, II and IV only. C. II and IV only. D. I, II, III and IV. - ANSWER-Solution: The correct answer is A. Elements II, III and IV are required in the first step of the financial planning process. Step 1 included analyzing information, not to be confused with Step 3, Analyzing the Client's Current Course of Action. Element I - Identifying Potential Goals, should occur in the second step of the planning process (Identifying and Selecting Goals). Which of the following are necessary inputs to determine a client's goals? I. Client's attitude II. Clients values III. Client's current income IV. Client's expectations of the future A. I and II only. B. II, III, and IV only. C. I, II and IV only. D. I, II and III only. - ANSWER-Solution: The correct answer is C. A client's attitudes, values, expectations, and time horizon are all necessary to determine financial goals, needs, and priorities. Income will come in as part of the analysis phase; can (and how) they meet they their goals and needs? A wealthy couple may want their child to fund their own education to learn the value of money and education. Their goal has little to do with their income level. Choice A is incorrect because it is lacking the client's expectations. Choice B is incorrect because using a client's current income is not a variable for determining goals and it is missing the client's attitude. Choice D is incorrect because using the client's current income is not a variable for determining goals and it is missing the client's expectations. Which of the following can the Federal Reserve do to reduce the money supply? I. Purchase Treasury securities. II. Decrease the reserve requirements for banks. III. Raise the discount rate. A. I only. B. II only. C. III only. D. I and III only. - ANSWER-Solution: The correct answer is C.
$75,000 in various Certificates of Deposit - Covered by FDIC $50,000 in a Money Market Mutual Fund - Not Covered $200,000 in an IRA Rollover - We don't know if it would be covered. No investment was stated, do not assume. $25,000 Passbook Savings (Joint with son) - Covered $25,000 Checking Account (Joint with daughter) Covered TOTAL FDIC COVERAGE: 125, The question asked "How much is currently insured by FDIC", NOT what Mrs. Hoffman was covered for. IF the question had asked "How much is Mrs. Hoffman insured for under the FDIC?" the answer would be: $75,000 + $12,500 + $12,500 = $100,000, due to the joint accounts with her children. On December 31st Lisa purchased a home with a 20-year mortgage for $150,000 and an 8% interest rate. What is Lisa's principal reduction for the first year? A. $15, B. $3, C. $12, D. $10,635 - ANSWER-Solution: The correct answer is B. N = 20 × 12 = 240 i = 8/12 =. PV = 150, PMT =? FV = 0 PMT = 1,254. TI BAII+ 2nd AMORT (PV key) Screen will show P1 =, key in 1 for the start of the mortgage, ENTER Down arrow Screen will show P2 =, key in 12 for the first 12 months, ENTER Down arrow shows balance Down arrow again shows principal Down arrow again shows interest Tips: Ensure your calculator is in the END mode and you've cleared previous work. Ralph, a CFP® professional, was the financial advisor for Sue and her husband Bob, who had recently passed away. Bob's assets included an IRA with Sue as the named beneficiary. Ralph advised Sue that she could disclaim her interest as beneficiary of the IRA, which would allow its value to pass to her two children. However, Ralph did not notify the custodian issuer of the IRA that Sue had disclaimed her interest in the IRA. Ralph acknowledged during his hearing with the Disciplinary and Ethics Commission that he could have annuitized the existing annuity in the IRA, which would have been less costly for Sue than purchasing a new annuity for each of her children. The Commission determined that annuitizing the existing annuity would have avoided early withdrawal penalties and the effects on taxable income on Sue's children, and issued a Public Letter of Admonition to Ralph. The Commission ordered Ralph to complete, in a - ANSWER-Solution: The correct answer is C.
(Anonymous Case History 19334) Ralph did not violate this rule because there was no information provided to indicate that Ralph treated the client without dignity or respect. The question was looking for the false statement. A incorrectly answers the question as Ralph did fail to act with competence. B incorrectly answers the question as Ralph did not act with a duty of loyalty or care, creating a more expensive and complicated situation for the client and not maximizing their legacy. D incorrectly answers the question as the CFP® professional acted recklessly. Regulation Z, issued by the Federal Reserve Board, is a part of the Consumer Credit Protection Act. Regulation Z requires that: A. Lenders must disclose the items purchased. B. Lenders must be given a "cooling off" period. C. The dollar amount of finance charges and the annual percentage rate be disclosed. D. The length of time to pay the debt be disclosed. - ANSWER-Solution: The correct answer is C. With the advent of Regulation Z, consumers were able to see the actual cost (including finance changes) that they were paying in any transaction they were making. Robert, a CFP® professional, performed a needs analysis concerning Jack's life insurance situation last year and sold him a universal life policy under a limited scope engagement. This year, Jack wants Robert to evaluate his investment allocation, risk tolerance and recommend some mutual funds. All of the following information is required to be provided to Jack according to the Code of Ethics and Standards of Conduct EXCEPT? A. Terms of the engagement including the scope of the engagement with any limitations, the period services will be provided and responsibilities of the Client. B. Disclosure of Economic Benefit for Referral or Engagement of Additional Persons. C. How the CFP® professional and their firm are compensated for providing products and services. D. A written agreement covering the specific obligations and responsibilities of each party. - ANSWER-Solution: The correct answer is D. Robert's obligations of disclosure to Jack require (Obligations to clients 10) disclosing answers B and C. As the engagement will require a discussion of client goals and working to meet those goals this is a financial planning engagement. As such any limitations, end date and a scope of engagement must be provided. Snidely, a CFP® professional, met with Dudley and Geezer, Dudley's father. During the meeting, Snidely entered into an oral agreement with Dudley to manage Geezer's financial affairs. Snidely did not complete a client profile of Geezer. Based on Snidely's advice, Geezer liquidated his personal savings account and issued a personal check for the same amount payable to Snidely's company ("Company"). Snidely cashed the check in the Company's account and did not create a separate account for Geezer. On Snidely's advice, Geezer later liquidated his money market account and gave the proceeds to Snidely to manage. About six months later, Snidely opened an escrow account on a deed of trust using a check made out to Snidely and the Company.
and comes after item C. D is a step in the planning process that comes after Information is provided. Suppose you have structured a budget with monthly periods as your budget intervals. Since certain expenditures such as auto insurance or a Thanksgiving charity donation do not occur every budget interval, they may be best incorporated by: A. Estimating them into every budget interval. B. Estimating them in the budget only when incurred. C. Counting on increases in income. D. Using tax refund. - ANSWER-Solution: The correct answer is A. These types of varied or periodic expenses should be accounted each recording period. An annual expense may be too large to account for at the time it is paid, better to save a little towards that goal as you go. The CFP Board Code of Ethics and Standards of Conduct prohibits a CFP® professional from doing which of the following activities? I. Commingling client funds with funds of the financial planning firm. II. Misleading a client. III. Receiving referral fees from a qualified attorney. IV. Using the initials RIA after his or her name. A. I and II only. B. I and IV only. C. II and III only. D. I , II, and IV only. - ANSWER-Solution: The correct answer is D. Commingling is prohibited, Duties Owed to Clients (15b). A CFP® professional is prohibited from misleading a client or act without integrity (Duties Owed to Clients 2). A CFP® professional is not prohibited from receiving a referral fee, though they will need to disclose the fee when performing financial planning and potentially when selling financial assets. A CFP® professional may not (8 b) intentionally or recklessly participate or assist in violation of these standards or the laws, rules and regulations governing professional services. D is a prohibited activity because RIA is not a certfication or designation and cannot be used to imply it is. A CFP® professional must comply with the laws, rules, and regulations governing Professional Services. The husband of one of your clients had his wallet stolen. He had five credit cards in his wallet when this occurred. He reported the cards as missing the next morning, but the following transactions had already occurred: (JCPenney - $350) (MasterCard - $100) (VISA - $425) (Sears - $25) (Marshall Fields - $685) What is the client's liability for the fraudulent transactions on these cards? A. $ B. $ C. $ D. $1,235 - ANSWER-Solution: The correct answer is B.
The maximum on any missing card that the client would have to pay would be $50. But remember the thief only charged $25 on the Sears Card. Therefore, the total is 4 cards times $50 plus $25, which equals $225. If the physical card is stolen, the maximum the holder can be held responsible for is up to $50 in fraudulent charges. If the credit card number is stolen and the holder still has possession of the card (such as a data breach), the holder isn't responsible for any fraudulent charges. (Fair Credit Billing Act) Which of the following is not an integrating factor CFP Board will consider in determining if a CFP® professional has engaged in financial planning with a client? A. The number of relevant elements of the Client's personal and financial circumstances that the Financial Advice may affect. B. The net worth and income of the client and how those may be affected by the Financial Advice. C. The length of time the Client's personal and financial circumstances may be affected by the Financial Advice. D. The portion and amount of the Client's Financial Assets that the Financial Advice may affect. - ANSWER-Solution: The correct answer is B. A, C and D are integration factors provided by CFP Board's Financial Planning and the Application of Practice Standards for The Financial Planning Process (4 a, b and c). Which of the following is required of a CFP® certificant engaging in financial planning with their client? A. Act as a fiduciary B. Forgo commissions associated with selling or placing a financial product C. Address all of the core financial planning subject areas D. Document all steps in the planning process with a written financial plan - ANSWER- Solution: The correct answer is A. All CFP® professionals engaging in financial planning must act as fiduciaries. Which of the following is/are true regarding registering as an investment adviser? A. No one is exempt from the fraud provisions in the Uniform Securities Act. B. Accountants do not need to register under the Investment Advisers Act of 1940. C. Bank holding companies must register under the Investment Advisers Act of 1940. D. Brokers with more than 2 clients in a neighboring state must register in that state. A. A only. B. A and B only. C. B and C only. D. B and D only. - ANSWER-Solution: The correct answer is B. Lawyers, Accountants, Teachers and Engineers (LATE) do not need to register as investment advisers. Banks do not need to register. You can have less than 5 clients outside your state and not need to register. Even if an exemption is available, they do not get out of the Anti-fraud regulations. Which of the following statements about the selected industry relative to its regulatory body and the relationship between the two are true?
III. Keep a large and current overview of economic, tax, and other factors to recognize deficiencies in a plan. IV. Know when to consult with, or bring into the engagement, experts in an area where the practitioner may need assistance. A. II and IV only. B. I, II, III and IV. C. II, III and IV only. D. I, II and IV only. - ANSWER-Solution: The correct answer is B. All of the reasons above fall under Duties Owed to Clients under the CFP® Board Code and Standards. Which one of the following actions might the Federal Reserve take when using open market operations to regulate the supply of money and the availability of credit? A. Raise or lower the discount rate that influences market purchases and sales of fixed- income securities. B. Call high-coupon Treasury bonds and allow investors to purchase newly issued Treasury bonds with lower coupons. C. "Put" corporate bonds owned by the Fed to the issuing corporation to reduce the quantity of money in the hands of businesses. D. Purchase Treasury bonds from bank investment departments. - ANSWER-Solution: The correct answer is D. The tools of the Federal Reserve include changing the discount rate, changing reserve requirements, and open market operations (which consist of either buying or selling Treasury securities depending on the Federal Reserve's desired objective). This question is asking specifically about the Federal Open Market actions, which eliminates option A, as that is not an action of the FOMC. The FOMC deals with buying and selling treasuries with banking institutions (not businesses or individual investors). That eliminates options B and C. You are a CFP® professional and you have been working with a husband and wife client over the past 5 years. The wife is 42 years old and her husband is 46 years old. They have a moderate risk tolerance for their investments. They have no children and are primarily planning for their retirement. Last week, the wife requested a private meeting between you and her. During this meeting she explained that over the past 3- months, her husband has become a compulsive gambler, often gambling illegally. As a result of significant gambling losses, he has depleted all retirement savings they managed to accumulate. She asked that you keep her meeting with you confidential and not disclose it to her husband. After reviewing recent financial statements, you determine that they are unlikely to reach any of their financial goals, due to the husbands gambling problem. According to the CFP Board's Code of Ethics, what should you do n - ANSWER-Solution: The correct answer D. The CFP® professional must act with care and loyalty with the clients. They are not required to disengage, though disengagement may be an eventual outcome of this situation. Additional information can change a planning engagement and recommendations. A is not the best answer, the CFP® may need to revise goals but
does not need to disengage. B is incorrect a CFP® is not required to inform authorities about illegal behavior. C violates the wife's confidentiality. You have been working with your clients, Jonas and Mila, who are married with one child. Their child Finn, who is 4 years old, has special needs that require around the clock care. Mila stays home to care for him while Jonas provides their only source of income. They have a good schedule and have respite care services to give Mila a break once a week so that she can take care of all her errands. They have come to you to start ensuring their own financial future along with planning for Finn's future care. They have identified obtaining life insurance as one of their goals. Based on their family dynamics, who should you propose have life insurance policies purchased as part of your plan presentation?
- Finn
- Jonas
- Mila A. Finn only B. Finn and Jonas C. Jonas and Mila D. All of the above - ANSWER-Solution: The correct answer is C. A special needs individual will often be uninsurable or not cost effective. The wage earning parent should be insured as they provide the major funding resources for the family. The care giver parent should be insured because the cost to replace their service will likely be expensive. Your client wants to receive payments of $2,500 from her investments at the beginning of each month during her retirement to supplement her pension plan benefits. Your client estimates she will need to receive this monthly payment for 35 years. If an 8.5% annual return is earned on investments, compounded monthly, what amount does your client need to have at the time of her retirement to fund her needs? A. $334, B. $337, C. $6,488, D. $6,534,879 - ANSWER-Solution: The correct answer is B. You are solving for the PV of a future cashflow. Use BEGIN mode for this calculation N=35 × 12 = 420 i = 8.5/12 =. PV =? PMT = 2, FV = 0 Solve for PV = 337,105. If you chose $334,734, your calculator is in END mode when it should be in BEGIN mode.
