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CFP > Fundamentals > Flashcards

Fundamentals Flashcards

1
Q

Responsibility is on which party in the third step of the financial planning process?

A

Planner only.

Tip: while you need to understand the order of the planning process, you should also understand which steps involve only the planner and which are inherently collaborative.

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2
Q

What are the leading economic indicators?

A
  • *Mon**ey supply
  • *Equ**ity prices
  • *Ne**w manufacturing orders
  • *Unempl**oyment data
  • *Hous**ing starts
  • *Yie**ld curve

A good way to remember a bulk of these indicators is by remembering MENU (money supply, equity prices, new manufacturing data, and unemployment).

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3
Q

What are three purposes of an IPS (investment policy statement)?

A
  • *Establ**ished client objectives
  • *Establ**ishes the limitations of the portfolio manager
  • *Us**ed to measure performance
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4
Q

What is not included in an investment policy statement?

A

Does not include investment selection.

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5
Q

What life event would require a client to contact their CFP® professional?

A

When there is a change in marital status.

Tip: while there are a number of reasons a client would contact their CFP® professional, a change in martial status bleeds into a variety of other important areas of a client’s financial life (tax, estate, etc.).

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6
Q

What is another term for the ADV Part III?

A

Form CRS (Client Relationship Summary).

This document should be in “plain English.”

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7
Q

What is an exemption to the 1940 Act?

A

Advisors that only have insurance companies as clients.

Do not confuse this with exceptions to the 1940 act.

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8
Q

Who is responsible for monetary policy?

A

The Federal Reserve (The Fed).

Do not confuse this with fiscal policy that deals with taxation and government spending.

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9
Q

Associate the term “financial risk” with ________ & ________.

A

Debt & leverage.

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10
Q

What part of the ADV must be in narrative form?

A

ADV Part II.

This is not the same as ADV Part III, known as Form CRS (Client Relationship Summary).

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11
Q

When the Federal Reserve BUYS securities on the open market, does this increase or decrease the money supply?

A

Increase.

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12
Q

When calculating a client’s total debt ratio, what should you be careful not to include?

A

Auto insurance.

You may be tempted to include insurance payments in a debt ratio because of how the question is posed during the exam. Remember to only include recurring debt obligations.

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13
Q

What does section 206 of the 1940 Act deal with?

A

Fraud or deceit.

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14
Q

When calculating an individuals saving ratio, what should you always remember to include?

A

The employer portion of a contribution to a retirement plan.

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15
Q

More than any de minimis benefit on a sale of an asset would be considered to be ________?

A

Sales related compensation.

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16
Q

When should a CFP® professional disclose the use of third parties, as well as areas of expertise?

A

Prior to entering a planning engagement.

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17
Q

Taxes are _______ on a cash flow statement?

A

An expense.

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18
Q

When the Federal Reserve SELLS securities on the open market, does this increase or decrease the money supply?

A

Decrease.

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19
Q

What are three items that need to be in writing in a financial planning engagement?

A
  • *Priv**acy policy
  • *Compen**sation disclosures
  • *Ter**ms of engagement

Remember: conflicts of interest can be delivered orally.

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20
Q

Which year should you associate Reg D?

A

1933.

The Securities Act of 1933 relates to Regulation D.

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21
Q

In which step of the PracticeStandards does the establishment of services arise?

A

Step III, analyzing the client’s course of action and potential alternative course(s) of action.

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22
Q

If a client wants the ability to fully control the assets in an account for higher education, what may be a good recommendation?

A

Coverdell Account.

While an Education Savings Account (529) may seem like a good choice, remember that the investment options and strategies may sometimes be limited in these accounts.

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23
Q

How long does a CFP® professional have to report a professional license suspension?

A

30 days.

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24
Q

Would you find the rules against borrowing money from clients in the Code of Ethics or the Standards of Conduct?

A

Standards of Conduct.

Found under Duties Owed to Clients, a CFP® professional should not lend money to, or borrow money from a client UNLESS that client is a member of the CFP® professional’s family OR the lender is in the business of lending money.

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25
Q

If a good is considered to have price inelasticity, what would happen if prices rise?

A

Revenue would also rise.

When goods are considered to be inelastic, price does not respond to changes in demand. Think about everyday essentials as an example: medicine, utilities, gasoline. People will purchase these goods regardless of price.

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26
Q

What should be a top priority after a job loss?

A

File for unemployment.

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27
Q

What is the longest a CFP® professional can have their marks suspended?

A

5 years. The shortest period is 90 days.

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28
Q

When must conflicts of interest be disclosed by a CFP® professional?

A

Before providing services & as material conflicts arise.

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29
Q

Which act covers the registration of investment advisors?

A

The Investment Advisers Act of 1940.

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30
Q

What should be disclosed to a financial planning client at the first meeting?

A

The CFP® professional’s area of expertise.

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31
Q

What would an ADV-W be used for?

A

An ADV-W is a notice of withdrawal from registration as an investment advisor.

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32
Q

Material changes must be reported to the CFP® Board within how many days?

A

30 days.

Don’t mix this up with the number of days to notify clients of material changes (90 days).

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33
Q

What is one thing to keep in mind when working with a client who has a child with special needs?

A

Ensure that any recommendation(s) would not interfere with the child’s ability to receive government assistance.

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34
Q

What does a quick ratio measure?

A

Liquidity.

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35
Q

Do lotto winnings increase with inflation?

A

No.

This is helpful to know in the event the exam asks you to calculate the present value of an annuity steam related lotto winnings. They may even provide you with the annual inflation rate as a detractor.

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36
Q

Consumer debt should not exceed ________?

A

20% of NET income.

Of all the ratios (housing and housing plus recurring debt), this is the only one that uses NET income.

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37
Q

How much time is a CFP® given to provide evidence that they have stopped using the CFP® marks (due to a disciplinary issue).

A

45 days.

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38
Q

If a question is asking about consumer debt, what should you calculate?

A

Credit card debt.

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39
Q

How long before PLUS loans need to be repaid?

A

10 years.

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40
Q

Is compensation addressed in the Code of Ethics or in the Standards of Conduct?

A

Standards of Conduct.

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41
Q

What can be provided to a client in order to satisfy the brochure rule?

A

ADV Part II.

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42
Q

UTMA and UGMA custodial accounts are considered to be assets of the parents or child?

A

Assets of the child.

Important to know when determining the Expected Family Contribution for educational assistance.

529 and Coverdellaccountsareconsideredtobeassetsoftheparent.

43
Q

What is the adjustment process in a competitive market?

A

A move toward equilibrium.

44
Q

If an existing engagement with a client leads to the need for a deeper engagement, how should a CFP® professional proceed?

A

Define a new scope of engagement.

45
Q

Employer educational assistance programs can help offset the cost of undergraduate or graduate programs?

A

Both.

46
Q

Student loans go into default after ________ days?

A

270 days.

47
Q

How long does an individual need to wait between Chapter 7 bankruptcies?

A

6 years.

48
Q

Who establishes the prime rate?

A

Commercial banks.

Don’t confuse this with the Discount Rate that is set by the Federal Reserve. The Prime Rate is the rate commercial banks change their most creditworthy customers.

49
Q

Pell Grants are not available to ________?

A

Graduate students.

Neither are Federal Supplemental Educational Opportunity Grants (FSEOG).

50
Q

Opening an account comes before or after providing product disclosures?

A

After providing product disclosures.

51
Q

What’s another term for the Consumer Credit Protection Act?

A

The Fair Credit Reporting Act.

52
Q

Are contributions to a Coverdell Account tax deductible?

A

No.

However, the account grows tax free and qualified distributions are also tax exempt.

53
Q

Parent PLUS loans are not available for what level of education?

A

Graduate school programs.

54
Q

Is security price manipulation covered in the The Securities Act of 1933 or the Securities Exchange Act of 1934.

A

The Securities Exchange Act of 1934.

A good way to remember this is to remember that the Securities Exchange Act of 1934 deals with existing securities, rather than new securities covered in the Securities Act of 1933.

55
Q

When would one bankruptcy be considered unacceptable behavior?

A

When accompanied with other unacceptable behavior.

56
Q

When is a client first engaged with a CFP® professional?

A

When the client relies on the planners advice.

57
Q

What type of assets would not be included in the calculation of the Expected Family Contribution (FAFSA).

A
  • *Li**fe insurance policies.
  • *Prim**ary residence.
  • *Retir**ement accounts.
58
Q

When must funds from a Coverdell account be used?

A

By the time a student is age 30.

59
Q

529s are considered to be assets of the ________?

A

Parent.

60
Q

If a higher demand in product A, leads to a higher demand in product B, how would you define the relationship between these products?

A

Complementary products.

61
Q

What is a non-durable good?

A

Products that are consumed shortly after purchase.

Think food, beverages, clothing, etc.

62
Q

Subsidized Stafford Loans are not available for ________?

A

Graduate students.

However, unsubsidized Stafford Loans can be utilized by graduate students.

63
Q

What are 3 types of debt that are not discharged in chapter 7 bankruptcy?

A
  • *Ba**ck taxes (3 years).
  • *Stud**ent loan debt.
  • *Alimony**/child support.
64
Q

How much of the American Opportunity Tax Credit is available for Graduate Students?

A

$0.

However, the Lifetime Learning Credit is available for graduate students.

65
Q

If a CFP® professional suspects illegal activity within their firm, where should they report behavior?

A

To their supervisor.

Careful, there may be a number of choices on the exam that appear correct at first glance: The CFP® Board, FINRA, The SEC, local authorities, etc.

66
Q

What are 3 causes for change in demand?

A
  • *Cha**nge in consumer tastes, trends, & product seasonality.
  • *Cons**umer income.
  • *Cha**nge in price of substitute products.
67
Q

What are three characteristics of an RIA?

A
  • *Th**ey are in the business of providing financial advice.
  • *Th**ey actually provide financial advice.
  • *Th**ey are compensated for the advice provided.
68
Q

Worker’s Compensation is considered to be ________?

A

Insurance.

It is not to be included in gross income. Don’t confuse this with unemployment which is a replacement of earnings, thus included in gross income.

69
Q

What is a durable good?

A

Goods that do not need to be purchased often.

Think appliances, furniture, machinery, etc. Durable goods are more impacted by unfavorable economic conditions, such as recession.

70
Q

Who regulates Form ADV?

A

The SEC (Securities and Exchange Commission).

71
Q

What is another term for Form CRS?

A

ADV Part III.

72
Q

When completing the Free Application for Federal Student Aid, which parent is listed as a primary caretaker when the parents are divorced?

A

It depends on where the child resides.

73
Q

Intrastate exemptions pertain to clients that reside ________?

A

In the same state as the advisor.

74
Q

How many hours of continuing education must a CFP® complete every 2 years?

A

CFP® professionals must complete 30 hours of continuing education every two years.

Of the 30 hours, 2 hours must include ethics CE.

75
Q

What are two areas that are most impacted by recession?

A

Consumer durable goods (ex. appliances).

Capital goods (ex. business machinery).

76
Q

Do material conflicts of interest need to be in writing?

A

No.

However, they CAN be in writing.

77
Q

What must be in writing when providing financial advice as well as when providing financial planning?

A

The privacy policy.

78
Q

If a client believes that they are in a financial planning engagement with a CFP® professional, how should the professional treat the relationship?

A

Treat it as a financial planning engagement.

79
Q

What’s the maximum fine the CFP® Board can impose on a CFP® professional?

A

$0.

The CFP® Board cannot impose fines.

80
Q

If asked how a CFP® professional can reduce risk within their practice, what should come to mind?

A

The behavior of the CFP® professional.

Acting as a fiduciary and adhering to the CFP® Board’s Code of Ethics and Standards of Conduct is the best way to mitigate risk.

81
Q

Undergraduate and graduate students are both eligible for the ________ credit?

A

Lifetime Learning.

The American Opportunity Tax Credit is only for undergraduate students.

82
Q

What is the maximum amount of the Lifetime Learning Credit?

A

$2,000.

Remember that this credit is 20% of eligible expenses up to $10,000.

83
Q

When thinking about exceptions to the Investment Advisers Act of 1940, what does the acronym LATE represent?

A
  • *Lawy**ers.
  • *Accoun**tants.
  • *Teac**hers.
  • *Engin**eers.
84
Q

Needs based education assistance programs include:

A
  • *Pe**ll Grants.
  • *Subsi**dized Stafford Loans.
  • *Perk**ins Loans.
  • *FSE**OG (Federal Supplemental Educational Opportunity Grant).
85
Q

Non-needs based educational assistance programs include:

A
  • *Unsubs**idized Stafford Loans.
  • *PL**US Loans.
86
Q

johnjames.com/CFP Is this acceptable?

A

Yes.

The main URL can not include the CFP® marks (johnjamescfp.com would be considered to be improper use).

87
Q

How would you describe the shape of an inelastic curve?

A

Relatively vertical.

Because demand changes minimally due to changes in price, this creates a steep curve on a price/quantity chart. A good way to remember this is to think of the “I” in inelastic as representing the steep curve.

88
Q

What are 3 assets of the parent when calculating the Expected Family Contribution for financial aid?

A
  • *Cover**dell Education Saving Accounts.
  • *Prep**aid Tuition.
  • *52**9 Savings Plans.
89
Q

Advisors with assets in excess of $110,000,000 must register with the ________?

A

The SEC.

Advisors with assets below 100M must register with the state. Advisors have a choice between the state or the SEC if they fall between 100M and 110M.

90
Q

In what situation can an investment advisor add the initials “RIA” after their name?

A

Never.

The SEC prohibits this action.

91
Q

In what stage of the business lifecycle would you see rising unemployment rates?

A

During a contraction.

92
Q

What is the net worth of an accredited investor?

A

$1M not including the investor’s personal residence.

93
Q

What does UIADPIM represent?

A

The Practice Standards.

You are going to need to know the correct sequence of events in the Practice Standards and you will also need to know what happens in each step.

As an example, you may be asked, “In which step of the Practice Standards would a CFP® professional address unrealistic goals?” Answer: Identifying and Selecting Goals.

94
Q

“I try not to think about my finances because it stresses me out.” This statements reflects someone who has what money belief?

A

Money avoidance.

95
Q

A “keeping up with the Joneses” mentality could be classified as having which money belief?

A

Money status.

These individuals have a tendency to spend money to keep up the appearance of enjoying success.

96
Q

People who believe that money equates to happiness or money will solve their problems often have what type of money belief?

A

Money worship.

These individuals will often overspend in an attempt to create happiness.

97
Q

What stage of the business lifecycle would you see surging inflation, a high GDP, and low unemployment?

A

A peak.

At this stage of the business cycle, the federal reserve may begin to raise interest rates in an effort to curb rising inflation.

98
Q

How many consecutive months of declining GDP indicates a recession?

A

6 months / 2 quarters.

After 6 quarters of declining GDP, the economy would enter a depression.

99
Q

What are the three tools available to congress to influence fiscal policy?

A
  • *Spen**ding.
  • *De**bt management.
  • *Taxa**tion.

Make sure not to confuse this with monetary policy which is controlled by the Federal Reserve

100
Q

Social Security may also be referred to as ________?

A

OASDI(oldage,survivoranddisabilitybenefits).

The exam may use these terms interchangeably.

101
Q

What is considered to be “cash” or “cash equivalents” for the purpose of reviewing a client’s balance sheet?

A

Checking accounts, savings accounts, & money market accounts, certificates of deposits with less than 12 months to maturity.

102
Q

What’s the rule of thumb for the amount needed in an emergency fund?

A

Between 3-6 months of non discretionary expenses.

If referring to a single individual, the amount is typically closer to 6 months. If referring to a married individual (where both individuals are working) the amount is closer to 3 months.

103
Q

Maximum amount available for the American Opportunity Tax Credit?

A

$2,500.

Remember that the first $2,000 is a dollar-for-dollar credit. The next $2,000 is credited at 25%.

Example: eligible expenses of $4,000 would qualify for the full $2,500, while eligible expense of $3,000 would qualify for a $2,250 credit (first $2,000 at 100%, next $1,000 at 25% = $2,250).

104
Q

Can you take the full American Opportunity Tax Credit and the full Lifetime Learning Credit in the same year?

A

No.

While the exam may not ask this question specifically, they may ask you to calculate the maximum credit available for a student who is eligible for the AOTC and the Lifetime Learning Credit.

Choose the option that will provide the most assistance to the student.

CFP (7 decks)

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