Fundamentals of Financial Planning Question Bank Flashcards by Michael cherry

Where would a financial planner look to find a client’s net worth at year’s end?
-Statement of Financial Position
-Statement of Cash Flows
-None of the above

Statement of Financial Position

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The government has just created a new financial instrument called a wiggle. Individuals may purchase wiggles from the government and may only redeem them in 5 years for twice the face value, or in ten years for three times the face value. Would this instrument be placed on a Statement of Cash Flows in the year it was purchased or on The Statement of Financial Position?
-The Statement of Financial Position
-The Statement of Cash Flows
-It would appear on both statements.

It would appear on both statements.

It may be lumped together with other similar assets/investments, but the asset value would show up on the Balance Sheet and the purchase would be accounted for as a disbursement in the Statement of Cash Flows.

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The Statement of Financial Position is a summary of a person’s cash flow activity over a period of time.
True
False

False

The balance sheet is a snapshot of assets and liabilities at a specific point in time.

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Which of the following factors can cause a change in the Net Worth of a client?
a. The client purchases a Treasury Bill with cash assets.
b. The client receives an inheritance of a 300-acre farm.
c. A decrease in the value of a common stock
d. The forgiveness of a debt.
e. The purchase of a residence for $80,000 down with savings and the assumption of a mortgage for $320,000. Assume the house is appraised for the purchase price.

b, c and d

These would all change net worth. The T-Bill purchase is with existing cash assets. The amount of the down payment plus the mortgage equals the exact amount of the home’s presumed value = a wash.

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All of the following would be considered Cash Receipts on the Statement of Cash Flows EXCEPT?
-Salary
-A cash loan to purchase a car
-Social Security income
-Life insurance proceeds
-None of the above - all are cash receipts

None of the above - all are cash receipts

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All of the following would be considered Cash Disbursements on the Statement of Cash Flows EXCEPT?
-Cash gifts to children
-Tuition payments
-Income tax refunds
-Investment purchases that appreciate in value
-Capital improvements to a residence

Income tax refunds

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The Statement of Cash Flows can reveal all of the following EXCEPT?
-The size of the client’s net discretionary cash flow - a surplus or deficit.
-Typically reveals numerous opportunities for improvements in management of income tax and cash flow planning.
-Tells the advisor a great deal about the client’s financial personality.
-Calculates the client’s Net Worth

Calculates the client’s Net Worth

Net Worth is calculated on the Balance Sheet.

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You just analyzed the qualitative and quantitative information provided to you by your client. You are in what step in the Financial Planning Process?
-Step 3 - Analyzing the Client’s Current Course of Action and Potential Alternative Courses of Action
-Step 4 – Developing the Financial Planning Recommendations
-Step 5 – Presenting the Financial Planning Recommendations
-None of the above

None of the above- This action is in step 1

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You are selecting a recommendation from among the potential alternatives to the client’s current course of action. Once you have selected the recommendation, what is the next step in the Financial Planning Process?
-Step 3 – Analyzing the Client’s Current Course of Action and Potential Alternative Courses of Action
-Step 4 – Developing the Financial Planning Recommendations
-Step 5 – Presenting the Financial Planning Recommendations
-Step 6 – Implementing the Financial Planning Recommendations

Step 5 – Presenting the Financial Planning Recommendations

Presentation (Step 5) is the next step after Development (Step 4).

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Which activity below is NOT performed in Step 1 - Understanding the Client’s Personal and Financial Circumstances?
Identify potential goals
-Obtain the qualitative and quantitative information needed
-Analyze the information for completeness and accuracy
-Terminate the engagement if the client is unable or unwilling to -provide the information needed

Identify potential goals

This activity happens in Step 2

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You are helping your client identify, select and prioritize goals. You are in which step of the Financial Planning Process?
-Step 1 – Understanding the Client’s Personal and Financial Circumstances
-Step 3 - Analyzing the Client’s Current Course of Action and Potential Alternative Courses of Action
-Step 4 – Developing the Financial Planning Recommendations
-None of the above

None of the above- This happens in Step 2

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When is a certificant responsible for monitoring and updating in Step 7 of the Financial Planning Process?
-Whenever the certificant provides the products being implemented
-Whenever more than one recommendation is part of the financial —planning services provided
-If specifically included in the Scope of Engagement
-At all times

If specifically included in the Scope of Engagement

The certificant is responsible only if the Scope of the Engagement assigns the responsibility to the certificant.

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The Truth in Lending Act requires which of the following?
-Requires a lender to provide a clear disclosure of important terms used in the loan agreement and a list of all costs charged for a loan.
-Requires a lender to protect consumers’ personal information held by financial institutions.
-Places restrictions on home loans to curtail predatory lending
-Requires a lessor to provide a clear disclosure of important terms used in the lease agreement and a list of all costs charged for a lease.

Requires a lender to provide a clear disclosure of important terms used in the loan agreement and a list of all costs charged for a loan.

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Which type of bankruptcy provides for the total liquidation of an individual’s or business’ assets and liabilities?
Chapter 7
Chapter 11
Chapter 13

Chapter 7

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The Fair Credit Reporting Act (1971), Consumer Credit Reporting Reform Act (1996) and the Fair and Accurate Credit Transaction Act of 2003 provide protection to consumers in all of the following ways EXCEPT?
-Incorrect credit report information
-From invasion of privacy in the collection and dissemination of information
-Requires a lessor to provide a clear disclosure of important terms used in the lease agreement and a list of all costs charged for a lease.
-Provides consumers with an opportunity to challenge and correct the information that has been collected about them.

Requires a lessor to provide a clear disclosure of important terms used in the lease agreement and a list of all costs charged for a lease.

This is a provision of the Consumer Leasing Act.

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All of the following are recommendations of the Federal Trade Commission to deter identity theft EXCEPT?
-Shred financial documents and paperwork with personal information before you discard them.
-Protect your Social Security number.
-Keep your personal information in a secure place at home, especially if you have roommates, employ outside help, or are having work done in your house.
-All of the above are recommendations of the Federal Trade Commission to deter Identity Theft.

All of the above are recommendations of the Federal Trade Commission to deter Identity Theft.

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Check each box to indicate which of the following are parts of the economic environment.
-The Federal Reserve Board
-The Four Distinct Phases of the Business Cycle
-Pop Culture
-Leading Economic Indicators
-Gross Domestic Product

-The Federal Reserve Board
-The Four Distinct Phases of the Business Cycle
-Leading Economic Indicators
-Gross Domestic Product

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The law of supply states that the higher the price of a good or service, the greater the quantity that is supplied.
True
False

True

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The substitution effect says that people will be unwilling to pay for goods they perceive as priced too high, and will instead purchase a substitute good at a lower price.
True
False

True

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In the business cycle, a contraction is followed by a trough.
True
False

True

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In the business cycle, rising inflation is generally a characteristic of the expansionary stage.
True
False

True

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Which of the following are leading economic indicators?
I. Initial Unemployment Claims
II. Housing Starts
III. S&P 500
IV. NASDAQ
V. M-2 Money Supply
VI. Interest Rates
VII. Personal Income

I, II, III, V

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The Federal Reserve Board establishes monetary policy, while Congress and the President establish fiscal policy.
True
False

True

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Which of the following statements is correct?
-A decrease in taxation spurs the economy.
-An increase in spending slows the economy.
-Neither of the above is correct.
-Both of the above are correct.

A decrease in taxation spurs the economy.

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George is single and earns $6,000 per month. In the event he lost his job or was unable to work, he figures he would need $4,000 per month to pay his bills. He has no other source of income other than his salary. He has $8,000 in his checking account and $4,000 in a Money Market account. His assets are relatively nominal. How large should George's emergency fund be? $12,000 $18,000 $24,000 $48,000

$24,000 The calculation is six months times $4,000 per month totals $24,000. The amounts in his checking and Money Market account are useful to determine how much more money should be added to George’s cash equivalents.

Mary and Manny are married. They both earn about $60,000 per year. Their "required" monthly living expenses are $7,500 per month. Neither spouse has an additional source of income other than their earnings. Mary has $2,400 in her money market account. Manny's checking account usually runs close to zero, but he has a $3,000 balance in a savings account. How large should Mary and Manny's Emergency Fund be? $22,500 $45,000 $15,000 $30,000

$22,500 They are married and both earn income. The calculation is three months times $7,500 totals $22,500.

Boris has current assets totaling $125,000. His current liabilities total $250,000. What is his Current Ratio? -.50 -2.00 -1.00

.50 The calculation is $125,000 divided by $250,000.

When advising a client to reduce expenses, which type of expense would be the first to go? -Fixed -Variable -Discretionary -Non-recurrent

Discretionary

Interest on which of the following types of debt would generally be the highest? -Mortgage -Auto loan -Credit card -Home equity loan

Credit card A credit card is a type of unsecured debt, which generally has higher interest rates than secured debt.

Which of the following describes discretionary expenses? -Expenses that will need to be paid each month, but the actual amount is unknown -Expenses that are generally one-time events, such as a wedding or unreimbursed medical expenses. -Expenses that are not necessary, such as a vacation or sporting event.

Expenses that are not necessary, such as a vacation or sporting event.

Which of the following loans is typically NOT a secured debt? -A residential mortgage -A signature loan -An auto loan -A margin account

A signature loan

All of the following are typically advantages of leasing EXCEPT? -Lower payments -Lessor bears risk of obsolescence -Lessee has full ownership at end of lease -A down payment is not generally required

Lessee has full ownership at end of lease Lessee typically has right to purchase vehicle for residual value at end of lease.

One advantage of a Coverdell ESA over an UTMA/UGMA is: -Coverdell ESAs offer higher annual contribution limits -Unlike UTMA/UGMAs, assets in Coverdell ESAs can be used for elementary and secondary institution education expenses. -Coverdell ESAs offer parents greater control over the assets in the account because they can remain in the account until the beneficiary reaches age 30 -Participation in Coverdell ESAs is not subject to phase-outs based on the parents’ AGI

Coverdell ESAs offer parents greater control over the assets in the account because they can remain in the account until the beneficiary reaches age 30

According to the College Board, the historical inflation rate for college costs is typically in the ______ range. 3% 5% 6% 8%

Which of the following is the most significant drawback to using private investment accounts to fund educational expenses? -Lack of control over investments -Lack of tax advantages -Limits on contributions -None of the above

Lack of tax advantages

Which of the following is true of a Coverdell ESA? A. Contributions are limited to $2,000 annually per child B. Investments grow tax-deferred C. Qualified withdrawals from the account are tax-free

A, B, and C

John and Mary Jones set up an UGMA account for their 8-year-old son, who has no other source of income. At what rate will all income (unearned income) in the account over an annually indexed amount be taxed? -0% - The income will not be taxed until distributed. -The child’s marginal tax rate -The child’s or parents’ marginal tax rate. -The parents’ marginal tax rate.

The child’s or parents’ marginal tax rate.

One advantage of a 529 Plan over a Coverdell Education Savings Account is: -Tax-deferred investment earnings -Funds can be used for primary and secondary education. -Investments can be self-directed -No Adjusted Gross Income limits

No Adjusted Gross Income limits This allows people with high income to make tax-deferred contributions that would be prohibited in a Coverdell Education Savings Account.

While it is not possible to individually manage the investments, when making contributions to a Prepaid Tuition Plan it is possible to select from among the investment options provided by the plan. True False

False

Which of the following statements regarding 529 Plans is FALSE? -Plans must be sponsored by a state, state agency, or eligible educational institution. -Plans will often accept marketable securities in lieu of cash -contributions. -Funds placed in a 529 Plan cannot be used as security for a loan. -There are penalties and restrictions for "nonqualified withdrawals." -There must be reasonable limits on contributions.

Plans will often accept marketable securities in lieu of cash -contributions. They can ONLY accept cash contributions. Note: Assets can be rolled over from another 529 Plan, an UGMA/UTMA account, a Coverdell Education Savings Account or certain U.S. Savings Bonds issued after 1989.

Nonqualified withdrawals from a Section 529 Plan are subject to a Federal 10% tax on the full amount of the withdrawal. True False

False The tax is only on the earnings portions of nonqualified withdrawals.

The Martins are looking to start a tax-deferred college savings vehicle to supplement the 529 Savings Plan they have already established for their son. While they are not looking to contribute more than $1,500 per year, they would still like to make decisions on how the money is directed. Based on these facts, is the Coverdell ESA a viable option? -Yes. The Coverdell ESA would accommodate all of the Martin’s needs. -No. The Coverdell ESA does not allow owners to self-direct the investments. -No. The fact that the Martins have a 529 Plan already established may affect their ability to make tax-deferred contributions. -Yes. Even though they will only be able to contribute $1,000 per year, it would still be a viable option.

Yes. The Coverdell ESA would accommodate all of the Martin’s needs.

All of the following are factors that influence the price of a Prepaid Tuition contract EXCEPT: -The current cost of in-state public college tuition and fees -The current cost of in-state private college tuition and fees -The time over which the contract will be paid -Actuarial assumptions regarding how much tuition and fees will increase in the future as well as the future return on investments

The current cost of in-state private college tuition and fees The cost of private colleges is not taken into consideration.

Currently, if a student attends a private or out-of-state school, the 529 Prepaid Plan will generally: -Pay the equivalent of the lowest in-state public school tuition. -Distribute ¼ of contributions each year the student attends a private or out-of-state school. -Pay the equivalent of the highest in-state public school tuition. -Pay the average in-state public school tuition.

Pay the average in-state public school tuition.

Through accelerated gift tax treatment and gift splitting, what is the maximum amount a married couple can contribute to a 529 College Savings Plan in a lump sum by using annual exclusion gifting? Assume the couple had not used accelerated gifting previously. -An unlimited amount -Two times the current year annual exclusion amount -Four times the current year annual exclusion amount -Five times the current year annual exclusion amount -Ten times the current year annual exclusion amount

Ten times the current year annual exclusion amount Each spouse may elect to gift up to 5 times the annual gift tax exclusion in a single year. Using gift splitting, a married couple could contribute 10 times the annual gift tax exclusion amount.

Oddly enough, while 529 Plans are tax-advantaged for federal income tax purposes, there is no tax advantage for state income tax purposes. True False

False In some states, contributions may be deductible and in all states accumulations are tax-deferred.

Every state has a 529 Savings Plan. True False

True

Provided all 529 Plan distributions are qualified, all earnings in a 529 Plan will totally escape federal income taxation. True False

True

Which of the following is probably NOT a qualified withdrawal from a 529 Plan and would, therefore, be subject to a 10% penalty? -Tuition -Books -Dormitory expense -Meal Plans -Transportation

Transportation

When dealing with a Section 529 Savings Plan, which of the following is correct? -Earnings on the investments are not taxed while in the plan -Contributions can qualify for the annual gift tax exclusion -529 Savings Plans can be opened in a state where the donor or beneficiary is not a resident. -All of the above are correct.

All of the above are correct.

Bill has asked you to tell him the best option to save for his son’s college education. His main priorities are that he can make unscheduled payments, his son can choose to attend any college in the U.S., and he wants to be able to use the 529 for graduate school, if necessary. What would you suggest between these two options? -A 529 Savings Plan -A 529 Prepaid Tuition Plan

A 529 Savings Plan

The annual contribution limits for the Coverdell ESA are: -$500 -$2,000 -$4,000 -There are no limits

$2,000

A phase-out of eligibility exists based upon AGI for which of the following? a. Student loan interest deduction b. Education exclusion of Series EE U.S. savings bond interest c. Education exclusion of Series I U.S. savings bond interest

All of the Above

Which of the following statements is/are correct? Choose the most complete answer. a. The taxpayer must be 24 years old to purchase a series EE or Series I government bond for tax-free educational savings b. Interest on Series EE and Series I U.S. Savings bonds can possibly be excluded from federal income tax if used for educational purposes c. The “Kiddie Tax” applies to individuals under the age of 19 (under age 24 if a full-time student) with earned income in excess of an annually indexed amount d. Parents may NOT change beneficiaries after establishing an UTMA/UGMA e. A 2503(c) Trust is irrevocable.

a, b, d, and e

Your client wants to understand the educational benefits potentially available to her as she plans for her children’s education. Which of the following statements to her would be false? -She may be eligible to take a student loan interest deduction on qualified student loan repayments (within limits), subject to an adjusted gross income phase-out -She may be eligible to take The American Opportunity Tax Credit (within limits) on qualified higher education expenses she pays, subject to an adjusted gross income phase-out -She may qualify for employer-matching contributions to her 401(k) plan (within limits) based upon annual qualified student loan repayments, but only if her employer chooses to offer this option. -A SAVE plan can reduce a borrower’s student loan payments but cannot result in forgiveness of student loan debt under any circumstances.

A SAVE plan can reduce a borrower’s student loan payments but cannot result in forgiveness of student loan debt under any circumstances. The statement is false—all or a portion of the remaining debt may be forgiven if payments are made timely for at least ten years.

Which of the following Acts established ethical standards for investment advisors? -Investment Advisers Act of 1940 -Investment Advisers Act of 1950 -IA-770 -IA-1092

Investment Advisers Act of 1940

Which of the following is NOT one of the three requirements established to identify investment advisors? -Provides investment advice and analysis -Is “in the business” of providing such advice -Receives compensation -None. All of the above are requirements

None. All of the above are requirements

Thompson Investment Corporation has $28 million in assets under management and operates in 40 states. With whom must they be registered? -SEC only -The 40 individual states only -The SEC and the 40 individual states -Consumer Financial Protection Bureau -None of the above

The 40 individual states only An IA must generally register in each state in which it operates.

Which of the following is not an SEC requirement for investment advisors? -File form ADV -Supply a disclosure brochure to client -Certain prohibitions against performance fees -Posting of a surety bond -None. All of the above are SEC requirements

Posting of a surety bond A surety bond is not an SEC requirement and typically is a state requirement.

A broker/dealer may sponsor which of the following incentives, if any, under Regulation Best Interest? -Sales quotas -Performance bonuses -Sales contests -Award of non-cash compensation -None of the above.

None of the above.

Negligence is an example of: -Contractual Liability -Tort Liability -Vicarious Liability

Tort Liability

Both parties have contractually agreed that if a dispute ever develops between them, they will be bound by the decision of an impartial third party. This is an example of: -Arbitration -Mediation

Arbitration

If a financial planner is sued for negligence, he or she may be required to pay: -Actual damages -Consequential damages tangentially resulting from negligence -Punitive damages meant to punish the planner and warn others -Any or all of the damages listed above

Any or all of the damages listed above

Which of the following most completely describes Olivia’s responsibilities to fully disclose this material conflict of interest? -She has a fiduciary duty only to disclose her individual compensation method, not the firm’s or affiliate’s compensation method. -She is not providing financial advice and she has no fiduciary duty of disclosure to Michael. -She must only disclose the conflict of interest with her firm. -She must disclose both the conflict of interest with her firm and the conflict with her firm’s affiliate.

She must disclose both the conflict of interest with her firm and the conflict with her firm’s affiliate. All material conflicts of interest must be disclosed including her firm’s and the affiliate’s conflict of interest.

Under the Standards of Conduct, is Olivia permitted to recommend annuities issued by an affiliate of her firm? -Yes, but only if she receives no compensation from the sale. -Yes, but only if she discloses her compensation method and the material conflicts of interest of her firm and her firm’s affiliate. -Yes, but only if she discloses her compensation method and the conflicts of interest of her firm and her firm’s affiliate, obtains Michael’s consent to the conflicts of interest and continues to manage the conflict of interest. -No, not under any circumstance.

Yes, but only if she discloses her compensation method and the conflicts of interest of her firm and her firm’s affiliate, obtains Michael’s consent to the conflicts of interest and continues to manage the conflict of interest. Even the compensation paid to affiliates of Olivia’s firm represent a material conflict of interest and must be disclosed.

Which of the following is not a fiduciary duty? -Duty of Loyalty -Duty of Care -Duty to follow Michael’s instructions -Duty to maximize risk-adjusted investment return

Duty to maximize risk-adjusted investment return This is not a fiduciary duty but is certainly an expectation if the certificant is managing client investments.

You are a CFP® professional. You take your clients’ right to confidentiality and privacy of non-public information seriously. A member of your staff consistently writes his password down on an index card and leaves the index card in an unlocked desk drawer. Which of the following is appropriate? -Tell him to choose a complex password that he can remember. -Tell him to stop writing the password down. -Tell him to use highly secure software to keep track of passwords. -All of the above.

All of the above.

Which of the following information to the client is not required of a CFP® certificant when he or she provides Financial Advice? -The division of responsibilities between certificant and client -Products and services to be provided -How the CFP® professional, his or her firm, and any related parties will be compensated -Existence of any public discipline or declaration of bankruptcy

The division of responsibilities between certificant and client Information about the client’s responsibilities must be provided by the CFP® certificant if providing Financial Planning but not if only providing Financial Advice.

If a CFP® professional is providing Financial Planning, when is he or she required to monitor and update the Financial Planning recommendations? -At all times -At all times unless specifically excluded from the Scope of the Engagement -Only when the CFP® professional is paid to do so -Only when it is reasonable for the CFP® professional to do so

At all times unless specifically excluded from the Scope of the Engagement If the scope of the agreement is silent, the default assumption is that the Certificant is responsible for these duties.

You provide Financial Planning to clients and you are a CFP® professional. Which of the following changes, if any, will NOT require your sending updated required information to your clients within 90 days of the change? -You declared personal bankruptcy. -A business in which you are a control person declared bankruptcy. -Private Censure from CFP Board’s Disciplinary and Ethics Commission -Public Censure from CFP Board’s Disciplinary and Ethics Commission -None of the above

Private Censure from CFP Board’s Disciplinary and Ethics Commission Private discipline does not require updated information to clients.

You provide Financial Advice in the form of investment recommendations to your client Clifford. You consistently match or exceed the market’s risk-adjusted return. His previous investment manager never outperformed the market and he’s curious as how you performed so well. How may you respond to Clifford? -Explain that, in your opinion, some investment managers underperform the market because they lack an effective, structured approach to buying, selling, and holding securities. -Explain, in clear and plain English, that you use a specific process to identify undervalued stocks. Then you summarize your process in non-technical terms. -Explain, in clear and plain English, that you use a specific process to determine when to sell a security when it rises to its fair value. Then you summarize your process in non-technical terms. -All of the above.

All of the above.

You manage investment portfolios for clients. You charge 1% of assets under management for your services and your only other compensation is through 12b-1 fees. What compensation method applies and what additional disclosures, if any, are required? -Fixed fee plus other fees, no additional disclosure required -Fee and Commission, additional disclosures required -Fee-Only, no additional disclosure required -None of the above

Fee and Commission, additional disclosures required The 12b-1 fees are sales-related compensation. You must disclose either that you earn fees and/or commissions or your compensation method is not Fee-Only.

You charge a flat fee of $25,000 annually to manage your client’s financial affairs, including investment management. Which of the following, if any, would prevent you from describing your compensation method as “Fee-Only?” -You receive “safe harbor” soft dollars. -You use a turnkey asset management program (TAMP) that collects and distributes fees. -You charge your clients a flat fee for providing custodial services. -None of the above.

None of the above.

You provide Financial Planning for a fixed daily fee. You have never accepted commissions or any sales-related compensation. Your wife is a financial advisor and charges sales commissions to her clients for asset purchases. You routinely refer clients with investment needs to your wife because she consistently earns a higher than average risk-adjusted return for her clients. Which of the following, if any, may you represent as your compensation method? -Fixed-Fee -Fee and Commission -Partially Fixed-Fee and partially Fee-Based. -None of the above.

Fee and Commission Your wife is a related party. Sales-related compensation earned by your wife is attributed to you for purposes of describing your compensation method.

What is your duty to clients if your employer collects commissions on sales of financial products but describes the firm’s compensation method as Fee-Only? -Say nothing to the client but document your files in case CFP Board launches an investigation. -Describe only your method of compensation as fee-only. -Correct the firm’s misrepresentation to your client. -Send a strongly worded email to the firm’s compliance office demanding that the firm stop misrepresenting its compensation method.

Correct the firm’s misrepresentation to your client. You must correct the firm’s misrepresentation to your client.

Your client just asked you to open a custodial account. You are providing no other services to this client. Which of the following duties apply to you? -Disclose and manage conflicts of interest -Disclose compensation method -Provide information and disclosures in writing -All of the above

Disclose compensation method This duty always applies. CFP® Exam Tip – Always disclose compensation method.

Which of the following response requirements is false? -Respondent must report criminal convictions to CFP Board within 30 days of the CFP® professional’s receipt of the notice of conviction. -Respondent must acknowledge receipt of the first Notice of Investigation within 30 days of the CFP® professional’s receipt of the Notice of Investigation. -Respondent must deliver documents and information in response to a request from CFP Board Counsel within 30 days of receipt of the request. -Respondent may appeal to CFP Board Appeal Committee within 45 days of receipt of the DEC’s decision order.

Respondent may appeal to CFP Board Appeal Committee within 45 days of receipt of the DEC’s decision order. The Respondent has only 30 days.

Which of the following, if any, is false? -The Hearing Panel is comprised of three persons, two of whom must be CFP® certificants and two of whom must be members of the Disciplinary and Ethics Commission (DEC). This means that at least one of the members must be a member of the DEC and a CFP® certificant. -A sanction may be assessed without a Hearing Panel if the Respondent fails to timely acknowledge receipt of the first or second Notice of Investigation. -The DEC must follow the finding of the Hearing Panel. -None of the above.

The DEC must follow the finding of the Hearing Panel. This is a false statement. The DEC may accept, modify or reject the finding of the Hearing Panel.

Which of the following is a permitted use of the CFP® mark? -John Doe, CFP® -Jane Deaux, CFPTM -Jean Dough, CERTIFIED FINANCIAL PLANNER® -John Doe, Jane Deaux and Jean Dough, CFP®s

John Doe, CFP®

Your client is a passionate environmentalist. Which of the following is the most likely and powerful psychological influence behind this passion? -Heuristic -Bias -Attitude -Values

Values This client may hold a core belief (value) such as a sacred duty to keep the planet clean for future generations. Values frequently drive attitudes.

Behavioral Finance is best described by which of the following, if any? -The recognition that our biases are irresistible subconscious forces that we cannot manage or mitigate -The study of how investors behave and why they make the decisions that they do -The theory that our conscious mind is responsible for our initial reactions to ideas, people, or events -None of the above

The study of how investors behave and why they make the decisions that they do

Which of the following psychological influences, if any, is mismatched with its behavioral effect? -Overconfidence—thinking you can outperform the market -Anchoring—expecting performance equal to the S&P 500 return even if one’s portfolio is not allocated significantly to large-cap stocks -Representativeness—the tendency to believe that market selloffs will continue -None of the above

None of the above

Which of the following, if any, is incorrect in behavioral finance terms? -Attitudes reflect our values. -Bias can be described as our internal (emotional), instinctive reaction to an external stimulus such as another person, event, or idea. -A heuristic can be misleading when the issue requires a high degree of accuracy. -None of the above

None of the above

Which of the following behavioral tendencies, if any, is mismatched with its psychological influence? -Buy high—Herd Mentality Bias -Sell low—Loss Aversion Bias -Place less credence in older information and more credence in newer information—Negativity Bias -None of the above

Place less credence in older information and more credence in newer information—Negativity Bias This behavior describes Recency Bias.

When we consider the benefits of transparency between spouses, which of the following, if any, is incorrect? -It promotes trust -It encourages open dialog around money conflicts -It can promote a forum to express individual money personalities -None of the above

None of the above

When you consider non-verbal communication skills, which of the following behaviors might indicate a planner or advisor’s need for more communication expertise? -You make a mental note when your client goes from an open posture to a closed posture and address the potential issue at the end of the meeting. -You split your eye contact between the dominant spouse and the non-dominant spouse, maintain an erect posture, lean slightly toward your clients, and seek feedback from both spouses, -You face the client(s) and mute your phone. -None of the above

You make a mental note when your client goes from an open posture to a closed posture and address the potential issue at the end of the meeting. Failing to respond immediately during the next available client pause can mean your client stops listening or discounts your ideas. Try again.

Your client expressed discontent because their portfolio return did not equal the return of an unrelated index last year. Remember that the index is their anchor, a type of bias. Which of the following, if any, is an inappropriate counseling technique? -Establish a calm atmosphere by saying, “Let’s pause, take a deep breath, and talk about the point you just made.” -Acknowledge their emotion by saying, “You seem disappointed by the portfolio’s performance last year.” -Evaluate the best course of action through a statement such as “Let’s go back to your long-term goals because ultimately, that is of the most importance.” -None of the above

None of the above All of the above could be part of an effective counseling meeting

Fundamentals of Financial Planning Question Bank Flashcards

(87 cards)