Free Certified Financial Planner MCQ Questions and Answers — Questions and Answers
Question 1: Paula recently learned that she had successfully passed the CFP exam. She could choose from the following:
- Start charging fees for financial planning services
- Take out a newspaper ad identifying Paula Templin as a tax and investment planning expert with the title "CFP."
- Once she has satisfied the educational and experience requirements, she must finish the certification process by signing the Ethics Declaration and Agreement. (Correct answer)
- Waive out of the annual CE requirements for both insurance and investment licenses.
Correct answer: Once she has satisfied the educational and experience requirements, she must finish the certification process by signing the Ethics Declaration and Agreement.
Passing the CFP exam is a crucial step, but it does not immediately grant the right to use the CFP marks or charge fees. To become a certified CFP professional, Paula must also satisfy the educational and experience requirements, and critically, sign the Ethics Declaration and Agreement. This final step signifies her commitment to upholding the CFP Board's ethical standards, completing the certification process.
Question 2: Helen wants to get involved in her hometown's startup scene. She is divorced, has a net worth of $250,003, an annual salary of $101,000, and is not an accredited investor. Which of the following could Helen perform in accordance with the JOBS Act?
- Marry Royal, an accredited investor worth $25mm, and then raise her fund via Crowdfunding.
- As she is not an accredited investor, Heather may not participate in startups other than through her friends and family.
- Contribute up to $25,000.30 through a crowdfunding portal
- Contribute up to $10,100 through a crowdfunding portal. (Correct answer)
Correct answer: Contribute up to $10,100 through a crowdfunding portal.
Under the JOBS Act, non-accredited investors can participate in crowdfunding, but their contribution limits are tied to their income and net worth. For an investor with an annual income or net worth between $107,000 and $214,000, the maximum contribution is 10% of the lesser of their annual income or net worth. Helen's annual salary is $101,000 and her net worth is $250,003, so 10% of her salary ($10,100) is the lesser amount, making it her maximum crowdfunding contribution.
Question 3: Which of the following actions by Matthew would be considered a violation of the Integrity element of the CFP Standards of Conduct?
- Accidentally not enter a trade for a client due to circumstances outside his control.
- Refused to follow a client's orders to help them cover up their affair.
- Owned a firm that opened bank accounts for foreign individuals subject to international sanctions so that they can skirt the restrictions. (Correct answer)
- Not accept a client because multiple red flags which arose under the Know Your Client requirements had made him uneasy.
Correct answer: Owned a firm that opened bank accounts for foreign individuals subject to international sanctions so that they can skirt the restrictions.
The Integrity element of the CFP Standards of Conduct requires CFP professionals to be honest, candid, and to act in the best interest of their clients and the public. Owning a firm that facilitates skirting international sanctions is a direct violation of this principle, as it involves dishonest and unlawful conduct. This action demonstrates a clear disregard for ethical and legal responsibilities, undermining trust and integrity.
Question 4: In order to save money for her dream of starting her own business when she is 42 years old, Ellie has a number of possibilities. By then, she needs $45,000. Which choice is ideal for her?
- Put $750 a month into a Roth IRA with a 9% return.
- Put $750 a month into a stock fund with a 15% annual rate of return
- Put $1,000 a month into a 529 Plan with a return of 7%.
- Put $1,250 a month into an online bank account with a 2% annual rate of return. (Correct answer)
Correct answer: Put $1,250 a month into an online bank account with a 2% annual rate of return.
To determine the ideal choice, we need to calculate which option allows Ellie to reach her $45,000 goal. Assuming a reasonable timeframe, such as 3 years (36 months) to reach age 42, we can evaluate the future value of each monthly contribution. Putting $1,250 a month into an online bank account at 2% annual return would accumulate approximately $46,000 over 3 years, making it the only option that meets her specific goal within this timeframe. The higher monthly contribution significantly outweighs the lower interest rate in this scenario.
Question 5: Rebecca the planner is creating a list of paperwork that her client needs to do or bring to the meeting. Assume that the financial planning agreement has been signed and specifies that it will cover retirement planning, investment allocations, and preparing for insurance in the event of death or incapacity. Which of the following Rebecca should not ask the client?
- Can you give me a household budget including both inflows and outflows?
- Can you give me a copy of your genealogy for three generations to determine longevity? (Correct answer)
- Can you give me a copy of your benefits books from work?
- Can you give me copies of all your investment accounts?
Correct answer: Can you give me a copy of your genealogy for three generations to determine longevity?
While a financial planner needs comprehensive information, a client's genealogy for three generations is generally not a standard or necessary request for typical financial planning, even when covering retirement, investments, and insurance. This level of detail is excessive for determining longevity in a financial planning context. Other options like household budgets, benefits books, and investment account copies are essential for creating a thorough financial plan.
Question 6: As his planner, Fang wants to talk with you about growing his company. He currently employs around 20 people, all in one location, and they work with cutting-edge machinery and a lot of commodities in the manufacturing process. He worries about how he will pay for and staff this growth. What information, given the economic cycle, would support this decision?
- The overall monetary supply is decreasing
- The CPI has been climbing wildly
- The overall monetary supply is increasing (Correct answer)
- New housing starts are falling
Correct answer: The overall monetary supply is increasing
An increasing overall monetary supply typically indicates an expansionary economic environment. This usually leads to lower interest rates, making it cheaper for businesses like Fang's to borrow money for expansion and investment in new machinery. Additionally, an increase in the money supply often stimulates consumer demand, creating a more favorable market for business growth and hiring.
Question 7: You work as a planner with a freshly licensed physician who has completed his residency and is going to accept a position earning him $240,000 as a single person after taxes and retirement contributions. He owns $220,000 in student loans with 20 year durations ($100,000 each at 4% and $120,000 at 6%, a combination of Federal and Perkins loans). He also has a $50,000 auto loan at 4.5% interest for six years, a $5,000 credit card debt at 9.5%, and he thinks he can put 5% down on a $500,000 house within a year thanks to a special program for new doctors. He has accumulated $12,000 in liquid savings during his tenure. Based on this scenario, what would be a reasonable recommendation for this new doctor that would enable him to balance the purchase of a new home and debt repayment?
- He should take the monthly payment and put it in a money market fund because Federal Student Loans have a six-month grace period after graduation (nine months for Perkins Loans). He should also consider refinancing the credit card debt to lower or remove the interest rate given the significant increase in income. (Correct answer)
- To optimize possible returns for the year, pay the minimum on the credit card and purchase cryptocurrency before making the purchase of the home.
- He should downsize the house he wants to in the $250,000 area, sell his automobile, and get a used one for $5,000.
- Put $50,000 into a Single Premium Life Insurance policy and borrow the money out for the down payment as he can contribute more to a Roth IRA than the maximum amount allowed.
Correct answer: He should take the monthly payment and put it in a money market fund because Federal Student Loans have a six-month grace period after graduation (nine months for Perkins Loans). He should also consider refinancing the credit card debt to lower or remove the interest rate given the significant increase in income.
A prudent initial strategy for the new doctor involves leveraging the grace periods on federal student loans (six months, nine for Perkins) by temporarily placing those payments into a money market fund to build liquidity. Simultaneously, prioritizing the high-interest credit card debt for refinancing or immediate repayment is crucial to reduce interest costs. This approach balances building a down payment for a home with strategically managing existing debt, avoiding riskier or more drastic measures.
Free Certified Financial Planner MCQ Questions and Answers
Paula recently learned that she had successfully passed the CFP exam.
She could choose from the following: