CFP CFP CFP® Certification Examination: mock exams and practice questions

Sample question 1 · A · Professional Conduct and Regulation

Imelda Bexley, CFP®, is paid only by asset-based advisory fees through her registered investment adviser firm. Her husband is a commissioned life insurance agent with an unrelated agency, and Imelda regularly refers her clients to him when they need life insurance. May Imelda describe her compensation method as 'fee-only'?

1. A Yes, because Imelda and her firm receive no commissions or other Sales-Related Compensation.
2. B No, because her husband is a Related Party who earns Sales-Related Compensation on her clients' purchases.
3. C Yes, provided her Form ADV discloses the commissions that her husband earns on her referrals.
4. D No, because only professionals who charge flat or hourly fees may use the term 'fee-only'.

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Answer: B. Standard A.12 allows the 'fee-only' description only where (a) the CFP® professional and her firm receive no Sales-Related Compensation, and (b) no Related Party receives Sales-Related Compensation in connection with professional services she or the firm provides to clients.

Family members, including a spouse, are presumed to be Related Parties. Commissions are Sales-Related Compensation, and because Imelda refers her clients to her husband, his commissions arise in connection with her services. The safe harbor (policies reasonably designed to prevent referrals to the Related Party) is not met. Imelda must not call herself 'fee-only'; she should describe her compensation accurately, for example as fees, while disclosing her husband's commissions as a conflict.

Sample question 2 · B · General Principles of Financial Planning

Corinne Baptiste has accepted her CFP® professional's recommendation to buy individual disability income insurance, and their engagement makes the planner responsible for implementation. Which activity belongs to the implementing step of the financial planning process?

1. A Checking whether her coverage is still adequate after she receives a large raise next year
2. B Selecting a specific disability policy and carrier and explaining to her why it was chosen
3. C Recommending that Corinne insure about 60% of her gross earnings with a 90-day elimination period
4. D Projecting how long Corinne's savings would last if an injury stopped her earning income

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Answer: B. In Step 6 (Code and Standards, Section C.6) the CFP® professional with implementation responsibility identifies, analyzes and selects the actions, products and services designed to implement the recommendations, and tells the client the basis for the selection. Analysis of the problem (Step 3) and the recommendation itself (Step 4) come earlier; review after a raise is monitoring (Step 7).

Sample question 3 · C · Risk Management and Insurance Planning

Oriana Rhodes drives a 12-year-old car worth about $3,200 and has had no claims in many years. Her auto policy includes collision coverage with a $1,000 deductible. She decides to drop the collision coverage and pay for any damage to her own car herself. Which risk management technique is she using?

1. A Risk avoidance
2. B Risk reduction
3. C Risk retention
4. D Risk transfer

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Answer: C. The risk management matrix links frequency and severity to a technique:

| | Low severity | High severity |
|---|---|---|
| High frequency | Reduce | Avoid |
| Low frequency | Retain | Transfer (insure) |

The most she could lose is about $3,200 (only $2,200 more than the deductible), which she can absorb, so dropping collision coverage is a sensible retention of the risk.