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Cheat sheet

CFP Cheat Sheet

Practice QuestionsStudy Guide

Professional Conduct

8%of exam

Code DutiesFiduciary DutyConflictsConduct Picker

Planning Principles

15%of exam

Planning ProcessStatementsCash FlowTVM

Risk Management

11%of exam

Risk TransferLife InsuranceDisabilityInsurance Picker

Investment Planning

17%of exam

Risk MeasuresPortfolioBondsAsset Location

Tax Planning

14%of exam

Tax BasicsDeductionsCapital GainsEntity Tax

Retirement Planning

18%of exam

Plan TypesDistributionsSocial SecurityRetirement Picker

Estate Planning

10%of exam

TitlingTrustsTransfer ToolsEstate Documents

Planning Psychology

7%of exam

BiasesMoney ConflictCommunicationCrisis Events

Quick Facts

Exam
CFP
Credential
Certified Financial Planner
Questions
170
Time
6 hours
Sections
Two 85-question halves
Break
40 minutes
Result
Pass/fail
Provider
Prometric
Windows
March July November

Fiduciary LCF

Loyalty Care Follow

Loyalty: client firstCare: prudentFollow: lawful instructions

Fiduciary vs Suitability

Fiduciary

  • Client first
  • Care duty
  • Conflicts managed

Suitability

  • Appropriate product
  • Lower bar
  • Product focused

Best interest wins

Conduct Picker

  1. Personal recommendation→Fiduciary duty(Financial advice)
  2. Material conflict→Disclose manage(Or avoid)
  3. Beyond competence→Refer specialist(Still monitor)
  4. Client privacy→Protect data(Limited sharing)
  5. Illegal request→Decline assist(Follow law)
  6. Planning advice→Engagement terms(Define scope)

Code Duties

Loyalty
Client first
Care
Prudent professional
Instructions
Reasonable lawful orders
Integrity
Honest conduct
Competence
Know limits
Diligence
Timely service
Confidentiality
Protect information
Professionalism
Reflects positively

Seven Steps

Understand Identify Analyze Develop Present Implement Monitor

Data before adviceMonitor after implementation

Planning Process

Understand
Circumstances
Identify
Select goals
Analyze
Current course
Develop
Recommendations
Present
Explain advice
Implement
Execute plan
Monitor
Update progress

Statements

Assets
What owned
Liabilities
What owed
Net worth
Assets minus debts
Cash inflow
Money received
Cash outflow
Money spent
Surplus
Positive cash flow
Liquidity
Cash access

Risk Actions

Avoid Reduce Retain Transfer

Avoid: removeReduce: controlRetain: self-insureTransfer: insure

Insurance Picker

  1. Temporary income need→Term life
  2. Permanent estate need→Permanent life
  3. Lost earnings risk→Disability
  4. Custodial care risk→LTC
  5. High liability risk→Umbrella
  6. Longevity risk→Annuity

Risk Transfer

Avoid
Eliminate exposure
Reduce
Lower severity
Retain
Self-insure
Transfer
Buy insurance
Deductible
Client absorbs first
Coinsurance
Shared payment
Elimination
Waiting period

Insurance

Term life
Temporary death benefit
Whole life
Permanent cash value
Universal life
Flexible premiums
Disability
Income replacement
LTC
Custodial care
Umbrella
Excess liability
Annuity
Longevity hedge

Tolerance vs Capacity

Tolerance

  • Emotional comfort
  • Questionnaire driven
  • Can change

Capacity

  • Financial ability
  • Goal driven
  • Constraint based

Feelings vs ability

Risk Measures

Alpha
Excess return
Beta
Market sensitivity
R-squared
Benchmark fit
Duration
Rate sensitivity
Sharpe
Risk-adjusted return
Standard deviation
Total volatility
Correlation
Movement relationship

Portfolio

Allocation
Asset mix
Diversification
Reduce unsystematic risk
Rebalancing
Restore targets
Taxable
Tax drag matters
Traditional
Tax-deferred
Roth
Tax-free qualified
Concentration
Single-position risk

Deduction vs Credit

Deduction

  • Cuts income
  • Bracket dependent
  • Before tax

Credit

  • Cuts tax
  • Dollar impact
  • After calculation

Income vs tax

Tax Basics

Gross income
All taxable income
AGI
Income after adjustments
MAGI
Modified AGI
Deduction
Lowers taxable income
Credit
Lowers tax owed
Basis
Tax cost
Carryforward
Future tax use

Capital Gains

Short-term
Ordinary rates
Long-term
Preferential rates
Wash sale
Loss disallowed
Step-up
Death basis reset
Recapture
Depreciation taxed
Harvesting
Realize losses
NII tax
Investment surtax

Traditional vs Roth

Traditional

  • Pretax entry
  • Taxable exit
  • RMD applies

Roth

  • After-tax entry
  • Qualified tax-free
  • No owner RMD

Tax now or later

Retirement Picker

  1. Employer plan match→Contribute first
  2. High current bracket→Traditional
  3. Low current bracket→Roth
  4. Self-employed owner→SEP or solo
  5. Guaranteed income gap→Annuity option
  6. Required withdrawals→RMD schedule

Plan Types

401(k)
Employee deferral
403(b)
School nonprofit
457(b)
Government deferred comp
SEP IRA
Employer funded
SIMPLE
Small employer
Defined benefit
Promised pension
RMD
Required distribution

Estate Order

Title Beneficiary Will Trust Tax

Title: ownershipBeneficiary: contractsWill: probateTrust: control

Will vs Trust

Will

  • Probate controls
  • Names guardian
  • Death only

Trust

  • Avoids probate
  • Manages assets
  • Lifetime control

Court vs contract

Estate Documents

Will
Probate transfer
Trust
Managed ownership
POA
Financial agent
Health proxy
Medical agent
Living will
Care instructions
Beneficiary
Contract transfer
TOD
Account transfer

Beneficiary vs Titling

Beneficiary

  • Contract transfer
  • Overrides will
  • Account specific

Titling

  • Ownership form
  • Probate impact
  • Creditor impact

Designation vs ownership

Behavioral Finance

Loss aversion
Losses hurt more
Anchoring
First number sticks
Recency
Recent events dominate
Confirmation
Seek agreement
Overconfidence
Overrate skill
Framing
Presentation changes choice
Crisis
Decision capacity impaired

Common Traps

Advice vs marketing

Advice triggers fiduciary ≠ Marketing stays general

Disclosure vs management

Disclosure informs client ≠ Management reduces conflict

AGI vs MAGI

AGI starts limits ≠ MAGI modifies eligibility

Return vs risk

Alpha measures excess ≠ Beta measures market risk

Will vs beneficiary

Will handles probate ≠ Beneficiary controls contract

Roth vs traditional

Roth taxes entry ≠ Traditional taxes exit

Tolerance vs capacity

Tolerance is comfort ≠ Capacity is ability

Last Minute

  1. 1.Domains: 8 total
  2. 2.Retirement is largest
  3. 3.Fiduciary for financial advice
  4. 4.Conflicts: disclose and manage
  5. 5.Use seven planning steps
  6. 6.Net worth: assets minus debts
  7. 7.Credit beats deduction
  8. 8.Duration tracks rate sensitivity
  9. 9.Beneficiaries can override wills
  10. 10.Crisis impairs decisions

CFP Certified Financial Planner

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