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Question 1 of 10
1. Question
Which of the following does not come under the scope of The Code of Ethics and Professional Responsibility?
Correct
The Code of Ethics and Professional Responsibility is divided into two parts. The first part covers principles and the second part covers rules. Principles are statements that express in general terms the ethical and professional ideals that the CFP Board expects certified financial planners to exhibit in their professional activities. Basically, the principles are designed to provide a source of guidance for CFP Board designees. The rules section, on the other hand, contains descriptions of the standards of ethical and professionally responsible behavior that the Board expects of designees in specific situations. Of course, the varied nature of financial planning means that all of the rules will not be applicable to all designees at all times. The CFP Board does require, however, that all CFP designees adhere to this code at all times.
Incorrect
The Code of Ethics and Professional Responsibility is divided into two parts. The first part covers principles and the second part covers rules. Principles are statements that express in general terms the ethical and professional ideals that the CFP Board expects certified financial planners to exhibit in their professional activities. Basically, the principles are designed to provide a source of guidance for CFP Board designees. The rules section, on the other hand, contains descriptions of the standards of ethical and professionally responsible behavior that the Board expects of designees in specific situations. Of course, the varied nature of financial planning means that all of the rules will not be applicable to all designees at all times. The CFP Board does require, however, that all CFP designees adhere to this code at all times.
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Question 2 of 10
2. Question
Which Rule of the The Code of Ethics and Professional Responsibility prohibits a financial planner from getting engaged in fraud, dishonesty and misrepresentation?
Correct
Rules 101, 102, and 103
The second section of the Code of Ethics and Professional Responsibility contains specific rules for handling common financial planning situations. Rule 102 asserts that a financial planner should not engage in any conduct that involves dishonesty, fraud, deceit, or misrepresentation. Rule 103 is more complex; it lists the specific responsibilities a Board designee has to his or her clients. These are as follows: acting in accordance with the authority set forth in the governing legal instrument; identifying and maintaining records of funds and other property held by a client; delivering any funds or other property to which the client is entitled; not commingling client funds with the designee’s own personal property; and showing the care required of a fiduciary.
Incorrect
Rule 101 asserts that a financial planner should not solicit clients through false or misleading communications or advertisements.
Rules 201, 202, 301, and 302
The Code of Ethics and Professional Responsibility outlines some specific rules for situations that are common to a financial planner. Rule 201 states that a financial planner must exercise reasonable and prudent professional judgment. Rule 202 states that a financial planner must act in the interest of the client. Rule 301 states that a financial planner must stay informed of developments in the field of financial planning and participate in continuing education. Rule 302 states that a financial planner must offer advice only in those areas in which that financial planner has competence. In those matters in which the financial planner is not competent, he or she should seek the counsel of qualified individuals.
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Question 3 of 10
3. Question
What is followed under the Rule 411 of The Code of Ethics and Professional Responsibility?
Correct
Rules 411, 412, and 413
Rule 411 of the Code of Ethics and Professional Responsibility states that a CFP designee must advise his or her employer about any outside affiliations that may reasonably compromise his or her service to an employer. This rule also states that a financial planner must provide timely notice to the employer and clients, unless this is precluded by contractual obligation, in the event of change of employment or change in CFP Board certification status.
Incorrect
Rules 411, 412, and 413
Rule 411 of the Code of Ethics and Professional Responsibility states that a CFP designee must advise his or her employer about any outside affiliations that may reasonably compromise his or her service to an employer. This rule also states that a financial planner must provide timely notice to the employer and clients, unless this is precluded by contractual obligation, in the event of change of employment or change in CFP Board certification status.
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Question 4 of 10
4. Question
What is the scope of the 500 series of Practice Standards?
Correct
The 500 series of the Practice Standards is about implementing the financial planning recommendations. Standard 500-1 states that the financial planner and the client should agree on the implementation responsibilities. Standard 500-2 states that they should also select products and services for implementation.
Incorrect
The 500 series of the Practice Standards is about implementing the financial planning recommendations. Standard 500-1 states that the financial planner and the client should agree on the implementation responsibilities. Standard 500-2 states that they should also select products and services for implementation.
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Question 5 of 10
5. Question
Who is responsible for investing, evaluating and taking actions when the Code of Ethics and Professional Responsibility are violated?
Correct
Board of Professional Review
The Board of Professional Review is charged with investigating, evaluating, and taking whatever action is appropriate when violations of the Code of Ethics are alleged to have occurred. The Board of Professional Review is also called in when there is an allegation that a financial planner has not complied with the Practice Standards. The Board can be divided into two panels: an Inquiry Panel (which investigates and assesses allegations) and a Hearing Panel (which administrates hearings regarding violations). Each panel will have a chair. No member of one panel is allowed to serve on the other panel in regards to the same matter.
Incorrect
Board of Professional Review
The Board of Professional Review is charged with investigating, evaluating, and taking whatever action is appropriate when violations of the Code of Ethics are alleged to have occurred. The Board of Professional Review is also called in when there is an allegation that a financial planner has not complied with the Practice Standards. The Board can be divided into two panels: an Inquiry Panel (which investigates and assesses allegations) and a Hearing Panel (which administrates hearings regarding violations). Each panel will have a chair. No member of one panel is allowed to serve on the other panel in regards to the same matter.
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Question 6 of 10
6. Question
What information is mandatory to be disclosed in writing between the CFP financial planners and clients?
I. Names of the parties to the agreement
II. Duration of the client-planner engagement
III. Past working experience of the financial planner
IV. Information regarding conflicts of interest
Correct
Certified Financial Planners Board disclosures requirements
The Certified Financial Planners (CFP) Board requires that certain disclosures be made in writing, while others may optionally be made verbally. Before entering into a business relationship with a client, the CFP professional must disclose verbally or in writing the obligations of the planner and the client, pertinent information about how the CFP professional or affiliates will be compensated, if proprietary products will be offered, and any situation by which the CFP professional may use other parties to fulfill the agreement. The disclosures that must be in writing are as follows: the parties to the agreement, the date and length of the client-planner engagement, how either party may terminate the agreement, services provided, how the planner will be paid, any conflicts of interest, contact information for the planner, and information about the planner that may influence the client’s decision as to whether or not to enter a planning relationship.
Incorrect
Certified Financial Planners Board disclosures requirements
The Certified Financial Planners (CFP) Board requires that certain disclosures be made in writing, while others may optionally be made verbally. Before entering into a business relationship with a client, the CFP professional must disclose verbally or in writing the obligations of the planner and the client, pertinent information about how the CFP professional or affiliates will be compensated, if proprietary products will be offered, and any situation by which the CFP professional may use other parties to fulfill the agreement. The disclosures that must be in writing are as follows: the parties to the agreement, the date and length of the client-planner engagement, how either party may terminate the agreement, services provided, how the planner will be paid, any conflicts of interest, contact information for the planner, and information about the planner that may influence the client’s decision as to whether or not to enter a planning relationship.
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Question 7 of 10
7. Question
What is the function of The Federal Deposit Insurance Corporation (FDIC)?
Correct
Banks and credit unions
Banks are the primary depository for checking accounts as well as the primary source of short-term financing for corporations. The Federal Deposit Insurance Corporation (FDIC) insures banks. Credit unions also serve as a depository for checking accounts, and they also provide short-term financing to corporations. However, credit unions are nonprofit, cooperative financial institutions that are owned and run by members. In a credit union, the members make loans by pooling their own funds and elect a volunteer board to oversee the credit union’s operations. Credit unions are generally created to serve people in a particular community or a group of employees. The National Credit Union Administration (NCUA), an agency of the federal government, insures credit unions.
Brokerage companies and insurance companies
Brokerage companies are the primary depositories of investment accounts for the purpose of trading stocks and bonds. Brokerage firms used to be more distinct from banks than they are now. The Glass-Steagall Act of 1933, which forbids banks from underwriting corporate securities, outlines the main difference at present. The Securities Investor Protection Corporation (SIPC) insures brokerage firms.
Incorrect
Banks and credit unions
Banks are the primary depository for checking accounts as well as the primary source of short-term financing for corporations. The Federal Deposit Insurance Corporation (FDIC) insures banks. Credit unions also serve as a depository for checking accounts, and they also provide short-term financing to corporations. However, credit unions are nonprofit, cooperative financial institutions that are owned and run by members. In a credit union, the members make loans by pooling their own funds and elect a volunteer board to oversee the credit union’s operations. Credit unions are generally created to serve people in a particular community or a group of employees. The National Credit Union Administration (NCUA), an agency of the federal government, insures credit unions.
Brokerage companies and insurance companies
Brokerage companies are the primary depositories of investment accounts for the purpose of trading stocks and bonds. Brokerage firms used to be more distinct from banks than they are now. The Glass-Steagall Act of 1933, which forbids banks from underwriting corporate securities, outlines the main difference at present. The Securities Investor Protection Corporation (SIPC) insures brokerage firms.
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Question 8 of 10
8. Question
Which regulatory body protects the customers of the brokers-dealers?
Correct
Securities Investor Protection Corporation (SIPC)
The Securities Investor Protection Corporation protects the customers of broker-dealers so long as that broker-dealer is a member of the SIPC. If this member’s registration with the Securities and Exchange Commission is terminated the membership in the SIPC will also be terminated. The brokerage firms that are members of the SIPC pay the cost of the insurance.
Incorrect
Securities Investor Protection Corporation (SIPC)
The Securities Investor Protection Corporation protects the customers of broker-dealers so long as that broker-dealer is a member of the SIPC. If this member’s registration with the Securities and Exchange Commission is terminated the membership in the SIPC will also be terminated. The brokerage firms that are members of the SIPC pay the cost of the insurance.
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Question 9 of 10
9. Question
What are the functions of The Financial Industry Regulatory Authority, Inc. (FINRA)?
I. To protect the investors from the brokers and dealers.
II. To register all the dealers who sell financial securities like stocks, options, mutual funds etc.
III. To register the commodities traders and investment advisers.
IV. To protect the consumers from banks and insurance companies’ frauds.
Correct
Registration and licensing (FINRA)
The Financial Industry Regulatory Authority, Inc., or FINRA registers all people who sell stocks, bonds, tax-sheltered investments, options, mutual funds, and other securities. FINRA is an independent group supervised by the SEC. In order to register with FINRA, securities dealers have to fill out a Uniform Application for Securities Industry Regulation, a Form U-4, and pass one or more exams. FINRA has designed a series of exams to test the competence of various financial professionals, from commodities traders to investment advisers. Once the individual passes the appropriate tests, he or she can become a registered representative and is licensed to sell certain securities.
Incorrect
Registration and licensing (FINRA)
The Financial Industry Regulatory Authority, Inc., or FINRA registers all people who sell stocks, bonds, tax-sheltered investments, options, mutual funds, and other securities. FINRA is an independent group supervised by the SEC. In order to register with FINRA, securities dealers have to fill out a Uniform Application for Securities Industry Regulation, a Form U-4, and pass one or more exams. FINRA has designed a series of exams to test the competence of various financial professionals, from commodities traders to investment advisers. Once the individual passes the appropriate tests, he or she can become a registered representative and is licensed to sell certain securities.
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Question 10 of 10
10. Question
Who are exempted from the control of the Investment Advisers Act of 1940?
I. Publishers of magazines or journals that give their opinion on financial planning.
II. Financial professional who have more than 15 clients per year.
III. Financial professionals who provide advice to clients only within their state.
IV. Professionals who provide financial advice to law firms.
Correct
Registration and licensing (Investment Advisers Act of 1940 and exemptions from registration) According to the Investment Advisers Act of 1940, financial planners are not subject to the control of the act if they are: a bank or holding company that is not an investment company; a lawyer, accountant, engineer, or teacher who provides investment advice incidentally; a broker, dealer, or registered representative whose advice is incidental; the publisher of a magazine or journal that discusses financial planning; a person whose advice is limited to those securities guaranteed by the federal government; or any other person not within the law as specified by the SEC. Also, financial professionals may be exempt if they provide advice only to people who live within the same state, if they provide advice only to insurance companies, if they have fewer than 15 clients every year, or if they provide advice exclusively to churches.
Incorrect
Registration and licensing (Investment Advisers Act of 1940 and exemptions from registration) According to the Investment Advisers Act of 1940, financial planners are not subject to the control of the act if they are: a bank or holding company that is not an investment company; a lawyer, accountant, engineer, or teacher who provides investment advice incidentally; a broker, dealer, or registered representative whose advice is incidental; the publisher of a magazine or journal that discusses financial planning; a person whose advice is limited to those securities guaranteed by the federal government; or any other person not within the law as specified by the SEC. Also, financial professionals may be exempt if they provide advice only to people who live within the same state, if they provide advice only to insurance companies, if they have fewer than 15 clients every year, or if they provide advice exclusively to churches.