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Answering Case Study Questions! - Post #15 - FPSC Level 1 Examination - December 2017

Posted by John Gobeil on

In this Post, we will look at an effective approach to answering case study questions. 

The Challenge

As one candidate reported, “I was really rushed to complete the last case study. I took your advice and started the case studies first as it allowed me to take sufficient time to complete all 4 case studies and I knew I would struggle searching for data in the last few hours. The case studies were around 6-7 pages long and the last two pages were the financial statements. I think I should have practiced these more; getting information out of long case studies would have helped a great deal. Thanks for putting together a great set of study aids.”

Nature of the Case Studies

The Guide to Examinations for CFP® Certification says:

“FPE1 is a competency-based examination of up to four hours in duration. The examination consists of approximately 95 multiple-choice questions. The examination questions will be presented as a combination of stand-alone multiple-choice questions and two case studies with related multiple-choice questions. Although FPE1 will be administered on a computer, candidates will be provided with a paper version of the case study scenarios.”

The June 2017 FPE1 was four hours in duration and there were a total of 93 multiple-choice questions: 73 stand-alone technical questions and two case studies each with 10 questions.

The case study scenarios or backgrounds usually include about 4 to 5 pages of text plus a statement of net worth and a statement of cash flow. The case study background has headings, such as Insurance, Employment, and Estate Planning.

Case studies require the analysis of data and selection of most appropriate responses to multiple-choice questions covering a variety of topics. The only real difference from a technical question is that you have to search through the case study background to find the information that you need to answer the question. Case studies include the information that you, as a financial planner, would obtain from a new client through questionnaire and interview.

Sample Case Study

Gobeil's Strategic Case Studies™ is a computer-based study aid with 20 case studies and 200 multiple-choice questions and detailed solutions to help you successfully answer the questions for the case studies with multiple-choice questions on the CFP® Financial Planning Examination Level 1.

You can find a Case Study Background for one of the case studies at https://cdn.shopify.com/s/files/1/1176/7544/files/Korinsky_2017A.pdf?18357515439813972432

The case study background includes 5 pages of text plus a statement of net worth and a statement of cash flow. The Case Study Background is followed by two questions.

Suggested approach

You have about 40 minutes to complete a case study. A case study question takes about twice as long as a technical question because you have to locate the information to answer a case question. The FPE1 is a 4 hour exam with 240 minutes. The FPE1 has about 100 questions of which 20 are case questions. This is equivalent to having to complete 120 technical questions.

The time per technical question is 2 minutes, calculated as (length of exam at 240 minutes ÷ equivalent to 120 technical questions). The time per case study question is 4 minutes, calculated as (time per technical question × 2).

Step 1 - Spend 5 or 6 minutes reading the case study background for context, not content. Context is the client’s situation or circumstances: the kind of information you might obtain in a first meeting with the client. 

You want to understand client’s general situation only well enough that you can understand the setting for the questions. You should not anticipate or solve any problems because the information is irrelevant if not required to answer a specific question.

The only information to underline or highlight is that identity of the family members, which is always relevant.

Step 2 - Spend about 10 minutes analyzing and documenting the information required for each of the 10 questions.

If there are calculations involved, write down the formulas. If there are strategic decisions involved, write down the things to consider. Write down anything that goes through your mind that would be helpful and relevant upon returning to the question.

Do not yet refer back to case study background

Step 3 - Knowing the information required for the questions, spend 7 or 8 minutes rereading the entire case study background, but for content this time. Get to know the client and their situation as it applies to your questions.

You will find paragraphs with no relevant information: cross them out. You will find paragraphs with relevant information to specific questions: underline or highlight relevant facts and numbers.

Step 4 - You have about 16 minutes to answer the 10 questions. As you answer each question, find the specific information in the case study background. Don’t do it from memory!

Time Management – Before starting, determine time to be finished the case study. Write the time on paper for last question. Compare actual time to target time as you go along.

Suggested approach

Minutes

  1. Read case study background for context                            6
  2. Analyze the 10 questions                                                  10
  3. Reread case study background for content                        8
  4. Answer the 10 questions referring to background            16

                        Total minutes                                                     40

Sample questions

The Case Study Background is followed by two questions from the Korinsky case study. Following each of the questions, we have identified what you are required to determine in order to answer each question. This is the result of the analysis that you would carry out in step 2. After that, we have included the concepts required in order to answer each question. The solutions are included with the sample questions on our website.

1. What would be a consequence if Dieter and Tammy were to divorce?

(A)

Any property used for family purposes would be subject to division, regardless of when it was acquired; while business and investment assets would only be subject to division if they were acquired during the marriage.

(B)

All property acquired during the marriage, including family property and business and investment assets, would be subject to equal division upon marriage breakdown.

(C)

Tammy would be entitled to half of all of Dieter's property and he would be entitled to half of hers.

(D)

Tammy would only have a claim on business assets acquired during marriage if she could prove that she made a direct contribution to the growth and success of the business.


(Required) You will have to determine how property is distributed in their province of residence upon the breakdown of a marriage.

(Client situation) The Korinskys' province of residence has a deferred community of property regime where all property acquired during marriage is subject to division.

(Concepts)  A deferred community of property regime is a matrimonial property regime such that during marriage each spouse retains the right to own and manage property in his or her name, but if that marriage dissolves, the value of the property will be divided between them. The definition of what constitutes community property (i.e., what property must be divided) varies from province to province. All provinces, other than Quebec, operate under some form of deferred community of property regime.

Property acquired during marriage refers to any increase in net worth, which could occur from the reduction of debt, savings of earned income, investment returns and appreciation in the value of property. The form in which this increase in net worth is held is generally irrelevant.

2. If Dieter were to sell his shares in Rock Plus Inc., what amount of taxable income would he have to report from the sale?

(A)

$549,000

(B)

$556,142

(C)

$564,736

(D)

$924,000

 

(Required) You will have to calculate Dieter's adjusted cost base (ACB); his capital gains on dispositions of qualifying farm property, qualifying fishing property, qualifying small business shares, and personal property for which deductions were previous claimed; his capital gain; his taxable capital gain; his unused lifetime limit; his capital gain deduction and his taxable income.

(Client situation) Twenty-two years ago, Dieter established Rocks Plus Inc., a landscaping design and supply business. Dieter owns 90% of the 1,000 common shares. When the business started, Dieter's sister purchased 20% of the shares for $50 per share. She sold her shares to Dieter for $75 per share. Rocks Plus Inc. is a qualified Canadian-controlled small business corporation.

According to the Statement of Net Worth, his shares in Rock Plus Inc. have a fair market value of $1,898,000.

In 1994, he used the personal lifetime capital gains exemption to increase the adjusted cost base of the cottage to $142,000.

Dieter has a cumulative net investment loss (CNIL) of $50,000.

John Gobeil, BSc, CFP®
David Gobeil, CPA, CA, CFP® 

Certified Financial Planner® and CFP® are certification marks owned outside the U.S. by the Financial Planning Standards Board Ltd. The Financial Planners Standards Council is the marks licensing authority for the CFP marks in Canada, through agreement with FPSB.


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