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Technical knowledge! - Post #02 - FPSC Level 1 Examination - December 2017

Posted by John Gobeil on

The FPSC Level 1 Examination is the first of two exams that must be passed to obtain CFP® certification. We have posted this entry to assist you in your preparation for the FPSC Level 1 Examination (FPE1) on Friday December 1, 2017.

In our last Post, we looked at feedback from candidates, changes to the Financial Planning Practice Standards, the knowledge required to pass the FPE1, the CFP® Professional Competency Profile and studying to acquire adequate technical knowledge.

In this Post, we will look at more suggestions for acquiring technical knowledge.

Acquiring Technical Knowledge

Many candidates have asked us how to cope with the volume of material that is required for this Exam. The Personal Financial Planner’s Manual™ has over 1,800 pages and there are over 1,000 questions in the Collection. You may also have a couple of thousand pages of course material.

Our answer is always, “Keep in mind the nature of the Exam”. All of the questions involve applying the financial planning process in some way or other to client situations. Considering this, we can come up with some guidance for different types of knowledge.

Technical knowledge in Professional Competency Profile

The required technical knowledge with the topics classified as to levels of knowledge is included in Appendix B of the CFP® Professional Competency Profile.

As the definition of Expert, the Profile says that you must have in-depth knowledge of the topic and all the ramifications in order to fully analyze the client’s particular situation, weigh all relevant options, including the most sophisticated strategies and obscure details, and synthesize all information to make specific client recommendations. You must be able to draw inferences and explain all of the impacts of the strategies and recommendations on other client goals.

The definition of Detailed is very similar to Expert, requiring a strong working knowledge, rather than an in-depth knowledge. If you know the difference between a strong working knowledge and an in-depth knowledge, please send us an email.

Knowledge of Registered Plans

Registered plans provide opportunities to avoid or defer income tax on savings. You can expect 15% to 20% of the questions to involve registered plans. The rules are complex and somewhat daunting.

There are eight registered plans of which you need knowledge: RRSPs, RRIFs, RPPs, LIRAs, RESPs, TFSAs, DPSPs and RDSPs.

Appendix B of the CFP® Professional Competency Profile specifies an expert knowledge level for most aspects of RRSPs, RRIFs, RESPs and TFSAs.

Appendix B specifies a detailed knowledge level for most aspects of RPPs, LIRAs, DPSPs and RDSPs.  

From the client’s perspective, you only need to know:

  • the amount of contributions permitted to the plan and penalties for overcontributions;
  • any income tax deductions for contributions;
  • any government grants or bonds for contributions;
  • the eligible investments and penalties for ineligible investments;
  • any restrictions on, and requirements for, withdrawals, such as minimum or maximum annual amounts; and
  • the income tax treatment of withdrawals, which may differ for contributions, accumulated income and any government grants.

You could use this list as a starting point to produce a summary of the requirements for each type of plan. Before our next Post, we suggest that you try this for RESPs and we will give you our summary for RESPs.                                                 

Knowledge of Investment Products

You can expect 15% to 20% of the questions to involve investment products. The investment products of which you need knowledge include CSBs, GICs, T-bills, bonds and debentures, common and preferred shares, investment funds, trusts and derivatives.

Appendix B of the CFP® Professional Competency Profile does not specify an Expert knowledge level for any aspects of investments. Appendix B specifies a detailed knowledge level for most aspects of investments.  

Appendix B specifies a detailed knowledge level for cash, fixed income, equities, mutual funds, segregated funds, exchange-traded funds and pooled funds. Appendix B also specifies a detailed knowledge level for most types of investment risks, portfolio management, and buying and selling methods.

From the client’s perspective, you only need to know:

  • the nature of the investment;
  • the liquidity and marketability of an investment;
  • the risks associated with an investment;
  • any fees and expenses associated with an investment;
  • any rights of the investor;
  • evaluation of the return for each investment;
  • the types of income and appreciation;
  • the income tax considerations;
  • strategies for using various investment products; and
  • how to select investment products by reference to the client’s needs.

You could use the above list as a starting point to produce a summary of the requirements for each type of investment product. Before our next Post, we suggest that you try this for investment funds and we will give you our summary for investment funds.

Format of Questions

At an FPSC Educator’s Conference, we learned that:

  • the examiners no longer use “Which of the following statements is/are True/False?”;
  • they will ask you to choose a response that completes a sentence;
  • they will ask a specific question concerning the client;
  • they will not ask a negative question, such as “What should Charley not do?”;
  • they still use combination questions, but sparingly; and
  • a combination question will only have two correct statements.

Next Post

In the next Post, we will also examine the FPE1 Blueprint for the allocation of questions by financial planning functions.

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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