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Have You Started? - Post #01 - The CFP Examination - December 2017

Posted by John Gobeil on

Hi there,

The CFP Examination is the second of two exams that must be passed to obtain CFP certification. We are sending you the email because you have purchased study aids for The CFP Examination being held on Friday December 1, 2017.

The CFP Examination

This email is to provide you with the information that can assist you in passing The CFP Examination in your pursuit of the CFP® designation.

In this email, we will look at Gobeil's Collection of 1,000 Questions™, some feedback from previous candidates, changes to the Financial Planning Practice Standards, the knowledge required to pass The CFP Examination, the CFP® Professional Competency Profile and the nature of a constructed-response question.

Gobeil's Collection of 1,000 Questions™

If you have not purchased Gobeil's Collection of 1,000 Questions™, there is no reason to read this item.

Some of the questions in our Collection of 1,000 Questions are more difficult than you will find on the CFP Examination.

When this first became apparent, we asked our customers whether we should dumb down the questions to the current level of the CFP Examination. The overwhelming response was, “No, if I can handle your stuff, I can handle the CFP Examination.”

However, there was some criticism on the FPSC bulletin board about the difficulty of our questions, particularly from those who bought them just before the CFP Examination and did not have enough time to complete them all.

So, we have placed the difficult questions in separate banks. You can do the difficult questions or not. We also broke the large banks of questions, such as income tax planning and investment planning, into smaller banks of 50 or so questions.

Nature of the CFP Examination

The Guide to Examinations for CFP® Certification says: 

“The CFP examination is a competency-based examination of up to six hours in duration. Approximately three quarters of the examination will consist of constructed-response questions and one quarter of multiple-choice questions. Constructed response questions will range from short-answer type questions to longer, extended-response type questions. The CFP Examination Blueprint outlines the allocation of exam questions by question format.

When completing constructed response questions that require a specified number of responses (e.g., list three, provide four), you are required to provide up to the indicated amount. If more than the required number of responses is given, only the first answers corresponding with the required amount will be scored, with the remainder not considered. For example, if the question requires you to list three issues with a given situation and you list five, only the first three will be considered for scoring of the exam.

For the multiple-choice items, you must select the most appropriate or best answer from the options provided for the scenario presented in the question. There is only one correct answer for each multiple-choice question. Marks are not deducted for incorrect responses.

The exams are administered electronically at computer-based testing centres across Canada. Although the examinations will be administered on a computer, you will be provided with a paper version of the case study scenarios.”

The CFP Examination of November 2016 was six hours in duration. Each of the two papers had about 10 client situations each with a couple of structured-response questions plus 13 multiple-choice questions.

Feedback

“The most difficult part of the exam was typing all the answers and showing your work with calculations.”

“What was most daunting was organizing my time. I completed everything with 2 minutes to spare.”

“The multiple-choice questions were comparable to the multiple-choice questions that your study aids provided. However, you weren’t always sure what they were getting at. Your study aids were wonderful! You had a very good variety of questions looking at all facets of financial planning!”

“Typing all day is very difficult (on the back, eyes, etc.). Where they wanted us to show calculations, they included N, PV, FV, I/YR, PMT with spaces to fill in the numbers.”

“I found your constructed-response questions were more difficult than the ones on the exam, which was good, very good preparation. The way your constructed-response questions were written up was similar to that of the exam, so that was great considering it was my first write.”

“Your constructed-response questions were very specific and I could identify through knowledge of the material and experience in the industry what the questions were asking and apply my knowledge to that. With the constructed-response questions on the exam, I had difficulty figuring out exactly they were asking for.”

Financial Planning Standards Council (FPSC)

The FPSC has essential information for your success on their website. You should go to the website of the FPSC and get copies of:

  • The CFP® Professional Competency Profile;
  • The Guide to Examinations for CFP® Certification;
  • CFP Examination Blueprint;
  • The Standards of Professional Responsibility for CFP® Professionals and FPSC Level 1™ Certificants in Financial Planning, which includes The Code of Ethics and Financial Planning Practice Standards;
  • Guidance to FPSC® Financial Planning Practice Standards; and
  • FPSC Continuing Education Guidelines.

Read through the pages of the Guide to Examinations for CFP® Certification that apply to the CFP Examination, the CFP® Professional Competency Profile and the Blueprint.

You will need the Standards of Professional Responsibility and the Continuing Education Requirements to answer questions on Professional Practice.

The FPSC® Financial Planning Practice Standards

The FPSC has “refined” the Financial Planning Practice Standards as described on http://www.fpsc.ca/cfp-professionals/refinements-financial-planning-practice-standards

Essentially, they have added a new Practice Standard 1 and the Practice Standard for Monitoring a Plan has disappeared.

Practice Standard 1, Explain the Role of the Financial Planner and Value of the Financial Planning Process - Ensure the client understands the role of a financial planner and the value of the process of financial planning in identifying and meeting the client’s personal goals, needs and priorities.

This practice standard is intended to educate clients around what to expect of financial planning and the value proposition of the financial planner, and to help engage clients in the multi-step financial planning process, which is equally dependent on the knowledge and skills of the financial planner and the candour of the client in fully disclosing his/her personal and financial situation (Guidance to FPSC® Financial Planning Practice Standards).

However, what was rather strange is that the famous six-step financial planning process promoted by the FPSC for the last 17 years has disappeared from their website to be replaced by “The Practice Standards outline the process to be followed …”.

The FPSC has also released Guidance to FPSC® Financial Planning Practice Standards at http://www.fpsc.ca/docs/default-source/FPSC/guidance-to-fpsc-financial-planning-practice-standards.pdf

So, now we have a 10 step financial planning process with practice standards for each, but monitoring the plan has sort of disappeared.

We have included 25 questions on the revised Financial Planning Practice Standards in the Collection of 1,000 Questions.

Expanded Continuing Education Categories

The FPSC has expanded what qualifies as Continuing Education (CE) to include activities focused on Professional Responsibility, developing practice management skills, acquiring relevant product knowledge, and helping to advance the financial planning profession.

Each CFP® professional must acquire at last 25 verifiable continuing education credits (CE credits) each year: a minimum of 10 credits linked to the CFP Competency Profile, a minimum of 1 credit from the category of Professional Responsibility, and a maximum of 5 credits in each of the other three CE categories of Product, Practice Management and Giving Back.

There are now five categories of CE: Financial Planning, Professional Responsibility, Product, Practice Management and Giving Back.

Financial Planning CE activities are CE activities that are related to one or more aspects of the Competency Profile, including the financial planning components, professional skills and technical knowledge.

Professional Responsibility CE activities are CE activities that are related to the FPSC® Code of Ethics, FPSC® Rules of Conduct and FPSC® Financial Planning Practice Standards.

Practice Management CE activities are CE activities that lead to the development of knowledge and skills used in building professional relationships and growing a professional practice. CE in this category may include activities focused on prospecting skills, business development behaviors, actions and/or processes, business planning skills, networking skills and sales skills.

Product CE activities are CE activities that lead to the development of the product knowledge that planners may use to advise on and sell products or comment on products held by their clients. CE in this category may be focused on any financial planning product including investment, insurance, or debt.

Giving Back CE activities are CE activities that lead to the development of knowledge and skills from volunteering with community organizations, industry associations, charitable groups or others in a way that helps Canadians understand the importance of financial planning and enhances their financial well-being. It may also include instances where CFP professionals are using their financial planning skills in a volunteer capacity to support an organization.

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. We suggest that you print a copy of Appendix B and use it as a checklist.

Every question on the Exam will include a client situation and require you to analyze the information about the client. This analysis may only require you to calculate some amount or it may require you to evaluate financial planning strategies.

Awareness and Understanding

Based upon the courses that you took in order to be eligible to write the CFP Examination, you should already have adequate knowledgeable of the topics that are classified as Awareness and Understanding.

Some of these Awareness topics are rather obscure, such as 109.02 At-Risk Rules, and would unlikely be central to a question.

It is hard to envision how the topics in Section 700 Economic and Regulatory Environment, which are all classified as Understanding, would be examined as a client situation. There are many other topics that you might strike out with a red pen because they are not likely to form such a question.

Awareness and Understanding topics include 101.04 Administration and Enforcement, 110.03 Federal/Provincial Surtaxes, 401.01 Pension Standards Act, 502.03 Clauses of a Will, 1001.05 Application Requirements and Deadlines for CPP and 1102 Human Behaviour.

The structure of the questions means that there are numerous topics in Appendix B that are extremely unlikely to be examined. So, do not spend any time studying the Awareness and Understanding topics.

Detailed and Expert

The topics that are classified as Detailed and Expert should be the focus of your studies. You must always consider that while some of these topics may be very unlikely to be on the CFP Examination, they may not have been adequately addressed to this depth in your courses.

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, but a little less intense, requiring a strong working knowledge, rather than an in-depth knowledge. If you know the difference between these levels of knowledge, please send us an email.

The 27 Expert topics include topics in 406 Registered Retirement Savings Plans, 407 Registered Education Savings Plans, 409 Tax-Free Saving Accounts and 801 Standards of Professional Responsibility.

So, you would best spend your time focused on topics classified as Detailed and Expert, and trust that you have enough of Awareness and Understanding.

Constructed-response questions

A constructed-response question is a question that requires you to produce an answer in your own words, using a computer. These questions will range from short-answer questions to longer, extended-response questions. The questions involve client situations that require you to complete an analysis, prepare a written report, draft a financial plan or write a letter to a client.

Sample question from FPSC

The FPSC once published the following sample question.

Brian and Liz, who have been married since age 18, recently retired and will begin receiving their CPP retirement benefits in six months when they both turn 61. Their recent CPP statements indicate that at age 65, Brian will be entitled to a CPP benefit of $400 per month, while Liz will be eligible for a monthly CPP benefit of $800. Liz’s annual RPP income will be $50,000 and they estimated that annual retirement expenses will be $55,000. Brian and Liz want to maximize any income splitting opportunities.

Income Range

Effective Tax Rate

$0 - $35,000

15%

$35,000 - $75,000

25%

 

What will be Brian and Liz’s annual cash flow shortfall for the next few years? Show your calculations. (5 minutes)

Brian 

Liz

i: Income Calculation:

 

 

ii: Tax Payable:

 

 

iii: Total Net Income:

 

 

iv: Expenses:

 

 

v: Shortfall:

 

 

 

This question could easily have been a multiple-choice question. The question requires only collection, not analysis or synthesis. You will see much more challenging questions than this.

More difficult question

Our study aid for The CFP Examination includes the following constructed-response question.

Papa Grant and his wife, Mama, have been clients of yours for 14 years. They are 72 years of age and their daughter, Angela, has just given them their first grandchild, Arial.

Their objective is to establish a plan to provide the funds for Arial’s education and the education of any additional grandchildren that they might have. They have no idea as to how much money would be required to fund a post-secondary education 18 years from now, but they are prepared to invest $50,000.

They have investable assets of $1.2 million in various registered retirement income funds, tax-free savings accounts and non-registered brokerage accounts.

With a conservative asset allocation, over the next few years, they expect to earn a real return of about 4%. Their effective tax and benefit clawback rates are about 40%.

They do not expect any of their grandchildren to be eligible for the Canada Learning Bonds and Enhanced Canada Education Savings Grants.

Prepare a strategic education plan with the rationale for the plan and the recommended tactics to implement the strategies with the rationale for the tactics.

This constructed-response question involves synthesis, designing strategies and selecting tactics.

To appreciate the challenge of a constructed-response question, try preparing a solution to the case of Papa and Mama Grant with only the information above.

Templates

A constructed-response question usually includes a template for your response. A template is a table with titles and other guidance that directs you in responding to a question. A template makes the answering of these questions much easier because it gives you considerable guidance as to what the examiners are expecting.

We developed the following template for the case of Papa and Mama Grant.

What is your strategy for investing the $50,000?

 

 

What is your rationale for your strategy for investing the $50,000?

 

 

What is your strategy for the use of a registered education savings plan?

 

 

What is your rationale for your strategy for the use of a registered education savings plan? 

 

 

What is your strategy for estate planning for Papa and Mama?

 

 

What is your rationale for your strategy for estate planning for Papa and Mama?

 

 

What is your tactic for sourcing the $50,000?

 

 

What is your rationale for your tactic for sourcing the $50,000?

 

 

What are your tactics for use of an inter vivos trust?           

1.      

2.      

 

What is your rationale for your tactics for use of an inter vivos trust?

1.      

2.      

3.      

 

What is your tactic for the establishment of a testamentary family trust?

 

 

What is your rationale for your tactic for the establishment of a testamentary family trust?

 

 

What are your tactics for use of a registered education savings plan?

1.      

2.      

3.      

4.      

 

What is your rationale for your tactics for use of a registered education savings plan?

1.      

2.      

3.      

4.      

5.      

6.      

7.      

 

If you tried to answer the case of Papa and Mama Grant without a template, you would have to spend considerable effort to determine what to include in your response. With the template, it becomes much easier.

On The CFP Examination, the FPSC made extensive use of templates. For our study aid, we have included detailed templates.

Levels of Complexity

According to the Blueprint, the level of complexity generally increases as the difficulty of the situation and information to process increases and the number of variables to consider and the need to integrate different variables increases. Level of complexity is broken down into three levels

Basic complexity: 5% to 15%

Basic requires application of knowledge of various facets of financial planning to straight forward financial planning situations. Questions at the basic level focus on specific content areas and may require, for instance, basic calculations, evaluation across single or a small number of topics, or making simple recommendations.

Moderate complexity: 37% to 47%

Moderate requires application of knowledge in average financial planning situations with multiple variables. Requires the assessment and processing of a number of elements to identify a solution or formulate a recommendation. Questions at the moderate level focus on more complex situations and may require, for example, multistep calculations and the assessment and integration of multiple variables and interrelated factors.

High complexity: 43 to 53%

High requires application of advanced knowledge of unique financial planning situations involving multiple variables and considerable integration of financial planning practices to analyze situations and form recommendations. Questions at the high level focus on sophisticated situations that may require, for instance, complex, multistep calculations, and understanding of complicated family or business situations.

So, you will see 43 to 53% of the questions presenting situations of high complexity. It is difficult to develop a good multiple-choice question that has high complexity, so most of these questions will probably be the structured-response questions, not the multiple-choice questions.

Synthesis questions

The allocation of the questions by financial planning functions will be collection 20% – 30%, analysis 37% – 47% and synthesis 28% – 38%.

Synthesis is the development, evaluation and recommendation of strategies resulting from the assessment of information.

So, you will see 28% – 38% of the questions requiring synthesis.

Our study aid

Gobeil's Strategic Financial Planning Study Aidis a computer-based study aid designed to help you pass The CFP Examination. The Study Aid includes a textbook on Strategic Financial Planning, 180 multiple-choice questions and 50 constructed-response questions.

The eTextbook

The eTextbook consists of nine chapters that identify the strategies commonly used to meet personal financial objectives and describe the tactics to implement those strategies.

The table of contents is as follows:

  1. Personal Financial Planning
  2. Financial Management
  3. Personal Assets
  4. Education Planning
  5. Income Tax & Benefit Planning
  6. Investment Planning
  7. Retirement Planning
  8. Risk Management
  9. Estate Planning

Multiple-choice questions

You can expect the multiple-choice questions to be similar to the ones on CFP Examination. However, you will see 43% - 53% of the questions presenting situations of high complexity and 28% – 38% of the questions requiring synthesis.

There are 20 multiple-choice questions with detailed solutions for each of the nine chapters in the textbook. Some of the questions have been written specifically to address high-depth/high-breadth and synthesis. Some of the questions that address high complexity and synthesis have been taken from Gobeil’s Collection of 1,000 Questions.

Our site includes the chapter of the eTextbook on Education Planning and a sample constructed response question with solution.

Future emails

To help you with your exam preparation, we will be making a number of posts describing the knowledge and skills required to pass The CFP Examination.             

You can ensure that you emails from Gobeil & Associates by setting up your email to look for email from inquiries@gobeil.ca and keys@gobeil.ca.

In our next post, we will review a Sample Examination Item published by the FPSC. We have some suggestions for answering “Provide three recommendations for allocating Jim’s severance payment...” 

Removal from mailing list

If do not wish to receive any further emails from us, please let us know at keys@gobeil.ca

Effectiveness of our study aids

We always appreciate feedback on the effectiveness of our study aids. Together, we can continue to have the best study aids available.

Regards,

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


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