1. Personal Financial Planning Book

How much does your financial adviser know? God may be omniscient but we are not. It’s our nature to seek experts to help us understand that which we are unwilling or unable to learn ourselves.

To study for the exam, you should check out a DSST Personal Finance exam study guide, which provides a detailed outline of what will appear on the exam. Reduced the role of the Federal Government in financial planning. DSST Personal Finance Practice Questions Answer Key. Jul 20, 2016 mometrix. Search For Your Exam. 50 Personal Finance Tips That Will Change the Way You Think About Money. One study showed that the farther away a goal seems, and the less sure we. Of spending it on pricey material objects—gives you more happiness for your buck. Answer a few (very) short questions and we'll pick the best of The Muse just for.

Like doctors, lawyers or engineers for insight, financial advisers are looked upon to help guide you through the chaos of personal finance. But what does being a financial adviser mean and what is the knowledge behind those credentials? Surprisingly, the term “financial adviser” doesn’t carry any intrinsic meaning. As Investopedia explains: “Financial adviser’ is a generic term with no precise industry definition, and many different types of financial professionals fall into this general category.” There could be a dozen different types of financial professionals that fit as “financial advisers” such as Certified Financial Planners (CFP), Chartered Financial Analyst (CFA), Personal Financial Specialist, Investment Advisor Representatives (IAR), and more. The prestige of these titles can vary considerably. While the rigorous CFP and CFA designations require a multistep certification process and include several years of experience in the field, many others do not.

So how much do financial advisers actually know and what is the procedure to get some of these certifications? Some time ago, I figured why not find out? Thus began the journey for certification. A quick surf of the web and FINRA website yielded a confusing numerical mix of exams such as the Series 63, Series 7, Series 65, and so on, and a just-as-confusing number of resultant titles.

Since several of these exams require the sponsorship of a financial company, out of the question for me as an independent, I settled on the Series 65 Uniform Investment Advisor Law Exam, which allows one to become an Investment Advisor Representative, a common financial adviser designation, and one of the highest designations achievable independently. From there, it was a simple matter of following links, locating a test center (luckily Prometric had a site only a few miles from me), scheduling a test, and paying the $155 registration fee.

To fit it into a preplanned vacation schedule, I settled on a test date a week later, found a study guide, a couple of online practice tests and thus started cramming — a wistful reminder of the good old days of school. As per the North American Securities Administrators Association (NASAA). Which runs the certification,lasts 3 hours, contains 130 relevant test questions and requires a 72%, or 94 correct, result to pass. A failed exam results in a month waiting time before another attempt. The test is composed of four sections with a recommended study time of 24 to 40 hours. The first section of 19 questions, or 15%, is on general economic factors and business terms. Essentially it’s about understanding market and economic risks, how the economy functions on a basic level, what things like yield curves are and how to read corporate financial statement.

My personal take away studying this section — if you’ve taken a basic economics class in college, know basic statistics and frequently read about the economy on news & media you’ve got most of it covered. So how good is your knowledge? Here are a few questions (all courtesy of Investopedia): 1. If a bond with a face value of $1,000 is bought for $920, you say the bond traded at: a) A premium b) Maturity c) Par d) A discount 2.

The total return of an investment includes each of the following elements except: a) Interest b) Dividends c) Appreciation or depreciation d) Beta 3. Which of the following statements about investment risk are correct? A) Standard deviation is a measure of total risk b) Market risk is also known as unsystematic risk c) Unsystematic risk can be greatly reduced through diversification d) Beta is a measure of systematic, non-diversifiable risk e) a, c and d f) b, c, and d g) a and b only h) a, b, and d The second section of 31 questions, or 24%, is on investment vehicle characteristics — essentially what are bonds and stocks, and how do they work. This section starts getting into the nitty gritty on the different kinds of investments possible and how they function. Perhaps reflecting our educational system’s lack of emphasis on financial literacy, surprisingly little of this information is covered in school, at least in my experience. Nonetheless, almost all of this information is widely available online and a basic first step for anyone interested in investing. My personal take away studying this section — if you’ve spent an appreciable amount of time understanding how to do investments, you know most of this, though there are admittedly several obscure questions present.

Test your knowledge with a few sample questions: 4. What level of investment income generated by an REIT must be distributed to shareholders? A) 90% b) 75% c) 95% d) 100% 5. Which of the following best describes American Depository Receipts (ADRs)? A) Trade U.S.

Securities in foreign markets b) Trade foreign securities in U.S. Markets c) An option to purchase a stated number of shares of a common stock at a stated price d) Fixed income security portfolio managed by a corporate trustee 6. Which of the following are key advantages of annuity ownership? A) Earnings are distributed tax-free b) Tax deferral and compounding c) Guaranteed income for life d) Short-term investments e) b and d only f) a and c only g) b and c only h) b, c, and d The third section at 40 questions, or 31%, is on client investment recommendations and strategies. Arguably the most important section — after all, formulating a strategy and recommending portfolio options is the main reason you’re looking for an adviser in the first place. This section covers a wide range of topics including understanding client situations such as retirement needs and risk tolerances, portfolio management practices such as modern portfolio theory and diversification principles, and the basic nature of plans such as 529s and 401(k)s.

My personal take away studying this section — there’s a lot of content and nuances involved here and while a large portion was known from general knowledge, a lot of dedicated learning is required here to truly master it all. Test your knowledge with a few sample questions: 7. Each of the following investment types is permitted within an IRA except: a) U.S. Gold coins b) Government securities c) Collectibles d) Annuities 8.

You have helped Rusty develop an asset allocation model for his portfolio. Over time, his ratio of equities to fixed income has deviated from the original agreed investment policy statement. The process of shifting assets from one asset class to another in order to maintain the original asset allocation is called? A) Rebalancing b) Passive management c) Collective shifting d) Indexing 9.

Allen (a single father) comes to you for investment advice; he is looking to purchase a house for him and his son in the next 2 to 3 years. He has saved $20,000 in a savings account (this is his only savings), but he wants to receive a decent return.

Personal Financial Planning Book

Which of the following are true? A) Allen should have adequate insurance coverage prior to his investment program b) You must be concerned with capital preservation when investing his savings c) Allen should postpone his purchase for another 5 years, so you can invest him in stocks d) You should buy speculative stocks to get him a higher rate of return e) a and d only f) a and b only g) b and c only h) c and d only The fourth and last section is 40 questions, or 31%, and is on laws, regulations and prohibition of unethical practices. Encouragingly, this is tied with the third section for most number of questions, showing the emphasis on proper ethical behavior. While of little use to DIY investors, it’s extremely important for clients as trust can be paramount. My personal take away studying this section — there’s a surprising amount of complexity and nuances here. It’s a huge menagerie of topics ranging from the different types of advisers to regulatory requirements to how to avoid anything that gives the appearance of conflicts.

It’s also an important reminder that trust can be fleeting and that a piece of paper or verbal promises are no guarantees. Test your knowledge with a few sample questions: 10. Investment advisors may base their compensation on which of the following arrangements?

A) A fee based on percentage of capital appreciation in an account b) A flat hourly fee c) An annual retainer d) A wrap fee that combines asset management charges and transactional fees into a single annual fee e) a and d f) c and d g) b, c and d h) b and c 11. Which of the following would be excluded from registration under the Investment Advisors Act of 1940? A) An adviser maintains a listing in the telephone directory as an investment adviser b) Adviser has less than five clients in each state with $40 million assets under management c) Adviser has all clients in one state and does not give advice on securities listed on a national exchange d) All of the above One take away here is to recognize the test only covers the minimum criteria of knowledge expected for IARs — it’s mostly a multiple choice theory and principles based exam after all.

Advisers with back-office research support and years of experience should be significantly more knowledgeable. Nonetheless, it’s an interesting perspective to those looking for an adviser to understand their credentials and knowing is half the battle. Oh and lastly — I passed. ANSWERS: 1) D.

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The designation has come to be widely considered as the definitive mark of competence by investors and financial professionals. Many educational pieces available to the public encourage novice investors and clients to seek professionals who have earned this credential. Not only will the material learned from the CFP course curriculum increase a student's professional competence, but the prestige of holding the designation will likely increase his or her business as well. (This may be particularly true for those wishing to charge an hourly rate for giving financial advice.) One of the main advantages that the CFP designation offers is the ability for a financial professional in any given field to better understand how what he or she does fits into a client's overall financial situation.

Whether you are, or plan to be, a stock, insurance agent, tax professional, loan officer, banker or trust officer, you will benefit enormously from attaining the CFP designation. Read on to learn how to. What to Expect Those who intend to enroll in one of the many accredited CFP programs available should have a good idea of what they're getting themselves into. It will take the average student at least 1,000 hours of study time to get through both the coursework and the exam, assuming that he or she passes the test the first time.

The exam covers five main components: 1. Insurance, including modules on education planning, ethics and the financial planning process 2. Investment 3.

Retirement 5. Estate Planning The test itself is 7 hours long and is broken up into two three-hour session with a 40 minute break. During this time, the student must answer 170 multiple-choice questions, which include short and/or extensive case studies. The case studies are designed to force the student to proactively apply the course material to a 'real life' client or family. The exam is given three times per year, in March, July and November, and the pass rate for each exam typically ranges from 50 to 60%. Statistically speaking, the odds of a given student passing the test are highest for the first exam, and then diminish for each subsequent exam. It must be noted, however, that those numbers are somewhat skewed by a segment of students who continually retake the exam to try and pass it 'cold' without adequate preparation.

Therefore, students who do not pass the test the first time should not become discouraged. Tips for Preparing for the Exam Students who have passed other insurance or -administered securities exams may feel that those will serve as material preparation for the CFP exam; unfortunately, nothing could be farther from the truth. While some of the same material is covered on both types of tests, the knowledge required is applied quite differently for the CFP exam. Here are a few tips that will help you as you study: 1. Do not focus on memorizing concepts. Licensing exam tests simply quiz the test taker on his or her retention of the material. The CFP board exam demands much more of the student, requiring not only knowledge of the material, but also the ability to correctly synthesize and apply it to actual financial planning situations.

In fact, the methods of study used by many for licensing exams may be counterproductive when preparing for the CFP board exam. While there is a great deal of memorization required for both the former and latter tests, students who do no more than this to prepare for the CFP exam will be quite unprepared. Learn the CFP board's reasoning. Many students will have difficulty understanding how the CFP board arrives at an answer that it considers to be 'correct,' as the student would never view the answer to a particular question that way in an actual planning scenario. The CFP board has a specific rationale that it uses to reason out the answers to its test questions, and this rationale must be understood and applied correctly by the student in order to pass the exam. Aim to achieve the best grade possible.

The exam itself also differs from licensing tests in that there is no specific percentage 'grade,' such as 70%, that must be achieved in order to pass. The student simply receives a 'pass' or 'fail' response in the mail a few weeks after the test is taken. Strategies for Success There are many different strategies that students may employ to. These include: 1. Answer every question. Ensure that you answer every question, even if it means guessing.

You have a 25% chance of guessing correctly and a 0% chance getting the right answer if the question is simply skipped. Second, if you can safely eliminate one or two of the possible answers, your chances of selecting a correct answer increase significantly. Keep your first answer your final answer. The student's first choice has proved to be the most accurate answer. Know your taxes! In terms of overall coursework, most students without a background in taxation will agree that the tax section is the most difficult to learn and apply.

A corollary of this is that lawyers and have the highest pass rate of any segment of students who take the exam. Therefore, it may be beneficial to learn the tax portion of the material before even beginning the CFP curriculum. A good way to do this is to sit for the, as the vast majority of the material from this test is also present in one form or another on the CFP exam. Students who employ this strategy will discover that doing so will help them when they reach the tax section of the coursework. It will also effectively 'grease' the entire course for them in a sense, as each of the other sections covers the tax rules relevant to that section as well (i.e., the insurance section covers the taxation of insurance, etc.). Enroll in a review course. Another key to passing the test for many students is taking one of the many review courses offered by coursework providers.

These courses can be valuable to students who are struggling with assimilating the ocean of material that is covered in the coursework. Instructors for these courses will often provide 'inside' tips on how to reason through the case studies, as well as indicate how much attention will be given to certain test topics. For many students, knowing what information they can probably risk ignoring can be as helpful as knowing what they have to know. There are many possible topics in the CFP board test bank that will not be tested or will be assigned very few questions. If students know which topics will fall into this category, they can use their time and energy to focus on more important topics. To Cram or Not to Cram Many students take up to five years to complete the entire curriculum of coursework that is required in order to sit for the CFP® board exam.

While some will get through the material in a fraction of that time, all of them will face the same scenario when test day comes. Some exam prep manuals will instruct students not to cram or review for the test, but many students have benefited from doing so. Students should consider their respective levels of preparedness and short-term recall ability if they are contemplating this strategy. Last Bits of Advice As with any test, the student should get a good night's sleep beforehand, eat breakfast, wear comfortable clothes and be prepared for intensely bright lights and uncomfortable chairs.

While the amount of material that is presented within the course curriculum is intimidating, virtually any student who is able to assimilate that information can pass the exam. Very few people who pass the CFP exam ever regret the time they spent preparing for it, and many will say that doing so aided not only in passing the test, but also in developing a level of discipline that could be applied to other areas of their lives.