CFP Regulatory Frameworks & Compliance 3 ā Questions and Answers
Question 1: A registered investment adviser charging fees based on a percentage of AUM must deliver Form ADV Part 2A to new clients no later than:
- 30 days before entering into an advisory contract
- At the time of or before entering into an advisory contract (Correct answer)
- Within 10 days after entering into an advisory contract
- At the first annual review meeting
Correct answer: At the time of or before entering into an advisory contract
SEC rules require RIAs to deliver the Form ADV Part 2A brochure to prospective clients at the time of or before entering into an advisory contract.
Question 2: The Department of Labor's Prohibited Transaction Exemption 2020-02 allows financial advisers to receive conflicted compensation when they satisfy which primary requirement?
- They register as both a broker-dealer and investment adviser
- They provide impartial conduct standards and disclose conflicts in writing (Correct answer)
- They limit compensation to a flat fee per transaction
- They obtain prior written approval from the DOL
Correct answer: They provide impartial conduct standards and disclose conflicts in writing
PTE 2020-02 permits conflicted compensation for retirement account advice provided the adviser complies with impartial conduct standards and provides the required disclosures.
Question 3: Under the Bank Secrecy Act, a financial institution must file a Suspicious Activity Report (SAR) within how many days of detecting a suspicious transaction?
- 15 days
- 30 days (Correct answer)
- 45 days
- 60 days
Correct answer: 30 days
Financial institutions are required to file a SAR within 30 calendar days of initially detecting facts that may constitute a basis for filing.
Question 4: Which CFP Board Standard addresses the obligation to keep client information confidential and outlines specific exceptions where disclosure is permitted?
- Standard A.9 ā Fiduciary Duty
- Standard B.5 ā Confidentiality of Client Information (Correct answer)
- Standard C.2 ā Conflicts of Interest Disclosure
- Standard D.1 ā Professional Conduct
Correct answer: Standard B.5 ā Confidentiality of Client Information
CFP Board's Standard B.5 specifically governs the confidentiality of client information and identifies limited exceptions such as client consent or legal compulsion.
Question 5: The concept of 'suitability' under FINRA Rule 2111 requires a broker to have a reasonable basis for believing a recommended strategy is suitable based on all of the following customer factors EXCEPT:
- Tax status and investment objectives
- The broker's own commission rate on the product (Correct answer)
- The customer's risk tolerance and time horizon
- Liquidity needs and financial situation
Correct answer: The broker's own commission rate on the product
Suitability analysis focuses exclusively on customer-specific factors; the broker's own commission is irrelevant to (and may undermine) the suitability determination.
Question 6: Under ERISA, the 'exclusive benefit rule' requires that plan assets be used solely for which purpose?
- Maximizing returns regardless of risk
- The benefit of participants and beneficiaries and defraying reasonable plan expenses (Correct answer)
- Investing in employer securities to align employee interests
- Satisfying the employer's short-term liquidity needs
Correct answer: The benefit of participants and beneficiaries and defraying reasonable plan expenses
ERISA's exclusive benefit rule mandates that fiduciaries manage plan assets solely in the interest of participants and beneficiaries and to defray reasonable administrative expenses.
Question 7: A CFPĀ® professional who provides financial planning services to a client while simultaneously earning commissions from products sold to that client must do which of the following?
- Cease earning commissions immediately upon becoming a CFPĀ® certificant
- Disclose the conflict of interest and obtain informed consent from the client (Correct answer)
- Only sell no-load products to the client going forward
- Register as a broker-dealer to continue receiving commissions
Correct answer: Disclose the conflict of interest and obtain informed consent from the client
CFP Board's Standards require full disclosure of material conflicts of interest, including commission arrangements, and obtaining the client's informed consent to proceed.
CFP Regulatory Frameworks & Compliance 3
A registered investment adviser charging fees based on a percentage of AUM must deliver Form ADV Part 2A to new clients no later than: