CFP Regulatory Frameworks & Compliance 4 — Questions and Answers
Question 1: Under the Securities Act of 1933, which of the following securities offerings is typically exempt from SEC registration under Regulation D, Rule 506(b)?
- A public offering to unlimited retail investors via general solicitation
- A private placement to no more than 35 non-accredited sophisticated investors and unlimited accredited investors without general solicitation (Correct answer)
- A sale of securities on a national exchange
- An offering that exceeds $75 million in a 12-month period
Correct answer: A private placement to no more than 35 non-accredited sophisticated investors and unlimited accredited investors without general solicitation
Rule 506(b) permits private placements to unlimited accredited investors and up to 35 sophisticated non-accredited investors without general solicitation or advertising.
Question 2: Which regulatory body has primary oversight responsibility for commodity futures trading and enforces position limits to prevent market manipulation?
- Securities and Exchange Commission (SEC)
- Federal Reserve Board (FRB)
- Commodity Futures Trading Commission (CFTC) (Correct answer)
- Office of the Comptroller of the Currency (OCC)
Correct answer: Commodity Futures Trading Commission (CFTC)
The CFTC is the primary federal regulator of commodity futures and options markets, including enforcement of speculative position limits.
Question 3: A CFP® professional who learns that a client intends to commit financial elder abuse against a vulnerable adult is obligated to:
- Maintain strict confidentiality and take no action
- Report the suspected abuse to the appropriate authorities and may withdraw from the engagement (Correct answer)
- First consult with the alleged abuser before taking any action
- Wait until the abuse is confirmed by a court before reporting
Correct answer: Report the suspected abuse to the appropriate authorities and may withdraw from the engagement
CFP Board's Standards permit—and in many states require—reporting suspected financial exploitation of vulnerable adults to authorities, overriding normal confidentiality obligations.
Question 4: The SECURE 2.0 Act of 2022 changed the required beginning date (RBD) for RMDs from IRAs for individuals who turn 72 after December 31, 2022, to which age?
- 72
- 73 (Correct answer)
- 75
- 70½
Correct answer: 73
SECURE 2.0 increased the RMD starting age to 73 for those reaching age 72 after December 31, 2022, with a further increase to 75 scheduled for 2033.
Question 5: Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, which entity was created to monitor systemic risk to the U.S. financial system?
- Consumer Financial Protection Bureau (CFPB)
- Financial Stability Oversight Council (FSOC) (Correct answer)
- Federal Deposit Insurance Corporation (FDIC)
- Office of Financial Research (OFR)
Correct answer: Financial Stability Oversight Council (FSOC)
FSOC was established by Dodd-Frank to identify and respond to systemic risks to the financial system, designating systemically important financial institutions.
Question 6: Under IRS rules, a CFP® who prepares tax returns for compensation and signs a client's return as the paid preparer is subject to penalties under IRC Section 6694 if the return contains an understatement attributable to:
- Any arithmetic error, regardless of reasonableness
- An unreasonable position without adequate disclosure or a willful or reckless disregard of rules (Correct answer)
- A position the IRS has not yet specifically ruled on
- Estimated tax underpayments by the client
Correct answer: An unreasonable position without adequate disclosure or a willful or reckless disregard of rules
IRC Section 6694 imposes penalties on paid preparers who take unreasonable positions without adequate disclosure or who willfully or recklessly disregard tax rules and regulations.
Question 7: The CFP Board's requirement to act as a fiduciary applies at a minimum during which engagement type?
- Product sales interactions only
- All financial planning engagements and when providing financial advice (Correct answer)
- Only when the client has more than $1 million in investable assets
- Only when the CFP® professional is also a registered investment adviser
Correct answer: All financial planning engagements and when providing financial advice
CFP Board requires CFP® professionals to act as fiduciaries whenever providing financial advice or financial planning, regardless of compensation model or asset level.
CFP Regulatory Frameworks & Compliance 4
Under the Securities Act of 1933, which of the following securities offerings is typically exempt from SEC registration under Regulation D, Rule 506(b)?