RATTINERS REVIEW FOR THECFP CERTIFICATION

EXAMINATIONFAST TRACK STUDY GUIDE

Jeffery H. Rattiner

John Wiley & Sons, Inc.

1850_fm 6/4/03 5:04 PM Page iii

Innodata0471468487.jpg

1850_fm 6/4/03 5:04 PM Page ii

RATTINERS REVIEW FOR THECFP CERTIFICATION

EXAMINATION

1850_fm 6/4/03 5:04 PM Page i

1850_fm 6/4/03 5:04 PM Page ii

RATTINERS REVIEW FOR THECFP CERTIFICATION

EXAMINATIONFAST TRACK STUDY GUIDE

Jeffery H. Rattiner

John Wiley & Sons, Inc.

1850_fm 6/4/03 5:04 PM Page iii

This book is printed on acid-free paper.

Copyright 2003 by Jeffrey H. Rattiner. All rights reserved.

Published by John Wiley & Sons, Inc., Hoboken, New Jersey.

Published simultaneously in Canada

No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or by anymeans, electronic, mechanical, photocopying, recording, scanning, or otherwise, except as permitted under Section107 or 108 of the 1976 United States Copyright Act, without either the prior written permission of the Publisher, orauthorization through payment of the appropriate per-copy fee to the Copyright Clearance Center, Inc., 222 Rosewood

Publisher for permission should be addressed to the Permissions Department, John Wiley & Sons, Inc., 111 RiverStreet, Hoboken, NJ 07030, 201-748-6011, fax 201-748-6008, e-mail: permcoordinator@wiley.com.

Limit of Liability/Disclaimer of Warranty: While the publisher and author have used their best efforts in preparing thisbook, they make no representations or warranties with respect to the accuracy or completeness of the contents of thisbook and specifically disclaim any implied warranties of merchantability or fitness for a particular purpose. No war-ranty may be created or extended by sales representatives or written sales materials. The advice and strategies con-tained herein may not be suitable for your situation. You should consult with a professional where appropriate. Neitherthe publisher nor author shall be liable for any loss of profit or any other commercial damages, including but not lim-ited to special, incidental, consequential, or other damages.

For general information on our other products and services, or technical support, please contact our Customer Care Department within the United States at 800-762-2974, outside the United States at 317-572-3993 or fax 317-572-4002.

Wiley also publishes its books in a variety of electronic formats. Some content that appears in print may not be avail-able in electronic books.

Library of Congress Cataloging-in-Publication Data:

Rattiner, Jeffrey H., 1960-Rattiners review for the CFP certification examination : fast track

study guide / Jeffrey H. Rattiner.p. cm.

Includes bibliographical references and index.ISBN 0-471-27265-5 (pbk.)

1. Certified Financial Planner ExaminationUnited StatesStudyguides. 2. Financial plannersUnited StatesExaminationsStudyguides. I. Title: CFP certification examination. II. Title: Review forthe CFP certification examination. III. Title: Fast track study guide.IV. Title.

HG179.5.R38 2003332.024dc21

2003001695

Printed in the United States of America

10 9 8 7 6 5 4 3 2 1

1850_fm 6/4/03 5:04 PM Page iv

Drive, Danvers, MA 01923, 978-750-8400, fax 978-750-4470, or on the Web at www.copyright.com. Requests to the

For more information about Wiley products, visit our Web site at www.wiley.com.

http://www.copyright.comhttp://www.wiley.com

CONTENTS

Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ix

Chapter 1 General Principles of Financial Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Chapter 2 Insurance Planning and Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59

Chapter 3 Employee Benefits Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103

Chapter 4 Investment Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 121

Chapter 5 Income Tax Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 177

Chapter 6 Retirement Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 231

Chapter 7 Estate Planning . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 285

Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 339

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 341

v

1850_fm 6/4/03 5:04 PM Page v

1850_fm 6/4/03 5:04 PM Page vi

DEDICATION

This book is dedicated to the many aspiring CFP Certificants who wish to achieve the highestlevel of success within our industrythe right to hold the marks and practice as a CERTIFIEDFINANCIAL PLANNER (CFP) Certificant.

vii

1850_fm 6/4/03 5:04 PM Page vii

1850_fm 6/4/03 5:04 PM Page viii

PREFACE

As the originator of the Metropolitan State College of Denver Financial Planning Fast Track(FPFT) program that satisfies the Certified Financial Planner (CFP) Boards educationalrequirements to sit for the CFP Certification Examination, and instructing students through allparts of FPFT for the last 14 years at the Metropolitan State College of Denver, New YorkUniversity, and the College for Financial Planning, I have been actively looking for a short-and-sweet set of reference materials that can be used as a guide to bridge the gap between the manyfinancial planning textbooks in the marketplace and the CFP Boards 101 topic curriculum,something that would tie into the contents of the exam itself. Many financial planning textbooksdo a fine job of teaching the subject matter, but few do an adequate job of tying specifically to theCFP Boards master list for examination inclusion. We saw this unfulfilled need as an opportunityto satisfy the missing piece of the puzzle and thus entered the journey to formalize the process tobenefit students wishing to sit for the CFP Certification Examination.

When John Wiley & Sons approached me about making inroads into the CFP educationalmarketplace, in much the same manner as this publisher has been dominating the CPA ExaminationReview marketplace for the last 30 years, I mentioned the need to have a guide in place to tie themany financial planning texts to the CFP Boards educational curriculum. My aim was to ensurethat students were being exposed to the many facets of the CFP Boards development of thefinancial planning curriculum as defined through its Job Analysis. The Job Analysis is a listing ofthe specific duties and responsibilities CFP Certificants encounter in practice, and as such, theCFP Board incorporates these tasks and responsibilities into its examination.

This book is a synopsis of my notes from FPFT. These notes are part of my classroomeducational process, in addition to the Keir Educational Resources and American College bookswe use to supplement our program.

HOW THE GUIDE IS ORGANIZEDThis guide is organized according to the six categories of financial planning tested as determinedby the CFP Board, in topic order (from Topic 1 to Topic 101). All 101 CFP Board topics arecovered individually. You can expect to see the following percentages of each category representedon the CFP Certification Examination.

Financial Planning 13%Insurance Planning and Risk Management 10%Employee Benefit Planning 8%Investment Planning 19%Income Tax Planning 17%Retirement Planning 18%Estate Planning 15%

ix

1850_fm 6/4/03 5:04 PM Page ix

ABOUT THE CFP Certification ExaminationThe CFP Certification Examination is offered on the third Friday and Saturday of November,March, and July at various sites across the country. The Friday afternoon session is four hours, andon Saturday a morning and afternoon session are three hours each. This 10-hour exam consists ofapproximately 285 multiple-choice questions in total, including mainly stand-alone multiple-choice items and three comprehensive case studies given during each session of the examination.Each case study tests a variety of topics and contains 12 to 20 multiple-choice questions. Thestand-alone multiple-choice questions are worth two points each, and the case study multiple-choice questions are worth three points each, with no partial credit allowed. Each multiple-choicequestion is designed to test a single area; however, the questions can integrate more than one topic.For example, life insurance and taxation or investments in retirement plans can be integrated into asingle question.

With 10 hours (or 600 minutes) and approximately 285 multiple-choice questions, the studentshould be ready for an average question response of about two minutes. However, you may wantto pace yourself with 1.5 minutes per question and provide ample time to review open items andtransfer your answers.

Pass rates have ranged from as low as 42 percent to as high as 66 percent. Generally, pass ratesare somewhere in the 50 percent range. You cannot pass the exam in sectionsthis is an all-or-nothing proposition.

The CFP Certification Examination, although difficult, is a passable exam. Even though a littlemore than half of all test-takers pass, it is certainly achievable. The key issue is not to study as ifknowledge of the topics is too difficult, but, rather, to approach the test from a sheer volumeperspective. Six major areas encompassing 101 topics is quite a bit of information for anyone tomaster. Therefore, the only proven way to study for this exam is to understand this concept upfront and pace yourself for a long journey. Be prepared to spend whatever time is necessary toensure success. There is nothing better than developing a comprehensive study plan and followingthat plan through the duration of your studies.

HOW TO USE THIS GUIDEThe purpose of this guide is to supplement all the existing financial planning texts that instructors,students, educators, and practitioners use as part of the local college or university CFP Boardregistered educational program. It should be purchased at the very beginning of the program andused as the singular reference guide during each of the remaining classes.

You should develop your own spreadsheet to accompany this guide as a study reference.Organize it per line as follows:

CFP Board Topic No. Identify the topic Identify the exposure or risk to the client Identify solutions to address the exposure

Use this format for all 101 topics. When writing your synopsis, follow each topic number with aone- or two-sentence description. If you can summarize each of the 101 topics in this clear andconcise format, then you truly do understand the topic and you are well on your way to beingprepared and successful when taking the CFP Certification Examination. After you havereviewed each topic with the instructor during class, then proceed to complete this spreadsheet forall your classes.

x - Rattiners Review for the CFP Certification Examination

1850_fm 6/4/03 5:04 PM Page x

ABOUT THE METROPOLITAN STATE COLLEGE OF DENVERFINANCIAL PLANNING FAST TRACK (FPFT) PROGRAMThe Metropolitan State Financial Planning Fast Track (FPFT) program is an intensive six-parteducational program that covers the required 101 topics tested by the CFP Board on the CFP

Certification Examination. FPFT offers five consecutive four-day sessions every six weeks.Sessions begin Thursday and end on Sunday. Testing is performed daily, and group studyassignments are given in the evenings. The sixth class is a five-day comprehensive review of all101 topics just prior to the exam. FPFT is designed to take a comprehensive and focused approachto the subject of financial planning so that you can gain the knowledge you need to pass the examand to succeed in practice.

How Do You Satisfy the Educational Requirement Offered through FPFT?To satisfy this requirement, you must attend FPFT sessions 1 through 5. Classroom attendance ismandatory for each and every session. If you cannot attend a session, you must satisfy theclassroom requirements by either attending a later training session in Denver or completing thesession through one of the CFP Boards other Registered Programs at your own cost.

To satisfy the education requirement, you must successfully pass each class with a grade of 70percent or better. If you fail any one class, you must make up that class, in its entirety, to receivecredit. Once all classes have been successfully completed, you will then receive a certificate ofcompletion from the Metropolitan State College of Denver.

Are There Other Requirements for Becoming a CFP Certificant?Yes. Besides successfully completing an educational program at a CFP Board Registered Program,you must also satisfy three other requirements:

1. Examination. Successfully complete the two-day exam.

2. Experience. Demonstrate three to five years of work experience.

3. Ethics. Sign ethics documents provided by the CFP Board.

If you want further detail on becoming a CFP Certificant, contact the CFP Board at (800) 487-1497or initialcert@CFP-Board.org, or visit the CFP Board Web site at www.CFP-Board.org.

What Has Been Our Pass Rate?We are pleased that our pass rate has been consistently above the national average. Visit our Website (www.financialplanningfasttrack.com) for more information.

Who Should Sit for This Program?Only serious applicants need apply. This rigorous program is designed to condense two years oftraining into approximately seven months (including a review class). Sufficient prep time isnecessary to ensure success. For additional information about FPFT, call (720) 529-1888, e-mailme at jeff@jrfinancialgroup.com, or visit our Web site at www.financialplanningfasttrack.com.

ACKNOWLEDGMENTSI am extremely grateful for the extraordinary staff that works with me at JR Financial Group, Inc.,in Englewood, Colorado, and Scottsdale, Arizona. In particular, Richard Yasenchak, Director ofInvestments, was the guiding force behind this project and set the tone for what needed to beincluded and the degree of information that should be covered. He has spent countless hoursensuring that the materials included in this manuscript are first-rate and that they cover each topicthoroughly. I thank Jake Koebrich, Director of Financial Planning, who provided his expertise andguidance to make sure that the materials also had a real-world approach and that they tied into

Preface - xi

1850_fm 6/4/03 5:04 PM Page xi

academia and the model established by the CFP Board, and Rochele Rattiner, Office Manager,who oversees the administrative side of the Financial Planning Fast Track program and makes surethat things are done in a timely manner. Finally, I wish to thank my children, Brandon, Keri, andMatthew, for putting up with me through yet another authored book.

I am grateful to Louis Garday, CEO of the CFP Board, who has taken time from his demandingschedule to address the students in many of the Fast Track classes held in Denver, as well as toKatherine K. Ioannides, Director of Education and Examinations, and Cynthia Coyle, Coordinatorof Registered Programs, who have been integral in the development and monitoring of theMetropolitan State College of Denver Financial Planning Fast Track program and have shared inthe success. I would also like to acknowledge Dr. Kenneth Huggins, CFP, chairman of thefinance department of the Metropolitan State College of Denver, and Maria Carillo, FinancialPlanning Coordinator, for their undying belief in the Fast Track format as an alternativeeducational approach for those students for whom the traditional educational distribution systemdoes not work.

Finally, I am grateful for the many great instructors we are lucky enough to have nationwide,including, but not limited to, Gregory Fong, John Phillips, Gary Sidder, and others, whoparticipate in teaching the FPFT program.

JEFFREY H. RATTINERCPA, CFP, MBA, RFC

January 10, 2003

xii - Rattiners Review for the CFP Certification Examination

1850_fm 6/4/03 5:04 PM Page xii

Chapter 1

GENERAL PRINCIPLES OF FINANCIAL PLANNING

11

1850_ch01-03 6/4/03 5:02 PM Page 1