California Financial Planner License
Exam Practice Questions And Correct
Answers (Verified Answers) Plus
Rationales 2026 Q&A | Instant
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1. What is the primary fiduciary duty of a Certified Financial Planner
(CFP)?
A. To maximize client investment returns
B. To act in the best interest of the client
C. To avoid risky investment recommendations
D. To follow employer guidelines
Rationale: A CFP professional must always place the client's interest above
their own, following fiduciary standards.
2. Which of the following best describes a revocable living trust?
A. It avoids probate and cannot be altered
B. It avoids probate and can be altered during the grantor’s lifetime
C. It is primarily used for tax sheltering
D. It automatically triggers at death
Rationale: Revocable trusts allow the grantor to modify or revoke the trust
while alive and help avoid probate.
, 3. What agency regulates Registered Investment Advisers (RIAs)
managing over $110 million in assets?
A. California Department of Financial Protection and Innovation (DFPI)
B. FINRA
C. Securities and Exchange Commission (SEC)
D. IRS
Rationale: The SEC regulates RIAs with assets under management (AUM)
exceeding $110 million.
4. Which is a non-qualified retirement plan?
A. 401(k)
B. Deferred compensation plan
C. SIMPLE IRA
D. 403(b)
Rationale: Deferred compensation plans are non-qualified and do not
follow ERISA rules.
5. A key tax advantage of a Roth IRA is:
A. Tax-deductible contributions
B. Tax-free withdrawals in retirement
C. No income limits for contributions
D. Early withdrawal without penalties
Rationale: Roth IRAs offer tax-free withdrawals if certain conditions are
met.
6. The California Consumer Privacy Act (CCPA) is important for financial
planners because:
A. It enforces fiduciary responsibility
B. It governs banking disclosures
C. It regulates data collection and sharing of client information
D. It applies only to large corporations
, Rationale: CCPA mandates disclosure and transparency in personal data
usage, which includes financial professionals.
7. What is the primary purpose of asset allocation in financial planning?
A. Increase taxes
B. Eliminate all investment risks
C. Balance risk and return
D. Maximize short-term gains
Rationale: Asset allocation manages risk by diversifying investment types
based on the client's goals and risk tolerance.
8. What is the maximum annual gift exclusion per recipient in 2025
(under federal tax law)?
A. $14,000
B. $18,000
C. $20,000
D. $12,000
Rationale: For 2025, individuals may gift up to $18,000 per recipient
without triggering gift tax reporting.
9. Which of the following professionals must be registered with FINRA?
A. Fee-only financial advisors
B. Tax preparers
C. Broker-dealers
D. Insurance underwriters
Rationale: FINRA regulates broker-dealers who sell securities.
10. The Investment Policy Statement (IPS) is used to:
A. File taxes
B. Insure client accounts
Exam Practice Questions And Correct
Answers (Verified Answers) Plus
Rationales 2026 Q&A | Instant
Download Pdf
1. What is the primary fiduciary duty of a Certified Financial Planner
(CFP)?
A. To maximize client investment returns
B. To act in the best interest of the client
C. To avoid risky investment recommendations
D. To follow employer guidelines
Rationale: A CFP professional must always place the client's interest above
their own, following fiduciary standards.
2. Which of the following best describes a revocable living trust?
A. It avoids probate and cannot be altered
B. It avoids probate and can be altered during the grantor’s lifetime
C. It is primarily used for tax sheltering
D. It automatically triggers at death
Rationale: Revocable trusts allow the grantor to modify or revoke the trust
while alive and help avoid probate.
, 3. What agency regulates Registered Investment Advisers (RIAs)
managing over $110 million in assets?
A. California Department of Financial Protection and Innovation (DFPI)
B. FINRA
C. Securities and Exchange Commission (SEC)
D. IRS
Rationale: The SEC regulates RIAs with assets under management (AUM)
exceeding $110 million.
4. Which is a non-qualified retirement plan?
A. 401(k)
B. Deferred compensation plan
C. SIMPLE IRA
D. 403(b)
Rationale: Deferred compensation plans are non-qualified and do not
follow ERISA rules.
5. A key tax advantage of a Roth IRA is:
A. Tax-deductible contributions
B. Tax-free withdrawals in retirement
C. No income limits for contributions
D. Early withdrawal without penalties
Rationale: Roth IRAs offer tax-free withdrawals if certain conditions are
met.
6. The California Consumer Privacy Act (CCPA) is important for financial
planners because:
A. It enforces fiduciary responsibility
B. It governs banking disclosures
C. It regulates data collection and sharing of client information
D. It applies only to large corporations
, Rationale: CCPA mandates disclosure and transparency in personal data
usage, which includes financial professionals.
7. What is the primary purpose of asset allocation in financial planning?
A. Increase taxes
B. Eliminate all investment risks
C. Balance risk and return
D. Maximize short-term gains
Rationale: Asset allocation manages risk by diversifying investment types
based on the client's goals and risk tolerance.
8. What is the maximum annual gift exclusion per recipient in 2025
(under federal tax law)?
A. $14,000
B. $18,000
C. $20,000
D. $12,000
Rationale: For 2025, individuals may gift up to $18,000 per recipient
without triggering gift tax reporting.
9. Which of the following professionals must be registered with FINRA?
A. Fee-only financial advisors
B. Tax preparers
C. Broker-dealers
D. Insurance underwriters
Rationale: FINRA regulates broker-dealers who sell securities.
10. The Investment Policy Statement (IPS) is used to:
A. File taxes
B. Insure client accounts
