CFP cheat sheet

CFP Board Code of Ethics principles are integrity, objectivity, competence, fairness, confidentiality, professionalism, and diligence.

Fiduciary duty requires care and loyalty: act in the client's best interest and place client interests ahead of the advisor's.

The financial planning practice standards use seven steps: establish and define the relationship, gather data, analyze, develop recommendations, present recommendations, implement, and monitor.

Material conflicts of interest and compensation methods must be disclosed in writing at or before the engagement.

Confidentiality may be broken with client consent, when legally required, or when necessary to defend against a legal or disciplinary claim.

CFP Board discipline can include private censure, public letter of censure, suspension, revocation, or permanent bar.

CFP professionals must report specified legal, regulatory, and disciplinary events to the CFP Board within 30 days.

CFP continuing education requires 30 hours every two years, including 2 hours of ethics.

FV = PV(1 + r)^n; PV = FV / (1 + r)^n for a single sum.

Future value of an ordinary annuity = PMT × [((1 + r)^n - 1) / r].

Real return = [(1 + nominal return) / (1 + inflation rate)] - 1.

Net worth = total assets - total liabilities; cash flow = income - expenses.

Opportunity cost is the value of the next best alternative forgone when a choice is made.

Risk tolerance has two parts: ability to take risk (financial capacity) and willingness to take risk (psychological attitude).

An emergency reserve commonly equals 3 to 6 months of essential expenses; longer for unstable income.

Diversification reduces unsystematic risk but cannot eliminate systematic market risk.

The risk management process is identify, measure, select techniques, implement, and monitor.

Insurable losses are ideally accidental, definite, measurable, large enough to matter, and not catastrophic to the insurer.

Indemnity restores the insured to the pre-loss financial position, not a better one.

Property coinsurance recovery = (insurance carried / insurance required) × loss, capped at the policy limit.

A higher deductible usually lowers premium but increases retained loss.

Term life insurance provides a death benefit for a stated period and generally has no cash value.

Disability policies differ by definition: own-occupation is broader for many professionals than any-occupation.

An umbrella liability policy pays excess limits after underlying auto or homeowners liability is exhausted.

Fixed annuities guarantee a credited rate; variable annuities fluctuate with subaccount performance.

Holding period return = (ending value - beginning value + income) / beginning value.

Standard deviation measures total volatility; beta measures systematic risk relative to the market.

Sharpe ratio = (portfolio return - risk-free rate) / portfolio standard deviation.

Correlation ranges from -1 to +1; lower correlation provides greater diversification benefit.

Approximate bond price change = -duration × change in yield.

Asset allocation is a primary determinant of portfolio return variability over time.

Rebalancing returns a portfolio to target weights after market movements.

The efficient market hypothesis holds that prices rapidly reflect available information, making consistent excess returns difficult.

Marginal tax rate applies to the next dollar; effective tax rate = total tax / income.

A deduction reduces taxable income; a credit reduces tax owed dollar for dollar.

Short-term capital gains are held one year or less and taxed at ordinary rates; long-term gains generally receive preferential rates.

Adjusted basis = original cost + capital improvements + certain costs - depreciation and other reductions.

The wash sale rule disallows a loss if substantially identical securities are purchased within 30 days before or after the sale.

Above-the-line deductions reduce gross income and are available whether or not the taxpayer itemizes.

A traditional IRA deduction may be limited by income and workplace plan coverage; Roth IRA contributions have income limits.

Like-kind exchanges under Section 1031 defer gain on qualifying real property held for business or investment.

Gift and estate taxes share a unified credit; portability can transfer a deceased spouse's unused exclusion.

Social Security benefits can start as early as age 62 with reduction; delayed retirement credits increase benefits up to age 70.

Full retirement age depends on birth year and is 67 for those born in 1960 or later.

Traditional 401(k) deferrals reduce current taxable income; Roth 401(k) deferrals do not, but qualified withdrawals are tax-free.

Catch-up contributions are generally allowed at age 50 and older in many employer plans and IRAs.

Required minimum distributions generally begin at age 73, or age 75 for those born in 1960 or later.

RMD = account balance / life expectancy factor from the applicable IRS table.

Sequence-of-returns risk is the danger of withdrawing during a market decline early in retirement.

A pension is a defined benefit plan if it promises a benefit; a defined contribution plan provides an account balance.

Substantially equal periodic payments under IRS Section 72(t) can avoid the 10% early withdrawal penalty.

Gross estate includes property owned at death, certain lifetime transfers, and life insurance proceeds if the decedent held incidents of ownership.

Probate validates the will, pays debts and taxes, and distributes probate assets; trusts and beneficiary designations can avoid probate.

A valid will generally requires testamentary capacity, intent, signature, and state-specific witness formalities.

Intestacy is state law distribution when a person dies without a valid will.

A trust has a grantor, trustee, beneficiary, and trust property; revocable trusts can be changed, irrevocable generally cannot.

The marital deduction allows unlimited qualifying transfers to a surviving spouse for federal gift and estate tax purposes.

Portability lets a surviving spouse use the deceased spouse's unused federal estate tax exclusion, if elected.

Inherited capital assets generally receive a step-up in basis to fair market value at death.

A financial power of attorney authorizes someone to act on financial matters; a health care proxy addresses medical decisions.

Cognitive biases are thinking errors; emotional biases arise from feelings and are harder to correct.

Loss aversion makes losses feel more painful than equivalent gains, often causing clients to hold losers too long.

Anchoring relies on an initial reference point, such as a purchase price, when making later decisions.

Confirmation bias seeks information that supports existing beliefs and ignores contrary evidence.

Overconfidence overestimates knowledge or forecasting ability and can lead to overtrading or concentrated positions.

Mental accounting treats money differently by source or purpose, causing inconsistent decisions.

Framing changes choices based on how options are presented, such as gains versus losses.

Risk tolerance combines willingness and ability; a questionnaire alone may not capture both.

Active listening and empathy help build trust and improve client disclosure during financial planning.