Prepare for the CFP Board Exam

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You’re completing or have just completed the coursework required to take the CFP Board exam (the exam). Now what? Here are the potential next steps for you:

  • Respect the exam’s breadth and depth,
  • Budget your study time,
  • Register for the exam,
  • Use CFP Board resources, and
  • Take a review course.

We begin with a glimpse of the exam’s depth and breadth.

Respect the Depth and Breadth of the Exam

Examinees all too frequently underestimate the difficulty of the exam. Consider this—there are 70 (yes, 70!) Principal Knowledge Topics. Let’s consider just one, Topic E.38 Taxation of Business Entities. Crucial factors in a client’s choice of the right business entity include tax strategies, available retirement plans, asset protection for the owners, deductibility of fringe benefits, and more. The discussion of tax strategies is incomplete without an understanding of the Qualified Business Income Deduction (§199A for the IRC aficionados reading this article). The author will hit just a select few of the high points of this deduction.

  • Purpose—Congress intends §199A to reduce the tax-rate disparity between C-corporations and “pass-through” businesses; sole proprietorships, partnerships, certain LLCs, and S-corporations are pass-through business entities. Individual owners of pass-through businesses can be taxed at income tax rates as high as 37% but C-corporations are taxed at a flat 21%. The qualified business income deduction (QBID) gives pass-through business owners a “free” federal tax deduction of up to 20% of qualified business income to partially level the tax-rate scales.
  • Qualified Business Income (QBI)—You must be able to recognize “U.S. sourced income,” calculate the QBID, and differentiate between service businesses (think financial planning) and non-service businesses (think manufacturing).
  • Limits—the QBID is generally limited to 20% of the lesser of an individual pass-through business owner’s adjusted taxable income or QBI. In turn, adjusted taxable income is taxable income from Form 1040, adjusted to exclude passive and unearned income and include income such as Publicly Traded Partnership (PTP) income (but only to the extent of owner’s pro rata share of the QBI included in the PTP income).
  • Phase-Outs—there is a taxable income phase-out range that limits or eliminates the QBID for service business owners, yet—for non-service pass-through business owners—there is an alternate method of calculating the QBID.

Admittedly, section 199A is relatively complex. Yet, which of the 70 topics has no complexity?

Budgeting Your Study Time

How much time should you budget to study for the exam? That number differs dramatically between career-changers, financial advisors, and comprehensive financial planners. But before getting into that discussion, take a hard look at your weekly schedule to determine how many hours you can carve out. Successful examinees report having to give up a favorite hobby to study.

  • Career changers may require 180 to 200 hours to prepare.
  • An investment advisor may know investments back and forth, but what about Fundamentals, Insurance, Tax, Retirement, Estate, and the Psychology of Financial Planning? Up to 150 hours may be required.
  • Well-experienced, comprehensive financial planners whose practice includes all facets of financial planning for a diverse client base across the wealth and demographic spectrums may need less than 100 hours to prepare.

CFP Board provides a full, 170-question mock exam for exam registrants; click here for a 10-question teaser. Exam review providers should have a diagnostic exam, at times without charge, to help you evaluate your readiness across the broad domains. Your diagnostic score should inform the amount of study time required.

Would a mentor help you in this process? If so, the CFP Board has a mentor program.

Register for the Exam

Word to the wise—the exam date you select should be informed by the weekly time available to study and the results from your diagnostic exam. For example, if the diagnostic score was 30%, it may not be realistic to choose an exam date that gives you only 4 weeks to prepare. Once you’ve made the “when” decision, register promptly for two reasons:

  1. Early bird registrants save $100 from the standard fee and
  2. You will have the most choice in selecting the testing center closest to you.

Use CFP Board Resources

Take a Review Course

What are the downsides of using custodial accounts for college savings? If that answer1 doesn’t immediately spring to mind let not your heart be troubled. Few of us remember everything we learned a year ago. There’s a name for the registrant who takes a methodical review course to reinforce the key knowledge gained during their CFP® Certification curriculum—they’re on track to be called a CFP® Certificant.

The Bottom Line

“If you know the enemy [opponent—the CFP Board exam] and know yourself, you need not fear the result of a hundred battles. If you know yourself but not the enemy, for every victory gained you will also suffer a defeat. If you know neither the enemy nor yourself, you will succumb in every battle.”

― Sun Tzu, The Art of War

The timeless strategic wisdom of General Tzu remains just as valid today for your CFP Board exam preparation as when he wrote these words millennia ago. If you’re just beginning your certification process, click our CFP® Curriculum when you consider CFP® certification. You’ll discover a select few of the reasons our students’ pass rates are much higher than the national averages.

1 Disadvantages of a custodial account include loss of parental control over the assets, potential reduction of student aid eligibility, exposure to the kiddie tax, and lack of tax deferral.