You know it's out there waiting for you. Maybe it's a long way away, or maybe it's right around the corner, but one thing is certain...it's waiting. There's no getting around it...The CFP® Exam. Surely, it's not that bad, right? How hard is the CFP® Exam?
Honestly, it's difficult. But everything is scarier when you're in the dark and you don't know what's coming. So, we're going to shed some light on the pass rate, the CFP® Exam topics, and even the hardest concepts to help you vanquish your fears.
Summary: Based on the volume of questions and tutoring requests our instructors get about specific concepts, these are often considered the hardest topics on the CFP® Exam:
- Education planning and how much the client will need to pay for all years of attendance.
- The buy-sell agreement
- Charitable contributions and deductions
- Margin calls
- Choosing a suitable retirement plan for a business
- Generation-skipping transfer tax
What is the CFP® Exam Pass Rate?
The pass rate is a fair indicator of how hard the CFP® Exam is, so let's get the biggest jump scare over with.
Since introducing the newest exam format in 2016, the pass rate has typically ranged between...deep breath...
...60 and 65%.
Okay, that's not bad, right? Yes, the exam is challenging, and you will have to study, but it's far from impossible.
Psst! Want to know a secret? Candidates who pass The BIF Review's mock exam have a 90% pass rate on the real thing!
The CFP® Exam Topics and Format
So, what's on the CFP® Exam?
The CFP® Exam consists of 170 multiple-choice questions, and each question is based on at least one of eight Principal Knowledge topics:
- Retirement Savings and Income Planning (18%)
- Investment Planning (17%)
- General Principles of Financial Planning (15%)
- Tax Planning (14%)
- Risk Management and Insurance Planning (11%)
- Estate Planning (10%)
- Professional Conduct and Regulation (8%)
- Psychology of Financial Planning (7%)
Basically, you're probably going to see more questions on retirement and investment planning, but that doesn't mean you can skip over the psychology portion—7% is still a big chunk of the exam.
And while the exam is all multiple choice, there are three types of questions:
- Standalone multiple-choice questions: You'll have to answer a basic question or read a few sentences of background information, then answer a question about it.
- Short scenarios: You'll get a fact set with a few short paragraphs of information, then have to answer about three questions per scenario based on the fact set.
- Case studies: You'll get one to three pages of information, then have to answer several questions (usually between five and 15) on the information given.
And if you've been on your journey towards certification for any amount of time, you may already be dreading the CFP case studies on the exam. But first, there's usually only a few case studies on the whole exam (we have had students encounter as many as five, but that's rare), and second, with the right strategy and exam prep, they're not bad at all!
Listen up: Adam and Jerry can help you face your fears of case studies on this episode of BIF Bites!
How Hard is the CFP® Exam? Tackling the Toughest Subjects
Okay, the monster that is the CFP® Exam may not be quite so big and scary now, but that doesn’t mean you don’t want it sneaking up on you with questions you’re not ready for. So, let’s get to know it a little better by exploring the subjects covered within the CFP® Exam topics, the hardest concepts in each, and some tips for success.
(Think staking Dracula in the heart, but instead of Dracula, it’s the CFP® Exam, and instead of staking, you’re correctly adjusting basis in buy-sell agreements.)
Also, The BIF Crew chose these subjects based on the number of questions they get or tutoring requested around these topics.
Listen up: Adam, Jerry, and Mike sit down and talk about the hardest concepts on the CFP® Exam in this episode of BIF Bites!
CFP® Exam Topic #1: General Principles of Financial Planning
This section tests your knowledge of the overall financial planning process with questions related to financial statements, cash flow and debt management, economic and time value of money concepts, and education funding.
Within this CFP® Exam topic, we’ve found that many candidates struggle with education planning. The complexity lies in the multi-step calculations for college funding:
- How much does college cost today? How much will it cost in the future?
- How much will the client need on Day 1 of college to pay for all years of attendance?
- How much needs to be saved? To solve, you must read carefully and apply the correct time value of money calculation based on details provided in the question.
Exam Tip: In Step 2 of the education funding calculation, make sure to solve for present value, not future value. Day 1 of college is the present perspective for the calculation, even if it is many years in the future for the real client!
CFP® Exam Topic #2: Insurance and Risk Management
To be fully prepared in this domain, you will need to understand the principles of risk and insurance, including how to analyze and evaluate risk exposures, types of insurance (health, disability, long-term care, and life), healthcare cost management, and long-term case planning. Insurance and Risk Management can also include questions on annuities, business owner insurance solutions, needs analysis, and the selection of policies and companies.
In this CFP® Exam topic area, one of the more challenging concepts for candidates is the buy-sell agreement—specifically from the angle of tax and how basis adjustments work as well as the nuances of cross-purchase versus entity-purchase agreements.
- Cross-purchase: The owners agree to purchase each other's company shares if one passes away, and they will have life insurance policies to fund the buyout.
- Entity: The business entity itself agrees to purchase the departing owner's interest, also funded through insurance policies owned by the business.
Exam Tip: Always remember cross-purchase gets an adjustment in basis, while entity purchase does not.
CFP® Exam Topic #3: Tax Planning
For questions on this topic, you'll need to understand the tax rules and know how to apply tax management strategies for both personal financial planning and businesses. You'll also want to know about tax reduction and management techniques, the tax consequences of property transactions, and the implications of charitable contributions and deductions.
When you’re asking, “How hard is the CFP® Exam?” and thinking about tax, a super challenging subject for candidates seems to be charitable contributions and deductions. What makes it complex is the different Adjusted Gross Income (AGI) thresholds for different types of donations and the rules for public charities versus private foundations and not.
You’ll want to understand the mechanics first. There are a lot of variables with charitable contributions—type of organization, type of property being donated, etc. So, when you’re taking the exam, make sure you understand what the figures mean and how they affect tax planning strategies for the given client, business, or estate.
Exam Tip: Be sure to apply the charitable percentage limits to the client’s AGI to determine the maximum deductible contribution for that tax year. A common mistake is to apply limits to the donation amount!
CFP® Exam Topic #4: Investment Planning
Investment Planning is a sneaky topic—lots of folks feel good going into their CFP® Exam prep in this area because it's often a core component of their day-to-day work in financial planning. Though familiarity will help on exam day, this domain covers a lot of concepts, strategies, and applications. CFP® Exam investment topics include:
- Investment vehicles and their characteristics, uses, and taxation
- Investment risks
- Market cycles
- Quantitative investment concepts
- Measures of investment returns
- Asset allocation and portfolio diversification
- Bond and stock valuation concepts
- Portfolio development and analysis
- Investment strategies
- Alternative investments
And out of all this,, the topic candidates seem to experience the most challenge in navigating is margin calls. Simply stated, a margin call is just knowing how much equity you need to have in a margin account (the Maintenance Margin) and knowing how much equity is currently in the account. By comparing these two amounts, you can determine when you must deposit funds or sell assets to meet the maintenance margin requirement (this is the margin call!).
To figure out if a margin call is needed, focus on the process:
- Calculate the equity you need in the account (i.e., Initial margin is what is needed to open the trade and is 50%, the equity needed in the account is the Maintenance margin which is 30%).
- Figure out how much is actually in the account based on change in stock price
- If the equity in the account is less than the Maintenance Margin, then additional cash or assets must be deposited to bring the account above the maintenance requirement, or the firm will be forced to sell the client out of the position.
Exam Tip: The maintenance margin is based on the cost of the security today, not the price at time of purchase.
CFP® Exam Topic #5: Retirement Savings and Income Planning
Moving on to Retirement Savings and Income Planning ... “How hard are the CFP® Exam questions on this topic?” Again, this is a broad area and covers planning for clients' retirement needs and managing retirement income from Social Security, individual retirement savings, pensions, and employer-provided accounts. Additionally, this domain has the heaviest weighting on the exam (18%, or, about 30 or so questions).
What area do candidates have the most trouble with? Based on our experiences, candidates have difficulty with questions related to selecting a suitable retirement plan for a business. Candidates will have a list of goals and concerns from the employer and are tasked with choosing the right plan based on the listed criteria.
The key to getting these questions correct is to recall the features of each plan listed as choices, consider what makes each plan unique, and how the choices align with the criteria.
Exam Tip: Don’t get overwhelmed by charts listing every feature and benefit of every retirement plan. Just read the question carefully and focus on the characteristics that make the plans unique. The best way to arrive at the correct answer in a plan suitability scenario is to spot the unique solution that a business owner seeks and match that with the plan that best provides that feature.
CFP® Exam Topic #6: Estate Planning
Estate planning involves preparing for the transfer of assets during life and at death, managing estate taxes, and planning for various special circumstances, including property titling, beneficiary designations, trusts, marital deductions, and planning for unique family situations and needs.
And when you ask, “How hard is the CFP® Exam?” to someone who’s taken it, they’re going to look back on estate planning and give a thousand-yard stare as they think about the generation-skipping transfer tax (GSTT). Seriously, this is a notoriously difficult topic and everyone hates it.
The challenge lies in identifying skip persons and understanding when the GSTT applies. Factor in the familiar yet different tax rate, annual exclusion amount, and exemption rules, and it’s even more confusing.
But, it’s actually not that bad if you know where to direct your study focus. With GSTTs, the focus should be on direct skips.
GSTT direct skips apply to transfers made by relatives that skip one or more generations and are ultimately given to a skip person. For example, a grandparent transferring to a grandchild would trigger the GSTT and its 40% tax rate. In this example, the child would be the skip person, not the parent of the child who got skipped over. Think of the skip person as the “skipped to” person who gets the transfer.
Exam Tip: The skip person might not be a relative. If the recipient of the transferred assets is unrelated to the donor, they must be at least 37.5 years younger than the donor to be considered a skip person and trigger the GSTT.
CFP® Exam Topic Bonus: Ethics and Standards
Within the General Principles of Financial Planning, you’ll have questions on the CFP Board Code of Ethics and Standards of Conduct. Many students underestimate this section, thinking it’s straightforward. However, it often trips up test-takers because they don’t dedicate enough time to it, thinking that all ethical codes are similar and the questions will be simpler to navigate. Be aware that the CFP Board Code of Ethics and Standards of Conduct questions CAN be easy if you know CFP Board's unique set of ethical standards that apply to financial planners holding the marks. The devil is in the details. Know the CFP Board nuances, and you'll get exam day points!
Exam Tip: Go to cfp.net, read up on the Code of Ethics and Standards of Conduct and the Roadmap to the Code and Standards. While you’re there, be sure to check out the Procedural Rules, Case Studies, and the Disciplinary Case History Library.
Tackle the CFP® Exam Topics with The BIF Review
With the right tools and team by your side, you don’t need to sweat the CFP® Exam.
The BIF Review helps you nail the CFP® Exam by teaching you exactly what you need to know. Plus, you can email us questions, get tutoring, or join live sessions to get the support you need to understand tricky concepts. And with dynamic instruction, you won't forget what you learned on exam day.
So, when someone else asks you “How hard is the CFP® Exam?” you can answer, “It’s challenging ... but it’s nothing to be scared of.”
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