Most students that have taken the certified financial planner (CFP) board exam agree that the case studies are the most difficult and important portion of the test.
The exam itself is six hours long, with two three-hour sessions that have a 40-minute break between them. The exam consists of 170 multiple-choice questions, with some based on case-studies or scenarios. This makes it absolutely necessary that students know how to analyze and reason through the case studies in order to pass the exam. (See also: Studying for the CFP Exam.)
Case Study Format
Case studies describe a hypothetical client's situation. This may include demographic information listing all of the people involved (usually a family or business or both), their ages, physical and mental health status, plus any relational conflicts or difficulties between each character.
Often these studies will incorporate a divorce or other rift within a family, or else have a spendthrift child that must be dealt with. The case study may also include basic cash flow and balance sheet information, you may see outline all of the client's personal and business assets and liabilities, income, and expenses and every type of insurance coverage. The assets will be further broken down into the client's investments and retirement accounts, and the income ledger will show each investment's rate of return.
In addition, the case study may explain the estate breakdown, including all relevant wills, trusts, and other legal documentation. If there is a business, the information could include its cash flow and balance sheet and the general outlook for the future of the business. After all of this reading, you will be asked questions pertaining to the information presented.
Knowledge Alone Isn't Enough
The CFP board exam requires much more than mere familiarity with the course material. The student must also be able to evaluate, synthesize and apply that knowledge correctly when answering the questions. This is true even with the non-case-study questions, but these questions will often focus on one specific issue or topic. Case studies effectively force the student to proactively determine exactly what rule or topic pertains to the information presented in the informational breakdown.
Case study questions often do not focus on a specific topic, such as asking whether the clients presented in the study are eligible to contribute to Roth IRAs. Case study questions frequently force the student to examine much broader concepts, such as whether the client's portfolio has too much risk or the right kinds of risks. This means being familiar enough with the specific characteristics of each investment or type of investment to evaluate, either mathematically or through investment-principle-based reasoning, whether the portfolio is sound or needs to be changed.
This is, of course, only an example. The student will be asked to make several three-dimensional evaluations of this nature in each case study, pertaining to all areas of the client's finances. An estate-planning question could require the student to be proactively familiar with all of the different types of wills and trusts and know which types would be appropriate for the client in the given situation. An insurance question will force the student to make the same type of evaluation for all of the different types of insurances carried by the client. Investment and retirement questions will require evaluations of the overall financial condition of the client.
How Do I Prepare for This?
There are a number of ways that you can improve your chances of succeeding on the exam. While any strategy must begin with an understanding of the format and type of information that will be presented in the studies, this alone will seldom suffice in providing you with the background you'll need to be able to effectively reason through the case study questions.
A couple of common strategies are outlined as follows:
- Read a Case Study Thoroughly: As obvious as this suggestion seems, the entire case study must be read and evaluated before attempting to answer any of the questions. The vast majority of the information given in the study will be relevant to at least one of the questions asked. Whenever a divorce or other family issue is presented, questions regarding which type of trust to use are often asked. A careful evaluation of the study's balance sheet information will reveal whether estate taxes will be an issue, and so on. Even seemingly innocuous information can provide critical clues that can be used to answer questions.
- Go to a Review Session: One of the smartest moves any student sitting for the exam can take is to sign up for review courses. These courses will often help to pull the coursework material together and ferret out the more obscure topics. Most importantly, many of these review courses will provide firsthand instruction on how to effectively reason through each study and discover what concepts a given study requires the student to apply.
- Take a Sample Exam: The CFP Board website offers a sample exam you can take. Once you answer the questions, you can see sample answers as well.
- Don't Bring Real Life into It: One error that inexperienced students often make is asking themselves what they would do if the scenario presented in a case study were a real-life situation. This question cannot be applied to case studies. The CFP board designs the case studies to require recognition of specific academic concepts. This approach forces the student to digest the material and then apply it correctly. For example, in a case study, there might be a question regarding the appropriateness of someone's asset allocation. In real life, you may feel that the allocation is just fine, but for the test, you will need to realize that there are specific academic criteria that must be addressed, such as the portfolio being too weighted in a given sector.
Because the case studies are the most difficult part of the exam, being able to master them will help to ensure success on the rest of the test as well. Students should not let themselves be intimidated by the difficulty of the material, as they will most likely face similar situations in their careers. Learning the reasoning process behind the studies will provide the student with valuable reasoning and thinking experience that can then be applied to their real clients.
To read more about preparing for financial exams, see our Professional Education archives.