CFP Exam Topics List: The 8 Principal Knowledge Domains
Professional Conduct and Regulation (8%)
This domain serves as the ethical foundation for the entire CFP exam content outline. It focuses heavily on the Code of Ethics and Standards of Conduct, specifically the fiduciary duty which mandates that a CFP professional must act in the best interest of the client at all times. Candidates are tested on their ability to identify and manage conflicts of interest, the requirements for written disclosures, and the specific circumstances under which the duty of care, loyalty, and obedience applies. Scoring in this section often hinges on the "Integration Factors"—determining whether a financial planning engagement exists, which triggers a higher level of regulatory scrutiny. Understanding the disciplinary process and the CFP Board’s right to investigate misconduct is essential for passing this 8% segment.
Financial Planning Principles and Process (15%)
Representing a significant portion of the CFP exam domains, this section covers the procedural mechanics of the financial planning engagement. It follows the seven-step process: from understanding the client’s personal and financial circumstances to monitoring the implementation of recommendations. Candidates must master the Financial Statement Analysis component, which involves calculating the emergency fund ratio, debt-to-income ratio, and savings rate. A critical concept here is the distinction between objective and subjective data. For example, while a bank statement provides objective numbers, a client’s risk tolerance is subjective and requires qualitative assessment. The exam frequently presents scenarios where the planner must determine the next logical step in the process, requiring a deep familiarity with the Practice Standards.
Education Planning (7%)
While education planning carries a lower weighting, it involves precise calculations regarding the funding of future liabilities. Key topics include the mechanics of Section 529 Plans, Coverdell Education Savings Accounts (ESAs), and the coordination of tax credits such as the American Opportunity Tax Credit (AOTC) and the Lifetime Learning Credit (LLC). Candidates must be able to perform an "Education Needs Analysis" using the Time Value of Money (TVM) formula to determine the required annual savings to meet a future tuition goal, accounting for education inflation rates which typically differ from general CPI. Understanding the impact of various assets on the Free Application for Federal Student Aid (FAFSA) formula is also a recurring theme in this domain.
Risk Management and Insurance Planning (11%)
This domain assesses the ability to identify and mitigate pure risk through various insurance vehicles. The curriculum covers life, health, disability, long-term care, and property/casualty insurance. A core concept is the Human Life Value Approach versus the Needs Approach for determining life insurance requirements. Candidates must understand the nuances of policy provisions, such as the "Own Occupation" vs. "Any Occupation" definitions in disability insurance, and how these impact premium costs and claim eligibility. The exam often tests the taxability of benefits—for instance, the tax treatment of disability premiums paid by an employer (Group Disability) versus those paid by an individual with after-tax dollars. Mastery of the COBRA continuation rules and Medicare eligibility is also vital.
Investment Planning Domain: Core Concepts Tested
Investment Vehicles and Security Types
Within the CFP principal knowledge areas, investment planning requires a technical grasp of various asset classes. Candidates must distinguish between equity and fixed-income securities, including the unique risks associated with each. This includes understanding the mechanics of Derivative Securities like calls, puts, and warrants. The exam tests the valuation of these instruments using models such as the Constant Growth Dividend Model (Gordon Growth Model) for stocks or the bond pricing formula for fixed-income. Candidates should be prepared to calculate the Yield to Maturity (YTM) and Yield to Call (YTC) and understand how interest rate volatility affects the duration and convexity of a bond portfolio.
Portfolio Theory and Behavioral Finance
This subsection moves beyond individual securities to the construction of a total portfolio. The Capital Asset Pricing Model (CAPM) is a staple of the exam, requiring candidates to calculate the expected return of an asset based on its systematic risk (Beta). Furthermore, the curriculum emphasizes Modern Portfolio Theory (MPT) and the Efficient Frontier, focusing on how diversification reduces unsystematic risk. A newer but critical addition to the exam is Behavioral Finance, which explores cognitive biases like Loss Aversion, Anchoring, and Overconfidence. Candidates must identify these biases in client scenarios and explain how they might lead to suboptimal investment decisions, such as panic selling during market volatility.
Asset Allocation and Client Suitability
Asset allocation is often cited as the primary driver of portfolio returns, and the CFP exam tests this through the lens of client suitability. This involves matching a client’s time horizon, risk tolerance, and liquidity needs with an appropriate Investment Policy Statement (IPS). Candidates must be able to interpret the tradeoff between Strategic Asset Allocation (long-term, passive) and Tactical Asset Allocation (short-term, active). A key exam concept is the "Rebalancing" trigger, where a planner must decide when to sell overperforming assets and buy underperforming ones to maintain the target risk profile. This section requires a synthesis of quantitative data and qualitative client goals.
To evaluate the success of a strategy, candidates must apply various performance metrics. The Sharpe Ratio, Treynor Ratio, and Jensen’s Alpha are the primary tools used to measure risk-adjusted returns. The exam will often ask which ratio is most appropriate given a specific scenario: for example, the Sharpe ratio is used for non-diversified portfolios (total risk), while the Treynor ratio is used for well-diversified portfolios (systematic risk). Candidates must also calculate the Weighted Average Return of a portfolio and understand the difference between Time-Weighted and Dollar-Weighted returns, particularly how client-directed cash flows can distort the latter.
Income Tax Fundamentals and Filing Status
Tax planning is woven into almost every other domain. It begins with the calculation of Adjusted Gross Income (AGI) and Modified AGI (MAGI), which act as gateways for various deductions and credits. Candidates must know the criteria for different filing statuses, such as Head of Household or Qualifying Surviving Spouse, and how these affect tax brackets. The exam tests the "Kiddie Tax" rules and the taxation of Social Security benefits. A firm grasp of the tax formula—moving from Gross Income to Taxable Income—is essential, as many questions require multi-step calculations to determine a client's final tax liability or refund status.
Deduction, Credit, and AMT Calculations
This section requires distinguishing between "above-the-line" deductions (Adjustments to Income) and "below-the-line" (Itemized) deductions. Candidates must be familiar with the Standard Deduction amounts and the limitations on itemized deductions, such as the $10,000 cap on State and Local Taxes (SALT). A high-level topic is the Alternative Minimum Tax (AMT), where candidates must identify "Preference Items" (like private activity bond interest) and "Adjustments" that could trigger this parallel tax system. Understanding the difference between a tax deduction (which reduces taxable income) and a tax credit (which reduces tax liability dollar-for-dollar) is a fundamental exam requirement.
Tax Implications of Investment Decisions
Investment taxation focuses on the holding periods required for Long-Term Capital Gains treatment and the rules surrounding the netting of capital gains and losses. Candidates must master the "Wash Sale Rule," which disallows a loss deduction if a substantially identical security is purchased within 30 days before or after the sale. Another critical area is the taxation of different types of investment income, such as Qualified Dividends versus Ordinary Dividends, and the tax-exempt status of Municipal Bond interest. The exam often presents scenarios where a candidate must choose the most tax-efficient account (Taxable, Tax-Deferred, or Tax-Free) for specific asset types based on the principles of asset location.
Estate and Gift Tax Computations
The transfer of wealth is subject to a specific tax regime. Candidates must understand the Annual Gift Tax Exclusion and the Lifetime Federal Estate and Gift Tax Exemption. Calculations often involve determining the "Gross Estate," which includes all assets owned at death, and then subtracting allowable deductions (like the Marital Deduction or Charitable Deduction) to arrive at the Taxable Estate. A common exam hurdle is the "Three-Year Rule," which pulls certain transfers (like life insurance policies) back into the gross estate if the donor dies within three years of the gift. Understanding the Step-up in Basis rules for inherited assets is also a frequent point of assessment.
Retirement Planning: From Accumulation to Distribution
Qualified Retirement Plan Rules (401k, 403b, IRA)
Retirement planning is the most heavily weighted domain, making it a cornerstone of what is on the CFP exam. Candidates must know the contribution limits, eligibility requirements, and vesting schedules for various plans. A major focus is the distinction between Defined Benefit and Defined Contribution plans. This includes the technicalities of Top-Heavy testing and the nondiscrimination rules that apply to 401(k) plans. Candidates must also understand the nuances of the SEP-IRA and SIMPLE IRA for small business owners, including the specific employer matching requirements and the higher early withdrawal penalties associated with SIMPLE plans during the first two years of participation.
Social Security Benefits and Claiming Strategies
Social Security is a primary income source for many retirees, and the exam tests the mechanics of how benefits are calculated and taxed. Candidates must understand the concept of the Primary Insurance Amount (PIA) and how it is affected by claiming early (at age 62) versus delaying until age 70. The "Earnings Test" is a frequent exam topic, where benefits are reduced if a recipient earns income above a certain threshold before reaching Full Retirement Age (FRA). Additionally, candidates must be able to advise on spousal benefits, survivor benefits, and the impact of the Windfall Elimination Provision (WEP) for those with government pensions.
Retirement Income Needs Analysis
Determining if a client is "on track" for retirement requires a complex calculation known as the Capital Utilization Model or the Capital Preservation Model. Candidates must use TVM to calculate the "Lump Sum Needed at Retirement," accounting for the client’s expected longevity, inflation-adjusted spending needs, and the anticipated rate of return during the distribution phase. This involves the "Wage Replacement Ratio" (WRR), which estimates the percentage of pre-retirement income needed to maintain a standard of living. The exam often requires adjusting these calculations for "Serial Payments," where the savings amount increases annually by the rate of inflation.
Distribution Rules and Required Minimum Calculations (RMDs)
Once a client reaches age 73 (under current SECURE Act 2.0 rules), they must begin taking Required Minimum Distributions (RMDs) from most tax-advantaged accounts. Candidates must be able to calculate the RMD using the Uniform Lifetime Table and understand the penalties for failing to do so. Furthermore, the exam covers the rules for "Early Withdrawals" before age 59½, including the 10% penalty and the various exceptions (such as for first-time homebuyers or birth/adoption expenses). Understanding the 10-year rule for inherited IRAs under the SECURE Act is now a vital component of the distribution planning curriculum.
Estate Planning Key Terms and Structures
Wills, Trusts, and Probate Process
Estate planning ensures that a client's assets are distributed according to their wishes while minimizing costs and delays. The exam tests the different types of wills (Holographic, Nuncupative, Formal) and the legal process of Probate. A significant focus is placed on Will Substitutes—mechanisms that bypass probate, such as Joint Tenancy with Right of Survivorship (JTWROS) or Payable on Death (POD) accounts. Candidates must also understand the difference between Revocable and Irrevocable Trusts, specifically how they impact the Grantor’s control, tax liability, and asset protection. The concept of "Crummey Powers" is often tested as a way to qualify gifts to a trust for the annual gift tax exclusion.
Power of Attorney and Healthcare Directives
Planning for incapacity is as important as planning for death. The CFP curriculum includes the use of Durable Power of Attorney for finances and Healthcare Proxies for medical decisions. Candidates must distinguish between a Living Will, which outlines specific medical treatments a client does or does not want, and a Durable Power of Attorney for Healthcare, which designates an agent to make decisions. The exam may present scenarios where a client is incapacitated, and the planner must identify which document takes precedence or which individual has the legal authority to act on the client's behalf.
Estate Transfer Taxation and Liquidity
Even with a large estate, a lack of liquidity can force the sale of cherished assets to pay for taxes and administrative costs. This section covers the use of Irrevocable Life Insurance Trusts (ILITs) to provide tax-free liquidity at death. Candidates must understand how the "Incidents of Ownership" rule can cause life insurance proceeds to be included in the gross estate. Additionally, the exam covers Section 303 Redemptions and Section 6166 Deferrals, which are specialized tax provisions designed to help closely-held business owners manage estate tax liabilities without liquidating the business.
Charitable Giving Techniques
Charitable giving allows clients to fulfill philanthropic goals while receiving tax benefits. The exam tests various structures, including Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs). Candidates must know the difference between a CRAT (Annuity Trust) and a CRUT (Unitrust), particularly regarding the ability to make additional contributions and the impact of market fluctuations on the income stream. Other topics include Donor Advised Funds (DAFs) and the rules for Qualified Charitable Distributions (QCDs) from IRAs. Candidates must be able to recommend the appropriate vehicle based on whether the client wants an immediate tax deduction, a lifetime income stream, or to pass the remaining assets to heirs.
Integrating Knowledge Across Financial Planning Areas
Case Study Analysis and Application
The CFP exam culminates in case studies that require the integration of all eight domains. These scenarios typically provide a multi-page profile of a family or business owner, including balance sheets, cash flow statements, and conflicting goals. Candidates must perform a Holistic Review to identify gaps in the client's current plan. For instance, a case might show a client with high investment returns but no disability insurance, or a large estate with no liquidity. The ability to prioritize recommendations—addressing urgent risks like a lack of an umbrella policy before long-term goals like college savings—is a key metric for passing the case study portion.
Interrelationships Between Tax, Investment, and Estate Planning
No financial decision exists in a vacuum. A core competency tested is the understanding of how a move in one area affects another. For example, selling an appreciated asset to rebalance a portfolio (Investment Planning) triggers a capital gains tax (Tax Planning), which reduces the total value of the estate (Estate Planning). The exam uses the Cross-Impact Analysis to see if candidates can forecast these ripple effects. A common scenario involves the "Net Unrealized Appreciation" (NUA) strategy, which allows a client to move highly appreciated employer stock from a 401(k) to a taxable account, transforming ordinary income into more favorable capital gains rates—a perfect example of integrating retirement and tax planning.
Developing a Comprehensive Financial Plan
Developing a plan involves more than just numbers; it requires a logical flow of recommendations that align with the client’s values. Candidates are assessed on their ability to synthesize the Quantitative Findings (e.g., a $500,000 retirement shortfall) with Qualitative Constraints (e.g., the client refuses to work past age 60). This section of the exam focuses on the "Synthesis" level of Bloom’s Taxonomy. You must be able to justify why a Roth conversion is better than a traditional contribution in a specific year, or why a certain trust structure is necessary despite its legal costs. The scoring rewards those who can provide a cohesive strategy rather than isolated pieces of advice.
Client Communication of Complex Topics
The final step in the planning process is communicating the plan in a way the client can understand and act upon. This involves the use of Active Listening and clarifying questions to ensure the client’s goals are accurately captured. The exam tests the ability to explain complex technical concepts—like the difference between a deductible and a co-payment, or the mechanics of a Monte Carlo simulation—using plain language. Candidates must also demonstrate an understanding of the "Psychology of Financial Planning," recognizing when a client’s emotional response to market volatility requires a change in communication style or a re-evaluation of their risk tolerance profile.