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Practice questions: psychology of financial planning

Compiled by the Sitonce editorial team from CFP Board sources listed belowUpdated 4 min readFacts verified 1 September 2026
The short answer

Psychology is 7 per cent of the exam and answers follow from a few principles: understand before advising, address the emotion before the arithmetic, and do not decide for the client.

Twelve questions, no formulas, and answers that follow from a small number of principles. Skipping this domain is leaving straightforward marks behind.

Question 1

A client refuses to sell a losing position, saying he will sell once it returns to what he paid. Which bias is this?

  1. Overconfidence
  2. Anchoring combined with loss aversion
  3. Herding
  4. Availability
Answer: B. He is anchored on the purchase price, which is irrelevant to the decision, and avoiding the realization of a loss. Together they produce the disposition effect - holding losers and selling winners - which is also tax-inefficient, since it defers losses and realizes gains.
Question 2

A retired client with ample assets cannot bring herself to spend anything and describes money as something that must be saved. The planner has shown her the projections twice. What is the best next step?

  1. Show the projections a third time with clearer charts
  2. Explore where her beliefs about money came from
  3. Recommend an annuity to create permission to spend
  4. Accept the position and stop raising it
Answer: B. This is money vigilance, and it is not an information problem - she has seen the arithmetic twice. Exploring the belief is the appropriate response. An annuity may eventually help by creating structured permission, and recommending it before understanding the belief is premature.
Question 3

In a joint meeting, one partner answers every question while the other says almost nothing. What should the planner do?

  1. Continue, since one partner is clearly the decision maker
  2. Address questions directly to the quieter partner
  3. Meet the quieter partner separately without telling the other
  4. Recommend they resolve their differences before planning
Answer: B. Silence is data rather than agreement, and both are clients. Addressing the quieter partner directly is the straightforward response. Option C creates a confidentiality problem in a joint engagement, and option D declines the work the planner is there to do.
Question 4

A client panics during a market fall and wants to move everything to cash. Which response is most appropriate?

  1. Explain that markets recover and decline to act
  2. Explore what specifically he is afraid of, then discuss options
  3. Move everything to cash as instructed
  4. Move half to cash as a compromise
Answer: B. Understanding the fear precedes addressing it, and arguing with the emotion by citing history reliably fails. The instruction is reasonable and lawful, so it cannot simply be declined - but the duty of care requires advice first, and documenting both the advice and the decision.
Question 5

A client says he wants to retire at 62 but has taken no steps towards it in three years of working together. What does this most likely indicate?

  1. He is not serious about the goal
  2. Ambivalence, which is normal and worth exploring
  3. He does not understand the arithmetic
  4. The goal should be removed from the plan
Answer: B. Ambivalence - genuinely wanting something and genuinely resisting it - is the normal state for a large change, and it is what motivational interviewing exists to work with. Having the client articulate their own reasons for change is more effective than the planner supplying them.

The pattern across all five

In every one, the option that supplies more information is wrong and the option that seeks understanding is right.

That is the domain in one sentence, and it is a reliable enough pattern to use when a psychology question is otherwise ambiguous.

On the trademark

CFP® is a registered mark of Certified Financial Planner Board of Standards, Inc. We are not affiliated with, or endorsed by, CFP Board.

Common questions

What is the disposition effect?

Holding losing positions and selling winners, driven by anchoring on the purchase price and loss aversion. It is also tax-inefficient, since it defers losses and realizes gains.

How should you respond to a client who cannot spend?

Explore where the belief came from. Money vigilance is not an information problem, and showing the projections again does not address it.

What does a silent partner in a meeting mean?

Silence is data rather than agreement, and both are clients. Addressing the quieter partner directly is the appropriate response.

What do you do when a client panics in a downturn?

Explore what specifically they fear, then discuss options. Citing historical recoveries argues with the emotion and reliably fails, though the advice and the client's decision should both be documented.

What is the pattern in psychology questions?

The option supplying more information is generally wrong and the option seeking understanding is generally right. It is reliable enough to use when a question is otherwise ambiguous.

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