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CWT CFP Study cards > General Principles > Flashcards

General Principles Flashcards

1
Q

Which steps in the 7 steps of Financial Planning require client involvement?

A

All but steps 3 and 4
Understand I Analyze & Develop Plans In Multiples
1) Understand client’s qualitative and quantitative information
2) Identify and select goals - discuss any unrealistic goals
3) Analyze current course of and potential alternatives
4) Develop recommendations
5) Present plan
6) Implement recommendations
7) Monitor progress and update plan

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2
Q

What are the 7 Steps in Financial Planning

A

Understand I Analyze & Develop Plans In Multiples
1) Understand client’s qualitative and quantitative information
2) Identify and select goals - discuss any unrealistic goals
3) Analyze current course of and potential alternatives
4) Develop recommendations
5) Present plan
6) Implement recommendations
7) Monitor progress and update plan

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3
Q

What two steps in the Financial Planning Process include Qualitative and Quantitative information from the client?

A

Understand I Analyze & Develop Plans In Multiples
1) Understand client’s qualitative and quantitative information
7) Monitor progress and update plan

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4
Q

What are examples of “Quantitative” details in the Financial Planning process?

A

Quantity = Quantitative
Anything that can be counted
Details they provide on my info sheet
* client’s age
*dependents
*income/expenses
*assets/liabilities
*retirement/govt/employee accounts and benefits
*available resources/liquidity/RISK CAPACITY
*insurance and estate plans

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5
Q

What are examples of “Qualitative” details in the Financial Planning process?

Hint: L in Qualitative

A

Qualitative = Quality
Anything that can affect their quality of life
Details I gather when we meet
*Health
*Life expectancy
*values/attitudes
*goals/priorities/needs/expectations
*family circumstances
*earning potential
*RISK TOLERANCE
*current course of action

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6
Q

What is the GDP (Gross Domestic Product) formula?

A

C + I + G + (X - M)
Consumer Spending
Industry Investment
Government Spending
eXports
iMports

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7
Q

How frequently is the GDP (Gross Domestic Product) measured?

A

Quarterly

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8
Q

What are the deadlines for CFP Board Hearing Process.
Hint: 30, 45, 14

A

Everything is due in 30 calendar days with the exception of 3 things (due in 45):
1) Written statements
2) Hearing documents
3) Stipulations
…and 14 days after delivery of amended complaint

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9
Q

What occurs if no response to CFP Board complaint within 30 days?

A

Suspension for one year and one day or revocation of certification.

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10
Q

Which law indicates that supply for an economic product will vary directly with its price?

A

The law of supply

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11
Q

Which portion of the yield curve that is most sensitive to Fed policy?

A

Short end

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12
Q

From a price perspective, all goods are considered to be what in the long-run?

A

Elastic

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13
Q

Swings in total national output, income and employment marked by widespread expansion or contraction in many sectors of the economy is known as what?

A

Business cycle

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14
Q

Which law indicated that demand for an economic product will vary inversely with its price?

A

Law of demand

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15
Q

Which law reflects what suppliers are willing to produce and what consumers are willing and able to purchase.

A

Law of Supply and Demand

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16
Q

Choice, task familiarity, information and active involvement all lead to what?

A

Investor overconfidence

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17
Q

Which portion of the yield curve that is most sensitive to Fed policy?

A

Short end

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18
Q

Length of credit history accounts for ___ of an individual’s credit score.

A

15%

Mix New LAP

Credit mix (10%)
New credit (10%)
Length of credit history (15%)
Amounts owed (30%)
Payment history (35%)

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19
Q

What rating does a score of 677 mean to a lender?

A

Good; above average score and good chance of being approved for loan

< 580 Poor
580-669 Fair
670-739 Good
740-799 Very Good
800+ Exceptional

20
Q

What are the 4 basic types of Financial Ratios?

A

Liquidity ratios: Used to determine the ability to meet short-term obligations
Activity ratios: Used to determine the relative efficiency of financial management
Profitability ratios: Used to measure relative profitability
Debt ratios: Used to determine the ability to meet long-term obligations

21
Q

What is a Current Ratio? How is it determined?
Do you want it to go up or down?

Hint: what’s your current financial situation?

A

Current ratio is a type of liquidity ratio.
Current Assets/Current Liabilities
You want it to go up.

22
Q

Are annual income taxes a fixed expense?

A

No because the amount changes from year to year.

23
Q

What is included in “invested assets” in the Statement of Financial Position?

A

Common stocks
Bonds
Mutual funds
Exchange traded funds
Cash value of life insurance
Deferred annuities

24
Q

What has the greatest impact on a person’s credit score?

A

Payment history

New Mix LAP

Credit mix (10%)
New credit (10%)
Length of credit history (15%)
Amounts owed (30%)
Payment history (35%)

25
Q

Current Assets are listed in order of liquidity. What are they?

A
  1. Cash and cash equivalents
  2. Marketable securities
  3. Accounts receivable – less provision for bad debts
  4. Inventories
  5. Prepaid expenses and taxes
26
Q

What are the components of the quick ratio?
Hint: Current Liabilities

A

Quick ratio is considered a liquidity ratio (determines the ability to meet short term obligations)

The numerator of all liquidity ratios is Current Liabilities

Current Assets - Inventories / Current Liabilities

27
Q

What is the debt ratio?

Hint: the total

A

It measures the ability to meet long-term debt obligations

The lower the better (want low debt)

Total Debt / Total Assets

28
Q

What is the Consumer Debt Ratio (for mortgage financial tests) comprised of and what does it need to equal or be less than?

A

Consumer Debt Ratio
Monthly Non-Housing Debt / Monthly NET Income
= <20% (remember: 2 things)

Housing Cost Ratio
PITI (Principal, Interest, Taxes, Insurance) / Monthly Gross Income
= <28%

Total Debt Ratio
Monthly Non-Housing Debt + PITI (Principal, Interest, Taxes, Insurance) / Monthly Gross Income
=<36%

29
Q

What is the Housing Cost Ratio (for mortgage financial tests) comprised of and what does it need to equal or be less than?

A

Housing Cost Ratio
PITI (Principal, Interest, Taxes, Insurance) / Monthly Gross Income
= <28% (remember: 2+ things)

Consumer Debt Ratio
Monthly Non-Housing Debt / Monthly NET Income
= <20%

Total Debt Ratio
Monthly Non-Housing Debt + PITI (Principal, Interest, Taxes, Insurance) / Monthly Gross Income
=<36%

30
Q

What is the Total Debt Ratio (for mortgage financial tests) comprised of and what does it need to equal or be less than?

A

Total Debt Ratio
Monthly Non-Housing Debt + PITI (Principal, Interest, Taxes, Insurance) / Monthly Gross Income
=<36% (remember: 3 things)

Consumer Debt Ratio
Monthly Non-Housing Debt / Monthly NET Income
= <20%

Housing Cost Ratio
PITI (Principal, Interest, Taxes, Insurance) / Monthly Gross Income
= <28%

31
Q

What happens in regard to creditors when either Chapter 7 or Chapter 13 are filed?

A

An automatic stay (cannot touch) to prevent creditors to collect what they are owed including foreclosures, property repossessions, and sales of property while repayments are made.

Automatic stays do not apply to alimony or child support payments or criminal suits.

32
Q

Who receives the proceeds from an IPO?

A

The issuing firm ultimately receives the proceeds from an initial public offering.

33
Q

__________________ is a law that provides individuals with the right to have corrections made to credit-related errors.

A

The Fair Credit Billing Act

34
Q

If a potential borrower is denied credit, ___________ ensures that an accurate credit report is provided.

A

Fair Credit Reporting Act

35
Q

What does a credit score of 575 indicate to a lender?

A

A rating of “poor” and is a risky borrower.

36
Q

What happens to debt under Chapter 13?

Hint: once a teenager, they can’t be forgiven

A

No debt is forgiven. Personal assets are kept; debt repaid in full over a period.

37
Q

Under SEC Rule 415, how long do companies have to issue shares from their IPO filing?

A

2 years

38
Q

What happens in a Chapter 7 bankruptcy?

Hint: Seven = Sell and at 7, we forgive them

A

Liquidation of assets by trustee to pay debt. Most debts are discharged after 115 days except:
child support
alimony
income taxes less than three years past due
student loans
secured debt

39
Q

What’s the difference between a Power of Attorney and a Durable Power of Attorney?

A

Power of Attorney ends when individual becomes incapacitated. Durable POA (financial or medical) remains in effect until revocation or death.

40
Q

How does a minor qualify for SSI?

A

Blind or disabled and under age 18; or under age 22 and is a student regularly attending school
SSI ends at age 18

41
Q

There are 15 standards in Code of Ethics - duties owed to clients. What are 5 of them?

A

Fiduciary Duty which includes Duty of Loyalty, Duty of Care and Duty to Follow Client Instructions

Integrity - honesty and candor

Competence - relevant knowledge and skill

Diligence - respond to reasonable client inquiries in a timely and thorough manner

Disclose and Manage conflicts of interest - written communication or written client consent is not required

Selecting, using and recommending technology - reasonable care and judgement which must produce reliable, objective and appropriate outcomes

42
Q

ERISA is administered and enforced by three bodies. What are they?

A

Labor Department’s Employee Benefits Security Administration (EBSA)

Treasury Department’s Internal Revenue Service (IRS)

the Pension Benefit Guaranty Corporation (PBGC).

43
Q

Cash contributions, additional investments, and any amount that the taxpayer has borrowed and is personally liable for are included in the limited partner’s basis/at-risk amount.

Are the liabilities of the partnership included in the at-risk amount of a limited partner?

A

No. The liabilities of the partnership are not included in the at-risk amount of a limited partner.

44
Q

How many days does a creditor have to respond to a loan application under the Equal Credit Opportunity Act?

A

30 days

45
Q

The Investment Advisers Act of 1940 defines an investment adviser as any person or firm that does these 3 things.

A

A person must satisfy all three elements to fall within the definition of “investment adviser,”

for compensation

is engaged in the business of

providing advice to others or issuing reports or analyses regarding securities.

CWT CFP Study cards (9 decks)

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