Book 1 (continued) Flashcards
(57 cards)
Describe the steps for initial registration to be able to sell certain equity-based products
1) Associate w/ a broker-dealer
2) Register w/ FINRA on Form U-4
3) Pass exams
4) Receive a CRD number
What does “Business Activity Ages” mean?
Economy is at a PEAK.
The public stops buying because they have enough of everything they need
Fiscal Policy Activities
Congress
1) Gov’t expenditures
2) Taxation
3) Debt management
When a question only indicates one expense (tuition), only use one of the four programs as an answer
Only 1 of these 4 can be in the answer:
AOC
Lifetime Learning
Coverdell distribution
529 distribution
What is a “qualified expense” for AOC and LLC programs
Tuition, Fees, Supplies, Books & Equipment
NOT Room & Board
What are the steps to calculate educational funding TVM?
Diagram:
Solve for FV
FV becomes negative PMT (4yr)
Solve for PV
PV becomes FV
Solve for PV
IRR > Required rate of return
NPV is positive
=> the investment will earn more than the client’s required rate of return
IRR = Required rate of return
NPV is 0
For questions about net worth changes, what keywords should you look for?
1) “From cash flow…”
2) “Investments grew…”
3) “Reduced mortgage principal…”
These would be increases in net worth
Think logically for decreases in net worth
Housing Expense
PITI
Principal
Interest
Tax (Property)
Insurance (Property)
PITI < 28% of gross income
Emergency Fund
3mo vs. 6mo of $$ needed to cover Fixed & Variable expenses
Ex) If monthly expenses are $8,000 and the client only has $6,000 in their checking account, then the checking account can’t be allocated for the emergency fund.
Effective method for implementing a savings plan
“pay yourself first”
(allocate money away before you spend it each month)
Total amount of savings & investments formula
Savings & Investments = Inflows - Outflows - Taxes
Priority of savings
According to CFP Board…
1) Life Insurance (if none)
1.1) Have a proper emergency fund (unless you have way too much debt to even establish it)
2) Reduce debt
TVM
Keywords to look for in unequal CF scenarios
Find PV = start with 0 CF0
Find IRR = Solve for I/YR
Find NPV = start with initial investment CF0
IRR < Required rate of return
NPV is negative
The investment will generate less than the client’s required rate of return
What keywords are used when a TVM problem wants you to use a real rate of return?
“in today’s dollars”
Synonym for IRR
Dollar weighted rate of return
What is an aggressive investor unlikely to have?
Liquid cash equivalents for an emergency fund
TVM
When are PMTs considered negative?
When money is moved out of clients checking account.
1) Investments into mutual funds, stocks, bonds, or IRAs
2) A repair is made to investment property
3) Pension or 401(k) contributions made by employer (not considered positive because the money isn’t going to the client’s account until he take a distribution)
Besides…
Checking acct
Savings acct
Money Market Deposit Acct (MMDA)
CD’s
…what other investment is likely to be insured?
Securities held in a brokerage account.
The SIPC insures investors against losses arising from a failed brokerage firm.
Investment Company Act of 1940
Advisor Act was also in 1940
Authorized SEC to regulate Unit Investment Trusts (UITs), investment companies, and mutual funds
For insurance company regulations, how does the Fed have any influence?
3 ways
1) HIPAA related to health coverage continuation
2) Standardization of Medicare policies
3) Taxation of various insurance policies
State handles remaining regulations, including determining the meaning of a policy’s terms
What goes into an UGMA/UTMA account?
UGMA
Cash-type investments
UTMA
Cash-type investments
+
real estate or limited partnerships
