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Series 65 - March 2024 > Client Recommendations and Investment Strategies > Flashcards

Client Recommendations and Investment Strategies Flashcards

(71 cards)

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1
Q

Types of Clients

A
  • business entities
  • trust accounts
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2
Q

Business Entities

A
  • sole proprietorship
  • LLC
  • General partnership
  • S corp
  • C Corp
  • Limited partnership
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3
Q

Which business entity profits does not flow though to owners

A
  • c corp (taxed at business level) has double taxation
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4
Q

Ranking Ease of formation

A
  1. Sole proprietorship
  2. LLC
  3. S corp
  4. General Partnership
  5. C Corp
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5
Q

Ease to Liquidate

A
  • C Corp is the easiest to liquidate
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6
Q

Trust Accounts

A
  • living trust
  • testamentary trust
  • simple trusts
  • complex trusts
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7
Q

Living Trust

A
  • must be formed while alive
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8
Q

Testamentary Trust

A
  • only created after death
  • based on clients will
  • contact executor (handles the will)
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9
Q

Simple Trust

A
  • must distribute income annually
  • taxed annually
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10
Q

Complex Trust

A
  • may accumulate income
  • taxed only when there is a distribution
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11
Q

Settlor/Grantor

A
  • provides assets to the trust
  • can be trustee or beneficiary not required
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12
Q

Remainderman

A
  • heirs of beneficiaries
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13
Q

Per Stirpes

A
  • heirs split original allocation
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14
Q

Per Capita

A
  • reallocation of the original allocation
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15
Q

Trust accounts with multiple beneficiaries handling

A
  • based on stated objective in trust agreement (prudent man rule)
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16
Q

Tax Form for Trusts

A

Form 1041

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17
Q

Individual Balance Sheet

A
  • Assets - Liabilities = net worth
  • assets (properties, cash, investment accounts, retirement accounts, jewelry etc)
  • liabilities (mortgages, consumer debt, car loans etc)
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18
Q

Statement of Cash Flow

A
  • inflows: salary, rental income, investment income
  • outflows: taxes, bills, expenses, payments
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19
Q

Most important information when making a suitable recommendation

A

investment objectives (this also counts as non-financial information)

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20
Q

Answering Client Recommendations Questions

A
  • always look for stated investments objectives
  • if safety: US gov, Money market
  • income: corporate bonds, reits, preferred stock
  • growth: common stocks (longer time horizon)
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21
Q

Time Horizon

A
  • length of time until death (in retirement)
  • life expectancy
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22
Q

Capital Market Theory

A
  • CAPM (risk vs return)
  • efficient market hypothesis
  • modern portfolio theory
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23
Q

Efficient Market Hypothesis

A
  • all markets are efficient and information is already effected in price
  • weak (least amount known, price/volume, fundamental analysis helps)
  • semi strong (only insiders can out perform, all public information is known)
  • strong (all public and private insider information is known)
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24
Q

Modern Portfolio Theory

A
  • diversification of different asset classes to maximize returns based on risks
  • more risk is greater return.
  • efficient frontier (optimally efficient portfolios)
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25
Portfolio Management Styles
- strategic vs tactical
26
Strategic Management styles
- asset allocation - rebalancing
27
Tactical Management Strategies
- investments based on current market conditions - market timing
28
Buy and Hold
- very low expenses - very tax efficient - passive - least appropriate for wrap accounts - NOT STRATEGIC
29
Growth Style
- growth of sales and profits - growth of earnings and growth of earnings momentum - higher P/E (20+) - low dividend payout or none at all
30
Value Style
- stable earnings - low P/E - higher dividend payout ratios
31
Diversification
- negative correlation (lower means more diverse) - reduces overall risk of portfolio - on chart look for correlation coefficient (look for lowest number) - international stocks are not perfectly correlated with domestic securities
32
Sector Rotation
- tactical style - rotate during business cycle - cyclical = buy at trough - non-cyclical/defensive = peak to recession
33
Dollar Cost Averaging
- invest the same amount on a regular basis - finding average price (add all up divided by number of occurrences) - finding average cost (find number of shares divided by total money put in)
34
Traditional vs Roth IRA
- traditional IRA vs Roth IRA (can only contribute with earned income) - traditional IRA (tax deferred, can be deductible from taxes, 10% penalty exceptions, RMDs @ 73) - Roth IRA (tax-free, not deductible, 10% penalty exceptions, no RMD, can contribute after 73 with earned income)
35
What can be invested in an IRA
- NO life Insurance - NO muni-bonds, inappropriate due to tax status - YES to Gold Coins minted by US and US only - YES only if business property (cannot be for personal use)
36
Tax-exempt co./org or nonprofits Retirement Plan
- 403(b)
37
City Fireman Retirement Plan and other Government workers
- 457 plan
38
Defined Benefit vs Define Contribution plan
- DB - based on average salary last 3 years, benefits older employees - DC - based on percentage deferred from own salary, benefits younger employees
39
Money Purchase Plan
- profit sharing - mandatory contributions from company - not mandatory from employee
40
QDRO
- divorced, separate retirement assets (qualified only) - payee (ex spouse) still taxable upon withdrawal but no 10% early withdrawal penalty
41
Retirement Plan Taxes
- taxed as ordinary income - includes variable annuity
42
AGI
- pre 2019 divorce - child support is never
43
Inherited Shares
- stepped up to market value at death - if gifted, gift original costs - alternative death value - 6months after as long as estate taxes are paid within 9 months
44
Gift Tax
- the one giving the gift pays the tax
45
ERISA
- governs private sectors (corporations) - no government retirement plans - minimum of 3 retirement selections - eligibility, 21 and 1000 hours in past 12 months - require Summary Plan documents
46
Investment Policy Statement
- not required but is good business - do not confuse with summary plan document (required by law) - does NOT note individual security selection criteria
47
IA has fiduciary duty
- to plan participants - IA provide plan participants of IPS
48
Summary Plan Documents
- Required by Plan Sponsor
49
Special Accounts
- JTWROS - find with spouses - TIC - Totten Trust - 529 plans
50
JTWROS
- avoids probate - passes to survivor
51
TIC
- non-spouses typically - probate - percentages pass through to that persons estate - undivided shares
52
Totten Trust (POD(same as TOD))
- retain access while alive - passes at death
53
529 Plans
- donor retains Control (UT/GMA is not like this) - grow and can be used tax free for education but tax deferred otherwise - may use to go back to school or for sons medical school > indicates desire for control
54
Coverdell
- max contribute $2k per child - can revoke, donor contains control
55
UTMA/UGMA
- one custodian to one child (1:1 is only way) - limit is unlimited (taxable after gift tax exclusion) - donor is responsible for gift tax - reregister in child’s name at age of majority - all gifts to UGMA/UTMA are irrevocable - child has control - UTMA is legal age up to 25
56
Trading Securities
- exchange - must be listed on exchange - over the counter
57
Trading Listed Securities
- specialist/ designated market market - at exchange on floor bringing buyer and seller together - customers buy at ask (offer) and sell at bid, always buy at higher price.
58
Over-the-Counter
- unlisted - trade through network of BDs - BDs register with FINRA to maintain market (updates prices through NASDAQ) - market maker (best describes as a BD who buys unlisted securities, OTC)
59
Market Order
- no specifications - immediate sell
60
Limit Orders
- specify a price to sell/buy
61
Stop Orders (if/then)
-if/then (preventative measure) Follow these 3 steps: 1. Does customer own/want to own? Own = sell, want to own = buy 2. Market attitude? Bearish or bullish 3. SL - CMV - BS BL - CMV - SS SL and BS are above CMV BL and SS are below CMV
62
Long Stock Hedge
- buy put - sell call
63
Short Stock Hedge
- buy call - sell put
64
Constraints
- personal values - taxes - time horizon - health changes - need for liquidity
65
Objectives
- preservation of capital - current income - education - retirement - risk tolerance - growth of capital - tax planning - speculation
66
Recommendations: Preservation of Capital
- Money Money funds and securities - certificates of deposits (CDs) - treasury securities
67
Recommendations: Current Income
- Bonds - bonds funds - Equity Income funds
68
Recommendations: Capital Appreciation
- common stock and common stock mutual funds - REITs and DPPs
69
Recommendations: Liquidity
- money market funds and securities - cash - demand deposits - treasury securities
70
Recommendations: Speculation
- DPPs - commodities - futures and options - high yield bonds - precious metals - sector funds
71
Recommendations: Tax Advantaged
- municipal bonds - municipal bond funds - tax advantaged DPPs

Series 65 - March 2024 (8 decks)

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