Code of Ethics and Professional Responsibility Principles
IOC FCPD International Olympic Comittee is Fair, Competent and Proficient Daily Integrity Objectivity Competency Fairness Confidentiality Professionalism Diligence
Rules of Conduct
RIPOOO
Rule 1 - Relationship with client (define)
Rule 2 - Information disclosed to prospective client
Rule 3 - Property of client
Rule 4- Obligation to client
Rule 5 - Obligation to employer
Rule 6- Obligations to CFP Board
Financial Planning Practice Standards
100- Establishing and defining the relationship with the client (Domain 1)
200 - Determining the clients personal and financial goals, needs and priorities (Domain 2)
300 - Analyzing and evaluating the clients financial status (Domain 3)
400-1 Identifying and evaluating planning alternatives (Domain 4) May consult others
400-2 Developing financial planning recommendations (Domain 4)
400-3 Presenting Financial Planning recommendations (Domain 5) Advantages/disadvantages
500 Implementing financial planning recommendations (Domain 6)
600 Defining monitoring responsibilities (Domain 7)
Disclosures in Writing
Parties to the agreement Date and duration Terms under which agreement can end Services to be provided Specific compensation arrangements Summary of conflicts of interest Area of expertise Contact Information
Annually there after:
Cost and compensation
other sources of comp paid to CFP or employer
Included in Brochure
Written disclosure to client detailing
-Advisory Service provided and fees
-Types of securities and investments
-Education and background of the Adviser
-Participation or interest in securities transactions
-MUST be given 48 hrs prior to entering into contract or at the time of contract but client has 5 days to “look and see”
ADVII
Notifying the board -contact info change or crime conviction
Contact info- 45 days email telephone physical address etc
Convicted of crime- 10 calendar days
*no misdemeanor traffic violations unless involve drugs and alcohol
Current Ratio
Current Ratio= Current Assets/Current Liabilities
Ability to meet short term obligations 1 or higher is good
(always use credit card debt even if paid off monthly)
(only use taxes when material says “taxes due” or “taxes payable”
(mortgage if say current amount due)
current assets can be converted to cash in 1yr or less
Housing Cost Ratio
aka Housing Expense Ratio (PITI)
Principal interest, taxes, insurance/ gross monthly income
< or = 28%
Debt to Income Ratio
Consumer and housing debt/ gross monthly income
< or = 36%
Consumer Debt Ratio
non housing monthly payments (no PITI) / NET monthly income
(not gross income like other ratios)
< or = 20%
FINRA Must be notified in writing…..
Must be notified in writing PROMPTLY if firm or advisor:
- violated securities law
- written customer complaint -theft, misappropriation or forgery
- defendant or respondent in any lawsuit alleging violation of Securities Act by regulatory authority
- indicted, convicted, or pleads guilty to criminal offense.
Education Funding Needs Analysis
- Determine the cost of the first year of college
- Determine the amount that must be available at 18 inflation adjusted
- Determine what is needed in lump sum now (PV beg or end) or payments deposited (PMT).
Coverdell ESA
$2000 per year per student by tax filling date
contribution not deductible/ grow tax deferred
distributions tax free qualified education expenses
student < or =18
Phaseout Single $95,000-$110,000
Married $190,000-$220,000
Can use for elementary and high school
broad range of expenses covered
funds must be used before 30 (30 day grace period)
can be rolled to another family member
generally considered assets of parent even if parent is not owner
tuition, fees, tutoring, special needs services, extended day programs, supplies, equipment, room and board, uniforms, transportation. Also computer, technology internet used by bene or bene’s family whole in school.
Kiddie Tax
Have more than $2100 of unearned investment income.
Child $1050 standard deduction, next $1050 taxed at 10%
Remainder at parents marginal rate (up to 39.6%)
*Thekiddietaxdoesnotapplytochildrenwho:
-are19to23andnotfull timestudents;
-providemorethan halfoftheirownsupportfrom
earnedincome;
-areover 24andstilldependentsoftheirparents;
-orunder 24butmarriedandfileajointtaxreturn.
Thesechildrenare alltaxedlikeadultsat
theirowntaxrate.
American Opportunity Tax Credit
ax credit for 100% of first $2000 and 25% of next $2000 of tuition, fees and course material ($2500max).
Phaseout S $80,000-$90,000
MFJ $160,000-$180,000
Conditions:
- First 4 years of post secondary education
- At least 1/2 time student
- Can’t be used with lifetime learning credit
- Expenses paid with grants and scholarships don’t qualify
- felony drug convictions restriction
- no room and board expenses
*New 2014 Allows above the line deduction alternative:
$4000 deduction for MAGI up to $65,000 S and $130,000 MFJ
$2000 deduction for MAGI up to $80,000 S and $160,000 MFJ
Lifetime Learning Credit
Per period, not per student (per taxpayer for all eligible students)
20% of first $10,000 ($2000 max)
Conditions:
- no particular course load
- does not need to be seeking a degree (can be for a class) grad or undergrad
- unlimited period
- no felony drug conviction restriction
- no room and board expenses
Phaseouts S $55,000-$65,000
MFJ $111,000-$131,000
*can be used with AOC as long as not on same student
Open Market Operations
Adjusted daily by Federal Reserve Trading Desk in NY
repurchase and reverse repurchase agreements with dealers
Repo- repurchase - Fed gives dealers money in exchange for pledge of gov securities (buy bonds) - Loosen
Reverse-repo - Fed give dealer pledge of gov securities in exchange for money(sell bonds) - Tighten
Reserve Requirements
Amount of money banks must hold in reserve from deposits (% must maintain in cash)
Increasing will tighten credit and increase interest rates
Decreasing will loosen credit and decrease interest rates
Fed rarely changes this rate
Discount Rate
Rate Fed charges member banks to borrow reserves.
Increasing discount rate will tighten credit
Decreasing discount rate will loosen credit
Feds Fund Rate
overnight bank to bank borrowing- set at auction
Excess Reserves
Money in excess of reserve requirement that banks hold at FED or central bank
Increase in excess reserve rate = more banks will hold onto money and less in economy…tighten
Decrease in excess reserve rate = more banks will less money, which increases money to lend. Loosen.
Prime Rate
The interest rate that commercial banks charge their most credit-worthy customers. Generally, a bank’s best customers consist of large corporations.
Largely determined by the federal funds rate, which is the overnight rate that banks use to lend to one another;
Directly affects the lending rates available for a mortgage, small business loan or personal loan.
Leading Economic Indicators
- Initial Claims for unemployment insurance
- New manufacturing orders
- New private housing units
- Stock Prices (500 common stocks)
- Index of consumer expectations
- Contracts/orders for plants/equipment
- Interest rate spread
- Money supply
- Average weekly hours for production manufacturing workers
- Vendor performance- % companies reporting slower deliveries
Coincident Indicators
- # employees on non-agricultural payrolls
- Personal Income (less transfer payment -ss, welfare)
- Industrial Production
Lagging Indicators
AKA; Confirming Indicators
- Average duration of unemployment
- Average prime rate changed by banks
- Commercial and industrial Loans Outstanding
- Ratio of consumer installment credit outstanding to income
- Change in CPI
Business Cycle
Movement in economic activity
Expansion (recovery) - Increasing GDP, interest rates and inflation. Productivity rising, labor cost falling. Activity expanding.
Peak- GDP at its highest. Inflation and interest rates peaking. Unemployment lowest. When business activity ages (public stops buying; they have what they need).
Contraction (recession) Slowing of GDP, decreasing interest rates and inflation. Unemployment increasing. Productivity falling, labor cost rising.
Trough - Public starts buying; unemployment at highest, interest rates, inflation and GDP lowest.
Durable Goods
A hard good that does not easily wear out - (perform well in recovery/expansion)
cars, appliances, home furnishings, photographic equipment, recreational goods, etc..
Consumer durables and capital goods cyclical and fluctuate directly with business cycle
Non- Durable Goods
Soft Goods or consumables - short life span or used once. “you always need them” Not affected by a recession.
cosmetics, food, fuel, office supplies, paper, personal products, plastic, clothing, footwear
Yield Curve
Shows the market rate of interest for bonds that have: different maturities (term to maturity) same credit ratings (bond quality) same tax status different yield to maturity (curve)
Normal: (positive slope) as maturities lengthen, yields increase.
Inverted: (negative slope) FED tightens short-term credit to slow economy - short term rates rise above long-term. Happens when economy is overheating.
Inflation
Rise in the price of goods and services
Too much money chasing too few goods
CPI- lagging indicator to inflation
PPI - Leading indicator it inflation
Deflation
Decline in the price of goods and services
Disinflation - slowing down of price increases
Individuals hold cash - can buy more goods and services at decreased prices.
Stagflation
slow economic growth
high unemployment
rising prices
Medicare Part A
Hospital Insurance
-65 or older/ or disabled receiving benefits for 2 years
-disabled widows of workers 50 or over
-benes 18 or older receiving benefits before 22
(disabled Part A and B)
Benefits
- Hospital deductibles 60/30/60 days max 150
- skilled nursing 100 days
- unlimited post hospital home health
- Hospice
- Patient pays first 3 pints of blood
Limitations
- Services provided outside us not covered (limited Canada, Mexico, Caribbean or US territorial waters)
- Secondary payer always
Medicare Part B
Voluntary
Monthly Premiums
80/20 no stop loss - deductible applies
Benefits
- Doctors Services
- Diagnostic tests, Radiology/pathology, mental illness, transfusions, PT/OT, Drugs and biologicals not self administered!!)
- Out Patient services for Dx and Tx illness or injury
- Unlimited home health
- Preventive care (free)
- Depression Screening, counseling alcohol, obesity, and behavioral therapy for CD
EXCLUDED dentures and dental glasses and hearing aids immunizations (other than flu shot) Prescription drugs
COBRA
EXEMPT- Small companies (fewer 20 employees 1/2 yr)
Plan Coverage
- > 20 employees more 1/2 previous yr
- full and part time employees count (part time count as fraction worked)
Events
- Voluntary/Involuntary termination or move to 1/2 time— employee and dependents - covered up to 18 months
- Death divorce legal separation —spouse and dependents up to 36 months. divorce-children still on plan..they are not divorced
- Loss of dependent status —children up to 36 mo
- Disability - 29 months
* if disabled within 60 days of triggering event coverage extended 11 mo (29). Continuation is not automatic…must be elected
May be 102% of actual ins (2% employer admin fee)
HSA
Eligibility
Covered under High Deductible plan
No other health plans
Min and Max OOP
S$1300-$6550
F$2600-$13100
Contributions deductible (above the line adjustment)
$3350 S $6750 F
Grow tax deferred
Qualified distributions tax free (20% penalty)
Employer Contributions tax deductible no income to employee
$1000 Catch up over 50
Ordinary income after 65 for other than med expense
Qualified Expenses MD visits SX RX drugs (OTC and Vit not covered unless insulin) Acupuncture/Chiro Eye Hearing Dental Alcohol and Drug LTC
No payment for other ins except -COBRA -Health while on unemployment -Part A/B premiums and out of pocket -Medicare HMO -LTC ins No Medigap
Insurable Risk
- Large number of homogeneous (not heterogenous) exposure units
- Definite and measurable (Pure, Objective)
- Accidental or fortuitous (happening by accident or chance rather than design)
- Can’t be catastrophic to insurance co
No moral hazards
Affordable premiums
Contract Requirements
- Offer and acceptance (signing application and paying or premium)
- Consideration paid (money, services or property)
- Legal Capacity - 18; competent; sober (can be voided by incompetent, minor… Minor can contract for necessities.
- Lawful purpose
Contract characteristics
Unilateral - only one party makes a binding promise (insurer)
Adhesion- accepted as is or not at all (take it or leave it) courts rule in favor of insured)
Waiver Provision - Provision of contract- explains who may alter…accepted as is or not at all.
Aleatory - money exchanged may be unequal. (Small premium, large benefit)
Recission - null from the beginning due to misrepresentation; fraud; concealment; or mistake of material fact.
Reformation- contract is revised to express original intent of both parties
Collateral Source Rule -measure of damage may not be mitigated by payments received from other sources.
Subrogation - insurer take over legal right its insured has against responsible third party (car claim)
Parts of Insurance Contract
Declaration Page: specific person, property, or activity being insured.
Definitions: Key terms
Insuring Agreements: Basic promises of the insurance co
Exclusions: when the insurer will not pay
Conditions: duties of both parties in detail
Tort
Wrongful act other than a breach of contract
Intentional Tort - Deliberate; Infringement of rights (slander, libel, assult)
Unintentional Tort - Negligence/ carelessness
Attractive nuisance - pool
Negligence per se - violation of a statute (failing to stop at cross walk)
Strict Liability - product liability (faulty tires)
Absolute Liability - keeping wild animals; workers comp
Vicarious Liability - Principle Responsible for Agents respondeat superior
Contributory neglagence
Negligence on behalf of the injured party that defeats the claim. Jaywalking, drunk driving…
Comparative negligence
Any degree of negligence by injured party that doesn’t defeat the claim but used to mitigate damages.
Stop Loss Coverage
Used by small companies. Sell insure up to a certain amount and acquire insurance for larger amounts.
AKA:
Partially self-funded plan or cash flow plan
Business Owners Policy BOP
Small to medium sized business real property contents liability medical
Profession liability is excluded
Premium IS deductible
Other Business Insurances
Commercial Umbrella Policy - exclude E&O, malpractice, and professional mistake…premium is deductible
Professional Liability - failure to use care and degree of skill required. Premium is deductible
Malpractice Insurance - standard of conduct results in bodily injury
Errors and Omissions E&O - standard of conduct results in property damage. Includes loss of $ (lawyers, stock brokers, CFP) Protects directors and officers of companies
Basic Perils
VVL WEATHR FS
vehicles
vandalism
lightening
windstorm explosion aircraft theft hail riot
fire
smoke
Broad Named Perils
RAFF
All Basic and :
Rupture of a system
Artificially generated electricity
Falling objects 9ice, snow, sleet)
Freezing pipes
Exclusions to Broad Perils
OPEN WIF
Ordinance of Law - construction or demolition
Power Failure- power plant failure
Earth Movement - landslide earthquake
Neglect- must make reasonable means to save and mitigate loss
War - including nuclear hazard (power plant)
Intentional Acts - burning down home
Flood - including water underground and backing up from sewer
Property Loss Calculation
nsurance < %80 of dwelling cost, insurer pays greater of:
1. ACV (not applicable for >%80) (depreciation info must be given)
2. Replacement Cost
((Insurance carried/insurance required) x loss) - deductible = apportion of ins co
Replacement cost x coinsurance = insurance required
- homeowners replacement value always 80%
- commercial can be 90%
- always use 80% if none given