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Fundementals Flashcards

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1
Q

Which of the following is not an element of the CFP Board Code of Ethics?

Exercise Due Care
Manage Conflicts of Interest
Maintain Confidentiality
Act with Knowledge and Skill

A

CFP professional’s Duties Owed to Clients states to make recommendations with skill and care.

Act with Knowledge and Skill is not an element of the Code of Ethics.

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2
Q

Which of the following is not an element of the CFP Board Code of Ethics?

Act with Honesty
Act with Integrity
Act with Accuracy
Act with Competence

A

Accuracy is not an element of the CFP Board Code of Ethics.

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3
Q

When is a CFP held to the CFP Code of Ethics?

  1. When Recommending Financial Assets?
  2. When Practicing Financial Planning?
A

A CFP is held to the CFP Code of Ethics when:

Recommending Financial Assets
When Practicing Financial Planning

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4
Q

When must the CFP act as a fiduciary?

A

At all times when providing financial advice.

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5
Q

What are the elements of the CFP Board requirement of Fiduciary Duty?

A

Duty of Loyalty
Duty of Care
Duty to Follow Client Instructions

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6
Q

How would you describe the Duty of Integrity?

A

Integrity requires a CFP to be honest and outstanding in their professional obligations. A CFP professional is allowed innocent, unintentional mistakes. They must disclose facts to the client. A client may be defined as a non-person entity.

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7
Q

The Duty requiring a CFP to reasonably investigate financial products recommended to clients is an example of what?

A

To act with the Client’s best interest in mind.

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8
Q

May a CFP share client and account details in the course of ordinary business between partner or affiliated firms?

A

No.

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9
Q

Describe the “presumed list” for purposes of determining fitness to practice.

A

Two or more personal or business bankruptcies

Revocation of license for nonadmin reasons

Suspended as a financial professional license for nonadmin reasons

Felony conviction for nonviolent crimes (including perjury) within last five years

Felony conviction for violent crimes

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10
Q

Describe the “always” list” for purposes of determining fitness to practice.

A

Felony conviction for theft, embezzlement or other financially based crimes

Felony conviction for tax fraud or other tax-related crimes

Revocation of financial professional license for nonadmin purposes

Felony conviction for any degree of murder or rape

Felony conviction for any other violent crimes with the last five years.

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11
Q

What are some reasons a persons certification may be delayed or denied?

A

Customer complaints

Arbitrations and other civil proceedings

Felony conviction for any nonviolent crimes more than five years ago

Misdemeanors

Employer reviews and terminations

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12
Q

What are the steps in the process to review transgressions that fall under the “presumption” list?

A

Sign a petition giving the Board jurisdiction over the matter

Pay a fee

Staff will review

if does not fall within the presumption list, then the person will be so notified

if it does , the staff will request relevant documents from the individual

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13
Q

After the Disciplinary and Ethics Commission (“DEC”) reviews a petition for reconsideration, what are the the possible decisions?

A

Permit

Deny - but may be allowed to reapply after some time

Appeals are directed to the Appeals Committee of the Board of Directors.

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14
Q

As a CFP, what should he do if a client implies he is unable to confide certain elements of their trade or business?

A

That them for their time, close up the interview and do not engage them as a client.

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15
Q

What disclosure must a CFP provide to a client asking for comprehensive services?

A

Terms of their engagement including the scope of the engagement with any limitations.

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16
Q

What is a CFPs obligations to the CFP Board and clients if the CFP’s employer falsely advertises?

A

Not required to notify the CFP Board

Must correct firm misrepresentations to clients

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17
Q

To whom does the code of standards apply to?

A

Firms themselves are not required to abide by the Standards, as CFP Board certifies individuals, not firms.

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18
Q

Who is responsible for monitoring if such language is not included in the engagement letter?

A

The CFP.

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19
Q

What is the brochure rule?

A

Advisory Services that are provided and the fees pertaining to those services

Types of securities that are included in investments

Education background

Participation/interest in securities transactions

Full disclosure of any conflicts of interest

Must be given information prior or at time contract is signed.

Summary of material changes must be provided at least annually.

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20
Q

Who must the RIA register with?

A

< $100 million - with the state

> $110 million - with SEC

if between, may choose

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21
Q

What is the definition of an advisor?

A

Someone who is in the business of providing advice about securities for compensation.

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22
Q

What is on Form ADV - Part 1?

A

The investment business, ownership, clients, employees, business practices, affiliations and disciplinary events of the adviser or its employees.

Must be filed with 90 days of fiscal year end.

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23
Q

What is on Form ADV - Part 2?

A

The fees, compensation, education, investment objectives, conflicts of interest and the background of advisory personnel.

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24
Q

Who is Excepted to Register with the SEC?

A

TABLEs where investment advise is incidental

Banks and holding companies that are not investment companies

Publishers of bona fide newspapers

Limited to securities guaranteed by the US

Others not under the intent of the SEC

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25
Who is Exempted from Registration?
VIPS are SaFE from exemptions: Venture Capital, Insurance, Private funds under $150 million, home State, Foreign advisors and securities not on a national exchange.
26
What is a Series 6?
Mutual Funds, UITs, variable life insurance and variable annuities
27
What is a series 7?
Can sell everything except commodities and futures.
28
What form does a person use to register with FINRA?
Form U-4?
29
What is the definition of an accredited investor?
Have $1 million net worth exclusive of personal residence (reassessed every 4 years), OR Have a $200k income if single and $300k if married
30
What is consistent with the following three scenarios? Consumer income increases Government lowers taxes Consumers lower their savings rate
Will lead to increased spending. The demand curve shifts up and to the right
31
What causes the supply curve to move right or left?
Change in Technology, Competition or anything else except price.
32
What is a substitute?
Products that serve a similar purpose. A price change in one product changes the quantity demanded of another product.
33
What is a complement?
Products that are consumed jointly. A price change in one product changes the quantity demanded of another product.
34
What is elastic demand?
Quantity demands respond significantly to changes in price. Normally horizontal and sloping down to the right.
35
What is inelastic demand?
Quantity demanded changes very little to changes in price. Normally vertical sloping down and to the right.
36
What are the components of the business life cycle?
Expansion - Peak - Recession - Trough Note: Expansion and Recession will be trending language while Peak and Trough will be definite language. Inflation - Interest Rates - Unemployment - GDP
37
What are the investment considerations during the business cycle?
Expansion - short duration bonds and equities Peak - bonds, preferred stock, high-duration should be sold. Equities and hard assets do well. Contraction/Recession - Sell equities and hard assets. Short term cash and bonds. Trough - High duration bonds. Stock purchases considered if valuation seem appropriate.
38
What is the formula for inflation?
(this year price - last year price)/last year price
39
What happens when the Federal Reserve increases the Reserve Requirement?
If the Fed Reserve increases the requirement, there is less money to lend, so the interest rate goes up
40
What does the Federal Reserve do?
Maintain Long Term Economic Growth Maintain Price Levels supported by the economy Maintain full employment
41
What are the four tools available to the Federal Reserve?
Reserve Requirement Discount Rate Open Market Operations Excess Reserves
42
What can the Federal Reserve do to implement a Contractionary (inflation too hight) policy?
Increase the Reserve Requirement Increase the discount rate Sell treasuries on the open market Increase the Excess Reserve Rate
43
What are the three tools available to Congress to influence fiscal policy?
Taxation Spending Debt Management
44
What is the maximum a person must pay if their credit card is lost and the theft is timely reported?
$50 or the amount spent, which ever is less.
45
What is exempt from bankruptcy?
Homestead, life insurance and qualified plans
46
What are some debts that are not forgiven?
Student debt 3 years of back taxes Alimony and Child Support Monies owed due to malicious acts Debts related to fraud
47
What is the current exemption amounts for qualified plans?
Traditional and Roth, up to $1,362,800 Rollover - unlimited
48
What are some examples to build trust?
Frequent communication and disclosure Provide the client with a formal written document explaining the data gathering process.
49
When is a client's Life Cycle Position relevant?
When determining a client's goals, needs, strengths and weaknesses.
50
What can be used to measure a client's attitudes and beliefs?
Risk Tolerance Levels Savings and Consumption Habits Views about employment, retirement and leisure time
51
What is the formula for the emergency fund?
Current Assets over Monthly Nondiscretionary Expenses 3 - 6 months of nondiscretionary expenses in an emergency fund.
52
What is the current ratio?
Current Assets over Current Liabilities
53
If asked to solve for increase in liabilities, how might one use the balance sheet to determine?
Assets - Liabilities = Net Worth Subtract the knowns What are we left with?
54
What are some limitations of a balance sheet?
Does not show why the asset changed in value Why or how a liability appeared Does not explain why there was a change in net worth
55
What are some limitations of the income statement?
Does not consider employer contributions to a retirement account Does not capture the receipt or giving of gifts and inheritances.
56
What is a limitation to the financial statement analysis?
Financial Statements only give historical information. They are not predictive in nature.
57
What is the 28% Housing Ratio?
(P + I + T + I) / Gross Monthly Income
58
What is the 36% Housing Ratio?
(P + I + T + I + All other recurring debt payments) / Gross Monthly Income
59
Are utilities or other insurance payments included in the 36% Housing Ratio?
No.
60
What would a 2/6 ARM mean?
A 2/6 ARM means the interest rate cannot increase more than 2% per year or 6% during the term of the loan. Max? Beginning + 2 + 2 + 2 = Max Interest Rate.
61
Assuming a client qualifies for the purchase of a property and is determining how to structure, what are some considerations?
Estimated length of ownership Cash currently available
62
What is the savings ratio?
Savings Ratio = (Employee + Employer) / Annual Gross Income
63
What is the formula for ROI?
(Ending - Beginning - Savings - Gift) / (Average of Ending and Beginning)
64
At what value are assets valued at on a balance sheet?
Fair Market Value
65
Assume a client sold an asset, what other liability should be recorded on the client's financials?
A reserve liability account for taxes owed on the sale of assets should be recorded.
66
What are the types of financial aid programs to consider?
Pell Grants - Need Based Stafford Loan Subsidized - Need Based Unsubsidized - Not Need Based PLUS - Parent Loans for Undergrad Students - Not Need Based (based on parent's credit score) PLUS Direct - For Grad School - Not Need Based Perkins (For lowed Expected Family Contribution) - Need Based (expired in 2017) Campus Based Financial Aid - Low EFC - Need Based
67
What are the Tax Advantaged Plans for Education?
Prepaid Tuition 529 Plans (Remember the $150,000 with gift splitting rule) 529A Able Plans Coverdale Roth IRA EE Bonds UGMA and UTMA (may include real estate)
68
What type of plans for education allow for secondary education?
529 and Coverdale
69
What are the credits available to people for education purposes?
Lifetime Learning - limited to $2,000 per family (20% of each expense) AOTC (post secondary) - limited to $2,500 per student - dollar for dollar

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