General Principles Flashcards
Use of Initials:
Registered Investment Advisor and
Certified Financial Planner
- RIA (prohibited)
- C.F.P. (prohibited)
- Registered Investment Advisor (ok)
- CFP® (ok)
- CERTIFIED FINANCIAL PLANNER™ (ok)
When can a CFP® licensee release a client file to other persons?
- When an attorney or court subpoenas the file
- At the client’s request
- As a defense against charges of wrongdoing
Determining an Emergency Fund
Use 3 or 6 months if…
3 months:
- single with 2nd source of income
- Married, both work
- Married, only 1 spouse works, but have a 2nd source of income
6 months:
- single wage earner
- married, only 1 spouse works
Debt Management:
Housing Expenses (PITI)
Total monthly debt
Consumer debt
<= 28% of gross income (PITI)
<= 36% of gross income (total monthly debt)
<=20% of NET income (consumer debt)
Current Ratio
Current assets / current liabilities
Current Assets
- cash equivalents
- marketable securities
- accounts receivable
- inventory
Current Liabilities
- accounts payable
- credit card debt
- taxes payable
Securities Act of 1933
Required that NEW issues purchasers be provided with a detailed prospectus before a purchase was completed.
Securities Act of 1934
Passed to regulate the SECONDARY market (trading of issued securities). This act also created the SEC to enforce securities laws.
Investment Company Act of 1940
Authorized the SEC to regulate unit investment Trusts (UITs) and managed investment companies (closed-end and open-end funds) plus variable products.
Security Investors Protection Act of 1970
Established the SIPC to supervise securities firms that get into financial difficulties. The SIPC insures investors against losses arising from the failure of a brokerage firm.
College Funding - Tax credit and deduction opportunities
Phase outs given (married filing jointly 2023):
- Educational Bonds ($137,800 - $167,800)
- Lifetime ($160K - $180K)
- American Opportunity ($160K - $180K)
Deductible Housing Interest
- All mortgages cannot exceed $750K combined (MFJ) or $375K (MFS)
- Home equity interest is only deductible if used for home renovation/improvement.
529 Keys
- Lump sum gift up to $85,000 (2023)
- Donor can retain control
- K-12 for tuition allowed up to $10,000/yr
- Can be used to pay student loans ($10,000/student over lifetime)
Federal Reserve Open Market Operations
- Repo: Fed buys securities - expansionary / easy money policy
- Reverse Repo: Fed sells securities - contractionary/tight money policy
Gross Domestic Product (GDP)
- total dollar value of all goods and services produced within the US ONLY
- GDP counts economic activity without regard to yearly price fluctuations
- does NOT include any income generated outside the U.S. or adjustments for foreign currencies
Business Cycle
- Expansion
- Peak (business activity ages)
- Recession / Contraction
- Trough
- Recovery / Expansion
Recession vs. Depression
- Recession: 2 consecutive quarters of economic decline (negative GDP)
- Depression: 6 consecutive quarters of economic decline (negative GDP)
Exceptions to filing as an Investment Advisor
- Banks that are not also investment companies
- Lawyers, accountants, teachers - advice is incidental
- Broker/dealers or registered reps whose performance is incidental and who get no special compensation for advice
- Publishers of bona fide newspapers
- Those who give advice solely relating to U.S. government securities
Exemptions to filing as an Investment Advisor
- advisor whose only clients are insurance companies
* family office
How does an Investment Advisor register with the SEC?
- Initially, files the ADV Part I and II with the SEC
- Pays a minimum filing fee of $150
- RIA must submit Part I of ADV and Schedule I annually
Financial Industry Regulatory Authority (FINRA) - Initial registration process
- the individual associates with a broker dealer
- registers w/ FINRA thru broker/dealer on Form U-4
- takes and passes appropriate exam
- is issued a CRD Number (Central Registration System)
FINRA Key Examinations/Licenses
- Series 6: mutual funds, UITs and variables (only new UITs)
- Series 7: general securities (UITs on the secondary market)
- Series 63: Uniform Securities Agent State Law Exam
- Series 65: Uniform Investment Advisor Law Exam
- Series 66: Uniform Combined State Law Exam (combines 63 and 65 exams)
Basic components of a legal contract as applied to insurance
- offer and acceptance: Two parties: offeror and acceptor
- consideration: something of value (money)
- legal object: legal in purpose
- competent parties: principal must have legal capacity to execute contracts.
4a. intoxicated adults have limited or no capacity to execute contracts
4b. minors have capacity to contract for necessities (food, clothing, sheltor) only - legal form: contract must meet requirements
