General Principles Flashcards
1
Q
How many days from notice do you have to appeal a CFP DEC ruling?
A
30 DAYS
- Must send appeal via certified mail -
2
Q
CFP Reporting Exceptions
A
- SEC/FINRA fine <$2.5k (provided no contest)
- Settlement/arbitration <$15k
- Customer complaint arbitration <$5k
- Sales practice settlement <$15k
3
Q
CFP Felony Definition
A
≥ $1k Fine
≥ 1yr Prison
4
Q
Securities Act 1933
A
- IPO
- Prospectus
- Prevention of fraud
5
Q
Securities Act 1934
A
Regulates SEC-ondary market (trading SEC-urities)
Created the SEC
6
Q
When can you share client info under the Confidentiality Standard?
A
- At client’s instruction
- In compliance with the law
- Within your firm through course of business
- In defense of accusation of wrongdoing
- By request of CFP board
7
Q
Competence Standard
A
Know your stuff.
If you don’t know something, don’t do it. Communicate that you don’t know it. Find the person who knows it.
8
Q
What are the financial planning steps?
A
- Understand client personal/financial circumstances
- Identify/Select goals
- Analyze current course of action
- Develop recommendations
- Present recommendations
- Implement recommendations
- Monitor recommendations
9
Q
Money Status
A
Money = Self-worth
10
Q
Money Worship
A
Money = Happiness
11
Q
Money Avoidance
A
Money = Evil
Wealth = Greed
12
Q
Loss Aversion
(Prospect Theory is similar)
A
Gain = x1 happy
Loss = x2.5 sad
We avoid loss more than we pursue gain!
13
Q
Herd Behavior
A
FOMO
Example: Crypto bandwagon
14
Q
Financial Enmeshment
A
Unhealthy parent/child $ relationship
- Engaging with kids about $ before they’re ready (too young)
- Involvement with kids about $ when they should be on their own (too old)
15
Q
Ideal Total Monthly Debt Ratio
A
≤ 36% Gross income
16
Q
Ideal PITI Monthly Debt Ratio
A
≤ 28% Gross income
*Look for footnotes in case studies defining HO Insurance amt!
17
Q
Emergency Cash Minimums
A
3mo. = Two Income Sources
6mo. = One Income Source*
*Includes two income sources with large disparity
18
Q
Emergency Fund Assets
A
- Checking acct. (- 1mo. necessary spending)
- Savings acct.
- Gov’t. money market
- CD ≤ 90 day maturity
- CD Ladder ≤ 6 months
19
Q
College Funding Step 1 Calc
A
“Inflate” FV
PV = Current cost of college
N = Years until college start
I = Education cost inflation rate
Solve for = FV
20
Q
College Funding Step 2 Calc
A
“I Need” PV
PMT = Step 1 answer
N = Years of college
I = Real ROR
Solve for = PV
Real ROR: [(1+ rp)/(1+ri)-1] x 100
21
Q
College Funding Step 3 Calc
A
“Invest” PMT or PV
FV = Step 2 answer
N = Year until college start
I = Investment return*
Lump sum → PV
Series → PMT
*Inflation adjustment accounted for in FV
22
Q
Coverdell Withdrawals
A
- Must distribute before 30yo
- Tax-free distribution if below MAGI phaseout
- Qualified Expense:
Tuition, Room & Board, Supplies - K-12: Tutoring, uniforms, day programs
23
Q
Coverdell Contributions
A
- Maximum $2,000 per student/yr
- NON-DEDUCTIBLE
- Contribution subject to MAGI phaseout
24
Q
UTMA Keys
A
- Cash, Investments, Real Estate, LPs
- Transfer rights up to 25yo
- Gift of present interest
- Kiddie Tax
- Asset owned/counted by child
25
UGMA Keys
- Cash, Investments
- Transfer age of majority (18 - 21yo)
- Gift of present interest
- Kiddie Tax
- Asset owned/counted by child
26
EE Bond
- Owned by parent; NOT issued to child
- Interest fed tax-free
- Subject to phaseout
- Qualified expense: Tuition/Fees
- NO ROOM/BOARD
27
College Funding Years Options
- EE Bonds
- UGMA
- UTMA
- Coverdell
- 529
28
College Years Grants/Loans
(Poor-ish)
Poor = <$70k income
- Pell grant
- Supplemental Education Opportunity
- Subsidized Stafford Loan
29
College Years Grants/Loans
(Wealthy)
PLUS Loan
Wealthy = >$70k income
30
College Tax Credits/Distribution/Withdrawal Options
CAN ONLY USE ONE
- American Opportunity Credit
- Lifetime Limited Learning Credit
- Coverdell distribution
- 529 distribution
31
American Opportunity Credit Keys
First four years of school ONLY
- $2,500 Max. credit PER STUDENT
- 1st $2,000 of expense, dollar for dollar credit
- Next $2,000 of expense, 25%
- Partial refund available (up to $1000)
- No felony drug conviction
- NO ROOM/BOARD
32
Lifetime Learning Credit
- $2,000 Max. credit PER RETURN
- 20% of 1st $10,000 of expense
- Non-refundable
- ANY higher learning (undergrad, grad, continuing ed)
- NO ROOM/BOARD
33
Qualified Expenses for American Opportunity Credit and Lifetime Learning Credit
- Tuition
- Fees
- Books
- Supplies
- Equipment
34
Expected Family Contribution (FEC) %
Assets + Income
- Parental assets x 5.64%
- Child assets x 20%
Excluded: IRAs, Life Insurance cash value
35
Fiscal Policy v Monetary Policy
Fiscal Policy = Set by Congress
- Tax & Spending
Monetary Policy = FED
- Supply of $ in the system
36
Fed Open Market Ops. Impact
"BEST"
Buying = Expand
Selling = Tighten
37
Fed Action Steps
Discount Rate: ↑ Tighten ↓ Expand
Open Mkt. Ops: Buy = Expand Sell = Tighten
Reserve Req: ↑ Tighten ↓ Expand
Margin Rates: ↑ Tighten ↓ Expand
38
Coincident Indicators
- # Employees on Non-farm payroll
- Personal Income
- Industrial Production
39
Leading Economic Indicators
- Unemployment Claims
- New Manufacturing Orders
- New homes built
- SP 500
- Consumer expectations
40
CPI v PPI
CPI - Lagging indicator
PPI - Leading indicator
- Does not include services
41
Durable v Non-durable goods
Durable = Cyclical
- Underperform in down cycle
- Capital goods too
Non-durable = Stable
- People always need them
42
Series 7
- All Investments
EXCEPT:
- Commodities
- Some options
43
Series 65
RIA State Requirement
44
Series 66
Combined 63 & 65
- 63 = Lic. in state other than residence
- 65 = RIA state req.
45
FINRA Registration Steps
- Connect with BD
- File form U-4 with FINRA
- Pass exams
- Obtain CRD#
46
Series 63
License in state other than residence
47
Investment Advisor Definiton
“ABC”
1. Give Advice
-and-
2. In the Business of giving advice
-and-
3. Compensated for giving advice
MUST BE ALL THREE
48
Investment Advisor Filing Exemptions
Teacher
Accountants
Banks
Lawyers
Engineers
49
Non-cancelable Bankruptcy Debt
- Student loans
- Gov't loans
- Child support
- Alimony
- Wage withholdings
- FICA
- Income tax
50
What acts require FINRA notification?
MUST BE WRITTEN NOTICE
- Violate securities law
- Written customer complaint regarding: theft, misappropriation, forgery
- Named as a defendant
- Indictment, Conviction, Guilty plea for criminal offense
51
Series 6
- Mutual Funds
- Primary UITs
- Variable Life Insurance
- Variable Annuities
52
RIA Registration Exemption
- Advisor working with Insurance Co. only
- Family Office
- B/D with no comp. for advice
53
CFP Code of Ethics
1. Act with integrity, honesty, competence, diligence
2. Client's best interest
3. Due Care
4. Avoid/Disclose conflict of interest
5. Client confidentiality
6. Don't tarnish the CFP board
54
CFP Nouns
Certificant
Practitioner
Professional
Certification
Mark
Exam
55
SEC AUM Registration Requirements for RIAs
<$100mil. AUM = Reg. with state of domicile
$110mil. AUM = MUST register with SEC
56
Rule of thumb CFP Planning Priorities
1. Guardianship/Wills
2. 911 Cash
3. Pay down debt
57
Property exempt from bankruptcy creditor claims
- Homestead
- Limited personal property/motor vehicle equity
- Head of family wages
- ERISA plans
- Cash value in LI/Annuity proceeds
58
SEC Reg. S-P
Disclosure to clients regarding privacy policies and procedures.
Protection of client information.
59
Loss Aversion/Risk Taking
Gains = Risk Averse (Don't want to lose a gain)
Loss = Risk On (Don't want to realize a loss)
60
Inappropriate Extrapolation
Assuming recent events will continue indefinitely
61
Related Party Definition
Person, Business, Trust who's sales-related compensation may directly/indirectly benefit the CFP
62
Current Ratio Formula
Current Assets / Current Liabilities
Current Assets:
Cash/Cash Equivalent
Marketable securities
Accounts Receivable
Inventory
Current Liabilities:
Accounts Payable
CC Debt
Taxes Payable
63
Unequal Cash Flow PV Calc
0, CFj
Periodic Cash Flow (±) CFj
Req. ROR, I/YR
Gold, NPV
First entry is always 0 if no investment amount is given
64
PV v. NPV
PV = Present value of future money
NPV = Total present value of future cash flow (-) Initial investment
65
NPV Keys
Positive NPV = Earn above req. ROR
Negative NPV = Earn below req. ROR
NPV of 0 = Earn at req. ROR
66
Internal Rate of Return Calc
"Dollar-weighted return/IRR"
Initial investment (-) CFj
Period cash flows (±) CFj
Gold, IRR/YR
67
Unequal Cash Flow NPV Calc
Initial Investment (-) CFj
Periodic Cash Flow (±) CFj
Req. ROR, I/YR
Gold, NPV
68
Amortization Calc
(END)(12P/YR)
N = Term years
I = Interest rate
PV = (+) Mortgage
FV = 0
Solve, PMT
1, Input, number of pay periods
Gold, AMORT
69
Material changes/updates to disciplinary actions/bankruptcy must be disclosed to client within ___ days
90
70
529 tax/penalty
Earnings = ordinary inc. + 10% penalty
Contribution = NO tax/penalty, return of basis
