General Principles Flashcards
(27 cards)
Info gathered in planning process in regard to client’s life insurance contracts?
Premium and dividend options
Policy loans
Ownership
Not property insured (that’s property and casualty insurance) - RTFQ
What do if client wants retirement projection using unrealistic retirement income payout causing need to utilize very high return assumptions?
Run the projections using only conventionally accepted return assumptions and not also the necessary assumptions to meet his required retirement income payout
Learning about clients health helps financial planner to determine which of following: retirement needs, life insurance needs, disability needs and/or estate tax consequences?
All of these - health status effects retirement, life insurance and disability needs. The client’s life expectancy would also impact rotate tax consequences
CFP professional recommends obtain disability insurance and accepting level of investment risk to enhance chances of a binding mutually acceptable goals - what duties must fulfill relative to recommendations?
Explain how disability insurance and increasing investment risk leaves client with financial protection if either spouse becomes disabled and why need higher investment return and therefore increase risk in current portfolio
Present specific recommendations of disability insurance policies and carriers and point out pros and cons
$10k tuition paid with parents MFJ $160k MAGI - which tax credit choose between Coverdell ESA, AOC, LTC or UTMA gift
American Opportunity Act versus Lifetime learning credit because higher credit amount ($2500 vs $2000)
Not Coverdell or UTMA because they are not credits
Steps of college funding calculations
1) Determine cost of college year 1 (end mode) - solve for FV with cost in today’s dollars being PV (negative #) and i = inflation rate
2) Total amount needed for college at age 18 (beg mode) - solve for PV with i = real rate of return ((1+after tax return/1+inflation rate) - 1) *100; FV from #1 is PMT (negative #) and N = # yrs of payments/college
3) Amount need to save today (end mode) - solve for PV; PV from #2 is FV
OR
Amount need to save at beginning or end of each year (beg or end mode) - solve for PMT; PV from #2 is FV
What does Investment Company Act of 1940 regulate?
Authorized SEC to regulate mutual funds
The Investment Advisers Act of 1940 covers registration of firms or people advising others not Investment Company Act of 1940
What agency regulates brokerage companies?
FINRA - the SEC regulates them through FINRA
Auto accident or age discrimination - which qualifies for compensatory damages?
Age discrimination. The auto accident itself does not qualify, but medical expenses and lost wages resulting from it would
Exception to tax treatment of punitive damages
Punitive damages are taxable except in case of wrongful death
Tax treatment of lottery winnings as annuity instead of lump sum
If within 60 days of winning and annuity paid out over at least 10 years, payouts taxed as received.
Otherwise full value of winnings taxable in year 1st received any money
Splitting the winnings with someone else has no effect on this
Recession vs Depression
Recession - at least 2 consecutive quarters of decline in GDP
Depression - 6 quarters of negative GDP
Definition of GDP
Value of all final goods AND services newly produced within country’s borders
Real GDP is measured in constant dollars not nominal GDP
Which of following may be used to access home equity?
Reverse mtg
Home equity loan
Sale of home
Refinance of home mtg
All of these not just reverse mtg and home equity loan
What does a pro forma statement show?
It projects the expected results of the next year or longer but the sources and amounts of gross income received
Term that best describes obligation of agent to principal
Loyalty not implied - agent must be loyal to company (express) since legal representative of the company
Can you sell individual securities with a series 6 license?
No, need a series 7 license
ADV Part 1 must include:
Applicant business address
Compensation
Background of client
Applicant business background
Part 1 includes business address and background
Part 2 spells out compensation arrangements
If obtain a mortgage on new home, how transaction reflected on financial statement?
Both assets and liabilities increase while net worth remains unchanged
CFP certification marks requirements
CFP with TM symbol not acceptable
The CFP initials should always be used with one of board’s approved nouns, such as professional (CFP professional)
C.F.P. - should never include periods
CERTIFIED FINANCIAL PLANNER - when spelled out should be all capitalized
Tax treatment of lottery winnings
Always taxable whether lump sum or installments over time
Commingling of funds - what’s prohibited and acceptable between firm and client and among clients
CFP certificant can’t commingle client money or property with firm money or property
Client funds can be commingled in common client investment account
2 step mortgage calculation problem where refi and figuring out new monthly payment
If remaining mortgage principal appears in financial statement don’t need to calculate step one to determine that - can go right to step 2
Remaining balance is negative number for PV
If points paid and not part of refi nut need to add those to balance
