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Flashcards in General Principles Deck (37):
1

What are the steps of the financial planning process? (EGPRIM)

1) ESTABLISHING the relationship
2) GATHERING/GOALS
3) PROCESSING/Analyzing
4) RECOMMENDING
5) IMPLEMENTING
6) MONITORING

EGPRIM

2

The Seven Principles of The Code of Ethics

1) Integrity
2) Objectivity
3) Competence
4) Fairness
5) Confidentiality
6) Professionalism
7) Diligence

3

How many hours of continuing education are needed during a 2-year reporting period?

30

4

What are the First 3 Rules of Conduct? (RIP)

1) Defining the RELATIONSHIP with prospect or client

2) INFORMATION disclosed to prospective client

3) PROPERTY of the prospect or client
-----3.1) Disclosure of client documents/information
-----3.9) Don't commingle client funds with funds of the firm, but CAN be commingled in a common investment account

5

What are the last 3 Rules of Conduct? (OP, OE, OC)

4) Obligations to Prospective clients

5) Obligations to Employers

6) Obligations to CFP Board
-----6.1) Rules of proper CFP marks
-----6.3) Notify within 45 days when contact info changes
-----6.4) Notify within 10 or 30 days when convicted of a crime

6

Practice Standard 100

Establishing and defining the relationship with the client

7

Practice Standard 200

Determining a client's personal and financial goals

8

Practice Standard 300

Analyzing and evaluating the client's financial status

9

Practice Standard 400-1, 400-2, 400-3 (IDP)

400-1) Identifying and evaluating financial planning alternatives

400-2) Developing the financial planning recommendations

400-3) Presenting the financial planning recommendations

10

Practice Standard 500-1, 500-2

500-1) Agreeing on implementation responsibilities

500-2) Selecting Products and services for implementation

11

Practice Standard 600

Defining monitoring responsibilities

12

When should a financial plan be reviewed/monitored?

On a mutually agreed upon frequency (Practice Standard 600)

13

When should a client buy a home and when should they lease or rent?

1) BUY = if they want to itemize their taxes for mortgage interest and property taxes, and if they want the protection on capital gains if they sell the home after many years. The higher your tax bracket, the greater the advantage of buying a home.

2) LEASE = if the rent is less than a mortgage payment and they don't have much money yet, and if they anticipate needing to move in the short term future.

14

Federal Housing Administration (FHA) Mortgage

1) For low and middle income individuals

2) Maximum mortgages range from $270k - $730k

15

Veterans Administration (VA) Mortgage

This is a similar program to the FHA except it is only for veterans.

16

Qualified Residence Interest Rules

QUALIFIED LOAN: a mortgage taken to buy, build or improve the taxpayer's home.

1) If total mortgage loans exceed $1 million (MFJ), then only the interest on the first $1 million is deductible.

2) If a mortgage loan is used for any purpose other than buying, building or improving the home, then interest is only deductible on the first $100,000 (MFJ) of the loan.

17

Qualified Resident Interest Calculation

THE LESSER OF:

1) $100,000

2) Current FMV of the home - the debt remaining.

EX:
$310,000 FMV home
$230,000 left on the mortgage
$80,000 is the difference between FMV and debt

Client can only deduct interest on $80,000 of a new loan.

18

Shortcut for Net After Tax Mortgage Payment

1) Solve for PMT with given data
2) Multiply it by 12 to get the annual payments
3) Subtract the product of PV * tax bracket
4) Choose the answer that is immediately greater than the result of step 3

19

Define PITI (<= 28% of GROSS INCOME)

Principal
Interest
Taxes
Insurance

Ingredients of the annual or monthly mortgage payment.

20

Represents federal taxation and spending designed to level the business cycle and achieve full employment, price stability, and sustained growth in the economy.

Fiscal Policy

21

Action taken by the Federal Reserve to influence the growth of the money supply by manipulating reserve requirements, discount rates, and open market operations (repo / reverse repo). FOMC holds eight meetings per year to change this.

Monetary Policy

22

An RIA under $100 million has to register with:

Their state of domicile.

23

An RIA over $100 million has to register with:

The SEC. There is a phase-in at $90 million.

24

This governing body regulates the rules regarding providing clients with an ADV.

The SEC

25

What are the steps to register with FINRA?

1) Associate with a broker/dealer
2) Register with FINRA using U-4
3) Take the licensing exams applicable
4) Receive a CRD number

26

Series exam needed for mutual funds, new UITs, and variables

Series 6

27

Series exam needed for general securities and UITs on the secondary market

Series 7

28

The Uniform Securities Agent State Law Exam (Blue Sky)

Series 63

29

The Uniform Investment Advisor Law Exam

Series 65

30

Uniform Combined State Law Exam

Series 66

31

When does a CFP certificate holder need to notify the CFP Board within 10 days of an offense?

1) Conviction of a crime other than misdemeanor or traffic ordinance violations.

2) If alcohol or drugs is involved in the traffic ordinance, you must notify them within 10 days. Things like speeding tickets are not in the 10 day rule.

32

What do you do if a client is unable to obtain sufficient and relevant information to form a basis for recommendations?

1) Restrict the scope of the engagement to only the information that you have been provided that is sufficient and relevant.

OR

2) Decline the client if you don't feel comfortable doing only partial planning using the information they provided.

33

Can the CFP Board publish your designation suspension even before you have even earned the CFP marks?

Maybe. It is the discretion of the committee.

34

What happens 30 days after the CFP board renders a suspension?

It becomes final and the CFP can no longer appeal the decision.

35

3 Step Education Calculator Sequence "in today's dollars"

1) End mode, use inflation to find first year payment

2) Begin mode, use blended rate and solve for PV

3) Reference question for begin or end mode, solve for what the problem is asking for using the rate of return given in the problem alone, not the blended or inflation

36

Amortization Sequence

1) Solve for the CURRENT payment using a standard PMT calculation with given data

2) After solving for the PMT:

1 INPUT 120 (12 months * number of years problem says they already have been paying the mortgage)

GOLD [AMORT]

1st = is principal paid in the last year
2nd = is the interest paid in the 10th year

37

What is the first step of meeting a new client?

Providing them with written disclosure of all material information.