Flashcards in General Principles Deck (37):
What are the steps of the financial planning process? (EGPRIM)
1) ESTABLISHING the relationship
The Seven Principles of The Code of Ethics
How many hours of continuing education are needed during a 2-year reporting period?
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
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
Practice Standard 100
Establishing and defining the relationship with the client
Practice Standard 200
Determining a client's personal and financial goals
Practice Standard 300
Analyzing and evaluating the client's financial status
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
Practice Standard 500-1, 500-2
500-1) Agreeing on implementation responsibilities
500-2) Selecting Products and services for implementation
Practice Standard 600
Defining monitoring responsibilities
When should a financial plan be reviewed/monitored?
On a mutually agreed upon frequency (Practice Standard 600)
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.
Federal Housing Administration (FHA) Mortgage
1) For low and middle income individuals
2) Maximum mortgages range from $270k - $730k
Veterans Administration (VA) Mortgage
This is a similar program to the FHA except it is only for veterans.
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.
Qualified Resident Interest Calculation
THE LESSER OF:
2) Current FMV of the home - the debt remaining.
$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.
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
Define PITI (<= 28% of GROSS INCOME)
Ingredients of the annual or monthly mortgage payment.
Represents federal taxation and spending designed to level the business cycle and achieve full employment, price stability, and sustained growth in the economy.
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.
An RIA under $100 million has to register with:
Their state of domicile.
An RIA over $100 million has to register with:
The SEC. There is a phase-in at $90 million.
This governing body regulates the rules regarding providing clients with an ADV.
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
Series exam needed for mutual funds, new UITs, and variables
Series exam needed for general securities and UITs on the secondary market
The Uniform Securities Agent State Law Exam (Blue Sky)
The Uniform Investment Advisor Law Exam
Uniform Combined State Law Exam
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.
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.
2) Decline the client if you don't feel comfortable doing only partial planning using the information they provided.
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.
What happens 30 days after the CFP board renders a suspension?
It becomes final and the CFP can no longer appeal the decision.
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
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)
1st = is principal paid in the last year
2nd = is the interest paid in the 10th year