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Flashcards in General Principles Deck (45)
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Principles of the CFP Board Code of Ethics

  • Integrity
  • Objectivity
  • Competence
  • Fairness
  • Confidentiality
  • Professionalism
  • Diligence


Practice Standard 100

Defining the Scope of Engagement

Practice Standard 100 defines the scope of engagement between the CFP and the client, including:

  • The Services Provided
  • Conflicts of Interest
  • Compensation
  • Responsibilities of Both Parties
  • Duration of Agreement
  • Limits of the Scope of Engagement  


Practice Standard 200-1

Practice Standard 200-1 refers to the CFP determining the goals, needs, priorities, and responsibilities of the client.


Practice Standard 200-2

Practice Standard 200-2 refers to the obtaining of quantitative information and data.


Practice Standard 300

Analyzing and Evaluating

Practice Standard 300 refers to the analysis and evaluation of financial planning and uses the following assumptions:

  • Client-specified
  • Mutually agreed upon
  • Other reasonable assumptions


Practice Standard 400-1

Identifying Alternatives

Practice Standard 400-1 refers to the development and presentation of recommendations by identifying alternatives that:

  • Consider multiple assumptions
  • Are based on conducted research
  • Are based on consultation with other individuals


Practice Standard 400-2

Development of a Plan

Practice Standard 400-2 refers to the development of a plan including:

  • The analysis and/or evaluation incorporated into the plan
  • The personal assumptions added (if necessary)


Practice Standard 400-3

Presenting Advantages/Disadvantages

Practice Standard 400-3 refers to presenting recommendations based on the Advantages and Disadvantages, including:

  • Risk
  • Time Sensitivity


Practice Standard 500-1

Agreeing on Responsibilities

Practice Standard 500-1 refers to the implementation of recommendations based on the agreement of responsibilities, which include:

  • The referral to other professionals
  • Coordination with other professionals
  • The sharing of information as authorized
  • The selection and securing of products


Practice Standard 500-2

Selecting Products and Services

Practice Standard 500-2 refers to the selection of products and services, including:

  • Suitability and client's best interest
  • Required disclosures


Practice Standard 600

Defining Monitoring Responsibilites

Practice Standard 600 defines the monitoring of responsibilities.

  • What is to be monitored
  • Frequency of monitoring


The CFP Board was founded in what year?



Within how many days must a CFP inform the CFP Board of an address change?

45 days


How many CE hours per reporting period are required?

30 hours


The CFP Commission can order a license suspension not to exceed ___ years.



Responses to complaints shall be in writing and

submitted within ___ calendar days.



Evidence in support of an investigation may be submitted up to ___ days prior to the scheduled hearing.



Use of Initials

Registered Investment Advisor and

Certified Financial Planner


  • RIA

  • C.F.P.


  • Registered Investment Advisor

  • CFP®



When can a CFP® licensee release client information to other persons?

  • When an attorney or court subpoenas the information
  • At the client's request
  • As a defense against charges of wrongdoing


Determining the Release of an Emergency Fund

(Use 3 or 6 months if...)

3 months if:

  • Single with 2nd source of income
  • Married, both work
  • Married, only 1 spouse works, but have a second source of income ​

6 months if:

  • Single wage earner
  • Married and only 1 spouse works


How much consumer debt is considered acceptable?

≤20% of NET income


How much Total Monthly Debt is considered acceptable?

≤36% of GROSS income


How much PITI is considered acceptable?

≤28% of GROSS income


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

The Securities Act of 1933 required that new issues purchasers be provided a detailed prospectus before the purchase was completed.


Securities Act of 1934

The Securities Act of 1934 was passed to regulate the secondary market (the trading of issued securities).  The act also created the SEC to enforce securities laws.


Investment Company Act

of 1940

Investment Company Act of 1940 authorized the SEC to regulate Unit Investment Trusts (UIT) and managed investment companies (closed- and open-end funds) and variable products.


Securities Investors Protection Act of 1970

Securities 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

  • EE Educational Bonds - ($121,600- 151,600)
  • Lifetime - ($116k - 136K)
  • AOTC - ($160k - 180k)


529 Keys

  • Lump sum gift up to $75,000
  • Donor can retainc control
  • K-12 distribution allowed up to $10,000/yr.


Deductible Housing Interest

All mortgages cannot exceed:

  • $750K combined (MFJ)
  • $375K (single/MFS)
  • Home equity interest is only deductible if used for home renovation/improvement.


Federal Reserve Open Market Operations

  • Repos - Fed buys securities = expansionary/easy money policy
  • Reverse Repos - 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.
  • The GDP does not include any income generated outside the US or adjustments for foreign currencies.


Business Cycle

  • Expansion
  • Peak
  • Recession/Contraction
  • Trough
  • Recovery/Expansion  


Recession vs. Depression

Recession - Two consecutive quarters of economic decline (negative GDP)

Depression - Six consecutive quarters economic decline (negative GDP)


Exceptions to Filing as an Investment Adviser

  • Banks that are not also investment companies.
  • Lawyers, accountants, teachers where 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 US government securities.


Exemptions to Filing as an Investment Adviser

  • Advisers whose only clients are insurance companies.
  • Family office 


How does an Investment Adviser register with the SEC?

  • Initially, file ADV part I and II with the SEC.
  • Pay 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 with FINRA through broker/dealer on form U-4.
  • Takes and passes appropriate exams.
  • Is issued a CRD number (Central Registration System)


Financial Industry Regulatory Authority (FINRA)

Key Examinations/Licenses

  • Series 6 - Mutual funds, UITs, and variables (only new UITs)
  • Series 7 - General securities (including UITs on secondary market)
  • Series 63 - Uniform Securities Agent State Law Exam
  • Series 65 - Uniform Investment Adviser Law Exam
  • Series 66 - Uniform Combined State Law Exam (combines 63 & 65 exams)


Basic Components of a Legal Contract as Applied to Insurance

  • Offer and Acceptance - Two parties, offerer and acceptor
  • Consideration - Something of value (money)
  • Legal Object - Legal in purpose
  • Competent Parties - Principle must have legal capacity to execute contract: 
    • Intoxicated adults have limited or no capacity
    • Minors only have capacity to contract for necessities (food, clothing, shelter)
  • Legal Form - Contract must meet requirements  


Law of Agency (Insurance)

  • Express Authority - Written, explicit direction from principal to agent
  • Implied Authority - Is that which the public believes the individual holds and includes signage, rate books, etc.
    • Implied is actual authority that the agent has to carry out the principal's business
  • Apparent Authority - Arises out of negligence of the principal in allowing the agent to appear to have authority because of certain actions of the agent in the past. This typically affects terminated agents.


Which debts are not cancelable by Bankruptcy?

  • Student Loans
  • Government Loans
  • Child Support
  • Alimony
  • Wage Withholding
  • FICA Taxes
  • Income Taxes Due
  • Rollovers from qualified plans are exempt (unlimited) and non-rollover IRAs up to $1 million are exempt