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GP Flashcards

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1
Q

Are Attorneys exempt from registering as in investment advisor?

A

Yes if investment advice is incidental to their practice

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2
Q

Is lump sum punitive damages settlement for wrongful death tax free

A

Yes, tax free

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3
Q

Can client funds be commingled in a common client investment account?

A

No, checks must be payable to broker/dealer/custodian and not the financial planning firm

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4
Q

Which industry outperforms when economy passes through trough into recovery?

A

Auto sales historically lead the business cycle into expansion

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5
Q

Financial Planner makes recommendation to buy a stock based on gut feeling with no research. What are they guilty of?

A

Negligence (unintentional tort), tort, and violation of fiduciary responsibility

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6
Q

What is included in emergency fund?

A

3 or 6 months of fixed and variable expenses (not taxes).

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7
Q

5 Basic Components of legal contract (insurance)

A

1) Offer and Acceptance
2) Consideration
3) Legal Object/Purpose
4) Competent parties
5) Legal form

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8
Q

3 Type of Agency/Authority (Insurance)

A

1) Express Authority- written, explicit from principal to agent
2) Implied Authority- public believes individual holds
3) Apparent Authority- agent has been allowed to appear to have authority and is negligent

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9
Q

5 Obligations not cancelable by Bankruptcy

A

Student loans
Government Loans
Child Support
Alimony
Taxes

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10
Q

Heuristics

A

Experiences and biases that can facilitate problem solving and probability judgments. Generalizations that can result in inaccurate or irrational conclusions

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11
Q

2 Examples of Heuristics

A

“Trial and error” and “rules of thumb”

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12
Q

Behavioral Finance

A

Study of how psychology affects finance

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13
Q

Anchoring

A

Becoming attached to specific price as the real value

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14
Q

Attachment Bias

A

Holding investment for emotional reasons

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15
Q

Endowment Bias

A

Feeling an asset is more valuable and special since it’s yours

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16
Q

Cognitive Dissonance

A

Reconciling two opposing beliefs

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17
Q

Confirmation Bias

A

Accept information that confirms position, reject info that does not support

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18
Q

Diversification Errors

A

Investors diversify evenly across all options presented to them

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19
Q

Fear of Regret

A

Taking no action rather than risk making wrong choice

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20
Q

Financial Infidelity

A

Couples or partners being dishonest with finances

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21
Q

Gambler’s Fallacy

A

A random event is likely to happen following a series of events

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22
Q

What is Herd Behavior

A

Individuals mimic actions of larger group

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23
Q

Hindsight Bias

A

Thinking we understand/ should have predicted past event

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24
Q

Inappropriate Extrapolation

A

Assuming recent events / performance will continue indefinitely

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25
Prospect Theory
Losses have much greater negative impact than similar gain will have positive
26
Mental Accounting
Looking at sums of money different, depending on source or intended use
27
Outcome Bias
Made a decision based on desired outcome rather than probability of that outcome
28
Overconfidence
Placing too much emphasis on own abilities
29
Overreaction
Investors emotionally react towards new market information
30
Self-Affirmation Bias
Belief that when something goes right it is because you are smart and made the right decision. If it goes bad, it's someone else's fault or bad luck
31
Status Quo Basis
Investor does nothing when action is called for
32
4 Money Scripts
Money Avoidance Money Worship Money Vigilance Money Status
33
Framing Effect
Makes decisions depending on how options are presented (positive or negative)
34
Money Illusion
People view wealth in nominal dollars rather than real terms including inflation
35
RIA or Registered Investment Advisor?
RIA is prohibited
36
C.F.P or CFP®
C.F.P is prohibited
37
When can CFP release client file? (3)
When attorney or court subpoenas file At client's request As a defense against charges of wrongdoing
38
Max Housing Expense (PITI)
28% of Gross
39
Max Total Monthly Debt
36% of Gross
40
Max Consumer Debt
20% of Net
41
Current Ratio
Current Assets / Current Liabilities
42
Current Assets (4)
Cash equivalents Marketable Securities Accounts Receivable Inventory
43
Current Liabilities (3)
Accounts Payable Credit Card Debt Taxes Payable
44
Securities Act of 1933
Required that new issue purchasers be provided with a detailed prospectus before purchase
45
Securities Act of 1934
Regulate Secondary market, created SEC.
46
Investment Company Act of 1940
SEC to regulate Unit Invest Trusts, Managed Investment Companies, and Variable Products
47
Securities Investors Protection Act of 1970
Established SIPC to supervise securities firms, insures investors against losses from failure of brokerage firm
48
Max mortgage for deductible interest
$750K joint $375k single
49
529 lump sum
$85,000
50
529 uses
$10k/ year for K-12 $10k student loans (lifetime)
51
Federal Reserve Repo
Fed buys securities Expansionary/ Easy Money BEST Buy/ Expand Sell/Tighten
52
Federal Reserve Reverse Repo
Fed sells securities Contractionary/ tight money BEST Buy/Expand Sell/Tighten
53
GDP
Total dollar value of all goods and services produced within US only
54
Business Cycle (5 parts)
Expansion Peak Recession/ Contraction Trough Recovery/Expansion
55
Recession & Depression
Recession- Two Consecutive quarters of economic decline (negative GDP) Depression- Six consecutive quarters of economic decline (negative GPD
56
Exceptions to filing as Investment Advisor (BLAT)
Banks that are not investment companies Lawyers Accountants Teachers
57
Exemptions to filing as Investment Advisor (2)
Only clients are insurance companies Family Office
58
How does Investment Advisor Register with SEC
File ADV part I and II with SEC Pay $150 fee File ADV part I and Schedule one annually
59
How does Investment Advisor Register with FINRA
Files Form U-4 thru Broker/dealer Takes Exams Issued CRD Number
60
FINRA Series 6
Mutual funds, UITs (new only), and variables
61
FINRA Series 7
General Securities and all UITS
62
FINRA Series 63
Uniform Securities Agent State Law exam
63
FINRA Series 65
Uniform Investment Advisor Law exam
64
FINRA Series 66
Combines 63 and 65
65
Steps to calculate amount needed to save for education (3):
1: Solve for FV of 1 year tution adjusted for inflation (end mode) 2: Solve for PV of 4 years tuition (PMT) using after inflation rate and 4 (N) (begin mode) 3 Solve for PMT using amount needed from step 2 (end mode)

CFP Exam Study (6 decks)

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