Section 5 Flashcards
(128 cards)
1
Q
The ex-dividend date for a mutual fund is set by the fund or its principal underwriter.
A
The ex-dividend date for a mutual fund is set by the fund or its principal underwriter.
2
Q
Exchange or conversion of shares of one mutual fund for shares of another fund within the same “family”
or “complex” of funds is treated as a sale and repurchase for tax purposes.
A
Exchange or conversion of shares of one mutual fund for shares of another fund within the same “family”
or “complex” of funds is treated as a sale and repurchase for tax purposes.
3
Q
There is no secondary market for open-end mutual fund shares. Closed-end funds trade in the secondary OTC market or are listed on exchanges since they are not redeemable.
A
There is no secondary market for open-end mutual fund shares. Closed-end funds trade in the secondary OTC market or are listed on exchanges since they are not redeemable.
4
Q
NAV is another name for the “bid” price. The “ask” price is the offering price.
A
NAV is another name for the “bid” price. The “ask” price is the offering price.
5
Q
NAV and the ask price are one and the same on a no load mutual fund.
A
NAV and the ask price are one and the same on a no load mutual fund.
6
Q
The public offering price paid for an open-end mutual fund share includes the sales charge.
A
The public offering price paid for an open-end mutual fund share includes the sales charge.
7
Q
If the asked price is less than the NAV, it is a closed end mutual fund.
A
If the asked price is less than the NAV, it is a closed end mutual fund.
8
Q
The expense ratio of a mutual fund includes the fees paid to the transfer agent, custodian and investment adviser.
A
The expense ratio of a mutual fund includes the fees paid to the transfer agent, custodian and investment adviser.
9
Q
The expense of advertising and sales literature is paid out of the underwriter’s concession.
A
The expense of advertising and sales literature is paid out of the underwriter’s concession.
10
Q
“Mutuality” means that a mutual fund investor owns a proportionate, undivided interest in the whole
portfolio.
A
“Mutuality” means that a mutual fund investor owns a proportionate, undivided interest in the whole
portfolio.
11
Q
“Diversification” means the practice of spreading ones investments among the securities of different companies, industries, geographic areas or maturities.
A
“Diversification” means the practice of spreading ones investments among the securities of different companies, industries, geographic areas or maturities.
12
Q
A periodic payment plan is another name for a contractual plan (front-end load or spread).
A
A periodic payment plan is another name for a contractual plan (front-end load or spread).
13
Q
A prospectus contains the funds’ investment objectives, but must also state that there is no guarantee that
they will be met.
A
A prospectus contains the funds’ investment objectives, but must also state that there is no guarantee that
they will be met.
14
Q
A diversified fund must invest at least 75% of its assets so that no more than 5% of its assets are invested in any one company and they do not control more than 10% of the voting stock of any one company.
A
A diversified fund must invest at least 75% of its assets so that no more than 5% of its assets are invested in any one company and they do not control more than 10% of the voting stock of any one company.
15
Q
Money Market funds attempt to maintain a stable NAV. They are not insured by the government.
A
Money Market funds attempt to maintain a stable NAV. They are not insured by the government.
16
Q
Most funds offer the right of redemption at NAV without a redemption fee.
A
Most funds offer the right of redemption at NAV without a redemption fee.
17
Q
Open-end mutual funds may not issue senior securities (preferred stock or bonds), but closed end can.
A
Open-end mutual funds may not issue senior securities (preferred stock or bonds), but closed end can.
18
Q
The custodian is responsible for the safekeeping of all securities and cash held by the fund.
A
The custodian is responsible for the safekeeping of all securities and cash held by the fund.
19
Q
A list of all the fund’s shareholders is maintained by the transfer agent.
A
A list of all the fund’s shareholders is maintained by the transfer agent.
20
Q
NAV is increased by the appreciation of the securities held in the fund’s portfolio.
A
NAV is increased by the appreciation of the securities held in the fund’s portfolio.
21
Q
Dividends paid out by the fund result in a lower NA V .
A
Dividends paid out by the fund result in a lower NA V .
22
Q
A fund’s expense ratio is found by dividing the fund’s expenses by its average net asset value.
A
A fund’s expense ratio is found by dividing the fund’s expenses by its average net asset value.
23
Q
Reinvested income and gains are taxable in the year they are earned.
A
Reinvested income and gains are taxable in the year they are earned.
24
Q
Fund dividends are paid from interest income, stock dividends and short-term gains.
A
Fund dividends are paid from interest income, stock dividends and short-term gains.
25
An LOI is for 13 months and may be backdated 90 days (Letter of Intent).
An LOI is for 13 months and may be backdated 90 days (Letter of Intent).
26
A fixed UIT (Unit Investment Trust) is a type of investment company that buys and holds a fixed number of bonds until they reach maturity. There is no management fee.
A fixed UIT (Unit Investment Trust) is a type of investment company that buys and holds a fixed number of bonds until they reach maturity. There is no management fee.
27
The maximum sales charge under FINRA rules is 8 1/2%. However, in order to charge 8 1/2% sales charge, the fund must offer breakpoints, the right of accumulation and the right to reinvest dividends at NAV. If they do not offer all three of these features, the maximum sales charge is limited to 61⁄4%.
The maximum sales charge under FINRA rules is 8 1/2%. However, in order to charge 8 1/2% sales charge, the fund must offer breakpoints, the right of accumulation and the right to reinvest dividends at NAV. If they do not offer all three of these features, the maximum sales charge is limited to 61⁄4%.
28
Under the Investment Company Act of l940, the maximum sales charge on a contractual plan may not average more than 9% over the life of the plan (at least 10 years).
Under the Investment Company Act of l940, the maximum sales charge on a contractual plan may not average more than 9% over the life of the plan (at least 10 years).
29
Net redemptions in a mutual fund over a period of time will occur if the value of the shares redeemed exceeds the value of the shares being purchased.
Net redemptions in a mutual fund over a period of time will occur if the value of the shares redeemed exceeds the value of the shares being purchased.
30
12b-1 distribution fees must be disclosed in the prospectus and must be approved annually by shareholders. They are not paid out of the spread. They are an expense of the fund, like the management fee.
12b-1 distribution fees must be disclosed in the prospectus and must be approved annually by shareholders. They are not paid out of the spread. They are an expense of the fund, like the management fee.
31
The investment objective of the fund must be approved annually by a majority vote of the shareholders and cannot be changed without shareholder approval.
The investment objective of the fund must be approved annually by a majority vote of the shareholders and cannot be changed without shareholder approval.
32
With a Series 6 license, you can sell new open or closed end funds with a prospectus, but you cannot sell REITs, closed end funds in the secondary market, stocks, bonds or limited partnerships.
With a Series 6 license, you can sell new open or closed end funds with a prospectus, but you cannot sell REITs, closed end funds in the secondary market, stocks, bonds or limited partnerships.
33
The investment adviser’s fee is paid from operating income of the mutual fund, but is based on assets.
The investment adviser’s fee is paid from operating income of the mutual fund, but is based on assets.
34
Closed end mutual fund shares cannot be redeemed by the issuer. They must be sold in the secondary
market, on an exchange or OTC.
Closed end mutual fund shares cannot be redeemed by the issuer. They must be sold in the secondary
market, on an exchange or OTC.
35
A Unit Investment Trust (UIT) has no management fee or board of directors.
A Unit Investment Trust (UIT) has no management fee or board of directors.
36
The prices for closed end funds in the secondary market depend entirely upon how much clients are willing to pay (supply and demand).
The prices for closed end funds in the secondary market depend entirely upon how much clients are willing to pay (supply and demand).
37
An increase in NAV in a mutual fund over a period of time is due to an increase in the value of the fund’s portfolio.
An increase in NAV in a mutual fund over a period of time is due to an increase in the value of the fund’s portfolio.
38
Mutual funds cannot be compared to investments in banks.
Mutual funds cannot be compared to investments in banks.
39
Capital gains cannot be included with dividends when calculating current yield of the mutual fund.
Capital gains cannot be included with dividends when calculating current yield of the mutual fund.
40
The custodian for a mutual fund is usually a commercial bank.
The custodian for a mutual fund is usually a commercial bank.
41
The “total” return on a mutual fund includes dividends, realized capital gains and unrealized capital gains (appreciation).
The “total” return on a mutual fund includes dividends, realized capital gains and unrealized capital gains (appreciation).
42
SEC RULE 12b-1 DISTRIBUTION FEES
Mutual Funds that do not charge the full 8 1/2% sales charge can add a type of hidden sales charge under SEC Rule 12b-1. This rule allows the fund to serve as the distributor for its own shares, and to charge a percentage of the average net assets for distribution and sales-related expenses. The distribution plan must be in writing, and must be approved annually by the majority of the outstanding shares and by the board of directors, including a majority of the outside directors.
SEC RULE 12b-1 DISTRIBUTION FEES
Mutual Funds that do not charge the full 8 1/2% sales charge can add a type of hidden sales charge under SEC Rule 12b-1. This rule allows the fund to serve as the distributor for its own shares, and to charge a percentage of the average net assets for distribution and sales-related expenses. The distribution plan must be in writing, and must be approved annually by the majority of the outstanding shares and by the board of directors, including a majority of the outside directors.
43
Many funds permit reinvestment of withdrawn funds within 120 days without a sales charge, but any gain is still taxable.
Many funds permit reinvestment of withdrawn funds within 120 days without a sales charge, but any gain is still taxable.
44
12b-1 funds are permitted to reimburse themselves the cost of distribution.
12b-1 funds are permitted to reimburse themselves the cost of distribution.
45
Diversification allows a loss in one fund to be offset by a gain in another.
Diversification allows a loss in one fund to be offset by a gain in another.
46
Money market funds would not invest in long-term T-bonds.
Money market funds would not invest in long-term T-bonds.
47
On a no load fund, the bid is equal to the ask price.
On a no load fund, the bid is equal to the ask price.
48
Unit investment trusts have no management fees, but they do invest in a specified portfolio of securities.
Unit investment trusts have no management fees, but they do invest in a specified portfolio of securities.
49
You cannot handle a trade of closed end funds trading on the NYSE with a Series 6 license – you should
decline the trade.
You cannot handle a trade of closed end funds trading on the NYSE with a Series 6 license – you should
decline the trade.
50
Mutual fund investors are entitled to receive annual and semi-annual reports.
Mutual fund investors are entitled to receive annual and semi-annual reports.
51
Entering into a fund withdrawal plan may deplete principal.
Entering into a fund withdrawal plan may deplete principal.
52
Upon death of a tenant in common, there is no survivorship and only those shares owned by that tenant are included in his estate – ownership is fractional.
Upon death of a tenant in common, there is no survivorship and only those shares owned by that tenant are included in his estate – ownership is fractional.
53
The “spread” is the difference between the public offering price and what the issuer receives. It is paid to the underwriter for distributing the shares.
The “spread” is the difference between the public offering price and what the issuer receives. It is paid to the underwriter for distributing the shares.
54
A client who annuitizes a variable annuity over a fixed period will receive a variable amount for a fixed time.
A client who annuitizes a variable annuity over a fixed period will receive a variable amount for a fixed time.
55
Variable life insurance death benefits may vary above the minimum guaranteed.
Variable life insurance death benefits may vary above the minimum guaranteed.
56
Variable life insurance contracts offer the right of ‘conversion,’ which allows the insured to exchange the
policy for a fixed, guaranteed contract for a specified period of time.
Variable life insurance contracts offer the right of ‘conversion,’ which allows the insured to exchange the
policy for a fixed, guaranteed contract for a specified period of time.
57
The AIR (assumed interest rate) is also known as the assumed investment rate.
The AIR (assumed interest rate) is also known as the assumed investment rate.
58
The assumed investment rate is the rate that a variable annuity separate account must earn in order for the monthly payment to remain the same as it was last month.
The assumed investment rate is the rate that a variable annuity separate account must earn in order for the monthly payment to remain the same as it was last month.
59
Applications for variable life insurance must be sent to the issuer promptly.
Applications for variable life insurance must be sent to the issuer promptly.
60
The fee an insurer charges an annuitant to cover expenses due to increased longevity is called the
‘mortality’ fee.
The fee an insurer charges an annuitant to cover expenses due to increased longevity is called the
‘mortality’ fee.
61
Mutual funds must send shareholders a check within seven calendar days of redemption.
Mutual funds must send shareholders a check within seven calendar days of redemption.
62
The fee an insurer charges an annuitant to cover the expenses of operating the company is called the ‘administrative’ fee.
The fee an insurer charges an annuitant to cover the expenses of operating the company is called the ‘administrative’ fee.
63
Variable/Universal life insurance has a flexible premium and a death benefit that can increase beyond the minimum guaranteed in the policy.
Variable/Universal life insurance has a flexible premium and a death benefit that can increase beyond the minimum guaranteed in the policy.
64
Variable annuities have an IRS 10% penalty that applies to cash surrender prior to age 59 1/2, but Variable life insurance doesn’t.
Variable annuities have an IRS 10% penalty that applies to cash surrender prior to age 59 1/2, but Variable life insurance doesn’t.
65
In a quote for an open end mutual fund, the NAV + the Sales Charge equals the ASK price.
In a quote for an open end mutual fund, the NAV + the Sales Charge equals the ASK price.
66
The beneficiary designation will not affect the rate of return on a variable annuity during the
accumulation period.
The beneficiary designation will not affect the rate of return on a variable annuity during the
accumulation period.
67
Although the guaranteed minimum death benefit of a Variable life policy is not subject to income tax, it is considered to be part of the insured’s estate upon death.
Although the guaranteed minimum death benefit of a Variable life policy is not subject to income tax, it is considered to be part of the insured’s estate upon death.
68
On a variable annuity, the annuitant bears the investment risk since the insurer invests the money in the separate account.
On a variable annuity, the annuitant bears the investment risk since the insurer invests the money in the separate account.
69
On a mutual fund, it is the transfer agent who is responsible for the disbursement of dividends and capital gains distributions to shareholders.
On a mutual fund, it is the transfer agent who is responsible for the disbursement of dividends and capital gains distributions to shareholders.
70
On a mutual fund, it is the Board of Directors who sets the investment objectives of the fund, oversees the balance of the portfolio and decides how much cash to keep on hand.
On a mutual fund, it is the Board of Directors who sets the investment objectives of the fund, oversees the balance of the portfolio and decides how much cash to keep on hand.
71
On a mutual fund, it is the Investment Adviser who provides investment advice in conformity with federal securities and tax law, researches and analyzes financial and economic trends and conforms to the investment objectives and policy decisions of the Board of Directors.
On a mutual fund, it is the Investment Adviser who provides investment advice in conformity with federal securities and tax law, researches and analyzes financial and economic trends and conforms to the investment objectives and policy decisions of the Board of Directors.
72
A ‘voting trust company’ is a limited-life trust set up to center control of a corporation in the hands of a few individuals, called voting trustees. It is NOT a type of investment company.
A ‘voting trust company’ is a limited-life trust set up to center control of a corporation in the hands of a few individuals, called voting trustees. It is NOT a type of investment company.
73
Shares of a closed-end mutual fund sell in the secondary market based upon ‘market demand’ (also known as supply and demand).
Shares of a closed-end mutual fund sell in the secondary market based upon ‘market demand’ (also known as supply and demand).
74
A R/R with a Series 6 license could sell shares of a closed-end mutual fund ONLY in the primary market.
A R/R with a Series 6 license could sell shares of a closed-end mutual fund ONLY in the primary market.
75
R/Rs with a Series 6 license cannot sell units of a REIT or a Limited Partnership.
R/Rs with a Series 6 license cannot sell units of a REIT or a Limited Partnership.
76
To protect themselves in the event that an investor does not complete a Letter of Intent, most funds will hold in escrow some of the shares purchased.
To protect themselves in the event that an investor does not complete a Letter of Intent, most funds will hold in escrow some of the shares purchased.
77
Systematic Withdrawals may prevent an investor from attaining their investment goals.
Systematic Withdrawals may prevent an investor from attaining their investment goals.
78
Mutual fund investment advisory contracts must be approved by a majority vote of the fund’s
shareholders.
Mutual fund investment advisory contracts must be approved by a majority vote of the fund’s
shareholders.
79
An open-end mutual fund has a Bid price of $13.17 and an Ask price of $14.22. To find the sales charge as a percentage of the offering price what would you do? Answer: Find the sales charge by subtracting $13.17 from $14.22, which is $1.05. Next, divide $1.05 by the Ask (or offering price) of $14.22, which is 7.38%.
An open-end mutual fund has a Bid price of $13.17 and an Ask price of $14.22. To find the sales charge as a percentage of the offering price what would you do? Answer: Find the sales charge by subtracting $13.17 from $14.22, which is $1.05. Next, divide $1.05 by the Ask (or offering price) of $14.22, which is 7.38%.
80
The NAV of a fund will increase if the value of portfolio securities goes up.
The NAV of a fund will increase if the value of portfolio securities goes up.
81
Fund total return figures must be shown for one, five and ten year periods.
Fund total return figures must be shown for one, five and ten year periods.
82
A prospectus may not claim any future income projections for the fund.
A prospectus may not claim any future income projections for the fund.
83
Variable life insurance is convertible into whole life for 24 months from inception.
Variable life insurance is convertible into whole life for 24 months from inception.
84
On variable life, sales commissions are deducted from gross premium. All other expenses are deducted from the insurance company’s separate account.
On variable life, sales commissions are deducted from gross premium. All other expenses are deducted from the insurance company’s separate account.
85
The death benefit (face amount) of a variable life policy may vary, above the minimum, according to the performance of the separate account maintained by the insurance company, but the premiums payable are fixed.
The death benefit (face amount) of a variable life policy may vary, above the minimum, according to the performance of the separate account maintained by the insurance company, but the premiums payable are fixed.
86
Policy loans from cash value are permitted on variable life policies, but will be deducted from face amount if death occurs while a loan is outstanding.
Policy loans from cash value are permitted on variable life policies, but will be deducted from face amount if death occurs while a loan is outstanding.
87
If a loan is taken from a variable life policy, that portion of cash value representing the loan value is transferred from the insurance company’s separate account into their general account while the loan is outstanding. Interest is still earned by the policyholder, but at a lower rate until the loan is paid back.
If a loan is taken from a variable life policy, that portion of cash value representing the loan value is transferred from the insurance company’s separate account into their general account while the loan is outstanding. Interest is still earned by the policyholder, but at a lower rate until the loan is paid back.
88
The maximum sales charge allowed for a single premium immediate annuity must be reasonable under SEC rules.
The maximum sales charge allowed for a single premium immediate annuity must be reasonable under SEC rules.
89
Sales charges on variable annuities and variable life insurance must be “reasonable” under SEC rules.
Sales charges on variable annuities and variable life insurance must be “reasonable” under SEC rules.
90
Variable products have no guaranteed rate of return.
Variable products have no guaranteed rate of return.
91
The client assumes the investment risk on a variable product.
The client assumes the investment risk on a variable product.
92
To calculate the cash surrender value of an annuity, you need to know the value of the accumulation units next calculated (forward pricing).
To calculate the cash surrender value of an annuity, you need to know the value of the accumulation units next calculated (forward pricing).
93
On a variable life product, there are guarantees on mortality, minimum death benefit and on administrative expenses, but there are no guarantees on cash values or rate of return.
On a variable life product, there are guarantees on mortality, minimum death benefit and on administrative expenses, but there are no guarantees on cash values or rate of return.
94
On a variable annuity, the monthly payment will remain constant as long as the actual rate of return in the separate account is the same as the AIR.
On a variable annuity, the monthly payment will remain constant as long as the actual rate of return in the separate account is the same as the AIR.
95
When annuitizing a non-qualified annuity, the income paid out to the annuitant will be partly non-taxable return of principal and partly ordinary income that is subject to tax.
When annuitizing a non-qualified annuity, the income paid out to the annuitant will be partly non-taxable return of principal and partly ordinary income that is subject to tax.
96
No future projections concerning rates of return are permitted on variable annuities.
No future projections concerning rates of return are permitted on variable annuities.
97
You must give out two prospectuses when selling variable life or variable annuities.
You must give out two prospectuses when selling variable life or variable annuities.
98
A variable product would be suitable for a client concerned about inflation risk.
A variable product would be suitable for a client concerned about inflation risk.
99
On a variable annuity, the client bears the investment risk.
On a variable annuity, the client bears the investment risk.
100
To find the value of a variable annuity separate account during the pay in period, multiply the number of accumulation units by the value of one unit.
To find the value of a variable annuity separate account during the pay in period, multiply the number of accumulation units by the value of one unit.
101
Insurers may guarantee a schedule of payments to a variable annuity owner, but may not guarantee the amount of the payments.
Insurers may guarantee a schedule of payments to a variable annuity owner, but may not guarantee the amount of the payments.
102
If a fixed annuity client selects the fixed amount withdrawal option on his life income annuity, he will receive a fixed amount for a variable length of time (life span).
If a fixed annuity client selects the fixed amount withdrawal option on his life income annuity, he will receive a fixed amount for a variable length of time (life span).
103
12b-1 distribution fees are paid by mutual fund shareholders.
12b-1 distribution fees are paid by mutual fund shareholders.
104
Equity-indexed annuities are financial instruments in which the issuer, usually an insurance company, guarantees a stated interest rate and some protection from loss of principal, and provides an opportunity to earn additional interest based on the performance of a securities market index.
Equity-indexed annuities are financial instruments in which the issuer, usually an insurance company, guarantees a stated interest rate and some protection from loss of principal, and provides an opportunity to earn additional interest based on the performance of a securities market index.
105
Some EIA are not registered under the Securities Act of 1933 based upon a determination that they fall strictly under state regulation.
Some EIA are not registered under the Securities Act of 1933 based upon a determination that they fall strictly under state regulation.
106
EIA are complex investments that you will be required to be knowledgeable about.
EIA are complex investments that you will be required to be knowledgeable about.
107
Although EIAs do not fall under the jurisdiction of the SEC, FINRA is concerned due to the product’s complexity that some associated persons may have difficulty understanding all of the features of the product and determining the extent to which those features meet the needs of the customer.
Although EIAs do not fall under the jurisdiction of the SEC, FINRA is concerned due to the product’s complexity that some associated persons may have difficulty understanding all of the features of the product and determining the extent to which those features meet the needs of the customer.
108
EIAs are not suitable for all investors.
EIAs are not suitable for all investors.
109
Surrender charges and the combination of caps and participation rates associated with a particular product
are factors that must be considered in any suitability determination.
Surrender charges and the combination of caps and participation rates associated with a particular product
are factors that must be considered in any suitability determination.
110
FINRA Rule 3270 (Outside Business Activities of an Associated Person) requires that associated persons promptly notify their firm in writing if they intend to sell unregistered EIAs.
FINRA Rule 3270 (Outside Business Activities of an Associated Person) requires that associated persons promptly notify their firm in writing if they intend to sell unregistered EIAs.
111
All recommendations to liquidate or surrender a registered security such as a mutual fund, variable annuity, or variable life contract must be suitable, including where such liquidations or surrenders are for the purpose of funding the purchase of an unregistered EIA.
All recommendations to liquidate or surrender a registered security such as a mutual fund, variable annuity, or variable life contract must be suitable, including where such liquidations or surrenders are for the purpose of funding the purchase of an unregistered EIA.
112
Equity indexed annuities typically have a guaranteed minimum return of 90% of the premiums paid at a 3% annual interest rate.
Equity indexed annuities typically have a guaranteed minimum return of 90% of the premiums paid at a 3% annual interest rate.
113
EIAs do have surrender charges and a 10% early withdrawal penalty on all withdrawals of earnings made under age 59 1/2, just like a fixed or variable annuity would have.
EIAs do have surrender charges and a 10% early withdrawal penalty on all withdrawals of earnings made under age 59 1/2, just like a fixed or variable annuity would have.
114
EIAs offer a minimum guaranteed interest rate combined with an interest rate linked to a market index.
EIAs offer a minimum guaranteed interest rate combined with an interest rate linked to a market index.
115
EIAs have less market risk than variable annuities due to the guaranteed interest rate.
EIAs have less market risk than variable annuities due to the guaranteed interest rate.
116
EIAs also have the potential to earn returns better than that of traditional fixed annuities when the stock market is rising.
EIAs also have the potential to earn returns better than that of traditional fixed annuities when the stock market is rising.
117
EIAs are sold by various insurance companies and are tied to different indexes depending upon which EIA is purchased, although most are indexed to the S&P 500.
EIAs are sold by various insurance companies and are tied to different indexes depending upon which EIA is purchased, although most are indexed to the S&P 500.
118
The index-linked interest rate on an EIA depends upon the particular combination of indexing features that an EIA uses.
The index-linked interest rate on an EIA depends upon the particular combination of indexing features that an EIA uses.
119
Features that are important to understand in determining the EIA index-linked return include participation rates, spread/margin/asset fee and interest rate caps.
Features that are important to understand in determining the EIA index-linked return include participation rates, spread/margin/asset fee and interest rate caps.
120
A participation rate determines how much of the gain in the index will be credited to the annuity. For example, the insurance company may set the participation rate at 80%, which means that the annuity would only be credited with 80% of the gain experienced by the index.
A participation rate determines how much of the gain in the index will be credited to the annuity. For example, the insurance company may set the participation rate at 80%, which means that the annuity would only be credited with 80% of the gain experienced by the index.
121
Spread/margin/asset fees are used by some insurance companies in addition to, or instead of, the participation rate. This percentage will be subtracted from any gain in the index linked to the annuity. For example, if the index gained 10% and the spread/margin/asset fee is 3.5%, then the gain in the annuity would only be 6.5%.
Spread/margin/asset fees are used by some insurance companies in addition to, or instead of, the participation rate. This percentage will be subtracted from any gain in the index linked to the annuity. For example, if the index gained 10% and the spread/margin/asset fee is 3.5%, then the gain in the annuity would only be 6.5%.
122
Some EIAs may put a cap or an upper limit on your return (interest rate caps). This cap rate is generally stated as a percentage. This is the maximum interest that the annuity will earn. For example, if the index earned 10% and the cap rate was 8% then the gain in the annuity would only be 8%.
Some EIAs may put a cap or an upper limit on your return (interest rate caps). This cap rate is generally stated as a percentage. This is the maximum interest that the annuity will earn. For example, if the index earned 10% and the cap rate was 8% then the gain in the annuity would only be 8%.
123
In some EIAs the insurance company is allowed to change participation rates, cap rates and spread/margin/asset fees annually. In other contracts the insurance company is only allowed to change these rates at the start of the next contract term. Changes in these rates could adversely affect a client’s return.
In some EIAs the insurance company is allowed to change participation rates, cap rates and spread/margin/asset fees annually. In other contracts the insurance company is only allowed to change these rates at the start of the next contract term. Changes in these rates could adversely affect a client’s return.
124
Contributions into an EIA are in after tax dollars.
Contributions into an EIA are in after tax dollars.
125
Life Settlements occur when the owner of a life insurance policies sells their interest to a third party for
less than the policy’s face amount, but more than the cash value.
Life Settlements occur when the owner of a life insurance policies sells their interest to a third party for
less than the policy’s face amount, but more than the cash value.
126
Life settlements involving variable insurance policies are securities, and firms and associated persons involved in such transactions are subject to applicable FINRA rules. The value of a life settlement depends upon the insured’s life expectancy and the nature and terms of the policy primarily.
Life settlements involving variable insurance policies are securities, and firms and associated persons involved in such transactions are subject to applicable FINRA rules. The value of a life settlement depends upon the insured’s life expectancy and the nature and terms of the policy primarily.
127
FINRA is concerned that aggressive marketing tactics, fueled by high commissions, may lead to inappropriate sales practices in connection with these transactions.
FINRA is concerned that aggressive marketing tactics, fueled by high commissions, may lead to inappropriate sales practices in connection with these transactions.
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Registered firms and their associated persons are under FINRA rules when recommending or facilitating a variable life settlement. Rules to be aware of include: suitability, due diligence, best execution, supervision and training and compensation.
Registered firms and their associated persons are under FINRA rules when recommending or facilitating a variable life settlement. Rules to be aware of include: suitability, due diligence, best execution, supervision and training and compensation.
