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Austin CFP Flashcards > Austin Fundamentals of Financial Planning Deck > Flashcards

Austin Fundamentals of Financial Planning Deck Flashcards

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CFP® flashcards
1
Q

FAFSA Asset Rules

A

Assets on Fafsa Application Include:
1. Cash; Savings; checking accounts
2. Businesses
3. Investment Farms/ Investment Real Estate
4. Investmets (securities; bonds; etc)
5. UTMA Accounts

Excluded From Assets on Fafsa:
1. Personal Residence
2. Life Insurance
3. Retirement Plans

529 Plans:
1. Asset of the parent if set up by the parent
2. Asset of the grandparent if set up by grandparent
3. Distributions from the 529 are NOT counted as student income if owned by the parent or student

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2
Q

Disciplinary Actions of the CFP Board (ADD MORE)

A

Disciplinary Action is handled by the Disciplinary and Ethics Commission

CFP Board DOES NOT:
1. Impose monetary fines
2. Does not enforce its rules through the CFPs Employer
3. Does not enforce rules through public trial

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3
Q

Common Planning Benchmarks

A
  1. Life Insurance: 10-16 TIMES gross pay
  2. Disability: 60-70% of gross pay
  3. Home and Auto: Greater than FMV of stuff
  4. LTC: 36-60 months
  5. Emergency Fund: 3-6 months (of non-discretionary)
  6. Housing/ Debt: 28% and 36% Gross
  7. Savings Rate: 10-13%
  8. Retirement Savings: 16 TIMES gross pay
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4
Q

Business Life Cycle:

A

Expansion
1. Increasing: GDP, inflation and interest rates.
2. Decreasing: unemployment rate
Peak
1. Highest: GDP; Inflation; interest rates are peaking and the
2. Lowest: unemployment rate
Contraction/Recession
1. Increasing: Unemployment Rate
2. Decreasing: GDP; Inflation; interest
Trough
1. Highest: Unemployment
2. Lowest: GDP; inflation; interest rates being

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5
Q

Economic Definitions

A
  1. Recession: 2 consecutive quarters (6 months) of declinging GDP
  2. Depression: Recession becomes a depression if the recession last for 6 consecutive quarters (18 months)
  3. Deflation: Opposite of inflation (cash is INCREASING in value)
  4. Disinflation: a SLOWDOWN in the rate of inflation (not deflation)
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6
Q

Federal Reserve: 3 Goals

A
  1. Maintain long-term economic growth
  2. Maintain Price levels supported by the economy
  3. Maintain full employment
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7
Q

Federal Reserve: 4 Tools to influence Money Supply

A

1. Reserve Requirement: Percentage of of deposits a bank must maintain in cash
**2. Discount Rate: **Overnight interest rate at which member banks can borrow from the Federal Reserve to meet reserve requirements
3. Open Market Operations: When the Federal Reserve Buys or Sells government securities
4. Excess Reserves: money that a bank holds at the Federal Reserve or Central Bank in excess of the reserve requirement

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8
Q

FDIC Insurance

A

Each depositor has a total of $250,000 of insurance per type of account ownership.

Four types of ownership:
1. Individual accounts.
2. Joint accounts.
3. Trust accounts.
4. Self-directed retirement accounts.

Accounts at separate banks each receive $250,000 of insurance.

Each person is deemed to own 50% of joint accounts.

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9
Q

Balance Sheet

A

Characteristics:
1. Listing of Assets; Liabilities; Net Worth
2. Snapshot “at a moment in time” “As of 20xx”
3. Assets - Liabilities = Net Worth

Organiztion:
* Organized from Short to Long Term

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10
Q

Federal Pell Grant

A
  1. Strictly Need based and dependent on the EFC amount
  2. EFC determines a student’s eligibility and how much is awarded
  3. ONLY for undergraduate degree
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11
Q

Stafford Loan

A
  1. Student Loan/ financial aid provided by the U.S Dept. of Education
  2. Repayment begins 6 months after graduation
  3. not ideal if parents plan to pay back the loan

Unsubsidized Stafford Loans (What I have):
1. NOT needs based
2. Interest begins accruing when the funds are disbursed (accumulates while in school)

Subsidized Stafford Loans:
1. NEEDS BASED
2. Interest is paid for by the federal gov while in school

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12
Q

PLUS Loan (Parental Loan)

A
  1. The PLUS loan is NOT need based, but depends on the parents credit score.
  2. PLUS loans are not subsidized.
  3. PLUS loans are appropriate for parents who can afford to make a loan payment, but may not have saved anything for education.

TIP: Wealthy parents are a “PLUS.”

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13
Q

Perkins Loan

A

Perkins Loan Program is for VERY POOR students

Need Based for students with very low EFC

Expired in 2017

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14
Q

529 Plan

A
  1. Typically for parents or grandparents that wish to contribute to a savings/ investing plan for kid’s savings (can be used for secondary; elementary; private education)
  2. After tax contributions ONLY, but any appreciation is TAX FREE if used for qualified education expenses
  3. ASSET OF THE PARENT (or owner of the account)
  4. 5 year Front Load: 5x annual gift exclusion can be made in a single year ($80,000 Single; $160,000 MFJ)
  5. NEVER a phaseout based on income
  6. managed by the grantor
  7. Can pay UP TO $10,000 per year for tuition at primary schools (anything under highschool) and UNLIMITED amount for qualified expenses at secondary schools (Highschool)

Penalties:
1. 10% penalty on earnings and the earnings are included in gross income (taxed at income) if not used for education expenses

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15
Q

Series EE savings Bonds

A
  1. Purchased at face value
  2. Parents must own the bonds and Parent must be at least 24 years old
  3. NO FEDERAL income tax on interest if used to py for qualified education expenses
  4. Must be redeemed in the same year as the education exp
  5. Can be rolled into a 529 plan OR Coverdell
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16
Q

Uniform Transfers to Minors Act (UTMA Account)

A
  1. Assets are an asset of the child for FASFA (CAN be rolled into a 529 plan AS LONG AS UTMA and 529 are same bene)
  2. Taxation of unearned income (interest, dividends and capital gains) may be subject to the kiddie tax.
  3. If the child is 19 or older then unearned income is taxed at child’s rate.
  4. The primary risk is that a child can use assets for something other than education.
    An UTMA: CAN include real estate
    An UGMA: CANT have real estate
17
Q

American Opportunity Tax Credit (AOTC)

A
  1. Tax Credit for tuition and fees for the FIRST 4 YEARS of undergrad college
  2. Limit can ONLY be used for the first 4 years of degree
  3. CANNOT be used for the same child in same year as lifetime learning credit
  4. CANNOT be used on the same expense that is reduced by lifetime learning credit
  5. CAN be used in the same year as a 529 withdrawal BUT not on the same expense

Formula:
1. 100% of FIRST $2,000 in expenses
2. 25% of second $2,000 in expenses
Max Credit: $2500 (if you have $4,000 in expenses)

18
Q

Lifetime Learning Credit (LLC)

A
  1. Lifetime Learning Credit is available for tuition and fees related to undergraduate/ graduate/ professional program
  2. Can be claimed for an UNLIMITED number of years

Credit Formula:
1. 20% of up to $10,000 in expenses per year
2. $2,000 is maximum credit limit per year PER FAMILY

19
Q

Fiduciary Duty (3 Sub-Duties)

A

Duty of Loyalty:
1. Place the interests of the Client above the interests of the CFP® professional and the CFP® Professional’s Firm
2. Avoid COIs or Disclose them and obtain consent
3. Act without regard to the CFP

Duty of Care:
1. Must act with care, skill, and diligence in light of the clients goals, risk tolerance, objectives

Duty to Follow Client Instructions:
1. CFP must comply with all terms of the engagement and all reasonable and lawful directions of the client

20
Q

4 Duties Owed to Clients (FDIP)

A

Fiduciary Duty:
* Consist of 3 Duties: Care, Loyalty, Follow Client Direction
Diligence:
* Must provide provide professional services including responding to client request in a TIMELY MANNER
Integrity:
* Honesty and Candor
* Never act in a deceitful manner or attempt to scheme or defraud or mislead
Professionalism:
* CFP must treat clients and prospects with dignity, courtessy, and respect

21
Q

Privacy Policy

A

Must be WRITTEN in:
1. Financial Planning Arrangement
2. Financial Advice Arrangement

*Remember: Financial Planning arrangement has a HUGE list of things required to be written BUT ONLY privacy policy must be written for BOTH Financial Planning and FInancial Advice

22
Q

What must a CFP do on a recurring basis

A
  1. A certificant shall meet all CFP Board requirements, including continuing education requirements, to retain the right to use the CFP® marks.
  2. Continuing education requirement for CFP® Certificants are 30 hours every two years, of which, 2-hours must be CFP Board ethics.
23
Q

When must a CFP notify the CFP Board when charged or convicted

A

General Rule: Must Notify the CFP board IN WRITING within 30 days of incident

Exceptions:
1. Misdemeanor traffic offenses UNLESS it involves the use of drugs or alcohol

24
Q

EXCEPTIONS to SEC Registration

A
  1. Broker/ Dealer hose advisory services are solely incidental to the conduct of business.
  2. Lawyers, accountants, teachers and engineers whose advice is solely incidental to their profession.
  3. Banks and bank holding companies that are not investment companies.
  4. Publisher of a bonafide newspaper, magazine or periodical of regular circulation.
  5. Advisers whose advice and services are related strictly to securities guaranteed by the United States government.
25
Q

EXEMPTIONS from SEC Registration

A
  1. Advisers whose client’s reside in their state of business and who don’t provide advice, services, analyses or reports regarding nationally listed securities.
  2. Advisers whose only clients are insurance companies.
  3. Advisers solely to venture capital funds.
  4. Advisers solely to private funds less than $150 million.
  5. Foreign advisers without a place of business in the United States.
26
Q

Securities Act of 1933 and 1934

A

Securities Act of 1933
* Regulates the issuance of new securities (the primary market)
* Requires that new issues are accompanied with a prospectus before purchase

Securities Act of 1934:
* Regulates the secondary market and trading of securities
* CREATED THE SEC! To enforce compliance with security regulations and laws

27
Q

Investmentment Company Act of 1940

A
  • Authorized the SEC to regulate Investment Companies
  • 3 types: Open Ended; Closed Ended; Unit Investment Trusts
28
Q

Investment Advisors Act of 1940

A

Requires investment advisors to register with the SEC or the State depending on asset size

*Less than 100 mil = State
* 100 -110 mil = Choice
* Over 100 Mill = SEC

29
Q

Securities Investors Protection Act of 1970 (SIPC)

A
  • Protects investors for losses resulting from broker firm failures
  • Accounts of member firms are covered for clients regardless of client citizenship
  • Does not protect investors from incompetence or poor investment decisions
  • Losses are LIMITED to 500k/ 250k in cash per account
30
Q

Treasury Securities

A
  1. Treasury Bills: less than 1 year
  2. Treasury Notes: 1- 10 years
  3. Treasury Bonds: Greater than 10 years

Exempt from STATE and Local Taxes

31
Q

What is the Efficient Market Hypothesis (EMH)

A
  1. Weak Form:Historical information does not help investors get above average returns (rejects Technical Analysis)
  2. Semi-Strong Form: Historical and Public information will not help achieve above avg returns (rejects tech and fundamental)
  3. Strong Form: Historical; Public; and Private information will not give above avg returns (rejects tech; fund; and insider info)
32
Q

Standard Deviation Definition and Characteristics (distribution)

A

Standard deviation is a measure of risk and variability of returns (High = more risk; Low = Less Risk)
Measures of the range of returns around an average
Can be used to determine TOTAL risk of an UNDIVERSIFIED portfolio
Bell Curve/ Distribution Levels
1. 1st: 68% Probability (34% on either side)
2. 2nd: 95% Probability (47.5% on either side)
3. 3rd: 99% Probability (49.5% on either side)

33
Q

Bond Duration

A

Duration is a measure of how much a bond price will change when interest rates move; Interest rate sensitivity
1. Average Weighted to time horizon
2. Zero Coupon Bonds ALWAYS have the highest duration
3. Inverse relationship with Interest Rates of the FED
Relationships:
1. Direct Relationship: Years to maturity
2. Inverse Relationship: Coupon; yield; interest rates

34
Q

Private Placements and Rules

A

Private Placement:
Sale of a stock or bond to pre-selected people rather than publicly on the open market
Private Placement Requirements:
1. Can ONLY be sold to 35 NON-ACCREDITED investors
2. Unlimited number of Accredited Investors
Accredited Investor Definition:
1. Has a net worth OVER $1 million, either individually or together with a spouse (excluding the value of a primary residence)
2. Earned income of more than $200,000 (or $300,000 MFJ) in each of the last two years

35
Q

Workers Compensation

A
  1. Workers’ compensation is a federally and state mandated program which provides benefits for Workers suffering injury or illness on the job
  2. if the injured worker accepts workers compensation benefits, the employer is protected from employee lawsuit
36
Q

FDIC Protection Limits

A

Stolen Card
1. Maximum on any missing credit card that client would have to pay is $50
2. If a thief only charges $25, the holder is liable for the whole amount

FDIC Insurance Coverage
1. FDIC insurance covers up to $250k per account
2. Only Cash; Normal Money Market; and CDs are covered by the insurance
3. Money Market Mutual Funds ARE NOT covered by FDIC
4. IRA/ Retirement Accounts CAN be covered, but ONLY if invested in cash/ CD/ MM (not mf)
5. Joint accounts have split coverage

Austin CFP Flashcards (10 decks)

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