Basic Need To Know Flashcards
The 7 practice standards of CFP PROCESS
1) understand Clients
2) identify and select goals
3) Analyze course of action and alt action
4) develop recommendations
5) present recommendations
6) implement recommendations
7) monitor plan
Who must register as investment advisor
ABC
A: give advice
B: business
C: compensation
Expansion (market cycle)
Low inflation
Low interest rates
Low unemployment
WILL LEAD TO
Increase in interest and inflation
Peak (market cycle)
Highest GDP
Low unemployment
WILL LEAD TO
Increased unemployment
Monetary policy
Federal reserve controls money supply and influences interest rates
Ease monetary policy
Increase money supply, decrease interest rates
Tighten monetary policy
Decrease money supply, increase interest rates
4 tools of Fed Reserve for Monetary policy
1) reserve requirement
2) discount rate
3) open market operations
4) excess reserve requirement
Monetary policy: Reserve Requirement
Percent of deposits a bank is requested to maintain in cash
Monetary policy: discount rate
Overnight interest rate banks can borrow from federal reserve
Monetary Policy: open market discount operations
Buying and selling gov bond securities
Monetary Policy: excess reserve rate
Money banks hold at federal reserve in excess of reserve requirement
Ex: higher rate encourages more cash to be held
fiscal Policy
Congress controls spending, taxation and influences money supply and interest rates
3 tools for Fiscal policy
1) taxation
2) spending
3) debt management
FDIC insurance amount
$250k of insurance per ownership per institution
Current Ratio
Ability to meet short term obligations
= current assets / current liabilities
Emergency Fund
Should have 3-6 months saved of non discretionary expenses
= current assets / monthly non discretionary expenses
Housing Ratio: 28%
Monthly housing costs / monthly gross income
Should be less than 28%
Housing ratio: 36%
Monthly housing costs + ALL other reoccurring debt / monthly gross income
Should be less than 36%
PLUS loan
Loan for parents for undergrad students
Needs to relayed in 10 years
Pell Grant
Need based grant, depends on expected family contribution
Undergrad only
Coverdell Education savings account
$2k max contribution per beneficiary
Funds must be distributed by age 30
Income phase outs
Systematic risk
Risk to broader market
Cannot be diversified
Unsystematic risk
Diversifiable risk
Risk tied to company or industry
Types of Systematic risk
Market risk
Interest rate risk
Purchasing power risk
Exchange rate risk
Types of unsystematic Risk
Business risk
Financial risk
Operational risk
ExCeption to Register as Advisor
The Publisher was Broke bc he was LATE to a US Bank
- publishers,
- broker dealers
- L: Lawyers
- A: Accoutants
- T : Teachers
- E : engineers
- banks and bank holding companies
- advisors whose service is strictly US securities guaranteed by US
Structured Communication (Types)
1) Interviewing
2) Advising
3) Counseling
