CFP Final Flashcards
Fee Only Advisor:
May NOT receive sales related comp
Borrowing money as a CFP
Permitted from a family member or client that regularly engages in the business of lending
Fee-Based:
Planner or firm are compensated through BOTH commission and fees
Sales Comp:
Commission, 12 b-1, Bid/Ask spread, TRX fees, Revenue sharing, solicitor fees.
Who is tasked with disciplinary actions?
DEC - Max sentence 5 years.
The Fitness Standards provides the standards against which CFP Board will evaluate the
ethical fitness of a candidate for CFP® certification
PITI
Principal, Interest, Taxes (property), and Insurance (homeowners)
28% of GROSS INCOME (not net)
Debt does not include:
Taxes or insurance
IF NPV is Positive =
If NPV is Negative =
Positive = IRR > RRR
Negative = IRR < RRR
What agencies monitor banks:
FDIC
Fed Reserve
Comptroller of currency
Insurance industry three branches of gov’t:
Legislative passes laws
Courts interprets laws
Executive branch enforces the laws
Who regulates brokerage companies?
Both the SEC and FINRA are involved in regulating brokerage companies, but FINRA is the organization specifically tasked with the direct regulation and oversight of brokerage firms on a day-to-day basis. The SEC regulates THROUGH FINRA
American Opportunity Credit (AOC):
$2,000 + 25% of expense up to $2,500
Only first 4 years of college
MAGI phase outs
Lifetime Learning Credit:
$2,000 max (20% first $10k)
Under grad, grad, continuing ed
MAGI phase outs
Coverdell Withdrawal:
College, must be used by 30
Max contribution in total of $2,000
MAGI phase out
529 and Coverdell accounts are considered:
Treated as parents assets for financial aid
For a business to qualify for COBRA:
Must have 20 employees
Compensatory vs Punitive:
Compensatory tax free
Punitive is taxable
What does the federal reserve influence?
Monetary Policy
- Reserve Requirements
- Discount Rate (Fed reserve charges banks to borrow)
- Open Market Operations
Leading Indicators:
Initial claims for unemployment Insurance
New manufacturing orders
New private housing
Stock prices
Index of consumer expectations
Coincidental Indicator:
Industrial Production
What leads CPI or PPI?
PPI leads CPI
As producer costs rise, tend to pass to the consumer (CPI)
What is the slowing down of prices called?
Disinflation
(Deflation is the decline in the price)
FHA:
Federal Housing Admin
Gov’t guaranteed loans.
Definition Investment Advisor:
All three “ABC”
Advice, Business, Compensation
FINRA Registration:
- Associate with broker dealer
- Register with FINRA through a B/D on form U4
- Pass exams
- Central Registration Depositary (CRD)
Perils (Basic):
WHARVES / FLT
Wind / Aircraft / Riot / Vandalism / Vehicles / Explosion / Smoke / Fire / Lightning / Theft
Perils (Broad):
WHARVES / FLT + RAFF
RAFF
Rupture in system / Artificial Electricity Generated / Falling objects / Freezing
Homeowner Exclusions:
OPEN WIF
Ordinance / Power Failure / Earthquake / Nuclear / War / Intentional loss / Flood
Coinsurance required for residential and commercial buildings:
80% and 90%
Replacement cost vs ACV:
When items replaced on a replacement cost - no deduction for depreciation
Under ACV, losses are replacement cost - depreciation
Disability Insurance
Premiums paid by: EE
Contract owned by: EE
Benefits Tax free
Not deductible for premiums
Disability Insurance
Bonus arrangement Section 162
Premiums paid by: ER
Contract owned by: EE
- Benefits : Tax free (premium included on W2)
- Deductible by ER as a bonus
Disability Insurance
Paid by ER under salary continuation (Group Plan)
Premiums paid by: ER
Contract owned by: EE
- Benefits are taxable
- Deductible by ER
Disability Insurance
Paid by partnership or S Corp
Premiums paid by: Partnership/S Corp
Contract owned by: Partnership/S Corp
- Benefits are tax free
- Deductible by Partnership/S Corp
Skilled nursing Medicare coverage:
- First 20 days paid in full by Medicare
- 21 - 100 co pay ($204 per day)
- > 100 days insured pays in full
Skilled nursing means condition SHOULD get better - no Alzheimer’s
5th Dividend option:
Purchasing 1 year term with dividends
Nonforfeiture Options for insurance:
- Cash out (6 month delay can be imposed**)
- Reduced paid up
- Paid up term
Life Insurance Dividend options:
- Cash
- Reduced premium due
- Accumulate with interest
- Paid up additions
- One-year term (the divided)
Split Dollar Plans:
Endorsement method or Collateral assignment method
Collateral Assignment Method:
EE is the owner
Death of EE ER gets premiums back
EE gets CV or beni gets DB
Endorsement method:
ER owns the policy and retains CV and EE beni gets the balance of DB
BOE
Business overhead expense
When business owner is disabled actual expenses are paid (not salary)
BOE for sole propritors:
Premiums paid on BOE during disability ARE DEDUCTIBLE and proceeds are TAXABLEBOE for
BOE for Corporations:
Premiums are not deductible, but benefits are tax free
Joint life vs joint life and survivor annuity:
Joint and survivor continues
Joint life ceases on death of first annuitant
When purchasing a split dollar policy, endorsement method:
You pay the higher of the CV or premiums paid
Must register with state vs SEC:
Must register with state, Advisers managing between $100 million and $110 million in AUM have the option to register with the SEC or the state but must register with the SEC once they exceed $110 million in AUM.
OID Bonds interest income:
Pay no interest until maturity. However, each year a portion of taxable interest income is included - no interest income but must report taxable - phantom income
Tbill / Notes / Bonds maturities:
Bills: 3, 6, and 12
Notes: 1-10 years
Bonds: 10-30 years
STRIPS discount is treated:
Taxable income earned annually
TIPS:
Taxed annually on interest plus appreciation of face value
EE Bond and I Bonds taxation:
Interest earned is not subject to fed taxation until redeemed, Could instead have interest taxed each year
Indenture:
Formal agreement, deed of tryst between bond issuer and the trustee:
- Form of bond
- amount of issue
- property pledged
- Protective covenant
- Working capital/CR
- Redemption rights
NOI Calc:
Gross Rental Receipts
+ Non rental income
——————————–
= Potential Gross Income (PGI)
- Vacancy/collection losses
= Effective Gross income
- OE
————————————–
= NOI
Intrinsic Value:
IV = NOI / Cap Rate
If correlation is +1:
the weighted avg risk is the MAX
To avoid penalties when estimating tax:
- 90% of current years tax liability
- 100% of prior years liability
- 110% of last years liability if GI is >$150k
Failure to file income tax return:
5% of taxes due each month up to 25%
Failure to pay taxes:
.5% per month up to 25%
Fraud when doing taxes:
75% of under paid amount
Negligence when doing taxes:
20% under payment amount
Frivolous return:
$5,000 - omitting info needed to determine tax liability
MACRS Property Classes:
- 5 Year (1245) “CAT” - Computers, Autos, trucks
- 7 Year (1245): Office furniture
- 27.5 Year (1250): Residential Rental Property
- 39 Year (1250): nonresidential real property
