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CFP > CFP Gen Prin > Flashcards

CFP Gen Prin Flashcards

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CFP® flashcards
1
Q

PITI max percentage

A

28% of gross income

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2
Q

Total monthly debt max percentage

A

36% of gross income

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3
Q

Total consumer debt percentage

A

20% of net income

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4
Q

Current ratio formula

A

Current assets / current liabilities

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5
Q

Current Assets

A

Cash equivalents, marketable securities, accounts receivable, inventory

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6
Q

Current liabilities

A

Accounts payable, credit card debt, taxes payable

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7
Q

How does an Investment Advisor register with SEC?

A
  1. Initially files the ADV Part I and II with SEC
  2. Pays minimum $150 filing fee
  3. RIA must submit Part I of ADV and Schedule I annually
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8
Q

Exemptions to filing as an Investment Advisor

A

• Adviser who’s clients are insurance companies
• Family office

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9
Q

Reserve Requirement

A

Money reserve requirement the Fed sets for its member banks.

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10
Q

Discount rate

A

Rate the Fed charges its member banks to borrow to satisfy reserve requirements

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11
Q

Repo

A

Fed buys securities for easy money policy

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12
Q

Reverse Repo

A

Fed sells securities for tight money policy

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13
Q

Prime Rate

A

Rate commercial banks charge their best customers

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14
Q

Depression

A

6 consecutive quarters of decline in real GDP

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15
Q

RIA registration requirements

A

< $100million must register with their state

• may wait until assets REACH $100 million before registering with SEC

• MUST register with SEC when AUM is at $110 million

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16
Q

Who does FINRA regulate?

A

Broker dealers

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17
Q

Who does SEC regulate?

A

Advisory based businesses or $100 million in management

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18
Q

If NPV is positive, the IRR is > or < the Required ROR?

A

Greater than
Client should pursue investment

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19
Q

If NPV is negative, the IRR is > or < the Required ROR?

A

Less than
Client should not pursue investment

20
Q

If NPV is 0, the IRR is > or < the Required ROR?

A

Is equal

21
Q

CFP fiduciary duties

A

Duty of loyalty
Duty of care
Duty to follow client instructions

22
Q

Reserve requirement money policy

A

Reduce reserve requirement = easy money

Increase reserve requirement = tight money

*Fed rarely changes reserve requirements due to the “multiplier effect”

23
Q

Discount Rate money policy

A

Lower the discount rate = easy money

Raise the discount rate = tight money

24
Q

Open market operations money policy

A

Repo/Buy bonds = easy money

Reverse Repo/sell bonds = tight money

25
Q

Margin rates monetary policy

A

Decrease in Margin T required = easy money

Increase in Margin T required = tight money

26
Q

Fed Funds Rate

A

Excess reserves maintained at the Fed by member banks. The charge for overnight loans from one bank to another.

27
Q

Leading economic indicators

A

• Initial claims for unemployment
• New manufacturing jobs
• new private housing units
• Stock prices / S&P 500
• Index of consumer expectations

28
Q

Coincident economic indicators

A

• industrial production

29
Q

Lagging economic indicators
Aka confirming indicators

A

• avg duration of unemployment
• avg prime rate
• commercial and industrial loans outstanding
• ratio of consumer installment credit outstanding to personal income
• change in the CPI for services

30
Q

GDP

A

Measures dollar value of all final goods and services newly produced WITHIN the country. Does not account for inflation.

31
Q

PPI

A

Index of the price of various items such as farm products and industrial commodities.

Leading indicator of inflation trends

32
Q

Durable goods or hard goods

A

Items which don’t wear out quickly. They are cyclical.

Cars, appliances, business equipment,etc.

33
Q

Nondurable goods or soft goods

A

Used up immediately and have short life spans. People always need them.

Cosmetics, food, fuel, etc.

34
Q

Express authority

A

WRITTEN, explicit direction from principal (the insurance company) to the agent

35
Q

Implied authority

A

Public believes the agent has and is based on such indicators as signage, rate books, etc. Actual authority that the agent has to carry out the principal’s business in accordance with general business practices

36
Q

Apparent Authority

A

Negligence of the principal in allowing the agent to appear to have the authority because of past actions of the agent.

37
Q

3 ways an insurance agent’s authority can legally bind the principal (insurer)

A

Implied authority
Apparent authority
Express authority

38
Q

Ch. 13 bankruptcy

A

Reorganization: payments are usually negotiated to a more manageable amount. Advantage is debtor generally isn’t required to relinquish assets.

39
Q

Ch. 7 bankruptcy

A

Permits debtor to claim either the federal exemptions or the exemptions available under state law. 33 states have opted out of federal exemptions.
Lucky #7 - wipes out all debt.

40
Q

Ch. 7 bankruptcy exemptions

A

• Homestead
• limited amount of personal property
• wages due to head of a family
• limited amount of equity in a motor vehicle
• pension and retirement plan rights
• CV LI/proceeds of annuities
• DI benefits/unemployment/worker’s comp
• Property held TBE

41
Q

Ch. 7 bankruptcy means test

A

• if avg monthly net income for 60 months is > $10k, Ch. 7 IS NOT an option
• if avg monthly net income for 60 months is < $6k, Ch. 7 is allowed
• between the amounts it might be allowed

42
Q

Ch. 7 bankruptcy effect on IRAs, Coverdells, and 529s

A

• Roth and Traditional IRAs over $1mm are not protected (does not apply to SEP/SIMPLE)
• Rollover IRAs the exemption is unlimited unless it exceeds the debtor’s need. The excess will not be exempt.
• Coverdells and 529s opened within 2 years OR non-child/grandchild beneficiaries are not protected

43
Q

Ch. 7 bankruptcy credit counseling

A

Must show proof of completed consumer credit counseling within 6 months of filing.

44
Q

Consumer Credit Protection Act aka Truth in Lending

A

• interest must be reported as APR
• credit terms must be disclosed, including fees, points, prepayment penalties, etc
• lost or stolen credit cards have limited liability of $50/card

45
Q

Debts not cancelled by Ch. 7 bankruptcy

A

• student AND government loans
• alimony and child support
• wage withholding and FICA obligations/recent income taxes due

46
Q

What assets are excluded from the Effective Family Contribution (EFC)?

A

• Small businesses that are owned/controlled w/ > 50% ownership and less than 100 employees
• retirement assets of parents OR student
• life insurance CV

47
Q

What is the EFC contribution rate for parents and students?

A

Parents: 5.64% of unprotected assets
Students: 20% of unprotected assets

CFP (7 decks)

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