CFP Gen Prin Flashcards
PITI max percentage
28% of gross income
Total monthly debt max percentage
36% of gross income
Total consumer debt percentage
20% of net income
Current ratio formula
Current assets / current liabilities
Current Assets
Cash equivalents, marketable securities, accounts receivable, inventory
Current liabilities
Accounts payable, credit card debt, taxes payable
How does an Investment Advisor register with SEC?
- Initially files the ADV Part I and II with SEC
- Pays minimum $150 filing fee
- RIA must submit Part I of ADV and Schedule I annually
Exemptions to filing as an Investment Advisor
• Adviser who’s clients are insurance companies
• Family office
Reserve Requirement
Money reserve requirement the Fed sets for its member banks.
Discount rate
Rate the Fed charges its member banks to borrow to satisfy reserve requirements
Repo
Fed buys securities for easy money policy
Reverse Repo
Fed sells securities for tight money policy
Prime Rate
Rate commercial banks charge their best customers
Depression
6 consecutive quarters of decline in real GDP
RIA registration requirements
< $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
Who does FINRA regulate?
Broker dealers
Who does SEC regulate?
Advisory based businesses or $100 million in management
If NPV is positive, the IRR is > or < the Required ROR?
Greater than
Client should pursue investment
If NPV is negative, the IRR is > or < the Required ROR?
Less than
Client should not pursue investment
If NPV is 0, the IRR is > or < the Required ROR?
Is equal
CFP fiduciary duties
Duty of loyalty
Duty of care
Duty to follow client instructions
Reserve requirement money policy
Reduce reserve requirement = easy money
Increase reserve requirement = tight money
*Fed rarely changes reserve requirements due to the “multiplier effect”
Discount Rate money policy
Lower the discount rate = easy money
Raise the discount rate = tight money
Open market operations money policy
Repo/Buy bonds = easy money
Reverse Repo/sell bonds = tight money
Margin rates monetary policy
Decrease in Margin T required = easy money
Increase in Margin T required = tight money
Fed Funds Rate
Excess reserves maintained at the Fed by member banks. The charge for overnight loans from one bank to another.
Leading economic indicators
• Initial claims for unemployment
• New manufacturing jobs
• new private housing units
• Stock prices / S&P 500
• Index of consumer expectations
Coincident economic indicators
• industrial production
Lagging economic indicators
Aka confirming indicators
• 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
GDP
Measures dollar value of all final goods and services newly produced WITHIN the country. Does not account for inflation.
PPI
Index of the price of various items such as farm products and industrial commodities.
Leading indicator of inflation trends
Durable goods or hard goods
Items which don’t wear out quickly. They are cyclical.
Cars, appliances, business equipment,etc.
Nondurable goods or soft goods
Used up immediately and have short life spans. People always need them.
Cosmetics, food, fuel, etc.
Express authority
WRITTEN, explicit direction from principal (the insurance company) to the agent
Implied authority
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
Apparent Authority
Negligence of the principal in allowing the agent to appear to have the authority because of past actions of the agent.
3 ways an insurance agent’s authority can legally bind the principal (insurer)
Implied authority
Apparent authority
Express authority
Ch. 13 bankruptcy
Reorganization: payments are usually negotiated to a more manageable amount. Advantage is debtor generally isn’t required to relinquish assets.
Ch. 7 bankruptcy
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.
Ch. 7 bankruptcy exemptions
• 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
Ch. 7 bankruptcy means test
• 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
Ch. 7 bankruptcy effect on IRAs, Coverdells, and 529s
• 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
Ch. 7 bankruptcy credit counseling
Must show proof of completed consumer credit counseling within 6 months of filing.
Consumer Credit Protection Act aka Truth in Lending
• 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
Debts not cancelled by Ch. 7 bankruptcy
• student AND government loans
• alimony and child support
• wage withholding and FICA obligations/recent income taxes due
What assets are excluded from the Effective Family Contribution (EFC)?
• Small businesses that are owned/controlled w/ > 50% ownership and less than 100 employees
• retirement assets of parents OR student
• life insurance CV
What is the EFC contribution rate for parents and students?
Parents: 5.64% of unprotected assets
Students: 20% of unprotected assets
