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CFP > CFP General Principles > Flashcards

CFP General Principles Flashcards

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CFP® flashcards
1
Q

Securities Act 1933 / 1934

A

1933 - new issues/primary offerings
1934 - regulates secondary market & created SEC

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2
Q

CRD #

A

FINRA Central Registration Depository System number
makes it uniform across states

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3
Q

Investment Acts 1940

A

Company Act 1940 - UIT and managed investment COMPANIES
Advisors Act (IAA) 1940 - monitors Advisors

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4
Q

SIPC securities investors protection act 1970

A

protects from failure of brokerage firm, not bad investing

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5
Q

FDIC coverage account/ownership categories

A

Individual, Joint, Trust, IRA
Per Owner, Per Category, Per Bank
types of insured accounts: Checking, savings, CD, MMDA

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6
Q

Fiscal vs Monetary policy

A

Fiscal - set by congress
Monetary - set by the Fed

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7
Q

Structured settlement

A

Voluntary agreement for personal injury
Stream of tax free payments
private or court order
personal injury
no lump sum

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8
Q

PRIME rate

A

consumer interest rate

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9
Q

Fed funds rate

A

not set by Fed
what banks charge each other
not the right answer for monetary policy!

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10
Q

Open market operations

A

Federal Open market committee (FOMC)
repo / buy bonds
reverse repo / sell bonds
buy = expand (BE
sell = tighten ST)

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11
Q

Monetary policy levers

A

Margin rates
Reserve req’s
Discount rate

Inverse relationship
Decreases - expansionary/easing
Increases - tightening / contracting

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12
Q

FINRA Series exams 6 vs 7

A

Series 6: mutual funds, UIT, variable life, variable annuities, 529 (NOT closed end mutual funds )
Series 7: all securities except commodities and certain options

selling variable insurance contracts requires both 6 or 7 and state life insurance license

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13
Q

FINRA Series 65

A

Registered Investment Advisor
don’t need if you are CPA or CFP
different than series 6/7 which just buys/sells securities

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14
Q

Cyclical vs Defensive Industries
Durable vs non durable goods

A

Durable goods - business equip, autos, appliances, farm/electrical equipment
» Cyclical industries have HIGHER sensitivity
Think DURABLE lasts THRU cycles but affected BY cycles
Outperform at beginning of recovery (people go back to buying)

Non durable (consumable)
Not affected by recession because always needed
OUTPERFORM at beginning of recession

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15
Q

Reverse mortgage requirements

A

age >= 62
no income quals
no payments
tax free
repaid when owner dies/moves
can have existing principal due

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16
Q

Required documentation in WRITING

A

Privacy policy for Advice OR Planning
All docs for Planning except Matl Conflicts of Interest

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17
Q

Definition of Advisor for SEC perspective

A

Advice + Business + Comp
exceptions: BLAT
Bank, Lawyer, Accountant, Teacher

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18
Q

ADV Part I

A

Background, Locations, Forms of Business, Disciplinary Action, Investment Philosophy

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19
Q

ADV Part II

A

Brochures
18 separate itemsk
nature of business, fee structure, investment strategies, conflicts of interest, brokerages, etc.

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20
Q

Form CRS

A

Client/Customer relationship summary
(condensed ADV)

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21
Q

Debts not cancellable by bankruptcy

A

Student loans
government loans
Child support
alimony
Recent income taxes due/wage withholding and FICA obligations

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22
Q

Bankruptcy exemptions

A

Varies by state:
homestead
Head of family wages if caring for child or dependent
pension and retirement plan (ERISA)
TBE property
Disability/workers comp/unemployment benefits
Cash value of life insurance/proceeds of annuity contracts

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23
Q

Residence interest deduction limits

A

Up to $375K / $750K MFJ

24
Q

Change in net worth due to mortgage paydown / Change in mortgage principal balance

A

Mortgage paydown = Increase in net worth/decrease in liabilities

Net worth change MINUS assets change

25
Q

Calculate monthly mortgage payment

A

END mode
PV = mortgage amount
12 P/YR
N = years (x 12)
I = rate
solve for PMT

26
Q

Mortgage P&I for less than life of loan

A

END mode
12 P/YR
30 Gold x P/YR = 360
I = rate
PV = mortgage amount
FV = ZERO
solve for PMT
THEN
1 INPUT 120 (1st payment to last payment) this is for 10 years
GOLD AMORT
Then = = = to cycle

27
Q

College Funding Calc

A

Step 1: cost of first year of college- inflate current PV cost by # of years til college and expected INFLATION rate

Step 2: BEG MODE determine amount at age 18
Step 1 result = PMT
n=4
i = REAL rate
PV Solve (should be less than PMT x 4)

Step 3: determine how much to save (PV or PMT annually)
step 2 = FV
n = # of years til college
i = earnings rate
Solve PV or PMT

28
Q

Qualified Tuition Plan/Program

A

529
two types:
college saving or prepaid tuition

29
Q

Coverdell (AKA ESA!)

A

$2k limit per student (not per donor)
ESA education savings account
better than EE bonds but not enough
can be used for K-12 but now so can 529’s
distributed by age 30
asset of the parent

Coordinates with AOC, LLC and 529

30
Q

AOC American Opportunity Credit

A

100% of first $2k
25% of next $2k
max $2500

MAGI phase out
NO FELONY Drug conviction allowed

Coordinates with LLC, Coverdell ESA and 529

31
Q

Lifetime Learning Credit

A

20% of first $10k
max $2000
MAGI phaseout
Lifetime = felony drug conviction allowed

Coordinates with AOC, Coverdell ESA, and 529

32
Q

Emergency fund must cover…

A

3-6 mos Fixed + Variable + Real Estate Taxes

33
Q

Where to store emergency funds?

A

Checking
Govt money market
CDs <= 90 days
savings accounts
Laddered CDs <= 6 months

if checking account < one month of expenses it counts as 0 towards emergency fund

34
Q

Current Assets / Current Liabilities

A

Current assets: cash equiv, marketable securities, A/R, inventory. NOT 401k or IBonds.
Current Liab: cash owed, A/P, credit card debt, taxes payable, current amount of mortgage due

35
Q

Alimony deductibility (pre 2019)

A

tax deductible if:
directly paying ex spouses rent, mortgage, tax, or tuition

life insurance premium payments if policy owned by ex spouse where payor is insured

NOT deductible:
non cash services, promissory notes, use of property
payments to maintain property owned by the payor

36
Q

Compensatory vs Punitive damages

A

Compensatory for personal injury- tax free, except interest
Punitive - taxable - except wrongful death

Compensatory for discrimination or non personal injury - taxable except for medical expenses

37
Q

Lottery winnings

A

choice of lump sum or annuity - taxable irregardless for full value in gross income

choice of cash or annuity and chooses payout over 10 years - taxable as rec’d (“qualified prize options”)

Basically < 10 years, taxable upfront
>= 10 years taxable as received

38
Q

Deflation, Disinflation, Stagflation

A

Deflation - opposite of inflation - decline in prices
Disinflation - downward movement of inflated prices - slowing down
Stagflation - slow econ growth + high unemployment (stagnation)

39
Q

FICA

A

Social Security and Medicare (FICA)
Regardless of the amount employees contribute to Social Security and Medicare, employers are responsible for filing the entire tax. Once the total liability has been calculated and the correct amountsubtracted from employees’ paychecks, the remaining portion must be paid by the employer.

Social Security: 6.2%. Frequently labeled as OASDI (it stands for old-age, survivors and disability insurance), is withheld on the first $160,200 of wages in 2023.
Medicare: 1.45%. Additionally, employers typically have to withhold an extra
0.9% on compensation over $200K (single)/$250K (MFJ).

40
Q

FUTA

A

Together with state unemployment insurance programs, employees who lose their jobs may be entitled to payments through the Federal Unemployment Tax Act. This tax cannot be deducted from employee
wages, because it is solely an employer tax.

41
Q

Which situations are subject to FICA/FUTA?

A

NO:

EE contributions to FSA
ER contributions to HSA

ER matching contributions to 401k plans

Section 125 plan

Distributions from IRA
Contributions to non qualified deferred comp - not reqd due to risk of forfeiture

Yes:
EE contributions to HSA, unless a section 125 cafeteria plan
Section 457 - treated as deferred comp
401k plan Elective deferrals - subject to F/F but not ord income tax
ER payments to section 162 programs (bonus in form of life/disability treated as income)

Social security retirement benefits
Distributions from non qualified deferred comp plans - treated as wages
Earnings distributed from Roth

42
Q

Section 121

A

Sale of residence
Exclude gain up to 250K / 500K MFJ
must be principal residence and lived in 2 of 5 years
Exception: less than 2 years but moving b/c of new job, health reasons, or “unforeseen circumstances”, only if GREATER THAN 50 miles

Exclusion amount is prorated if less than 2 years

reported on schedule D
Can be netted with other gains/losses

43
Q

Section 179

A

Expensing 1245 tangible property used in business (instead of depreciating) in the year of acquisition
up to $1.22 M
not to exceed profits/income

44
Q

1245 vs 1250 Property

A

1245 CAT Computer Auto light Truck (5 years)
1245 Office furniture (7 years)
1250 Residential rental property - REAL PROPERTY (27.5 years)
1250 Non residential - REAL PROPERTY (39 years)

45
Q

Section 1031

A

Like kind exchange of property

46
Q

Section 1035

A

Exchange of life / annuity

47
Q

Section 197

A

Amortization of intangibles (good will, logos, copyright)
straight line 15 years

48
Q

Section 1231

A

Umbrella for real or depreciable BUSINESS property held > 1 year
taxed at cap gains rate vs ord income

Includes 1245 and 1250

49
Q

709 vs 706

A

709 - gift tax filing - on cloud NINE
706 - estate tax filing - SIX feet under

50
Q

Section 415

A

Limits on qualified retirement plans

51
Q

1244 Stock/Losses

A

closely held small business capitalized initially with < $1m

loss ordinary income up to 50K / 100K MFJ per year + capital loss up to $3k

without 1244 can only take a $3k capital loss and carry forward the remainder

52
Q

1202 Stock Gains

A

Small business
Gain exclusions

Section 1202 allows capital gains from qualified small business stocks to be excluded from federal tax. Among other rules, the stock must be held for at least five years in order to exclude the gains.

53
Q

Section 162

A

Exec bonus plan

A Section 162 bonus plan, also known as an executive bonus plan, is a way for companies to use life insurance to attract, reward, and retain key employees. The plan can be structured in many ways, depending on the company’s needs and goals. Some examples of options include:
Performance tie-in
The bonus amount is withheld or decreased if the employee doesn’t meet certain goals or benchmarks
Double bonus
The bonus is enough to cover the premium and any taxes the employee will owe

ER pays premium directly, not deductible unless company is the owner
BONUS is taxable to EE as phantom income
Double Bonus may be used to cover the taxes

54
Q

Section 83b

A

Re paying taxes on options at grant (up front)

55
Q

Financial Advice that requires Financial Planning
Requiring adherence to financial planning standards

A

A CFP® professional must comply with the Practice Standards, and therefore, provide Financial Planning, when:
a. The CFP® professional agrees to provide or provides:
i. Financial Planning; or
ii. Financial Advice that requires integration of relevant elements of the Client’s personal and/or financial circumstances in order to act in the Client’s best interests (“Financial Advice that Requires Financial Planning”);
or

b. The Client has a reasonable basis to believe the CFP® professional will provide or has provided Financial Planning.

56
Q

CFP Board factors determining whether it is financial advice or financial planning

A

The number of relevant elements of the Client’s personal and financial circumstances that the Financial Advice may
affect;
b. The portion and amount of the Client’s Financial Assets that the Financial Advice may affect;
c. The length of time the Client’s personal and financial circumstances may be affected by the Financial Advice;
d. The effect on the Client’s overall exposure to risk if the Client implements the Financial Advice; and
e. The barriers to modifying the actions taken to implement the Financial Advice.

CFP (7 decks)

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