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Series 65 > Ch 10 Investment Advisory Clients > Flashcards

Ch 10 Investment Advisory Clients Flashcards

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Series 65 flashcards
1
Q

sole proprietorship

A

Pro: taxes pass through to owner meaning not taxed at business level and therefore only taxed once; owner is the taxable entity

Cons: Owner is liable

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2
Q

S corp

A

Max 100 shareholders
Flow through tax so only once l
Limited liability
All shareholders must be US residences or citizens

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3
Q

C corp

A

Unlimited # shareholders
Earnings subject to corporate taxation (FEIN)
Shareholders taxed on dividends (double taxation)

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4
Q

General and limited partnership

A

2+ partners
Flow through taxes (only partners pay, not business entities) reported on K1
Business can demand partners pay more money
Higher likelihood of triggering AMT

General: each partner can run and operate the business is unlimited personal liability. Don’t have to incorporate with state

Limited: at least one general and one limited partner. Limited partner is passive (can’t manage the business) investor with limited liability. File certificate of limited partnership to create

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5
Q

LLC

A

Flow through taxes
Limited liability
Similar to S Corp but easier to set up

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6
Q

Per stirpes vs per capital

A

Per stripes: divided among each branch of the family (eg dad was going to get 1/3 but he died so kids share 1/6 and 1/6). If no kids, surviving kids split it (eg they each get 1/2 instead of 1/3)

Per capital: divided among headcount (eg only children or grandchild). provided equally among each family member of a generation (eg two kids died and living grandkids share deceased parents share)

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7
Q

Who does fiduciary have obligation to for a trust?

A

Beneficiaries, not the grantor/donor

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8
Q

Simple vs complex trust

A

Simple: all income/earnings in trust distributed to beneficiaries each year. No principal distribution

Complex: may retain some earnings and distribute principal

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9
Q

Testamentary vs inter vivos trust

A

Testamentary: created at or after grantors death

Inter vivos aka living trust: created while grantor is living l

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10
Q

Know your customer rules

A

Both BDs and IAs need to understands basics like age, income, time horizon, assets, liabilities, risk tolerance, goals, etc.

It’s not enough to fit their risk tolerance, clients need to understand what they’re buying

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11
Q

ESG investment

A

Environmental, Social, Governance

Focused on long term sustainability in addition to profitability

Social: DEI, human rights, community

Governance related to board diversity, executive comp, shareholder activation (large shareholders can take control of the company)

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12
Q

How are dividends taxed? What about bond interest?

A

Dividend is Max rate of 20%

Bond interest is ordinary income

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13
Q

Common things that impact AMT

A

Certain:
municipal revenue bonds

activities related to limited partnerships

depreciation

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14
Q

Annual gift tax exemption

A

Currently $17K but exam might say $10K adjusted annually for inflation

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15
Q

Basis of a gift

A

Double basis rule

If gain: use original cost and holding period of donor

If loss: use market value at the time of the gift and holding period begins the day after the gift

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16
Q

Stock POA

A

Allows someone to transfer stock ownership to another party

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17
Q

Durable POA

A

In place for disabled or incapacitation

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18
Q

Certificate of incumbency

A

Issued by court to appoint guardian for minor or incompetent

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19
Q

Can claim SS on spouse after divorce?

A

Yes if:
married 10 years
62 or older
Benefit would be larger

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20
Q

Parties in interest vs fiduciary

A

Parties of interest:
Anyone that provides services to a retirement plan (eg BD who manages the plan)

Prohibited form selling/loaning to the plan or using plan for own benefit

Fiduciary:
Provides investment advice or discretionary authority over plan. Must adhere to ERISA 404(b) and (c)

21
Q

ERISA 404(b)

A

Indica (evidence) of ownership
If you own retirement assets managed by a fiduciary, they must be kept within US

Basically like prudent investor standard but for retirement plans

22
Q

ERISA 404(c)

A

Voluntsry guidelines for plan sponsors
Must select and monitor investment options lrhdeng
Provide appropriate investment choices and info about them

23
Q

403(b) vs 457

A

Tax deferred

403(b):
For non profit employees (including teachers)

457:
For state or local government employees

24
Q

Solo 401(k)

A

Literally only for self and spouse.

If you have even one employee, it can’t be used

Can have a Roth

25
Q

IRA withdrawal exceptions

A

No penalty:
- Owner is disabled or dead
- Certain medical expenses
- Birth or adoption up to $5k
- First time home up to $10K
- Qualifying education expenses
- annuity

26
Q

Definition of full time for retirement benefit purposes

A

1 year at 1000 hours OR
3 years at 500 hours

27
Q

Coverdell vs 529

A

Coverdell: $2K/year max. After tax (no deduction) but grows tax free for education (any level). Can transfer to relative m

529: after tax (no deduction) but grows tax free for education (post secondary only). Can pay up to $10k for student loans. Can contribute up to gift tax amount with no gift taxes and can pre fund 5 years

28
Q

Form CRS

A

Provided to client at or before they open an account

Details nature of customers relationship with their financial professional

29
Q

Qualified dividends

A

Maybe by American corporation (included mutual funds) or certain foreign if stock traded in US

held 60 days for common stock or 90 for preferred stock

Max tax of 20%

30
Q

How are government bonds taxed?

A

Federal just at federal level

Muni no federal but maybe state and/or local

Us territory has none

31
Q

Mutual fund taxation

A

Dividends and capital gains distributed are taxed when received, even when reinvested

32
Q

UGMA/UTMA

A

All states have UGMA but not all have updated to UTMA

registered in the name of 1 custodian for benefit of 1 minor

Income is taxed as unearned income

Consider irrevocable so gift taxation applies

No margin trading allowed

33
Q

JTIC

A

Joint tenants in common
When one person dies, their portion refers to their estate and probate begins
Can divide any way, not just 50/50

34
Q

Tenancy by entirety

A

For married couples only
One spouse can’t do anything without consent of other spouse
When one spouse dies, surviving spouse receives their interest

35
Q

Bypass trust

A

Irrevocable
Used by parents to pass assets to children when second parent died
Children don’t have to pay estate taxes

36
Q

HSA penalty

A

20% if non medical and under 65

37
Q

IRA contribution penalty

A

6%

38
Q

Roth IRA: when can earnings be distributed tax free and penalty if not qualified

A

59.5
Dead or disabled
Certain medical expenses or premiums
First time home up to $10k
Qualifying education

If none of these, 10% penalty on earnings

39
Q

QDIA

A

Qualified default investment alternative

Required for some retirement plans (eg 401k)

Plans sponsor must invest in the QDIA which is prohibited from being infested in the employers securities

Many plans use target date mutual funds and balanced funds as their QDIA

40
Q

Too heavy test

A

Key employees:
Own 5% +
Officers above a certain comp level

Considered top heavy if >60% of benefits go to key employees

41
Q

Simple 401k

A

100 or fewer employees
Employer must make match up to 3% or non elective of 2%
No employee contributions

42
Q

SEP

A

Good for self employed
Contributions are directed to SEP IRA

43
Q

Keogh (HR10) plan

A

For self employed income only
Must make same contribution to eligible employees as owner

44
Q

457

A

Allows more reasons to distribute without penalty

Governmental
Some types can be offered to just select groups
Can max out 457 and 403b or 401k

Private
Non profit organizations (eg members of a union, hospital, charitable organizations)
Cannot roll into qualified retirement plan

45
Q

Master limited partnership

A

Type of limited partnership
Provided pass through income (ie no double taxation) but registers with SEC so stock can be sold on exchange

Only for companies in real estate or natural resources

46
Q

Elder financial abuse

A

NASAA required reporting suspected abuse of eligible adults

Eligible adults:
65+ or mental impairment

Adult can designate a trusted contact person for advisor to contact

BD/IA can delay a disbursement if they think someone is taking advantage of an elder but must notify APS agency within 2 days. Max delay of 15 days or until it’s deemed to be safe or extended by APS to 25 days

47
Q

SIPC

A

Securities investor protection corporation

Provides insurance coverage for BD customers in the event of insolvency

Max of $500K with only up to $250k to protect cash

Margin account protection is only for equity balance not market value

Doesn’t apply to personal accordions of firm officers or commodities accounts

48
Q

Subscription agreement

A

Determines the suitability of a potential investor for a limited partnership

49
Q

Tender offer vs offer of securities

A

Tender ofd is offer to buy a security from existing shareholders

Offer of securities would include an investor receiving a security as a bonus for purchasing another security (eg. Bought bonds and received a warrant as a bonus). Stock dividends are not considered an offer

Series 65 (16 decks)

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