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Series 65 - March 2024 > Client Recommendations and Investment Strategies > Flashcards

Client Recommendations and Investment Strategies Flashcards

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Series 65 flashcards
1
Q

Types of Clients

A
  • business entities
  • trust accounts
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2
Q

Business Entities

A
  • sole proprietorship
  • LLC
  • General partnership
  • S corp
  • C Corp
  • Limited partnership
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3
Q

Which business entity profits does not flow though to owners

A
  • c corp (taxed at business level) has double taxation
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4
Q

Ranking Ease of formation

A
  1. Sole proprietorship
  2. LLC
  3. S corp
  4. General Partnership
  5. C Corp
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5
Q

Ease to Liquidate

A
  • C Corp is the easiest to liquidate
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6
Q

Trust Accounts

A
  • living trust
  • testamentary trust
  • simple trusts
  • complex trusts
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7
Q

Living Trust

A
  • must be formed while alive
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8
Q

Testamentary Trust

A
  • only created after death
  • based on clients will
  • contact executor (handles the will)
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9
Q

Simple Trust

A
  • must distribute income annually
  • taxed annually
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10
Q

Complex Trust

A
  • may accumulate income
  • taxed only when there is a distribution
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11
Q

Settlor/Grantor

A
  • provides assets to the trust
  • can be trustee or beneficiary not required
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12
Q

Remainderman

A
  • heirs of beneficiaries
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13
Q

Per Stirpes

A
  • heirs split original allocation
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14
Q

Per Capita

A
  • reallocation of the original allocation
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15
Q

Trust accounts with multiple beneficiaries handling

A
  • based on stated objective in trust agreement (prudent man rule)
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16
Q

Tax Form for Trusts

A

Form 1041

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17
Q

Individual Balance Sheet

A
  • Assets - Liabilities = net worth
  • assets (properties, cash, investment accounts, retirement accounts, jewelry etc)
  • liabilities (mortgages, consumer debt, car loans etc)
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18
Q

Statement of Cash Flow

A
  • inflows: salary, rental income, investment income
  • outflows: taxes, bills, expenses, payments
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19
Q

Most important information when making a suitable recommendation

A

investment objectives (this also counts as non-financial information)

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20
Q

Answering Client Recommendations Questions

A
  • always look for stated investments objectives
  • if safety: US gov, Money market
  • income: corporate bonds, reits, preferred stock
  • growth: common stocks (longer time horizon)
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21
Q

Time Horizon

A
  • length of time until death (in retirement)
  • life expectancy
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22
Q

Capital Market Theory

A
  • CAPM (risk vs return)
  • efficient market hypothesis
  • modern portfolio theory
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23
Q

Efficient Market Hypothesis

A
  • all markets are efficient and information is already effected in price
  • weak (least amount known, price/volume, fundamental analysis helps)
  • semi strong (only insiders can out perform, all public information is known)
  • strong (all public and private insider information is known)
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24
Q

Modern Portfolio Theory

A
  • diversification of different asset classes to maximize returns based on risks
  • more risk is greater return.
  • efficient frontier (optimally efficient portfolios)
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25
Q

Portfolio Management Styles

A
  • strategic vs tactical
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26
Q

Strategic Management styles

A
  • asset allocation
  • rebalancing
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27
Q

Tactical Management Strategies

A
  • investments based on current market conditions
  • market timing
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28
Q

Buy and Hold

A
  • very low expenses
  • very tax efficient
  • passive
  • least appropriate for wrap accounts
  • NOT STRATEGIC
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29
Q

Growth Style

A
  • growth of sales and profits
  • growth of earnings and growth of earnings momentum
  • higher P/E (20+)
  • low dividend payout or none at all
30
Q

Value Style

A
  • stable earnings
  • low P/E
  • higher dividend payout ratios
31
Q

Diversification

A
  • negative correlation (lower means more diverse) - reduces overall risk of portfolio
  • on chart look for correlation coefficient (look for lowest number)
  • international stocks are not perfectly correlated with domestic securities
32
Q

Sector Rotation

A
  • tactical style
  • rotate during business cycle
  • cyclical = buy at trough
  • non-cyclical/defensive = peak to recession
33
Q

Dollar Cost Averaging

A
  • invest the same amount on a regular basis
  • finding average price (add all up divided by number of occurrences)
  • finding average cost (find number of shares divided by total money put in)
34
Q

Traditional vs Roth IRA

A
  • traditional IRA vs Roth IRA (can only contribute with earned income)
  • traditional IRA (tax deferred, can be deductible from taxes, 10% penalty exceptions, RMDs @ 73)
  • Roth IRA (tax-free, not deductible, 10% penalty exceptions, no RMD, can contribute after 73 with earned income)
35
Q

What can be invested in an IRA

A
  • NO life Insurance
  • NO muni-bonds, inappropriate due to tax status
  • YES to Gold Coins minted by US and US only
  • YES only if business property (cannot be for personal use)
36
Q

Tax-exempt co./org or nonprofits Retirement Plan

A
  • 403(b)
37
Q

City Fireman Retirement Plan and other Government workers

A
  • 457 plan
38
Q

Defined Benefit vs Define Contribution plan

A
  • DB - based on average salary last 3 years, benefits older employees
  • DC - based on percentage deferred from own salary, benefits younger employees
39
Q

Money Purchase Plan

A
  • profit sharing
  • mandatory contributions from company
  • not mandatory from employee
40
Q

QDRO

A
  • divorced, separate retirement assets (qualified only)
  • payee (ex spouse) still taxable upon withdrawal but no 10% early withdrawal penalty
41
Q

Retirement Plan Taxes

A
  • taxed as ordinary income
  • includes variable annuity
42
Q

AGI

A
  • pre 2019 divorce
  • child support is never
43
Q

Inherited Shares

A
  • stepped up to market value at death
  • if gifted, gift original costs
  • alternative death value - 6months after as long as estate taxes are paid within 9 months
44
Q

Gift Tax

A
  • the one giving the gift pays the tax
45
Q

ERISA

A
  • governs private sectors (corporations)
  • no government retirement plans
  • minimum of 3 retirement selections
  • eligibility, 21 and 1000 hours in past 12 months
  • require Summary Plan documents
46
Q

Investment Policy Statement

A
  • not required but is good business
  • do not confuse with summary plan document (required by law)
  • does NOT note individual security selection criteria
47
Q

IA has fiduciary duty

A
  • to plan participants
  • IA provide plan participants of IPS
48
Q

Summary Plan Documents

A
  • Required by Plan Sponsor
49
Q

Special Accounts

A
  • JTWROS - find with spouses
  • TIC
  • Totten Trust
  • 529 plans
50
Q

JTWROS

A
  • avoids probate
  • passes to survivor
51
Q

TIC

A
  • non-spouses typically
  • probate
  • percentages pass through to that persons estate
  • undivided shares
52
Q

Totten Trust (POD(same as TOD))

A
  • retain access while alive
  • passes at death
53
Q

529 Plans

A
  • donor retains Control (UT/GMA is not like this)
  • grow and can be used tax free for education but tax deferred otherwise
  • may use to go back to school or for sons medical school > indicates desire for control
54
Q

Coverdell

A
  • max contribute $2k per child
  • can revoke, donor contains control
55
Q

UTMA/UGMA

A
  • one custodian to one child (1:1 is only way)
  • limit is unlimited (taxable after gift tax exclusion)
  • donor is responsible for gift tax
  • reregister in child’s name at age of majority
  • all gifts to UGMA/UTMA are irrevocable
  • child has control
  • UTMA is legal age up to 25
56
Q

Trading Securities

A
  • exchange - must be listed on exchange
  • over the counter
57
Q

Trading Listed Securities

A
  • specialist/ designated market market
  • at exchange on floor bringing buyer and seller together
  • customers buy at ask (offer) and sell at bid, always buy at higher price.
58
Q

Over-the-Counter

A
  • unlisted
  • trade through network of BDs
  • BDs register with FINRA to maintain market (updates prices through NASDAQ)
  • market maker (best describes as a BD who buys unlisted securities, OTC)
59
Q

Market Order

A
  • no specifications
  • immediate sell
60
Q

Limit Orders

A
  • specify a price to sell/buy
61
Q

Stop Orders (if/then)

A

-if/then (preventative measure)

Follow these 3 steps:
1. Does customer own/want to own? Own = sell, want to own = buy
2. Market attitude? Bearish or bullish
3. SL - CMV - BS
BL - CMV - SS

SL and BS are above CMV
BL and SS are below CMV

62
Q

Long Stock Hedge

A
  • buy put
  • sell call
63
Q

Short Stock Hedge

A
  • buy call
  • sell put
64
Q

Constraints

A
  • personal values
  • taxes
  • time horizon
  • health changes
  • need for liquidity
65
Q

Objectives

A
  • preservation of capital
  • current income
  • education
  • retirement
  • risk tolerance
  • growth of capital
  • tax planning
  • speculation
66
Q

Recommendations: Preservation of Capital

A
  • Money Money funds and securities
  • certificates of deposits (CDs)
  • treasury securities
67
Q

Recommendations: Current Income

A
  • Bonds
  • bonds funds
  • Equity Income funds
68
Q

Recommendations: Capital Appreciation

A
  • common stock and common stock mutual funds
  • REITs and DPPs
69
Q

Recommendations: Liquidity

A
  • money market funds and securities
  • cash
  • demand deposits
  • treasury securities
70
Q

Recommendations: Speculation

A
  • DPPs
  • commodities
  • futures and options
  • high yield bonds
  • precious metals
  • sector funds
71
Q

Recommendations: Tax Advantaged

A
  • municipal bonds
  • municipal bond funds
  • tax advantaged DPPs

Series 65 - March 2024 (8 decks)

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