FINANCIAL PLANNING G-L Flashcards
GAMBLERS FALLACY
ONE OF THE INCORRECT ASSUMPTIONS FROM THE WORLD OF PROBABILITIES; IN THE REALM OF PROBABILITIES, MISCONCEPTIONS CAN LEAD TO FAULTY PREDICTIONS AS TO OCCURENCES OF EVENTS
GDP DEFLATOR
MEASURES THE CURRENT PRICE OF GOODS AND SERVICES (NOMINAL GDP) RELATIVE TO A BASE YEAR (REAL GDP)
GENERAL OBLIGATION BONDS
BONDS BACKED BY THE TAXING AUTHORITY THAT ISSUED THE BONDS. THE BONDS ARE REPAID THROUGH TAXES THAT ARE COLLECTED BY THE MUNICIPALITY
GENERAL PARTNERSHIP
A JOINT BUSINESS VENTURE AMONG TWO OR MORE PERSONS/ENTITIES TO CONDUCT BUSINESS AS CO-OWNERS IN WHICH ALL OWNERS HAVE UNLIMITED LIABILITY WITH REGARD TO THE DEBTS AND OBLIGATIONS OF THE PARTNERSHIP
GEOMETRIC RETURN
A TIME-WEIGHTED COMPOUNDED RATE OF RETURN
GIFT
A VOLUNTARY TRANSFER, WITHOUT FULL CONSIDERATION, OF PROPERTY FROM ONE PERSON (ADONOR) TO ANOTHER PERSON (A DONEE) OR ENTITY
GIFT TAX
AN EXCISE TAX ON THE RIGHT TO TRANSFER ASSETS GRATUITOUSLY TO ANOTHER PERSON DURING LIFE
GLOBAL FUNDS
NOT ONLY INVEST IN FOREIGN SECURITIES AND MARKETS, BUT ALSO IN U.S. DOMESTIC SECURITIES
GOVERNMENT OR REGULATION RISK
THE POTENTIAL RISK THAT A COUNTRY MAY PASS A LAW OR REGULATION THAT NEGATIVELY IMPACTS A PARTICULAR INDUSTRY
GRADUATE PLUS LOANS
LOANS FOR STUDENTS SEEKING GRADUATE AND PROFESSIONAL DEGREES. A GRADUATE PLUS LOAN IS BASED ON THE STUDENTS CREDIT HISTORY AND IS NOT BASED ON FINANCIAL NEED
GRANTOR
THE PERSON WHO CREATES AND INITIALLY FUNDS A TRUST. THE GRANTOR IS ALSO KNOWN AS THE SETTLOR OR CREATOR
GRANTS
MONEY PROVIDED TO STUDENTS FOR POSTSECONDARY EDUCATION THAT DOES NOT REQUIRE REPAYMENT
GROSS DOMESTIC PRODUCT (GDP)
REPRESENTS THE TOTAL FINAL OUTPUT OF A COUNTRY, BY ITS CITIZENS AND FOREIGNERS IN THE COUNTRY, OVER A PERIOD OF TIME
GROSS INCOME
ALL INCOME FROM WHATEVER SOURCE DERIVED UNLESS IT IS SPECIFICALLY EXCLUDED BY SOME PROVISION OF THE INTERNAL REVENUE CODE
GROSS NATIONAL PRODUCT (GNP)
MEASURES THE TOTAL FINAL OUTPUT BY THE CITIZENS OF A COUNTRY, WHETHER PRODUCED DOMESTICALLY OR IN A FOREIGN COUNTRY. GNP DOES NOT INCLUDE THE OUTPUT OF FOREIGNERS IN A COUNTRY
GROWTH AND INCOME FUNDS
INVEST IN BOTH EQUITIES AND FIXED INCOME SECURITIES. HOWEVER, A MUCH LARGER PERCENTAGE OF THE FUND IS ALLOCATED TO EQUITIES
GROWTH MUTUAL FUNDS
TYPICALLY INVEST IN LARGE AND MID CAP STOCKS, WHERE PRICE APPRECIATION IS THE PRIMARY OBJECTIVE
HAZARD
A CONDITION THAT CREATES OR INCREASES THE LIKELIHOOD OF A LOSS OCCURRING
HEAD OF HOUSEHOLD FILING STATUS
A FILING STATUS THAT PROVIDES A BASIC STANDARD DEDUCTION AND TAX BRACKET SIZES THAT ARE LESS FAVORABLE TO THE TAXPAYER THAN THOSE FOR THE SURVIVING SPOUSE STATUS, BUT MORE FAVORABLE THAN THOSE FOR THE SINGLE FILING STATUS
HEARING PANEL
WHEN A FORMAL COMPLAINT IS FILED BY CFP BOARD COUNSEL, A HEARING TAKES PLACE BEFORE A PANEL OF AT LEAST THREE INDIVIDUALS. A MAJORITY OF THE HEARING PANEL MUST BE CFP PROFESSIONALS, AND A MAJORITY MUST BE DEC MEMBERS
HOLDING PERIOD RETURN
REPRESENTS THE TOTAL RETURN FOR AN INVESTMENT PORTFOLIO OVER THE PERIOD OF TIME THE PORTFOLIO WAS HELD BY AN INVESTOR
HOLOGRAPHIC WILL
HANDWRITTEN WILL
HOMEOWNERS INSURANCE COVERAGE
A PACKAGE POLICY COVERING DWELLING, DWELLING EXTENSIONS (GARAGE), PERSONAL PROPERTY, LOSS OF USE, MEDICAL PAYMENTS FOR OTHERS, AND LIABILITY
HORIZONTAL ANALYSIS
LISTS EACH FINANCIAL STATEMENT ITEM AS A PERCENTAGE OF A BASE YEAR AND CREATES A TREND OVER TIME
HOUSING RATIO 1 (HR1)
THIS RATIO, ESTABLISHED BY THE BANKING INDUSTRY, REFLECTS THE PROPORTION OF GROSS PAY ON AN ANNUAL OR MONTHLY BASIS THAT IS DEVOTED TO HOUSING (PRINCIPAL, INTEREST, TAXES, AND INSURANCE). IT DOES NOT INCLUDE UTILITIES, LAWN CARE, MAINTENANCE, ETC. THE BENCHMARK FOR HR 1 IS LESS THAN OR EQUAL TO 28%
HOUSING RATIO 2 (HR2)
ALSO REFERRED TO AS HR1 PLUS ALL OTHER DEBT.THIS RATIO WAS ESTABLISHED BY THE BANKING INDUSTRY TO DETERMINE IF THE TOTAL AMOUNT OF DEBT IS APPROPRIATE FOR A GIVEN LEVEL OF INCOME. IF HOUSING RATIO 2 IS MET, THE BORROWER WILL LIKELY QUALIFY FOR A CONVENTIONAL LOAN. THE BENCHMARK FOR HR2 SHOULD BE LESS THAN OR EQUAL TO 36% OF GROSS PAYON A MONTHLY OR ANNUAL BASIS
HUMAN COMMUNICATIONS
COMPRISED OF FUNDAMENTAL ELEMENTS. SOCIETAL GROUPS USE A SYSTEM OF SIGNS IN THEIR COMMUNICATION PROCESS. A SIGN COULD BE A WORD, OBJECT, GESTURE, TONE, QUALITY, IMAGE, SUBSTANCE OR OTHER REFERENCE ACCORDING TO A CODE OF SHARED MEANING AMONG THOSE WHO USE THAT SIGN FOR COMMUNICATION PURPOSES
HUMAN LIFE VALUE (HLV) METHOD
A METHOD THAT USES PROJECTED FUTURE EARNINGS AFTER TAXES AND INDIVIDUAL CONSUMPTION TO DETERMIN THE FAMILYS SHARE OF EARNINGS (FSE) AS THE BASIS FOR MEASURING LIFE INSURANCE NEEDS
HUMANISTIC PARADIGM (THE “HUMANISTIC” SCHOOL OF THOUGHT)
DOMINATED BY THEORISTS WHOSE MODELS HAVE THEIR ORIGINS FROM A SHARED PHILOSOPHICAL APPROACH. FOR A CLIENT TO GROW, THE RELATIONSHIP REQUIRES A TRANSPARENT AND GENUINE COUNSELOR. THE ADVISER NEEDS A PHILOSOPHICAL STANCE THAT HUMANKIND IS BASICALLY GOOD AND THAT PEOPLE HAVE THE INHERENT CAPABILITY OF SELF-DIRECTION AND GROWTH UNDER THE RIGHT SET OF CIRCUMSTANCES
INCOME
FOR TAX PURPOSES, IS BROADLY DEFINED, AND MEANS THE GROSS AMOUNT OF MONEY AND THE FAIR MARKET VALUE OF PROPERTY, SERVICES, OR OTHER ACCRETION TO WEALTH RECEIVED, BUT IT DOES NOT INCLUDE BORROWED MONEY OR A RETURN OF INVESTED DOLLARS
INCOME FUNDS
TYPICALLY INVEST IN CORPORATE AND GOVERNMENT BONDS
INDEX FUND
PURCHASES A BASKET OF STOCKS TO MATCH OR REPLICATE THE PERFORMANCE OF A PARTICULAR MARKET INDEX
INFLATION
REPRESENTS AN INCREASE IN THE PRICE OF A BASKET OF GOODS AND SERVICES REPRESENTING THE ECONOMY AS A WHOLE OVER A PERIOD OF TIME
INFLATION ADJUSTED RATE OF RETURN
THE NOMINAL RATE OF RETURN ADJUSTED FOR INFLATION. THE REAL (AFTER INFLATION) RATE OF RETURN EQUALS [(1+Rn) ÷ (1+i)-1] × 100, WHERE Rn IS THE NOMINAL RETURN AND i IS THE INFLATION RATE
INFORMATION RATIO
MEASURES THE EXCESS RETURN ABOVE A BENCHMARK, SUCH AS THE S&P 500, PER UNIT OF RISK
INTANGIBLE PERSONAL PROPERTY
PROPERTY THAT CANNOT PHYSICALLY BE TOUCHED SUCH AS STOCKS, BONDS, PATENTS, AND COPYRIGHTS
INTEGRITY
DEMANDS HONESTY AND CANDOR WHICH MUST NOT BE SUBORDINATED TO PERSONAL GAIN AND ADVANTAGE
INTEREST RATE
THE PRICE THAT A CONSUMER PAYS TO BORROW FUNDS OR THAT AN INVESTOR EARNS ON FUNDS INVESTED
INTEREST RATE RISK
THE RISK THAT CHANGES IN INTEREST RATES WILL INVERSELY IMPACT BOTH EQUITIES (STOCKS) AND FIXED INCOME SCURITIES (BONDS)
INTERIM SUSPENSION
IF A CFP PROFESSIONALS CONDUCT POSES AN IMMEDIATE THREAT TO THE PUBLIC, AND THE GRAVITY OF THE CONDUCT SIGNIFICANTLY IMPINGES UPON THE STATURE AND REPUTATION OF THE MARKS, AN INTERIM SUSPENSION ORDER MAY BE ISSUED, AND BECOME EFFECTIVE IMMEDIATELY, SUSPENDING THE CFP PROFESSIONALS RIGHT TO USE THE MARKS WHILE THE INVESTIGATION TAKES PLACE
INTERNAL DATA
THE CLIENTS INTERNAL DATA HAS BOTH QUANTITATIVE AND QUALITATIVE ELEMENTS. SOME QUANTITATIVE DATA INCLUDES FAMILY SPECIFICS, INSURANCE, BANKING, INVESTMENT, TAX, RETIREMENT, AND ESTATE PLANNING INFORMATION. SOME QUALITATIVE DATA INCLUDES THE CLIENTS VALUES, ATTITUDES, EXPECTATIONS, GOALS, NEEDS, AND PRIORITIES
INTERNAL RATE OF RETURN (IRR)
A COMPOUNDED ANNUAL RATE OF RETURN. IRR ALLOWS FOR THE COMPARISON OF PROJECTS OR INVESTMENTS WITH DIFFERING COSTS AND CASH FLOWS. THE RATE THAT EQUATES THE PV OF A SERIES OF CASH FLOWS TO AN INITIAL INVESTMENT
INTERNATIONAL FUNDS
INVEST IN SECURITIES AND FIRMS THAT ARE OUTSIDE OF THE U.S. DOMESTIC MARKET
INTRINSIC MOTIVATION
INTRINSIC MOTIVATION COMES FROM WITHIN AND IS OFTEN ASSOCIATED WITH SATISFACTION AND ENJOYMENT
INTRINSIC VALUE
THE UNDERLYING VALUE OF A SECURITY, WHEN CONSIDERING FUTURE CASH FLOWS AND THE RISKINESS OF THE SECURITY
INVESTING
THE PROCESS WHERE CAPITAL RESOURCES ARE ALLOCATED AND COMMITTED BY INVESTORS WITH THE EXPECTATION OF EARNING A FUTURE POSITIVE ECONOMIC RETURN
INVESTMENT ADVISERS ACT OF 1940
REQUIRES INVESTMENT ADVISERS TO REGISTER WITH THEIR STATE OR THE SEC.
INVESTMENT ASSETS
A BALANCE SHEET CATEGORY THAT INCLUDES APPRECIATING ASSETS OR THOSE ASSETS BEING HED TO ACCOMPLISH ONE OR MORE FINANCIAL GOALS
INVESTMENT ASSETS-TO-GROSS PAY RATIO
MEASURES PROGRESS TOWARDS A CLIENTS RETIREMENT GOAL, BASED ON THE CLIENTS AGE AND INCOME
INVESTMENT COMPANIES
FINANCIAL SERVICE COMPANIES THAT SELL SHARES TO THE PUBLIC AND USE THE PROCEEDS TO BUY PORTFOLIOS OF SECURITIES. MUTUAL FUNDS ARE ONE TYPE OF INVESTMENT COMPANY WHERE INVESTORS BUY SHARES IN A FUND AND OWN A PRO RATA PORTION OF THE INVESTMENT PORTFOLIO, ENTITLING THEM TO A SHARE OF CAPITAL GAINS, INTEREST AND DIVIDEND INCOME
INVESTMENT COMPANY ACT OF 1940
SET STANDARDS TO REGULATE INVESTMENT COMPANIES SUCH AS OPEN-END AND CLOSED-END FUNDS, AND UNIT INVESTMENT TRUSTS
INVESTMENT PLANNING PROCESS
COMPRISED OF STEPS THE FINANCIAL PLANNER AND CLIENT FOLLOW TO BUILD AN INVESTMENT PORTFOLIO DESIGNED TO ACCOMPLISH THE CLIENTS INVESTMENT GOALS
INVESTMENT POLICY STATEMENT
A WRITTEN DOCUMENT THAT SPECIFICALLY IDENTIFIES AN INVESTORS INVESTMENT GOALS AND THE STRATEGIES AND PARAMETERS THAT WILL BE EMPLOYED TO REACH THE GOALS
JENSENS ALPHA
AN ABSOLUTE RISK ADJUSTED PERFORMANCE MEASUREMENT
JOINING
IN THE MENTAL HEALTH FIELD, JOINING REFERS TO MAKING A CONNECTION WITH THE CLIENT AND ESTABLISHING A TRUSTING RELATIONSHIP
JOINT TENANCY WITH RIGHT OF SURVIVORSHIP (JTWROS)
TYPICALLY HOW SPOUSES OWN JOINT PROPERTY. JOINT TENANCY IS AN INTEREST IN PROPERTY HELD BY TWO OR MORE RELATED OR UNRELATED PERSONS CALLED JOINT TENANTS. EACH PERSON HOLDS AN UNDIVIDED, EQUAL INTEREST IN THE WHOLE PROPERTY. A RIGHT OF SURVIVORSHIP IS NORMALLY IMPLIED WITH THIS FORM OF OWNERSHIP, AND AT THE DEATH OF THE FIRST JOINT TENANT, THE DECENDENTS INTEREST TRANSFERS TO THE OTHER JOINT TENANTS OUTSIDE OF THE PROBATE PROCESS ACCORDING TO STATE TITLING LAW
KEOGH PLAN
A QUALIFIED PLAN FOR A SELF-EMPLOYED PERSON. AN IMPORTANT DISTINCTION OF KEOGH PLANS IS THE REDUCED CONTRIBUTION THAT CAN BE MADE ON BEHALF OF THE SELF-EMPLOYED INDIVIDUAL
LEGATEE
A PERSON NAMED IN A WILL
LEPTOKURTIC
A DISTRIBUTION THAT APPEARS TO BE NORMAL BUT HAS MORE AREA UNDER THE TWO TAILS THAN A NORMAL DISTRIBUTION (i.e., fat tails)
LETTER OF ADMONITION
A PUBLISHABLE WRITTEN REPROACH OF THE CFP PROFESSIONALS BEHAVIOR (A FORM OF DISCIPLINE UNDER THE PRE-2020 DISCIPLINARY RULES)
LETTER OF INTENT
A “LIFE PLAN” DOCUMENT THAT DESCRIBES THE FAMILY OF THE DEPENDENT WITH SPECIAL NEEDS AND THE DEPENDENTS WISHES FOR THE FUTURE ONCE THE INITIAL CAREGIVER IS NO LONGER ABLE TO PROVIDE CARE. IT SHOULD INCLUDE PERTINENT INFORMATION ABOUT THE HISTORY OF THE DEPENDENT WITH SPECIAL NEEDS, THEIR MEDICAL NEEDS, LIVING ARRANGEMENT PREFERENCES, AND HOBBIES, AS WELL AS A LIST OF CONTACT PERSONS (DOCTOR, LAWYER, ACCOUNTANT, GUARDIANS, ETC..)
LIABILITIES
A BALANCE SHEET CATEGORY THAT REPRESENTS CLIENT FINANCIAL OBLIGATIONS THAT ARE OWED TO CREDITORS
LIABILITY RISK
A RISK THAT MAY CAUSE FINANCIAL LOSS (INJURY TO ANOTHER FOR WHICH THE CLIENT IS DETERMINED TO BE FINANCIALLY RESPONSIBLE)
LIFE CYCLE APPROACH
THIS APPROACH PROVIDES THE PLANNER WITH A BRIEF OVERVIEW OF THE CLIENTS FINANCIAL PROFILE WHICH PERMITS THE PLANNER TO HAVE A RELATIVELY FOCUSED CONVERSATION WITH THE CLIENT. IT IS USED VERY EARLY IN THE ENGAGEMENT
LIFE INSURANCE
AT ITS MOST BASIC IS INCOME REPLACEMENT INSURANCE VIA THE DEATH BENEFIT PAID UPON THE DEATH OF THE INSURED
LIFETIME LEARNING CREDIT
PROVIDES A TAX CREDIT OF UP TO $2,000 (2021) PER FAMILY FOR AN UNLIMITED NUMBER OF YEARS OF QUALIFIED EDUCATION EXPENSES. THE QUALIFIED EDUACTION EXPENSES MUST BE RELATED TO A POSTSECONDARY DEGREE PROGRAM OR TO ACQUIRE OR IMPROVE JOB SKILLS
LIMITED LIABILITY COMPANY
SEPERATE LEGAL ENTITY FORMED BY ONE OR MORE INDIVIDUALS BY MEETING STATE STATUTORY REQUIREMENTS NECESSARY FOR THE FORMATION OF AN LLC THAT MAY BE TAXED AS A SOLE PROPRIETORSHIP, PARTNERSHIP, OR CORPORATION
LIMITED LIABILITY PARTNERSHIP
A HYBRID ENTITY GENERALLY COMPRISED OF LICENSED PROFESSIONALS THAT PROVIDES PARTIAL LIABILITY PROTECTION TO ITS MEMBERS AND MAY BE TAXED AS EITHER A CORPORATION OR PARTNERSHIP
LIMITED PARTNERSHIPS
ASSOCIATIONS OF TWO OR MORE PERSONS AS CO-OWNERS TO CARRY ON A BUSINESS FOR PROFIT EXCEPT THAT ONE OR MORE OF THE PARTNERS HAVE LIMITED PARTICIPATION IN THE MANAGEMENT OF THE VENTURE AND THUS LIMITED RISK EXPOSURE
LIQUIDITY RATIOS
THESE RATIOS MEASURE THE ABILITY TO MEET SHORT-TERM OBLIGATIONS
LIVING WILL / ADVANCED MEDICAL DIRECTIVE
LEGAL DOCUMENT EXPRESSING AN INDIVIDUALS LAST WISHES REGARDING LIFE SUSTAINING TREATMENT
LONG-TERM LIABILITIES
FINANCIAL OBLIGATIONS OWED THAT ARE DUE BEYOND THE NEXT 12 MONTHS. LONG-TERM LIABILITIES ARE USUALLY THE RESULT OF MAJOR FINANCIAL PURCHASES AND RESULTING OBLIGATIONS THAT ARE BEING PAID OFF OVER MULTIPLE YEARS (HOUSE, VACATION, BOAT, STUDENT LOANS)
LOSS FREQUENCY
THE EXPECTED NUMBER OF LOSSES THAT WILL OCCUR WITHIN A GIVEN PERIOD OF TIME
LOSS SEVERITY
THE POTENTIAL SIZE OR FINANCIAL DAMAGE OF A LOSS
