FINANCIAL PLANNING Q- Flashcards
QUALIFIED BUSINESS INCOME (QBI)
THE NET AMOUNT OF INCOME, GAIN, DEDUCTIONS, AND LOSSES WITH RESPECT TO A PASS-THROUGH TRADE OR BUSINESS, WHICH IS USED IN DETERMINING THE BELOW-THE-LINE DEDUCTION OF 20% OF QBI
QUALIFIED DOMESTIC RELATIONS ORDER (QDRO)
AN ORDER MADE UNDER STATE LAW THAT TELLS THE ADMINISTRATOR OR TRUSTEE OF A QUALIFIED RETIREMENT PLAN HOW MUCH TO PAY OUT TO THE NON-OWNER-SPOUSE PURSUANT TO A DIVORCE
QUALIFIED BUSINESS INCOME DEDUCTION
A NEW BELOW-THE-LINE DEDUCTION CREATED BY THE TAX CUTS AND JOBS ACT. THE DEDUCTION IS GENERALLY 20% OF THE QUALIFIED INCOME FROM A PASS-THROUGH BUSINESS ENTITY AND IS AVAILABLE REGARDLESS OF WHETHER THE STANDARD DEDUCTION OR ITEMIZED DEDUCTIONS ARE SELECTED BY THE TAXPAYER
QUALIFIED TUITION PLANS (SAVINGS PLANS)
A PLAN THAT ALLOWS FAMILIES TO SAVE FOR EDUCATION EXPENSES ON A TAX-DEFERRED BASIS. SECTION 529 OF THE INTERNAL REVENUE CODE AUTHORIZED STATES AND EDUCATIONAL INSTITUTIONS TO ADOPT QUALIFIED TUITION PLANS. THE TWO TYPES OF QUALIFIED TUITION PLANS ARE PREPAID TUITION AND COLLEGE SAVINGS PLANS
RATIO ANALYSIS
THE PROCESS OF CALCULATING KEY FINANCIAL RATIOS FOR A CLIENT, COMPARING THOSE METRICS TO INDUSTRY BENCHMARKS AND THEN MAKING AN EVAKLUATION REGARDING ANY DEFICIENCIES
RATIOS FOR FINANCIAL SECURITY GOALS
THESE RATIOS ASSES THE PROGRESS THAT THE CLIENT IS MAKING TOWARD ACHIEVING LONG-TERM FINANCIAL SECURITY GOALS
REAL ESTATE INVESTMENT TRUSTS (REITs)
A TYPE OF MUTUAL FUND THAT POOLS INVESTOR CONTRIBUTIONS TO PURCHASE REAL ESTATE OR MAKE CONSTRUCTION OR MORTGAGE LOANS
REAL GDP
MEASURES THE VALUE OF GOODS AND SERVICES AT A BASE YEAR PRICE
REAL PROPERTY
PROPERTY THAT IS LAND AND BUILDINGS ATTACHED TO THE LAND
REALIZATION EVENT
GENERALLY OCCURS WHEN AN ASSET HAS BEEN SOLD OR EXCHANGED. GAINS ON CAPITAL ASSETS ARE SUBJECT TO TAX ONLY WHEN THERE HAS BEEN BOTH A REALIZATION EVENT AND RECOGNITION EVENT
RECENCY BIAS
OCCURS WHEN TOO MUCH WEIGHT IS GIVEN TO RECENT OBSERVATIONS OR STIMULI VERSUS LONG TERM HISTORICAL TRENDS. THIS MAY CAUSE A CLIENT TO ERRONEOUSLY BELIEVE THAT RECENT TRENDS ARE LIKELY TO REPEAT THEMSELVES OVER THE LONG TERM
RECOGNITION EVENT
OCCURS WHEN A REALIZED GAIN IS INCLUDED ON A TAXPAYERS INCOME TAX RETURN. ALL REALIZED GAINS ARE GENERALLY RECOGNIZED UNLESS A PROVISION IN THE CODE PROVIDES OTHERWISE
REFLECTIVE LISTENING
OCCURS WHEN THE RECIEVER DEVOTES REFLECTIVE ATTENTION TO BOTH THE CONTENT BEING SAID AND THE FEELINGS THAT ARE BEING EXPRESSED
REFUNDABLE TAX CREDITS
TAX CREDITS THAT CAN BE USED NOT ONLY TO REDUCE OR ELIMINATE THE CURRENT YEARS TAX BUT ALSO TO GENERATE A TAX REFUND
REGULATION BEST INTEREST (or REGULATION BI)
ESTABLISHED A BEST INTEREST DUTY OF CARE FOR BROKER DEALERS WHEN MAKING A RECOMMENDATION OF ANY SECURITIES TRANSACTION OR INVESTMENT STRATEGY INVOLVING SECURITIES TO A RETAIL CUSTOMER
REGULATION FULL DISCLOSURE (OR REGULATION FD)
REQUIRES COMPANIES TO DISCLOSE ALL MATERIAL INFORMATION SIMULTANEOUSLY TO BOTH THE INVESTMENT COMMUNITY AND INDIVIDUAL INVESTORS
REINVESTMENT RATE RISK
THE RISK THAT AN INVESTOR WILL NOT BE ABLE TO REINVEST INCOME RECEIVED FROM CURRENT INVESTMENTS AT THE SAME RATE OF RETURN AS THE CURRENT INVESTMENT RETURN
REMAINING WORK LIFE EXPECTANCY (RWLE)
THE WORK PERIOD THAT REMAINS AT A GIVEN POINT IN TIME BEFORE RETIREMENT
RESERVE REQUIREMENT
THE FEDERAL RESERVE REQUIRES THAT BANKS MAINTAIN A CERTAIN PERCENTAGE OF THEIR DEPOSITS ON HAND, IN THE FORM OF CASH
RESIDENCE DOMICILIARY
AN INDIVIDUALS LEGAL STATE OF RESIDENCE
RESPONDENT
ANY PERSON WHO HAS AGREED TO CFP BOARDS TERMS AND CONDITIONS OF CERTIFICATION AND TRADEMARK LICENSE (CFP PROFESSIONALS) OR PATHWAY TO CFP CERTIFICATION AGREEMENT (CANDIDATES FOR CFP CERTIFICATION)
RETIREMENT FUNDING (CAPITAL NEEDS ANALYSIS)
THE PROCESS OF CALCULATING THE AMOUNT OF INVESTMENT CAPITAL NEEDED AT RETIREMENT TO MAINTAIN THE PRE-RETIREMENT LIFESTYLE AND MITIGATE THE IMPACT OF INFLATION DURING THE RETIREMENT YEARS
RETIREMENT LIFE EXPECTANCY (RLE)
THE TIME PERIOD BEGINNING AT RETIREMENT AND EXTENDING UNTIL DEATH; THE RLE IS THE PERIOD OF RETIREMENT THAT MUST BE FUNDED
RETIREMENT NEEDS ANALYSIS
THE PROCESS OF DETERMINING HOW MUCH MONEY A PERSON NEEDS TO ACCUMULATE TO BE FINANCIALLY INDEPENDENT DURING RETIREMENT
RETURN ON ASSETS (ROA) RATIO
THIS RATIO MEASURES TOTAL ASSET RETURNS. THIS RATIO MUST BE USED CAUTIOUSLY WHEN THE CLIENT IS ADDING ASSETS THAT ARE LEVERAGED WITH DEBT
RETURN ON INVESTMENTS RATIO (ROI)
A CRITICAL PERFORMANCE RATIO, AS IT MEASURES THE COMPOUNDED RATE OF RETURN ON A CLIENTS INVESTMENTS
RETURN ON NET WORTH RATION (RONW)
THIS RATIO FURTHER REFINES THE PERFORMANCE SET OF RATIOS TO CALCULATE THE RATE OF RETURN ON NET WORTH
REVENUE BONDS
BONDS ISSUED TO RAISE CAPITAL TO FIND A PARTICULAR REVENUE-GENERATING PROJECT. THE REVENUE GENERATED BY THE PROJECT WILL BE USED TO REPAY THE BOND ISSUANCE
REVERSE MORTGAGE
A TECHNIQUE THAT PERMITS HOMEOWNERS TO USE THEIR HOME EQUITY WHILE STILL LIVING IN THE HOME
REVOCATION
PERMANENT REVOCATION OF A CFP PROFESSIONALS RIGHT TO USE THE MARKS
RISK
THE UNCERTAINTY ASSOCIATED WITH INVESTMENT RETURNS. IT IS THE POSSIBILITY THAT ACTUAL RETURNS WILL BE DIFFERENT FROM WHAT IS EXPECTED
RISK ADJUSTED PERFORMANCE MEASURES
SHARPE, TREYNOR AND JENSENS ALPHA, WHICH CAN BE USED TO MEASURE THE PERFORMANCE OF ANY TYPE OF INVESTMENT INCLUDING STOCKS, BONDS AND MUTUAL FUNDS
RISK AVOIDANCE
AVOIDING AN ACTIVITY SO THAT A FINANCIAL LOSS CANNOT BE INCURRED
RISK MANAGEMENT RECOMMENDATIONS
RECOMMENDATIONS USUALLY ARE RELATED TO THE INSURANCE PORTFOLIO BECAUSE PERILS (THE CAUSE OF A LOSS) ARE EVENT DRIVEN (E.G., UNTIMELY DEATH) OR UNPREDICTABLE, AND CAN OCCUR AT ANY TIME
RISK PREMIUM
THE INCREASE IN RETURN AN INVESTOR SHOULD BE COMPENSATED TO TAKE ON THE RISK OF A MARKET PORTFOLIO VERSUS INVESTING IN A RISK-FREE ASSET
RISK REDUCTION
IMPLEMENTING ACTIVITIES THAT WILL RESULT IN THE REDUCTION OF THE FREQUENCY AND/OR SEVERITY OF LOSSES
RISK RETENTION
THE STATE OF BEING EXPOSED TO A RISK AND PERSONALLY RETAINING THE POTENTIAL FOR LOSS
RISK TOLERANCE QUESTIONAIRE
EVALUATES A CLIENTS WILLINGNESS TO TAKE RISK BY ADDRESSING RISK ISSUES
RISK TRANSFER
TRANSFERRING OR SHIFTING THE RISK OF LOSS THROUGH MEANS SUCH AS INSURANCE OR A WARRANTY
S CORPORATION
A CORPORATION FORMED UNDER STATE LAW THAT ELECTS TO BE TAXED UNDER SUBCHAPTER S OF THE INTERNAL REVENUE CODE
SALES-RELATED COMPENSATION
MORE THAN A DE MINIMIS ECONOMIC BENEFIT, INCLUDING ANY BONUS OR PORTION OF COMPENSATION, RESULTING FROM A CLIENT PURCHASING OR SELLING FINANCIAL ASSETS, FROM A CLIENT HOLDING FINANCIAL ASSETS FOR PURPOSES OTHER THAN RECEIVING FINANCIAL ADVICE, OR FROM THE REFERRAL OF A CLIENT TO ANY PERSON OR ENTITY OTHER THAN THE CFP PROFESSIONALS FIRM. SALES-RELATED COMPENSATION INCLUDES, FOR EXAMPLE, COMMISSIONS, TRAILING COMMISSIONS, 12b-1 FEES, SPREADS, TRANSACTION FEES, REVENUE SHARING, REFERRAL OR SOLICITOR FEES, OR SIMILAR CONSIDERATION
SARBANES-OXLEY ACT OF 2002
THE LEGISLATION ESTABLISHED NEW OR ENHANCED STANDARDS FOR ALL U.S. PUBLIC COMPANY BOARDS, MANAGEMENT, AND PUBLIC ACCOUNTING FIRMS
SAVINGS AND INVESTING MANAGEMENT
MANAGEMENT THAT MAY RESULT IN RECOMMENDATIONS THAT REQUIRE BOTH AN INCREASE IN SAVINGS AND AN INCREASE IN THE EMERGENCY FUND. THE SAVINGS RATE (SAVINGS AND REINVESTMENT OF DIVIDENDS, INTEREST, AND CAPITAL GAINS, PLUS AN EMPLOYER MATCH/GROSS PAY) SHOULD EQUAL 10-13% IF THE CLIENT ONLY HAS ONE GOAL, THAT BEING FINANCIAL SECURITY. IF THE CLIENT AND FAMILY HAVE MULTIPLE GOALS INCLUDING RETIREMENT, COLLEGE EDUCATION, AND LUMP-SUM GOALS (E.G. NEW HOUSE OR SECOND HOME) THE SAVINGS RATE MUST BE INCREASED
SAVINGS CONTRIBUTIONS
AN INCOME STATEMENT CATEGORY. EXAMPLES OF SAVINGS CONTRIBUTIONS INCLUDE 401(k) PLAN, 403(b) PLAN, IRA (TRADITIONAL OR ROTH), EDUCATION SAVINGS, AND ANY OTHER TYPE OF SAVINGS ACCOUNT
SAVINGS RATE
A RATE CALCULATED BY TAKING GROSS SAVINGS IN DOLLARS (INCLUDING EMPLOYEE ELECTIVE DEFERRALS INTO 401(k), 403(b), AND 457 PLANS PLUS ANY EMPLOYER MATCH), AND ANY OTHER SAVINGS DIVIDED BY GROSS PAY
SCHOLARSHIPS
A GRANT OF FIANANCIAL ASSISTANCE MADE AVAILABLE TO STUDENTS TO ASSIST WITH THE PAYMENT OF EDUCATION-RELATED EXPENSES. SCHOLARSHIPS ARE AVAILABLE FOR ACADEMIC OR ATHLETIC ACHIEVEMENT. SCHOLARSHIPS CAN BE PROVIDED TO UNDERGRADUATE OR GRADUATE STUDENTS
SECTOR FUND
RESTRICTS INVESTMENTS TO A PARTICULAR SEGMENT OF THE MARKET. FOR EXAMPLE, TECHNOLOGY, HEALTHCARE, TELCOMMUNICATIONS, FINANCIA, AND PHARMACEUTICAL
SECURITIES ACT OF 1933
REQUIRES THAT ANY NEW SECURITY BE REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION (SEC) BY FILING A REGISTRATION STATEMENT WITH THE SEC
SECURITIES EXCHANGE ACT OF 1934
CREATED THE SECURITIES AND EXCHANGE COMMISSION (SEC) AND PROVIDES THE SEC WITH THE AUTHORITY TO REGULATE THE SECONDARY MARKET
SECURITIES INVESTOR PROTECTION CORPORATION (SPIC)
FORMED IN 1970 AS A STATUTORILY CREATED NONPROFIT MEMBERSHIP CORPORATION FUNDED BY ITS MEMBER SECURITIES BROKER-DEALERS, WITH THE GOAL OF RETURNING CASH AND SECURITIES TO INVESTORS IN THE EVENT A BROKERAGE FIRM BECOMES INSOLVENT
SECURITY MARKET LINE (SML)
THE RELATIONSHIP BETWEEN RISK AND RETURN AS DEFINED BY THE CAPM (WHEN GRAPHICALLY PLOTTED)
SELF-EFFICACY
BELIEF IN ONES OWN ABILITY TO BE SUCCESSFUL AT A GIVEN TASK OR IN A PARTICULAR SITUATION
SEMIVARIANCE
MEASURES THE POSSIBILITY OF RETURNS BELOW AVERAGE. THEREFORE, SEMIVARIANCE IS A MEASURE OF DOWNSIDE RISK
SENSITIVITY ANALYSIS
A TOOL USED TO UNDERSTAND THE RANGE OF OUTCOMES FOR EACH VARIABLE IN A RETIREMENT PLAN. IT ROTATES EACH VARIABLE TOWARD THE UNDESIRABLE SIDE OF THE RISK TO DETERMINE THE IMPACT OF A SMALL CHANGE IN THAT VARIABLE ON THE OVERALL PLAN
SERIAL PAYMENTS
PAYMENTS THAT ARE ADJUSTED UPWARD PERIODICALLY THROUGHOUT THE PAYMENT PERIOD AT A CONSTANT RATE, IN ORDER TO ADJUST FOR INFLATIONS IMPACT
SHARPE RATIO
A RELATIVE RISK ADJUSTED PERFORMANCE INDICATOR, MEANING THE RATIO BY ITSELF DOES NOT PROVIDE ANY INSIGHT. A SHARPE RATIO FOR ONE FUND NEEDS TO BE COMPARED TO THE SHARPE RATIO FOR ANOTHER FUND TO TAKE ON MEANING
SHORT-TERM LIABILITIES
REPRESENT THOSE OBLIGATIONS THAT ARE “CURRENT” IN NATURE OR DUE WITHIN THE NEXT 12 MONTHS (≤ 12 MONTHS)
SIDE INSTRUCTION LETTER
ALSO KNOWN AS A PERSONAL INSTRUCTION LETTER, DETAILS THE TESTATORS WISHES REGARDING THE DISPOSITION OF TANGIBLE POSSESSIONS (HOUSEHOLD GOODS), THE DISPOSITION OF THE DECEDENTS BODY, AND FUNERAL ARRANGEMENTS. A SIDE INSTRUCTION LETTER IS NOT LEGALLY BINDING, BUT GENERALLY FOLLOWED
SIMILARITY HEURISTIC
USED WHEN A DECISION OR JUDGEMENT IS MADE WHEN A SIMILAR SITUATION OCCURS
SINGLE FILING STATUS
A FILING STATUS USED BY AN UNMARRIED TAXPAYER WHO DOES NOT QUALIFY AS A SURVIVING SPOUSE OR HEAD OF HOUSEHOLD
SMALL, MID, LARGE CAP FUNDS
MAY HAVE AN OBJECTIVE REGARDING THE SIZE OF A FIRMS MARKET CAPITALIZATION
SOCIAL CONSCIOUSNESS
AN AWARENESS OF AND SENSE OF RESPONSIBILITY FOR PROBLEMS OR INJUSTICES THAT EXIT WITHIN SOCIETY
SOCIALIZATION
THE PROCESS BY WHICH INDIVIDUALS ACQUIRE SOCIAL SKILLS, BELIEFS, VALUES, AND BEHAVIORS NECESSARY TO FUNCTION EFFECTIVELY IN SOCIETY OR IN A PARTICULAR GROUP
SOCIALLY RESPONSIBLE FUNDS
RESTRICT THEIR INVESTMENTS TO FIRMS THAT ARE GOOD CORPORATE CITIZENS AND DO NOT OPERATE IN INDUSTRIES SUCH AS ALCOHOL, GAMBLING, OR TOBACCO
SOLE OWNERSHIP
THE COMPLETE OWNERSHIP OF PROPERTY BY ONE INDIVIDUAL WHO POSSESSES THE PROPERTY FEE SIMPLE, MEANING ALL OWNERSHIP RIGHTS ASSOCIATED WITH THE PROPERTY, INCLUDING THE RIGHT TO USE, SELL, GIFT, ALIENATE, CONVEY, OR BEQUEATH THE PROPERTY
