Fundamentals

Question 1

What are the exceptions to registering under the Advisors Act

Answer 1

1. Banks and Holding Companies that are not investment companies
2. Any broker/dealer that services only deal with their business
3. LATE - Lawyers, Accountants, Teachers, and Engineers if their advice only deals with their business.

Question 2

Exemptions to registering if you are a investment advisors ( subject to anti-fraud provisions of advisor act)

VIPs are SaFE from Exemptions

Answer 2

1. Adiveros solely to venture capital funds
2. Advisors with clients that are only insurance companies
3. Solely to private funds less than 150M
4. Clients that reside in their state but do not provide advice on securities
5. Foreign advisors without a place of business in the U.S
6. Advisors not providing advice about securities traded on a national exchange

Question 3

If the fed buys/sells securities using open market operations tell me what will happen to the money supply/int rates

Answer 3

If the fed is buying government securities they are increasing the money supply = lowering int rates

If the fed is selling gov securities they are lowering money supply = increase in int rates

Question 4

Describe FDIC Insurance and how someone is covered/the accounts covered

Answer 4

Each person has a total of 250K of insurance per account ownership

-500K of coverage if a joint account. assumption is 50% of the value for each person

What is not covered:

• Accounts held outside the U.S
• Money Market Funds
• Stocks, bond, MFs

Question 5

Which debts are discharged through bankruptcy and what assets are protected?

Answer 5

Discharged:

1. 3 years of back taxes
2. Alimony & Child Support
3. Student Loans

Protect Assets:

1. Rollover IRA
2. IRA and Roth IRA exempt up to 1.3 (adjusted for inflation) Note: Inherited IRAs are not protected!
3. Alimony & Child support
4. Pensions, life insurance, annuities

Question 6

What is the formula for the emergency fund and tell me the benchmark for this

Answer 6

Current Assets/monthly nondiscretionary expenses

3-6 months is the benchmark but if you are single you want 6 months. 3 months if mfj

Question 7

Give me the formula for the housing ratio 1 and 2 plus tell me the benchmark

Answer 7

Housing ratio 1 should not be greater than 28% of your gross income and the 2 should not be greater than 36% of your gross income

1. Monthly housing costs (PITI) /monthly gross income
2. Monthly housing costs (PITI) + monthly recurring debt / monthly gross income

Question 8

Taken from the CFP practice test: Determine how much interest will be paid if you have a 15 years morgage at 50,000 with 7% interest. Each monthly payment will be equal within the term

Answer 8

30,895

Solve for payment, then deduct the payment from the total to get your int in full.

Hint - 180 periods if you don’t remember how to do this.