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Fundamentals Flashcards

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1
Q

What are the code of Ethics?

A

1)Honesty,integrity,competence 2)Client’s best interest 3)exercise due care 4)Avoid/disclose conflicts of interest 5)Maintain confidentiality and protect privacy of client info 6)act in manner that is positive for CFP

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2
Q

What is correct way to use CFP Marks?

A

1)Cole Taylor, CFP 2)CERTIFIED FINANCIAL PLANNER 3)Followed by 6 nouns 4)Cant use in email or website

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3
Q

What duties equal up to Fiduciary duty?

A

Duty of: Loyalty, Care, Follow Client Instructions

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4
Q

Disclosing Conflicts (Compensation)

A

What the sources are and how it is calculated

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5
Q

Disclosing Conflicts (Limited product set)

A

You only have 1 type of product that you can sell but it might not be the best one for client

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6
Q

Disclosing Conflicts (Proprietary Funds)

A

You can only sell “fidelity” funds

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7
Q

Disclosing Conflicts (Referrals)

A

Disclose any referrals and the benefits that you get out of them

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8
Q

Finacial Advice (What to provide to client written/orally)

A

1)Written - Privacy policy 2) Orally or writing - Everything else

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9
Q

Finacial Planning (What to provide to client written/orally)

A

1)Written - Everything 2)Orally or wirting - material conflicts of interest

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10
Q

Delivery similarities between Financial advice and Financial planning?

A

1) Privacy document in writing 2)Conflicts of interest can be oral or in writing

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11
Q

When do charges and fee descriptions be provided to client?

A

Provided prior to or at the time of engagement

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12
Q

How soon should you let clients and CFP board about material changes? Reporting

A

CFP Board - 30 days // Clients - 90 days (webpages)

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13
Q

When is the terms and engagement given to client?

A

Provided prior to or at the time of engagement

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14
Q

What is the terms and engagement?

A

First - you should gather data before you give this to client. Outlines 1)scope of engagement 2)Periods the services will be provided 3)Clients responsibilities

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15
Q

Fee Only Compensation

A

Advisor and firm cannot charge firm or have the ability to get sales related compensation

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16
Q

Fee Based Compensation

A

Fee and Commission can be collected

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17
Q

Sales related compensation Examples

A

12b-1 Fees, transaction fees, revenue sharing, referral fees (NOT SOFT DOLLARS)

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18
Q

Financial planning definition

A

Financial planning is collaborative process that helps maxmize a client’s potential for meeting life goals through Financial Advice that integrates relevant elements of the Client’s personal and financial circumstances

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19
Q

Examples of relevant examples of clients and personal/financial circumstances

A

Manage cashflow, identify and manage risk, educational needs, financial security, tax considerations, retirement, philanthropic, estate

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20
Q

Integration factors - what to take in account of

A

1) Changes in one thing might affect other things (they do not happen in a silo) 2)portion and amount of the assets going toward something 3)length and time the clients financial situation might be affected 4)Risks that clients get exposed to if they take on this task 5)Barriers of taking on this task (Some things have surrender charges)

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21
Q

Financial planning process (In Order)

A

Uber Is A Drunk Person’s Immediate Motor vehicle

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22
Q

What steps is the finacial planning responsible for?

A

All unless some steps (Usually 6 or 7) are specifically exluded from the scope of the engagement (this should be documented ie. Emails, handwritten notes)

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23
Q

FFP1: Understanding the Client’s personal and Financial Circumstances

A

Obtaining qualative and quantitative information, anazlyzing that information and seeing what is missing (this is done through interviews, questionaires)

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24
Q

FFP2: Identifying and selecting goals

A

Identify and prioritize goals - Be honest if any goals are unrealistic // Develop reasonable assumptions and estimates (Inflation, tax rates, investment returns)

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25
Q

FFP3: Analyzing the client’s current course of action and potential alternative course(s) of action

A

Current course pros and cons along with alternative courses of action

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26
Q

FFP4: Developing the Financial Planning Recommendations

A

Selecting 1 or more recommendations that will help client achive goals. CFP should consider 1) Assumptions and estimates 2)basis for making recommendations 3)timing and priority recommendations 4) whether the recommendation is independent or dependent

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27
Q

FFP5: Presenting the financial planning recommendations

A

Present recommendations and describe the advantages and disadvantages current alternative plans - recommendations may be over orally, in writing, in person, over the phone

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28
Q

FFP6: Implementing the financial planning recommendations

A

Must be completed unless specifically excluded - Establish the responsibilities of the client, CFP and third parties (CPA, attorney). Set timeline and priority.

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29
Q

FFP7: Monitoring progress and updating

A

Must be completed unless specifically excluded - Establish monitoring by understanding how and when. Client should give material info to planner when it occurs - Planner should update goals and recommendations

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30
Q

Examples of qualitative and quantitative information

A

Qual - health, life expectancy, values, goals, expectations // Quant - Age, dependents, income, savings, taxes, cash flow

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31
Q

After recommendations have been presented to client - the client can ____.

A

Accept or reject it. Once accepted - planner can move on

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32
Q

What are “regulars reviews” Monitoring

A

reviews occur at predetermined intervals

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33
Q

What are “Episodic reviews” Monitoring

A

reviews occur after major and life changing events

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34
Q

How often should 1)investments results 2)performance benchmarks should be reviews

A

1) at least quarterly 2) at least annually

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35
Q

If you get public discipline by CFP board, what should you do?

A

Provide notice to CFP’s firm

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36
Q

Definition of Felony

A

Offence of at least one-year imprisonment or a fine of at least $1,000

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37
Q

Definition of Relevant Misdemeanor

A

A criminal offense that is not a felony that involves fraud, theft, misrepresentation, violence or a second (or more) and/or drug-related offence

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38
Q

How do driving offenses, tickets that do not involve alcohol and drugs are classified?

A

Not relevant misdemeanors // first alcohol and drug misdemeanor is not reletvant

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39
Q

Are tax/financial misdemeanors are relevant misdemeanors?

A

Yes

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40
Q

Communication (Pacing)

A

Matching the speed of listening

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41
Q

Communication (Rephrasing)

A

Restating or repeating back what the client has said

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42
Q

Communication (Reflecting)

A

Paraphrasing technique (saying it in the planners words)

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43
Q

Open or Closed questions

A

Open - Lengthy response // Closed - One word

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44
Q

ALWAYS BAR from being certified

A

1) Felony conviction: Theft, embezzlement, tax fraud, murder/rape, violent crime in past 5 years 2) revocation of financial professional license

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45
Q

PRESUMED BAR from being certified

A

1) two of more personal or business bankruptcies 2) Felony conviction of: Violent crimes OTHER than murder or rape that are MORE than 5 years ago, Nonviolent crimes within last 5 years 3) revocation or suspension of non financial license (Real estate), Suspension or financial professional license

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46
Q

How long are bankruptcies going to be established on CFP board’s website?

A

10 years (if it is unfortunate event ie. Son has cancer - good chance it wont be published)

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47
Q

ADVERSE CONDUCT being certified

A

Customer complaints, arbitrations, misdemeanor convictions, employer terminations/investigations, Felony nonviolent more than 5 years

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48
Q

If PRESUMED BAR, you can petition for fitness determination BY

A

Respondent must prove by evidence and DEC can grant or deny the person

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49
Q

Refrain from borrowing or lending money and comingling assets

A

You cant do either: However you can borrow or lend money with a member of the CFP’s family or if the lender is a business organization or legal business of lending money. You CANT EVER commingle assets

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50
Q

What need should be the biggest?

A

Always place the need with the biggest financial risk first

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51
Q

Who is responsible for RMD’s, 401k rollover check is on time?

A

CFP Professional

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52
Q

What the CFP not responsible for?

A

Selling real estate, estate docs, Completing tax return

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53
Q

How long does CFP have to alert CFP board when CFP does adverse action?

A

30 days

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54
Q

AUM register with the state vs registering with the SEC

A

Under $100M - State // Over $110M - SEC // Between $100M and $110M - You get to choose

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55
Q

Do you need client consent if you assigning advisory contracts to someone else?

A

Yes

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56
Q

What form do you need to register with the SEC?

A

ADV

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57
Q

What form do you need to withdrawal register with the SEC?

A

ADV-W

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58
Q

How often do you need to file the ADV Part 1 and Schedule 1?

A

Annually

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59
Q

Form ADV Part 1A and B(Description)

A

Firm name, background

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60
Q

Form ADV Part 2A and B(Description)

A

Firm and advisor information, compensation and fees, education, investment objectives & Strategies, conflicts of interest

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61
Q

Form ADV Part 3(Description)

A

CRS or Relationship summary

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62
Q

EXCEPTIONS to registration by Advisors Act

A

The PUBLISHER (Forbes, WSJ) was BROKE (Broker Dealer) because LATE (Lawyer, accountant, teacher) to US (US Securities) BANK (Bank and bank holding)

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63
Q

EXCEMPTIONS to registration by Advisors Act

A

1) Clients resides in state of business of advisor who do not advise on national securities, Advisors who only have clients of INSURANCE, VENTURE, PRIVATE FUNDS and foreign advisors with no place of business in the US

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64
Q

EXCEPTIONS vs EXEMPTIONS

A

Exceptions - don’t have to register ever // Excemptions - don’t have to register right now

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65
Q

Broshure Rule

A

Disclose to every client: Fees, education, types of securities (Must be give to client at or before entering contract)

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66
Q

Series 6 vs Series 7

A

You can sell = 6) Mutual funds, UITs and variable life insurance and annuities 7) everything besides commodities and futures

67
Q

Demand

A

quantity of good or serives that consumers are willing to purchase

68
Q

Supply

A

quantity of good or serives that businesses are willing to supply

69
Q

Quantity Demanded /Supplied

A

Change of price or any movement along the demand curve / supply curve

70
Q

What causes shift in the demand Curve?

A

Income, taxes, savings rate, disposable income

71
Q

What causes shift in the supply Curve?

A

Technology, competition, anything other than price

72
Q

Subsitutes vs complements

A

Sub - serve similar purpose // Comp - consumed jointly

73
Q

GDP vs GNP

A

GDP - goods/services produced in the US // GNP - goods/services produced by US companies but anywhere in the world (Fort plant in mexico)

74
Q

Expansion(GDP,Inflation,Interest Rates,Unemployment)

A

GDP, inflation and interest rates increasing // Unemployment is decreasing

75
Q

Peak(GDP,Inflation,Interest Rates,Unemployment)

A

GDP at highest // Inflation and interest rates are peaking // Unemployment at its lowest levels

76
Q

Contraction(GDP,Inflation,Interest Rates,Unemployment)

A

GDP begins to slow // Inflation and interest rates begin declining // Unemployment begins to increase

77
Q

Trough(GDP,Inflation,Interest Rates,Unemployment)

A

GDP, inflation and interest rates are at their lowest levels // Unemployment is at its highest

78
Q

Who runs the monetary policy?

A

Fed Reserve - controls money supply and influences interest rates

79
Q

Who runs the Fiscal policy?

A

Congress - Controls spending and taxation\

80
Q

Goals of Monetary and Fiscal policy

A

Maintain: Long term economic growth, price levels supported by the economy,full employment

81
Q

Monetary policy - Ease vs Tighten

A

Ease - more money // Tighten - less money

82
Q

Monetary policy - Tools (4)

A

Reserve Requirement (% of deposits a bank must maintain in deposits), Discount Rate (Overnight rate to borrow from federal reserve), Open market operations (Buying selling government securities), Excess Reserve Rate (Excess funds that gets interest rate if bank holds it)

83
Q

Fed Funds rate

A

Borrowing money bank to bank

84
Q

Fiscal policy - Tools (3)

A

Taxation (On people), Spending (Increase spending - decreasing rates), Debt management (More debt - higher interest rates)

85
Q

Fair Credit reporting act

A

If refused credit or employment - must given report on why

86
Q

Fair Debt collection Act

A

Creditors cannot harass or threaten you with lawsuits

87
Q

Fair credit billing act (Know timelines)

A

30 days to acknowledge, 90 days to correct, lesser of $50 or the charges

88
Q

FDIC Insurance (What is its own account)

A

1) Individual 2) Joint 3) Trust

89
Q

What is COVERED and NOT COVERED when it comes to FDIC Insurance

A

Covered - Payable in US // Not covered - 1) Only Payable outside of the US 2)held in money market fund 3)Stocks, bonds, mutual funds

90
Q

Bankruptct Laws - Chapter 7 What is this?

A

Relief through liquidation

91
Q

Chapter 7 Bankruptcy - what is NOT discharged? (Things that are expensive but not forgiven)

A

Not discharged - 3 years of back taxes, alimony and child support, student loans, monies owed due to malicious acts

92
Q

Chapter 7 Bankruptcy - what assets are protected?

A

Rollover IRAs (Unlimited protection), IRA/ROTH up to $1.3M, Alimony & child support, pensions, life insurance and annuites. (NOT INH IRAS)

93
Q

Chapter 11 Bankruptcy - What is this?

A

Relief though company reorganization

94
Q

Chapter 13 Bankruptcy - What is this?

A

Relief through adjusting debts

95
Q

Worker Compensation & Unemployment compensation

A

Workers comp - not taxable benefits if someone gets injured // Unemployment comp - taxable benefits if someone losses job

96
Q

What does the balance sheet show you?

A

Moment in time of ASSETS - LIABILITIES = NET WORTH

97
Q

What does the income statement show you?

A

Over a period of time - Income, Savings, and expenses

98
Q

Liquidity Ratio - Current Ratio

A

(Current Assets / Current Liabilities) - Needs to be atleast one // A & L needs to be under 1 year

99
Q

Liquidity Ratio - Emergency Fund

A

(Current Assets / Monthly Non-Disc Expenses) // Non disc - Debt, food // Single earner - 6 months, Dual earner - 3 Mo

100
Q

Housing ratio - 28% Ratio

A

(Monthly housing costs (PITI) / Monthly gross income) - Needs to be less than or equal to 28%

101
Q

Housing ratio - 36% Ratio

A

(Monthly housing costs (PITI) + All other recurring debt / Monthly gross income) - Needs to be less than or equal to 36%

102
Q

Primary driver when you should rent vs buy -

A

TIME!! Rent (1-3 Years) // Buy (3+ years)

103
Q

Adjustable rate Mortgage

A

Good when the time in property will be short (1-3 Years) 2/6 - cannt increase more than 2% a year and 6% during the length of loan (MOVES up and down)

104
Q

Reverse mortgage

A

Homeowner (Age 62 and above) receives monthly payment to live in home

105
Q

Conventional mortgage

A

fixed rate (Normal)

106
Q

Mortgage refinancing

A

Lower your mortgage rate but have up front costs (points paid)

107
Q

Performance Ratio - Savings Ratio

A

(Annual Savings (EE + ER Contributions) / Annual gross income) - 10-12% target

108
Q

Performance Ratio - Rate of Return on Investments (ROI)

A

Target of 9-12% depending on clients age + Risk tolerance

109
Q

FAFSA - What is it?

A

Information sent to colleges to calculate the EFC (Expected family contribution) - Begins financial aid process

110
Q

EFC (Expected family contribution) // Financial need formula

A

(Tuition/Cost of Attendance - EFC = Financial Need)

111
Q

Which students are considered independent?

A

1)Over age 23 2)have legal dependents other than spouse 3)Married

112
Q

Federal Pell Grant

A

“Need” Based - dependent on EFC (Grant is FREE money) - Only to students that have not earned bachelors or professional degree

113
Q

Stafford Loan

A

Subsidized stafford is “Need” Based (not available to grad students) // Unsubsidize stafford is NOT need based (Avaiable to grad students)

114
Q

what does subsidize mean?

A

Government will cover interest while in school

115
Q

PLUS Loan

A

Undergrad and NOT need based, depends on parents credit // Unsubsidized and must be paid within 10 years

116
Q

Graduate PLUS loans

A

Student credit health is taken into account

117
Q

Federal Supplement Education Opportunity Grant (FESOG)

A

Awarded to students with low EFC // Only paid if funds are available

118
Q

Prepaid tuition

A

Pay in-state college at fixed cost // Use the credit when the child goes to that college

119
Q

Advantages and Disadvantages of Prepaid tuition

A

Adv - Lock in cost of todays dollars // Disadv - Only earn return equal to inflation, you only get principal back if student decides to not go to that college

120
Q

529 Plans

A

Contribute to savings account to portfolio of stocks // Appreciation in asset value is tax free // Pay 5 years ahead

121
Q

Advantages and Disadvantages of 529 plans

A

Adv - No Phase out, can change beneficiary, remove assets from gross estate, Use for elementary // Disad - 10% penalty if not used for education, Distributions from other than parents (grandparents) is income to child

122
Q

What is need based and not need based for financial aid

A

Need based - Federal pell grant, Subsidized Stafford loan, FESOG // Not need based - Unsubsidized stafford, PLUS loan

123
Q

529A ABLE

A

529 account for special need of child - if account balance is over $100k, SSI will suspend

124
Q

Coverdell Education Savings Account

A

Contributions limited to $2,000 per year per beneficiary, must use the funds by 30, considered an asset of the parent

125
Q

Investment Advisor KNOWS his ABC’s

A

A - Advice, B - Business, C - Compensation

126
Q

Exception is that TABLES are incidental

A

Teacher Accountant Brokers Lawyers Engineers

127
Q

VIPs are SaFE from exemptions

A

Venture capital, Insurance companies, Private funds less than $150 million, home State, Foreign advisors and securities not on a national Exchange

128
Q

Accredited Investor 1 2 3 test

A

$1M // $200k income if single // $300k of joint spousal income

129
Q

Three Panel approach: How much do you need of LIFE INSURANCE?

A

10-16x gross pay

130
Q

Three Panel approach: How much do you need of disability insurance?

A

60-70% gross pay

131
Q

Three Panel approach: How much do you need of PLUP?

A

$1-3M

132
Q

Three Panel approach: How much do you need of Property (Home and Auto)?

A

policy that cover both home and auto for FMV

133
Q

Three Panel approach: How much do you need of Education funding?

A

$3k,$6k,$9k per child per year for 18 years

134
Q

Three Panel approach: How much do you need of retirement amount?

A

16 x pre retirement

135
Q

Three Panel approach: what do you need for legacy?

A

Will, Durable POA, Advanced medical directive

136
Q

Inelastic vs elastic curve

A

Inelastic - Gas/milk (Looks like an I slope vertical) // Elastic - alcohol, movie tickets, luxury goods (Horizontal slope)

137
Q

What types are things are cyclical in nature and fluctuate directly with the business cycle?

A

Consumer durables and capital goods

138
Q

Recession and Depression

A

Recession - 6mo/2q // Depression - 18mo/6q [Declining GDP]

139
Q

Monetary Policy - Increase in Reserve requirment (vice versa for decrese)

A

MS - Down // IR - Up

140
Q

Monetary Policy - Increase in Discount rate (vice versa for decrese)

A

MS - Down // IR - Up

141
Q

Monetary Policy - Sales of treasuries (vice versa for buying)

A

MS - Down // IR - Up

142
Q

Monetary Policy - Increase in Excess reserve rate (vice versa for decrese)

A

MS - Down // IR - Up

143
Q

Examples of Cash and Cash equicvalents or current assets

A

Cash, Laddered CDs every 6 mo, NOT EE BONDS

144
Q

Examples of invested assets

A

stocks, bonds, mutual funds, retirement accounts, business ownership

145
Q

Examples of personal use assets

A

Personal residence, car, furniture, boat and clothing

146
Q

Examples of Current liabilities

A

Anything that is due within 12 mo - CC bills, cable, cell phone bills

147
Q

Examples of Long term liabilities

A

Over 12 mo - loan on car and home

148
Q

Lifetime learning credit (LLC)

A

20% of up to $10,000 in qualified expenses per year ($2,000) // Per family

149
Q

American opportunity tax credit (AOTC)

A

100% of first $2,000, 25% of second $2,000 ($2,500) // Per Student

150
Q

Roth IRA Education Benefit

A

10% Penalty is waived on non qualified distributions used for education expenses BUT could impact retirement goals

151
Q

Series EE Bond

A

No federal income tax oninterest if used to pay for qualified expenses // Bonds must be purchased not in child’s name and over 24 years old

152
Q

Can an EE Bond be used with AOTC?

A

Yes but cant be the same expenses

153
Q

UGMA/UTMA

A

Custodial account - donor irrevocably gifts assets to kid // It is the childs assets (Not good for FAFSA and Child can use it for anything) // Cannot be transferable to someone else because it’s the childs assets

154
Q

Can UGMA/UTMA be subject to what tax?

A

Kiddie Tax - interest dividends and capital gains within the account

155
Q

Student Loan Interest deductibilty

A

Above the line deduction and limited to $2500 a year (Only for tuition, room, board etc.)

156
Q

Lifetime learning credit - Who is this for?

A

Undergrad, graduate or professional programs // Per family // Having a felony does not affect the ability to have this

157
Q

Lifetime learning credit - Amount?

A

20% of up to $10,000 in qualified expenses ($2,000)

158
Q

American opportunity tax credit - Who is this for?

A

First four years of post secondary education // Per student // if has felony, you cannot have this credit

159
Q

American opportunity tax credit - amount?

A

100% of first $2,000 // 25% of second $2,000 – Max amount is $2,500 per year

160
Q

An individual may claim the AOTC or LLC in the same year as a dist. From 529 plan BUT just

A

not for the same expenses

161
Q

An individual may NOT claim both the AOTC and LLC for the

A

same child in the same year

162
Q

Phase out limits for AOTC/LLC

A

S -80-90 // MFJ - 160-180

163
Q

Employer education assistance - What is this? How much?

A

Can pay for or reimburse education expenses up to $5,250 per year // Loans of the spouses or dependents do not count // ER gets no above the line interest deduction

CFP (7 decks)

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