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CFP Supplement > Fundamentals > Flashcards

Fundamentals Flashcards

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CFP® flashcards
1
Q

Invesetment Advisor but exempt (“investment advisor” but don’t have to register) from registration…

A

Advisors to…

Venture capital
Insurance
Private funds <$150M
s

(are)

home State
Foreign advisors
securities NOT on national Exchange
(from exemptions)

governed by Section 206 - anti fraud

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2
Q

Statement of Financial Position or Statement of Net Worth =

A

= Balance Sheet

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3
Q

Statement of Cash Flows

A

Income & Expense Statement

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4
Q

4 Tools Used by Fed to regulate interest rates and m oney supply

A
  1. Reserve Req
  2. Excess Reserve
  3. Discount Rate
  4. Open Market Operations
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5
Q

Capital Goods & Consumer Durables

A

Fluctuate directly with economy and GDP

  • capital goods - goods used to make other things
  • consumer durable goods - longer lasting goods
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6
Q

Taxation of US Treasury Securities

A

Taxable at federal level
Nontaxable at state & local level

  • EE Bonds tax exempt at all levels if used for qual education exp
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7
Q

Interest Rate Fluctuation

A
  • Lower money supply = higher rates
  • Decreasing US deficit = higher supply = lower rates
  • Lower inflation = lower rates = higher money supply
  • Weaker credit demand = lower rates
  • Dollar-denominated assets sold overseas = decreasing money supply = higher rates
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8
Q

Investor Advisers Act of 1940: Disclosure Brochure

A
  • submitted w/in 48hrs before entering into contract OR
  • at time of contract with 5-day “look-see”
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9
Q

Client first/highest priority after losing job

A

file for UE

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10
Q

Emergency Fund Asset Types

A

Current Assets only

  • CD, money market mutual fund, cash
  • NOT balanced mutual fund, line of credit
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11
Q

Exceptions (not recognized as “investment advisors” and not regulated by SEC) under definition of “investment advisor”

A
  • TABLE plus
  • banks that are NOT investment companies
  • publisher of bonafide newspaper, magazaine, periodical of regular circulation
  • advisor who advise strictly securities guaranteed by US
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12
Q

Absolute Liability

A

situation where someone has undertaken activities or actions that bring about extraordinarily hazardous circumstances

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13
Q

comparative negligence

A
  • defense to negligence
  • adjust damage amount by allocating negligence and loss proportionately
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14
Q

Rescission

A
  • parties in a legal contract have a error/misunderstanding and no agreement can be reached
  • carried out by court of law
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15
Q

Reformation

A

parties in a legal contract have a error/misunderstanding but willing to work out together

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16
Q

contributory negligence

A
  • defense to alleged negligence
  • evidence that injured party didn’t look out for own safety
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17
Q

assumption of risk

A
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18
Q

parole evidence rule

A

Once the contract is placed in written form, all previous and prior understandings of a verbal contract (or any other nature) will not be allowed to contradict the written contract

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19
Q

estoppel

A

if right has been waived, company will be stopped from denying a claim

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20
Q

waiver provisions

A

company reps cannot change contract

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21
Q

Open Market Operations

A
  • buy/sell TREASURY securities
  • NOT corporate securities
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22
Q

Treasury Dept NOT Federal Reserve

A
  • prints money
  • issues treasury bills
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23
Q

Agreements & Full Disclousure

A

without full disclousure of assets, info, etc. it is not possible to arrive at a fair arrangement

i.e., pre-nup, FP (limit/terminate)

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24
Q

FP Process Questions

A
  • Where in Process?
  • full disclosure?
  • What has client already decided?
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25
Q

Quantitative Data

A

Names & Numbers

i.e. copies of trust docs and wills

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26
Q

Type of Data…Risk tolerance levels
PASS Score?

A

Qualitative data

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27
Q

CFPs perception of entering financial planning

A

irrelavent as to whether CFP must following the planning process

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28
Q

CFP bankruptcy

A
  • must be disclosed to client regardless of when
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29
Q

Update Scope of Engagemen?

  1. Change in Risk aversion
  2. New Husband
A
  1. NO
  2. Yes
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30
Q

Provide information to a client outlined in Duties to a Client including but not limited to How the client pays for products, services and additional incurred costs including surrender charges and sales loads iii. How the CFP® professional and their firm are compensated for providing products and services.

Needed before Engagement?

A

NO

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31
Q

Client’s perception of CFP providing FP services…

A

CFP must follow Board practice standards

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32
Q

Requisite of fund prospectus and investment policy statements…

A

Not required when providing prof advice or making financial recs

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33
Q

brochure rule

A
  • ADD info
  • requires that a planner or advisor provide the client with all of the information as required at the meeting, or before the meeting, you enter into contract with them.
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34
Q

Investment Advisors Act of 1940: Section 202

A
  • Anti-fraud & deceit
  • regulates those exempted from registration
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35
Q

regulation of banks

A

federal reserve system & Federal Deposit Insurance Corporation

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36
Q

regulation of pension plans

A

subject to federal regulation by PBGC & ERISA

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37
Q

regulation of organized stock exchanges (NYSE)

A

federal gov’t through SEC

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38
Q

Federal authorities govern the insurance industry in the following instances and manner…

A

through the…

  • IRC
  • SEC
  • ERISA
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39
Q

consumer confidence index

A

used to forecast consumer behavior/feeling

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40
Q

consumer price index

A

forecast future inflation

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41
Q

index of leading economic indicators

A

used to forecast economic expansions and contractions

42
Q

Regulates Form ADV

A

SEC

43
Q

Integration Factors for Engaging in FP

A
  • relavent elements affected
  • portions and amounts affected
  • length of time affected
  • exposure to risk affected
  • barriers to modifying actions
44
Q

Sales Based Compensation

A
  • more than any de minimis benefit tied to the sale of a financial asset
  • bonuses, front end or trailing commissions, ongoing 12b-1 fees, transaction fees, revenue sharing or solicitor fees.
45
Q

Code of Ethics and Standards of Conduct
Only Applicable when Financial Planning

A
  • All other duties
  • Practice Standards
  • All info in writing, except material conflicts of interest
46
Q

Education Funding: Paying School Directly

A
  • qualified transfer
  • doesn’t use annual exclusion
  • minimizes taxable gift…NOT taxable gift
47
Q

“reasonable and customary fees” paid for custodial services

A
  • NOT sales-based comp
  • Do NOT have to specifically disclose
48
Q

Must always be disclosed in writing (FA or FP)

A

Privacy Policy

49
Q

Never has to be disclosed in writing

A

material conflicts of interest

50
Q

CFP Timeframe for providing services and informations

A

Duty of Diligence - timely and thorough

51
Q

FDIC Protection

A
  • $250K per depositor, per bank, per account type
  • Joint with wife & joint with son = 2 types
  • NOT covered
    • money market mutual funds
    • IRAs unless cash invested
    • deposits payable outside US
    • stocks, bonds, mf
52
Q

Regulation Z of Consumer Protection Act issued by Fed

A

dollar amount of finance charges and annual percentage rate (APR) must be disclosed

53
Q

After providing worker’s comp to EE, ER protected from…

A
  • suit by EE

NOT protected from…

  • suit from EE family
  • suit from third party
  • suit from EE’s spouse
54
Q

Max client liability for fraudulent credit card charges

A

$50 per card

  • Look for charges under $25
55
Q

Fair Credit Reporting Act (FCRA)

A
  • credit reports are required to contain accurate, relevant, and current information
  • allows individuals to challenge information deemed to be incorrect on their credit report and provides for changing that information if the creditor does not respond with a specific time period.
56
Q

Loans NOT available to grad students

A
  • Perkins (ended)
  • Subsidized Stafford Loans (Unsubsidized okay)
  • Pell Grants
  • SEOG
  • Parent PLUS Loans (parents of undergrad only, Graduate PLUS okay)
57
Q

Coverdell ESA

A

no limit to the number of accounts that can be established for a particular beneficiary; however, the total contribution to all accounts on behalf of a beneficiary in any year can’t exceed $2,000

like an IRA

58
Q

Prepaid Tuition

A

asset of parents AND included in EFC

59
Q

CFP Board Bankruptcy Considerations

A

CFP Board disciplinary actions will consider if the bankruptcy was a result of Roland’s inability to manage his personal finances or the business’ financial affairs

60
Q

fee-based

A
  • CFP or firm can receive fees and commissions
  • CFP charges only fees but affiliated third party receives commissions
61
Q

maximum loan to value ratio

A

down payment amount excluding (plus) closing cost

62
Q

lottery winnings and inflation

A

lotto winning streams = fixed annuity
do not adjust return for inflation in TVM

63
Q

TVM - car payment vs saving for car

A

don’t confuse mixture of lingo

i.e. wants to purchase in 3 years - put 12000 down
or
i.e. wants to pay off in 3 years - has 12,000 saved

64
Q

duties owed to client: fiduciary duty

A
  1. duty of loyalty
  2. duty of care
  3. duty to follow client instructions
65
Q

suitability vs fiduciary

A

read carefully

CFP board requires fiduciary

66
Q

CFP employed by RIA under ownership of broker-dealer

A

broker-dealer is related party to CFP

67
Q

inelastic demand

A

price increases, revenue increases
price goes up, people will buy same amount, revenue increases

demand change minimal with price change

milk and gasoline

68
Q

elastic demand

A

price increases, revenue decreases
price goes up, people will buy less, revenue decreases

demand change significant with price change

airlines and luxury items

69
Q

material conflicts

A

could impact advice or cause harm

70
Q

integrity

A

CFP Professional may not professionally engage in conduct to defraud, make any untrue statement, omission, mislead or engage in fraud or deceit.

71
Q

code of ethics vs standard of conduct vs fitness standards

A

see notes

72
Q

most proactive way for CFP to minimize personal liability

A

follow CFP Board guidelines on acting as a fiduciary with a duty of care, loyalty and following client instructions

73
Q

when is implementation carried out

A

always after client agrees to course of action presented

74
Q

Code of Ethics and Standards of Conduct

A

general statements expressing the ethical and professional ideals certificants and registrants are expected to display in their professional activities. As such, they are aspirational in character and provide a source of guidance for certificants and registrants.

75
Q

Always Bar List…petition/reviewed

A

NO, unless license vacated or conviction overturned

76
Q

Code of ethics DONT

A

enforce uniform method for business practices

77
Q

approximately, what change has most significant impact on financial plan

A

getting married

78
Q

inputs for determining client goals

A
  • attitudes
  • values
  • expectations
  • time horizon

NOT current income level, beleifs could vary

79
Q

Disciplinary and Ethics Commission’s (DEC) decision regarding petition

final or not final

A

not final, may be appealed

80
Q

fee only

A

Hourly fees, flat fees, subscription fees, asset under management fees, custodial platform fees, salary or bonus not related to sales or production goals, travel to custodian or research conference.

81
Q

Invesetigation Reporting

A

within 30 days after named, charged, convicted, settled, or adversly mentioned in action, arbitration, or civil suit…must also report outcome

82
Q

Form ADV

A
  • ADV Part II meets CFP Board disclosure requirements
  • ADV Part II may be provided before contract
  • may be used to disclose compensation
  • not approved by SEC, only approves right to be “investment advisor”
83
Q

construction loan

A

difficult to obtain

short-term (less than 1 yr)

84
Q

Duty of Diligence and Sickness

A

sickness not an issue

if price has significantly changed, CFP should contact client to see if still interested in transaction

85
Q

Impact on dutues due to significant changes

A

if already in ongoing FP process, don’t have to revisit duties to be preformed. May only need to revisit needs and course of action

86
Q

FAFSA Includible assets

A

Assets include:

  • Money in cash, savings, and checking accounts
  • Businesses
  • Investment farms
  • Real estate (other than a personal residence)
  • Other investments

DO NOT include:

  • personal residence
  • Life insurance
  • Retirement plans (401(k) plans, pension funds, annuities, IRAs, Keogh plans, etc.)
87
Q

decrease in federal deficit

A

gov’t spending down, taxes up

interest rates down

reduces money supply

88
Q

increase in inventories

A

consumer spending down

low money supply

decline in interest rates

89
Q

decrease in demand for credit

A

lowers interest rates

90
Q

Discliplinary actions by CFP

A
  • Does NOT enforce rules/regs through employers
  • Does NOT impose fines for misconduct
  • Does NOT issue public censure, only private censure

DOES issues public letter of admonition

91
Q

CFP goes on vacation and gives all client responsibility to non-CFP intern

A

broke Duties Owed to Firm and Subordinates

broke “supervision duty”

92
Q

Priority of Client’s Needs

A

Biggest financial risk
|
|
|
V
Least financial risk

93
Q

What is CFP professional responsible for?

A

Everything related to client’s personal finances except what requires a special license…

selling real estate, writing a will or trust, completing tax return (unless CPA or EA)

94
Q

Use of RIA, Registered Investment Advisor

A

Daniel Whitt RIA - NO
may use “Registered Investment Advisor”

95
Q

Series 6

A

FINRA adminstered
mutual funds, UITs, and variable life insurance and annuities (must also have state insurance license)

96
Q

Series 7

A

FINRA adminstered
everything except commodities and futures

97
Q

FED funds rate

A

rate at which member banks borrow from one another
controlled by supply and demand
NOT a tool of the FED to regulate money supply

98
Q

Not discharged through bankruptcy

A

3 years of back taxes
alimony and child support
student loans (unless undue hardship)
debts through fraud

debts through negligence…discharged

99
Q

rent or buy

A

rent - 1-3yrs

buy - >3yrs, high marginal tax bracket, wants to build equity

100
Q

Expected Family Contribution (EFC) factors

A

easier to qualify if:

  • >23
  • married
  • working on Masters/Doctorate
101
Q

EE bonds & AOTC

A

may be used for tuition and fees in addition to AOTC but NOT for same expenses

102
Q
A

CFP Supplement (6 decks)

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