Fundamentals & Insurance

Question 1

“Always” Bar list
“Presumed”

Question 2

An Investment advisor knows his ABC’s = ADVICE, BUSINESS, COMPENSATION

Question 3

The most important rules are the first two exceptions. The exception is that TABLEs are incidental!

Teachers, Accountants, Brokers, Lawyers, and Engineers

Question 4

Remember that “VIPs are SaFE from exemptions”

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

Question 5

Make sure you distinguish between exceptions to registration and exemptions from registration. The examiners could easily ask. “Which of the following is an exemption?” And then provide you with three exceptions and an exemption. Always keep in mind, an exception or exemption does exempt anyone from the anti-fraud provisions for the Uniform Securities Act of 1956.

Question 6

To be an accredited investor you must meet the 1, 2, or 3 test. $1million or $200,000 income if single, or $300,000 of spousal income.

Question 7

FINANCIAL PLANNING PROCESS

Answer 7

Uber Is A Drunk Person’s Immediate Motor-Vehicle

Question 8

Three-Panel Approach
Which identifies Individual Client strengths and weakness

Answer 8

Question 9

Elastic Demand

An elastic demand curve is almost horizontal, sloping down and to the right .

Question 10

Inelastic Demand

An inelastic demand curve is almost vertical, sloping down and to the right. Remember the “I” in Inelastic to help remember the shape of the inelastic demand curve.

Question 11

Business Life Cycle

Know what direction the following variables are headed: Inflation, interest rates, unemployment, and GDP at each phase in the business life cycle.

Question 12

Consumer durable and capital goods are cyclical in nature and fluctuate directly with the business cycle.

Question 13

Recession

(6 months / 2 Quarters)

Question 14

Depression

(18 months / 6 quarters)

Question 15

Inflation Formula

Inflation = (Price level (year x) - Price Level (year x - 1)) / Price level (year x - 1)

Question 16

Interest rates represent the cost of “buying” or borrowing money. As money becomes scarce (or the money supply decreases) it becomes more expensive in the form of interest rates to “buy” or borrow money. Be sure to understand the relationship between the money supply and interest rates.

Question 17

DO NOT BE TRICKED ON THE EXAM. The Federal Reserve does not control the prime lending rate. The discount rate is the rate that member banks will borrow from the Federal Reserve. The Fed Funds Rate is the overnight borrowing rate between member banks.

Question 18

Summary of Monetary Policy Effects

Question 19

Bankruptcy and Assets that are exempt from creditors

Question 20

Balance Sheet Presentation

Question 21

Be prepared to identify where an account balance appears on the balance sheet. Make a flash card of examples of cash & cash equivalents, invested assets, personal use assets, current and long-term liabilities

Question 22

Use a marker or pencil to highlight important words in a question (such as not and except)

Question 23

Current Ratio Formula

Current Ratio = Current Assets / Current Liabilities

Question 24

Exam Tip

If the CFP Exam gives you combined fixed and variable expenses rather than non discretionary expenses, used the combined fixed and variable expenses as a substitute for non discretionary expenses

Question 25

Emergency Fund Formula

Emergency Fund = Current Assets / Monthly Non discretionary Expenses

Question 26

Debt Ratios

Consumer debt payments should not exceed 20% of NET income
Housing debt should be less than or equal to 28% of GROSS income
Total debt Housing plus all other recurring debt should be less than or equal to 36% of GROSS income

Question 27

Housing - 28% Ratio

Monthly Housing Costs (P + I + T + I) / Monthly Gross Income

Ratio should be 28% or less

Question 28

Total Debt

Housing & All other Debt Ration - 36% Ratio

Monthly Housing Cost (P+I+T+I) + All Other Recurring Debt Payments / MONTHLY Gross Income

Question 29

Annual Savings (Employee + Employer Contributions) / ANNUAL Gross Income

Question 30

Rate of Return on Investments (ROI)

ROI = (Ending Investments - Beginning Investments - Savings - Gifts Received) / (Average Invested Assets)

Average Invested Assets = (Beginning Investments + Ending Investments)

Question 31

Federal Pell Gran - NEED based

Question 32

Stafford Loan (aka Federal Direct Loans) - Student Loans
Subsidized Stafford - NEED based
Unsubsidized Stafford - NOT NEED

Question 33

Parent Loans for Undergraduate Students (PLUS)

NOT NEED

Question 34

Federal Perkins Loan Program
- NEED

Question 35

Campus-Based Financial Aid
NEED

Question 36

Coordination Rules

Question 37

Summary for 2023

Question 38

Summary of Qualified Education Expenses Definitions

Question 39

Insurable Risks are C.H.A.D. = not Catastrophic, Homogeneous exposure units, Accidental, and measurable and Determinable.

Question 40

Legal Contract

A legal contract requires COALL = Competent parties, Offer, and Acceptance, Legal consideration, and Lawful purpose.

Question 41

Coinsurance Formula

(Face Value / Coinsurance) x Loss - Deductible

Question 42

NAIC

NAIC has no regulatory power over the insurance industry. Regulation occurs at the state level.

Question 43

Steps in Risk Management

D - I - E - D - I - E Don’t Insure Everything (Squared)

Question 44

Financial Advice vs Financial Planning

Question 45

Duties Owed to Firms and Subordiantes

If a CFP® professional goes on vacation and turns all client info to an intern to make recommendations, the CFP® Professional broke the “supervision duty”

Question 46

4 E’s to becoming a CFP®

Education, Examination, Ethics, Experience