Fundamentals + Insurance (Review every day)

Question 1

Private Censure

Answer 1

unpublished written reproach mailed by the commission to a censured CFP professional

Question 2

Public Censure aka Public Letter of Admonition

Answer 2

publishable written reproach of the CFP Professional

Question 3

Suspension

Answer 3

period of no less than 90 days and no more than 5 years. During this time the CFP professional remains subject to the terms and condition of certification and trademark license, though not permitted to use the marks

Question 4

revocation

Answer 4

permanent removal of a CFP professionals right to use the mark

Question 5

ALWAYS bar list

Answer 5

• felony conviction for theft, embezzlement or other financially based crimes
• felony conviction for tax fraud or other tax related crimes
• revocation of a financial professional license, unless the revocation is administrative in nature (ex: not renewing license)
• felony conviction for any degree of murder or rape
• felony conviction for any other violent crime within the last 5 years

Question 6

PRESUMED bar list

Answer 6

• 2 or more personal or business bankruptcies
• revocation or suspension of a nonfinancial professional license unless the revocation is administrative in nature
• suspension of a financial professional license, unless the suspension is administrative in nature
• felony conviction for nonviolent crimes (including perjury) within the last five years
• felony conviction for violent crimes other than murder or rape that occurred more than 5 years ago

Question 7

review process for transgressions that fall under the presumption list

Answer 7

• submit a written petition for reconsideration to professional review staff and sign a form agreeing to cfp board jurisdiction to consider the matter
• fee will be charged
• staff will review the request to ensure the transgression falls within the presumed list (need relevant docs)
• relevant info will be provided to the DISCIPLINARY AND ETHICS COMMISSION for a determination

Question 8

investment advisor knows his ABC’s!

Answer 8

Advice, Business, Compensation

Question 9

EXCEPTION Registration with the SEC

Answer 9

any broker/dealer whose advisory services are SOLELY INCIDENTAL to the conduct of business
- Lawyers, Accountants, Teachers, Engineers whose advisory services are solely incidental to their profession
- banks and bank holding companies that are not investment companies
publisher of a bonafide newspaper, magazine or periodical or regular circulation
- advisors whose advice and services is related to securities guaranteed by the US

TABLE - teachers, accountants, brokers, lawyers, engineers

Question 10

EXEMPT from Registration

Answer 10

VIPs are SaFE from exemptions

Venture Capital
Insurance 
Private funds less than $150 million 
State 
Foreign advisors 
securities not on a national Exchange

Question 11

accredited investor

Answer 11

$1 million or $200,000 or income if single or $300,000 of spousal income

Question 12

principle of indemnity

Answer 12

insurer reimburses insured for approximate loss (not more)

Question 13

insurable interest

Answer 13

right or relationship with insured affected by financial loss

Question 14

adverse selection

Answer 14

good/bad risks

poorer than average risk applicatns seek insurance

Question 15

unilateral

Answer 15

company sets terms

Question 16

adhesion

Answer 16

accept as is or not at all

Question 17

recission

Answer 17

contract null and void due to fraud, mistrepresentation, concealment or mutual misstaement as to material fact

Question 18

reformation

Answer 18

amendment to contract permitted if agreement to express original intent by both parties is agreed upon

Question 19

collateral source

Answer 19

in tort liability - damages paid to plaintiff from source of damages (individual/business) should not be mitigated/reduced by insurance coverage

Question 20

subrogation

Answer 20

insurer’s legal right to pursue recovery damages in claims procedure

Question 21

parts of insurance contract

Answer 21

DDICE
Declarations - factual statements identifying parties, property and activity being insured
Definitions - key terms
Insuring agreement - basic promises of the insurance company
Conditions- duties and rights of both parites
Exclusions - circumstances and conditions that insurer will not cover

Question 22

if insurance carried is less than 80% insurance company pays GREATER OF

Answer 22

Actual cash value or replacement cost recovery

Question 23

contract rights and provisions

Answer 23

waiver: occurs when a party relinquishes a known right

estoppel - takes places when a party is denied assertion of a right to which they are otherwise entitled

waiver provision (applies to insurance) an insurer may seek to avoid liability associated with a loss due to their agents offering policy changes not authorized by the company

Question 24

contracts: dispute remedy

Answer 24

parol evidence rule: once the contract is placed in written form all previous and prior understandings may not contradict the written contract

reformation: contractual remedy in which the contract is revised to express the original intent of all parties

rescission - deems a contract void from inception

Question 25

if insurance carried is less than 80% insurance company pays….

Answer 25

GREATER of ACV or Replacement Cost Recovery

Question 26

split dollar life insurance

• what is it
• when it is appropriate to use
• design features

Answer 26

costs + benefits are shared
if insured EE dies, the corporation recovers its premium outlay with the balance of the policy proceeds paid to the beneficiary chosen by the EE

appropriate - when an ER wishes to provide an executive with a life insurance at a low cost and low cash outlay to the executive
- when a preretirement death benefit EE is a major objective (can be used as an alternative to an insurance financed non qualified deferred comp plan)
when an ER is seeking a selective executive fringe benefit

Question 27

split dollar -> endorsement method

Answer 27

ER owns the policy and pays the entire premium

if EE dies while the plan is in effect, ER will receive a portion of the death benefit equal to its premium outlay with the remainder of the death proceeds going to the EE’s designated bene

if ER terminates the plan, ER will receive the cash surrender value of the policy, while the insured EE will receive nothing

EE’s rights are protected by endorsement, giving the EE the right to name the residual bene

Question 28

split dollar -> collateral assignment method

Answer 28

EE is the owner of the policy and is responsible for premium payments

ER obligates itself and then makes INTEREST FREE LOANS in the amt of the premium the EE has agreed to pay under the split dollar plan -> to secure these loans, the policy is assigned as collateral to the ER

at EE’s death, the ER recovers the loan from the policy proceeds as the collateral assignee the remainder is paid to EE’s bene

if ER terminates the plan, the ER will receive an amt = premium payments loaned to the EE, while the EE will receive the policy

Question 29

income tax treatment for split dollar

Answer 29

any payment made by an ER must be accounted for either as a loan to the EE (collateral assignment),

or the economic benefit received by the EE must be treated as compensation to the EE (endorsement)

death benefit: generally income tax free, but under endorsement method the ER may be liable for gift taxes on the benefit received by the EE

Question 30

transfers that preserve the tax free nature of the death benefit include

Answer 30

transfer of the policy to the insured

transfer to a partner of the insured or to a partnershp of which the insured is a partner

transfer to a corporation of which the insured is a shareholder or officer

transfer in which the transferee’s basis is determined, in whole or in part, by reference to the transferor’s basis

Question 31

Which of the following would most likely indicate that interest rates will rise in the future?

A. An increase in consumer confidence.

B. A decrease in the federal deficit.

C. An increase in manufacturer inventories.

D. A decrease in the demand for credit.

Answer 31

Solution: The correct answer is A.

B is incorrect. A decrease in the federal deficit may indicate that government spending has declined or taxes have increased. Both of these events reduce the money supply. This would not specifically cause interest rates to rise.

C is incorrect. When inventories increase, that generally indicates consumer spending has declined. A decline in consumer spending would potentially lead to a decline in interest rates.

D is incorrect. Interest rate levels are a factor of the supply and demand of credit. An increase in the demand for credit will raise interest rates, while a decrease in the demand for credit will decrease them.