Fundamentals + Insurance (Review every day) Flashcards
Private Censure
unpublished written reproach mailed by the commission to a censured CFP professional
Public Censure aka Public Letter of Admonition
publishable written reproach of the CFP Professional
Suspension
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
revocation
permanent removal of a CFP professionals right to use the mark
ALWAYS bar list
- 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
PRESUMED bar list
- 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
review process for transgressions that fall under the presumption list
- 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
investment advisor knows his ABC’s!
Advice, Business, Compensation
EXCEPTION Registration with the SEC
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
EXEMPT from Registration
VIPs are SaFE from exemptions
Venture Capital Insurance Private funds less than $150 million State Foreign advisors securities not on a national Exchange
accredited investor
$1 million or $200,000 or income if single or $300,000 of spousal income
principle of indemnity
insurer reimburses insured for approximate loss (not more)
insurable interest
right or relationship with insured affected by financial loss
adverse selection
good/bad risks
poorer than average risk applicatns seek insurance
unilateral
company sets terms
adhesion
accept as is or not at all
recission
contract null and void due to fraud, mistrepresentation, concealment or mutual misstaement as to material fact
reformation
amendment to contract permitted if agreement to express original intent by both parties is agreed upon
collateral source
in tort liability - damages paid to plaintiff from source of damages (individual/business) should not be mitigated/reduced by insurance coverage
subrogation
insurer’s legal right to pursue recovery damages in claims procedure
parts of insurance contract
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
if insurance carried is less than 80% insurance company pays GREATER OF
Actual cash value or replacement cost recovery
contract rights and provisions
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
contracts: dispute remedy
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
if insurance carried is less than 80% insurance company pays….
GREATER of ACV or Replacement Cost Recovery
split dollar life insurance
- what is it
- when it is appropriate to use
- design features
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
split dollar -> endorsement method
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
split dollar -> collateral assignment method
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
income tax treatment for split dollar
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
transfers that preserve the tax free nature of the death benefit include
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
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.
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.
