General FA Information Flashcards
What does Fiduciary Standard entail?
The fiduciary standard means financial advisors holding themselves out as fiduciaries will act in the best interests of their clients.
All investment recommendations and financial advice MUST be done with the client’s best interest in mind.
It imposes the highest duty of good faith, loyalty, and full and fair disclosure of all material facts, including potential conflicts of interest.
If conflicts of interest cannot be avoided, they must be managed in the client’s favor
Define Investment Objective
An Investment Objective is an investor’s overall outlook and purpose for the account. It is the why.
Identify the types of Investment Objectives
- Safety of Principal
- Income
- Growth & Income
- Growth
- Aggressive Growth
Define “Safety of Principal”
The goal is a high level of current income consistent with safety of principal. This is the least volatile investment objective; however, investors should understand that there are risks associated with all investments.
Define “Income”
The goal is to produce a high level of income with a limited potential for capital appreciation. The risk of financial loss with income investments is mostly related to the quality of the issuer and fluctuating interest rates.
Define “Growth & Income”
This investment objective seeks earnings growth as well as income, for example, stocks with a history of capital gains and consistent dividend payout. A Growth & Income portfolio will focus on long-term growth and tends to be less volatile than purely growth-oriented investments.
Define “Growth”
The goal is to provide intermediate or long-term capital appreciation with little or no current income. A Growth portfolio tends to be more volatile than a Growth & Income portfolio. Growth investments tend to rise faster than Growth & Income investments in a bull market and tend to drop more sharply in a bear market.
Define “Aggressive Growth”
The goal is to seek capital appreciation; current income is not an objective. Aggressive Growth investments are the most volatile, these investments will rise far more than the average stock during bull markets and will fall much farther than the typical stock in a bear market. Investors in Aggressive Growth investments must realize that the value of these investments will fluctuate sharply over time.
Identify the types of Risk Profile Options
- Conservative
- Conservative Plus
- Moderate
- Moderate Plus
- Aggressive
Define “Conservative”
- The Conservative investor is generally very sensitive to short term losses.
- The Conservative investor’s aversion to short-term losses could compel him or her to sell the investment and hold a zero-risk investment if losses occur.
- The Conservative investor would accept lower long-term returns in exchange for smaller and less frequent changes in portfolio value.
Define “Conservative Plus”
- The Conservative-Plus investor is generally sensitive to short-term losses.
- The Conservative-Plus investor’s aversion to losses could compel him or her to shift into a more stable investment if significant short-term losses occur.
- The Conservative-Plus investor is usually willing to accept somewhat lower returns to assure greater safety of his or her investment.
Define “Moderate”
- The Moderate investor is somewhat concerned with short-term losses and may shift to a more stable option in the event of significant losses.
- The safety of investment and return are typically of equal importance to the Moderate investor.
Define “Moderate Plus”
- The Moderate-Plus investor is generally willing to accept high risk and chance of loss to achieve higher returns on his or her investment.
- Significant losses over an extended period may prompt the Moderate-Plus investor to shift to a less risky investment.
Define “Aggressive”
- The Aggressive investor generally aims to maximize long-term expected returns rather than to minimize possible short-term losses.
- An Aggressive investor values high returns and can tolerate both large and frequent fluctuations in portfolio value in exchange for a higher return over the long run
Define “Replacement” as it pertains to contracts
- The primary definition of a replacement is a transaction where a new policy is issued and it is known or should be known to the FP that the values of an existing policy or contract will be impacted.
- FPs must compare the existing and proposed contracts side by side to determine if the loss of an existing in-the-money benefit is in the client’s interest.
- This is the purpose of the Replacement Acknowledgement Form and Transfer Acknowledgement forms.
