General Financial Planning Principles, Professional Conduct, and Regulation. Flashcards
Material conflict of interest may be delivered either in writing, verbally or both
Both
What is a chapter 7 bankruptcy?
Discharge of debts
What are debts that cannot be discharged under chapter 7?
- Back taxes up to three years.
- That’s associated with fraudulent activities.
- Alimony and child support.
- Debt to do intentional tort claims.
- Student loans.
- Consumer debt of more than $650 for luxury goods or services owed to a single creditor within 90 days of relief.
What is a chapter 11
Re-organization of debts applies to businesses
What is a chapter 13 bankruptcy?
Adjustment of debts of an individual with regular income
What are the three fiduciary duties?
– Duties owed to Client
– Duty of care
– Duty to follow clients instructions
What is duty of loyalty?
– Placing clients interest ahead of CFPs, of CFPs firm, or any other entity
- includes avoiding, fully disclosing, obtaining consent, or managing material conflicts of interest.
What is duty of care?
– Must engage the client with care, skill, prudence, and diligence
– Fulfillment of this duty requires consideration of client, goals, risk tolerance, objectives, and circumstances
What is the duty to follow client instructions?
Must adhere to the terms of the engagement, and must follow, reasonable and lawful client instructions
What are the six standards of the CFP boards code of conduct?
- duties owed to Client.
- financial planning and application of the standards for the financial planning process.
- practice standards for the financial planning process.
- Duties owed to firm and subordinates.
- Duties owed to the CFP board.
- Prohibition on circumvention
What are the key areas of focus on statement of financial position?
- Assets listed at FMV, liabilities, listed at principal value
- Statement date.
- Nettworth. (Assets - Liabilities)
- Footnotes.
- Property, titling, and account ownership.
- Stage in the lifecycle.
What are weaknesses of a financial plan?
- Inadequate savings.
- In appropriate investments.
- Uncovered, catastrophic risk.
- Inadequate Nettworth.
- Inadequate emergency fund.
- No will or invalid will
- Lack of defined financial goals.
- Poor spending habits, improper use of cash flow.
- Lack of investment knowledge.
- Disability income elimination period should correspondence to the emergency fund.
What is the potential tax issues with UTMA and UGMA accounts?
- Unearned income “kiddie tax”
- Bonds or income investments, may trigger taxation if the child qualifies as either a dependent child under the age of 19 or a dependent child who is a full-time student between 19 and 24.
- Unearned income will be taxed at the parents tax rate.
What happens if the contributor to an UTMA or UGMA is also the custodian?
It will be part of the contributors gross estate.
What is the difference between subsidized and unsubsidized student loans?
- Subsidized are based on financial need
- Unsubsidized; available for students who do not qualify for subsidized or need additional funds; government does not pay interest while in school and interest must be paid immediately after disbursement.
What kind of educational help can higher income wealthier people get?
- Parent loan
- Plus loan
- Unsubsidized Stafford student loans
What kind of educational help can lower income need based people get?
- Pell grants (outright gift from the government)
- Subsidized Stafford loans
- Federal supplemental educational opportunity grant
Financial aid award packages is comprised of a combination of the following
- Grants. (lead based, no repayment.)
- Scholarships. (merit based no repayment.H
- Federal loans.
- Tax credits, or deductions.
- Federal work study.
Employers educational assistance program
What is your tax benefit?
Employer benefits are not taxed
Employers educational assistance program
What is the annual limit?
$5250 and is unlimited if it is job related
Employers educational assistance program
What expenses qualify besides tuition and required enrollment fees?
Books, supplies, and equipment
Employers educational assistant program
What education qualifies?
All undergraduate and graduate
Employers educational assistance program
In what income range do benefits phase out?
No phase out
What IRAs can be used for education expenses?
Traditional, ROTH, SEP, and Simple
What is the tax benefit for using an IRA for education expenses?
No 10% additional penalty on early withdrawal, must not exceed qualifying education expenses
What is the annual limit for using an IRA for education expenses?
Must not exceed qualifying education expenses
What expenses qualify besides tuition and required enrollment fees for withdraws from an IRA for education?
Books, supplies, equipment, room, and board (must be at least a student for half the year)
What education qualifies for withdraws from an IRA
All undergraduate and graduate
In what income range do benefits phase out for withdrawals from an IRA for education expenses?
No phase out with respect to withdraws
Do IRAs count under student aid requirements?
No
What is the tax benefit for student loan interest?
It is tax deductible
What is the annual limit for deductibility of student loan interest?
$2500
What expenses qualify besides tuition for student loan interest?
Books, supplies, equipment, room, and board, transportation, other necessary expenses
How long during a year must you be in school to qualify for the tax deductible student interest?
Half the year
what income range do benefits phase out for the student loan interest deductibility?
$80,000 – $95,000 single
$165,000 – $195,000 MFJ
Financial aid and expected family contribution (EFC)
What is the EFC based on?
- Parental income 22 to 47%
Parental assets, max, 5.64%.
Student income, 50%
Student assets, 20%
What is a federal plus loan for college?
Allows the parents of undergraduate students to borrow up to the total cost of education less other financial aid awards
Discretionary versus non-discretionary expenses
What are examples of fixed discretionary expenses?
Club dues, premium cable TV fees, streaming video services, phone plans
Discretionary versus non-discretionary expenses
What are examples of fixed discretionary expenses?
Club dues, premium cable TV fees, streaming video services, phone plans
Discretionary versus non-discretionary expenses
What are examples of variable discretionary expenses?
Vacations
Entertainment cost
Alcohol
Gambling
Discretionary versus non-discretionary expenses
What is a discretionary expense ?
Is an expense that is recurring or non-recurring for an item or service that is either nonessential or more expensive than necessary
Discretionary versus non-discretionary expenses
What is a non-discretionary expense?
Is a recurring or non-recurring expense that is essential for an individual to maintain his life?
Discretionary versus non-discretionary expenses
What are examples of fixed non-discretionary expenses?
Rent or mortgage payments
Auto and health insurance premiums
Loan payments
Discretionary versus non-discretionary expenses
What are examples of variable non-discretionary expenses?
Utilities
Taxes
Food
Home or car repairs
What is the consumer debt ratio
Ratio of monthly consumer debt payments to monthly net income
Debt, other than mortgages
Should not exceed 20%
How do you calculate consumer debt ratio?
Monthly consumer debt payments divided by monthly net income
Should not exceed 20%
The housing cost ratio should not exceed what percentage of gross monthly income?
28%
How do you figure the housing cost ratio?
Monthly housing cost divided by monthly gross income
Should not exceed 28%
Housing costs, include principal, interest, payments, property taxes, homeowners insurance. Can also include rent.
What is the total debt ratio and what percent of gross monthly income should not exceed?
Housing costs and consumer debt payments
Should not exceed 36% of gross monthly income
How do you figure the total debt ratio?
Total monthly debt divided by monthly gross income
Should not exceed 36%
What is the current ratio and what is an acceptable ratio?
Indicate whether a client can pay off existing short term liabilities
Usually a ratio of greater than one indicates that a client can pay off existing short term liabilities
How do you figure the current ratio?
Current assets, divided by current liabilities
A ratio of greater than one shows that the client can pay off current short term liabilities
Can an UTMA or UGMA invest in real estate?
UTMA you can
UGMA you cannot
American opportunity, tax credit
Up to how much per student ?
$2500
American opportunity, tax credit
Available for how many years of post secondary education?
Four years
American opportunity, tax credit
What sort of degree must you be pursuing?
An undergraduate degree or other credential
American opportunity, tax credit
To use the credit, how long must you be enrolled in the school year?
At least half of the year
American opportunity, tax credit
Can you use the credit if you have a drug conviction?
Credit is unavailable.
Lifetime, learning credit
How much per taxpayer return ?
$2000 per tax return
Lifetime, learning credit
It is available for how many years of post secondary education?
All years no limit as long as u are in school
Lifetime, learning credit
Does the student need to be pursuing undergraduate degree or other credential?
No, they do not just taking class
Lifetime, learning credit
Is credit available for one or more courses?
Yes
Lifetime, learning credit
Does the felony drug rule apply to the credit?
No, it does not
What is the phrase to remember the seven step financial planning process?
Uber is a drunk person’s immediate motor vehicle.
U - understanding clients, personal and financial circumstances
I - identifying and selecting goals
A - analyzing
D - developing financial plan
P - presenting
I - implementing
M - Monitoring
The V in vehicle does not stand for anything
Are contributions to a Coverdale Education Savings Account (CESAs)
Are they tax deductible and what is the limit per child?
Contributions are not tax deductible and it’s $2000 per child
What is the easy way to remember how the Fed purchases government securities to either ease the money supply or tighten the money supply?
Buy - Easy - Sell - Tight
What does the federal reserve used to control the money supply?
- Adjusting the discount rate.
- Open market operations.
What is Quantitative data?
Is measurable or expressed as a quantity or number
Examples, current financial status, copies of wills and trusts a list of current investments and risk capacity
What is qualitative data?
Related to the quality of a clients life to stay at a often represents a client, subjective feelings, opinions and attitude. Examples include financial goals and objectives, health status, family circumstances, and risk tolerance level.
