General Principals/Conduct/ Psychology Flashcards
What is the golden benchmark percentage for inflation of a health economy?
2%
What is called when people seek pride and avoid regret? (Behavioral finance)
The disposition effect (sell winners too quickly and hold losers too long)
What 3 things does fiscal policy refer to?
taxation, expenditures, and debt management
Who controls the taxation and spending of the Government in the U.S.
Congress
What is the only means of revenue generation for the government?
Taxation
How does increases and decreases in tax rates affect disposable income?
Increase tax rates reduces disposable income
Decrease tax rate increases disposable income
What does government spending do to the economy?
Stimulates economic growth
What does the government do when they have a deficit spending? (expenditures exceed revenue)
They sell treasury securities
(This drives values lower of debt secruities)
Under Fiscal Policy, what 2 tools are available to congress?
Government spending and taxation
What government policy controls the money supply, influences lending rates, and slows down or stimulates the economy?
Monetary policy
Who controls Monetary policy?
The Federal Reserve Bank (The FED)
What 3 tools does the Fed have for Monetary policy?
Discount rate - rate member banks borrow from the government
Reserve Requirement - % Deposits that must be held on reserve
Open market activities - Fed buys and sells securities
What 3 things does monetary policy do to tighten/slow pace of growth? (Contractionary)
Increase discount rate
Increase Reserve requirement
Sell Securities
What 3 things does monetary policy take for expansion or easing?
Decrease discount rate
decrease reserve requirement
buy securities
What is the Study of how emotional factors affect financial decision making?
Behavioral finance
What is an approach to problem solving that employs a practical method that is not guaranteed to be optimal or rational, but sufficient for short term goals?
Heuristic
Examples; Rules of thumb, educated guess)
What is setting a value at the initial point of information?
Anchoring
What is the theory that people suffer more greatly from losses than they benefit from gains?
Prospect theory
What is it called when investors focus on most current events, predicting that it will always be this way?
Recency Bias
What leads people to overestimate their knowledge, underestimate risks, and exaggerate ability to control events?
Overconfidence
What are 3 effects investors suffer from when considering the past?
House money (take more risk, use profits)
Snake-Bite (less risk)
Breakevenitis ( take more risk)
What is the assumption that investing in enough unrelated assets reduce risk to make a profit?
Mental accounting
What bias does familiarity lead to?
Home-Bias
What behavior does social interactions lead to?
herd mentality
What can lead to exuberance and market bubbles?
Optimism
What happens to supply and demand to cause prices to rise?
Supply constricts, demand increases
What 2 government tools are used to manipulate the business cycle?
Monetary and Fiscal policy
On average, how long does the business cycle take?
7 years
When an increase in price of one good causes an increase in demand for another, what type of good is it?
A substitute
What 5 things happen in a contraction?
1.Falling activity
2. Credit dries up
3. Profits decline
4. Policy eases
5. Inventory, sales fall
What is it called when marginal utility from consuming additional units declines?
Diminishing marginal utility
What policy is used to influence demand side?
Monetary policy
What is the additional benefit received from consumption of an additional unit of good?
Marginal utility
What is the name for products that usually are consumed jointly? When price decrease of one, demand for the other increases
Compliments
What is a good called when quantity demanded responds greatly to price change?
Elastic
Example: Consumer discretionary
What measures quantity demanded of a good given a response to change in its price?
Price Elasticity
What is the formula for GDP?
Y= C+I+G+(X-M)
C= Consumer spending
I = investments made by industry
G= Government spending
X-M = Exports over imports (this can also be know as NE Net exports)
What 5 things does real GDP exclude?
1.Imports
2. Inflation
3. Money changes hands but no new good
4. Income of U.S. Working abroad
5. Profits of U.S. Companies in Foreign Countries
What 3 things does Real GDP include?
- Market value of all goods and services
- Income of foreigners working in the U.S.
- Profits that foreign companies earn in the U.S.
What does GDP measure?
The economy on a quarterly basis
What 5 things happen in the late stage of expansion?
- Growth Moderates
- Credit Tightens
- Earnings under pressure
- policy contractionary
- Inventories grow, sales growth falls
What is it called when Quantity demand has little response to Price change?
Inelastic
Example: Gas
What 5 things happen in the Mid stage of expansion?
- Growth peaking
- Credit growth strong
- Profit growth peak
- Policy neutral
- Inventory and sales growth reached equilibrium
What 5 things happen in the early stage of expansion?
- GDP rebounds
- Credit begins to grow
3.Profits grow rapidly - Policy still simulative
- Inventories low, sales improve
What are the 3 time frames of an expansion?
Early, Middle, late
What organization determines a recession in the U.S.
NBER (National Bureau of Economic Research)
What is a recession defined by?
2 consecutive quarters of negative GDP growth
What is the market value of goods and services produced by labor and property in the U.S.?
Gross Domestic Product (GDP)
What are the 2 points in the business cycle?
Peak - High GDP, Peak employment
Trough - Low GDP (Negative), high unemployement
What 2 things is a contraction characterized by?
Decreasing GDP
Increasing unemployment
What 2 things is an expansion characterized by?
Increasing GDP
Decreasing Unemployment
What are the 2 general phases of the business cycle?
Expansion and Contraction
What are swings in total national output, income, and employment marked by widespread expansion or contraction known as?
Business cycles
What are the 3 Fitness standards of adverse conduct for the CFP Certification?
1.Unacceptable
2. Presumed Unacceptable
3. Other Adverse Conduct
For the CFP Fitness standards, what are the 5 other adverse conducts?
- Customer complaints
- Arbitrations and other civil proceedings
- Felony convictions for non-violent crimes that occurred >5 years ago
4.Misdemeanor conviction - Employer investigations and terminations
What are the 9 steps in the CFP board hearing process?
- CFP Counsel delivers complaint
2.You can pay the settlement or answer within 30 days, and pay hearing/settlement review fee or request a wavier within 30 days. - Hearing documents, written statements, stipulations required within 45 days. Witness list within 30 days.
- Notice of hearing from CFP BC - 30 days prior to hearing.
- Hearing
- Hearing recommendations
- DEC review
- DEC final order
- Appeal within 30 days
What is the punishment for failing to answer a complaint or pay a fee for settlement?
Revoke permanently or suspended for 1 year and 1 day
What are the 4 forms of Discipline from the Discipline and ethics commity?
- Private censure - unpublished
- Public letter of admonition - published in press release
- Suspension - Min 90 days, max of 5 years
- Revocation - permanent barred
What steps of the financial planning process should all relationships go through?
Step 1-5
What are the 3 groups involved the CFP board hearing process?
- CFP Board Counsel - investigate and file a complaint
- Disciplinary and ethics committee (DEC) - authority to issue final order and impose disciplines
- hearing panel - conducts hearing. Must have at least 3 people, lead by member of DEC and mostly CFP members
Under CFP Fitness standards, what are the 5 conducts deemed a presumptive bar?
- 2 or more personal or business bankruptcies
- Revocation or suspension of a non-financial professional licenses (unless admin related)
- Suspension of financial licenses ( Unless admin related)
- Felony conviction of a non violent crime in the last 5 years
- Felony conviction of a violent crime greater than 5 years ago.
For the CFP fitness standards what are the 5 conducts deemed unacceptable?
- Felony conviction for financial crimes
- Felony conviction for tax crimes
- Revocation of a financial professional licenses (unless administrative)
- Felony conviction for murder or rape
- Felony conviction other violent crimes that occurred with the last 5 years.
What 2 steps of the financial planning process do you obtain quantitative and qualitative info?
Step 1 and Step 7
What are the 7 practice standards of the financial planning process?
- Understand clients personal and financial circumstances
- Identify and select goals
- Analyze current and potential courses of action
- Develop financial planning recommendations
- Present recommendations
- Implementing
- Monitoring and updating
What 3 standards of conduct are owed to clients when doing financial planning?
- Duties that apply when providing advice
- Practice standards for financial planning process
- Information to a client in writing
What are the 6 code of ethics?
- Act with honesty, integrity, competence, and diligence
- Act in clients best interest
- Exercise due care
- Avoid or disclose and manage conflicts of interest
5.Maintain confidentiality and protect the privacy of clients - Act in manner that reflects positively on profession
What are the 6 standards of conduct?
A. Duties owed to clients
B. Financial planning and applications of the practice standards
C. Practice standards for the Financial planning process. 7 steps
D. Duties owed to firms and subordinates
E. Duties owed to CFP Board
F. Prohibition on circumvention
What are the 3 parts of Fiduciary Duty?
- Duty of Loyalty
2.Duty of Care
3.Duty to follow clients instructions
What 2 things would be considered financial advice?
- A communication that would be reasonably viewed as recommendation to a client to take or refrain from an action.
and
2.Exercise of discretionary authority over clients financial assets
Fiduciary duty applies to both
What is the collaborative process that maximizes clients potential for meeting life goals?
Financial Planning
What are the 15 duties owed to a client?
- Fiduciary duty
- Integrity
- Competence
- Diligence
- Disclose and managed of Conflicts of interest
- Professional judgement
- Professionalism
- Comply with the law
- Confidentiality and privacy
- Provide information
- Communication with clients
- Compensation
- Recommending others
- Recommending technology
- Borrowing and commingling / lending
What 5 standards of conduct are owed to client when giving financial advice?
- Duties that apply at all times
- Fiduciary duty
- Conflicts of interest
- Provide information to clients
- Duties when recommending others
What 10 standards of conduct are owed to the client at all times?
- Integrity
- Competence
- Diligence
- Professional judgement
- Professionalism
- Comply with law
- Confidentiality and privacy
- Communicating with clients
- Recommending technology
- Refrain from borrowing/lending and commingly
In step 4 of the planning process, what are the 4 things to consider when making recommendations?
- Assumptions and estimates used to develop the recommendation
- Basis for making recommendation
- Timing and priority of the recommendation
- Whether independent or implement with another recommendation
What are the 5 standards of conduct owed to the CFP Board?
- Refrain from adverse conduct
- Reporting
- Provide narrative statement
- Cooperation
5, Compliance with terms and conditions
What are the 3 standards of conduct owed to firms and subordinates at all times?
- Use reasonable care when supervising
- comply with lawful objectives of firm
- provide notice of public discipline