General Principles Flashcards

Question

Business Cycle

Answer 1

* Expansion * Peak * Recession/Contraction * Trough * Recovery/Expansion

Answer 2

**Recession** - Two consecutive quarters of economic decline (negative GDP) **Depression** - Six consecutive quarters economic decline (negative GDP)

Answer 3

* Banks that are not also investment companies. * Lawyers, accountants, teachers where advice is incidental. * Broker/dealers or registered reps whose performance is incidental and who get no special compensation for advice. * Publishers of bona fide newspapers. * Those who give advice solely relating to US government securities.

Answer 4

* Advisers whose only clients are insurance companies. * Family office

Answer 5

* Initially, file ADV part I and II with the SEC. * Pay minimum filing fee of $150 * RIA must submit part I of ADV and schedule I annually.

Answer 6

* The individual associates with a broker/dealer. * Registers with FINRA through broker/dealer on form U-4. * Takes and passes appropriate exams. * Is issued a CRD number (Central Registration System)

Answer 7

* **Series 6** - Mutual funds, UITs, and variables (only new UITs) * **Series 7** - General securities (including UITs on secondary market) * **Series 63** - Uniform Securities Agent State Law Exam * **Series 65** - Uniform Investment Adviser Law Exam * **Series 66** - Uniform Combined State Law Exam (combines 63 & 65 exams)

Answer 8

* **Offer and Acceptance** - Two parties, offerer and acceptor * **Consideration** - Something of value (money) * **Legal Object** - Legal in purpose * **Competent Parties** - Principle must have legal capacity to execute contract: * Intoxicated adults have limited or no capacity * Minors only have capacity to contract for necessities (food, clothing, shelter) * **Legal Form** - Contract must meet requirements

Answer 9

* **Express Authority** - Written, explicit direction from principal to agent * **Implied Authority** - Is that which the public believes the individual holds and includes signage, rate books, etc. * Implied is actual authority that the agent has to carry out the principal's business * **Apparent Authority** - Arises out of negligence of the principal in allowing the agent to appear to have authority because of certain actions of the agent in the past. This typically affects terminated agents.

Answer 10

* Student Loans * Government Loans * Child Support * Alimony * Wage Withholding * FICA Taxes * Income Taxes Due * Rollovers from qualified plans are exempt (unlimited) and non-rollover IRAs up to $1 million are exempt

Answer 11

1. Understand personal and financial circumstances 2. Identify and Select Goals 3. Analyze current cours of action AND potential alternatives 4. Develop Plan Recommendations and alternatives 5. Present the plan 6. Implement the Plan 7. Monitor progress and update

Answer 12

1. Professional Conduct and Registration 2. General Fiancial Planning Principals 3. Psychology of Financial Planning 4. Risk Management and Insurance Planning 5. Investment Planning 6. Tax Planning 7. Retirement Savings and Income Planning 8. Estate Planning

Answer 13

* Commissions * 12b-1 fees * Trailing commissions * Bid/Ask spreads (markup/downs to market makers) * Transaction fees * Revenue Sharing * Solicitor fees

Answer 14

* Soft dollars (research) , safe harbor section 28-e of SEC Act 1934 * Custodial fees and admin fees (not based on size of client account or trade) * Non-monetary benefits related to client service * Professional Services fees (not referral or solicitor) * Turnkey asset management platform fees * Fees related to a related solicitor for CFP or Firm

Answer 15

Liabilities = Networth - Assets Assets = Liabilties + Net Worth

Answer 16

Cash/Checking/Savings MMKT Dep (bank) MMKT MF (Security) Laddered CDs CDs Close to Maturity

Answer 17

1. Annuities (Var and Fix) 2. Business Interests 1. Real Estate as an investment 3. Collectibles as an investment 4. MFs/Stocks/Bonds 5. Pensions/IRA/Roth

Answer 18

Life Insurance Co. Can delay distribution for up to 6 mos.

Answer 19

Home Personal Property Collectibles for ENJOYMENT Vacation Home Vehicles

Answer 20

CF can increase or decrease Net Worth on the B/S

Answer 21

Projected flow of Income = PV Cap Value = Annual Income ÷ Cap Rate

Answer 22

High Accessm minimal risk and volatility Checking (after expenses) Govt MMKT Savings Laddered CDs ≤ 6 mos CDs close to Maturity ≤ 90 Days

Answer 23

THEN subract 1 month expenses IF Checking Balance \< monthly expenses THEN IGNORE the negative #

Answer 24

**PITI ≤ 28%** of Gross Income **Monthly Debt ≤ 36%** of Gross Income **Consumer Debt ≤ 20% NET income**

Answer 25

Current Ratio = Current Assets ÷ Current Liabilities

Answer 26

* 1933 New Issues/Primary Offerings * 1934 Secondary Trading * 1940 Investment Company Act * UITs, Open and Closed End Funds * Life Insurance (Variable and Annuities) * 1940 Investment Advisor Act – Roles and responsiblities of an Advisor * 1970 SIPC (Brokerage firm failur protection) * 1988 Insider Trading Act

Answer 27

Organization usually commercial bank Engaged in trustee and finduciary services, investment management and estate planning Trustee Administration

Answer 28

Prime Rate set by Banks Discount Rate set by Fed Reserve Requirements Set by Fed

Answer 29

Fafs determines EFC (Education Family Contribution) based on prior 2 yrs tax returns. Protected assets: Small Businesses \< 100 Employees IRAs Life Insurance

Answer 30

1. Revocable Trust 2. TIC WRONG ANSWER: Will, intestacy (NO WILL), JTWROS

Answer 31

* 18 months: Terminated employees and dependents * Voluntary or Involuntary * Full Time to Part time * 36 Months: Spouses and other dependents * Employee death, Divorce, Legal Separation or Eligibility for Medicare * 36 Months: Dependents whose status has changed * Loss of Dependent Status (marriage, reaching dependentcy age limit)

Answer 32

* Compensatory Damanges: Tax Free * Injury or physcal sickness * Punitive: TAXABLE * Punishment for wrongdoing (discrimnation, harassment) * NOT taxable related to emotional distress from WRONGFUL DEATH

Answer 33

1. **Initial claims for unemployment insurance** 2. **New private houseing units** 3. **Stock prices, 500 common stocks** 4. **index of consumer expectations** 5. Avg wkly hrs for prod. workers in manufacturing 6. New manufacturing orders 7. Vendor performance % of slower deliveries 8. Contracts/orders for plans and equipment 9. Interest rate spread 10. Money supply

Answer 34

1. **Industrial Production (Index)** 2. # of employees on non-agricultural payrolls 3. Personal income less transfer payments (soc sec, welfare)

Answer 35

1. Avg duration of unemployment 2. Avg Prime Rate charged by banks 3. Commercial and industrial loans outstanding 4. Ratio of consumer installment credit outstanding to personal income 5. Change in the consumer price index for services.

Answer 36

Measure of total production for goods and services in the U.S.

Answer 37

* Food and beverage * apparel * education and communication * housing * transportation * other goods and services * recreation * medical care

Answer 38

Farm and industrial commodities

Answer 39

* Durable: Hard Items that don't wear out quickly * NonDurable: Soft/Consumables * Not effected by recession because they are always needed and wear out

Answer 40

* Inflation: Rise in prices in goods and services (too much money, too few goods) * Indicators: CPI and PPI * Deflation: Decline in price of goods and services (too little money, too many goods) * Stagflation: Slow economic growth, high unemployment with rising prices

Answer 41

* Series 6: * Mutual funds, UITs, and variables (only new UITs) * Series 7: * General securities (UITs on the secondary market) * Series 63: * Uniform Securities Agent State Law Exam (Blue Sky) * Series 65: * Uniform Investment Advisor Law Exam * Series 66: * Uniform Combined State Law Exam (combines 63 and 65)

Answer 42

Normally the **higher** the marginal **tax** bracket the greater the advantage of **owing a home**. Also consider **time** frame: **short** for **rent**, **longer for buyers**.

Answer 43

≤ 750,000 MFJ ≥ 375,000 Single Existing primary prior to TCJA ≤ $1mm grandfathered

Answer 44

* Banker, Lawyer, Accountant, Teacher when advice is incidental * Publisher of BONA FIDE financial magazine * Seller of US Govt issues/guaranteeds only * One State only (intra state) UNLISTED securites seller * Advisor with ONLY INSURANCE COMPANIES as clients * Family Office

Answer 45

* Part 1: Applicant Brochure * Part 2: Business Brochure, Wrap Brochure (conflicts) * Final Rule: 120 Days to present “Material Change Summary” * 48 Hours to Deliver RIA Advisory Agreement * Form CRS: SEC Disclosure * ADV-W used when you leave advisory services (5 years of records keep)

Answer 46

1. Join a B/D firm 2. Register with FINRA U4 3. Pass exams 4. Registrations goes in to the CRD (Central Registration Depository)

Answer 47

* **Express Authority** * Direct from Principal to Agent (Actual authority is to carry out principal interests) * Written * Explicit Direction * **Implied Authority** * What the public believes is the agent's authority based on agent action * **Apparent Authority** * Related to NEGLIGENCE of PRINCIPAL by allowing an agent to “appear” to have authrity due to actions of an agent

Answer 48

1. Agreement preceded by an offer an acceptance 2. consideration (usually money) 3. Principal must have LEGAL CAPACITY * Competent and Sober * Minors can contract for necessities 4. Must be LAWFUL * If an agent illicitly writes a cotract w/o full disclosure, Principal will refund premium and null contract (RECISSION) OR reunderwriting will occure (REFORMATION)

Answer 49

* Evidence of a temporary contract obliging life insurance * Allows time for processing * IF applicant DIES before issue is complete * THEN Death Benefit of the policy will be issued.

Answer 50

Ch. 11: individual (not qualified under Ch 13) Ch 13: Reorg (payment to creditors reduced, no harassment by creditors, no full surrendore of assets) Ch 7: debtor can claim “Federal” exeptions or state exemptions

Answer 51

* Homestead * Limited personal property * Limited equity in motor vehicle * Pension and retirement plans (ERISA and IRA) * Cash Value of Life Ins and Annuity * Disability/unemployement workers comp benefit * TBE property

Answer 52

Student Loans Government Loans Taxes Child Support Alimony

Answer 53

* Avg Mthly NET Income for 60 mths \> $10,000 THEN Ch 7 is NOT and option * Avg Mthly Net Income for 60 mths \< $6,000 THEN Ch 7 IS ALLOWED * Avg Mthly Net Income btwen $6,000 and $10,000 THEN the debtor can file IF * IF net monthly income \<25% of all non-priority unsecured debts. * MUST: * Provide tax returns * go to credit counseling * provide Roth and IRA \> $1mm * provide ESAs, 529s opened within 2 years

Answer 54

1. One free credit report / year 2. If denied credit, entitled to free copy of file 3. Information may be retained \<= 7 years 4. Only "interested parties" can access file 1. Creditors, Mortgage companies, insurance companies

Answer 55

1. Interest must be reported as APR 2. Credit Terms must be disclosed 1. fees 2. points 3. prepayment penalties 3. Lost or stolen credit cards have limited liability ($50)

Answer 56

* Entitled to see credit score IF: * turned down for a loan * offered a high rate relative to others