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CFP Exam Review > General Principles > Flashcards

General Principles Flashcards

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CFP® flashcards
1
Q

Use of Initials:
Registered Investment Advisor and
Certified Financial Planner

A
  • RIA (prohibited)
  • C.F.P. (prohibited)
  • Registered Investment Advisor (ok)
  • CFP® (ok)
  • CERTIFIED FINANCIAL PLANNER™ (ok)
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2
Q

When can a CFP® licensee release a client file to other persons?

A
  • When an attorney or court subpoenas the file
  • At the client’s request
  • As a defense against charges of wrongdoing
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3
Q

Determining an Emergency Fund

Use 3 or 6 months if…

A

3 months:

  • single with 2nd source of income
  • Married, both work
  • Married, only 1 spouse works, but have a 2nd source of income

6 months:

  • single wage earner
  • married, only 1 spouse works
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4
Q

Debt Management:
Housing Expenses (PITI)
Total monthly debt
Consumer debt

A

<= 28% of gross income (PITI)
<= 36% of gross income (total monthly debt)
<=20% of NET income (consumer debt)

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5
Q

Current Ratio

A

Current assets / current liabilities

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6
Q

Current Assets

A
  • cash equivalents
  • marketable securities
  • accounts receivable
  • inventory
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7
Q

Current Liabilities

A
  • accounts payable
  • credit card debt
  • taxes payable
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8
Q

Securities Act of 1933

A

Required that NEW issues purchasers be provided with a detailed prospectus before a purchase was completed.

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9
Q

Securities Act of 1934

A

Passed to regulate the SECONDARY market (trading of issued securities). This act also created the SEC to enforce securities laws.

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10
Q

Investment Company Act of 1940

A

Authorized the SEC to regulate unit investment Trusts (UITs) and managed investment companies (closed-end and open-end funds) plus variable products.

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11
Q

Security Investors Protection Act of 1970

A

Established the SIPC to supervise securities firms that get into financial difficulties. The SIPC insures investors against losses arising from the failure of a brokerage firm.

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12
Q

College Funding - Tax credit and deduction opportunities

A

Phase outs given (married filing jointly 2023):

  • Educational Bonds ($137,800 - $167,800)
  • Lifetime ($160K - $180K)
  • American Opportunity ($160K - $180K)
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13
Q

Deductible Housing Interest

A
  • All mortgages cannot exceed $750K combined (MFJ) or $375K (MFS)
  • Home equity interest is only deductible if used for home renovation/improvement.
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14
Q

529 Keys

A
  • Lump sum gift up to $85,000 (2023)
  • Donor can retain control
  • K-12 for tuition allowed up to $10,000/yr
  • Can be used to pay student loans ($10,000/student over lifetime)
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15
Q

Federal Reserve Open Market Operations

A
  • Repo: Fed buys securities - expansionary / easy money policy
  • Reverse Repo: Fed sells securities - contractionary/tight money policy
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16
Q

Gross Domestic Product (GDP)

A
  • total dollar value of all goods and services produced within the US ONLY
  • GDP counts economic activity without regard to yearly price fluctuations
  • does NOT include any income generated outside the U.S. or adjustments for foreign currencies
17
Q

Business Cycle

A
  • Expansion
  • Peak (business activity ages)
  • Recession / Contraction
  • Trough
  • Recovery / Expansion
18
Q

Recession vs. Depression

A
  • Recession: 2 consecutive quarters of economic decline (negative GDP)
  • Depression: 6 consecutive quarters of economic decline (negative GDP)
19
Q

Exceptions to filing as an Investment Advisor

A
  • Banks that are not also investment companies
  • Lawyers, accountants, teachers - 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 U.S. government securities
20
Q

Exemptions to filing as an Investment Advisor

A
  • advisor whose only clients are insurance companies

* family office

21
Q

How does an Investment Advisor register with the SEC?

A
  • Initially, files the ADV Part I and II with the SEC
  • Pays a minimum filing fee of $150
  • RIA must submit Part I of ADV and Schedule I annually
22
Q

Financial Industry Regulatory Authority (FINRA) - Initial registration process

A
  • the individual associates with a broker dealer
  • registers w/ FINRA thru broker/dealer on Form U-4
  • takes and passes appropriate exam
  • is issued a CRD Number (Central Registration System)
23
Q

FINRA Key Examinations/Licenses

A
  • 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
  • Series 65: Uniform Investment Advisor Law Exam
  • Series 66: Uniform Combined State Law Exam (combines 63 and 65 exams)
24
Q

Basic components of a legal contract as applied to insurance

A
  1. offer and acceptance: Two parties: offeror and acceptor
  2. consideration: something of value (money)
  3. legal object: legal in purpose
  4. competent parties: principal must have legal capacity to execute contracts.
    4a. intoxicated adults have limited or no capacity to execute contracts
    4b. minors have capacity to contract for necessities (food, clothing, sheltor) only
  5. legal form: contract must meet requirements
25
Q

Law of Agency (insurance)

A
  • 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 authority is actual authority that the agent must 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.
26
Q

Bankruptcy

A

Debts not cancelable by bankruptcy:

  • student loans,
  • government loans,
  • child support or alimony
  • wage withholding,
  • FICA taxes,
  • income tax is due

Rollovers from qualified plans are exempt (unlimited), and non-rollover IRAs up to $1M are exempt.

CFP Exam Review (7 decks)

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