General Principles Flashcards
Debt management ratios
28% of gross income PITI
36% of gross income (total monthly debt)
20% of NET income (consumer debt)
Current ratio
Current Assets
Current Liabilities
Current ratio:
Curr assets ÷ current liabilities
Current assets: cash equivalents, marketable securities, accounts receivables, inventory.
Current liabilities: accounts payable, credit cards, taxes payable
Fed securities Acts
Securities Act 1933
New issues detailed prospectus
1934 SEC created to regulate and enforce laws. Secondary market (trading of issued securities)
Investment Co Act 1940
Authorized SEC to regulate UIT’s closed and open funds, & var annuities.
Securities Investors Protection Act 1970
SIPC. Established the SIPC to supv firms that get into financial trouble. SIPC insures against losses from failed brokerage firms.
College funding
Phase outs MFJ
Education bonds
$128,650 - 158,650
Lifetime $160 - 180,000
American Opportunity $160-180k
Deducting housing interest
All mtgs can’t exceed $750k MFJ
375k single, married file single.
529 keys
Lump sum 80k
Donor control
K -12 tuition allowed up to 10k per year.
Can be used to pay student loans 10k per student lifetime.
Federal Reserve open market operations
Repo Fed buys securities- expansionary, easy money policy.
Reverse Repo Fed sells securities- contractionary tight money policy.
Gross Domestic Product
Total dollar value of all goods and services produced within USA only.
GDP counts economic activity without regard to yearly price fluctuations.
DOES NOT include income generated outside the US or adjusts for foreign currencies.
Business Cycle
Expansion….peak…
recession/contraction….trough…recovery/ expansion.
Recession vs Depression
Recession= 2 consecutive quarters of economic decline…(negative GDP)
6 months
Depression=6 consecutive quarters of economic decline. 18 months.
A Quarter is 3 months. “A quarter of the year.”
Exceptions to filing as an Investment Advisor
Advisor whos ONLY clients are insurance companies.
Family office.
How does an investment advisor register with the SEC?
INITIALLY files the ADV part I and II with the SEC.
- Pays minimum filing fee of $150
- RIA must submit part 1 of ADV and schedule 1 ANNUALLY.
FINRA Initial Registration Process
- Associates with broker. dealer
- registers w/FINRA through Brk dealer on form U-4
- takes and passes appropriate exam
- issued a CRD number
(Central Registration System)
FINRA Key Exams/Licenses
Series 6 = Mutual funds, Only NEW UIT’s , Var annuities.
Series 7 = General Securities
(UIT’s on secondary mkt.)
Series 63 Uniform Securities “Agent” State Law Exam
Series 65 Uniform “Investment Advisor” law exam
Series 66 Uniform combined state law exam. (Combines 63 & 65 exams)
Basic components of a legal contract as applied to insurance
- Offer and acceptance - 2 parties: offeror and acceptor
- CONSIDERATION - SOMETHING OF VALUE (MONEY)
- Legal object - legal in purpose
- Competent parties.
Principal Must have legal capacity to execute contracts.
Intoxicated have limited or no capacity.
Minors have capacity for necessities. Food, clothing, shelter only - Legal form - contract must meet requirements.
Law of Agency
Insurance
Express authority: Written, explicit direction from principal to agent.
Implied authority:
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 principles business.
Apparent authority:
Arises out of negligence of the principle in allowing the agent to appear to have authority because of certain actions of the agent in the past. This typically affects terminated agents.
Bankruptcy
Debts not canceled by bankruptcy:
Student loans, government loans, child support or alimony.
Wage withholding, including FICA taxes, income tax is due.
Rollovers from qualified plans are exempt (unlimited) and non-rollover IRA’s up to $1 million are exempt.
