General Principles

Question 1

Exam and Licensing Sequence/Initial Registration Process to sell most equity-based products

Answer 1

1. Associates with B/D
2. Registers w/ FINRA thru B/D on Form U-4
3. Passes appropriate exams
4. CRD system makes registration w/ FINRA uniform among states

Question 2

When you see FINRA, think Series…

Answer 2

6 or 7

Question 3

When you see Investment Advisor, think Series…

Answer 3

66

Question 4

Per the Investment Advisors Act (1940), there’s a three-pronged Definition for determining who is an investment advisor (and must meet all three of these “ABCs”)…

Answer 4

A: Provides Advice
B: In the Business of providing such services
C: Provides services for Compensation

Question 5

Exceptions and Exemptions to Filing as an Investment Advisor…what’s the phrase to remember?

Answer 5

“Exceptional BLAT Incident”
(Bank, Lawyer, Accountant, Engineer, Teacher whose performance of advisory services is incidental to the practice of their profession)

Question 6

In addition to the “Exceptional BLAT Incident,” who are some of the other parties exempt from filing as an Investment Advisor?

Answer 6

B/D whose advice is solely limited to the role as B/D and receives no special comp for advice; intrastate adviser in unlisted securities; advisor whose only clients are insurance companies; a family office who does not hold itself out to the public as as advisor

Question 7

What’s allowed with a FINRA Series 6 License?

Answer 7

Can sell mutual funds, unit investment trusts (primary offerings only), variable life insurance, and variable annuities.

Question 8

What’s allowed with a FINRA Series 7 License?

Answer 8

Can sell all securities except commodities and certain options.

Question 9

What’s allowed with a FINRA Series 63 License?

Answer 9

Meets licensing requirements in other states besides state of residence (i.e. the “Blue Sky” license).

Question 10

What’s allowed with a FINRA Series 65 License?

Answer 10

Registered Investment Advisors (state requirement); note that some state’s security regulators also accept the CFP® as an alternative to the Series 65.

Question 11

What’s allowed with a FINRA Series 66 License?

Answer 11

Uniform Combined State Law Exam; combines Series 63 and 65.

Question 12

For variable contracts, the representative must hold what two licenses?

Answer 12

Series 6 or 7 license AND a variable state life insurance license.

Question 13

What does ERISA (1974) protect, and who enforces it?

Answer 13

Federal legislation that defines fiduciary conduct for parties associated with qualified corporate retirement plans. It is enforced by DOL.

Question 14

What are the 5 Common Factors that Affect Credit Scores?

Answer 14

1. Payment History (the single most important factor; counts for 35% of FICO score)
2. Amounts Owed to Others (credit utilization ratio over 30% is a negative)
3. Credit History Length
4. Credit Mix
5. New Credit

Question 15

Which debts are not generally cancelable by bankruptcy?

Answer 15

Student and government loans; Wage Withholding and FICA Obligations (and recent income taxes due); Child Support and Alimony

Question 16

True or False: Generally, people earning beyond their state’s median income may not apply for Chapter 7 Bankruptcy.

Answer 16

True

Question 17

What is the bankruptcy exemption/cap for funds in a traditional or Roth IRA? What about for a rollover IRA?

Answer 17

Funds in a traditional or Roth IRA are exempt up to an inflation-adjusted cap of $1 million. For a rollover IRA, the exemption is unlimited on the account balance.

Question 18

Are inherited IRAs protected under federal bankruptcy laws?

Answer 18

Per a 2014 Supreme Court ruling, inherited IRAs are NOT protected under federal bankruptcy laws.

Question 19

Housing expenses (PITI or rent) should be less than what % of gross income?

Answer 19

28%
(NOTE: shouldn’t exceed whether it’s one house or multiple houses)

Question 20

Consumer debt and total debt should be less than what % of gross income, respectively?

Answer 20

20% for consumer debt, 36% for total debt

Question 21

The leading indicator of inflation trends is the…

Answer 21

Producer Price Index (PPI)

Question 22

What tools can the Fed use as part of its Monetary Policy?

Answer 22

Reserve Requirements: the level of reserves that member banks must maintain.

Discount Rates: the rate the Fed charges member banks to borrow reserves.

Open Market Operations: Buys bonds to loosen credit, sells bonds to tighten credit.

Margin: increase or decrease initial margin requirements

Question 23

When the Fed buys securities (Repo scenario), what effect does it have?

Answer 23

Expansionary/easy money/loosens credit
(remember: Buy=Easy Money; B is near E)

Question 24

When the Fed sells securities (Reverse Repo), what effect does it have?

Answer 24

Tight money policy
(remember: Sell=tighten; S is near T)

Question 25

PITI is figured as a percentage of _____ income, which (does/does not) include dividends and interest in the income.

Answer 25

Gross; does

Question 26

Loans taken to buy, build, or improve will have deductible interest up to what amount?

Answer 26

$750k

Question 27

Who controls monetary policy?

Answer 27

The Federal Open Market Committee (FOMC) controls monetary policy.

(NOTE: The New York Fed is the lead bank of the FOMC.)

Question 28

Since a reverse mortgage is a non-recourse loan, the borrower(s) can never owe more than what?

Answer 28

The amount the house is worth, even if that value is less than the loan balance.