General Principles Flashcards
The CFP Board was Founded in what year?
1985
Within how many days must a CFP inform the CFP Board of an address change?
30 Days
How many CE (Continuing Education) hours are required per reporting period (2 years)?
30 Hours
The CFP Commission can order a license suspension not to exceed ___ years.
5 Years
Responses to complaints shall be in writing and submitted within ___ calendar days.
30 Days
Evidence in support of an investigation may be submitted up to ___ days prior to scheduled hearing.
45 Days
Use of initials Registered Investment Advisor and Certified Financial Planner.
NO –> RIA, C.F.P
YES –> Registered Investment Advisor, CFPⓇ, CERTIFIED FINANCIAL PLANNERⓇ
When can a CFPⓇ licensee release client information to other persons?
- When an attorney or court subpoenas the information
- At the client’s request
- As a defense against charges of wrongdoing
Size of Emergency Fund (use 3 months or 6 months if…)
3 Months
-Single, with 2nd source of income
-Married, both work
-Married, only 1 spouse works, but has second source of income
6 Months
-Single wage earner
-Married and only 1 spouse works
How much consumer debt is considered acceptable? (Excluding mortage)
<= 20% of NET Income
How much total monthly debt is considered acceptable?
<=36% of GROSS Income
How much PITI (Principal, Interest, Taxes, Insurance) is considered acceptable?
<=28% of GROSS Income
Current Ratio
Current Assets / Current Liabilities
Current Assets
-Cash Equivalents
-Marketable Securities
-Accounts Receivable
-Inventory
Current Liabilities
-Accounts Payable
-Credit Card Debt
-Taxes Payable
Securities Act of 1933
Companies must register before issuing publicly-traded securities (Required purchasers be provided a detailed prospectus)
Securities Act of 1934
Created the SEC to enforce securities laws. Regulated secondary market of securities.
Investment Company Act of 1940
Authorized SEC to regulate Investment Companies
- Unit Investment Trust (UIT) → Fixed portfolio (Stocks, Bonds, Redeemable units) for specific periods of time
- Open-End Management Companies → Mutual Funds, Redeemable Securities, Unlimited Offerings
- Closed-End Management Companies → Exchange Tradable, Non-Redeemable, Limited Offerings
- Variable products (Certificate Companies) → Issues Debt Securities to Investors
Securities Investors Protection Act of 1970
Established SIPC to supervise securities firms that get into financial difficulties. SIPC insures investors against losses arising from the failure of a brokerage firm. (250K-Cash, 500K-Total)
College Funding (Phase Outs + Credit Impact)
Educational EE Bonds: ($145,200 - $175,200 MFJ)
* Bond interest tax-free if used for education
American Opportunity Credit: ($160K - 180K MFJ)
* $2,500/year/student (up to 4 years) → 100% of first $2000 and 25% of next $2000
* Tuition and Fees, Course and Materials (Not Room & Board) → At Least Half Student
Lifetime Learning Credit: ($160K - 180K MFJ)
* 20% of Qualifying Expenses (Up to 10,000/year) → Max $2000
* Tuition and Fees (Not Course and Materials and Room & Board)
* Same student cannot claim AOC and LLC in same year
529 Keys
Set up through state grants tax-free growth and tax-free withdrawals (Education ROTH IRA)
* Lump Sum gifts up to $90K/180K (Single/MFJ) (5-year election >18K * 5)
* K-12 for tuition allowed up to 10K/yr
* Can pay student loans (10K/student over life)
* Donor can retain controls (Money Treated Like Completed Gift)
* Change beneficiary at any time
* Can roll in ROTH IRA
Deductible Housing Interest
All mortgages must be on primary or secondary home and cannot exceed
-$750K –> MFJ and Single
-357K –> MFS
-Home equity interest is deductible if used for home renovation/improvement
Federal Reserve Open Market Operations
Buy/Sell Treasury Bills to include amount of money in economy (Influences Federal Funds Rate)
* Repos → Fed buys securities = expansionary/easy money policy (Lower Interest Rates)
* Reverse Repos → Fed sells securities = contractionary/tight money policy (Raise Interest Rates)
Gross Domestic Product (GDP)
Total dollar value of all goods and services produced in the US only
-GDP counts economic activity without regard to yearly price fluctuations
-GDP does not include any income generated outside the US or adjustments for foreign currencies
Business Cycle
Peak, recession/contraction, trough, recovery/expansion
Recession
2 consecutive quarters of economic decline (negative GDP)
Depression
6 consecutive quarters of economic decline (negative GDP)
Exceptions to filing as an Investment Advisor
-Banks that are not also investment companies
-Lawyers, accountants, teachers which advice is incidental
-Broker, Dealers, or Registered Reps whose performance is incidental and who get no special compensation for advice
Exemptions to filing as an Investment Advisor
-Advisors whose only clients are insurance companies
-Family Office
How does an Investment Advisor register with the SEC?
-Initially, file ADV part 1 and 2 with SEC
-Pay minimum filing fee of $150
-RIA must submit part 1 of ADV and schedule 1 annually
Financial Industry Regulatory Authority (FINRA) Initial Registration Process
-The individual associates with a broker/dealer
-Registers with FINRA through broker/deal on form U-4
-Take and pass regular exams
-Is issued a CRD number (Central Registration Depository)
Financial Industry Regulatory Authority (FINRA) Key Examinations/Licenses
-Securities Industry Essentials (SIE): Requried first to take Series Exams
-Series 6
-Series 7
-Series 63
-Series 65
-Series 66
Series 6
Mutual funds, UITs (only new UITs), and Variable (Annuities/Life Insurance), Municipal Fund Securities
* Need to sit for Series 63 as well
Series 7
Mutual funds, UITs (including UITs on secondary market), Variable (Annuities/Life Insurance), Municipal Fund Securities, Stocks, and Options (Not Commodities/Futures- Series 3)
* Need to sit for Series 63 as well
Series 63
Enables Brokers to Sell Securities in a Specific State. Cover State Security Regulations and Rules. (Uniform Securities Agent State Law Exam)
Series 65
Enables Brokers to Sell Financial Advice for Fees Instead of Commissions (Uniform Investment Adviser Law Example)
Series 66
Uniform Combined State Law Exam (Combines Series 63 & 65)
* Only eligible to those who pass Series 7
Basic Components of a Legal Contract as Applied to Insurance
Offer and Acceptance: Two parties, offeror and acceptor (Accept Voluntarily without Modifications, Fraud, or Influence)
Consideration: Something of value (money)
Legal Object: Legal Purpose (Reason to get Insurance)
Competent Parties: Principal must have legal capacity to execute contract
* Not intoxicated adult (CONTRACT VOID)
* Minors only have capacity to contract for necessities (food, clothing, shelter)(CONTRACT VOIDABLE)
Legal Form: Contract must meet requirements
Law of Agency (Insurance)
Expressed Authority: Written, explicit direction from principal to agent
Implied Authority: Authority an agent has to perform actions that aren’t explicitly stated in the contract (Public believes the agent holds, additional actions to fulfill the insurer’s goals)
Apparent Authority: Not Expressed or Implied Authority. Customer assumes agent is allowed to act on their behalf based on the agent’s actions; can increase actual authority or create authority where it doesn’t exist (typically affects terminated agents)
Which debts are NOT cancelable by Bankruptcy
-Student Loans
-Government Loans
-Child Support
-Alimony
-Wage withholdings
-FICA Taxes Due
-Rollovers from qualified plan are exempt (unlimited) and non-rollover IRAs up to $1 million are exempt
