General Principles Flashcards
The financial planning process
529 or QTP
Qualified tuition plan
- 18k per year per child. Can do up to five years at once 90k from one individual
Amortization calc steps
- 12/py End mode
- Solve for PMT
- 1, Input, #of months
- OS, AMORT, =,=,=
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 hours per reporting period are required?
30 hours
The CFP Commission can order a license suspension not to exceed ___ years.
5
Responses to complaints shall be in writing and
submitted within ___ calendar days.
30
Evidence in support of an investigation may be submitted up to ___ days prior to the scheduled hearing.
45
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
Determining the Release of an Emergency Fund
(Use 3 or 6 months if…)
3 months if:
- Single with 2nd source of income
- Married, both work
- Married, only 1 spouse works, but have a second source of income
6 months if:
- Single wage earner
- Married and only 1 spouse works
How much consumer debt is considered acceptable?
≤20% of NET income
How much Total Monthly Debt is considered acceptable?
≤36% of GROSS income
How much PITI is considered acceptable?
≤28% of GROSS income
Current Assets
- Cash Equivalents
- Marketable Securities
- Accounts Receivable
- Inventory
Securities Act of 1933
The Securities Act of 1934 was passed to regulate the secondary market (the trading of issued securities). The act also created the SEC to enforce securities laws.
Investment Company Act
of 1940
Securities Investors Protection Act of 1970 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.
College Funding - Phase outs
Phase outs given (married filing jointly)
- Educational Bonds ($145,200 - $175,200)
- Lifetime ($160K - $180K)
- American Opportunity ($160K - $180K)
529 Keys
K-12, Student loans?
- Lump sum gift up to $90,000
- 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)
Deductible Housing Interest
All mortgages cannot exceed:
- $750K combined (MFJ) and single
- $375K (MFS)
- Home equity interest is only deductible if used for home
renovation/improvement.
Federal Reserve Open Market Operations
- Repos - Fed buys securities = expansionary/easy money policy
- Reverse Repos - Fed sells securities = contractionary/tight money
policy
Gross Domestic Product (GDP)
Total dollar value of all goods and services produced within the US only.
- GDP counts economic activity without regard to yearly price
fluctuations. - The GDP does not include any income generated outside the US or
adjustments for foreign currencies.
Business Cycle
- Expansion
- Peak
- Recession/Contraction
- Trough
- Recovery/Expansion
Recession vs. Depression
- Recession - Two consecutive quarters of economic decline (negative
GDP) - Depression - Six consecutive quarters economic decline (negative
GDP)
Exceptions to Filing as an Investment Adviser
- 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.
Exemptions to Filing as an Investment Adviser
- Advisers whose only clients are insurance companies.
- Family office
How does an Investment Adviser register with the SEC?
- 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.
Financial Industry Regulatory Authority (FINRA)
Initial Registration Process
- 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)
Financial Industry Regulatory Authority (FINRA)
Key Examinations/Licenses
- 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)
Basic Components of a Legal Contract as Applied to Insurance
- 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
Law of Agency (Insurance)
- 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.
Which debts are not cancelable by Bankruptcy?
- 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
