General Principles Flashcards
Principles of the CFP Board Code of Ethics
- Integrity
- Objectivity
- Competence
- IOC - International Olympic Committee is competent)
- Fairness
- Confidentiality
- Professionalism
- Diligence
- FCPD - Fire Company Police Dept require confidentiality
Rules of Conduct
Rules establish the high standards expected of certificants and describe the level of professionalism.
RIPOOO
- Defining the Relationship with client/prospect
- Information disclosed
- Property and information of client/prospect
- Obligations to clients,
- Obligations to employers
- Obligations to CFP board
Practice Standard 100
Establishing and defining the relationship
Practice standard 200-1
Determining goals, needs and priorities
Practice standard 300
Analyzing and evaluating financial planning alternatives
- Use assumptions that are client-specified
- mutually agreed upon and
- other reasonable assumptions
Practice standard 400-1
- Identify alternatives
- Conduct research
- Consult with other individuals
Practice standard 400-3
Presenting the recommendations
- Advantages/disadvantages
- Risk
- Time sensitivity
Practice standard 500-1
Implementing the recommendations
- refer to other pros
- coordinate with other pros
- share info as authorized
- select and secure product
CFP Board was founded in…
1985
Within how many days must you inform CFP board of address change?
45 days
Practice standard 600
Defining monitoring responsibilities
- what is to be monitored
- frequency
How many CE hours per reporting period are required?
30 hours
CFP commission can order a license suspension not to exceed ___ years.
5
Responses to complaints shall be in writing and submitted within ___ calendar days.
20
Evidence in support of an investigation may be submitted up to ___ days prior to the scheduled hearing.
30
Practice standard 200-2
Obtain quantitative and qualitative data
Practice standard 400-2
Developing the plan
- Analysis/eval incorporated into the plan
- Personal assumptions added if necessary
Practice standard 500-2
- Selected products and services
- suitability, client’s best interest - disclosures
Domain 1
Establishing and defining the relationship
- mutually agreed upon
- KEY: realistic expectations
Related principles:
- principle 4, 7
- rule 1.1: mutual agreement
- rule 1.2: material element
- rule 1.3: written agreement
- rule 2.2: compensation
Domain 2
Gathering information necessary to fulfill the engagement - measurable objectives, client first -
KEY: Unable to obtain info, terminate or restrict the relationship!
Related principles and rules:
- principle 7
- rule 3.3: obtain info
- rule 4.4: reasonable judgement
- rule 4.5: suitable recommendations
Domain 3
Analyzing and evaulation of client’s current financial situation Have a heightened awareness of specific values
KEY: analysis may identify other issues, if so, it may be appropriate to amend the scope of the relationship
Related principles and rules:
- principle 2, 3, 7
- rule 1.4: fiduciary
- rule 4.1: treat fairly
- rule 4.4: reasonable judgement
- rule 4.5: suitable recommendations
Domain 4
Developing the recommendation(s)
What is possible?
Domain 5
Communicating the recommendation(s)
KEY: strategies and objectives, recommendation meet the goals, needs and priorities.
Domain 6
- Implementing the recommendation - client is responsible at this point except by mutual agreement
- if there are conflicts of interest that have not yet been disclosed, disclose them now.
- use appropriate products
Domain 7
Monitoring the recommendations
- mutually define the responsibilities
- key: clients are more likely to be satisfied
- goals/recommendations are both realistic and clear
Domain 8
Practicing within professional and regulatory standards
- know the principles and rules of conduct!
- do the right thing!
Use of the CFP initials
NO:
- RIA
- C.F.P.
YES:
- Registered Investment Advisor
- CFP®
- CERTIFIED FINANCIAL PLANNER™
When can a CFP release client info to others?
- Client says ok
- Subpoenaed
- As a defense against charges of wrongdoing
Emergency fund rules - 3 month, 6 month
3 months if:
- single with 2nd source of income
- married, both work
- married, only 1 works but there’s a second source of income
6 months if:
- single wage earner
- married and only 1 spouse works
How much consumer debt is ok?
≤20% of NET income
Total monthly debt, how much is ok?
≤36% of GROSS income
PITI - how much is okay?
≤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
Requires that NEW issues purchasers be provided a detailed prospectus before the purchase was completed
Securities act of 1934
Regulates secondary market.
Also created the SEC to enforce securities laws
Investment company act of 1940
Authorized the SEC to regulate UIT, managed investment companies (closed and open end funds) plus variable products
Securities investors protection act of 1970
Established the SIPC to supervise securities firms that get into financial difficulties. Insures investors against losses arising from the failure of a brokerage firm
College funding phase outs and limits (MFJ)
- EE bonds - $113,950 - 143,950
- Lifetime - $108,000 - 128,000
- Hope - $160,000 - 180000
Federal reserve - open market operations
Repos - fed buys securities, expansionary/easy money policy
Reverse repos - fed sells securities, contractionary/tight money policy
What makes up GDP?
- Total value of all goods and services produced within the US only
- counts economic activity without regard to yearly price fluctuations
- 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 - 2 consecutive quarters of economic decline (negative GDP)
- Depression - 6 consecutive quarters of economic decline (negative GDP)
Exception to filing as an investment adviser
- banks that are not also investment companies
- lawyers, accountants, teachers where advice is INCIDENTAL
- broker dealers or RR 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 govt securities
Exemptions to filing as an investment adviser
- Advisers whose only clients are insurance companies
- private adviser who during the previous 12 months had fewer than 15 clients
How does an 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
NASD / FINRA, Initial registration process
- associate with a B/D
- register with NASD through B/D on form U4
- take and pass appropriate exams
- is issued a CRD number (central registration system)
NASD key exams
- 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 combines state law exam (combines 63 & 65)
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)
5. Legal form - contract must meet requirements
Law of agency (insurance) Express, implied and apparent authority
Express - written, explicit direction from principal to agent
Implied - 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 - 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.
Bankruptcy - what is NOT cancelable
- 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
