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CFP Review > General Principles > Flashcards

General Principles Flashcards

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CFP® flashcards
1
Q

Practice Standard 100

Defining the Scope of the Engagement

A 
. Services provided 
. Conflicts of interest 
. Compensation 
. Responsibilities 
. Duration of agreement 
. Limit the scope
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2
Q

Practice Standard 200

A 
Determine 200-1 
. Financial goals 
. Needs 
. Priorities 
. Responsibilities 
Obtain 200-2 
. Quantitative Information 
. Quantitative Documents
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3
Q

Practice Standard 300

Analyzing and Evaluating

A

Use assumptions
• client specified
• mutually agreed upon
• other reasonable assumptions

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4
Q

Practice Standard 400
Developing and Presenting
Recommendations

A

400- 1— Identifying alternatives
. consider multiple assumptions
. conduct research
. consult with other individuals
400-2 - Developing
. Arialysis/Eval. incorporated into plan
. Personal assumptions added if necessary
400-3 - Presenting advantages/disadvantages
. Risk
. Time sensitivity

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5
Q

Practice Standard 500

Implementing the Recommendations

A 
500-1 — agreeing on responsibilities 
. Referring to other professionals 
. Coordinating with other professionals 
. Sharing information as authorized 
. Selecting and securing products 
500-2 - selecting products and services 
. SuitabilityClient's best interest 
. Disclosures required by applicable regulators
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6
Q

Practice Standard 600

Defining Monitoring Responsibilities

A
  • What is to be monitored

* Frequency of monitoring

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7
Q 
Domain 1 (8% of Exam) 
Establishing and Defining the Client- 
Planner Relationship 
Mutually defining and understanding engagement 
Key — realistic expectations
A 
Related Principles and Rules 
. Principle 4, 7 
. Rule 1.1 Mutual Agreement 
. Rule 1.2 Material Element 
. Rule 1.3 Written Agreement 
. Rule 2.2 Compensation
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8
Q

Domain 2 (9% of Exam)
Gathering Information Necessary to Fulfill the
Engagement
Measurable objectives/client interest first
Key — Unable to obtain data — restrict the scope or
terminate the engagement

A 
Related Principles and Rules 
•  Principle 7 
•  Rule 3.3 Obtain information 
•  Rule 4.4 reasonable judgment 
•  Rule 4.5 suitable recommendations
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9
Q

Domain 3 (25% of Exam)
Analyzing and Evaluating the Client’s Current Financial
Status
Heightened awareness of specific values
Key - analysis may identify other issues-if so, it is appropriate
to amend the scope of the engagement

A 
Related Principles and Rules 
•  Principle 2, 3, 7 
•  Rule 1.4 Fiduciary 
• Rule 4.1 Treat fairly 
• Rule 4.4 Reasonable judgment 
• Rule 4.5 Suitable recommendations
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10
Q

Domain 4 (25% of Exam)
Developing the Recommendation(s)
What is possible?
Domain 5 (9% of Exam)
Communicating the Recommendation(s)
Key — strategies and objectives, recommendations meet
client’s planning goals, needs and priorities

A 
Related Principles and Rules 
. Principles 1, 2, 3, 6, 7 
. Rule 2.1 misleading 
. Rule 4.1 treat fairly 
. Rule 4.4 reasonable judgment 
. Rule 4.5 suitable
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11
Q

Domain 6 (9% of Exam)
Implementing the Recommendation(s)
Client is responsible at this point except by mutual agreement
If there are conflicts of interest, sources of comp or material relationship with
other professional or advisers that have not been previously disclosed, such
conflicts, sources on relationships shall be disclosed at this time.
Use appropriate products

A 
Related Principles and Rules 
. Principles 2, 3, 4, 6, 7 
. Rule 1.2 material element 
. Rule 2.2 compensation 
. Rule 4.1 treat fairly 
• Rule 4.4 reasonable judgment 
• Rule 4.5 suitable
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12
Q

Domain 7 (5% of Exam)
Monitoring the Recommendation(s)
Mutual understanding for monitoring
Key — clients are more likely to be satisfied
goals/recommendations are both realistic and clear

A 
Related Principles and Rules  
. Principle 7 
. Rule 1.2 material element 
. Rule 3.3 material deficiencies 
. Rule 3.4 supervision 
• Rule 4.1 treat fairly
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13
Q

Domain 8 (10% of Exam)
Practicing within Professional and
Regulatory Standards

A

Know the Principles and the Rules of Conduct
and
Do The Right Thing!

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14
Q

Principles of the

CFP Board Code of Ethics

A 
Integrity (#1) 	International 
Objectivity (#2) 	Olympic 
Competence (#3) 	Committee (IOC is competent) 
Fairness (#4) 	Fire 
Confidentiality (#5) 	Company 
Professionalism (#6) 	Police 
Diligence (#7) 	Department 
(Fire and Police require confidentiality)
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15
Q

Use of Initials
Registered Investment Advisor
and
Certified Financial Planner

A 
.  R1A (prohibited) 
. C.F.P. (prohibited) 
. Registered Investment Advisor (ok) 
. CFP® (ok) 
. CERTIFIED FINANCIAL PLANNERTM (ok)
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16
Q

When can a CFP® licensee release

a client file to other persons?

A
  • When an attorney or court subpoenas the file
  • At the client’s request
  • As a defense against charges of wrongdoing
17
Q

Determining an Emergency Fund

Use 3 or 6 months if …

A 
3 months. 
•  Single with 2nd source of income 
•  Married, both work 
•  Married, only 1 spouse works, but have a 2nd source of income 
6 months: 
•  Single wage earner 
•  Married, only 1 spouse works
18
Q

Debt Management
Housing Expenses (PITI)
Total Monthly Debt
Consumer Debt

A

< 28% of gross income (PITI)
< 36% of gross income (total monthly debt)
< 20% of net income (consumer debt)

19
Q

Current Ratio
Current Assets
Current Liabilities

A

Current Ratio: Current assets ± Current liabilities
Current Assets: Cash equivalents, marketable securites, accounts
receivable, inventory
Current Liabilities: Accounts payable, credit card debt, taxes payable

20
Q

Federal Securities Acts

A

Securites Act of 1933 - Required that new issues purchasers be provided
with a detailed prospectus before a purchase was completed.
Securites Act of 1934 - Passed to regulate the secondary market (trading
of issued securities). This act also created the SEC to enforce securities
laws.
Investment Company Act of 1940 - Authorized the SEC to regulate unit
investment trusts (UITs) and managed investment companies (closed-end
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. The SIPC insures
investors against losses arising from the failure of a brokerage firm.

21
Q

College Funding

A

Phase outs (married filing jointly):
• Educational Bonds ($113,950- 143,950)
• Lifetime($108K- 128K)
• American Opportunity ($160K- 180K)

22
Q

Federal Reserve

Open Market Operations

A

Repo - Fed buys securities - expansionary/easy money policy

Reverse Repo - Fed sells securities - contractionaty/tight money policy

23
Q

Gross Domestic Product

GDP

A

• Total dollar value of all goods and services produced within the US
ONLY
• GDP counts economic activity without regard to yearly price
fluctuations.
• Does NOT include any income generated outside the U.S. or
adjustments for foreign currencies

24
Q

Business Cycle

A

National
Output

Expansion
Peak (business activity ages)
Recession (Contraction)
Trough

Time

25
Q

Recession vs. Depression

A

Recession - Two consecutive quarters of economic decline (negative
GDP)
Depression - Six consecutive quarters of economic decline (negative
GDP)

26
Q

Exceptions to Filing as an

Investment Adviser

A

• Banks that are not also investment companies
• Lawyers, accountants, teachers - advice is incidential
• Broker/dealers or registered reps whose performance is incidential
and who get no special compensation for advice
• Publishers of bona fide newspapers
• Those who give advice solely relating to U.S. government securities

27
Q

Exemptions to Filing as an

Investment Adviser

A

• Adviser whose only clients are insurance companies
• Private adviser who during the previous 12 months had fewer than
15 clients

28
Q

How does an Investment Adviser register with

the SEC?

A
  • Initially, files the ADV Part I and II with the SEC
  • Pays a minimum filing fee of $150
  • RIA must submit Part I of ADV and Schedule I annually
29
Q 
National Association of 
Security Dealers (NASD)

Initial Registration Process

A
  • The individual associates with a broker dealer
  • Registers w/ NASD through broker/dealer on Form U-4
  • Takes and passes appropriate exam
  • Is issued a CRD Number (Central Registration System)
30
Q 
National Association of 
Security Dealers (NASD)

Key Examinations/Licenses

A

Series 6: mutual funds, UITs and variables (only new UITs)
Series 7: general securities (UITs on the secondary market)
Series 63: Uniform Securities Agent State Law Exam
Series 65: Uniform Investment Advisor Law Exam
Series 66: Uniform Combined State Law Exam (combines 63 and 65
exams)

31
Q

Basic Components of a Legal

Contract as Applied to Insurance

A
  1. Offer and acceptance - Two parties: offerer and acceptor
  2. Consideration - Something of value (money)
  3. Legal object - legal in purpose
  4. Competent parties - principal must have legal capacity to execute
    contracts
    a. intoxicated adults have limited or no capacity to execute
    contracts
    b. minors have capacity to contract for necessities (food, clothing,
    shelter) only
  5. Legal form - contract must met requirements
32
Q

Law of Agency

Insurance

A

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 authority 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 the authority because of certain actions of the
agent in the past. This typically affects terminated agents.

33
Q

Bankruptcy

A

Debts not cancelable by bankruptcy:
• Student loans, government loans, child support or alimony.
• Wage withholding,FICAtaxes, income tax is due
Rollovers from qualified plans are exempt (unlimited), and non-rollover
IRAs up to $1 million are exempt.

CFP Review (6 decks)

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