General Principles Flashcards
Practice Standard 100
Defining Scope of Engagement
- Services Provided
- Conflicts of Interest
- Compensation
- Responsibilities
- Duration of Agreement
- Limit the Scope
Practice Standard 200
Determine 200-1
- Financial Goals
- Needs
- Priorities
- Responsibilities
Obtain 200-2
- Quantitative Information
- Quantitative Documents
Practice Standard 300
Analyzing and Evaluating
Use Assumptions
- client specific
- mutually agreed upon
- other reasonable assumptions
Practice Standard 400
Developing and Presenting Recommendations
400-1 Identifying alternatives
- consider multiple assumptions
- conduct research
- consult with other individuals
400-2 Developing
- Analysis/Eval. incorporated into plan
- Personal assumptions added if neccessary
400-3 Presenting advantages/disadvantages
- Risk
- Time Sesitivity
Practice Standard 500
Implementing the Recommendations
500-1 Agreeing on responsibilities
- Referring to other professionals
- Coordinating with other professionals
- Sharing information as authorized
500-2 selecting products and service
- Suitability Clients best interest
- disclosures required by applicable regulators
Practice Standard 600
Defining Monitoring Responsibilities
- What is to monitored
- Frequency of monitoring
Principles of the CFP
Board Code of Ethics
Integrity (#1) International
Objectiviity (#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)
Use of Initials
Registered Investment Advisor
and
Certified Financial Planner
- RIA (prohibited)
- C.F.P. (Prohibited)
- Registered Investment Advisor (ok)
- CFP® (ok)
- Certified Financial Planner™ (ok)
When can a CFP licensee release
a client file to other persons?
- When an attorney or court subpoenas the file
- At the client’s request
- As a defense against charges of wrongdoing
Determining an Emergency Fund
(Use 3 or 6 months of …)
_3 m_onths:
- Single with 2nd source of income
- Married, both work
- Married only 1 spouse works, but have a 2nd source of income
_6 m_onths:
- single wage earner
- Married only 1 spouse works
Debt Management
Housing Expenses (PITI)
Total Monthly Debt
Consumer Debt
< 28% of gross income (PITI)
< 36% of gross income (total monthly debt)
< 20% of net income (consumer debt)
Current Ratio
Current Assets
Current Liabilities
Current Ration: Current Assets ÷ Current Liabilities
Current Assets: Cash equivalents, marketable securities, accounts receivable, inventory
Current Liabilities: Accounts payable, credit card debt, taxes payable
Federal Securities Acts
Securities Act of 1933 - Required the new issues purchasers be provided with prospectus before a purchase was completed
Securities 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.
College Funding
Phase outs given (married filing jointly):
- Educational Bonds ($119,550 - 149,550)
- Lifetime ($114k - 134k)
- American Opportunity ($160k - 180k)
Federal Reserve
Open Market Operations
Repo - Fed buys securities - expansionary/easy money policy
Reverse Repo - 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.
- Does NOT include any income generated outside the US or adjustments for foreign currencies.
Busines Cycle
Recession vs. Depression
Recession - Two consecutive quarters of economic decline (negative GDP)
Depression - Six consecutive quarters of economic decline (negative GDP)
Exceptions to Filing as an
Investment Advisor
- Banks that are not also investment companies
- Lawyers, accountants, teachers - 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
- Adviser whose only clients are insurance companies
- Private adviser who during the previous 12 months had fewer than 15 clients
How does an Investment Adviser register with the SEC?
- 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
Financial Industry
Regulatory Authority
(FINRA)
Initial Registration Process
- The individual associates with a broker dealer
- Registers w/ FINRA through broker/dealer on Form U-4
- Takes and passes appropriate exam
- 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 (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)
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 - 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
Law of Agency
(Insurance)
Express authority: written, explicit direction from principal to agent.
Implied authority: is that which public believes the individual holds and includes signage, rate books, etc. Implied authority is actual authority that the agent has to carry out the principals 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.
Bankruptcy
Debts not cancelable by bankruptcy:
- Student loans, government loans, child support or alimony.
- Wage witholding, FICA taxes, income tax is due
Rollovers from qualified plans are exempt (unlimited), and non-rollover IRAs up to $1 million are exempt.
Deductible House Interest
- All mortgages cannot excced
- $750k combined (MFJ)
- $375k single (MFS)
- Home equity interest only
- deductible if used for home renovation / improvement
529 Keys
- Lump sum gift up to $75,000
- Donor can retain control
- k-12 for tution allowed up to $10,000 / yr
