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General Principles Flashcards

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CFP® flashcards
0
Q

Quantitative vs Qualitative

A

Quantitative - Assets, Liab., Cash flows, copies of trust, gifting, financial advisors

Qualitative - attitude, opinion, desire, goal and objectives, health, interest and hobbies, risk tolerance

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1
Q

What are the domains?

A

EGADCIMP

Establish,Gather, Analyzing, Develop, Communicate, implement, monitor, Practice

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2
Q

Principles of Fin. Planner Responsibilities

A

IOCFCPD = Integrity, Objectivity, Competence, Fairness, Confidentiality, Professionalism, Diligence

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3
Q

Client’s Responsibiltiy

A

Active Role in their financial future, Realistic goals, Treat Planner professinally, Share relevant fin information, Provide contact info of other advisers to create overview.

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4
Q

Candidates
Certificants
Registrants

A

Candidate: registered to take the exam
Certificant: have been certified in the past and retian the right to reinstate their cert
Registrant: no current certified by the board in the past and have entitlement, to potentially use the cfp marks

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5
Q

Use of Initials

A

OK
John Smith, CFP(r)
CERTIFIED FINANCIAL PLANNER (tm)

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6
Q

Conflict of interest

A

Disclosure, at a min of the relationship of the broker dealer to the client. Also, if insurance license shoudl disclose that relationship to client.

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7
Q

Commingle Client Funds Permitted/not permitted

A

Permitted- subject to compliance, accurate records are maintained for each client. ok in a common client investment account

Not Permitted - commingled client funds with funds of the financial planning firm.

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8
Q

Loan b/t board designee client rules and recognized exceptions

A

ok if client is a family member, in the normal business activity, terms and conditions are fair and reasonable,

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9
Q

fee vs. fee only

A

fee: hourly, fixed, or flat fees, % fee, performance base fee

fee only: compensation from all clients derived solely from fees

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10
Q

cash/cash equivalents

A

cash, checking, money market mutual funds, savings accts, cds close to maturity, laddered cd

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11
Q

Investment Assets

A 
LI cash value
pension, IRA Roth IRA
Real estate
collectibles
VA, Fixed annuity
Business interest, Mutual funds, stocks, bonds
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12
Q

Use Assets

A

Home, personal property, collectibles for personal enjoyment, vacation home or condo, automobiles, or recreational vehicles

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13
Q

Liabilities

A

credit cards
Personal Loans
auto loans
mortgage loans

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14
Q

components of cash flow

A

inflow - outflow = savings

Outflow - fixed outflows, variable outflows, taxes

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15
Q

business financial statements

A

measured value of a business
balance sheet, income statement, statement of cash flow
book value = assets-liabl= net worth

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16
Q

pro forma statement

A

expectations of future result
est of income over expenses
projected excesss

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17
Q

Emergency Fun Invested

A

checking account = exclude monthly necessary expenses)
money market acct
CD if close to maturity, less than 90 days
saving accts
laddered CDs less than 6 month

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18
Q

establishing an emergency fund

3 mo vs 6 mo

A

3 mo = single with second source of income, married and both work, married only 1 work and spouse has send source of income

6 mo = single wage earner, married only 1 spouse works

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19
Q

debt mgmt ratios:
housing PITI
Total Moly debt
consumer debt

A

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

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20
Q

current ratio
current assets
current liabilities

A

Current Ratio = CA-CL
Current Assets = cash equivalents, marketable securities, account receivable, inventory
Current Liab = Acct Payable, credit card debt, taxes payable

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21
Q

Begin Mode vs End mode

A

Begin Mode: College Education, Retirement BENEFITS, Family needs

End Mode: 401K deferrals, Profit sharing contributions, Bond interest, Mortgage Payments

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22
Q

How Funds are insured

A

Single accounts - 250,000
Jt accts - 250,000 per person
Revocable Trust - 250,00
IRA and Keoghs - 250,000

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23
Q

Federal Securities Act

A

Securities Act 1933 - new issues purchasers, prospectus before purchase
Securities Act 1934 - secondary market, creates the SEC to enforce securities laws
Inv Co act f 1940 - Authorizes the SEC to reg UIT and inv companies close and open end funds + variable products
Securities Investors Act 1970 - SIPC

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24
Q

Education needs analysis

A

determine. ..
1) how much the 1st year of college will cost
2) amount tat must be available when child is 18
3) how muhc the parent needs to save either lump sum pv or yearly pmt

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25
Q

529 ownership

A

parent, grandparent, single with no dependents, trust

26
Q

successor owner 529 plans

A

if successor owner is a trust, the original owner can control disposition of the trust through the terms of the trust.

27
Q

Change of the 529 bene

A

owner can change bene to almost anyone… a long list. spouse, 1st cousin, uncle, sibling.

28
Q

529 rollover

A

if rolled to a beneficiary in a generation below that of the current beneficiary, rollover will be treated as a taxable gift.

if rollover stays in the same generation there is no taxable gift.

29
Q

Coverdell ESA

A

2k per year to benefit each child under age 18
not deductible
earning accumulate tax def
income limitations - single (100,000) Joint (200,000)

30
Q

UTMA vs. UGMA accounts

A

UGMA - cash type investment, transfer to child at 18/21, gift tax excllustion (13,000), subject to kiddie tax over 24 years, assets count against Fin aid

UTMA - cash +real estate+LP, controlled by custodian until age 25 , same as above

31
Q

Kiddie Tax

A

applies to kids who have not attained age 24 by year end
over 1900
-950 standard ded
additional 950 taxes at children’s rate of10%

32
Q

Education Savings Bonds - EE bonds

A

purchased in parent’s name
can be put in UTMA, but won’t qualify for the education expense deduction. If redeemed for college, int is taxable
interest fully exempt from fed income tax only
AGI limitation to get full tax free status.

33
Q

Financial Aid Options

A

Pell grant- Full time student, max 5,500
PLUS - non need based as anyone can apply
Perkins Loans - college decides on student need, borrow 4000/yr total 20,000
Stafford loan- loan limited needs based

34
Q

Deductible alimony test

A

1) transfers of non cash items like property or loans = not alimony
2) pmts to 3rd party can if made by divorce agreement
3) pmts to maint property owned by the payor spouse an used by the payee don’t qualify
4) if payee spouse owns the policy on the life of the payor spouse the payment made by the payor will qualify as alimony, if made under divorce instrument

35
Q

Child Support

A

not taxable to payee and non deductible by the payor

any amt tied to a contingency of occurrence f an event relating to a child it considered to be child support and not alimony

36
Q

Monetary Winfalls

A

Structure Settlement = tax free pmt
Compensatory damage = generally tax free, int earned on award is taxable
Punitive Damages = tax free, wrongful death
annuity = fully taxable
prizes and awards = fully taxable

37
Q

Economic Concepts

A

Fiscal policy - federal taxation and spending designed to level out the business cycle

Monetary Policy = Fed Reserve Board influences the growth of the money supply

38
Q

Repo vs Reverse Repo

A

Repo - feb buys securities - expansionary / easy money policy

Reverse Repo- fed sells securities - contractionary / tight money policy

39
Q

Recession vs Depression

A

Recession = 2 consecutive quarters of decline in Real GDP

Depression = severe or long recession (6 qtrs)

40
Q

Inflation
Deflation
Stagflation

A

Inflation = rise in prices of good and services

Deflation = decline in prices of goods and services

Stagflation = combination of slow economic growth and high unemployement with rising prices

41
Q

Business Cycle

A

expansion, peak, contraction/recession, trough, recovery/expansion

42
Q

Yield Curve

A

the curve shows the market rates of interest for bonds of different maturities with the same credit rating.

the relationship b/t the int rate and the time to maturity of the debt for a given borrower in a given currency

43
Q

buy vs lease/rent

A

Buy home Adv - tax ded for interest and property taxes cap gai on the sale of the home on the excess of the exclusion (500,000 MFJ)
Rent a home Adv - maybe lower than mort payment
higher tax bracket = greater adv to own home.

44
Q

EXCEPTIONS to being required t filing as Investment Advisor…

A 
Banks
Lawyers
Accountants
Teacher - advice is incidental 
No compensation for advice
newspaper
gives advice only relating to U.S. govt securities
45
Q

EXEMPTIONS to being required to filing as Investment Adivser

A

Advisers clients in one state
Adviser whose only clients are insurance companies
the family office

46
Q

How does an Investment Advisor register with the SEC?

A

file form ADV part 1 and part 2 with the SEC

Pays fee of $150

submits part 1 adv and schedule I updates on an annual basis

47
Q

FINRA Registration Process

formerly knows as NASD

A 
anyone seeking to sell securities
Associated with Broker/Dealer
Reg with FINRA through B/D on form U-4
Pass exams
Receives CRD #
48
Q

FINRA key Licenses

A

6 - sell MF, UIT and Variable (only new UITs)
7 - sell all securities except commodities and certain options
63 - state law exam
65 - Inv Adv Law Exam
66 - Comb - securities agents and adviser rep

49
Q

components of a legal contract - insurance

A

agreement - offerer and acceptor
consideration - something of value
competent parties - legal capacity not intoxicated
legal form- lawful purpose

50
Q

agent vs broker

A

Agent - rep the insurance company

Broker - rep the client/insured

51
Q

Law of Agency - insurance

A

express authority - written, explicit direction from principal to agent

Implied authority - agent to the public

apparent authority - negligence of the principal in allowing the agent appear to have authority b/c certain action of agent in the past.

52
Q

Types of Bankruptcy

A

Chapter 11 - no source of income
Chapter 13 - reorganization, can keep the stuff
Chapter 7 debtor to claim federal or state exemptions
not cancelable - student loans, govt loans, child support or alimony

53
Q

Fiduciary

A

Assets held in trust of a beneficiary
charged with the responsibility of investing money wisely

ex: executors of will and estates, trustee, underaged, or incompetent

54
Q

If NPV of investment is 0 then …

A

IRR is equal to the interest rate

55
Q

What is dollar weighted return?

A 
-100,000
\+6000
\+7000
\+126,000
solve for IRR/yr
56
Q

Phase out for
EE
UTMA/UGMA

A

EE= 109,000-139,000

UGMA/UTMA = 109,250-139,250…. the point is that these are close

57
Q

ESA/Coverdell

eligible for …

A

elementary
secondary
college

58
Q

100,000
60,000 assets grew by
30,000 saved out of earned income
what is the change in Liab?

A

10,000

59
Q

Fiscal vs Monitary

A

Fiscal - Prez, tax legislation

Monetary changes - lower fed funds rate, bank reserve requirements,

60
Q

bankruptcy - as it relates to education - Coverdell and 529?

A

protected from creditors if older than 2 years old

61
Q

Register as and RIA in the state of domicile if….

A

under 100 Mil under mgment

62
Q

RIA over 100 MIL

A

REG with SEC

63
Q

Principles of the CFP Board

A 
Integrity
Objectivity 
Competency
Fairness
Communicate
Professionalism
Discipline

CFP (13 decks)

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