General Principles Wrong Answer Stack Flashcards
What types of specific information should be gathered in the planning process for LIFE INSURANCE CONTRACTS?
- premium and dividend options
-policy loans
-ownership
(Retirement account values and property insured do not apply to life insurance contracts.)
If a client asks for unrealistic what if scenario for rates of returns what should a CFP do? (too high)
Run the projects using ONLY conventionally accept return.
(I said run conventional return and client’s request - but you should always be prudent)
Learning about a clients health should help a planner determine
- Retirement Needs
- Life insurance needs
- Disability needs
- estate tax consequences
Where should you have your emergency fund?
SAFEST AND SIMPLIEST is the right answer.
Government Money Market Fund
(T Bills are too complex)
Which of the following is federally insured?
Time deposit! this is a CD. CDs are federally insured by FDIC.
Not all Bonds are Insured. Treasury Bills are GUARENTEED by federal government not insured by
Which of the following investments is likely to be insured?
- securities in a brokerage account
- treasury bonds
- mutual funds
- annuities
Securities held in a brokerage account
The SIPC insures investors against losses arising from the FAILURE of brokerage firms.
The Investment Company Act of 1940 Authorized who to regulate mutual funds?
the SEC
What agency regulates Brokerage companies?
FINRA
SEC Regulates Brokerage companies through FINRA.
MT: Think bachelor party example/ needing FINRA Series 7 for Brokerage Company
FDIC Insurance
Insurable:
- Checking
- Savings
-Money Market DEPOSIT Accounts (MMDAs)
-CDs
Not Insurable:
- Stock investment
- Bonds
-Mutual Funds
-Money Market MUTUAL FUND
-US Treasury Bills, Notes and Bonds
FDIC Insurance by Ownership
Accounts in Individual Name : $250,000
Joint up to $250,000 across ALL joint titling
Rev Trust up to $250,000 per named beneficiary
IRA and Keogh $250,000 per account
Education Planning Exam Test
Just because inflation is mentioned does NOT mean that you use it.
Look for “in today’s dollars” before you use it!
Funding of college education
Watch for PRE college years versus college years.
Plus and Pell are NOT for Pre
Paying for College Combinations
529 or Coverdell ESA withdrawal cannot be used to pay tuition if combined with credit for tuition paid. (Lifetime Learning/American Opportunity Credit)
How is a QTP (Qualified Tuition Program) different from UTMA account?
- Owner of a QTP remains right to determine how and when to use $ in the account. Custodian of UTMA loses control at age of majority.
- QTP can change bene, custodian of UTMA cannot change bene.
- QTPS grow tax deferred and distribution tax free if used for educational expenses. UTMA growth and income subject to both Regular tax AND Kiddie tax.
Why is a 529 or Coverdell ESA a better way to distribute $ for K-12 (up to $10K a year) and college vs a UTMA?
UTMA is subject to kiddie tax so 529/Coverdell ESA more tax advantaged
Which qualifies for compensatory damages?
A. Auto Accident
B. Headaches
C. Age Discrimination
D. Stomach Disorder
C. Age Discrimination
Auto accident itself does not qualify for compensatory damages, however medical expenses and lost wages from the accident may.
How is a SPIA awarded in compensatory damages cases taxed?
100% excludable from taxes.
entire amount of each payment is excludable by tax payer receiving the payments.
Lottery: within 60 days of winning the lottery winners split winnings and elect to receive payments over 20 years instead of the CASH lump sum. What’s included in gross income this year?
The payment each received this year is included in income.
Lottery: a choice of either cash or annuity (60 day window to choose) allows for taxing when?
Annuity payments of at least 10 years of payments are taxable as they are recieved.
Test Tip Prizes and Awards
Under the principle of constructive receipt, the winner of a contest (generally a lottery) having the option of receiving either a lump sum or an annuity has to include the full value of the award in gross
income, even if he or she takes the annuity.
However, if that winner has a choice of either cash or an
annuity (60-day window) and chooses an annuity payout over at least 10 years, then the payouts are
taxable as received (called the “qualified prize option”)
Compensatory Damages
Received for injury or illness = tax-free
Received for discriminatory OR non-physical cases are TAXABLE unless used for/up to the amount of medical care fo emotional distress.
Punitive Damages
Meant to Punish
Taxable Regardless of the case with ONE exception
WRONGFUL DEATH IS TAX-FREE
When does the Business Cycle Peak?
When business activity ages
this means the public stops buying because they have enough of everything they need.
Examples of expansion in the business cycle…
- when activity is expanding and real GDP output increases.
- when consumer confidence is increasing
Questions where you are asked to determine the principal paid on a loan
Add up all the assets / growth that came in
Use the NW number and subtract first number
The Key is the leave the $ paid on credit cards and mortgage out (you can assume that the majority is interest)
ex.
NW up $60K last year
Assets
+ $25K Boat
+ $10K Growth in Acct
+ $15K in 401K growth
+ $5K in savings
_________________________
$55K
So $60K - $55K = $5K to PRINCIPAL
(Ignore the given -$24K went to credit cards and mortgage this year)
TEST TIP: When solving for equations where you are asked what they can afford to borrow
You are solving for PV
(not FV)
If you decide to become a RIA you must notify…
The SEC
If you are an investment advisor with the SEC what must you do once a year?
You must file an updated Form ADV Part 1 and Schedule 1 each year.
(written disclosure goes to SEC and Finra)
What are the correct sequence of steps to register?
- Associate with a Broker Dealer
- Register with FINRA through BD FORM U4
- Pass Appropriate tests
- Central Registration Depositiory (CRD) system makes registration with FINRA uniform among states.
MT: ARP CRD
If you have no commissions there is no need to register with FINRA as a representative… how should you register?
As an Investment Advisor only.
Series 6 May Not
MAY NOT (6) Sell MUTUAL (6) Funds traded on MAJOR EXCHANGE
Major Exchange = Series 7
What can you do with a Series 6?
- sell mutual funds
- unit investment trusts (primary only)
- variable life insurance (must also have life insurance license)
- variable annuities
The Series 6 exam — the Investment Company and Variable Contracts Products Representative Qualification Examination (IR) — assesses the competency of an entry-level representative to perform their job as an investment company and variable contracts products representative.
ADV
What’s on Part 1? What’s on Part 2?
Part 1:
- Business Address
- Applicants Business Background
Part 2:
- Compensation Arrangement
What is not cancelable by Chapter 7?
- Govt Loans
- Child Support
- Alimony Payments
What is your liability per stolen credit card?
UP TO $50 per card
What’s express authority?
Written, Explicit direction from the insurance company to the agent.
MT: WECA - Written, Explicit, Company > Agent
What is the obligation of Agent to Principal?
Loyalty
Fair Credit Report Act
Provides individuals who have been denied credit the right to know the reason for denial.
Bankruptcy
ONLY traditional and Roth IRAS are protected up to $1M.
SEP, Simple. ERISA Plans, and Deferred Comp Plans are protected under 2005 law.
Remember: Everyone must complete consumer credit counseling PRIOR to filing.
