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CFP Exam Study > GP > Flashcards

GP Flashcards

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1
Q

Are Attorneys exempt from registering as in investment advisor?

A

Yes if investment advice is incidental to their practice

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2
Q

Is lump sum punitive damages settlement for wrongful death tax free

A

Yes, tax free

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3
Q

Can client funds be commingled in a common client investment account?

A

No, checks must be payable to broker/dealer/custodian and not the financial planning firm

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4
Q

Which industry outperforms when economy passes through trough into recovery?

A

Auto sales historically lead the business cycle into expansion

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5
Q

Financial Planner makes recommendation to buy a stock based on gut feeling with no research. What are they guilty of?

A

Negligence (unintentional tort), tort, and violation of fiduciary responsibility

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6
Q

What is included in emergency fund?

A

3 or 6 months of fixed and variable expenses (not taxes).

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7
Q

5 Basic Components of legal contract (insurance)

A

1) Offer and Acceptance
2) Consideration
3) Legal Object/Purpose
4) Competent parties
5) Legal form

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8
Q

3 Type of Agency/Authority (Insurance)

A

1) Express Authority- written, explicit from principal to agent
2) Implied Authority- public believes individual holds
3) Apparent Authority- agent has been allowed to appear to have authority and is negligent

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9
Q

5 Obligations not cancelable by Bankruptcy

A

Student loans
Government Loans
Child Support
Alimony
Taxes

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10
Q

Heuristics

A

Experiences and biases that can facilitate problem solving and probability judgments. Generalizations that can result in inaccurate or irrational conclusions

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11
Q

2 Examples of Heuristics

A

“Trial and error” and “rules of thumb”

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12
Q

Behavioral Finance

A

Study of how psychology affects finance

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13
Q

Anchoring

A

Becoming attached to specific price as the real value

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14
Q

Attachment Bias

A

Holding investment for emotional reasons

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15
Q

Endowment Bias

A

Feeling an asset is more valuable and special since it’s yours

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16
Q

Cognitive Dissonance

A

Reconciling two opposing beliefs

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17
Q

Confirmation Bias

A

Accept information that confirms position, reject info that does not support

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18
Q

Diversification Errors

A

Investors diversify evenly across all options presented to them

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19
Q

Fear of Regret

A

Taking no action rather than risk making wrong choice

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20
Q

Financial Infidelity

A

Couples or partners being dishonest with finances

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21
Q

Gambler’s Fallacy

A

A random event is likely to happen following a series of events

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22
Q

What is Herd Behavior

A

Individuals mimic actions of larger group

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23
Q

Hindsight Bias

A

Thinking we understand/ should have predicted past event

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24
Q

Inappropriate Extrapolation

A

Assuming recent events / performance will continue indefinitely

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25
Q

Prospect Theory

A

Losses have much greater negative impact than similar gain will have positive

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26
Q

Mental Accounting

A

Looking at sums of money different, depending on source or intended use

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27
Q

Outcome Bias

A

Made a decision based on desired outcome rather than probability of that outcome

28
Q

Overconfidence

A

Placing too much emphasis on own abilities

29
Q

Overreaction

A

Investors emotionally react towards new market information

30
Q

Self-Affirmation Bias

A

Belief that when something goes right it is because you are smart and made the right decision. If it goes bad, it’s someone else’s fault or bad luck

31
Q

Status Quo Basis

A

Investor does nothing when action is called for

32
Q

4 Money Scripts

A

Money Avoidance
Money Worship
Money Vigilance
Money Status

33
Q

Framing Effect

A

Makes decisions depending on how options are presented (positive or negative)

34
Q

Money Illusion

A

People view wealth in nominal dollars rather than real terms including inflation

35
Q

RIA or Registered Investment Advisor?

A

RIA is prohibited

36
Q

C.F.P or CFP®

A

C.F.P is prohibited

37
Q

When can CFP release client file? (3)

A

When attorney or court subpoenas file
At client’s request
As a defense against charges of wrongdoing

38
Q

Max Housing Expense (PITI)

A

28% of Gross

39
Q

Max Total Monthly Debt

A

36% of Gross

40
Q

Max Consumer Debt

A

20% of Net

41
Q

Current Ratio

A

Current Assets / Current Liabilities

42
Q

Current Assets (4)

A

Cash equivalents
Marketable Securities
Accounts Receivable
Inventory

43
Q

Current Liabilities (3)

A

Accounts Payable
Credit Card Debt
Taxes Payable

44
Q

Securities Act of 1933

A

Required that new issue purchasers be provided with a detailed prospectus before purchase

45
Q

Securities Act of 1934

A

Regulate Secondary market, created SEC.

46
Q

Investment Company Act of 1940

A

SEC to regulate Unit Invest Trusts, Managed Investment Companies, and Variable Products

47
Q

Securities Investors Protection Act of 1970

A

Established SIPC to supervise securities firms, insures investors against losses from failure of brokerage firm

48
Q

Max mortgage for deductible interest

A

$750K joint
$375k single

49
Q

529 lump sum

A

$85,000

50
Q

529 uses

A

$10k/ year for K-12
$10k student loans (lifetime)

51
Q

Federal Reserve Repo

A

Fed buys securities
Expansionary/ Easy Money

BEST
Buy/ Expand Sell/Tighten

52
Q

Federal Reserve Reverse Repo

A

Fed sells securities
Contractionary/ tight money

BEST
Buy/Expand Sell/Tighten

53
Q

GDP

A

Total dollar value of all goods and services produced within US only

54
Q

Business Cycle (5 parts)

A

Expansion
Peak
Recession/ Contraction
Trough
Recovery/Expansion

55
Q

Recession & Depression

A

Recession- Two Consecutive quarters of economic decline (negative GDP)

Depression- Six consecutive quarters of economic decline (negative GPD

56
Q

Exceptions to filing as Investment Advisor (BLAT)

A

Banks that are not investment companies
Lawyers
Accountants
Teachers

57
Q

Exemptions to filing as Investment Advisor (2)

A

Only clients are insurance companies
Family Office

58
Q

How does Investment Advisor Register with SEC

A

File ADV part I and II with SEC
Pay $150 fee
File ADV part I and Schedule one annually

59
Q

How does Investment Advisor Register with FINRA

A

Files Form U-4 thru Broker/dealer
Takes Exams
Issued CRD Number

60
Q

FINRA Series 6

A

Mutual funds, UITs (new only), and variables

61
Q

FINRA Series 7

A

General Securities and all UITS

62
Q

FINRA Series 63

A

Uniform Securities Agent State Law exam

63
Q

FINRA Series 65

A

Uniform Investment Advisor Law exam

64
Q

FINRA Series 66

A

Combines 63 and 65

65
Q

Steps to calculate amount needed to save for education (3):

A

1: Solve for FV of 1 year tution adjusted for inflation (end mode)
2: Solve for PV of 4 years tuition (PMT) using after inflation rate and 4 (N) (begin mode)
3 Solve for PMT using amount needed from step 2 (end mode)

CFP Exam Study (6 decks)

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