Weak points Flashcards
Whole life insurance may also be called…
Permanent, ordinary, or straight life insurance
A family limited partnership must…
Have a legitimate business purpose (other than avoiding taxes) in order to receive the full potential tax benefits.
Barbell Strategy
Consists of buying short-term and long-term bonds, but not intermediate-term bonds. The purchase of long term bonds allows an investor to capture higher long term interest rates. The short term bond provides the opportunity to invest elsewhere if the bond market takes a downturn. There is no guarantee that any money made on the short end of the strategy will offset losses on that could occur on the long end of the barbell.
457 Plan
A type of retirement plan used by many public sector workers. These plans grow tax deferred and are generally subject to the same contribution limits as 401k and 403b plans.
Employers may discriminate or exclude certain individuals from the plan.
403(b)
Retirement plan used by nonprofit and public school employees
Contributions made to this type of plan are made on a pretax basis, resulting in a zero cost basis. Therefore, all distributions are taxed as ordinary income.
Ruel 147
Covers intrastate offerings that are exempt from federal or SEC registration, but may be subject to state qualification.
Efficient Market Hypothesis
States that the financial markets are efficient and that the prices of securities reflect all known information; therefore, it is impossible to outperform or time the market. Followers of this believe that buy and hold will serve best over the long run.
Fund of hedge funds
Invest in hedge funds and are not typically very liquid. You typically are not able to sell on a daily basis.
ADV Part 2
If an advisor changes his fees then they amend this form within 30 days and a copy, or a separate brochure containing the same information, must be given to new clients and offered to her existing clients.
Which bonds are most sensitive to interest rates?
Zero coupon bonds.
Are endowment policies considered securities?
No
Are real estate options considered securities?
No
Benchmark Portfolio Management
A manager who constructs a portfolio based on some benchmark. The first securities selected are those in the benchmark and additional securities can be added in an effort to add value.
NASAA
Is responsible for updating the Uniform Securities Act as well as maintaining the content of the Series 66 exam.
Securities act of 1933
This federal law requires that certain securities be registered with the SEC in order to be offered or sold to the public.
Securities Exchange Act of 1934
Think secondary market and registration of finance professionals.
Registration by Filing (Notification)
Is used by well established corporations that meet stringent financial requirements.
Not all states allow.
Registration by Coordination
May be registered with a state in this way if the security is being registered under the Securities Act of 1933.
A registration statement must be filed with the administrator along with three copies of the latest prospectus that were filed with the SEC.
NASAA Model Rule 502(c)
Governs the contents of investment advisory contracts
Is it prohibited to project the future earnings of a variable annuity?
Yes
A living trust
Also called inter vivos
Is established during the donor’s lifetime.
Testamentary Trust
Established through instructions left in the donors will.
Internal Rate of Return
Assumes all cash flows are invested at the internal rate of return.
Where can an advisor store records?
Microfilm
Microfiche
May also be kept on various electronic storage devices as long as they are tamper-evident.
Must be maintained for 5 years of which the first two must be in an easily accessible place.
Money Purchase Plan
Is a defined benefit plan in which the employer must make mandatory contributions. The employer may deduct the contributions for tax purposes.
Form 8-k
Must be filed or furnished within four business days after the occurrence of the event for which the filing is made.
Can a hedge clause be included in an investment advisory contract?
No
Alimony
Deductible for tax purposes by the layer and taxable to the recipient. It is not taxed as earned income, bad is taxed as earned ordinary income.
Mutual Funds
Are federally covered securities and a state may not require registration or regulate any offering document.
Stop Order
Are entered to limit losses or to protect profits on current positions in an investors account.
Settlor Functions
Are decisions normally made by the employer when acting as a plan sponsor or administrator, such as whether to match participant contributions, the type of plan to establish, it’s options, or amending the plan.
Time weighted returns
Eliminate biases caused by the inflow or outflow of investor money.
If an agent of a broker-dealer leaves the firm to go work for s different broker-dealer what happens to their registration?
It is terminated. The agent’s registration will be reinstated after joining the new firm.
Basis
This is the amount of the limited partners liability in a limited partnership. The investor can lose up to this amount but not more.
Rule 506 (c) of Regulation D
States that advertising of permitted for private placements, however all investors must be accredited.
Onnibus Account
An investment advisor allocates investments from an omnibus account to each of its clients.
Form ADV Part 2A - The Brochure Rule
All registered investment advisors are required to provide clients with a disclosure document (brochure) that describes their overall business as well as actual or potential conflicts of interest.
The brochure includes items such as:
the advisors name, address, web site, and the date of the brochure
A statement that registration does not imply a certain level of skill or experience.
Form ADV Part 2B - Brochure Supplement
The same clients who receive the firms brochure must also be provided with a brochure supplement. This supplement is similar to a resume.
Balance Sheet of Investment Advisors
And audited balance sheet is required if an advisor:
Has custody of client funds or securities
Has full discretionary authority over a clients funds.
Solicits prepayment of advisory fees
Form ADV-E
Must be filed when an advisor has custody of client funds and securities.
Must be filed by an independent public accountant following the audit of the advisors books.
Must be submitted to the SEC within 120 days following be completion of the audit.
Form ADV-W
Advisors that are filing for a full or partial withdrawal of registration must file this with the appropriate regulator.
Certificate of Interest
Is a security regulated by the administrator along with its advertising.
