Wrong Answer GP Flashcards
Durable vs Non Durable Goods
Durable goods are hard goods which do not wear out quickly. They are cyclical. The would be affected by a recession.
Non durable goods may be used up immediately or have a short life span. They are not affected by a recession because people always need them.
Things Deductible for alimony by payor
-Cash payments
-paying for payees mortgage if the payor does not own the house
-paying for payee’s taxes, education
-paying for life insurance premiums where the payor spouse is insured and it is owned by the payee spouse
Coordination Rules
Use only one:
-AOTC
-Lifetime Learning Credit
-Coverdell
-529
Examples of things that matter for life insurance companies
-premium and dividend options
-ownership
-policy loans
Fee Based vs Fee Only
Fee only may not receive sales commission in any manner. Fee based indicates planner or firm is compensated with both commission and fees.
Home value effect on changes in net worth
Can increase or decrease networth in a given year
CFP Practice Standards
1) loyalty
2) care
3) follow client instructions
4) dilligence
5) disclose and manage conflicts of interest
6) sound and objective professional judgement
7) professionalism
8) comply with the law
9) confidentiality and privacy
10) provide info to client
11) fairly represent method of comp
Code of Ethics
- Act with honesty, integrity, competence and dilligence
- Act in a clients best interest
- Excercise due care
- Avoid or disclose and manage conflicts of interest
- Maintain confidentiality
- Act in a manner that reflect positively on planning profession
Data Gathering for New Client
All questions are generally necessary in the data gathering phase. None is more important than other in a question unless its way out of left field
Series 6 License
Limits dealing with UITs on the secondary market or close ended funds that trade on an exchange
Use Begin Mode When…
“Starting to” or “beginning” is in the question
Things to consider when choosing between mortgages
-estimated length of ownsership
-cash currently available
Coverdell Keys
-$2000 per year contribution up to age 18
-qualified expenses include tuition, fees, tutoring, spcial need services, books, supplies or other equipment in connection with k-12 enrollment
-must be USED before student reaches age 30, 30 day grace period
Compensatory Damages Annuity Exception
Where damages are to be paid periodically and the person has no right to the discounted present value, the entire amount of each periodic payment is excludable from taxes.
Compensatory Damages Keys
-Compensatory damages received because of sickness or physical injuries are tax free
-interest paid on tax free damage award is taxable
-damages received in discrimination are taxable
Written Scope of Engagement Includes
Planners compensation arrangement,
responilities of client,
duration of engagement,
services to be provided,
info that would limit scope of engagement,
parties involved,
how each party can terminate
CFP scope of engagement keys
-Must be in writing
-can be revised by mutual agreement.
-is is the range of service that the planner and client agree is appropriate and that the planner is qualified and willing to provide
Entities/Individuals a CFP is obligated to
Firm, CFP Board, client
Disclosure of Material Info
Must be in writing at beginning of engagement
Recession is characterized by…
Two consecutive quarters of negative GDP
-follows peak and comes before trough
-unemployment rising and business activity declining
FDIC Bank Keys
-deposits are insured by federal agency
-each makes mortgage and auto loans but not commercial loans generally
-credit unions are FDIC insured
Who guarantees FHA mortgages?
Federal Govt (budget office)
Blue Sky Laws
Sales reps, BDs and non exempt issues must be registered at state level. Us govt issues and muni’s are exempt
Steps for calculating NPV
- Put in cash flows
- Put in I/YR
- Gold shift NPV
Capital withdrawals for IRR
Positive cash flows
When should a written disclosure of all material information be provided?
In the first step when meeting with a new client
Debts generally not cancellable by bankruptcy
-student and govt loans
-child support and alimony
-wage withholding and fica obligations
Duty of Competence
Provide professional services with competence encompassing relevant knowledge or skill
-recognize when a CFP has lack of competence in an area
What to do if you are a CFP selling proprietary products
Selling only proprietary products does not violate the CFP Board of Ethics if it’s disclosed along with any comp arrangements
What happens if you are suspended by CFP
-the Board will publish the suspension
-you have 30 days to appeal
-you have 30 days to notify your clients
What to do if a CFP is unable to obtain qualitative or quantitative info?
Terminate engagement or decline client
What to do if a CFP is unable to obtain qualitative or quantitative info?
Terminate the engagement or decline the client
Investment Advisors Act of 1940
Requires that a person or firm advising others must register with SEC
Limit of 529 accounts
Can’t be coordinated with tax credits
Investors can’t be self directed
Fair Credit Reporting Act
-Consumers may review their file at any time for a nominal fee but are entitled to one free credit report
-if customers are denied credit they have a right to receive a free copy of their file
-info may be retained up to 7 years
-only interested parties can access file
FDIC Insured
Per person, per account, per bank
-singular
-joint
-ira/keogh
-trust
Secured vs Unsecured Debt
Secured - Borrowers pledge assets to repay the loan
Unsecured -clients borrow on their credit worthiness
Exact Life Expectancy
Not needed in learning about clients health
Coincident Indicators
-Number of employees on non agricultural payrolls
-personal income plus transfer payments
-industrial production
Move in adjacent with the economy
Kiddie Tax Age Rules
-Kids under 18
-kids 18 with less than half support
-full time students with less than half support but are full time students
General rules for reverse mortgage
Avaliable to homeowners above 62 years old
-no income qualifications
-proceeds are tax feee
PPI
An index of various items such as farm product and industrial commodities. This index does not include the value of services as does CPI, the leading indicator of inflation is PPI.
CPI
Market basket of selected goods across across various cities across the county,
Leading economic indications
They are analyzed by economists to forecast the business cycle because they usually anticipate or move before changes in the economy.
-initial claims for unemployment insurance
-new manufacturing orders
-new private housing units
-stock prices, 500 common stocks
-index of consumer expectations
