CFP > General Principles > Flashcards

General Principles Flashcards

(48 cards)

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1
Q

When determining FDIC insurance, do balances with multiple joint accounts with different individuals takeaway from joint FDIC coverage for an individual.

A

Yes. A joint account with a spouse with $200,000 and a joint account with a child with $100,000, is only insured for $250,000. Leaving $50,000 uninsured.

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2
Q

If a client is looking to pay down debt, what debts should they concentrate on first?

A

The highest interest rate debts

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3
Q

What would be the best advice for someone looking to establish a savings plan?

A

Pay yourself first, then pay bills

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4
Q

When determining total income for a client, where may other income be noted if not on a W2?

A

Footnotes of a statement of financial position

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5
Q

When looking at excess cash flow, how do you determine if money should be counted as savings?

A

When the money is excess cash flow and moves into something else.

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6
Q

When determining the amount in an emergency fund, what must be subtracted out first?

A

One month’s expenses

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7
Q

How do you determine a savings rate?

A

Dividing the amount of savings by total gross income

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8
Q

What agencies monitor or oversee commercial banks?

A

FDIC, Federal Reserve, and Comptroller of Currency

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9
Q

Does a state chartered bank need to join the Federal Reserve system?

A

No, but they are subject to state regulations and FDIC

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10
Q

Are retirement funds held in a commercial bank included in FDIC insurance?

A

Yes, but they are separate from non-retirement accounts. For example, $250,000 in an individual account and $250,000 in a retirement account, the client is insured up to $500,000.

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11
Q

What government agency regulates Mutual Funds?

A

Securities and Exchange Commission (SEC)

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12
Q

Who operates a mutual fund?

A

Investment Company

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13
Q

What should a mutual fund prospectus NOT contain?

A

Forward projections of performance

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14
Q

Trust companies are regulated by federal or state law?

A

State Law

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15
Q

What securities act allowed investors to have their investments insured if there is a loss due to financial difficulties of a securities firm?

A

Securities Investment Protection Act of 1970 - created the SIPC to monitor or supervise investment firms.

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16
Q

Which securities act created the SEC and what is its role?

A

Securities Act of 1934 - created the SEC to enforce securities laws. Also regulates the secondary market (securities trading)

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17
Q

Which act expanded the SEC’s role to regulate Unit Investment Trusts (UITs), manage investment companies (closed and open ended), variable life insurance and variable annuities?

A

Investment Company Act of 1940

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18
Q

What type of indicators are analyzed by the economists to forecast a business cycle?

A

Leading Economic Indicators

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19
Q

What are some examples of the most important leading economic indicators?

A

New claims of unemployment insurance,
New manufacturing orders
New private housing units
Consumer expectations index

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20
Q

What type of indicator runs in tandem with overall economy?

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A

Coincident Indicators

Personal income
Industrial production
No. of non-ag employees

21
Q

What type of indicator responds after the economy has already begun to change?

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A

Lagging Indicators

Unemployment Duration
Prime rate charged by banks
Consumer debt outstanding
Change in consumer price index for services

22
Q

What index reflects inflation for all urban consumers?

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A

Consumer Price Index (CPI)

23
Q

What is the leading indicator of inflation trends?

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A

Producer Price Index (PPI)

24
Q

How does the PPI contribute or reflect in the CPI?

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A

Production costs go up, the cost is passed onto consumers. Ultimately reflects in the CPI.

25
When the economy is in a trough, what type of industries begin to do well that wouldn’t in a recession?
Cyclical industries (I.e. automakers) - consumers tend to hold off on these purchases during a recession
26
What does Gross Domestic Product (GDP) measure?
U.S. economy’s total production of goods and services
27
Which GDP takes price inflation into account?
Real GDP
28
What are the four areas the Federal Reserve can control monetary policies?
Reserve Requirements Discount Rates Open Market Operations (repo and reverse repo) Margin
29
When a CFP professional is completing a cost-benefit analysis for home refinance, what two key issues must they be concerned with?
Length of time expected to stay in home Cash Flow capacity
30
When could a reverse mortgage hurt an older homeowner with Medicaid eligibility?
If the homeowner enters a nursing home and the home is sold to satisfy the mortgage lender, the remaining proceeds are not protected and will cause loss of Medicaid eligibility.
31
Is ownership of a residence a barrier to receiving Medicaid?
No, unless home is valued at more than $1,209,750
32
What is generally the most appropriate solution for a client to completely fund an emergency fund?
To completely fund, possibly a taxable brokerage account. (Cash flow could take time to build up)
33
On a statement of financial position, what value should be used to value assets?
Current Market Value
34
If the Fed wanted to tighten money supply, what is a tool they could use when it comes to buying and selling securities?
They could SELL securities which would get the money out of banks which would reduce the reserves banks have. Therefore banks would lend less.
35
If heirs inherited a reverse mortgage and the value of the home dropped below the balance of the mortgage, how much would the heirs have to pay the bank if they want to keep or sell the house?
The lesser of the current value of the house or outstanding mortgage. The borrower or heirs can never owe more than the home is worth.
36
Which act defined what is considered investment advice AND stipulates who must register with state and federal regulators to deliver such advice?
Investment Advisors Act of 1940 (40 Act)
37
If the goal of the Fed is to tighten money supply, would they buy or sell securities? Why?
They would SELL securities because they are trying to get money out of the economy.
38
Does the Federal Reserve control the Fed Funds rate?
No, they influence it but it is ultimately up to the banks to set those rates as the Fed Funds rate is bank to bank borrowing to meet reserve requirements.
39
What is in a mutual funds prospectus?
Investment objectives Investment strategies Risk of investing in the fund Past performance Distribution policy Fees and expenses Fund management No future projections IN IDAHO RAIN POURS DOWN FOR FLOWER NORISHMENT
40
Explain the difference between a repo and a reverse repo.
One of the tools of the federal reserve board to influence short-term money supply. Repo - the Fed buys back securities - monetary easing Reverse repo - the fed sell securities – monetary tightening
41
What are the components of part one of form ADV?
Applicant Background of applicant Location Form of business Disciplinary action Investment philosophy A BOY LOVES FLYING DOWN INVISIBLY
42
What are the components of part two of form ADV?
Fee structure Type of clients Method of analysis Investment strategies Educational background Security affiliations Other business activities Conditions for managing accounts Participation in securities transactions Investment discretion Balance sheet (specific circumstances) FOR THE MONTHS IN EACH SEASON ONE CHILD PLAYS IN BARS
43
What is a course required by FINRA to become a securities professional before taking the different series exams?
SIE - Securities Industry Essentials
44
What does a Series 6 license allow an investment advisor to do?
Sell mutual funds, only new UIT’s, and variables
45
What does a Series 7 license allow an investment advisor to do?
Sell all general securities, except commodities, and certain options
46
What is the Series 63 license?
It is the Uniform Securities Agent State Law Exam Design to qualify candidates as securities agents
47
What is Series 65 license?
Uniform Investment Advisor Law Exam Designed to qualify candidates as investment advisor representatives
48
What is the Series 66 license?
Uniform Combined State Law Exam Designed to qualify candidates as both securities agents and investment advisor representatives
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