CFP
What are the 4 components of motivational Interviewing?
1. Partnership 2. Evocation 3. Acceptance 4.Compassion
Name the 7 steps in the financial planning process.
1.Understanding the clients personal and financial cirumstances
2.Identifying and Selecting Goals
3.Analyzing current course and alternative courses of action
4.Develping the planning recommendations
5.Presenting the planning recommendations
6. Implementing the plan
7. Monitoring and updating the plan
What does behavioral finance assert?
1. Investors are normal-not rational
2.Markets are not efficient
3.The behavioral porfolio theory governs
4.Risk alone does not determine returns
What is financial well-being as defined by CFP Board?
A state of being wherein a person can fully meet current and ongoing financial obligations and can feel secure in their financial future and is able to make choices that allow them to enjoy life.
Name the three psycological needs that determine motivation.
Competence + Relatedness + Autonomy = Intrinsic motivation
Name the 3 phases of the life cycle approach.
1. Accumulation 2. Conservation 3. Gifting
What is the emergency fund ratio?
cash & cash equivalents
______________________. = 3-6 months
Monthly Non-Discretionary Cash Flows
What is the current ratio?
Cash & Cash Equivalents
_________________________ >= 1
Current Liabilities
What is Housing Ratio 1 (Basic)?
Housing Costs (monthly)
_______________________ <=28%
Monthly gross pay
What is Housing Ratio 2 (Advanced)?
Housing Costs + Other Debt Payments (monthly)
___________________________________ <=36%
Gross Pay (monthly)
What is the Debt to total Assets Ratio?
Total Debt
_________ = Depends on Age
Total Assets
What is the networth to total assets ratio?
Net Worth
___________ = Depends on the Age of Client
Total Assets
Savings Ratio
Savings + Employer Match
_______________________ >= Depends on age but 10-15%.
Gross Pay
What is the two step apprach to financial planning?
Cover the risk, save, and invest
What is the metric approach benchmark for Life, Disability, and Savings rate?
Life = 12-16 times Gross pay
Disability = 60-70% Gross pay
Savings = 10-13% of Gross pay
What does the balance sheet include?
1. Assets
2. Liabilities
3. Net Worth
(All stated as a moment in time)-snapshot
What is the formula for net worth?
Assets - Liabilities = Net Worth
What is the formula for real rate of return?
1+Rn (investment rate of return)
___________________________ -1 * 100
1+i
List the tuition or savings plans that are considered an asset of the parent for financial aid purposes.
1. Prepaid tuition
2. 529 plans
3. Coverdell ESA
4.U.S. Governement Series EE and I Bonds
Name the two tax credits available for education.
1. AOTC (American Opportunity Tax Credit)
2. Lifetime Learning Credit
What is the formula for AOTC tax Credit?
100% of first 2,000 and 25% of next 2000. Per student basis.
What is the formula for the Lifetime learning credit?
Per family basis. 20% of first 10,000 (max of 2k)
What is considered an asset of the child for finacial aid purposes?
UTMA or UGMA Accounts
At what income level does the "Kiddie Tax" apply?
2500 or more in income from a UGMA or UTMA account. Taxed at parents bracket at that point.
What are the two worst accounts/scenarios for financial aid purposes?
An ESA account owned by a third party, a 529 owned by a 3rd party, or a UGMA/UTMA account which is an asset of the child.
What is Gross National Product?
The output of all citizens of a country
What is gross domestic product?
The output of all citizens and foreigners in a country.
How is inflation calculated?
Price of good today-price of a good a year ago
________________________________________
Price a year ago
What is disinflation?
Inflation that is still going up but has slowed.
What is deflation?
A decrease in the overall price level of goods and services.
What are the four phases of the Business Cycle?
1. Expansion 2. Peak 3. Recession/contraction 4. Trough
What is an example of a leading economic indicator?
Where the economy is headed-ex. Building permits
What do trailing economic indicators tell?
They confirm our beleif of what was actually happening
What are the three goals of the Federal Reserve?
1. Maintain Price levels
2. Maintain long-term economic growth
3. Maintain full employment
What are the 4 tools of the federal reserve?
1. Reserve Requirement
2.Discount rate/Fed Funds rate
3.Open Market Opperations (buying or selling treasuries)
4.Excess Reserve deposits
How does an increase or decrease in money supply impact interest rates?
Increase causes rates to fall while a decrease causes rates to go up.
What heppens under Fed tightening?
The reserve requirement increases causing money supply to decrease and interest rates to increase.
What happens under the Fed easing?
Decrease the reserve requirement which causes money supply to increase and interest rates to decrease.
What is the difference between the discount rate and fed funds rate?
Discount rate is the rate at which banks can borrow from the fed and the federal funds rate is the rate that member banks borrow from each other.
What is congress goal with fiscal policy?
1. Maintain price levels
2. Maintain long-term economic growth
3. Maintain full employment
What are the three tools of fiscal policy?
1. Taxes
2. Spending
3. Defecit Management
Movement along the demand curve is influenced by what?
Price
Shifts in the demand curve are influenced by what?
More or less money in consumers pockets.
Demand is elastic if...
Small change in price results in a larger percentage change in the quantity demanded. Considered elastic if elasticity is greater than 1.
Demand is inelastic if...
A small percentage change in price results in a small percentage change in the quanitity demanded. Less than one is considered ineleastic.
The ________ curve is the quantity of goods or services that firms are willing to produce and sell at a particular price.
Supply
The point at which the supply and demand curve intersect is called what?
Equilibrium
What assets are protected in bankruptcy?
Qulified plans
Some personal property (tv or car)
Education funds
Traditional and Roth IRA's up to an amount
Rollover IRA's entirely
What assets are not discharged in bankruptcy?
3 years of back taxes
child support or alimony
debts obtained by fraud
most student loans
Property leins
What does FDIC cover?
Insures up to 250,000 per depositor, per legal account ownership, per financial institution.
What does SIPC cover?
When a broker dealer becomes insolvent will return cash and securities up to 500,000. The 500k limit includes cash of up to 250k.
What is the difference between workers compensation and unemployment benefits?
Workers comp is not taxable but unemployment benefits are.
The code of ethics states that a CFP professional must...
1. Act with honesty, integrity, competance (CE-30 hours per every 2 years 2 of which must be ethics), and diligence.
2. Act in the clients best interests.
3. Exercise due care.
4. Avoid or disclose and manage conflicts of interest
5. Maintain the confidentiality and protect the privacy of client information
6. Act in a manner that reflects positively on the financial planning profession and CFP certification
The standards of conduct consists of...
1. Duties owed to clients
2. Financial planning and application of the Practice standars for the financial planning process
3. Practice standards for the financial planning process
4. Duties owed to firms and subordinates
5. Duties owed to the CFP board
6. Prohibition on circumvention.
All financial planning includes _____________.
Financial Advice
Is usually somewhat transactional in nature.
Financial Advice.
What must be done when a conflict of interest arises?
1. Disclose the conflict
2. Obtain the clients informed consent
3. Manage the conflict in the clients favor
Client information must be kept private except _________.
For ordinary business purposes or for legal and enforcement purposes.
What must the client receive in regards to confidentiality?
Must provide a written notice of those policies both a the time of engagement and not less than annually.
Financial Planning must be accompanied by what?
The terms of engagement
What are the two acceptions to borrowing or lending with regards to clients?
1. They are a member of your family
2. They are in the business or a business that lends money
A collaborative process that helps maximize a client's potential for meeting life goals through financial advice that integrates the relevant elements of the client's personal and financial cirumstances.
Financial Planning Definition
What are the 4 types of discipline the CFP board could impose?
1. Private
2.Public Admonition
3. Suspension
4. Revokation
In what timeframe must adverse conduct be reported to the CFP board?
Within 30 calendar days
Unacceptable conduct that will always bar an individual from becoming certified includes:
Felony conviction for theft, embezzlement or other financially-based crimes
Felony conviction for tax fraud or other tax related crimes
Revocation of a financial professional license, unless revocation was administrative in nature
Felony conviction for any degree of murder or rape
Felony conviction for any other violent crime within the last 5 years.
What actions are on the presumptive bar list?
1. 2 or more personal or busines bankruptcies.
2. Revocation or suspension of a non-financial professional license, unless admin in nature.
3. Suspension of a financial professional license unless admin in nature
4. Felony conviction for non violent crimes, inlucing perjury within the last 5 years
5. Felony conviction for violent crimes (other than muruder or rape) that occurred more than 5 years ago.
What is the main concern when working with a client that has a special needs consideration?
Preserving the government benefits for the child or dependent-no money in their name.
What is an ABLE account?
Account established for the benefit of persons with disabilities.