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63 Cards in this Set
- Front
- Back
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A candidate fro CFP certification has a felony conviction for tax fraud. Which of the following is true? A) permanently barred from certification B) barred for 5yrs from certification C) may appeal decision to the DEC D) May appeal decision to DEC after 5 yrs |
A) permanently barred from certification
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What 4 factors are considered in determining whether a CFP certificant is practicing financial planning?
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1) Client's understanding & intent 2) Comprehensiveness of data gathering 3) Breadth and depth of recommendations 4) Degree to which multiple subject areas are involved |
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If you receive a referral for life insurance from an attorney to create an ILIT, and you help someone find the best insurance policy for the ILIT, are you practicing financial planning according to the CFP marks?
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No. 1) Not viewed by the clients as doing planning 2) Not doing extensive data gathering 3 & 4) She is limiting scope to just life insurance recommendations Note that any 1 of the 4 requirements being met would result financial planning occuring, but this situation has 0. |
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If accurate records are kept of investments and the clients give written permission, in which circumstances can a CFP commingle funds? 1) funds can be commingled with other clients 2) funds can be commingled with CFP's firm 3) funds can be commingled with CFP's personal |
All... Generally funds should never be commingled. However, if the CFP certificant 1) keeps accurate records and 2) the clients provide written permission, the assets may be commingled. |
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Under what circumstances can a CFP certificant disclose a client's confidential information? A) Under no circumstances B) When the client has given oral authorization C) When the info will benefit the CFP certficant and not harm the client D) When the client is engaged in wrongdoing |
B... A CFP can make disclosures when the client consents, even if this is given orally. |
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Statement about confidential information...
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Confidential information about the client can be disclosed only when: 1) The client consents 2) Disclosure is compelled by a legal process 3) The CFP certificant is required to make a disclosure to defend against an accusation of wrongdoing 4) A civil suit arises between the client and the CFP 5) As needed to perform services |
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Under what circumstances can a CFP borrow money from a client? A) Under no circumstances B) When the client has given written consent following full disclosure by CFP certificant C) When the transaction will benefit the client D) As needed to perform services |
C... Must be an immediate family member or the client is an institution in the business of lending moeny and the loan is not related to the professional services of the certificant. |
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Are the CFP Board's practice standards applicable to all who are subject to the Board's code of ethics and professional responsibility?
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No... They apply only to CFP professionals who are engaged in personal financial planning. |
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Who do the standards apply to? "Code of Ethics" |
All who have been authorized to use the marks (certificants and registrants), and candidates |
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Who do the standards apply to? "Rules of Conduct" |
All who have been authorized to use the CFP marks (certificants and registrants)
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Who do the standards apply to? "Practice Standards" |
Certificants who engage in personal financial planning (aka practitioners)
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Who do the standards apply to? "Fitness standards" (what might bar you from being permitted to use the CFP marks) |
Candidates and registrants
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Who do the standards apply to? "Disciplinary Rules and procedures" |
Certificants, registrants, candidates
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Which of the following three items must a planner disclose to a client, according to the CFP board's practice standards? 1) Conflicts of interest 2) Other sources of complensation 3) The expected duration of the engagement |
All three (1, 2, 3)
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Does a planner need to disclose how much they will be compensated, or just how they will be compensated?
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Simply how they will be compensated. How much is not required.
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Is a client's signature required of the written agreement?
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no... (from book 1, section 2, question 4)
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Which of the following bodies can impose a penalty on a CFP certificant that is not subject to appeal? 1) The Hearing Panel 2) The Disciplinary and Ethics Commission |
Neither... A decision of either the Hearing Panel or the DEC may be appealed if filed within 30 days to the CFP Board's Appeal Committee. |
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Under what conditions, can an individual whose rights to use the CFP marks has been revoked, be reinstated?
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Under no circumstances. There is never reinstatement after revocation, it is only available after a suspension. The acquittal of a crime does not eliminate the possibility of revocation or require reinstatement.
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All of the following statement concerning suspensions under CFP Board's Disciplinary Rules and Procedures are correct except: 1) It may be an interim suspension 2) It may be temporarily lifted if certificant is acquitted of underlying crime 3) It may never exceed five years 4) It may not be less than three months |
4... Suspensions can be given for "any" specified period. |
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How are the following three bodies involved in a hearing of disciplinary action against a CFP certificant? - CFP Board - CFP Board's Disciplinary & Ethics Commission - Hearing Panel |
All complaints first go to the DEC. They recommend to the CFP board whether an investigation should go forward or be dismissed. The CFP Board will either agree or disagree. A Hearing Panel is convened, conducts an investigation and makes a recommendation back to the DEC. It may be appealed, but the DEC will make the final decision.
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How are the following involved in the disciplinary process of CFP certificants? - CFP Board Counsel - Inquiry Panel |
CFP Board Counsel: offer advice to the Hearing Panel and Commission even though they are not part of the decision making process. Inquiry Panel: is no longer a functional part of the disciplinary rules and procedures process. |
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Which of the following is not a characteristic of savings and loan associations? A) They emphasize the granting of short-term over long-term loans B) They emphasize loans to individuals over loans to businesses C) They may have insured deposits D) Savings deposits are their most important source of funds |
A... S&Ls focus on long-term mortgage loans over shorter-term assets. |
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Which of Ben's following accounts are separately insured under FDIC insurance coverage for bank deposits? 1) Individual checking account 2) Joint savings account with his sister 3) Revocable trust with Ben as the sole beneficiary 4) Custodial account for Ben |
1 & 2... Ownership categories that are separately insured include individual, joint, irrevocable trust, testamentary trust, and retirement plans. Custodial accounts are allocated to the beneficiary's individual ownership. Revocable trust accounts are allocated to the beneficiary's individual ownership. |
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Which of the following are separately insured? -individual accounts -joint accounts -irrevocable trust -testamentary trust -retirement plans -custodial accounts -revocable trust account w/ sole beneficiary |
Separately insured is the following... -individual accounts-joint accounts-irrevocable trust-testamentary trust-retirement plans Custodial and revocable trust account w/ sole beneficiary are allocated to the beneficiary's individual ownership interest. |
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Which of the following statements concerning credit unions is not correct? a) They accept deposits from and make loans to members b) They may have insured deposits c) A common bond among members is their employer or occupation d) they offer a far narrower array of consumer financial services than commercial banks |
D... Modern credit unions have about the same array of consumer financial services as do banks... Checking accounts, savings accounts, credit cards, consumer loans, travelers' checks, etc. |
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A customer has $500,000 in a brokerage account, with $200,000 in cash and rest in securities. In the event of the firm's liquidation, the SIPC will reimburse the customer: a) $200,000 b) $300,000 c) $400,000 d) $500,000 |
D... The SIPC insures brokerage accounts for up to $500,000 with a $250,000 limit on cash. Therefore, the entire amount will be covered. |
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Is the following statement correct? Commercial banks make both secured and unsecured loans to business firms and the general public. |
Correct
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Is the following statement correct? Savings and loan associates are limited by law to the making of loans secured by residential mortgages. |
Incorrect... S&Ls make both commercial loans and consumer loans secured by conventional home mortgages. |
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Is the following statement correct? Mutual savings banks make approximately the same types of loans as S&Ls. |
Correct.
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Is the following statement correct? Credit unions make both personal and commercial loans. |
Incorrect... Credit unions do not make commercial loans. |
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Which of the following branches of government regulate the insurance industry at the state level? 1) Executive 2) Legislative 3) Judicial |
All three... 1 & 2) the executive branch through the insurance commissioner enforces the insurance regulatory laws passed by the legislature. 3) The judicial branch interprets those laws and may resolve disputes concerning them. |
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What are the roles of the NAIC in regulating insurance companies? 1) Promotion of uniformity in laws and regulations 2) Accreditation of state insurance regulatory bodies 3) Enactment of model laws for insurers 4) Investigation of the financial soundness of insurers |
1 & 2... The NAIC promotes uniformity in insurance laws and regulations and accredits insurance regulatory bodies, based largely on the extent to which the state has adopted its model laws. The NAIC does not enact the laws; rather, the legislature in each state can accept or reject the NAIC model laws. The NAIC does not investigate the financial soundness of companies. |
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Which of the following is not required for a valid contract? A) Offer B) Acceptance C) Performance D) Consideration |
C... Performance... A contract requires offer acceptance, consideration, lawful purpose, and competent parties. Performance is not required. |
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In which of the following circumstances is the principal bound by the acts of an agent? 1) The agent acted with implied authority 2) The principal ratified the agent's unauthorized act 3) The agent's conduct conferred apparent authority 4) A third party mistakenly believed the agent had authority due to the principal's actions |
1, 2, & 4... A principal is bound when an agent acts with express, implied, or apparent authority, and the principal is bound when the principal ratifies unauthorized acts of the agent. An agent's conduct cannot create apparent authority; rather, only actions of the principal can create this authority. Apparent authority arises when a third party mistakenly believes the agent had authority due to actions by the principal that misled the third party. |
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What are an Agent's Authority and Duties?
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Authority of Agent: Express, Implied, Apparent Duties of Agent: Loyalty, Obedience, Reasonable Care |
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How does the Investment Advisers Act defie the term "security"?
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The term "security" is defined in the broadest possible terms to include virtually any instrument usually thought of as a security.
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Can performance fees be charged if a client is a registered investment advisor?
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Yes. (watch out for this as it will be snuck into questions about client requirements for performance fees being $1M managed or $2M liquid)
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What are the exemptions under the definition of "investment adviser"? (4 main exemptions)
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1) Banks that are not investment companies 2) Accountants or lawyers whose advice is solely incidental to the practice of their profession 3) Person whos advice relates only to securities issued or guaranteed by the US government 4) Publishers of financial publications that have regular and general circulation |
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Which registered securities association is the only to have met the standards of the Maloney Act of 1936?
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FINRA
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Statements about the NAIC...
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The NAIC cannot compel states to adopt model laws and regulations, nor does it have regulatory authority of insurance commissioners. The NAIC cannot ensure uniformity of regulation from state to state. However, the NAIC has indirect involvement through the exchange of information and preparation of recommendations and accrediting state insurance regulatory offices. |
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Can an agent that is licensed to sell life insurance and fixed annuities in his or her own state also sell those same products in all other states, except New York, without additional licensing?
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No... Licensing is required in each state in which an agent sells life insurance and annuities. |
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Describe the prohibited insurance conduct of twisting, and then rebating.
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Twisting refers to the use of deception to induce a policyholder, to his or her detriment, to replace one life insurance contract with another. Rebating is the provision of a financial "kickback" to induce a prospective client. |
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Is it possible to create a contract with a minor?
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Yes
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Is the general objective of the Investment Advisor Act to: a) protect the public from malpractice by the advisor b) establish a self regulating body for investment advisors |
a) protect the public from malpractice by the advisor
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Do the anti-fraud provision of the Investment Advisors Act of 1940 apply to investment advisors who qualify under one of the five exemption provisions?
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Yes
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Whether a financial services professional is in the business of advising about securities will be determined by the SEC on which of the following bases? a) How the professional's service are communicated to the public b) Whether the professional charges a fee for the service |
a) How the professional's service are communicated to the public
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What is the "Securities Act of 1933"?
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Focuses on disclosure concerning offers of new issues; requires that they be registered with the SEC; provides for distribution of a prospectus to interested investors, as well as a preliminary ("red herring") prospectus prior to approval of the new issues' registration statement by the SEC (the preliminary prospectus does not specify the price of the security).
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What is the "Securities Exchange Act of 1934"?
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Focuses on the trading of existing securities; created the SEC to police market manipulation, deception, and misrepresentation; requires periodic reports to the SEC (Form 10-K) by publicly held securities issuers; gave the SEC control of the securities exchanges and, later, the over-the-counter market.
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What is the Maloney Act of 1938?
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Allows for the formation of self-regulatory organization to police the securities industry under the supervision of the SEC; the NASD (now called FINRA) is the only such organization to have been formed and approved.
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What is the Investment Company Act of 1940?
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Requires registration of investment companies with the SEC; provides for ongoing regulation of their disclosures and procedures.
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Securities Investor Protection Act of 1970
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Created the SIPC to insure investors against loss of their cash and securities when brokerage houses fail.
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Securities Act Amendments of 1975
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Called for the development of a competitive national system for trading securities; led to the abandonment of fixed brokerage commission rates.
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Investment Advisers Superision Coordination Act of 1996
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Eliminates the need and opportunity for investment advisers to register with the SEC if they are regulated by the state, do not manage $30 million or more of client assets, and do not advise a registered investment company. This requirement was changed to $110M of AUM by the Dodd-Frank Act starting in July 2011.
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Gramm-Leach-Bliley Act of 1999
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requires companies to give customers the right not to have their information shared with unrelated third parties.
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International Money Laundering Abatement and Financial Anti-Terrorism Act of 2001
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Stops terrorists from using funds held in US financial institutions for illegal activities.
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Sarbanes-Oxley Act of 2002
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Addresses accounting fraud and financial disclosures and established the Public Company Accounting Oversight Board to supervise accounting firms and audits.
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Under the Investment Advisers Supervision Coordination Act of 1996, who is subject to the federal registration requirements? a) one who has $1M AUM b) adviser to an insurance company c) one who is regulated in their own state |
none
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Registration with the SEC as an investment adviser requires which of the following? a) filling out a form b) agreeing to participate in CE program c) meet minimum education requirements d) paying a fee |
A & D: Paying a fee and filling out a form. (education background must be disclosed, but there is not education requirement) |
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The SEC's brochure rule requires an RIA to do which of the following? a) give each client a copy of the adviser's completed Form ADV b) deliver an updated brochure to each client each year |
Neither. a) is incorrect b/c the adviser must give each client and prospective client a brochure containing all of the same information found in Part 2A of Form ADV b) incorrect b/c the RIA only needs to offer to deliver an updated brochure each year to clients with whom he or she has a continuing relationship. |
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What is the distinction between a void and a voidable contract?
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A void contract is no contract. A voidable contract is one that does exist but that can be rejected at the request of one of the parties. (An agreement that lacks competent parties is a voidable contract.) |
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What are Bankruptcy Exemptions and Nondischargeable Debts?
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Exempt Property: Life insurance, Qualified retirement plans, Homestead, Limited equity in car or personal property... Nondischargeable Debts: Taxes, Alimony, Child support, Student and government loans, Crimes, fines, penalties, etc. |
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An involuntary petition for bankruptcy may be made by creditors under which of the following Chapters of the Bankruptcy Act? a) Chapter 7 b) Chapter 11 c) Chapter 13 |
Chapter 7 & 11... (Chapter 13 may be triggered only by voluntary petition)
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Which of the following types of bankruptcy will subject the individual to a means test? a) Chapter 7 b) Chapter 11 c) Chapter 12 d) Chapter 13 |
a) Chapter 7 As of October 2005, Chapter 7 bankruptcy is now subject to a "means test" which determines whether the individual has a level of income that allows for the repayment of debts. If the individual has income exceeding the median income for the state, creditors can object to the case proceeding in bankruptcy. It is left to the court to decide before the filing for bankruptcy. |
