Series 66 - new
what is the time frame for filing relevant SARs?
30 days from discovery
City Fireman - **** What type of plan would be most appropriate? A. SEP IRA B. 403b C. 457 <---- For city/state govt workers D. 401k
457 plans are non-qualified, tax-advantaged, deferred compensation retirement offered by state, local government and some nonprofit
529 vs Coverdell
529 - Secondary Education only Coverdell - primary & secondary $2k max per child stop making contributions by child 18 yrs old Used 18-30 yrs old Similarities - both are tax free if used for education - Donor retains control
A rollover is when a customer takes possession of their retirement money personally. How long can they have possession of the money without being penalized for early withdrawal or taxed?
60 days
Risk Adjusted Return (sharp ratio)
= (Average Return - Risk Free Return) / Standard Deviation *won't be asked to calculate
Strategic Portfolio Strategy
"asset allocation" Asset allocation depends on rebalancing
IA net capital requirements
$10k or $35k (if they have custody of assets)
Unit investment trusts
(**** regulated by Securities Act '33 - prospectus)
Time weighted vs Dollar Weighted returns
**** Dollar Weighted considers inflows & outflows The Dollar-Weighted rate of return is an internal rate of return (IRR). The time-weighted rate of return is a geometric mean return over the whole investment period.
Statement of cash flow
- Expenses - Salary - Taxes * Assets are part of a client's balance sheet and not the cash flow statement Statement of Cash Flow for people ("Income Statement" is for corporations)
Administrator authority to Deny, Revoke, Suspend
- Insolvent (bankrupt) - Felony conviction within 10 years (not just arrested) - Disenjoined by regulating authority
investment policy statement
- Methods of performance measurement (are we meeting our objectives?) - Determination for meeting future cash flow needs - Investment philosophy and objectives
EFFICIENT MARKET HYPOTHESIS ****
- Weak - Technical Analyst (stock charts, price & volume) - Semi-strong - All public information (financial reports, statements) - Strong - All public & private information (knowledge known to insiders)
**** What's the definition of a benchmark?
A benchmark represents a peer portfolio which we can compare performance. S&P 500 - Large Cap stocks Russel - small cap stocks EAFE international DJIA - (never the answer)
NOT an asset class
A mutual fund is NOT an asset class Options, Real Estate Mutual Funds, Derivatives, are also NOT asset classes
IA Solicitor is required to keep
A statement that disclosures were given, signed by the client
Husband 55, retires 62 Wife 57, retires 65 What is their time horizon?
A: 20+ years It's based on the greatest risk of a retiree, "Running out of money"
Is it legal to sell unregistered non-exempt securities? ****
A: No, except for exempt transactions exempt transactions: unsolicited transactions, financial institutions, private placement (accredited investor), Up to 10 non-accredited investors (was 35 in Series 7), confiscated assets from criminals or bankruptcy,
Sally has a large gain in a security. She's concerned about a possible correction. She already owns stock.
A: Sell stop SL o BS ------- BL i SS
What is the most appropriate investment in an IRA?
A: U.S. Gold Coins (minted by U.S. Treasury)
Alpha Beta
Alpha is positive (outperformed benchmark) Beta is positive (stock moves same direction as market)
Administrator jurisdiction
An Administrator has authority over any security that originates in state directed to a state accepted in a state
Grandma in perpetuity
Annual income / Expected Rate of Return
How to determine if portfolio is properly diversified? A. Domestic stocks, international stocks B. Gov Bonds, Muni Bonds C. Large Cap (Blue Chip) stocks D. Convertible Bonds, Corp Bonds
Answer "A" because of their "negative correlation" Some investments go up, when others could go down
illegal trade occurs 3/1/2011, compliance discovers 2/1/2012 **** What is the statute of limitations from civil lawsuit? 3 years from occurrence is 3/1/2014 2 years from discovery is 2/1/2014 Which ever date comes first.
Answer: 2/1/2014
Client Age 50 would like to go back to school, but also has a 18 yr old son. Which plan should he contribute to?
Answer: 529
Which of the following describes a market maker? A. Broker dealer buys and sells listed securities on exchange B. NASDAQ subscriber C. An underwriter D. Broker dealer buys and sells unlisted securities OTC
Answer: D - Market makers deals with unlisted securities The answer "A" describes a "specialist".
Authority (jurisdiction) over offer or sale of securities that originates, directed, or accepted in their state. **** When the client traveling in State C. Which state admin has jurisdiction? I. Agent in State A (originated) II. Customer lives in State B III. Customer travels to State C (accepted)
Answer: I & III Do not confuse this question with where does the agent need to be registered.
3 parts of a family balance sheet
Assets, liabilities, net worth
Investor does not care if a stock is overvalued/undervalued What kind of strategy is this? A Active B Strategic <----- C Indexing D Contarian
B Strategic <-----
Alpha / Beta
Beta - measure of Systematic Risk (market risk) Alpha - difference between current beta & historical beta * factor of unsystematic risk (business risk)
Federally covered advisers register only with the SEC. IAR's (under Fed IAs) register in the home state, not other states
Both likely notice file in other states where they do business.
BD vs Agent definition
Broker/Dealer - Person engaging in securities transactions for the benefit of others OR themselves Agent - Person who accepts or solicits orders for security transactions
Which of the following would be MOST important non-financial information in making a suitable recommendation? A Age B Risk C Investment Objective <------- D Annual Income
C Investment Objective <------- *Age & Risk are subsets inside an investment objective
What does the total return computation take into account?
Capital gains, paid dividends/interest, and appreciation
current yield
Current Yield = Coupon / Current Bond Price
net working capital
Current assets minus current liabilities
3 Sector Rotations
Cyclical - (autos, steel, etc.) perform well during good times, beginning of recovery Defensive (non-cyclical) - (food, utilities, pharmaceuticals,) perform better regardless of up or down cycle. Counter cyclical - during economic down periods (people move to precious metals)
When can Johnny register the UGMA account in his name? A. 18 B. 21 C. 25 D. Age of Majority <------------
D. Age of Majority <------------ Every state has different ages
Modern Portfolio Theory
Different asset classes help achieve optimal returns given the level of risk taken
Time Value of Money
FV = PV * [1 + (i/n)]^(n*t) FV = the future value of money PV = the present value i = the interest rate or (rate of return) t = the number of years to take into consideration n = the number of compounding periods of interest per year *won't be asked to calculate, know the variables
Joint w/ Last Survivor (JTWROS)
For spouses (only) supersedes probate
Yankee Bond (Eurodollar Bond)
Foreign issuer issues bond in U.S.
Growth vs Value
Growth - earnings momentum - high P/E ratios - low dividends Value - stable earnings - lower P/E ratios - higher dividends
Who is a fiduciary?
IA - are considered a fiduciary - always must act in client's best interest BD - are NOT a fiduciary. Agents - are NOT a fiduciary. Banks - are NOT a fiduciary. IAR - are NOT a fiduciary.
IAR of Fed Covered Advisor (where your office is)
IAR Must register with state administrator Home office of IA, AND maintain an office NO need to register - If have no office in the state - Not where clients are
Massive
IAR employed by a federal covered IA, the only state registration required is when there is a place of business in the state. IAR with a state covered IA, registration in all of the states (of business) is required
SEC release IA 1092 **** At least 1, maybe 2 questions MUST REGISTER as IA
If you call yourself a... - Financial Planner - Sports OR Entertainment Agent - Pension consultant
AMT only applies to this specific type of muni bond
Industrial Revenue Bonds (private purpose bond)
Investment valuation method that factors the total of all cash inflows and outflows and their timing, discounted to a required rate of return
Internal rate of return
**** Might be a question
Large Cap Greater than $10 Billion Mid cap ? Less than $10 Billion small cap $300+ Million micro cap 0-$300 Million <--- start by remembering this one, then work up
Buy & Hold strategy
Lower portfolio turnover rate Lower management costs Less demanding research
substantial prepayment of fees
MORE than $500+, 6 or more months in advance
Mean = Average Median = Middle Mode = Often Range = Difference between lowest & highest
Mean = Average Median = Middle Mode = Often Range = Difference between lowest & highest
NPV (net present value)
NPV = (discounted cash flow) - (cash flow) YR1 / 2% YR2 / (.02 x .02) YR3 / (.02 x .02 x .02) Total - Initial investment = NPV
Non-exempt issuer vs Exempt issuer
Non-exempt issuer - person who issues stock directly to public without a BD. Exempt issuer - US govt, muni, bank, non-profit, religious org,
A person who advises solely on Govt Securities
Only needs to State register (not SEC)
precious metals
Platinum Gold Ruthenium Iridium Rhodium
What information do you need to determine the future cash flow from a bond
Principal, rate and number of payments
Hedging Techniques
Protection - buy an option Long stock - buy put Short stock - buy call Income - selling covered calls
"favorable" tax treatment
Qualified
IA to Mutual Fund companies
Registers with SEC ONLY
**** How can an agent avoid being sued?
Right of recision - customer has the opportunity to get all their money back plus interest, plus legal fees. If they've received any money from the original investment, that is subtracted. Customer has 30 days to make a decision.
The 5 asset classes
Shares (aka equities) Bonds (aka fixed-income/interest) Property (Real estate and tangible assets) Commodities (Gold is a commodity) Cash (Money market)
The measure of a portfolio's volatility
Standard deviation Standard Deviation - how often stock performs in relation to its average. Maximum range of the investment's return. The greater the standard deviation, the more volatile the stock or portfolio
IAR of State registered IA (where your clients are)
State Registered IA Must register if have office or clients unless you have no more than 5 clients NOT required to register - No office - No more than 5 clients
Balanced portfolio allocation
The client and the manager have met and agreed on selecting a portfolio that has a preset time intervals to allocate the portfolio to move from one asset class to another. This would include, pharmaceuticals, food, automobile, manufacturing companies,
internal rate of return
The method of computing long-term returns that takes into consideration time value of money
internal rate of return (aka Dollar-Weighted rate of return AND aka YTM)
The method of computing long-term returns that takes into consideration time value of money internal rate of return is the *required return* to determine the time value of money The internal rate of return calculation dictates that the interest earned in a portfolio is reinvested at the *required return* rate
Does a trustee invest the assets based on beneficiaries investment objectives separately?
The obligation is based on the stated objective stated in the trust
Risk-Free Rate of Return
The opportunity cost of foregoing a very safe investment alternative Includes CAPM & Sharpe Ratio
correlation coefficient of +1
The securities are perfectly correlated
Persons exempt from registration
Trustees in bankrupcy Sharifs Guardians
trade surplus trade deficit
US exports more than it imports US imports more than it exports
Internal Rate of Return
YTM
A tangible asset, such as gold, is often used as
a hedge against inflation.
FORM ADV-E
accountant must file the required surprise examination report within 120 days of the surprise examination
Sharpe ratio
considers the opportunity cost of foregoing investment in a very safe investment The risk-free rate of return is a factor in the Sharpe ratio formula, along with expected return and standard deviation.
Correlation Coefficients
determines diversity of portfolio
Discounted cash flow
determining the value of a debt security by adding together the present value of the future coupons to the present value of the maturity value
Technical analysis
identify trading opportunities in price trends and patterns seen on charts.
Sales of unregistered securities
is an exempt transaction
Buy & Hold - Low Costs -
least appropriate for wrap account
Tactical Portfolio Strategy
market timing - change the asset allocations depending on market conditions
Fundamental analysis
measure a security's intrinsic value by examining related economic, financial and other qualitative and quantitative factors Price to Earnings P:E (is fun)
IPS will include
methods of performance measurement Determination for meeting future cash flow needs
Risk Adjusted Return aka
sharp ratio
Efficient Frontier
the set of optimal portfolios that offer the highest expected return for a defined level of risk or the lowest risk for a given level of expected return. Portfolios that lie below the efficient frontier are sub-optimal because they do not provide enough return for the level of risk
Criminal Penalties - (under U.S.A.)
up to 3 years in prison AND/OR $5000 penalties