Client Recommendations and Investment Strategies Flashcards by Robert Haverly (2024)

• business entities
• trust accounts

• sole proprietorship
• LLC
• General partnership
• S corp
• C Corp
• Limited partnership

• c corp (taxed at business level) has double taxation

1. Sole proprietorship
2. LLC
3. S corp
4. General Partnership
5. C Corp

• C Corp is the easiest to liquidate

• living trust
• testamentary trust
• simple trusts
• complex trusts

• must be formed while alive

• only created after death
• based on clients will
• contact executor (handles the will)

• must distribute income annually
• taxed annually

• may accumulate income
• taxed only when there is a distribution

• provides assets to the trust
• can be trustee or beneficiary not required

• heirs of beneficiaries

• heirs split original allocation

• reallocation of the original allocation

• based on stated objective in trust agreement (prudent man rule)

• Assets - Liabilities = net worth
• assets (properties, cash, investment accounts, retirement accounts, jewelry etc)
• liabilities (mortgages, consumer debt, car loans etc)

• inflows: salary, rental income, investment income
• outflows: taxes, bills, expenses, payments

• always look for stated investments objectives
• if safety: US gov, Money market
• income: corporate bonds, reits, preferred stock
• growth: common stocks (longer time horizon)

• length of time until death (in retirement)
• life expectancy

• CAPM (risk vs return)
• efficient market hypothesis
• modern portfolio theory

• all markets are efficient and information is already effected in price
• weak (least amount known, price/volume, fundamental analysis helps)
• semi strong (only insiders can out perform, all public information is known)
• strong (all public and private insider information is known)

• diversification of different asset classes to maximize returns based on risks
• more risk is greater return.
• efficient frontier (optimally efficient portfolios)

• strategic vs tactical

• asset allocation
• rebalancing

• investments based on current market conditions
• market timing

• very low expenses
• very tax efficient
• passive
• least appropriate for wrap accounts
• NOT STRATEGIC

• growth of sales and profits
• growth of earnings and growth of earnings momentum
• higher P/E (20+)
• low dividend payout or none at all

• stable earnings
• low P/E
• higher dividend payout ratios

• negative correlation (lower means more diverse) - reduces overall risk of portfolio
• on chart look for correlation coefficient (look for lowest number)
• international stocks are not perfectly correlated with domestic securities

• tactical style
• rotate during business cycle
• cyclical = buy at trough
• non-cyclical/defensive = peak to recession

• invest the same amount on a regular basis
• finding average price (add all up divided by number of occurrences)
• finding average cost (find number of shares divided by total money put in)

• traditional IRA vs Roth IRA (can only contribute with earned income)
• traditional IRA (tax deferred, can be deductible from taxes, 10% penalty exceptions, RMDs @ 73)
• Roth IRA (tax-free, not deductible, 10% penalty exceptions, no RMD, can contribute after 73 with earned income)

• NO life Insurance
• NO muni-bonds, inappropriate due to tax status
• YES to Gold Coins minted by US and US only
• YES only if business property (cannot be for personal use)

• 403(b)

• 457 plan

• DB - based on average salary last 3 years, benefits older employees
• DC - based on percentage deferred from own salary, benefits younger employees

• profit sharing
• mandatory contributions from company
• not mandatory from employee

• divorced, separate retirement assets (qualified only)
• payee (ex spouse) still taxable upon withdrawal but no 10% early withdrawal penalty

• taxed as ordinary income
• includes variable annuity

• pre 2019 divorce
• child support is never

• stepped up to market value at death
• if gifted, gift original costs
• alternative death value - 6months after as long as estate taxes are paid within 9 months

• the one giving the gift pays the tax

• governs private sectors (corporations)
• no government retirement plans
• minimum of 3 retirement selections
• eligibility, 21 and 1000 hours in past 12 months
• require Summary Plan documents

• not required but is good business
• do not confuse with summary plan document (required by law)
• does NOT note individual security selection criteria

• to plan participants
• IA provide plan participants of IPS

• Required by Plan Sponsor

• JTWROS - find with spouses
• TIC
• Totten Trust
• 529 plans

• avoids probate
• passes to survivor

• non-spouses typically
• probate
• percentages pass through to that persons estate
• undivided shares

• retain access while alive
• passes at death

• donor retains Control (UT/GMA is not like this)
• grow and can be used tax free for education but tax deferred otherwise
• may use to go back to school or for sons medical school > indicates desire for control

• max contribute $2k per child
• can revoke, donor contains control

• one custodian to one child (1:1 is only way)
• limit is unlimited (taxable after gift tax exclusion)
• donor is responsible for gift tax
• reregister in child’s name at age of majority
• all gifts to UGMA/UTMA are irrevocable
• child has control
• UTMA is legal age up to 25

• exchange - must be listed on exchange
• over the counter

• specialist/ designated market market
• at exchange on floor bringing buyer and seller together
• customers buy at ask (offer) and sell at bid, always buy at higher price.

• unlisted
• trade through network of BDs
• BDs register with FINRA to maintain market (updates prices through NASDAQ)
• market maker (best describes as a BD who buys unlisted securities, OTC)

• no specifications
• immediate sell

• specify a price to sell/buy

-if/then (preventative measure)

Follow these 3 steps:
1. Does customer own/want to own? Own = sell, want to own = buy
2. Market attitude? Bearish or bullish
3. SL - CMV - BS
BL - CMV - SS

SL and BS are above CMV
BL and SS are below CMV