Flashcards
A private placement is a type of securities transaction in which very specific rules are followed. A private placement allows for the legal sale of unregistered non-exempt securities. SEC Regulation D is the federal private placement rule. Regulation D allows for the sale of securities to an unlimited number of accredited investors and up to 35 non-accredited investors. Under the Uniform Securities Act, the definition of a private placement is stricter. Under state law, a minimum of 10 offers can be made in a 12-month period of time, and no commission may be paid.
Net amount of money paid by the insurer to the beneficiary upon the insured’s death, or at policy maturity.
A general term applied to an agent, broker, or other person who sells insurance.
A profit-sharing plan is a type of qualified plan that an employer may offer to its employees. Contributions to a profit-sharing plan are at the discretion of the employer.
A qualified retirement plan that may be set up by any size business. The business can also have other retirement plans. A profit-sharing plan accepts discretionary employer contributions. There is no set amount that the law requires the business to contribute. The business can contribute in some years, on not in others. When the business does make contributions there must be a set formula for determining how the contributions are divided. This money goes into a separate account for each employee. A profit-sharing plan can be simple or complex. Profit-sharing plans must file a Form 5500 annually.
A tax is progressive when it increases as a person’s income increases. Income tax rates in the United States are progressive. The more an individual earns, the higher the income tax rate will be.
A prospectus is a legal document that must be given to every investor who purchases registered securities in a primary offering. It describes the details of the company and the particular offering.
A proxy is a power of attorney given by a stockholder to another person authorizing the holder to vote in place of the stockholder.
The Prudent Investor Act of 1994 sets forth the guidelines for fiduciaries to follow when purchasing securities. It built upon Modern Portfolio Theory replacing the Prudent Man Rules.
A public appearance is when a registered representative engages in a seminar, webinar, interactive electronic forum, radio or television interview, or other public speaking activity.
A public key generally refers to an investor’s crypto wallet’s address, which is similar to a bank account number. A public wallet key can be shared with people or institutions so they can send money or take money from the investor’s account when authorized to do so by the investor.
The public offering price is the price at which open-end mutual fund shares are sold to the public. In a fund that charges a sales charge the POP is equal to the net asset value per share plus the sales charge.
Purchasing power risk is the risk that a certain amount of money will not purchase as much in the future as it does today. Purchasing power risk is also known as inflation risk. Fixed income securities have purchasing power risk. Common stock is a hedge against inflation.
No change of gain, only chance of loss. Pure risk is insurable.
A put is an option contract that allows the owner to sell shares to the seller at the strike price when the market price is below the strike price. The buyer of the put is bearish. The buyer of the put pays a premium to the seller for the option. The put is good for up to nine months.
With a put bond, the owner of the bond has the power to deliver the bond to the issuer for par value at the owner’s discretion or within a time described in the bond indenture.
The buyer of a put has the power to sell shares at the strike price if the market price is below the strike. The put buyer is also referred to as being long the option, which simply means that they have bought the option.
The put writer receives a premium from the buyer for the obligation to buy shares at the strike price if the market price should be below the strike. The writer of an option is also referred to as being short the option, which simply means they have sold the option. The writer of a put is bullish. The writer would also be fine if the price moved sideways, staying out-of-the-money, and expiring worthless.
Qualified default investment alternatives (QDIAs) are options to create portfolio growth for defined contribution (DC) plan participants while protecting plan fiduciaries. QDIAs were introduced in 2006 by the Pension Protection Act (PPA) and offer a path for plan sponsors to designate default investment alternatives for participants who fail to choose investments. A QDIA must be either managed by an investment manager, or an investment company registered under the Investment Company Act of 1940. A QDIA must be diversified to minimize the risk of large losses. A QDIA may not invest participant contributions directly in employer securities. A QDIA may be one of these three: a life-cycle or targeted-retirement-date fund, a balanced fund, or a professionally managed account.
A qualified charitable distribution (QCD) is a distribution made out of an IRA paid directly to a 501(c)(3) organization. An individual must be age 70 1/2 or older to be eligible to make a QCD. The individual may not deduct the amount of the QCD as a charitable contribution on Schedule A. A QCD allows for the appreciation donated to be tax-free (excluded from taxable income). There is an annual limit on QCD, currently $100,000, set to be indexed beginning in 2024. For a QCD to count as an RMD it must be paid by the RMD deadline.
A QDRO is an order done most commonly in a divorce settlement, allowing for the premature distribution of retirement plans assets to pay the spouse, former spouse, or child support, without the 10% early withdrawal penalty. A QDRO can only be issued against a qualified plan, not a SEP-IRA or an IRA.
A QLAC that meets IRS requirements allows the annuitant to exclude the values in these contracts from RMD calculation until the annuitant is age 85.
Qualified plan refers to employer-sponsored retirement plans that satisfy requirements in the Internal Revenue Code for receiving tax-deferred treatment. Qualified plans follow ERISA.
A qualified retirement plan follows the Employees’ Retirement Income Security Act (ERISA). Qualified plan contributions that are made by the employer are tax-deductible to the employer.
A Section 529 plan is a qualified tuition program.
The quick ratio takes the business’s current assets minus inventory divided by current liabilities. The quick ratio is also called the acid test ratio and is the most stringent measurement of a company’s liquidity.
A quotation is the price of a given security. A quote consists of two prices, the bid, and the ask. The ask is the least a dealer will sell at, the client buys at the ask. The bid is the most the dealer will buy at, the client sells at the bid.
Bond prices are quoted in the financial press. Corporate bonds are quoted in points with fractions, up to seven/eighths. Government bonds are quoted in points and up to 31/32nds. The quotes for corporate and government bonds are a percentage of the bond’s face value ($1,000). A corporate bond quoted at 97 ½ would have a price of $975.
Stocks and mutual funds are quoted in the financial press in dollars and cents.
The range is the difference between the security’s high and low price, for a particular period of time.
The process of charging a substandard risk a higher premium, assuming that they are older than they are.
A policy issued at a higher premium to cover a person classified as a greater-than-average risk, usually due to impaired health or a dangerous occupation.
Determined by the underwriter, the insured’s rating is their premium classification for life or health insurance.
Bonds are rated for safety by various organizations such as Standard & Poor’s and Moody’s. These firms rate the companies issuing bonds as to their ability to repay and make interest payments. S&P ratings are from AAA, AA, A, BBB to C or D, with AAA representing the highest rating and C or D representing a company in default.
A REIT is a pooled investment vehicle that holds either buildings or mortgages or a combination of the two, in its portfolios. REITs may be listed or unlisted. Listed REITs trade in the secondary market and are used to expose an investor to real estate as an asset class. A mortgage REIT has mortgages in its portfolio. An equity REIT owns properties and depends upon rental income to be successful. It is the hybrid REIT that would have both mortgages and properties in its portfolio.
A realized gain occurs when an investor sells a capital asset for more than its cost basis. Realized gains are taxable. The rate at which the gain is taxed depends upon the investor’s holding period.
Rebating occurs when the agent (producer) returns part of their commission to the insured as an inducement to buy the policy. Rebating is a prohibited trade practice under insurance law.
A recession is an economic contraction that is defined by at least two consecutive quarters of decline in GDP.
The record date is the date on which the corporation determines which stockholders are eligible for dividends. All stockholders of record on that date receive the dividend even though they may subsequently have sold their stock.
Red flags are warning signs. Broker-dealers must have anti-money laundering programs that are alert for red flags. Privacy requirements also require financial services firms to look out for red flags related to identity theft and misappropriation of client funds.
A red herring is a preliminary prospectus used for informational purposes only. It cannot offer a security for sale. Also known as a preliminary prospectus.
Open-end mutual funds issue redeemable securities. Redeemable securities do not trade in the secondary market. The transfer agent of a mutual fund must redeem mutual fund shares within seven calendar days of the request, at the price next determined after the redemption request was received.
Redemption of a mutual fund share is the return of a client’s interest (net asset value per share). By law, open-end mutual fund shares must be redeemed within seven calendar days.
A form of insurance available as a non-forfeiture option. It provides for continuation of the original insurance plan, but for a reduced amount, without further premiums.
A refund life annuity is a life annuity that provides that a guaranteed number of units will be paid. If the annuitant dies before they are paid, the remaining units are paid to a beneficiary.
Refunding is a procedure in which the issuer of a bond retires the debt by using the proceeds received from the sale of another debt issue.
A registered options principal is responsible for approving new clients who desire to engage in options trading. This approval must be in writing.
Broker-dealer firms must have at minimum two registered principals unless the firm is a sole proprietorship (then it can have only one). Series 24 is the license to be registered as a general securities principal. Firms must also have at least one individual registered as a financial and operational principal (series 27). If the firm offers options trading it must also have at least one registered options principal (series 4). It is the registered principals of a firm that are responsible for managing and supervising the daily activities of the firm.
The term registered representative refers to the individual who works for the broker-dealer in the securities or investment banking business. Registered representatives are registered with FINRA. At the state level, these same individuals are referred to as agents.
The registrar is the entity that keeps track of the issuer’s outstanding securities.