Flashcards

Form ADV applies an investment adviser for registration. The form is filed either at the state or federal level. It includes Part 1 which is the application. It also includes Part 2A which is the firm brochure. Part 2B are brochure supplements, describing the investment adviser representatives. Firms that charge wrap fees must prepare Appendix 1 of Form ADV.

Form D is the form that is required to be filed with the SEC when an issuer is selling a private placement under Regulation D.

A forward contract is a contract between two parties for the delivery of a commodity at a date in the future. Forwards are specialized contracts and are considered illiquid.

Forward pricing is a process used in pricing mutual fund shares for purchase or redemption. The client will always pay and received at redemption, the next price determined. The fund is required to determine its net asset value per share at a minimum once per business day, at the close of business of the New York Stock Exchange. The client purchases at the ask price, next determined, and redeems at the net asset value per share, next determined.

The fourth market is where direct trading of securities between large investors occurs. The fourth market consists of alternative trading systems, many of which are dark pools. The fourth market is also referred to as the institutional market.

Fraud is the deliberate concealment or misrepresentation of a material fact.

Freeriding is the buying and selling of securities, without fully paying for them. Freeriding is prohibited under Federal Reserve Board Regulation T.

A front-end load is a sales charge that is charged when mutual fund shares are purchased. Class A shares have a front-end load. The front-end load is included in the public offering price (ask).

Front running occurs when a broker-dealer or investment adviser places a trade for their own account ahead of a trade for a customer. Front running is a prohibited practice.

A frozen account occurs when an investor engages in freeriding. When an account is frozen under Regulation T subsequent transactions must be paid in cash in advance for the following 90 days.

A general obligation muni bond is backed by taxes. GO bonds are sometimes referred to as full faith and credit bonds.

A full power of attorney is a written authorization for someone other than the account owner to make deposits and withdrawals and to execute trades in the account. Also referred to as full trading authorization.

Fundamental analysis involves the study of an issuer’s financial statements, the overall economy, and the management of the company in an attempt to determine the value of the stock.

Funding is a requirement found under ERISA regulations requiring the employer to keep retirement plan assets segregated from the other assets that are owned by the business.

Futures are contracts between two parties for the sale or purchase of a commodity. Futures are standardized and traded on an exchange.

Generally Accepted Accounting Principles (GAAP) are the accounting standards that public accountants must use in the United States.

The general account of the insurance company is conservatively invested and promises the investor a minimum guaranteed rate of return. Fixed annuities and traditional whole life utilize the insurer’s general account. The insurer has the risk in the general account.

A general obligation bond is a municipal bond backed by the general taxing power of the issuer. Payment of the obligation may be backed by a specific tax or just the issuer’s general tax fund. General obligation bonds are sometimes referred to as full faith and credit bonds.

In a partnership, there must be one or more general partners. The general partners have unlimited liability and are responsible for the management of the partnership. General partners are active and must maintain a minimum of 1% ownership in the partnership.

In a general partnership there are two or more general partners who have joint and several liability, fully responsible for the actions of the other general partner(s). General partnerships are flow-through tax entities with the partners receiving form K-1 annually with their percentage of the profits or losses.

Geopolitical risk is the risk associated with tensions or actions between actors (state and non-state) that affect the normal and peaceful course of international relations. Geopolitical risk tends to rise when the geographic and political factors underpinning country relations shift.

Good delivery is when the securities are delivered in such a form that the ownership is clearly assigned from the seller to the buyer and can be easily transferred. Good delivery includes proper assignment, good condition of the securities, the proper number of units, at the proper time, not in the name of a deceased person, and with a permanent certificate, if available.

When an order is GTC it is left on the order book until it is either executed or canceled.

Goodwill is an accounting entry made to intangible assets representing the reputation of the business.

The grantor is the person who establishes a trust. The grantor is also called the donor or settlor.

Gross domestic product is the value of goods and services produced within a country’s border during a given period of time (typically a year). GDP includes consumption, government purchases, investments, and the balance of trade (exports minus imports).

Gross income is income from all sources. For a business, gross income may be referred to as gross sales or gross revenue.

Gross margin is a business’s income (sales/revenue) minus the cost of goods sold. Gross margin is also called gross profit. To get gross margin as a percentage take gross margin divided by gross revenue.

Gross revenue is the total revenue of a business, it does not include investment income.

A growth fund is a type of diversified common stock fund that has capital appreciation as its primary goal. It invests in companies that reinvest most of their earnings for expansion, research, or development. The term also refers to growth income funds that invest in common stocks for both current income and long-term growth of capital and income.  Growth funds usually have very low yields.

A guardian is a fiduciary who manages the assets of a minor or an incompetent person. The guardian must be of legal age and sound mind.

A health savings account is a tax-advantaged account that an individual may fund to provide monies for future health expenses. To fund a health savings account (HSA) the person must have a high deductible health insurance plan on the first day of the last month of that tax year, December 1st. Contributions made into an HSA are tax deductible on a person’s federal return, even if the person does not itemize. The balance rolls from year to year, and the earnings are free from income taxes when used for qualified medical expenses. A person enrolled in Medicare is not eligible for an HSA.

A hedge fund is a type of pooled investment that engages in aggressive investment strategies, such as shorting stock. Hedge funds are suitable for aggressive investors that meet financial requirements.

The holding period is the time period that an investment is owned.

The home state of a broker-dealer or investment adviser is the state in which they maintain their principal place of business. The strictest rules that may be imposed on an investment adviser that is registered in more than one state are the rules of the firm’s home state.

Hot storage is a method of storing crypto that uses services connected to the internet to store cryptocurrency keys.

Hypothecation is when the client pledges their margin securities as collateral for the loan.  Brokerage firms re-hypothecate clients’ securities to a bank to finance the margin accounts.

NASAA passed a model rule that allows for states to adopt a continuing education requirement for investment adviser representatives. The continuing education requirement includes 12 hours of CE to be completed annually, by December 31st. Of those 12 hours 6 hours must be in the area of Products and Practices, and 6 hours must be in the area of Ethics and Professional Responsibility (with 3 of those 6 specific to ethics).

An immediate annuity is an annuity contract that is purchased for a lump sum (single premium) and starts to pay out in monthly payments the month immediately following its purchase.

Impersonal investment advice is advice that does not purport to meet the needs of any specific client, but that is general in nature.

In-the-money is the term used to describe an option that can be exercised by the owner. In-the-money options have intrinsic value. A call is in-the-money when the market price is above the strike and a put is in-the-money when the market price is below the strike.

An incentive stock option is a type of stock option that a business may make available to its employees. An ISO has preferential tax treatment, if the stock purchased is held for a minimum of two years after the date of grant and one year after the date of exercise, profits are taxed at long-term rates. ISOs are also called qualified stock options.

An income bond is a bond issued by a corporation that is experiencing financial difficulties. The income bond will only pay interest if the board of directors believes the company can afford to. Income bonds are also called adjustment bonds. Income bonds trade flat, without accrued interest

An income fund is a type of mutual fund that seeks to provide a stable current income from investments by investing in securities that pay higher-than-average yields.

The income statement is a financial statement that shows the income and expenses of a business or an individual, over a period of time. The income statement is also called a profit and loss.

An index fund is one in which the portfolio of the fund mirrors the holdings of an index. It is a passive type of investment since it is not actively managed. Index funds have low management fees.

An indication of interest is an investor’s expression of conditional interest in buying a forthcoming securities issue after the investor has reviewed a preliminary prospectus. An indication of interest is not a commitment to buy.

An individual retirement plan (IRA) is available to anyone with earned income. There are two types of IRAs, traditional and Roth. A Roth IRA may only be funded by individuals with earned income, who do not earn too much (phaseout varies each year). Roth IRAs are always funded with after tax dollars. If a distribution is made from a Roth that has been open for a minimum of 5 years and that is paid out on or after age 59 ½, the earnings are tax-free. A traditional IRA may be funded by anyone with earned income. The contributions made into a traditional IRA may or may not be tax-deductible, depending upon the client’s situation and current tax code. Traditional IRAs are subject to the required minimum distribution rules. Earnings in a traditional IRA are taxable as ordinary income upon withdrawal.

An industrial development bond is a type of municipal revenue bond issue, with the municipality using the proceeds to finance the construction of industrial facilities to be leased or purchased by private companies. The bonds are backed by the credit of the private companies and often are not considered an obligation of the issuing municipality.  Interest paid on an industrial development revenue bond may or may not be tax exempt, depending upon if the issue is best for the public or the private company.

Inflation is a general rise in prices. One of the root causes of inflation is too many dollars chasing too few of goods.