Some of the options questions on the Series 65/66 exam can be quite alarming. Like this one:
An investor owns a portfolio of large-cap, blue chip stocks, all of them in the Dow Jones Industrial Average. He fears a downturn and wants to protect his holdings without selling off the stocks. To best protect the portfolio, he should
A. purchase a narrow-based index put
B. purchase a broad-based index put
C. sell a narrow-based index call
D. sell a broad-based index call
EXPLANATION: they key is to know that "the Dow" is a broad-based index of stocks from many different industries. That eliminates the "narrow-based index" choices. Narrow-based indexes focus on a particular sector, i.e. the pharmaceutical or telecommunications index. Now, if the question says the investor wants to generate some income, recommend that he sell an option. When the question says or implies that he just wants to protect a position, have him buy something. He's afraid the index could drop, so he buys a put on the index.
ANSWER: b
Tuesday, August 24, 2010
Thursday, August 5, 2010
Another blurb on FEINs
So, based on the last post, a test-taker like yourself might conclude that sole proprietors don't receive FEINs. That's certainly what the folks who write test questions are hoping--they love assumptions that people bring to the testing center. They exploit them again and again. Do sole proprietors receive FEINs?
Not automatically, the way a corporation or an estate would.
But if you look closely at the questions the IRS asks in the previous post, you begin to see that it could easily include sole proprietors. A word like "excise" is easy to just skim over because it's boring and, let's face it, so is most of the Series 65/66 material. But a trucker would have to pay "excise" taxes and, therefore, need an FEIN. And a restaurant could be owned by a sole proprietor, but if he has 20 waitresses and 10 cocktail servers, he's going to either admit he has "employees" now or wait for the revenue collectors to issue a ruling plus penalties and interest. He needs an FEIN. So, as always, don't make assumptions. Think through your answer choices clearly--is this always the case? Are there exceptions to this general rule? Did anybody ever actually say that, or did I just sort of assume that?
That's what the test demands of you--an ability to think clearly, from many angles, using creative problem solving and solid reasoning.
Not automatically, the way a corporation or an estate would.
But if you look closely at the questions the IRS asks in the previous post, you begin to see that it could easily include sole proprietors. A word like "excise" is easy to just skim over because it's boring and, let's face it, so is most of the Series 65/66 material. But a trucker would have to pay "excise" taxes and, therefore, need an FEIN. And a restaurant could be owned by a sole proprietor, but if he has 20 waitresses and 10 cocktail servers, he's going to either admit he has "employees" now or wait for the revenue collectors to issue a ruling plus penalties and interest. He needs an FEIN. So, as always, don't make assumptions. Think through your answer choices clearly--is this always the case? Are there exceptions to this general rule? Did anybody ever actually say that, or did I just sort of assume that?
That's what the test demands of you--an ability to think clearly, from many angles, using creative problem solving and solid reasoning.
Wednesday, August 4, 2010
FEINs
A federal employer identification number (FEIN) would probably be easier to understand if it were only issued to, you know, employers. But as you've probably noticed, things are never what they seem to be in connection to finance, taxation, and other testable points. An estate also receives an FEIN, which I learned when serving as executor several years ago. A trust receives an FEIN. Estates and trusts are legal entities/legal persons. Like corporations and partnerships, they receive FEINs from the IRS. If you go to the IRS website and type in "fein," you find a helpful table that determines if somebody needs to apply for an FEIN. If the answer to ANY of the following questions is "yes," then the person needs to get a federal employer identification number:
Do you have employees?
Do you operate your business as a corporation or partnership?
Do you have a Keogh plan?
Are you involved with: trusts, estates, REMICs, non-profit organizations, farmers' cooperatives, plan administrators
Is this informatoin testable?
Sure. If NASAA says that "taxation issues" are testable, they only give a couple of examples as to which items we should focus on. Everything is, apparently, testable. And, since business entities are a testable item, we have to assume that you might need to remember what an "FEIN" is and that trusts and estates have them, as do corporations and partnerships.
Do you have employees?
Do you operate your business as a corporation or partnership?
Do you have a Keogh plan?
Are you involved with: trusts, estates, REMICs, non-profit organizations, farmers' cooperatives, plan administrators
Is this informatoin testable?
Sure. If NASAA says that "taxation issues" are testable, they only give a couple of examples as to which items we should focus on. Everything is, apparently, testable. And, since business entities are a testable item, we have to assume that you might need to remember what an "FEIN" is and that trusts and estates have them, as do corporations and partnerships.
Partnerships
The Series 65/66 exams definitely consider limited and general partnerships to be fair game, as they indicate on their exam outlines. How would you navigate a question like this one . . .
Which of the following is an accurate statement of the business structures known as "general partnerships" and/or "limited partnerships"?
A. only limited partnerships allow for direct flow-through of income and expenses
B. both ownership structures leave at least some owners with unlimited liability
C. general partnerships are no longer enforceable effective January 1, 2011
D. general partnerships relieve the owners of personal liability
EXPLANATION: a general partnership is really just a sole proprietorship with more than one owner. These folks want to go into business together, so they form a general partnership. It does provide for flow-through of income and expenses, but it also leaves all general partners personally liable for debts and lawsuits of and against the business. To form a limited partnership, you have to have at least one general partner (GP), and GPs always have unlimited liability. Don't read a choice like Choice C and automatically assume you forgot to study something. The Exam occasionally makes stuff up to see if you'll fall for it when a much better answer was available. Don't do that. Instead choose answer . . .
b
Which of the following is an accurate statement of the business structures known as "general partnerships" and/or "limited partnerships"?
A. only limited partnerships allow for direct flow-through of income and expenses
B. both ownership structures leave at least some owners with unlimited liability
C. general partnerships are no longer enforceable effective January 1, 2011
D. general partnerships relieve the owners of personal liability
EXPLANATION: a general partnership is really just a sole proprietorship with more than one owner. These folks want to go into business together, so they form a general partnership. It does provide for flow-through of income and expenses, but it also leaves all general partners personally liable for debts and lawsuits of and against the business. To form a limited partnership, you have to have at least one general partner (GP), and GPs always have unlimited liability. Don't read a choice like Choice C and automatically assume you forgot to study something. The Exam occasionally makes stuff up to see if you'll fall for it when a much better answer was available. Don't do that. Instead choose answer . . .
b
Thursday, July 22, 2010
Get Your Head in the Game
I'm going to tread a thin and dangerous line here. On the one hand, I don't want to offend any of our customers, but on the other hand, I want to help all customers pass their exams. Here's the issue: WAY too many Series 65 and 66 candidates are trying to pass their exams without making a full commitment to the process. They don't like or understand the process and, therefore, want to pay as little attention to it as possible. How else to explain all the emails we get over the absolutely simple Pass the 65/66 ExamCram Online Test Prep? "I never got my username and password!!!" we see at least twice a week. "I never got my CDs for the ExamCram stuff!!!" we see just about as often.
Okay, first, we've plastered all kinds of warnings that there ARE no CDs, that you choose YOUR OWN USERNAME and PASSWORD, and that if you don't see the automatic email, check your spam folder. Still, some customers swear they were "never told" about any of this.
Poppycock. They never opened their eyes is what happened. Guess how many times the computer servers have failed to send out the automatic email with the installation link?
Zero. They're computer servers; they do exactly as their told, no more and no less.
We have made the ordering process as simple as possible, and setting up the ExamCram Online Test Prep is as easy as paying attention, choosing your own username and password, and voila--you're ready to go.
So, if the process is so easy, how come some customers are still confused?
Because their head is not in the game. They're, apparently, still in the feeling-sorry-for-myself phase of the process and, therefore, pay as little attention as possible. That's exactly what the regulators are hoping. Like an oversized defensive line, the regulators are hoping you try to break through the line going half-speed. That way they can crush you and get one or two more rounds of testing fees out of you.
Is it fair that you have to take the Series 65/66? Don't know; don't care. You either want to pass the test and, therefore, put maximum effort into it. Or, you need to look at a career change. It's bad enough that we see every single day orders from people who, allegedly live in Chicago, Idaho, Dallas, Tennessee, and Anchorage, Alabama. Uhm . . . you will be entering all kinds of important information on your clients into computer systems once you get licensed. If you can't get your own state and credit card number on the order right . . . well, again, your head is not in the game.
We don't offer support groups or personal therapy. If you don't think you should have to take the test, don't. But if you want to pass it, we have provided everything you need. Unfortunately, all we can do is provide the material. We can't open it, activate it, or study it for you.
Are you interested in passing the test, for real? Good. Let's get our heads in the game, then, before we step onto the playing field.
Okay, first, we've plastered all kinds of warnings that there ARE no CDs, that you choose YOUR OWN USERNAME and PASSWORD, and that if you don't see the automatic email, check your spam folder. Still, some customers swear they were "never told" about any of this.
Poppycock. They never opened their eyes is what happened. Guess how many times the computer servers have failed to send out the automatic email with the installation link?
Zero. They're computer servers; they do exactly as their told, no more and no less.
We have made the ordering process as simple as possible, and setting up the ExamCram Online Test Prep is as easy as paying attention, choosing your own username and password, and voila--you're ready to go.
So, if the process is so easy, how come some customers are still confused?
Because their head is not in the game. They're, apparently, still in the feeling-sorry-for-myself phase of the process and, therefore, pay as little attention as possible. That's exactly what the regulators are hoping. Like an oversized defensive line, the regulators are hoping you try to break through the line going half-speed. That way they can crush you and get one or two more rounds of testing fees out of you.
Is it fair that you have to take the Series 65/66? Don't know; don't care. You either want to pass the test and, therefore, put maximum effort into it. Or, you need to look at a career change. It's bad enough that we see every single day orders from people who, allegedly live in Chicago, Idaho, Dallas, Tennessee, and Anchorage, Alabama. Uhm . . . you will be entering all kinds of important information on your clients into computer systems once you get licensed. If you can't get your own state and credit card number on the order right . . . well, again, your head is not in the game.
We don't offer support groups or personal therapy. If you don't think you should have to take the test, don't. But if you want to pass it, we have provided everything you need. Unfortunately, all we can do is provide the material. We can't open it, activate it, or study it for you.
Are you interested in passing the test, for real? Good. Let's get our heads in the game, then, before we step onto the playing field.
Tuesday, July 20, 2010
RMDs
The exam loves to ask surprising and tricky questions about IRAs and other retirement accounts. How would you answer something like this one?
Your Aunt Betty will celebrate her 70th birthday on July 11th, 2011. Therefore, you would remind her that she must take her first distribution from her Traditional IRA no later than
A. April 1, 2012
B. April 1, 2013
C. December 31, 2012
D. April 15th, 2012
EXPLANATION: investors benefit by letting their money grow tax-deferred as long as possible in the Traditional IRA. But, the IRS insists on being paid eventually. The longest we can wait to start taking money out is April 1st following our "70 1/2th birthday." This investor was not 70 1/2 in 2011 . . . not until 2012. So, she has until April 1st 2013 to take her first withdrawal. She'll have to make two withdrawals that year, but she can wait that long without being penalized for failing to take her required minimum distribution. BTW, you would only be 70 1/2 in 2011 if your birthday occurred by June 30th.
ANSWER: b
Monday, July 12, 2010
Durable Power of Attorney
When people finally face their biggest fears and respond by doing some estate planning, chances are they will want to express their wishes now as to what happens should they become incapacitated. A "living will" is a document that allows an individual to express her wishes concerning life-sustaining procedures. Does she want all possible measures to be taken while she's in a coma or terminally ill, or does she want them to "pull the plug" if her quality of life is virtually non-existent? That's all that a living will does. If an individual wants to take it a step further, she can appoint someone to act as "attorney in fact" or "agent" on her behalf should she become incapacitated. She can achieve this by establishing a durable health care power of attorney. The durable health care power of attorney grants the agent or "attorney in fact" for the individual the power to make health care decisions for the individual if the individual is unable to do so after an accident or illness.
There are also general powers of attorney that appoint an agent/attorney in fact to oversee your financial matters should you be incapacitated or, perhaps, traveling overseas and unable to manage your own financial dealings. This type of power of attorney can also be made "durable." The individual, with the help of her lawyers, can draft a durable power of attorney so that it is clear when the power "kicks in." Maybe it's when a named physician determines that the individual is truly incapacitated. Or, maybe it's when two separate physicians come to that conclusion.
Whether it's a durable health care or a durable general power of attorney, the test may ask if it remains in force after the individual dies. The answer: no. The power survives the incapacitation of the individual (also called the "principal"), but not his/her death.
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