financial advocacy notes

7/29/2019 Financial Advocacy Notes

1/6

Financial Advocacy Friday/Saturday 6/7-6/8Summer 2013

[email protected]

Final Exam 3PM-5PM4 EssaysOpen Book

I. MONEY PERSONALITY TYPES: (Know these types for final)a. Hoarder: Accumulates money for the sake of having it. Only spends on

the bare necessities.b. Kinds of Overspenders:

i. The Money is Love Spender: Someone who spends over thetop to overcompensate.

ii. The Blue Light Spender: Someone who only spends when thereare deals going on. People spend when they think theyre getting a

bargain. i.e. Kmartiii. The Esteem Spender: Someone who emotionally decides to spendmoney because they feel they deserve it.

iv. The Overboard Spender: Someone who spends beyond theirmeans (due to credit card).

v. The Spin-of-the-Wheel Spender: No control or rhyme or reasonas to why this person chooses or how they choose to spend theirmoney.

vi. The Ill Show You Spender: Someone who spends their moneyon designer products or high end buying to prove something.

c. Money Worrier:Being paralyzed where you dont take calculated risks.(Afraid to spend any kind of money)

d. Money Avoider: Someone who tries not to think about where their moneyis and is afraid to check their bank accounts, etc. (Someone who is eitherafraid to take risks, or who takes risks but does not want to face theconsequences).

e. Money Monk: Someone who does not spend a lot of money onthemselves. Lives by their minimal needs and wants.

f. Money Amaster: Hedge fund tycoons. Whatever they have is notenough.

g. Risk-Taker: Someone who invests haphazardly, a gambler, etc. Lives forthe adrenaline rush of taking a risk. No real rationality behind someonewho risks their money.

h. Risk-Avoider: Someone who is afraid to spend a dime, for fear of nothaving any money.

i. Money Merger: (in a relationship) Taking separate accounts and puttingthem together. (Risk: if one spouse is free spender and the other is a risk-avoider or saver, there can be bigger issues)

j. Money Separatist: Keeping separate accounts. (Risk: if one spouse is aspender, and cannot keep their end up to pay joint expenses)
mailto:[email protected]:[email protected]:[email protected]


2/6

II. WEALTH ISan abstract concept, but in order to reach personal goals, need toput into action, and turning abstract into concrete.

III. BUDGETING: Uses of budgeting on Exama. Expenses:

i. Fixed: Payments that you know will be due every month. Top lineitem in order of priority.ii. Discretionary:Not mandatory. Ex: entertainment, lifestylechoices, etc.

IV. NEGOTIATION:a. Step 1: Knowing the Market: Information: The more information you get

about what youre negotiating for, the more powerful your position will

be.b. Step 2: Anchoring: Throw out a high/low end number to position your

opponent where you reasonably want them to end. Plant ahead to valuethe case.

c. BATNA: Best Alternative to a Negotiated Agreement: What is youralternative to not reaching a deal? (Walk away)i. Know your audience/client

ii. Know Opposing Counseliii. Have the Ability to Walk Awayiv. Posturing

d. Know the Authority of Each person in the roome. Analyze Concessions: Look for patterns in the types of concessions made

by the other parties. Be able to back up your numbers.f. Bidding Against Yourself: (What not to do)g. Deflecting the Question: Avoiding to propose a money amount for

negotiationV. DEBT: (consumer) What greases the wheel to our economy.

a. Installment: Every month pay the same exact amount to pay off loans(I.e. Student Debt)

i. Principle: Part of the monthly installments pays a percentage ofthe Principle amount.

ii. Interest: Part of the monthly installments pays off interest.1. Paying interest + principleearly gives the company

lending their profit earlyb. Revolving: (I.e. credit cards)c. Charge Card: (Amex) Responsible for paying that monthly amount in

full at the end of its cycle.d. Credit Report vs.Credit Score:

i. Credit Report: 3 Major credit reporting agencies; for purposes ofidentity thefts.

1. TransUnion2. Equifax3. Experian

ii. Credit Score:1. FICO: Fair Isaac Company


3/6

a. Scores range from 300 and 850b. Interest rate directly reflects your assets and your

credit scorei. I.e. when applying for a mortgage, for a job,

apartment, car insurance, etc.

ii.

Being admitted into the bar (character &fitness test)c. Factors go into determining this number:

i. 35% of the score goes into payment historyii. 30% of the score goes to amounts owed

iii. Length of credit history1. Utilization Rate:

a. Ex. 2 Cards, $10K creditlimit on both, $5K used, 25%used on both

i. After canceling onecard, the utilizationrate doubled to 50%,this works againstyou.

iv. New Credit (too many not good)v. What types of credit the accounts are

VI. INVESTING:a. Risks vs. Return:

i. The greater the risk, the greater the possible return.ii. As an investor, youre going to demand a higher return (the more

risky that investment is)b. Diversification of Assets: Dont put all your money that you earn into

one company stock, bonds, mutual, fund, etc.i. I.e. Undiversified portfolio: Enron: a lot of employees wealth was

in Enron stock and when company went bankrupt, employees losttheir retirement.

ii. Diversified portfolio: Knowyour customer rule: broker-dealerhas an affirmative obligation to ask questions of investors beforethey make recommendations.

1. Risk Tolerance: The longer that you dont need access toyour money, the longer you can wait out market volatility,and stock market shocks over time

2. Age: Older vs. younger investor: younger investor can waitout the shock of stock market

3. Time Horizon: what does your timeline look like (are youplanning on buying a house soon?)

4. Income sources: if youre making a certain amount ofmoney a month and you dont need a fixed amount

monthly, you can tolerate having this amount invested


4/6

5. Net worth: The higher the net worth, the greater ability totake risks

c. Broker-Dealer Type of Misconduct:i. Suitability: Making an unsuitable investment recommendation:

1. Elderly person goes into investment firm, investor advisesto invest in stock, loses money.a. Broker should have known there was no way this

investment would be suitable. Time of therecommendation wasnt appropriate.

ii. Churning: Rapid buying and selling.1. Doesnt help the investor, but results in large commissions

for the investorsiii. Misrepresentations: Broker lies to the investor to induce a sale.iv. Unauthorized trade: A trade made that was not authorized to the

broker to purchase them.1. Investor needs to notify the broker immediately if they see

this on their statements.d. What to do if you encounter misconduct:i. Complain to the firm: if they made a mistake, they will fix it.

ii. File an Arbitration Claim: Anytime you open an account, there isan arbitration clause. States that you cannot sue in federal court.Need to arbitrate with FINRA.

iii. Arbitration vs. Court:1. Positive: Less expensive2. Positive: More expedient3. Positive/Negative: Limited subpoenas, no discovery, no

interrogatories, no depositions4. Negative: Decisions are not published5. Negative: No appeals6. Negative: Private in nature7. Federal Arbitration Act: Vacating an arbitration award.8. Manifest disregard of the law standard

VII. ACCOUNTING: The process of classifying, recording, and communicatingfinancial information concerning the economic activity of an organization/entity.

a. Who Relies on Accounting:i. Investors

ii. Attorneysiii. Lendersiv. SEC regulators

b. GAAP: Generally Accepted Accounting Principlesc. SEC: Securities and Exchange Commission:

i. Publicly traded companies: (Google, Yahoo, all tradedthroughout the day)

1. Income Statement: Represents economic activity of abusiness over a period of time.

a. Revenue: Top line number (sometimes sales).


5/6

i. Has to be realizedii. Under certain circumstances

iii. Accrual Accounting: If a company isrequired to follow GAAP, they are requiredto follow accrual accounting.

1.

Revenue is recognized when itsearned by the company, andexpenses are recognized whentheyre incurred.

a. Revenues are recognizedwhen theres substantial

completion to a contractualobligation.

b. Manipulating earnings:recognizing revenue whenthe earnings process has not

been completed.i. Company commitsfraud if they claimrevenue when theysend another companya trial product when

theres no contractual

agreement in place.2. Costs of a good sold: GGS/Revenue

= %a. Gross margin: what you sell

atwhat youre making.i. Profit per sale.

ii. High profitability:Ex.: (Tech industry)Apple, Luxury branditems (Luis Vuitton)

iii. Low Profitability:Necessities (i.e. foodmarket products).

b. Financial Analyst: will lookat these margins to see iftheyre being squeezed over a

period of time.i. If the costs of the

goods sold(ingredient), rises, itmust increase theprice of the product

b. Expenses of a company:


6/6

i. Salaryii. Utilities

iii. Appreciationiv. Research and development

1. Financial Analysts: can see whethera company is increasing this budgetor decreasing

c. EBITDA: Earnings Before Interests TaxesDepreciation and Amortization

i. Operating Incomeii. Extraordinary Item

1. Losses from Act of God2. Interest Expenses, Taxes3. Net Income (Bottom Line Number)

a. Is net income the same thingas cash on hand?

i.No. (Accrualaccounting) --It isbased on money thatwill come in, notmoney that has comein.

2. Statement Cash Flow: How much case a company hason hand. (What ENRON failed to file.)

3. Balance SheetVIII. FINAL EXAM: (Open Book)

a. 4 Essay Questions (multiple parts)b. Mortgages is not going to be tested on the final.c. 2 Hours for exam

financial advocacy notes

Documents