Series 66 Cheat Sheet

As a result of the snowbird rule, exemption

INVESTMENT ADVISOR REGULATION from registration is in effect if dealing with De minimis exemptions are not available to
(INCLUDING STATE-REGISTERED AND vacationing clients. those who work with a covered IA. The
FEDERAL-COVERED) number of clients they have doesn’t play a
Registrations expire on December 31 after role and they can only register in the state
A person is defined as someone who is not their initial registration and must be renewed where their place of business is found.
deceased, a minor, or mentally incapacitated. thereafter. With securities, however,
registration is effective for one year no matter
Investor advisers (IAs) meet the three- what the date of registration was. Registration as an IAR is compulsory for any
pronged test. person who receives compensation as a
Until the renewal date comes about, a BD or solicitor for an investment advisory firm as
If a person receives compensation for IAs successor firm won’t need to pay a fee. per regulations set out in the USA.
comparing the performance of advisers, they
must register as an IA. A consent to service of process forms part of According to regulations, the notification
the registration of all securities professionals. method for an IAR working for a state or
Through IA-1092, financial planners, federal covered adviser is different. If they
entertainment/sports representatives, and In order to exercise discretion on a client's worked for a federal covered IA, the IAR must
pension consultants were added to the list of account, an IA must have $10,000 net worth inform the administrator, but if they worked
who can be considered an IA. or a surety bond. for a state-registered IA, it’s the task of the IA
to do so.
An adviser with an AUM of $110 million or $35,000 or a surety bond is necessary for IAs
more must register with the SEC as a federal- that look after the funds or securities of their BROKER-DEALER/AGENT REGULATION
covered adviser. clients.
Registration is compulsory when a BD holds
It is necessary to register with the state if the When an IA that is state-covered meets the an office in a state.
AUM exceeds $100 million. net worth or bonding requirements of their
home state, they are automatically eligible to A surety bond may be required if a BD holds
A federally covered adviser must register with register in any other state without meeting customer securities and/or funds, or
the state when their AUM falls below $90 their specific requirements. exercises discretion over accounts unless
million. their net capital meets requirements as set
The SEC's requirements must be met by out by the SEC.
An IA must register with the SEC if it is federal-covered IAs.
dealing with investment companies. It is not possible for agents to exercise
State and federal law consider a person to be custody, but if they have discretion, they may
The definition of an investment adviser does in control of an IA if they own 25% or above. be required to post a surety bond.
not apply to engineers, teachers, lawyers,
and accountants but it is only incidental Cash or securities may be used in place of a
A BD or IA's principal office must maintain a
advice that they must provide. If they charge
range of company records which have to be surety bond at the administrator’s discretion.
for their advice, the exclusion is removed,
however. kept on hand for a period of three years.
Should the business close, these records For surety bonds to be collectible, they must
have to be kept for a period of three years meet the requirements of the USA.
Under the de minimis, state-registered IAs
are exempt. This means they must have 5 or following the closure date.
fewer retail clients and no place of business BDs must issue receipts to customers who
in a state. INVESTMENT ADVISER deposit securities.
REPRESENTATIVE (IAR) REGULATION
No registration is required if the IA does not The administrator must be notified when an
have a business located in the state and they IARs work for Ias and are also associated agent ends their association with a BD. BD
can have as many institutional clients as they with those that supervise IARs. must comply with the USA in this regard as
want. well.
If an IAR is employed by a state-registered IA
they fall under the de minimis exemption.
Anyone offering or selling securities on behalf income earned is taken off. The client must In order to ensure the safe and effective use
of a BD must register. accept or reject the offer within 30 days of of office equipment and personal equipment
receiving it. for business purposes, firms need to train
According to regulations, BD records should employees. This is true when using social
be kept for three years. The period for IAs is Under the terms of the USA, if the buy or sell media as well.
longer at five years. offers originate in, are directed to, or are
accepted in the state of the administrator, An agency cross transaction involves both
they are subject to their jurisdiction. It is parties being represented by the same IA,
BD registration changes must be reported possible for more than one administrator to
soonest. who receives compensation from both for
take action in response to a violation. services carried out. An agency cross
transaction cannot take place if an IA
REGULATION: SECURITIES AND ISSUER Offers, according to the USA, are attempts to recommended the transaction to a seller and
sell. However, they are not sales until a buyer and they take the role of the IA carrying
According to regulations, the following are not transaction takes place. it out.
securities - IRA and Keogh retirement plans,
fixed annuity, term, whole life, modified
endowment, and other nonvariable insurance Nonassessable stock is not considered a gift, It is recommended that 48 hours before
contracts, currencies, collectibles, lived in while assessable stock is. entering into a contract, the IA’s brochure
condominiums as well as commodities. (Form ADV Part 2A and supplement Part 2B)
Bonuses are regarded as sales if they are must be delivered. Within five business days,
The sale of nonexempt securities can only given by the BD in the form of a security clients can terminate without penalty if this
begin after the prospectus becomes effective. attached to another purchase, such as other doesn’t happen.
stocks, a car, or a house.
Before the effective date, no money or orders ADV Part 2A and Part 2B must be delivered
are allowed, however, indications are as long Dividends and splits of stock are not by no later than the commencement of the
as the issue is in registration. considered sales if there is no cost involved. agreement by federal and state-registered
IAs (ADV Part 2A and Part 2B). Within 120
As per the USA, an active review of days of the end of the fiscal year, a "summary
Stop orders of material changes" must be provided. It is
registration is necessary for a security
registered by qualification to become also necessary to provide the brochure if
effective. In general, this is linked to a securities requested by a client.
registration. An appeal against a stop order is
Common exempt transactions: possible within a 60-day period of it having The adviser's compensation is specifically
been received. asked for in Form ADV. If the adviser's fees
• Transactions by fiduciaries are negotiable, he or she can charge a
Cease and desist order
• Isolated nonissuer transactions different fee to each client.
• Transactions between underwriter and
It is with or without a prior hearing that a "Guaranteed" means that someone other
issuer
cease and desist order can be issued by an than the issuer guarantees the principal,
• Unsolicited orders administrator. interest, or dividends according to the USA.
• Transactions with institutions This does not apply to capital gains.
• Private placements A court-imposed injunction can occur if this
order is not adhered to. Any website a BD might have is advertising
Agents of BDs need to be registered according to regulations. It must therefore
properly, regardless of whether the Summary action maintain records for three years. It will also
transaction or security is exempt. be necessary to keep changes for three
years if they are made.
Registered agents are allowed to accept As long as a hearing is held within a 15-day
unsolicited orders for nonexempt period after receipt of a written request, the
administrator can summarily suspend the All BD fees and potential conflicts of interest
unregistered securities because they are must be disclosed to clients.
exempt transactions. registration of both a security and a person.

Administrators have the right to require Under the USA, the maximum fine that can BDs are allowed to charge reasonable rates
clients to agree that the order was be levied is $5,000 while a prison sentence for certain services such as account
unsolicited. term is three years. Under federal law, it’s transfers, appraisals, interest and dividend
$10,000 and/or five years in jail. collections, and safekeeping assets. Free
ADMINISTRATIVE services offered through advertising must not
REMEDIES/PROVISIONS be tied to any hidden obligations.
COMMUNICATION: CLIENTS AND
PROSPECTS
Under USA terms, within three years of the When using charts in advertisements, a
suspected infraction, a civil suit must be filed disclaimer about difficulties and limitations
Social media/correspondence
within this time frame or within two years of must be included, while testimonials cannot
the violation being discovered, whichever be used.
comes first. In terms of federal law, however, The term "written communication" applies to
it is a one-year period following the discovery all electronic communication. When referring
In literature that includes past
of the infraction. to social media, the content matters more
recommendations' performance, both good
Right of rescission involves the offer of than the delivery method.
and bad outcomes must be included.
returning money, including interest, to a
customer. If a sale violates the USA, any
In the event that a financial advisor has an Practices that are prohibited include: Low-standard-deviation portfolios are the
undisclosed interest in certain securities, it is least volatile.
unethical for them to recommend trading in
them to clients, especially if the value of the • Borrowing money or securities from
clients is not permitted unless the Through correlation, we can measure the
securities increases to the adviser's benefit. movement of one security in relation to
client is a BD, an IA affiliate, or a
financial institution that lends funds another.
FIDUCIARY OBLIGATIONS/ETHICAL
PRACTICES • Money cannot be loaned to a client
unless the IA is a financial 0=No correlation. +1.0 = perfect correlation. -
institution that makes loans, or the 1.0 = noncorrelation.
Investment discretion refers to the ability of
client is an affiliate of the IA
clients to select assets, amounts, or actions.
• The same blanket recommendation A portfolio that is most diversified has some
for security is provided to all clients negative correlation.
If agents are affiliated with the same BD, split
commissions are allowed. Clients do not
need to be informed in this case. Despite being completed by an IA, Form Financial ratios are calculated using financial
ADV-E must be submitted by an independent statements, including:
accountant every year if the IA keeps client
When a written complaint is received from a
customer, it should be forwarded to the
assets or money. • P/E – price to earning ratio
appropriate supervisor. • Price-to-book value
Under the safe harbor provisions of the
Securities Exchange Act of 1934, IAs can • Current ratio
It is possible for an adviser to disclose the • Gross margin
accept compensation from BDs for research,
names of current clients in response to an
customer-related software, and seminar
IRS or court order. They may also do this
registration fees (Section 28 (e)). In the acid-test ratio (or quick ratio), inventory
with the owner's permission or that of a joint
Reimbursement for travel, transportation, is excluded.
owner.
furniture, rent, or computers/software not
associated with customers is not covered by
Third-party research reports are subject to RISK TYPES
this provision.
certain rules when it comes to their use. The
author should be credited if the work is Market (systematic risk) states that
ANALYTICAL METHODS
distributed. However, it is not necessary to changes in the market could adversely affect
mention it if it forms the basis of the IA's individual securities, regardless of the
report. It is necessary to know the following in order company's overall situation. It is impossible to
to calculate future value: reduce this risk through diversification.
In order to receive performance-based • Current amount invested
compensation, a client must meet certain
minimum net worth requirements, hold a
• Expected earnings rate
Securities that are interest-sensitive, such as
debt securities and preferred stocks, are at
certain amount of AUM with an adviser, or be • Length of time money will be risk of interest rate changes, and this is
an investment company. If joint assets are to invested known as interest rate risk. A rise in rates
be used, the client must be with his or her leads to a drop in prices and vice versa.
spouse. Calculating present value requires the Longer duration increases risk.
following:
The USA requires all IA fees to be A currency unit's inflation (purchasing
competitive. • Future amount needed power) risk is a risk that if its value falls, the
principal's purchasing power will decrease
An IA fee is considered unreasonable if it
• Expected earnings rate when returned to the investor. Securities with
consistently exceeds the portfolio's expected • Length of time money will be fixed income are particularly prone to this.
returns. invested
Each security has its own unsystematic
When an IA buys the same security at A measure of the time value of money is the (nonsystematic) risks. Business risks
different prices for several clients using one internal rate of return (IRR). associated with the company in which a client
order, each client should pay an "averaged" has invested are an example. Among other
price. factors, this risk can be caused by
When it comes to common stock, IRR is not
management decisions, competition, or even
practical since the cash flow is uneven and
deficiencies in products.
Within three business days of accidentally there is no maturity date or price
receiving a stock certificate or money, unless corresponding to the stock.
they are authorized to keep custody thereof, Corporate earnings could be affected by
an IA should ensure the stock certificate or regulatory changes in an industry, resulting in
It is not necessary to include inflation in the
money should be returned. financial distress and this is what regulatory
computation of net present value (NPV).
risk is all about.
In addition, all third-party checks must be 1.0 beta stocks mirror the overall market
passed on within three business days. Legislative risk refers to changes in tax laws
movement. The lower the beta, the less
that lead to increased taxation, for example.
movement there is and vice versa.
The effects thereof can be felt by both
When the IA holds clients' funds, quarterly corporations and individuals
statements must be sent to them. However, A positive alpha is when a stock or portfolio
any changes in location should be outperforms its predicted beta.
communicated as soon as possible.
Investments can be adversely affected by Due to their shorter duration, higher-coupon risk) and low liquidity. Usually, this is found in
political instability or nationalization of an bonds are less volatile. The duration of zero- new, promising companies.
industry and this is known as political risk. coupon bonds is the same as their maturity.
A hedge fund often operates as a
Defaults on debt obligations by governments Convexity is an excellent measure of a partnership. Investors and the management
constitute a sovereign risk. bond's interest rate sensitivity. invest together.

Investing in illiquid assets poses a liquidity The discounted cash flow method is used to Regulations require REITs to distribute 90%
risk because they are difficult to convert into value a fixed-income security by computing of their income.
cash quickly. If they are turned quickly, it’s its PV. It is possible to achieve this by
usually at a significant loss. discounting future cash flows (interest
payments and principal returns). INSURANCE-BASED PRODUCTS
Foreign exchange rate fluctuations can affect
the value of an investment and this is When analyzing a mortgage-backed pass- A fixed annuity does not qualify as a security.
currency/exchange risk. Currency risk can through security, the average maturities are Consequently, a seminar that only focuses on
be encountered when investing in American essential. securities cannot result in securities fraud.
depositary receipts.
In the money market, commercial paper (CP) The surrender charges associated with
EQUITY SECURITIES: TYPES AND is traded at a discount. variable securities make them unsuitable for
CHARACTERISTICS short-term investments.
There is no prepayment penalty on
The most important factor for preferred stock negotiable (jumbo) CS and they are issued at The variable annuity market provides an
investors is the issuer's ability to pay face value. investor with a tax-deferred way to make
dividends. investments in equities.
For short-term interest rates, LIBOR is the
Investors in convertible preferred stocks or most commonly used benchmark. In comparison with mutual funds with similar
bonds will sacrifice some income in exchange objectives, variable annuities’ expense ratio
for some potential appreciation. Usually, demand deposit accounts (DDAs) is higher.
are checking accounts at banks.
An approach to valuing stocks is to calculate Participation rates for index annuities are
the present value (PV) of future dividends often capped.
assuming a constant dividend rate. This is POOLED INVESTMENT: TYPES AND
called the dividend discount model. CHARACTERISTICS
Term insurance offers pure protection without
any cash value. Renewal increases the
Dividend growth models are used to value Exam questions cover three types of
premium, however.
stock by calculating the present value (PV) of investment companies:
future dividends on a given stock, assuming • Face-amount certificates A universal life policy offers flexible
that they will grow by a specified percentage. • Unit investment trusts premiums. It is possible, however, for the
• Management companies policy to lapse if the payments are
Fundamental analysts and technical analysts insufficient.
can analyze securities. While the first
examines the company's books, the second
charts price, and volume over time. Secondary markets, like the NYSE, are A separate account, guaranteed minimum
where closed-end funds trade, while open- death benefit, and non-guaranteed cash
FIXED-INCOME SECURITIES: TYPES AND end (mutual) funds don’t. value make up variable life policies. Loans of
CHARACTERISTICS up to 75% of the cash value are available
Closed-end funds are not priced on NAV, but after three years.
This is the priority when it comes to on supply and demand.
liquidation - secured bondholders, general A variable life insurance policy also offers the
creditors (of which debentures are included), Portfolio managers change their investment option of exchanging it for a permanent life
subordinated debentures, preferred stock, strategies due to net redemptions that can insurance policy within the first 24 months.
and common stock. cause negative performance consequences.

Current yield formula = Interest (bond) or Regulations prohibit “breakpoint sales”. DERIVATIVE SECURITIES: TYPES AND
annual dividend (stock) / current market CHARACTERISTICS
price. 12b-1 fees are calculated as a percentage of
the fund's net asset value. These fees are Those who hold futures and forward
The yield on a bond sold at discount will used for share distribution. contracts are obligated to comply with this
always be higher than the yield on a bond obligation.
sold at coupon. In comparison to a coupon In addition to CDs and Treasury bills, money
bond, a premium bond will have a lower yield. market funds also hold certificates of deposit, If the option holder has a long position, he or
The yield to maturity of a bond selling at a commercial paper, and repurchase she has no obligation.
discount is lower than the yield to call of a agreements.
bond that’s selling at discount. Short-term option sellers, however, must
Venture fund managers need to identify perform if their positions are exercised.
companies with both a high return (but a high
ALTERNATIVE INVESTMENTS It is possible for a trust's grantor to also be its Asset allocation: Minimizes unsystematic
trustee and beneficiary. risk. Diversification of asset classes
A DPP has unlimited liability for general
partners and limited liability for limited An individual who receives a trust's principal When it comes to passive management, it's
partners. at final distributions is known as a more strategic than active management,
remainderman. which is far more tactical.
It is to their basis that a limited partner may
suffer loss in a DPP. It includes both funds Per stirpes describes how assets are passed Rebalancing: Rebalancing a portfolio to
that have been contributed initially as well as down to descendants. reach the target allocation percentage is a
funds that have been committed but are not passive strategy used from time to time.
yet contributed. When an IAR is appointed as a trustee and
handles the account, a potential conflict of Growth: When trading, the manager of a
Buying and selling life insurance policies on interest must be disclosed. portfolio tends to look for stocks with a higher
the secondary market is called a life price-to-earnings and price-to-book ratio.
settlement (viatical). When someone dies without a will, an Growth can be volatile, so there is a need to
administrator in intestacy is responsible for have a higher tolerance for risk, while
An ETN (ELN) is a debt instrument in reality. their estate. earnings momentum is important too.

Both leveraged and inverse funds are very Living wills are used to express end-of-life Value: Stocks with a lower P/E and price-to-
speculative. wishes. book multiple are considered cheaper. Using
financial statements to determine which
Investment real estate companies pay higher dividends is the focus.
CLIENT PROFILE

• Active role A surprise inheritance can be used to pay off

Contrarian: Here, the portfolio does the
opposite of what most other managers are
• No correlation with the stock market high-interest debt for clients who have too doing because he thinks their approach is
generally much debt and a negative net worth. wrong.
• It could be an inflation hedge
• Risk and reward increased due to higher The balance sheet of a family does not Tangible assets: When included in a
leverage include income or expenses, only assets, and portfolio, these assets reduce inflation risk.
liabilities. A liability must be removed from a
Commodities balance sheet when it is paid off.
Efficient market hypothesis (EMH):
According to this hypothesis, security prices
• In general, commodities and the stock There is no cash value in term insurance, so will adjust quickly to new information, so
market are not correlated it cannot be added to the balance sheet. markets are always priced properly.
• It could be an inflation hedge
• Popular commodity = agriculture Instead of selling off income-producing Modern portfolio theory: Under given risk
assets to cover estate taxes or final
• Largest spread – precious metals (gold, expenses, life insurance can be used to
conditions, an efficient or optimal portfolio
silver, and platinum) provides the greatest return.
cover them.
When calculating the Capital Market Line,
For clients who need cash immediately, T- standard deviation is an important risk
CLIENT TYPES bills and other money market instruments are strategy to know.
the best investments.
Joint accounts fall into three categories: joint
tenants with the right of survivorship The term efficient set or efficient frontier
As far as capital preservation is concerned, refers to a collection of efficient portfolios.
(JTWROS), tenants in common (TIC), and insured bank CDs are the best choice.
tenants in entirety (for married couples,
consent from both parties is necessary when Dollar cost averaging: Here investments
transactions are carried out). High-tax bracket investors can invest in using a fixed dollar amount are made
municipal bonds. Clients in low tax brackets regularly with purchases at varying prices.
should not use them as an investment
A TOD designation may be applied to joint or platform.
individual accounts (but not to TIC accounts). A call option is the most effective way to
As a result, the first death is not subject to protect a short stock position (hedge).
probate. The life expectancy of a client who is five,
ten, or twenty years from retirement is the
time horizon. A put option is the most effective way to
Powers of attorney must be in writing and protect a long stock position (hedge).
include the following:
An analysis of capital needs is used to
determine the coverage of future needs CONSIDERATIONS RELATED TO TAX
• Limited (trading only) without taking market volatility into account.
• Full (both trading and money) A trust's distributable net income (DNI)
• Durable Social Security payments are increased by includes interest, dividends, and rent.
Reinvested capital gains won't be included in
• Upon death of principal on account, all 8% if the beneficiary waits until 70 years old.
the trust corpus.
are terminated
PORTFOLIO MANAGEMENT
In a simple trust, all income must be inventory at their designated bid or asking Market capitalization
distributed annually. Complex trusts can prices. • $300 to $2 billion = small cap
retain income, but Form 1041 must be used
to report it.
• $2 billion to $10 billion = mid cap
Market order: Here the best available price
possible sees the order executed
• Over $10 billion = large cap
Trusts that last beyond a single generation immediately. Only this order is guaranteed to
are called generation-skipping trusts. be executed. In order to track small securities, it is best to
measure them against the Russell 200.
For sole proprietorships, Schedule C is used Limited order: BDs are instructed to buy or
to report business information, while for sell at or below a particular price for a certain In order to track mid-cap securities, it is best
limited partnerships, LLC members, and security. This is called the buy limit or sell to measure them against the S&P 400.
shareholders, Schedule K-1 is used. limit.
Information about C corporations is reported To track large cap securities, you need to
on Form 1120. Buy stop orders: These orders are used to compare them to the S&P 500.
"stop the loss" on short positions.
Taxation of gifted stock holds that the donee
(or recipient of the gift) gets it at the donor’s The term "block trade" refers to a trade RETIREMENT PLANS AND OTHER
basis. involving 10,000 or more shares. SPECIAL ACCOUNTS

Taxation of inherited stock holds that it is a Institutional algorithmic trading is called high- Roth IRAs do not have required minimum
stepped-up cost basis that the beneficiary frequency trading (HFT). distributions (RMDs). The only individual-
receives. funded plan with this feature is a Roth IRA.
PERFORMANCE MEASURES FOR
Using Form 706, estate taxes must be paid PORTFOLIOS Roth IRAs contributions are funded with after-
within nine months of death. tax dollars. Upon meeting certain conditions,
the distribution will not be taxed.
Current return (yield): Annual dividend (or
Executors can use alternative valuation dates interest) / current market price
(6 months after death). IRAs do not allow term or whole life
insurance.
Yield to maturity (YTM): A bond's internal
SECURITIES TRADING rate of return (IRR). A coupon reinvestment
rate greater than YTM will result in a lower An IRA should not contain municipal bonds.
When trading on margin accounts, leverage return than the holding period return.
is used. It is necessary to sign the margin While benefiting from participant or lineal
agreement after completing the initial Total returns: Annual dividend (or interest) + family is not possible, one can invest in real
transaction. appreciation (-depreciation) / original estate.
investment
Margin accounts require credit and Proceeds from IRAs can be disclaimed by
hypothecation agreements, while loan Annualized return: Total return over 12 beneficiaries.
consents are optional. months
The profit-sharing plan of a company cannot
A risk disclosure document must be signed After-tax return: Total return minus taxes be used by the CEO for a short-term loan.
before any trading takes place.
Expected return: This is a combination of A deferred compensation plan is nonqualified
Initial margins are covered by Regulation T. different probable outcomes due to the lack of mandatory funding and the
ability to discriminate.
A maintenance call must be made whenever Real rate of return: Adjusts for inflation
equity falls. levels by taking CPI into consideration. A defined benefit plan does not consider
gender, but age, earnings, and retirement
A mixed margin account will contain short years are critical factors.
In the case of Treasury Inflation Protection
and long positions. Securities (TIPS), the inflation adjusted return
is always the coupon rate. Catch-up provisions for retirement plans for
With a positive margin, profits are higher than those over 50 are allowed thanks to the
interest costs. EGTRRA of 2001. It also allows for
Portfolio variability has no relation to total participants in a government employee 457
return. plan for rollovers to an IRA.
Whenever equity falls below 25%, SRO
regulations require clients to receive a A stock’s risk-adjusted return is measured by
maintenance margin call. “Top heavy” tests are performed on 401 (k)
the Sharpe ratio. To work this out, take off the plans to ensure that it’s not highly
risk-free (90-day Treasury bill) from the actual compensated employees that benefits and
Specialist/designated market makers return and divide it by standard deviation. contributions to but instead, to KEY.
(DMMs): Responsible for processing orders
on the NYSE floor as both principals or Market capitalization is calculated by
agents A plan that does not have to undergo this
multiplying the market value per share by the testing is a safe harbor 401 (k) plan but only if
number of shares outstanding. every employee gets a minimum employer-
Market makers (MMs): Work in over the
counter markets. They can buy or sell their
sponsored contribution with immediate • The social security number of the minor
vesting. must be on the account
• One minor – one custodian
Under Section 404 (c) of ERISA’s safe harbor
provisions, fiduciaries cannot be held liable if
• Basics cannot be funded through the
fund, for example, food, clothing, or
the plan suffers losses due to the selections
shelter. Vacations, however, can be
of investments by the participant in their own
funded.
account.
• The greatest impact on college aid is
from custodial funds
It is possible for participants to change their
investments every quarter if the plan offers
Health savings accounts
them at least three investment alternatives
(but not a high-yield bond). Accounts should
also be accessible online and by phone. • For medical expenses. These allow for
tax-deductible contributions
Fiduciaries are required to act under the • Contributors are the individual, their
Uniform Prudent Investor Act. A trustee employer, or both
should exercise reasonable skill, caution, and • Must also have a high-deductible health
care in order to satisfy this standard. Portfolio plan (HDHP)
management can be delegated, but not
distribution amounts and timing.

Investment Policy Statements (IPS) are not

compulsory but are recommended.

They should include the following:

• Investment philosophy and objectives

• Performance measurement methods
• How future cash flow needs will be met
• The investment parameters that portfolio
managers will follow

An IPS will not include:

• Summary Plan Description (SPD) copy

• Selection of specific securities

Funds from ESA can be used for any level of

education.

Section 529 plans may be fully utilized in

postsecondary education. The maximum
amount per year is $10,000 for K-12.

Contributions to Section 529 plans are not

limited by income, while contributions to
ESAs are.

Investing in U.S. savings bonds is not

possible with Section 529 plans.

The option to switch 529 plans is available

every 12 months.

Money from a 529 plan can be used to attend

some foreign universities.

• UGMA: only for securities and cash.

Transfer occurs at majority
• UTMA: This holds basically any type of
asset. Transfer occurs at 21 or over