QIA cheat sheet

Fiduciary duty requires acting in the client's best interest, disclosing conflicts, and seeking best execution; suitability alone is a lower standard.

Form ADV Part 1 is the regulatory filing; Part 2A (brochure) and 2B (brochure supplement) are client-facing disclosure documents.

Registered advisers generally must deliver the brochure before or at the time of entering an advisory contract and offer annual delivery thereafter.

Custody of client assets typically triggers surprise annual examination by an independent accountant and additional disclosure.

Advertising rules restrict testimonials, past specific recommendations, and performance presentations unless net-of-fee and with required caveats.

Personal trading policies (codes of ethics) address insider trading, front-running, and pre-clearance of IPOs and private placements.

Recordkeeping rules require retention of books and records, generally five years with the first two easily accessible.

Compliance program rule requires written policies, a designated chief compliance officer, and annual review of the program.

Bond price and yield move inversely; price sensitivity rises with maturity and falls with coupon, measured by duration and convexity.

Yield curve inversion (short rates above long rates) has historically preceded economic slowdowns, though timing is unreliable.

Equity order types: market (immediate execution, price uncertainty), limit (price certainty, execution uncertainty), stop (becomes market order at trigger).

Mutual fund NAV is struck once daily at close; ETFs trade intraday at market prices that may deviate from NAV via premium or discount.

Options: call gives right to buy, put gives right to sell; buyer pays premium, writer receives premium and bears assignment obligation.

Money market instruments (T-bills, commercial paper, CDs) are short-term, high-quality, and priced on a discount-yield basis.

Real assets (REITs, commodities, TIPS) provide differing inflation sensitivities; TIPS adjust principal by CPI.

Derivative counterparty, liquidity, and leverage risks must be assessed alongside the underlying exposure being hedged or taken.

Portfolio expected return is the weighted average of asset expected returns; portfolio variance includes covariance terms, not just weighted variances.

Diversification benefit depends on correlation below +1; the lower the correlation, the greater the risk reduction for a given return.

Efficient frontier plots portfolios with maximum expected return for each level of risk; optimal portfolio depends on investor utility.

Capital Asset Pricing Model: E(Ri) = Rf + beta_i × (E(Rm) − Rf); beta measures systematic risk only.

Sharpe ratio = (Rp − Rf) / sigma_p; Treynor ratio = (Rp − Rf) / beta_p; use Sharpe for total risk, Treynor for systematic risk.

Strategic asset allocation sets long-term policy weights; tactical allocation makes short-term deviations within policy limits.

Rebalancing to target weights enforces a sell-high/buy-low discipline and controls drift in risk exposure.

Asset location: place tax-inefficient income assets in tax-deferred accounts and tax-efficient equity in taxable accounts, all else equal.

Intrinsic value estimates derive from discounted cash flows: PV = sum of CFt / (1+r)^t plus terminal value discounted to present.

Dividend discount model: P0 = D1 / (r − g), valid only when r > g; g must be sustainable, not above long-run growth.

Free cash flow to firm discounted at WACC gives enterprise value; subtract net debt to reach equity value.

WACC = (E/V) × Re + (D/V) × Rd × (1 − tax rate); weights should be at market value.

Relative valuation uses multiples (P/E, EV/EBITDA, P/B); comparables must match on growth, risk, and capital structure.

DuPont decomposition: ROE = net margin × asset turnover × financial leverage.

P/E can be decomposed into payout ratio, growth, and required return; a high P/E implies high expected growth or low discount rate.

Margin of safety is the gap between intrinsic value estimate and market price; wider margins buffer estimation error.

Total risk = systematic (market, non-diversifiable) + unsystematic (firm-specific, diversifiable); only systematic risk is priced.

Standard deviation measures total volatility; beta measures sensitivity to market moves; value at risk estimates loss at a confidence level over a horizon.

Duration approximates percentage price change for a 1% yield change; convexity corrects the estimate for larger yield moves.

Stress testing and scenario analysis examine tail events beyond what historical volatility captures.

Liquidity risk includes both market liquidity (bid-ask spread, depth) and funding liquidity (ability to meet obligations).

Correlation tends to rise in market stress, reducing diversification precisely when it is most needed.

Risk tolerance has two parts: ability to take risk (capacity, horizon, wealth) and willingness (psychological attitude); conflicts favor the lower.

Hedging with derivatives transfers risk but introduces basis risk, counterparty risk, and cost.

Integrity means candor and honesty; misrepresenting performance or qualifications violates it regardless of client harm.

Objectivity requires independent judgment; gifts, entertainment, or pressure that compromise judgment must be disclosed or refused.

Duty of loyalty, prudence, and care requires placing client interests first and managing conflicts in the client's favor.

Fair dealing prohibits preferential treatment; information that could move prices must be disseminated, not selectively shared.

Material nonpublic information must not be traded on or used to cause others to trade; mosaic theory permits assembling public and nonmaterial nonpublic data.

Performance presentation must be fair, accurate, and complete; do not cherry-pick or misstate benchmarks.

Conflicts of interest must be disclosed prominently and managed; disclosure does not cure all conflicts, some must be avoided.

Supervisors must establish compliance procedures and reasonably detect and prevent violations by subordinates.

Know-your-client data includes objectives, time horizon, risk tolerance, liquidity needs, tax status, and any constraints.

Suitability requires a reasonable basis that a recommendation fits the client's profile; a recommendation can be unsuitable even if the security is sound.

Investment policy statement documents objectives, constraints, and guidelines; it anchors decisions and reduces behavioral drift.

Risk tolerance conflicts between ability and willingness should be resolved conservatively, favoring the lower capacity.

Time horizon and liquidity needs determine how much can be allocated to illiquid or volatile assets.

Regular review and rebalancing keep the portfolio aligned with a changing client profile and market conditions.

Behavioral biases (loss aversion, overconfidence, recency, anchoring) should be identified and mitigated through process.

Communication should be documented; material changes in client circumstances warrant updating the profile and reassessing suitability.

Marginal tax rate applies to the next dollar of income; effective tax rate is total tax divided by total income.

Tax-deferred accounts (traditional IRA/401k) reduce current taxable income; withdrawals are taxed as ordinary income later.

Roth accounts are funded with after-tax dollars and qualified withdrawals are tax-free; tax-free growth favors long horizons.

Capital gains: long-term rates generally below short-term (ordinary) rates; holding period thresholds matter.

Tax-loss harvesting realizes losses to offset gains, subject to wash-sale rules that disallow losses on repurchases within 30 days.

Asset location and tax-efficient fund placement can add after-tax value without changing pre-tax returns.

Required minimum distributions force withdrawals from tax-deferred accounts after a statutory age, raising taxable income.

Estate and gift planning: annual exclusion gifts, step-up in basis at death, and beneficiary designations affect after-tax outcomes.