CPWA cheat sheet
CPWA · Keep the key ideas within reach.
Wealth Management Process and Client Engagement
Core process: engagement, discovery, data gathering, analysis, recommendation, implementation, monitoring, and periodic review.
Fiduciary duty includes duty of care (competence and diligence) and duty of loyalty (client interest first and disclosure of conflicts).
Risk capacity is the financial ability to bear loss; risk tolerance is the emotional willingness to bear loss; both must be reconciled in the IPS.
An IPS records objectives, return and risk targets, time horizon, liquidity needs, tax status, legal constraints, and unique client circumstances.
Engagement scope should specify services, fee method, client responsibilities, decision authority, and termination terms.
KYC and AML include identity verification, beneficial ownership, source of funds, and ongoing monitoring.
Quantitative discovery includes balance sheet, cash flow, tax returns, insurance policies, estate documents, and retirement accounts.
Review triggers include marriage, divorce, birth, death, job change, inheritance, major liquidity event, tax-law change, and goal change.
Client Psychology and Behavioral Finance
Prospect theory says outcomes are evaluated as gains or losses relative to a reference point, and losses loom larger than equivalent gains.
Loss aversion implies a loss of $1 is felt roughly twice as strongly as a $1 gain.
Anchoring is over-reliance on an initial number such as a purchase price, forecast, or index level.
Recency bias overweights recent market returns when forming expectations.
Overconfidence raises trading frequency and understates risk; confirmation bias seeks supporting information.
Disposition effect is selling winners too early and holding losers too long.
Mental accounting separates money into buckets, which can support goals but can also produce inconsistent risk decisions.
Cognitive biases are information-processing errors; emotional biases arise from feelings and are harder to correct.
Framing changes choices by presenting the same outcome as a gain or a loss.
Investment Planning and Portfolio Management
CAPM: expected return = risk-free rate + beta × (market return − risk-free rate).
Sharpe ratio = (portfolio return − risk-free rate) / standard deviation; higher is better per unit of total risk.
Treynor ratio = (portfolio return − risk-free rate) / beta; it measures excess return per unit of systematic risk.
Jensen alpha = portfolio return − [risk-free rate + beta × (market return − risk-free rate)].
Diversification reduces unsystematic risk; systematic market risk remains.
Modified duration estimates price change: percent price change ≈ −modified duration × change in yield.
Asset allocation explains most of the variability of portfolio returns over time, though not most of the level of returns.
Rebalancing can be calendar-based or threshold-based; taxable accounts should consider capital gains and wash-sale rules.
The efficient frontier shows portfolios with the highest expected return for each level of risk.
Income Tax Planning
Marginal tax rate applies to the next dollar of taxable income; effective tax rate equals total tax divided by total income.
Long-term capital gains and qualified dividends generally use 0%, 15%, or 20% rates; holding period must exceed one year.
Net investment income tax is 3.8% on the lesser of net investment income or MAGI above $200,000 single / $250,000 married filing jointly.
Wash-sale rule disallows a loss if substantially identical securities are bought within 30 days before or after the sale.
Assets held until death generally receive a stepped-up basis; gifted assets generally carry over the donor’s basis.
HSA contributions are deductible or pre-tax, growth is tax-deferred, and qualified medical withdrawals are tax-free.
Section 1031 like-kind exchange defers gain on real property held for productive use or investment.
Above-the-line deductions reduce gross income; below-the-line itemized deductions reduce taxable income only if they exceed the standard deduction.
Estate Planning
Gross estate includes assets owned at death, certain transfers, life insurance proceeds if incidents of ownership, and retained interests.
Unlimited marital deduction allows unlimited transfers to a U.S. citizen spouse free of estate or gift tax.
Portability lets a surviving spouse use the deceased spouse’s unused exclusion amount by timely filing Form 706.
2025 annual gift tax exclusion is $19,000 per donee; gifts above it use lifetime exclusion or gift-splitting.
2025 basic exclusion amount is $13,990,000 per person; estate tax rate above exclusion is 40%.
QTIP trust qualifies for marital deduction and controls remainder distribution to beneficiaries chosen by the deceased spouse.
Revocable trusts avoid probate but do not remove assets from the taxable estate.
Intestacy statutes distribute property when no valid will exists; they may conflict with client intent.
Generation-skipping transfer tax applies to transfers to grandchildren or others more than one generation below the transferor.
Charitable Planning
Cash gifts to public charities are deductible up to 60% of AGI; long-term appreciated property to public charities up to 30% of AGI.
Cash gifts to private foundations generally are deductible up to 30% of AGI; appreciated property to private foundations up to 20% of AGI.
Qualified charitable distributions from IRAs are available at age 70½ and are indexed; 2025 limit is $108,000 per person.
QCDs satisfy RMDs and are excluded from gross income, which can reduce AGI-linked items.
Charitable remainder trust pays income to the donor or others for a term or life, then remainder goes to charity.
Charitable lead trust pays income to charity for a term, then remainder passes to noncharitable beneficiaries.
Gifts of long-term appreciated property avoid recognition of capital gain and generally use fair market value for deduction.
Written acknowledgment is required for charitable gifts of $250 or more; qualified appraisal generally required for noncash gifts above $5,000.
Private foundations generally pay a 1.39% excise tax on net investment income.
Business Succession and Closely Held Business Planning
Business valuation approaches are income-based (DCF, capitalization), market-based (comparables), and asset-based (net asset value).
Buy-sell agreements set price, funding, and transfer terms on death, disability, retirement, divorce, or termination.
Cross-purchase buy-sell: surviving owners buy the interest directly; entity redemption: the business buys the interest.
Life insurance funding must match ownership structure; cross-purchase policies are owned by co-owners, redemption policies by the entity.
Stock redemptions are taxed as dividends unless they meet a Section 302 test such as complete termination, disproportionate redemption, or not essentially equivalent.
Section 6166 allows estate tax deferral for closely held business interests exceeding 35% of adjusted gross estate.
Section 303 permits redemption of stock to pay death taxes and expenses up to certain limits without dividend treatment.
Succession planning includes identifying successors, training, governance, compensation, and documentation of transfer timing.
Key-person insurance protects the business against financial loss from death or disability of a critical employee.
Retirement Planning
Social Security full retirement age is 67 for workers born in 1960 or later; early claiming at 62 reduces benefits.
Delayed retirement credits increase Social Security benefits by 8% per year from full retirement age to age 70.
RMDs begin at age 73 for those subject to SECURE 2.0; age 75 applies to individuals born in 1960 or later.
2025 401(k) employee deferral limit is $23,500; catch-up is $7,500 at age 50+ and $11,250 at ages 60–63.
2025 IRA contribution limit is $7,000 with a $1,000 catch-up at age 50+.
Sequence-of-returns risk is the danger that poor returns early in retirement permanently reduce portfolio longevity.
The 4% rule is a planning heuristic for initial withdrawal, not a guarantee; Monte Carlo analysis estimates probability of success.
Roth conversions create current taxable income but can reduce future RMDs and provide tax diversification.
Defined benefit pensions promise a benefit; defined contribution plans depend on contributions and investment returns.
Risk Management and Insurance
Risk management techniques are avoidance, reduction, retention, and transfer.
Life insurance needs analysis can use human life value or capital needs; term insurance covers a defined period without cash value.
Own-occupation disability pays when the insured cannot perform their own occupation; any-occupation pays when unable to perform any occupation.
Disability policy terms include elimination period, benefit period, benefit amount, definition of disability, and riders.
Long-term care benefits typically trigger when the insured cannot perform two of six activities of daily living or has cognitive impairment.
Property and casualty policies use deductibles, coinsurance, and policy limits to share and cap losses.
Umbrella liability policy provides excess liability coverage above underlying auto, home, or business policies.
Insurable interest requires the beneficiary or policy owner to suffer financial loss from the insured’s death.
An annuity transfers longevity risk to an insurer; mortality and expense charges reduce variable annuity returns.