CPWA flashcards
CPWA · Build recall with a focused review session.
32 cards. Read the term and the definition here. The deck at the top of this page is optional.
- Wealth management process
- A cyclical sequence of engagement, discovery, data gathering, analysis, recommendations, implementation, monitoring, and review that aligns financial resources with client goals.
- Fiduciary duty
- A legal standard requiring the advisor to act with care, competence, and diligence and to place the client’s interests ahead of the advisor’s own.
- Investment policy statement
- A written document that sets objectives, risk tolerance, time horizon, liquidity, tax, legal, and unique constraints and guides portfolio decisions and review.
- Risk tolerance versus capacity
- Risk tolerance is emotional willingness to accept loss; risk capacity is financial ability to absorb loss without jeopardizing goals. Both shape the appropriate portfolio.
- Prospect theory
- A behavioral model in which people evaluate outcomes relative to a reference point and weight losses more heavily than equivalent gains.
- Loss aversion
- The tendency to feel the pain of a loss more intensely than the pleasure of an equal gain, often roughly twice as strongly.
- Disposition effect
- The tendency to sell investments that have risen in value while holding investments that have fallen, often to avoid realizing a loss.
- Mental accounting
- The practice of dividing money into separate mental buckets and making different risk or spending decisions for each bucket.
- CAPM formula
- Expected return equals the risk-free rate plus beta multiplied by the difference between the market return and the risk-free rate.
- Sharpe ratio
- Portfolio excess return divided by standard deviation; it measures excess return per unit of total risk and allows comparison of portfolios.
- Systematic and unsystematic risk
- Systematic risk is market-wide and cannot be diversified away; unsystematic risk is company- or sector-specific and can be reduced by diversification.
- Duration price rule
- For a small yield change, the percentage change in a bond’s price is approximately negative modified duration times the change in yield.
- Marginal tax rate
- The tax rate applied to the next dollar of taxable income; it differs from the effective rate, which is total tax divided by total income.
- Net investment income tax
- A 3.8% tax on the lesser of net investment income or modified adjusted gross income above $200,000 for single filers and $250,000 for married filing jointly.
- Wash sale rule
- A capital loss is disallowed if substantially identical securities are purchased within 30 days before or after the sale; the disallowed loss adjusts the new basis.
- Stepped-up basis
- Assets held until death generally receive a basis equal to fair market value at death, eliminating income tax on appreciation during the decedent’s life.
- Unlimited marital deduction
- A U.S. citizen spouse can receive unlimited assets free of federal estate and gift tax at the transfer, deferring tax until the survivor’s estate.
- Portability election
- A timely estate tax return election allowing a surviving spouse to use the deceased spouse’s unused exclusion amount, subject to current law.
- QTIP trust
- A marital deduction trust that pays income to the surviving spouse and gives the deceased spouse control over the remainder beneficiaries.
- Annual gift tax exclusion
- The amount that can be given to each donee per year without using lifetime exclusion or filing a gift tax return; $19,000 in 2025.
- Qualified charitable distribution
- A direct transfer from an IRA to a charity at age 70½ or older; it is excluded from gross income and can satisfy a required minimum distribution.
- Charitable remainder trust
- An irrevocable split-interest trust that pays income to the donor or others for life or a term, then distributes the remainder to charity.
- Donor-advised fund
- A public charity account that accepts irrevocable charitable contributions, allows an immediate deduction, and later makes grants to qualified charities.
- Buy-sell agreement
- A contract among business owners that sets the price, funding, and transfer terms for an owner’s interest on death, disability, retirement, or other trigger.
- Cross-purchase buy-sell
- A buy-sell structure in which surviving owners buy the departing owner’s interest directly, often funded by life insurance owned by each co-owner.
- Section 6166 deferral
- An estate tax provision allowing qualifying closely held business interests to defer estate tax, with interest, when the business exceeds 35% of the adjusted gross estate.
- Required minimum distribution
- The minimum amount that must be withdrawn annually from most tax-deferred retirement accounts beginning at age 73, or age 75 for those born in 1960 or later.
- Delayed retirement credits
- Social Security benefit increases of 8% per year for delaying claiming past full retirement age up to age 70.
- Sequence of returns risk
- The risk that poor investment returns early in retirement, combined with withdrawals, permanently reduce portfolio value and sustainability.
- Own-occupation disability
- A disability policy definition that pays benefits when the insured cannot perform the duties of their own occupation, even if able to work elsewhere.
- Long-term care ADL trigger
- Long-term care benefits typically begin when the insured cannot perform at least two of six activities of daily living or has cognitive impairment.
- Umbrella liability policy
- An excess liability policy that pays above the limits of underlying auto, homeowners, or business policies and may cover some gaps.