CFC Philippines flashcards

36 cards. Read the term and the definition here. The deck at the top of this page is optional.

Six-step financial planning process

Establish and define the relationship; gather client data and goals; analyze the current situation; develop the plan; implement recommendations; monitor and update. Each stage feeds the next and monitoring loops back to reassessment.

Quantitative versus qualitative data

Quantitative data are objective numbers such as income, assets, liabilities, and policy values. Qualitative data are subjective factors such as attitudes, risk tolerance, values, and expectations. Both are collected before analysis.

Fiduciary versus suitability standard

A fiduciary must act in the client's best interest and disclose conflicts. A suitability standard only requires that a recommendation fit the client's profile. Fiduciary duty is the stricter obligation.

Rule of 72

Approximates the number of years for a sum to double by dividing 72 by the annual growth rate. At 8% growth, money doubles in about nine years. Useful for quick inflation and savings estimates.

Insurable interest

A legal requirement that the policyholder would suffer financial loss from the insured event. In life insurance it must exist at policy inception; in property insurance it must exist at the time of loss.

Co-insurance clause formula

Claim payment equals loss multiplied by insurance carried divided by insurance required, capped at the policy limit. Required insurance is the co-insurance percentage times the value at risk.

Term versus whole life insurance

Term insurance provides a death benefit for a set period with no cash value. Whole life provides permanent coverage with guaranteed cash value. Universal life separates the cost of insurance from the cash-value account.

Human life value method

Estimates life insurance needs by capitalizing the insured's future earnings, net of personal consumption and taxes, into a present value. This represents the economic value the family would lose.

Indemnity principle

Property insurance restores the insured to the pre-loss financial position without profit. Agreed-value and valued policies are exceptions. The principle discourages over-insurance and moral hazard.

Beta and systematic risk

Beta measures a security's sensitivity to market movements. Systematic risk cannot be diversified away. Unsystematic, company-specific risk can be reduced by holding a diversified portfolio.

Capital Asset Pricing Model

Required return equals the risk-free rate plus beta times the market risk premium, where the premium is market return minus the risk-free rate. It prices systematic risk only.

Sharpe ratio

Measures risk-adjusted return as portfolio return minus the risk-free rate, divided by the portfolio's standard deviation. A higher ratio means better return per unit of total risk taken.

Bond duration

Duration approximates a bond's price sensitivity to yield changes. A one-percentage-point yield change moves price by about duration percent in the opposite direction. Longer maturities and lower coupons raise duration.

Time-weighted versus money-weighted return

Time-weighted return removes the effect of cash flows and measures manager performance. Money-weighted return, or IRR, reflects the investor's actual experience including the timing of contributions and withdrawals.

Asset allocation and rebalancing

Asset allocation sets target weights across asset classes and explains most return variability. Rebalancing restores targets periodically, enforcing a sell-high, buy-low discipline and controlling risk drift.

Retirement replacement ratio

Target retirement income expressed as a percentage of pre-retirement income, commonly 70 to 80 percent. Adjust for lower work expenses, mortgage payoff, and higher healthcare costs in retirement.

Defined benefit versus defined contribution

Defined benefit plans promise a formula-based pension, often final pay times years times accrual rate. Defined contribution plans provide whatever the account accumulates, shifting investment risk to the employee.

SSS pension formula factors

The Philippine SSS monthly pension depends on credited years of service, average monthly salary credit, and the number of dependent children, capped at five. Higher salary credit and longer service raise the pension.

RA 7641 retirement pay

Philippine labor law requires retirement pay of at least one-half month's salary per year of service for employees with at least five years of service, with a minimum of one month's salary.

Vesting schedule

A schedule determining when employer contributions become the employee's property. Cliff vesting grants full ownership after a set period; graded vesting grants ownership progressively over several years.

Philippine individual income tax brackets

Under TRAIN, annual taxable income up to 250,000 pesos is exempt. Rates then rise from 15 percent to 20, 25, 30, and finally 35 percent on income above 8,000,000 pesos.

Optional standard deduction

An alternative to itemized deductions allowing individuals to deduct 40 percent of gross sales or receipts, without supporting expense records. Choosing it simplifies filing but may not minimize tax.

Taxable-equivalent yield

Converts a tax-exempt yield into the taxable yield that would produce the same after-tax result. Formula: tax-exempt yield divided by one minus the marginal tax rate. Used to compare exempt and taxable bonds.

Capital gains tax on real property

In the Philippines, sale of real property classified as a capital asset is subject to a 6 percent final tax on the gross selling price or zonal value, whichever is higher.

Legitime and free portion

The legitime is the portion of an estate reserved by law for compulsory heirs, such as legitimate children who receive one-half divided equally. The free portion may be disposed of by will.

Philippine estate tax base

The net estate equals gross estate less deductions, including a standard deduction of 5,000,000 pesos and a family home deduction up to 10,000,000 pesos. The net estate is taxed at a flat 6 percent.

Donor's tax

A 6 percent flat tax on net gifts exceeding 250,000 pesos per donor per year in the Philippines. Lifetime giving reduces the taxable estate but consumes the annual exemption.

Intestate succession order

Without a will, Philippine law distributes the estate to legitimate children and descendants first, then legitimate parents and ascendants, then the surviving spouse, then collateral relatives, and finally the State.

Net worth and cash flow surplus

Net worth equals total assets minus total liabilities. Cash flow surplus equals income minus expenses. A persistent negative surplus means drawing down assets or increasing debt.

Emergency fund target

A reserve of three to six months of essential living expenses, held in liquid, low-volatility accounts. Longer reserves suit variable or single incomes. It prevents forced selling of long-term investments.

Debt avalanche versus snowball

The avalanche method pays the highest interest rate debt first, minimizing total interest. The snowball method pays the smallest balance first, providing motivational wins. Avalanche is mathematically cheaper.

Break-even point

In units, fixed costs divided by price minus variable cost per unit. In pesos, fixed costs divided by the contribution margin ratio. It shows the sales level at which profit is zero.

Net present value rule

NPV equals the present value of expected cash inflows minus the initial outlay. Accept projects with positive NPV because they add value at the required rate of return.

Buy-sell agreement

A contract setting how an owner's interest is valued and transferred on death, disability, or departure. It may be cross-purchase or entity-redemption and is often funded with life insurance.

Fiduciary duty of loyalty

Requires placing the client's interests ahead of the adviser's own and disclosing all material conflicts, including commissions and referral fees. Undisclosed compensation breaches this duty.

Know-your-client and AMLA

Philippine anti-money-laundering rules require customer identification, record-keeping, and reporting of suspicious transactions. Advisers must verify identity and understand the source of client funds.