Know Your Players
A person or firm in the business of providing securities advice for compensation.
What is an investment adviser (IA)?
This regulator generally oversees an IA with $110 million or more in AUM.
What is the SEC?
Divide 72 by the expected return to estimate how many years it will take an investment to double.
What is the Rule of 72?
This measure combines an investment’s income with its gain or loss in value.
What is total return?
Earnings in this individual retirement account grow tax-deferred, and contributions may be deductible.
What is a traditional IRA?
An individual associated with an IA who advises clients, manages accounts, solicits advisory clients, or supervises those activities.
What is an investment adviser representative (IAR)?
This regulator generally oversees an IA with less than $100 million in AUM, unless an exception applies.
What is the state Administrator?
Subtract an investment’s current price from its present value to assess whether it appears underpriced or overpriced.
What is net present value (NPV)?
You buy a stock for $20, receive a $1 dividend, and sell it for $24. This is your total return as a percentage.
What is 25%?
In this type of employer-sponsored plan, the employee’s retirement account balance depends on contributions and investment performance.
What is a defined contribution plan?
An individual representing a BD or issuer in effecting or attempting securities transactions.
What is an agent?
This firm generally registers with both the SEC and the states where it does business. In a state where it has no office, even one retail client generally triggers registration.
What is a broker-dealer?
Find the discount rate that makes an investment’s NPV equal zero, then compare it with the investor’s required return.
What is internal rate of return (IRR)?
This measure captures an investment’s total return over exactly the time you owned it, whether that was six months or six years.
What is holding period return?
This type of plan promises a specified retirement benefit, leaving the employer responsible for investment risk.
What is a defined benefit plan?
This firm buys and sells from its own inventory as part of its regular business.
What is a dealer?
A state-covered IA generally must register in a state when it has this there.
What is a place of business?
This formula uses the risk-free rate, a security’s beta, and the market’s expected return to estimate the return investors should require for its market risk.
What is the Capital Asset Pricing Model (CAPM)?
This return adjusts an investment’s stated return for inflation to show the approximate change in purchasing power.
What is real return, or inflation-adjusted return?
A company wants a retirement plan but does not want to be required to contribute every year. Unlike a money-purchase pension plan, this plan permits that flexibility.
What is a profit-sharing plan?
An adviser registered with the SEC or otherwise covered by federal law rather than state registration.
What is a federal covered adviser?
A state generally cannot require a federal covered adviser to do this, though it may require notice filings and fees.
What is register as an IA with the state?
Subtract the risk-free rate from a portfolio’s return, then divide by its standard deviation to compare return per unit of total risk.
What is the Sharpe ratio?
Unlike time-weighted return, this measure is affected by when an investor adds or withdraws money, making it useful for assessing the investor’s actual experience.
What is dollar-weighted return?
During a divorce, a court issues this order directing part of a participant’s 401(k) benefits to a former spouse. It applies to qualified plans, not IRAs.
What is a qualified domestic relations order (QDRO)?