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what is recency frequency monetary value rfm | recency frequency monetary value rfm is a model used in marketing analysis that segments a company s consumer base by their purchasing patterns or habits in particular it evaluates customers recency how long ago they made a purchase frequency how often they make purchases and monetary value how much money they spend rfm is then used to identify a company s or an organization s best customers by measuring and analyzing spending habits to improve low scoring customers and maintain high scoring ones understanding recency frequency monetary valuethe rfm model is based on three quantitative factors rfm analysis numerically ranks a customer in each of these three categories generally on a scale of 1 to 5 the higher the number the better the result the best customer would receive a top score in every category these three rfm factors can be used to reasonably predict how likely or unlikely it is that a customer will do business again with a firm or in the case of a charitable organization make another donation the concept of recency frequency monetary value rfm is thought to date from an article by jan roelf bult and tom wansbeek titled optimal selection for direct mail published in a 1995 issue of marketing science 1rfm analysis often supports the marketing adage that 80 of business comes from 20 of the customers the more recently a customer has made a purchase with a company the more likely they will continue to keep the business and brand in mind for subsequent purchases compared with customers who have not bought from the business in months or even longer periods the likelihood of engaging in future transactions with recent customers is arguably higher such information can be used to get recent customers to revisit the business and spend more in an effort not to overlook lapsed customers marketing efforts might be made to remind them that it s been a while since their last transaction while offering them an incentive to resume buying the frequency of a customer s transactions may be affected by factors such as the type of product the price point for the purchase and the need for replenishment or replacement if the purchase cycle can be predicted for example when a customer needs to buy more groceries marketing efforts may be directed toward reminding them to visit the business when staple items run low monetary value stems from how much the customer spends a natural inclination is to put more emphasis on encouraging customers who spend the most money to continue to do so while this can produce a better return on investment roi in marketing and customer service it also runs the risk of alienating customers who have been consistent but may not spend as much with each transaction nonprofit organizations in particular have relied on rfm analysis to target donors as people who have been the source of contributions in the past are likely to make additional gifts significance of recency frequency monetary valuerfm analysis allows a comparison between potential contributors and clients it gives organizations a sense of how much revenue comes from repeat customers vs new customers and which levers they can pull to try to make customers happier so they become repeat purchasers despite the useful information that is acquired through rfm analysis firms must take into consideration that even the best customers will not want to be over solicited and the lower ranking customers may be cultivated with additional marketing efforts it works as a snapshot of the clientele and as a tool to prioritize nurturing but it should not be taken as a license to simply do more of the same old same old sales techniques | |
why is the recency frequency monetary value rfm model useful | the recency frequency monetary value rfm model is based on those three quantitative factors each customer is ranked in each of these categories generally on a scale of 1 to 5 the higher the number the better the result the higher the customer ranking the more likely it is that they will do business again with a firm essentially the rfm model corroborates the marketing adage that 80 of business comes from 20 of the customers | |
what is recency in the rfm model | the recency factor is based on the notion that the more recently a customer has made a purchase with a company the more likely they will continue to keep the business and brand in mind for subsequent purchases this information can be used to remind recent customers to revisit the business soon to continue meeting their purchase needs | |
what is frequency in the rfm model | the frequency of a customer s transactions may be affected by factors such as the type of product the price point for the purchase and the need for replenishment or replacement predicting this can assist marketing efforts directed at reminding the customer to visit the business again | |
what is monetary value in the rfm model | monetary value stems from how much the customer spends a natural inclination is to put more emphasis on encouraging customers who spend the most money to continue doing so while this can produce a better return on investment roi in marketing and customer service it also runs the risk of alienating customers who have been consistent but have not spent as much with each transaction the bottom linethe recency frequency monetary value rfm model assigns a firm s customer base a particular trait which can be used to improve marketing analysis for each attribute recency frequency and monetary value customers are given a score from 1 lowest to 5 best based on their observed purchasing behavior the ideal customer would therefore have a score of 5 5 5 for these three factors other customers with lower scores can be identified for improvement | |
what is a recession | a recession is a significant widespread and prolonged downturn in economic activity a common rule of thumb is that two consecutive quarters of negative gross domestic product gdp growth indicate a recession however more complex formulas are also used to determine recessions economists at the national bureau of economic research nber measure recessions by looking at nonfarm payrolls industrial production and retail sales among other indicators 1 nber also points out that there is no fixed rule about what measures contribute information to the process or how they are weighted in our decisions a downturn must be deep pervasive and lasting to qualify as a recession by nber s definition since some of these qualities may not be evident when a downturn first begins many recessions are called retroactively 2investopedia laura porterunderstanding recessionssince the industrial revolution most economies have grown steadily seeing few economic contractions however recessions are still common between 1960 and 2007 there were 122 recessions affecting 21 advanced economies according to the international monetary fund imf 3 in recent years recessions have become less frequent and shorter in duration declines in economic output and employment that recessions cause can become self perpetuating for example declining consumer demand can prompt companies to lay off staff which affects consumer spending power and can further weaken consumer demand similarly the bear markets that often accompany recessions can reverse the wealth effect suddenly making people less wealthy and further trimming consumption since the great depression governments around the world have adopted fiscal and monetary policies to prevent a run of the mill recession from becoming far worse 45 some of these stabilizing factors are automatic such as unemployment insurance that puts money into the pockets of employees who lose their jobs other measures require specific actions such as cutting interest rates to stimulate investment recessions are most clearly identified after they are over additionally investors economists and employees may have very different experiences in terms of when a recession is at its worst equities markets often decline before an economic downturn so investors may assume a recession has begun as investment losses accumulate and corporate earnings decline even if other measures of recession remain healthy such as consumer spending and unemployment conversely since unemployment often remains high long after the economy hits bottom workers may perceive a recession as continuing for months or even years after economic activity recovers | |
what predicts a recession | while there is no single sure fire predictor of a recession an inverted yield curve has preceded each of the 10 u s recessions since 1955 that being said not every period of inverted yield curve was followed by a recession 6 | |
when the yield curve is normal short term yields are lower than long term yields this is because longer term debt has more duration risk for example a 10 year bond usually yields more than a 2 year bond as the investor is taking a risk that future inflation or higher interest rates could lower the bond s value before it can be redeemed so in this case the yield goes up over time creating an upward yield curve | the yield curve inverts if yields on longer dated bonds go down while yields on shorter term bonds go up the rise of near term interest rates can tip the economy into a recession the reason why the yield on long term bonds drops below that on short term bonds is because traders anticipate near term economic weakness leading to eventual interest rate cuts investors also look at a variety of leading indicators to predict recession these include the ism purchasing managers index the conference board leading economic index and the oecd composite leading indicator | |
what causes recessions | numerous economic theories attempt to explain why and how an economy goes into recession these theories can be broadly categorized as economic financial psychological or a combination of these factors some economists focus on economic changes including structural shifts in industries as most important for example a sharp sustained surge in oil prices can raise costs across the economy leading to recession some theories say financial factors cause recessions these theories focus on credit growth and the accumulation of financial risks during good economic times the contraction of credit and money supply when recession starts or both monetarism which says recessions are caused by insufficient growth in money supply is a good example of this type of theory other theories focus on psychological factors such as over exuberance during economic booms and deep pessimism during downturns to explain why recessions occur and persist keynesian economics focuses on the psychological and economic factors that can reinforce and prolong recessions the concept of a minsky moment named for economist hyman minsky combines the two to explain how bull market euphoria can encourage unsustainable speculation recessions and depressionsaccording to nber the u s has experienced 34 recessions since 1854 but only five since 1980 7 the downturn following the 2008 global financial crisis and the double dip slumps of the early 1980s were the worst since the great depression and the 1937 38 recession routine recessions can cause the gdp to decline 2 while severe ones might set an economy back 5 according to the imf a depression is a particularly deep and long lasting recession though there is no commonly accepted formula to define one during the great depression u s economic output fell 33 stocks plunged 80 and unemployment hit 25 8 during the 1937 38 recession real gdp fell 10 while unemployment jumped to 20 9the covid 19 pandemic and the public health restrictions imposed to stop it are an example of economic shocks that can cause a recession the depth and widespread nature of the economic downturn caused by the covid 19 pandemic in 2020 led the nber to designate it a recession despite its relatively brief two month length 10in 2022 many economic analysts debated whether the u s economy was in recession or not given conflicting economic indicators analysts with investment advisory firm raymond james argued in an october 2022 report that the u s economy was not in recession despite the fact that the economy met the technical definition of recession after two consecutive quarters of negative growth numerous other positive economic indicators showed that the economy was not in recession the report argued it cited the fact that employment continued to increase even as gdp contracted the report further pointed out that although real personal disposable income declined in 2022 much of the decline was a result of the end of the covid 19 relief stimulus and that personal income excluding these payments continued to rise 11data from the the federal reserve bank of st louis as of late october 2022 similarly showed that key nber indicators did not point to the u s economy being in recession 12on february 6 2023 janet yellen u s treasury secretary indicated she was not worried about a recession you don t have a recession when you have 500 000 jobs and the lowest unemployment rate in more than 50 years she said to good morning america 13 | |
what happens in a recession | economic output employment and consumer spending drop in a recession interest rates are also likely to decline as central banks such as the u s federal reserve bank cut rates to support the economy the government s budget deficit widens as tax revenues decline while spending on unemployment insurance and other social programs rises | |
when was the last recession | the last u s recession was in 2020 at the outset of the covid 19 pandemic according to nber the two month downturn ended in april 2020 qualifying as a recession as it was deep and pervasive despite its record short length 10 | |
how long do recessions last | the average u s recession since 1857 lasted 17 months although the six recessions since 1980 averaged less than 10 months 7the bottom linea recession is a significant widespread and prolonged downturn in economic activity recessions are commonly characterized by two consecutive quarters of negative gross domestic product gdp growth though there are more complex ways to assess and classify downturns the unemployment rate is a key recession indicator as demand for goods and services falls companies need fewer workers and may lay off staff to cut costs laid off staff then have to cut their own spending which in turn hurts demand which can lead to more layoffs since the great depression governments around the world have adopted fiscal and monetary policies to prevent recessions from deepening into depressions such as unemployment insurance or cutting interest rates | |
what is a recessionary gap | a recessionary gap or contractionary gap is a macroeconomic term used when a country s real gross domestic product gdp is lower than its gdp at full employment understanding a recessionary gapessentially a recessionary gap refers to the difference between actual and potential production in an economy with the actual being lower than the potential which puts downward pressure on prices in the long run often these gaps are evident during an economic downturn and are associated with higher unemployment numbers 12significant reductions in economic activity for several months will indicate a recession during periods of recession companies will often pull back on spending creating a gap from the contraction in the business cycle economists define a recessionary gap as a lower real income level as measured by real gdp than the real income level at a point of full employment real gdp values all goods and services for a specific time frame adjusted for inflation 1 in the period leading up to a recession there is often a significant reduction in consumer expenditure or investment due to a decrease in the take home pay of workers recessionary gaps and exchange rates | |
when production levels fluctuate prices change to compensate this price change is considered an early indicator that an economy is moving into a recession and may lead to less favorable exchange rates for foreign currencies | an exchange rate is merely one country s currency in comparison with that of another country at parity the two currencies exchange one for one countries might adopt monetary policies to lower rates in an effort to encourage foreign investment or raise rates to encourage internal consumption of homemade products the change in exchange rates affects the financial returns on exported goods lower foreign exchange rates mean less income for exporting countries and further drives a recessionary trend offsetting recessionary gapsalthough it represents a downward economic trend a recessionary gap can remain stable suggesting short term economic equilibrium below the ideal which can be as damaging to an economy as an unstable period this instability is because prolonged downward periods of lower gdp production inhibit growth and contribute to sustained higher unemployment levels policymakers may choose to implement an expansionary policy a stabilization policy to close the gap and increase real gdp monetary authorities might increase the amount of money in circulation in the economy by lowering interest rates and boosting government spending the recessionary gap and unemploymenta more important outcome of a recessionary gap is increased unemployment 2 during an economic downturn the demand for goods and services lowers as unemployment rises if prices and wages remain unchanged this can further elevate unemployment levels in a cycle which feeds upon itself higher unemployment levels reduce overall consumer demand which reduces production and lowers the realized gdp as the amount of output continues to fall fewer employees are required to meet production demand resulting in additional job losses and further reducing the need for goods and services as a company s profits stagnate or decline it cannot offer higher wages some industries may experience pay cuts due to internal business practices or the effect of economic circumstances for example during a recession people spend less on going out to eat which means that restaurant workers receive less income in the form of tips recessionary gap examplein december 2018 the u s labor market as a whole was at full employment with an unemployment rate of 3 9 and there was no recessionary gap 3 however not all parts of the country were at full employment and some individual states were experiencing a recessionary gap for instance new york was at full employment and most large cities were economically secure 4 however the picture was very different in rural areas where jobs were more difficult to find in west virginia for example the decimated coal mining industry brought the unemployment rate to 5 3 with little economic productivity 5 additionally west virginia was the fourth highest state with a poverty rate around 18 6 | |
what is recharacterization | recharacterization refers to two separate individual retirement account ira strategies | |
how recharacterization works | a recharacterization lets you treat a regular contribution that you made to a roth ira or a traditional ira as one that you made to another type of ira for example if you contributed 7 000 to your roth ira the first ira you could recharacterize it as a 7 000 contribution made to your traditional ira the second ira note that 7 000 is the contribution limit to an ira for 2024 6 500 for 2023 2you can t recharacterize employer contributions under a simplified employee pension sep ira or savings incentive match plan for employees simple ira plan as contributions to another ira 1recharacterizing a contribution from one type of ira to another gives you the opportunity to change your mind or correct a mistake say you contributed to a roth even though your income was too high you have until the due date for your federal income tax return including any extensions for the year when you made the first contribution to recharacterize your contribution as long as you recharacterize your contribution by this deadline you can treat the contribution as made to the second ira for that year this means that you can effectively ignore the contribution you made to the first ira 1the year when you made the first contribution is the tax year to which that contribution relates not necessarily the year when you actually made the contribution remember that you generally have until april 15 to make a prior year contribution 1to recharacterize a contribution ask your ira custodian the financial institution holding your ira to transfer the amount including the contribution and related earnings to a different type of ira the recharacterization can occur either within the same institution if you use one custodian for both iras or via a trustee to trustee transfer if different providers maintain the iras | |
how do you recharacterize an individual retirement account ira contribution | to recharacterize an individual retirement account ira contribution you ll need to use an existing ira or open a new one to accept the withdrawn funds next notify your financial institution s that you want to recharacterize a contribution if the same ira provider maintains both iras you can just notify that one institution otherwise inform the custodian holding the ira contribution in question and the institution that will accept the recharacterized contribution you can generally do the recharacterization online or with your ira custodian s standard form you must report the recharacterization on your tax return for the year when you made the original contribution using internal revenue service irs form 8606 3 | |
how do you allocate earnings when recharacterizing ira contributions | if you opt to recharacterize an ira contribution you have to transfer the contribution plus any earnings related to those funds or less any losses 1 if the ira is composed entirely of the contribution and earnings that you want to recharacterize for instance it s a new ira to which you ve made only one contribution then you can transfer the entire ira this is called a full recharacterization conversely if you want to transfer part of your ira it s considered a partial recharacterization in this case you have to determine how much of the ira s earnings are attributable to the contribution that you want to recharacterize you can skip the math by asking your ira provider to calculate this amount for you | |
how much can i contribute to an ira | for 2024 you can contribute up to 7 000 to your roth and traditional iras if you re age 50 or older you can make an additional 1 000 catch up contribution bringing the annual contribution limit to 8 000 for 2023 the limit is 6 500 or 7 500 if you re age 50 or older 4note that the limit is the combined total for all of your iras so for example if you contribute 4 000 to a traditional ira the most that you could contribute to a roth during the same tax year 2024 in this example would be 3 000 roth iras have an extra restriction whether you re allowed to contribute the full amount or anything at all depends on your modified adjusted gross income magi and filing status 5the bottom linethere used to be two recharacterization techniques but now there s only one you can recharacterize a contribution to one ira as a contribution to another ira for example you could recharacterize your contribution to your traditional ira as a contribution to your roth ira contribution or vice versa pay attention to the deadlines however you have until tax day or its six month extension to get this done | |
what is account reconciliation | reconciliation is an accounting procedure that compares two sets of records to check that the figures are correct and in agreement and confirms that accounts in a general ledger are consistent and complete in double entry accounting each transaction is posted as both a debit and a credit businesses and individuals may use account reconciliation daily monthly quarterly or annually unexplained or mysterious discrepancies may warn of fraud or cooking the books investopedia joules garciabookkeepingthere is no standard way to perform an account reconciliation however generally accepted accounting principles gaap require double entry bookkeeping where a transaction is entered into the general ledger in two places every financial transaction is posted as a credit and a debit when a business makes a sale it debits either cash or accounts receivable on the balance sheet and credits sales revenue on the income statement in the reconciliation debits and credits should balance out to zero banks and retailers can make errors when counting money and issuing cash to customers as change variances between expected and actual amounts are called cash over short this variance account is kept and reconciled as part of the company s income statement double entry accounting exampleabc is a lawn care company that purchases 2 000 worth of equipment the equipment is used to complete abc s first lawn care project worth 500 using a double entry accounting system as shown below abc credits cash for 2 000 and debits assets which is the equipment by the same amount for the first job abc credits 500 in revenue and debits the same amount for accounts receivable both credits and debits are reconciled and equal the same amount types of reconciliationthe account conversion method is where business records such as receipts or canceled checks are simply compared with the entries in the general ledger this is similar to personal account reconciliation direct and indirect cash flowsome reconciliations are necessary to ensure that cash inflows and outflows concur between the income statement balance sheet and cash flow statement cash flow can be calculated through either a direct method or an indirect method gaap requires that if the direct method is used the company must reconcile cash flows to the income statement and balance sheet if the indirect method is used the cash flow from the operations section is already presented as a reconciliation of the three financial statements other reconciliations turn non gaap measures such as earnings before interest taxes depreciation and amortization ebitda into their gaap approved counterparts | |
how often should a business reconcile its accounts | businesses are generally advised to reconcile their accounts at least monthly but they can do so as often as they wish businesses that follow a risk based approach to reconciliation will reconcile certain accounts more frequently than others based on their greater likelihood of error 1 | |
how often should individuals reconcile their bank and credit card statements | individuals should reconcile bank and credit card statements frequently to check for erroneous or fraudulent transactions if a personal atm or debit card was involved in a fraudulent transaction an individual s liability is limited to 50 if they notify the bank within two business days but rises to 500 after two days and up to 60 calendar days after 60 days the federal trade commission ftc notes they will be liable for all the money taken from your atm debit card account and possibly more for example money in accounts linked to your debit account 2 | |
what is single entry bookkeeping | in single entry bookkeeping every transaction is recorded just once rather than twice as in double entry bookkeeping as either income or an expense single entry bookkeeping is less complicated than double entry and may be adequate for smaller businesses companies with single entry bookkeeping systems can perform a form of reconciliation by comparing invoices receipts and other documentation against the entries in their books the bottom linereconciliation serves an important purpose for businesses and individuals in preventing accounting errors and reducing the possibility of fraud | |
the record date is the cutoff established by a company to determine the shareholders eligible to receive a dividend or distribution this pivots from the ex dividend date when the stock started trading without the value of its next dividend payment 1 | the record date is needed to decide the list of the company s shareholders since shareholders are constantly changing the shareholders of record on the record date are entitled to receive the company s dividend or distribution understanding the record datethe record date is essential because of its relation to another key date the ex dividend date on and after the ex dividend date buyers of the stock don t receive the dividend the sellers presuming they hadn t bought it in quick transactions after the record date receive it which occurs on the payable date the company s record date should be known before trading dividend paying stocks the ex dividend date is set precisely one business day before the record date in the u s 1 this is because of the t 2 system used in north america where stock trades are settled two business days after the transaction is carried out when an investor buys a stock one business day before its record date the trade settles the day after the record date and this person wouldn t be the shareholder of record for receiving the dividend different rules apply when the dividend is 25 or more of the stock value which is relatively rare the financial industry regulatory authority says the ex date is the first business day following the payable date 2 in other words you re entitled to dividends or distributions worth 25 or more of the share price if you buy the stock at least a day before the pay date to ensure you re in the record books you need to buy the stock at least two business days before the date of record or one day before the ex dividend date example of a record dateassume company alpha has declared a dividend of 1 payable on may 1 to shareholders of record as of april 10 the record date is therefore april 10 and the ex dividend date is one business day before the record date or april 9 if april 9 to 10 are in the middle of a typical week if investors want to receive the dividend from alpha they must buy the stock before its ex dividend date if they buy alpha shares on april 8 their trade will be settled on april 10 since they are a shareholder of record as of april 10 they will receive the dividend however if they buy alpha shares on april 9 the ex dividend date their trade will be settled on april 11 too late to receive the dividend record date vs ex dividend datethe record date and the ex dividend date are both pivotal for dividend paying stocks the record date is when the company determines the roster of shareholders who receive the dividend the ex dividend date set one trading day before the record date kicks off when new buyers no longer have the right to the payout 1if you want to be on the books as a shareholder of record in time to receive a dividend the latest you can buy is the day before the ex dividend date or two days before the record date will i get a dividend if i buy a stock on the record date no you wouldn t receive it to qualify for the dividend you need to be a shareholder of record on the record date this means buying your shares at least one day before the ex dividend date or two days before the record date | |
what happens if i buy shares on or after the ex dividend date | if you buy a stock after its ex dividend date which in u s markets is the day before the date of record you will not be entitled to the dividend instead the seller receives the dividend since they were the shareholder of record on the record date | |
what happens if i sell a stock on the record date | you are still entitled to the dividend if you sell a stock on its record date since the ex date has already passed it s the seller not the buyer who s on the books as the shareholder on the record date the bottom linethe record date also known as the date of record is when a company offering a dividend or distribution establishes its list of shareholders who will receive the payout the record date generally occurs a day after the ex dividend date the first trading day when new buyers no longer qualify for the dividend you must be on the books as a shareholder on the record date to collect a dividend for north america s t 2 settlement system this means buying at least two days before the record date | |
what is recourse | a recourse is a legal agreement that gives the lender the right to pledged collateral if the borrower is unable to satisfy the debt obligation recourse refers to the lender s legal right to collect recourse lending provides protection to lenders as they are assured of having some repayment either in cash or liquid assets companies that use recourse debt have a lower cost of capital as there is less underlying risk in lending to that firm understanding recourserecourse provides the legal means for a lender to seize a borrower s assets if the borrower defaults on a debt if the debt is full recourse the borrower is liable for the full amount of the debt even to the extent it exceeds the value of the collateralized asset recourse debt allows the lender to take other assets from the borrower besides the collateral in order to repay the debt in most cases the lender may obtain a deficiency judgment to seize unpledged assets levy bank accounts or garnish wages the lender may also go after other sources of income from the borrower such as commissions royalties or investment income recourse vs non recourserecourse loans are distinct from non recourse loans which limit the lender to claiming only the specific asset pledged as collateral if a borrower defaults on a non recourse loan and the value of the collateral does not cover the amount the borrower owes the lender cannot attempt to recover the balance by seizing the borrower s other assets the lender only has a legal right to the pledged collateral because of this distinction recourse debt favors the lender while non recourse debt favors the borrower borrowers who have non recourse loans generally must pay higher interest rates than recourse loans in order to compensate the lender for undertaking the additional risk recourse debt is the more common form of debt because it is less risky for lenders non recourse debt is usually limited to longer term loans placed on stabilized and performing assets such as commercial real estate tax impact of recourse on borrowersrecourse debt has two tax implications for borrowers that translate into recognizing taxable ordinary income and reporting a loss or gain when filing their taxes the borrower must report as ordinary income any part of a debt that is forgiven by the lender for example if a lender forecloses on a house to recover a 150 000 debt and sells it for 125 000 the borrower still owes 25 000 if the lender forgives the 25 000 the borrower must report this amount as ordinary income for tax purposes if the debt is non recourse the forgiveness of the loan does not result in taxable cancellation of debt income since the terms of the loan do not give the lender any rights to pursue the owner personally in case of default regardless of whether a debt is forgiven the borrower must report a loss or gain based on the difference between the original loan amount and the amount realized in the sale of the asset in the above example the 25 000 must be reported as a loss losses incurred through the sale of deficient assets are not tax deductible special considerationsmost loans are issued with recourse language included in the loan document the language specifies the recourse actions the lender may take along with any limitations generally whether a loan is a recourse or non recourse depends on the state where the loan originated most states provide for recourse for mortgage lenders but it may be restricted in some way for example in some states the deficiency judgment the lender can obtain against the borrower cannot exceed the fair market value fmv of the property common types of recourse loans are credit cards personal loans and auto loans for example consider a home that has a mortgage balance of 250 000 and a fair market value of 200 000 if the lender sells the home at auction for 150 000 it can only recover a 50 000 deficiency judgment against the borrower which is the difference between the fmv and the amount the home sold for at auction in some states lenders are prohibited from obtaining deficiency judgments example of recoursecompany abc is a delivery company that needs to replace its fleet of outdated trucks it needs to buy five new trucks that cost a total of 250 000 company abc only has 50 000 in cash to spend on the trucks so it borrows 200 000 from bank xyz the loan is a recourse loan and the pledged collateral is the trucks after three years company abc s business has been performing poorly and it can no longer make payments on its loan to bank xyz it still owes 125 000 on its loan as per the terms of the recourse loan bank xyz ceases the trucks that were pledged as collateral however due to the depreciation of the trucks they are only worth 75 000 meaning there is a shortfall of 50 000 in covering the outstanding amount on the loan because the value of the collateral does not cover the outstanding amount on the loan and because the loan is a recourse loan bank xyz seeks to obtain other assets of company abc to cover the difference the two companies come to an agreement whereby company abc will hand over certain operating equipment with a total value of 50 000 to make whole on the loan questions answers | |
what is a non recourse loan | a non recourse loan is a loan whereby if the borrower defaults on the loan and the pledged collateral does not cover the outstanding amount on the loan the lender is not able to go after other assets of the borrower to make up the difference most banks prefer not to issue non recourse loans as it could leave them with a loss | |
what recourse do i have against a home builder | if a home builder has done a poor job in building your home such as faulty floorboards cracked ceilings or other issues as a homeowner you do have some recourse the first step is to check your contracts and warranties most house builds will have warranties on the different areas of your home if the warranties expire or do not cover a certain issue depending on the issue the builder may be in breach of contract or negligence given the work they have done you can register complaints with the better business bureau and the federal trade commission ftc and speak to a lawyer to determine your options | |
what is recourse debt in a partnership | recourse debt in a partnership means that a partner or multiple partners may be personally liable for the outstanding debt in a partnership if the partnership has outstanding debt and cannot cover its loans if it is a general partnership it means that the lender can go after the personal assets of the partners if the collateral does not cover the outstanding amount if the partnership is a limited liability company llc then there is only limited recourse and the lender cannot go after the personal assets of the partners | |
what is limited recourse debt | recourse debt means that a lender can go after other assets of a borrower if the pledged collateral isn t sufficient enough to cover the outstanding debt that the borrower cannot pay recourse debt can be full or limited limited recourse debt means there is a limit to what assets a lender can seize in order to cover the outstanding loan the assets are typically listed in the loan contract ahead of time | |
what is full recourse debt | recourse debt means that a lender can go after other assets of a borrower if the pledged collateral isn t sufficient enough to cover the outstanding debt that the borrower cannot pay recourse debt can be full or limited full recourse debt means that the borrower can seize as many assets to cover the entire amount of the outstanding loan not just specific assets | |
what is a recourse loan | the term recourse loan refers to a type of loan that can help a lender recoup its investment if a borrower fails to pay and the value of the underlying asset is not enough to cover it a recourse loan is a form of secured financing it lets the lender go after the debtor s other assets that were not used as loan collateral or to take legal action in case of default in order to pay off the full debt 1understanding recourse loansborrowers have several options available to them when they need financing one type of loan is a secured facility this kind of debt requires collateral an asset that a borrower puts down as security the lender is able to seize this asset and sell it to satisfy the debt in case the borrower defaults 2a recourse loan is a type of secured debt commonly found in some real estate and automobile loans they give lenders a higher degree of power because they have fewer limits on what assets lenders can go after for loan repayment in fact a recourse loan allows the lender to seize the collateral as well as any other assets of the debtor the lender may also take legal action against the borrower as well 3a recourse loan may be easier for borrowers to obtain but it also puts more of their assets at risk in the event of a default 4the lender can seize money from the borrower s savings checking or other financial accounts they also grant the lender the right to tap into certain income sources of the borrower this can include garnishing their wages garnishment is a legal procedure in which a lender obtains a court order requiring the person s employer to withhold a portion of their earnings in order to pay the debt these earnings can include wages commissions bonuses and even income from a pension or retirement program 1the contract and terms of a recourse loan generally outline the types of assets that a lender can go after if a debtor fails to live up to their financial obligations for instance a full recourse loan allows the lender to go after any and all assets in limited recourse loans the lender can only pursue assets that are named specifically in the contract 1types of recourse loanscertain types of financing can be classified as recourse loans for example hard money loans for real estate acquisitions would be considered recourse loans the terms of a hard money loan give lenders the opportunity to take possession of the property in the event of default and then resell it themselves lenders may even agree to provide this financing with the hope of taking ownership of the property because they believe they can resell it for a greater gain 3recourse loan vs non recourse loannon recourse loans are also secured forms of financing but they are inherently different from recourse loans if a borrower defaults the lender is only allowed to seize the collateral used to secure the loan and nothing else this means any balance that remains after the security is sold must be written off many traditional mortgages are non recourse loans using only the home itself as collateral so if the homeowner defaults the lender may seize the home but not any other assets belonging to the borrower 1advantages and disadvantages of recourse loanslenders that offer hard money loans may approve borrowers that other financial institutions would reject for that reason borrowers with a limited or poor credit history might turn to this type of loan the leniency regarding approvals comes with a caveat for borrowers the lender could go after the debtor s other assets in the event of a default note though that there can be limits on the types of assets the lender may attach to the loan a good reason to read any contract carefully from the lender s point of view a recourse loan reduces the perceived risk associated with less creditworthy borrowers the potential for the lender to seize property beyond the initial collateral can quell some concerns that the borrower will not make good on the debt but recourse loans such as hard money loans are often more expensive for the borrower than traditional financing provided by banks at the going rate this is why lenders typically prefer issuing recourse loans while borrowers prefer non recourse loans example of a recourse loanhere s a hypothetical example of a recourse loan suppose a homeowner takes out a recourse loan for 500 000 to purchase a home and then goes into foreclosure after the local housing market declines if the value of the home is now down to 400 000 and it was purchased with a recourse loan the lending institution can go after the borrower s other assets in order to make up the outstanding 100 000 and pay off the loan to close it | |
what is recovery rate | the recovery rate is the extent to which principal and accrued interest on defaulted debt can be recovered expressed as a percentage of face value 1 the recovery rate can also be defined as the value of a security when it emerges from default or bankruptcy 2the recovery rate enables an estimate to be made of the loss that would arise in the event of default this is called loss given default lgd and is calculated by the following formula 3thus if the recovery rate is 60 then the lgd is 40 on a 10 million debt instrument the estimated loss arising from default would be 4 million understanding recovery ratesrecovery rates can vary widely as they are affected by a number of factors such as instrument type corporate issues and macroeconomic conditions 4 the type of instrument and its seniority within the corporate capital structure are among the most important determinants of the recovery rate the recovery rate is affected by the instrument s seniority in the capital structure which means that senior debt will usually have a higher recovery rate than junior debt 5corporate issues include the company s capital structure amount of equity and level of indebtedness debt instruments issued by a company with a lower level of debt in relation to its assets may have higher recovery rates than a company with substantially more debt for example the recovery rate on senior secured bonds will often have a high recovery rate while holders of junior subordinated bonds can expect a recovery rate of close to zero 6macroeconomic conditions include the stage of the economic cycle the overall default rate and liquidity conditions if a large number of companies are defaulting on their debt as would be the case during a deep recession then the recovery rates may be lower than during normal economic times for example a moody s investors service study corporate default and recovery rates 1920 2008 found that the average recovery rate for senior unsecured bonds dropped from 53 3 in 2007 to 33 8 in 2008 a result of the great recession that gripped the united states from december 2007 to june 2009 7recovery rates and lendingin lending the recovery rate can be applied to cash extended via loans or credit and recovered by foreclosure or bankruptcy knowing how to properly calculate and apply a recovery rate can help businesses set rates and terms for future credit transactions for example if a recovery rate turns out to be lower than expected lenders can increase interest rates on a loan or shorten its payout cycle to better manage the added risk calculating the recovery rateto calculate the recovery rate one must first choose what type of group to focus on and set a time period such as weeks months or years once a target group is identified add up how much money was extended to it over the given time period then add up the total sum paid back by that group next divide the total payment amount by the total amount of debt the result is the recovery rate for example during one week you extended 15 000 in credit and received 2 000 in payments therefore 2 000 15 000 13 33 which is the recovery rate for the week | |
what does recovery rate mean | the recovery rate is the percentage of defaulted debt that can be recovered by a lender it is also the value of a security after it emerges from default or bankruptcy businesses and lenders can use the recovery rate as they determine the estimated recovery value of an asset in the event of liquidation | |
what is the value of knowing the recovery rate | knowing approximately how much debt you can recover is useful for setting the terms and interest rates for future credit transactions it allows lenders to accurately account for risk | |
is the recovery rate the same for all debt | no it can vary greatly depending on the kind of debt in question generally senior debt has a higher recovery rate than junior debt other factors that influence the recovery rate include corporate capital structure type of debt instrument level of indebtedness and macroeconomic issues | |
what is recurring billing | recurring billing happens when a merchant automatically charges a customer for goods or services on a prearranged schedule recurring billing requires the merchant to get the customer s information and permission the vendor will then automatically make recurring charges to the customer s account with no further permissions needed any good or service that a customer subscribes to with regularly scheduled payments might be a good candidate for recurring billing examples include cable bills cell phone bills gym membership fees utility bills and magazine subscriptions recurring billing may also be referred to as automatic bill payment understanding recurring billingrecurring billing offers the benefit of convenience instead of having to provide billing information for a routine charge repeatedly the customer can authorize the merchant to keep payment details on file then the merchant can charge the designated account each month that service is in effect or each time that the agreed upon goods or services are delivered it is typically up to the business provider to decide on the options for payment some providers require that checking or saving accounts be used while others allow for checking savings and credit card accounts example of recurring billingconsider the example of a customer and a pet store the customer sets up an order with an online pet store to have three bags of dog food delivered every three months authorizing recurring billing would let this purchase happen automatically on a regular three month schedule with a charge to a designated credit card other examples where recurring billing is often used include electric bills phone bills and internet services many companies offer a small monthly discount to customers when they sign up for recurring billing this helps to lower some of the risks of any missed payments types of recurring billingin fixed or regular recurring billing the same amount is collected from the customer in every payment cycle companies that provide services for a fixed price typically use fixed recurring billing for example a gym membership is an example of fixed recurring billing if you subscribe to the new york times or any other newspaper you are billed using fixed recurring billing for a business this model provides stable and continuous revenue the terms subscription billing and recurring billing are often used interchangeably these models are similar both subscription and recurring billing involve an automatic payment system storage of customer s payment information and periodic withdrawal of credit from the customer s account the main difference between the two models is the pricing plans subscription businesses can have multiple pricing plans while it s not necessary for there to be different tiers of pricing in a recurring billing model the billing mechanism remains the same in variable or irregular recurring billing the amount collected from the customer might change in every payment cycle depending on the customer s usage of the product a new dynamic bill is created for each cycle usage based billing is a type of variable recurring billing where a customer is recurrently charged based on their usage of the service utility bills are a common example of usage based billing quantity based billing is another type of variable recurring billing with this model customers are billed based on a quantity that was agreed upon when they purchased volume based cloud storage services are one example of quantity based billing advantages and disadvantages of recurring billingone drawback of recurring billing for consumers is that it can be troublesome to correct a billing error instead of receiving a bill noticing a mistake then refusing to pay the bill until the mistake is corrected the consumer may be automatically billed for the incorrect amount requiring additional time to obtain a refund thus it is safest to agree to recurring billing for payments that are always about the same amount and occur on a predictable schedule because you re more likely to quickly notice any billing errors recurring billing can also lead to overlooked expenses for customers who forget about the charges some people will pay their credit card bills without reviewing each listed charge they could be paying for a service they no longer require or didn t even know they were getting recurring and automatic billing is also pointed to as the source of scamming seniors moreover in some cases recurring billing can lead to halted services if an account is declined when recurring billing is used it can be important to tie it to a major checking account or savings account that carries a high balance any interruption in service due to a declined charge can be problematic for a customer many services only allow customers to sign up if they agree to recurring billing for example virus software and credit monitoring service agreements often require the customer to agree to be charged for the service periodically they require the customer to cancel the service or it will continue indefinitely in this way recurring billing can help merchants with customer retention recurring billing has several other benefits for merchants it ensures prompt payment from customers helps with cash flow lowers billing and collection costs and automates a portion of accounts receivable it can also improve customer satisfaction by making it more convenient for the customer to do business with a company however recurring billing doesn t eliminate all administrative tasks for example merchants will need to contact consumers about updating their payment information if a credit card expires or a credit card issuer declines an attempted recurring charge merchants that offer recurring billing usually make it easy for consumers to manage their billing information and preferences online many merchants use sophisticated systems to help them manage all aspects of recurring billing a well designed system allows a merchant to automate invoicing and payment details for recordkeeping purposes most billing systems also allow a customer to easily check their account details change their payment information opt out of service before a free trial converts to a paid subscription or cancel an unwanted subscription for customers recurring billing can save them time too they only need to sign up and provide their payment information one time this can be a relief for customers because they don t have to make sure the bill is paid every cycle hard to correct billing errorseasy for consumers to overlook expensessource of scamming for seniorscan lead to halted serviceshelps with customer retentionensures prompt paymenthelps with cash flowlowers billing and collection costssaves customers time | |
how do you set up a recurring payment on paypal | with paypal recurring payments merchants can regularly bill their customers for goods or services to set up paypal recurring payments you must have a paypal business account once you have a paypal business account paypal provides detailed instructions on its website for how to set up subscription plans and accept paypal credit and debit card payments on your website | |
how do you cancel a recurring payment on paypal | if you are a customer and you want to cancel a recurring payment subscription or automatic billing agreement you have with a merchant the first step is to log in to your paypal account click on settings near the top of the page then click on payments next click on manage pre approved payments finally click cancel or cancel automatic billing and follow the instructions more information can be found on paypal s website in their help center under the question how do i cancel a recurring payment subscription or automatic billing agreement i have with a merchant | |
how do you cancel a recurring payment on a credit card | the best way to stop recurring payments on a credit card is to contact the service provider directly depending on the service you should be able to make contact online by phone in person or by mail if you want to avoid an additional payment going through it is advisable to contact the service at least three days before the next scheduled payment date | |
how do you cancel a recurring payment on a debit card | if you want to stop automatic debits from your account you have a couple of different options you can contact the company directly either via writing or over the phone and tell them you are taking away your permission for the company to take automatic payments out of your bank account once you have done this you should call or write to your bank or credit union and tell them that you have revoked authorization for the company to take automatic payments from your account | |
what is recurring revenue | recurring revenue is the portion of a company s revenue that is expected to continue in the future unlike one off sales these revenues are predictable stable and can be counted on to occur at regular intervals going forward with a relatively high degree of certainty understanding recurring revenuebusinesses investors and analysts pay particular attention to a company s revenue also known as its top line recorded on the income statement the top line determines the bottom line or profit since all expenses and taxes are subtracted from revenues to get net income revenue can consist of one time sales or a stream of expected periodic sales the latter known as recurring revenue is very important to businesses that are concerned with maintaining a constant and consistent stream of revenue examples of recurring revenuerecurring revenue can appear in different forms across various industries examples can range from companies who receive monthly payments from customers locked into long term contracts extending beyond the current accounting period to big name brands that can reasonably expect their popular market leading products to continue being at the top of consumer shopping lists for years to come in many industries it is normal for companies to tie their customers into long term obligations in exchange for regular active use of a service for example cell phone firms typically require customers to enter two three or even five year contracts with monthly payments these companies will record these future revenues as they are almost certain that monthly payments will be made over the duration of the legal binding contracts signed by customers they also generally build cancellation clauses into their contracts requiring that customers pay a certain amount in the event that they cancel their contract early if the provider can estimated the early cancellation percentage they can relatively accurately forecast all revenues from contracts whether fulfilled or not evergreen subscriptions including auto renewal policies such as microsoft corp s msft office 365 norton mcafee anti virus registrations cloud services music streaming internet domain registrations print or digital news publications etc are other examples of sources of revenue that are recurring for a firm companies are sure to collect on these payments until customers terminate their subscriptions monthly recurring revenue an important metric for subscription based businesses is calculated by multiplying the total number of paying users by the average revenue per user arpu companies that sell products that can only be used with other accessories produced by the same firm can often count on receiving predictable revenue in the future for example a toilet bowl brush stick that can only be used with specific scrubbing brushes a shaving stick which only fits customized razors a personal coffee maker that only accepts one brand of cups and the like will always require refills the sales of which act as recurring revenues for businesses companies with an established brand name in its market space have a loyal base of customers that are very likely to keep purchasing its products a good example is coca cola co ko the soft drink maker s beverages are consumed by customers all over the world multiple times a day for decades its products have been purchased frequently enough for coca cola to state with reasonable assurance how many bottles or cans it will likely continue to sell in the future special considerationsmany market pundits consider recurring revenue to be a highly desirable quality they make a company more stable and predictable both operationally and financially lowering the risk that business will take a drastic turn from one month to the next that stability usually comes at a cost investors are regularly willing to pay more for the earnings generated by companies with recurring revenues because their forecasts are deemed more reliable of course that also means that any sign of falling sales can incite more panic contracts eventually end and company fortunes and market strength can fluctuate over time as consumer habits change and new competitors enter the market | |
what is a red herring | a red herring is a preliminary prospectus filed by a company with the securities and exchange commission sec usually in connection with the company s initial public offering ipo a red herring prospectus contains most of the information pertaining to the company s operations and prospects but does not include key details of the security issue such as its price and the number of shares offered | |
how a red herring works | a red herring prospectus may refer to the first prospectus filed with the sec as well as a variety of subsequent drafts created prior to obtaining approval for public release to be considered eligible for release the sec must thoroughly review a red herring prospectus to ensure the information contained therein does not include any intentional or incidental falsehoods or statements that are in violation of any laws or regulations the sec may also note any failure to disclose required information the term red herring is derived from the bold disclaimer in red on the cover page of the preliminary prospectus the disclaimer states that a registration statement relating to the securities being offered has been filed with the sec but has not yet become effective that is the information contained in the prospectus is incomplete and may be changed thus the securities may not be sold and offers to buy may not be accepted before the registration statement becomes effective the red herring does not state a price or issue size you might look at it as the case of a drug having good effectiveness data submitted to the fda for approval but that has not received the fda approval yet but in this case no approval is granted only effective registration once the registration statement becomes effective the company disseminates a final prospectus that contains the final ipo price and issue size expressions of interest then convert to orders for the issue at the buyer s option the minimum period between a registration statement filing and its effective date is 15 days the sec does not approve the securities but simply ensures that all relevant information is disclosed in the registration statement a red herring is a preliminary document filed with the sec that notes a security offering has been filed but is not yet effective benefits of a red herringa red herring prospectus can function as a source of information regarding a potential offering that is currently being crafted by a particular company versions of the prospectus that have not been fully reviewed by the sec may present a company too favorably this view may be adjusted after the sec has requested revisions before final approval the red herring prospectus contains substantial information on the company as well as information regarding the intended use of proceeds from the offering market potential for its product or service financial statements details regarding pertinent management personnel and current major shareholders pending litigation and other pertinent details example of a red herringfacebook inc meta now meta filed a red herring which was essentially a form s 1 with a disclosure the red bold disclaimer on facebook s filing on feb 1 2012 read | |
what is redemption | depending on the context the term redemption has different uses in the finance and business world in finance redemption refers to the repayment of any fixed income security at or before the asset s maturity date bonds are the most common type of fixed income security but others include certificates of deposit cds treasury notes t notes and preferred shares 1another use of the term redemption is in the context of coupons and gift cards which consumers may redeem for products and services investopedia jessica olahunderstanding redemptionspeople who invest in fixed income securities such as bonds receive fixed interest payments at regular intervals bonds can be redeemed before or on their maturity date if redeemed at the time of maturity an investor receives the par value also called the face value of the bond this refers to the original value of the bond when it was first issued and is the amount of money the issuer of the bond agrees to repay the bondholder 2a callable bond also known as a redeemable bond is a bond that the issuer may redeem before it reaches its stated maturity date redemption value is the price at which the issuing company will repurchase the bond from investors before its maturity date a callable bond allows the issuer of the bond to pay off its debt early an issuer may choose to call their bond if market interest rates move lower 2a mutual fund is another example of an investment that an investor can redeem to make a mutual fund redemption the investor must inform their fund manager of their request the manager must process the request within a certain amount of time and distribute the funds to the investor the amount owed to the investor is normally the current market value of their shares less any fees and other charges 3as consumers we often make redemptions in our everyday lives for example a coupon or gift card is a form of redemption because the value of the coupon or card is redeemed for a good or service capital gains and losses on redemptionsthe redemption of an investment may generate a capital gain or loss both of which are recognized on fixed income investments and mutual fund shares taxation of capital gains is reduced by capital losses recognized in the same year 4 mutual fund gains and losses are included in the same capital gain calculation to compute the capital gain or loss on redemption the investor must know the cost basis which is the original value or purchase price of the asset bonds can be purchased at a price other than the par or face amount of the bond assume for example that an investor buys a 1 000 par value corporate bond at a discounted price of 900 and receives a 1 000 par value when the bond is redeemed at maturity the investor has a 100 capital gain for the year and the tax liability for the gain is offset by any capital losses the investor might have if the same investor purchases a second 1 000 par value corporate bond for 1 050 and the bond is redeemed for 1 000 at maturity the 50 capital loss reduces the 100 capital gain for tax purposes types of redemptionsmost redemptions are made for cash so when a mutual fund investor requests a redemption the fund management company will issue the investor a check for the shares at market value but there are cases where redemptions may be made in kind in kind redemptions are non monetary payments made for securities or other instruments rarely used in the mutual fund industry in kind redemptions are common with exchange traded funds etfs fund managers may feel redemptions hurt long term investors therefore instead of paying out cash to those who wish to exit a fund they offer positions in other securities on a pro rata basis etfs are generally considered more tax friendly than mutual funds by issuing shares in kind the etf does not have to sell securities to raise cash for redemption payouts this in turn eliminates the need for capital gains distributions cutting down the investor s tax liability the redemption of fund shares from a mutual fund company must occur within seven days of receiving a request for redemption from the investor because mutual funds are priced only once per day investors who wish to redeem their money must place the order before the market s close or the time set by the mutual fund money is redeemed at the fund s net asset value nav for the day which is calculated as the sum of the value of the assets of a fund less than its liabilities once the sale is completed clients typically receive their funds including any gains via check or direct deposit to their bank account some mutual funds may have redemption fees attached in the form of a back end load a back end load is a sales charge a percentage of the fund s value that declines over time if the investor holds the fund shares for a longer amount of time the back end load charged when the shares are redeemed is smaller investments in mutual funds are designed for individuals who buy and hold fund shares for the long term and selling fund shares after a short period of time results in higher costs to the investor the investor pays sales charges and annual fees for professional portfolio management and the fund s accounting and legal costs | |
what is redlining | redlining is a discriminatory practice that puts services usually financial services out of reach for residents of certain areas based on race or ethnicity redlining is illegal evidence of redlining is the systematic denial of mortgages insurance loans and other financial services based on location and that area s default history rather than on an individual s qualifications and creditworthiness notably the practice of redlining is felt the most by residents of minority neighborhoods | |
how redlining works | the term redlining was coined by sociologist john mcknight in the 1960s and is derived from the practice used by the federal government and lenders of literally drawing a red line on a map around the neighborhoods where they would not invest based on demographics alone black inner city neighborhoods were most likely to be redlined investigations found that lenders would make loans to lower income white borrowers but not to middle or upper income black borrowers 1unable to get regular mortgages black residents who wanted to own a house often were forced to resort to exploitatively priced housing contracts that massively increased the cost of housing and gave them no equity until their last payment was delivered chicago s contract buyers league was formed in the 1960s by a group of inner city residents to fight these practices effects of redliningin the 1930s the federal government began redlining real estate delineating risky neighborhoods for federal mortgage loans based on the race of the residents the result of this redlining in real estate could still be felt decades later in 1996 homes in redlined neighborhoods were worth less than half that of the homes in what the government had deemed as best for mortgage lending according to research by home sale company zillow that disparity has only grown greater in the following two decades 2examples of redlining can be found in a variety of financial services including not only mortgages but also student loans credit cards and insurance although the community reinvestment act was passed in 1977 to help prevent redlining critics say discrimination continues to occur 3for example redlining has been used to describe discriminatory practices by retailers both brick and mortar and online reverse redlining is the practice of targeting neighborhoods mostly non white for higher prices or lending on unfair terms such as predatory lending of subprime mortgages there s also evidence of what midwest bankcentre ceo orv kimbrough calls corporate redlining as reported by the business journals since peaking before the 2008 financial crisis the annual number of loans to black owned businesses through the u s small business administration s 7 a program decreased by 84 compared to a 53 decline in 7 a loans awarded overall 4the report also found an overall trend of significantly less lending to businesses in black majority neighborhoods compared to white majority ones legality of redliningcourts have determined that redlining is illegal when lending institutions use race as a basis for excluding neighborhoods from access to loans in addition the fair housing act which is part of the civil rights act of 1968 prohibits discrimination in lending to individuals in neighborhoods based on their racial composition 5 however the law does not prohibit excluding neighborhoods or regions on the basis of geological factors such as fault lines or flood zones the destructive legacy of redlining has been more than economic a 2020 study by researchers at the national community reinvestment coalition the university of wisconsin milwaukee and the university of richmond found that the history of redlining segregation and disinvestment not only reduced minority wealth it impacted health and longevity resulting in a legacy of chronic disease and premature death in many high minority neighborhoods on average life expectancy is lower by 3 6 years in redlined communities when compared to the communities that existed at the same time but were high graded by the holc 6while redlining neighborhoods or regions based on race religion national origin sex or marital status is illegal under u s law lending institutions are allowed to take economic factors into account when making loans lending institutions are not required to approve all loan applications on the same terms and may impose higher rates or stricter repayment terms on some borrowers but the reason for doing so cannot be any of the prohibited bases 7lenders are not forbidden from redlining areas with regard to geological factors such as fault lines or flood zones 7 | |
what factors are lenders allowed to consider | banks may legally take the following factors into consideration when deciding whether to make loans to applicants and on what terms housing discrimination is illegal if you think you ve been discriminated against based on race religion sex marital status use of public assistance national origin disability or age there are steps you can take 8 one such step is to file a report to the consumer financial protection bureau cfpb or with the u s department of housing and urban development hud lenders must evaluate each of the above factors without regard to the race religion national origin sex or marital status of the applicant 7mortgage applicants and homebuyers who believe that they might have been discriminated against can take their concerns to a fair housing center the office of fair housing and equal opportunity at hud or in the case of mortgages and other home loans the cfpb 910 | |
where does the term redlining come from | the term redlining was coined by sociologist john mcknight in the 1960s it is derived from the literal practice used by the federal government and lenders beginning in the 1930s of drawing a red line on a map around the neighborhoods they would not invest in based on the racial demographics of the neighborhood | |
why is redlining discriminatory | redlining is a discriminatory practice because it puts services usually financial services out of reach for residents of certain areas based on race or ethnicity evidence of redlining can be observed in the systematic denial of mortgages insurance loans and other financial services based on location rather than on the individual s qualifications and creditworthiness black inner city neighborhoods were most likely to be redlined | |
what factors can banks use when making loans | banks and other lending institutions are allowed to take economic factors into account when making loans if these decisions are based solely on economic factors then lending institutions are not required to approve all loan applications on the same terms and may impose higher rates or stricter repayment terms on some borrowers however according to u s law they cannot base their approval decisions on race religion national origin sex or marital status 11the bottom lineredlining represents a shameful chapter in the long history of american racial discrimination by denying federal housing loans to people in minority communities the federal government effectively denied the benefits of homeownership to millions of american citizens although racial redlining is now illegal unofficial forms of discrimination continue to this day | |
what is a reference number | a reference number is a unique identifier assigned to any financial transaction including those made using a credit or debit card the reference number is created technologically and designated for a single transaction a reference number helps an institution identify transactions in records and electronic databases used to monitor transactions associated with a card reference numbers from each transaction on a customer s account are usually included in a cardholder s monthly statement understanding a reference numberreference numbers are used by financial institutions to make compiling and queries of millions of transactions easier to manage they are generated once a transaction is completed and are made up of a combination of random letters and numbers reference numbers are generally assigned to transactions such as certain deposits and withdrawals bank transfers wire transfers and bill payments these numbers are used in both printed statements and online banking statements that a cardholder can access at any time credit card statements provide a summary of all of the transactions a cardholder makes during a given time period regulations require card companies to provide cardholders with instructions concerning the contents of the statement as well as how to read and understand the different sections some companies may use the term file number when referring to a reference number special considerationsreference numbers make it easier for customers to interact with customer service representatives consumers can communicate questionable transactions to the representative who can then investigate them through their database to obtain more details about the transactions for example a customer may simply reference transaction 123456 instead of using the store and date of the transaction the descriptive elements of the transaction are maintained in the transaction metadata in the card company s database each transaction s reference number provides a valuable identifier to help make the resolution process much faster for all transaction queries and any fraudulent charges card companies can track comprehensive information about a transaction by its reference number with the reference number the company can identify the merchant or seller as well as the card terminal or terminal owner that was used to execute the transaction if a card has been compromised or used for fraudulent purposes card companies can void the charges by using the reference number in the pending phase types of reference numbersin some cases customer service inquiries and calls may also generate a reference number for example if a customer calls to inquire about a product or service the customer service representative may give that consumer a reference number to quote if they call back at a future date in order to complete the transaction reference numbers also provide operational transaction details for merchants merchants can use reference numbers to identify and track every transaction made by their business reference numbers may also be assigned to a credit card or loan application the location of the reference number in this case varies depending on the issuer or provider typically it s at the end of an application form or provided in an email or letter from the company most reference numbers will be found at the top of the application submission form which shows up after submitting an application it s also usually quoted at the top of a follow up email or letter from the company many companies provide reference numbers for credit cards or loans while some do not a booking reference number is used by airlines hotels travel agents and online travel companies these unique codes are specific to an individual travel reservation these codes are also called confirmation numbers and show up on airline tickets and hotel reservation systems if a customer wishes to change or cancel a reservation the booking reference number will help the customer service representative identify the reservation details in the system | |
what is a ups reference number | a united parcel service ups reference number is also called a ups pickup reference number one or more parties to the shipment will use this series of characters or numbers to help ups freight correctly identify the shipment the carrier can designate the reference number from various sources including the return authorization number 1 | |
what is a fedex reference number | while many customers will track a fedex fdx package with a tracking number a reference number provides an alternative way for customers to locate their packages examples of a fedex reference number include a purchase order po number customer account number invoice number and bill of lading number having access to one or more of these numbers helps customers track the status of their shipment and verify delivery 2 | |
what is a fed reference number | banks use federal reference numbers to track wire transfers of money the receipt for the wire transfer will include a section labeled fed reference or federal reference this is where you will find a unique series of numbers that you can use to investigate and track the electronic wire transfer from the initiating bank to the receiving bank | |
what is a reference rate | a reference rate is an interest rate benchmark used to set other interest rates various types of transactions use different reference rate benchmarks but the most common include the fed funds rate libor the prime rate and the rate on benchmark u s treasury securities reference rates are useful in homeowner mortgages and sophisticated interest rate swap transactions made by institutions | |
how a reference rate works | depending on the writing of a security or financial contract the reference rate can be harder to understand difficulties happen especially if the rate is in the form of an inflation benchmark such as the consumer price index cpi or as a measure of economic health such as the unemployment rate or corporate default rate reference rates are at the core of an adjustable rate mortgage arm with an arm the borrower s interest rate will be the reference rate usually the prime rate plus an additional fixed amount known as the spread from the lender s viewpoint the reference rate is a guaranteed rate of borrowing at a minimum the lender always earns the spread as profit for the borrower however changes in the reference rate can have a definite financial impact if the reference rate makes a sudden move upward borrowers who pay floating interest rates can see their payments rise dramatically reference rates also form the benchmark for an interest rate swap in an interest rate swap the floating reference rate is exchanged by one party for a fixed interest rate or a set of payments the reference rate will determine the floating interest rate portion of the contract reference rate examplelet s say a homebuyer needs to borrow 40 000 to help finance the purchase of a new home the bank offers a variable interest rate loan at prime plus 1 that means the interest rate for the loan equals the prime rate plus 1 therefore if the prime rate is 4 then your mortgage carries an interest rate of 5 4 1 in this case the prime rate is the reference rate the bank may reset the rate from time to time as the reference rate fluctuates when the prime rate goes up your rate also goes up adversely when the prime rate falls so does your payment rate by allowing the bank to reset the rate it avoids the chance that the borrower may default on the loan which causes the bank to lose money borrowers also benefit from a reset of rate it helps them avoid overpaying for a loan if prime rates happen to go down after the finalization of the loan the consumer price index is the reference rate for treasury inflation protected securities known as tips tips are u s treasury securities that are indexed to inflation to protect investors from the counteractive effects of inflation tips will pay interest every six months using the basis of a fixed rate applied to the underlying principle calculation of interest uses the adjusted principal multiplied by one half of the interest rate on maturity the u s treasury will pay either the original or an adjusted principal whichever is higher | |
what is a refinance | a refinance or refi for short refers to revising and replacing the terms of an existing credit agreement usually as it relates to a loan or mortgage when a business or an individual decides to refinance a credit obligation they effectively seek favorable changes to their interest rate payment schedule or other terms outlined in their contract if approved the borrower gets a new contract that replaces the original agreement borrowers often refinance when the interest rate environment changes substantially causing potential savings on debt payments from a new agreement | |
how a refinance works | consumers generally seek to refinance certain debt obligations in order to obtain more favorable borrowing terms often in response to shifting economic conditions common goals from refinancing are to lower one s fixed interest rate to reduce payments over the life of the loan to change the duration of the loan or to switch from a fixed rate mortgage to an adjustable rate mortgage arm or vice versa borrowers may also refinance because their credit profile has improved because of changes made to their long term financial plans or to pay off their existing debts by consolidating them into one low priced loan the most common motivation for refinancing is the interest rate environment because interest rates are cyclical many consumers choose to refinance when rates drop national monetary policy the economic cycle and market competition can be key factors causing interest rates to increase or decrease for consumers and businesses mortgage lending discrimination is illegal if you think you ve been discriminated against based on race religion sex marital status use of public assistance national origin disability or age there are steps you can take one such step is to file a report to the consumer financial protection bureau or with the u s department of housing and urban development hud 1these factors can influence interest rates across all types of credit products including both non revolving loans and revolving credit cards in a rising rate environment debtors with variable interest rate products end up paying more in interest the reverse is true in a falling rate environment in order to refinance a borrower must approach either their existing lender or a new one with the request and complete a new loan application refinancing subsequently involves re evaluating an individual s or a business s credit terms and financial situation consumer loans typically considered for refinancing include mortgage loans car loans and student loans businesses may also seek to refinance mortgage loans on commercial properties many business investors will evaluate their corporate balance sheets for business loans issued by creditors that could benefit from lower market rates or an improved credit profile types of refinancingthere are several types of refinancing options the type of loan a borrower decides to get depends on the needs of the borrower some of these refinancing options include this is the most common type of refinancing rate and term refinancing occurs when the original loan is paid and replaced with a new loan agreement that requires lower interest payments cash outs are common when the underlying asset that collateralizes the loan has increased in value the transaction involves withdrawing the value or equity in the asset in exchange for a higher loan amount and often a higher interest rate in other words when an asset increases in value on paper you can gain access to that value with a loan rather than by selling it this option increases the total loan amount but gives the borrower access to cash immediately while still maintaining ownership of the asset a cash in refinance allows the borrower to pay down some portion of the loan for a lower loan to value ltv ratio or smaller loan payments in some cases a consolidation loan may be an effective way to refinance a consolidation refinancing can be used when an investor obtains a single loan at a rate that is lower than their current average interest rate across several credit products this type of refinancing requires the consumer or business to apply for a new loan at a lower rate and then pay off existing debt with the new loan leaving their total outstanding principal with substantially lower interest rate payments the pros and cons of refinancingyou can get a lower monthly mortgage payment and interest rate you can convert an adjustable interest rate to a fixed interest rate gaining predictability and possible savings you can acquire an influx of cash for a pressing financial need you can set a shorter loan term allowing you to save money on the total interest paid if your loan term is reset to its original length your total interest payment over the life of the loan may outweigh what you save at the lower rate if interest rates drop you won t get the benefit with a fixed rate mortgage unless you refinance again you may reduce the equity you hold in your home your monthly payment increases with a shorter loan term and you have to pay closing costs on the refinance example of refinancinghere s a hypothetical example of how refinancing works let s say jane and john have a 30 year fixed rate mortgage the interest they ve been paying since they first locked in their rate 10 years ago is 8 because of economic conditions interest rates drop the couple reaches out to their bank and is able to refinance their existing mortgage at a new rate of 4 this allows jane and john to lock in a new rate for the next 20 years while lowering their regular monthly mortgage payment if interest rates drop again in the future they may be able to refinance again to further lower their payments corporate refinancingcorporate refinancing is the process through which a company reorganizes its financial obligations by replacing or restructuring existing debts corporate refinancing is often done to improve a company s financial position and can also be done while a company is in distress with the help of debt restructuring corporate refinancing often involves calling in older issues of corporate bonds whenever possible and issuing new bonds at lower interest rates | |
what exactly does refinancing do | refinancing your mortgage replaces your old mortgage with a new mortgage one with a different principal amount and interest rate the lender pays off the old mortgage with the new one and you are then left with just one mortgage typically one with more favorable terms lower interest rate than your previous one | |
why would you refinance your home | there are a few reasons why one would refinance their home the primary reason is to obtain more favorable loan terms than before this is usually seen in a lower interest rate on your mortgage which makes your mortgage cheaper resulting in lower monthly payments other reasons to refinance your home include changing the term on the mortgage or taking out a cash value from the home s equity to use for other purposes such as paying off debts or renovating your home | |
does refinancing hurt your credit | refinancing will hurt your credit score as a credit check is done when you are refinancing your mortgage however this is temporary and your score will adjust over time in addition your overall credit may improve after refinancing as you will have less debt and a lower monthly payment on your mortgage the bottom linerefinancing allows for changes to a current credit agreement typically replacing the original agreement with a new one refinancing is beneficial for borrowers as it results in more favorable borrowing terms for homeowners refinancing is a great way to lower the cost of their mortgages when interest rates fall allowing them to obtain a lower interest rate than they currently have whenever rates drop it s worth exploring refinancing | |
what is reflexivity | reflexivity in economics is the theory that a feedback loop exists in which investors perceptions affect economic fundamentals which in turn changes investor perception the theory of reflexivity has its roots in sociology but in the world of economics and finance its primary proponent is george soros soros believes that reflexivity disproves much of mainstream economic theory and should become a major focus of economic research and even makes grandiose claims that it gives rise to a new morality as well as a new epistemology understanding reflexivityreflexivity theory states that investors don t base their decisions on reality but rather on their perceptions of reality instead the actions that result from these perceptions have an impact on reality or fundamentals which then affects investors perceptions and thus prices the process is self reinforcing and tends toward disequilibrium causing prices to become increasingly detached from reality soros views the global financial crisis as an illustration of the theory in his view rising home prices induced banks to increase their home mortgage lending and in turn increased lending helped drive up home prices without a check on rising prices this resulted in a price bubble which eventually collapsed resulting in the financial crisis and great recession soros s theory of reflexivity runs counter to the concepts of economic equilibrium rational expectations and the efficient market hypothesis in mainstream economic theory equilibrium prices are implied by the real economic fundamentals that determine supply and demand changes in economic fundamentals such as consumer preferences and real resource scarcity will induce market participants to bid prices up or down based on their more or less rational expectations of what economic fundamentals imply about future prices this process includes both positive and negative feedback between prices and expectations regarding economic fundamentals which balance each other out at a new equilibrium price in the absence of major obstacles to communicating information regarding economic fundamentals and engaging in transactions at mutually agreed prices this price process will tend to keep the market moving quickly and efficiently toward equilibrium soros believes that reflexivity challenges the idea of economic equilibrium because it means prices might deviate from the equilibrium values by a significant amount persistently over time in soros s opinion this is because the process of price formation is reflexive and dominated by positive feedback loops between prices and expectations once a change in economic fundamentals occurs these positive feedback loops cause prices to under or overshoot the new equilibrium in some way the normal negative feedback between prices and expectations regarding economic fundamentals which would counterbalance these positive feedback loops fails eventually the trend reverses once market participants recognize that prices have become detached from reality and revise their expectations though soros does not recognize this as negative feedback as evidence for his theory soros points to the boom bust cycle and various episodes of price bubbles followed by price crashes when it is widely believed that prices deviate strongly from the equilibrium values implied by economic fundamentals he often makes reference to the use of leverage and the availability of credit in initiating the process and the role of floating currency exchange rates in these episodes | |
what is a registered education savings plan | a registered education savings plan resp sponsored by the canadian government encourages investing in a child s future post secondary education subscribers to an resp make contributions that build up tax free earnings 1 the government contributes a certain amount to these plans for children under age 18 2contributors do not receive a tax deduction for investments in an resp there are no taxes due until funds are taken out to pay for a child s education at that time contributions made into the resp are returned tax free although contributors earnings from the plan are taxed the money the government pays out is taxed to the students however since a large number of students have little to no income many can withdraw the money tax free 1understanding registered education savings plans resp a registered education savings plan resp lets parents in canada begin saving for their children s education at birth with the government pitching in part of the tab parents or guardians simply walk into a bank credit union or other financial institution to open up an account anyone can contribute whether it s mom dad neighbor or a favorite aunt or uncle 3the money given out by the canadian government is taxed but since so many students have little to no income many can withdraw the money tax free 1the government then matches the money up to a certain percentage and deposits it into the child s resp the extra funds the government deposits are called the canadian education and savings grant the amount provided is graduated based on family income matching benefits apply only on the first 2 500 in contribution per year the amount of the grant is capped at a maximum of 7 200 2once in college the child receives educational assistance payments eaps these eaps count as income for the child beneficiary 4 if the beneficiary doesn t receive payments either by the choice of the contributor or because the beneficiary does not attend a post secondary institution the contributor will receive the amount in the resp back tax free 1the number of allowed plans per child is unlimited however there is a lifetime contribution limit of 50 000 per beneficiary from all resps combined 5pros and cons of registered education savings plansgenerally the plans are easy to access and provide strong investment incentives because parents won t initially pay taxes on the money they have a dual incentive to save for their child s education they avoid paying taxes and get bonus money from the government for the child s education in the process there are a few catches if a child doesn t pursue an approved post secondary education training program such as college or trade school within 36 years of opening the account the government can request the grant money back 1 also any investment earnings that are withdrawn from the resp that are not used for education related expenses incur income tax plus an additional 20 penalty 6 | |
what is a registered investment advisor ria | a registered investment advisor ria is a financial professional firm that advises clients on securities investments and may manage their financial portfolios rias are registered with either the securities and exchange commission sec or state securities administrators rias have fiduciary obligations to their clients which means they have a fundamental duty to always and only provide investment advice that is in the best interests of their clients understanding registered investment advisors rias as noted above a registered investment advisor is a financial professional or financial services company that offers clients investment advice for a fee they are governed by financial ethics that compel them to act responsibly and in the best interests of their clients the rules on investment advisors were formulated by the investment advisers act of 1940 this law requires individuals or businesses that dispense professional investment advice to register with the sec although there are exemptions for smaller firms advisors might also be considered qualified professional asset managers qpams investment advisors who manage a minimum of 25 million in assets are permitted although not required to register with the sec it becomes mandatory for firms that manage 100 million or more as rias managing at least that amount are required quarterly to reveal holdings to the sec investment advisors who manage smaller sums of investment money are typically required to register with state securities authorities duties of registered investment advisors rias rias provide more services than just investment advice their services and advice may cover the following responsibilities of registered investment advisors rias rias must follow certain practices and procedures when furnishing advice to their clients the table below highlights these responsibilities | |
how to register as a registered investment advisor ria | registering as an ria does not imply any recommendation or endorsement by the sec or any other regulator it means only that the investment advisor has fulfilled all that agency s requirements for registration registering with the sec requires disclosing information that includes the following rias must update their information annually on file with the sec and the information must be made available to the public an ria is a company that offers financial guidance to clients an investment advisor representative iar is a person who gives financial advice the ria can have many employees including several iars or it can be just one person who is both the ria and the iar the iar thus works for the ria and provides the actual financial services to the clients registered investment advisors rias vs broker dealersrias differ from broker dealers in essential ways rias advise on all finance related matters including investments taxation and estate planning broker dealers tend to focus more narrowly on facilitating purchases and sales of assets like stocks rias are expected to act in a fiduciary capacity when they interact with their clients broker dealers on the other hand are only required to satisfy the suitability standard clients of rias can be assured that their advisors always and unconditionally put their best interests first clients of broker dealers need to be aware that the broker dealer is permitted to dispense advice that is merely suitable for their client s investment portfolios unlike rias broker dealers are not required to disclose potential conflicts of interest or inform their clients about less expensive or more tax efficient investment alternatives | |
how registered investment advisors rias make money | the following are some common fee structures for investment advisory firms | |
how to choose a registered investment advisor ria | always do some careful research before selecting an investment advisor you need a firm that is aligned with your interests and needs an excellent source and starting point is the sec s investment adviser public disclosure website which allows you to search for every ria in the country | |
when choosing an ria you hire the financial firm you will be working with not necessarily an individual advisor unless that s how they operate investment advisor representatives are the individuals who work for the ria and directly provide advice to clients an ria may have just a single advisor or several iars each with its own areas of expertise and approach to investing | therefore when selecting an ria you re not just choosing a firm but potentially also among the individual iars within that firm ensure that you understand the ria s philosophy and standards and the specific skills and qualifications of the iar who may be handling your portfolio once you select those firms that fit your location requirements you can review each firm s website and social media for information on the types of services offered the registration the representatives and the total amount of money managed by the ria the type and level of advice that rias provide can vary widely from firm to firm so make sure the areas on which they focus fit your needs this means that you shouldn tria firms are required to file sec form adv which is the uniform form used by investment advisors to register with both the sec and state securities authorities the form which should be offered to you by the firm in which you are interested provides detailed information about the firm from fees and client types to assets under management and more to check the record of an advisor you have two major sources for information search the total aum of the firm in which you are interested by using the sec s investment adviser public disclosure website and compare them with yours to see if your assets are on the low or high side for the firm you can find this information directly on the company s website its financial disclosure forms or its annual report | |
what are the benefits of working with an registered investment advisor | first rias are legally obligated to act in your best interest they also tend to providemore personalized services since they aren t paid on commission they don t have an incentive simply to deal with only when selling something rias typically have transparent fee structures often charging a percentage of assets under management or a flat fee which aligns their interests with yours finally most rias offer a broad range of financial planning services that address a wide range of needs | |
how do you register as a registered investment advisor | a firm can register as an ria by filing form adv with the sec within 45 days of the filing the sec must either grant registration or begin proceedings to deny it in addition rias are also required to abide by the brochure rule which requires them to inform clients with information about their practice educational and business backgrounds rias must also maintain accurate books and records subject to examination by the sec | |
which regulators must an registered investment advisor | rias may register with the sec if they manage at least 25 million in assets and are required to do so if they manage more than 100 million investment advisers managing smaller amounts of money are typically required to register with state level agencies the bottom linedemand for rias is growing with the expectation that about a third of the market will be managed by rias by 2027 although you don t need to work with one if you decide to hire an ria that advisor doesn t even need to be human you have a choice of robo advisors automated software tools that dispense investment advice based on information about yourself and the investment preferences that you provide the availability of this technology has further lowered the price of working with an ria | |
what is a registered representative rr | a registered representative rr is a person who works for a client facing financial firm such as a brokerage company and serves as a representative for clients who are trading investment products and securities registered representatives may be employed as brokers financial advisors or portfolio managers registered representatives must pass licensing tests and are regulated by the financial industry regulatory authority finra and the securities and exchange commission sec rrs must furthermore adhere to the suitability standard an investment must meet the suitability requirements outlined in finra rule 2111 prior to being recommended by a firm to an investor 1 the following question must be answered affirmatively is this investment appropriate for my client understanding registered representatives rrs registered representatives can buy and sell securities for clients they are primarily known as transaction based service providers to carry out these transactions a registered representative must be licensed to sell the designated securities they must also be sponsored by a firm registered with finra to become licensed as a registered representative for a sponsoring firm a person must pass the series 7 and series 63 securities examinations these exams are administered by finra 2 the series 7 license allows the registered representative to buy and sell stocks mutual funds options municipal securities munis and certain variable contracts e g insurance or annuity products for their clients 3 since october 2018 series 7 candidates are required to pass the securities industry essentials sie exam as well as the series 7 in order to be registered as a general securities representative 4the series 63 license allows the representative to trade variable annuities and unit investment trusts a substantial portion of the series 63 exam is focused on state securities requirements across the u s other licenses may also apply for various other types of transactions 5 rrs may also obtain the series 65 and or series 66 licenses in order to expand their set of allowable activities 2the purpose of the series 7 license is to establish a standard level of competency and ethics for registered representatives in the securities industry 3standards for registered representativesinvestors seek registered representatives to carry out financial market transactions on their behalf as brokers or agents registered representatives typically have access to a full range of market trading capabilities that fit the needs of their investors they may also be able to execute thinly traded securities or have access to new securities launches registered representatives differ from registered investment advisors rias registered representatives are governed by suitability standards while registered investment advisors are governed by fiduciary standards 16 registered representatives are transaction based service providers u s regulators require that registered representatives ensure an investment is suitable for an investor given their investment profile they also ensure that trades are executed efficiently investors will incur sales charges determined by securities issuers when dealing with a registered representative registered investment advisors seek to offer more holistic financial plans and investing services they offer very different fee schedules and are typically fee based by assets under management registered investment advisors are regulated by fiduciary standards which go beyond standard suitability rias develop comprehensive financial plans and must ensure the best interest of the client rias are considered to be acting in a fiduciary capacity and so held to a higher standard of conduct than registered representatives this fiduciary standard mandates that an ria must always unconditionally put the client s best interests ahead of their own regardless of all other circumstances identifying a registered representativeinvestors seeking the services of a registered representative will find a range of options in the investment market companies like charles schwab offer discounts and full service brokerage services with charles schwab for instance an investor can place electronic trades at a discounted cost the discount brokerage service offers a registered representative call center where a client can speak with a broker to execute trades charles schwab also offers full service brokers who work as account executives for clients and support a broad range of trading activities finra also offers a service called brokercheck through brokercheck an investor can research the experience and disciplinary record of brokers and brokerage firms past activities that can disqualify youthere are several events that could either prevent a person from becoming a registered representative or that would result in the loss of membership or registration according to finra you could be subject to a statutory disqualification under the securities exchange act of 1934 if you meet a number of criteria the full specific list of criteria can be found on the sec s site a brief summary of those criteria includes events such as note that the preceding items are a brief summary of the disclosure questions included on finra form u 4 8 finra also provides a detailed summary of the statutory disqualification process 9 | |
how do you become a registered representative | in order to become a registered representative you must be sponsored by a finra registered brokerage firm and also be licensed to sell securities in order to gain the general securities license you must pass the sie exam and the finra series 7 exam | |
how much money does a registered representative make | salaries will vary widely by geography and experience for example as of april 2024 according to ziprecruiter the nation wide average salary is just under 47 000 10 however this pay is nearly double in several cities indeed cites a similar range as well though indeed calls the national salary average as just under 58 000 its salary ranges from 29 000 to 117 000 11 | |
which securities can a registered representative sell | a general securities representative can sell a broad range of securities such as corporate and municipal securities investment company securities variable annuities and government bonds there are other finra exams that will allow someone to only sell one type of security such as municipal bonds the bottom linea registered representative is a licensed financial professional authorized to buy and sell securities on behalf of clients their job entails providing investment advice executing trades and managing client portfolios correction sep 10 2022 a previous version of this article misstated the requirements for the series 7 exam | |
what is regression | regression is a statistical method used in finance investing and other disciplines that attempts to determine the strength and character of the relationship between a dependent variable and one or more independent variables linear regression is the most common form of this technique also called simple regression or ordinary least squares ols linear regression establishes the linear relationship between two variables linear regression is graphically depicted using a straight line of best fit with the slope defining how the change in one variable impacts a change in the other the y intercept of a linear regression relationship represents the value of the dependent variable when the value of the independent variable is zero nonlinear regression models also exist but are far more complex in economics regression is used to help investment managers value assets and understand the relationships between factors such as commodity prices and the stocks of businesses dealing in those commodities while a powerful tool for uncovering the associations between variables observed in data it cannot easily indicate causation regression as a statistical technique should not be confused with the concept of regression to the mean also known as mean reversion joules garcia investopediaunderstanding regressionregression captures the correlation between variables observed in a data set and quantifies whether those correlations are statistically significant or not the two basic types of regression are simple linear regression and multiple linear regression although there are nonlinear regression methods for more complicated data and analysis simple linear regression uses one independent variable to explain or predict the outcome of the dependent variable y while multiple linear regression uses two or more independent variables to predict the outcome analysts can use stepwise regression to examine each independent variable contained in the linear regression model regression can help finance and investment professionals for instance a company might use it to predict sales based on weather previous sales gross domestic product gdp growth or other types of conditions the capital asset pricing model capm is an often used regression model in finance for pricing assets and discovering the costs of capital econometrics is a set of statistical techniques used to analyze data in finance and economics an example of the application of econometrics is to study the income effect using observable data an economist may for example hypothesize that as a person increases their income their spending will also increase if the data show that such an association is present a regression analysis can then be conducted to understand the strength of the relationship between income and consumption and whether or not that relationship is statistically significant note that you can have several independent variables in an analysis for example changes to gdp and inflation in addition to unemployment in explaining stock market prices when more than one independent variable is used it is referred to as multiple linear regression this is the most commonly used tool in econometrics econometrics is sometimes criticized for relying too heavily on the interpretation of regression output without linking it to economic theory or looking for causal mechanisms it is crucial that the findings revealed in the data are able to be adequately explained by a theory calculating regressionlinear regression models often use a least squares approach to determine the line of best fit the least squares technique is determined by minimizing the sum of squares created by a mathematical function a square is in turn determined by squaring the distance between a data point and the regression line or mean value of the data set once this process has been completed usually done today with software a regression model is constructed the general form of each type of regression model is simple linear regression 1y a b x u begin aligned y a bx u end aligned y a bx u multiple linear regression 2y a b 1 x 1 b 2 x 2 b 3 x 3 b t x t u where y the dependent variable you are trying to predict or explain x the explanatory independent variable s you are using to predict or associate with y a the y intercept b beta coefficient is the slope of the explanatory variable s u the regression residual or error term begin aligned y a b 1x 1 b 2x 2 b 3x 3 b tx t u textbf where y text the dependent variable you are trying to predict text or explain x text the explanatory independent variable s you are text using to predict or associate with y a text the y intercept b text beta coefficient is the slope of the explanatory text variable s u text the regression residual or error term end aligned y a b1 x1 b2 x2 b3 x3 bt xt uwhere y the dependent variable you are trying to predictor explainx the explanatory independent variable s you are using to predict or associate with ya the y interceptb beta coefficient is the slope of the explanatoryvariable s u the regression residual or error term example of how regression analysis is used in financeregression is often used to determine how specific factors such as the price of a commodity interest rates particular industries or sectors influence the price movement of an asset the aforementioned capm is based on regression and it s utilized to project the expected returns for stocks and to generate costs of capital a stock s returns are regressed against the returns of a broader index such as the s p 500 to generate a beta for the particular stock beta is the stock s risk in relation to the market or index and is reflected as the slope in the capm the return for the stock in question would be the dependent variable y while the independent variable x would be the market risk premium additional variables such as the market capitalization of a stock valuation ratios and recent returns can be added to the capm to get better estimates for returns these additional factors are known as the fama french factors named after the professors who developed the multiple linear regression model to better explain asset returns 3 | |
why is it called regression | although there is some debate about the origins of the name the statistical technique described above most likely was termed regression by sir francis galton in the 19th century to describe the statistical feature of biological data such as heights of people in a population to regress to some mean level in other words while there are shorter and taller people only outliers are very tall or short and most people cluster somewhere around or regress to the average 4 | |
what is the purpose of regression | in statistical analysis regression is used to identify the associations between variables occurring in some data it can show the magnitude of such an association and determine its statistical significance regression is a powerful tool for statistical inference and has been used to try to predict future outcomes based on past observations | |
how do you interpret a regression model | a regression model output may be in the form of y 1 0 3 2 x1 2 0 x2 0 21 here we have a multiple linear regression that relates some variable y with two explanatory variables x1 and x2 we would interpret the model as the value of y changes by 3 2 for every one unit change in x1 if x1 goes up by 2 y goes up by 6 4 etc holding all else constant that means controlling for x2 x1 has this observed relationship likewise holding x1 constant every one unit increase in x2 is associated with a 2 decrease in y we can also note the y intercept of 1 0 meaning that y 1 when x1 and x2 are both zero the error term residual is 0 21 2 | |
what are the assumptions that must hold for regression models | to properly interpret the output of a regression model the following main assumptions about the underlying data process of what you are analyzing must hold the bottom lineregression is a statistical method that tries to determine the strength and character of the relationship between one dependent variable and a series of other variables it is used in finance investing and other disciplines regression analysis uncovers the associations between variables observed in data but cannot easily indicate causation | |
what is a regressive tax | the term regressive tax refers to a tax that is applied uniformly regardless of income regressive taxes take a larger percentage of income from low income earners than from middle and high income earners as such the tax burden decreases with regressive taxes as income rises it is contrasted with a progressive tax which takes a larger percentage from high income earners common forms of regressive include sales tax excise tax and payroll tax understanding regressive taxestaxes are contributions made by individuals and corporations by governments they come in many different forms and are levied at different levels including federal state provincial regional and local the types of taxes vary but tend to fall into three distinct categories including progressive or ability to pay taxation proportional and regressive taxes as noted above regressive taxes affect people with low incomes more severely than those with higher incomes because they are applied uniformly to all situations regardless of the taxpayer while it may be fair in some instances to tax everyone at the same rate it is seen as unjust in other cases as such most income tax systems employ a progressive schedule that taxes high income earners at a higher percentage rate than low income earners while other types of taxes are uniformly applied the united states has a progressive taxation system when it comes to income tax which means that earners with higher incomes pay a higher percentage of taxes each year compared to those with a lower income but taxpayers do pay certain levies that are considered to be regressive taxes some of these include state sales taxes user fees and to some degree property taxes a regressive tax system is more common in less developed countries where there may be a greater number of people in the same income bracket thus reducing the negative impact of the regressive tax types of regressive taxestaxes come in various shapes and sizes the following section contains information on some of the most common types of regressive taxes that taxpayers must pay governments apply sales tax uniformly to all consumers based on what they buy even though the tax may be uniform such as a 7 sales tax lower income consumers are more affected imagine two individuals each purchase 100 of clothing per week and they each pay 7 in tax on their retail purchases although the tax is the same rate in both cases the person with the lower income pays a higher percentage of income making the tax regressive excise taxes are levied on specific goods such as tobacco alcohol gasoline and luxury items these taxes are often added to the price of the goods and are paid by the consumer at the point of sale an excise tax can be regressive if it is the same for everyone regardless of income this is especially true for products consumed by low income individuals as these earners are likely to spend a larger proportion of their income on taxed goods than high income earners for example excise taxes on cheap beer is regressive especially considering how consumer demands may play a factor it s important to keep in mind that excise taxes can also be designed to be progressive for example if the tax rate on luxury items is higher than the tax rate on necessities like food or clothing the tax would have a greater impact on high income earners who are more likely to purchase luxury items in this case the tax is progressive because the low income individual would likely never purchase the luxury good much of the same regarding excise taxes can be said about tariffs if tariffs are applied uniformly on all imported goods regardless of their price or the income of the people who buy them they can be considered regressive taxes lower income individuals tend to spend a larger proportion of their income on imported goods than households with higher incomes like before this may depend on consumer preferences and may be progressive for tariffs placed on more luxurious goods user fees levied by the government are another form of regressive tax these fees include admission to government funded museums and state parks costs for driver s licenses and identification cards and toll fees for roads and bridges for example if two families travel to the grand canyon national park and pay a 30 admission fee the family with the higher income pays a lower percentage of its income to access the park while the family with the lower income pays a higher percentage although the fee is the same amount it constitutes a more significant burden on the family with the lower income again making it a regressive tax property taxes are fundamentally regressive because if two individuals in the same tax jurisdiction live in properties with the same values they pay the same amount of property tax regardless of their incomes but they are not purely regressive in practice because they are based on the value of the property generally it is thought that lower income earners live in less expensive homes thus partially indexing property taxes to income often tossed around in debates about income tax the phrase flat tax refers to a taxation system in which the government taxes all income at the same percentage regardless of earnings under a flat tax there are no special deductions or credits rather each person pays a set percentage that is levied on all income so everyone effectively pays the same rate the tax burden on those with low incomes is often heavily compared to those with higher incomes even at the same rate this means that the proportion of income that is taxed is higher for low income earners as a result flat taxes may be considered to be regressive payroll taxes may be considered regressive as they are typically levied as a flat tax rate on wages and salaries up to a certain limit this means that everyone regardless of their income level pays the same percentage of their income in payroll taxes in the united states social security taxes are levied at a flat rate of 6 2 on wages and salaries up to 168 600 in 2024 this means that someone who earns 50 000 a year pays the same percentage of their income in payroll taxes as someone who earns 100 000 a year taxes imposed and collected on products that are deemed to be harmful to society are called sin taxes these are added to the prices of goods like alcohol and tobacco in order to dissuade people from using them the internal revenue service irs considers these taxes to be regressive because they are more burdensome to low income earners rather than their high income counterparts corporate taxes are theoretically regressive in that companies may be able to reduce their tax liability down to 0 if this is the case some of the highest earning companies may be able to avoid all federal taxes regressive vs progressive vs proportional taxesregressive progressive and proportional taxes are different types of tax systems that are used by governments to generate revenue each type of tax has a difference in how they are calculated and the people it affects primarily depending on different income levels a regressive tax system is one in which the tax rate decreases as the taxpayer s income increases a progressive tax system on the other hand is one in which the tax rate increases as the taxpayer s income increases in a progressive tax system people with higher incomes pay a higher percentage of their income in taxes than those with lower incomes examples of progressive taxes include income taxes and estate taxes the argument against progressive taxes is that individuals shouldn t be penalized for having higher incomes and pay for public benefits that a less wealthy individual may be more likely to utilize this system may also disincentive innovation and capitalism as there is less motivation for success the argument for progressive taxes is that individuals with lower incomes should not pay higher effective rates simply because they do not have the same income as somebody else these two contrasting tax systems meet in the middle with a proportional tax system this tax is one where everyone pays the same amount in proportion to their income regardless of how much someone makes though individuals with higher incomes will pay higher proportional taxes in terms of dollars every individual will pay the same percentage of their income some may argue this is a lose lose situation higher taxes are not collected from the wealthy nor are higher taxes collected from lower income individuals who may utilize more public services | |
does america have a regressive tax system | certain aspects of taxes in the united states relate to a regressive tax system sales taxes property taxes and excises taxes on select goods are often regressive in the united states however there are other forms of taxes see below that are prevalent within america today | |
what taxes are not considered regressive | income taxes and estate taxes are among the most common types of progressive non regressive types of taxes both have higher rates and higher tax liabilities for those with higher income be mindful that there are many ways individuals can reduce their tax liability therefore although a higher earned may be in a higher tax bracket they may also have ways to reduce their liability and pay less taxes both dollar wise and percent wise in a progressive system compared to a lower earner | |
is a flat tax the same as a regressive tax | yes a flat tax is the same as a regressive tax because the proportion of taxes paid per individual decrease as an individual s income increases note that a proportional tax has a flat tax rate not flat tax dollar amount a proportional tax with its fixed rate is not a regressive tax | |
are regressive taxes legal | yes tax structures where higher earners pay less proportional taxes is legal there is often fierce debate around the responsibility of the wealthy regarding how much tax they should pay however the subject is a matter of opinion as there is no legislation limiting or preventing a regressive tax system for certain types of taxes the bottom lineregressive taxes represent a tax structure where a higher burden is placed on low income individuals this is because a larger proportion of their income must go towards paying the tax a regressive tax system is opposite of a progressive tax system where the wealthier are tax more though the middle ground tax system is called a proportional tax system common forms of a regressive tax system are sales taxes or excise taxes on certain goods | |
what is regret theory | regret theory states that people anticipate regret if they make the wrong choice and they consider this anticipation when making decisions 1 fear of regret can play a significant role in dissuading someone from taking action or motivating a person to take action regret theory can impact an investor s rational behavior impairing their ability to make investment decisions that would benefit them as opposed to harming them understanding regret theory | |
when investing regret theory can either make investors risk averse or it can motivate them to take higher risks for example suppose that an investor buys stock in a small growth company based only on a friend s recommendation after six months the stock falls to 50 of the purchase price so the investor sells the stock and realizes a loss to avoid this regret in the future the investor could ask questions and research any stocks that the friend recommends or the investor could decide to never take seriously any investment recommendation made by this friend regardless of the investment fundamentals | conversely suppose the investor didn t take the friend s recommendation to buy the stock and the price increased by 50 to avoid the regret of missing out the investor could become less risk averse and might likely buy any stocks that this friend recommends in the future without conducting any background research regret theory and psychologyinvestors can minimize the anticipation of regret influencing their investment decisions if they have an understanding and an awareness of the psychology of regret theory investors need to look at how regret has affected their investment decisions in the past and take that into account when considering a new opportunity for example an investor may have missed a large trending move and has subsequently only traded momentum stocks to try to catch the next significant move the investor should realize that he tends to regret missed opportunities and consider that before deciding to invest in the next trending stock regret theory and market crashesin investing regret theory and the fear of missing out often abbreviated as fomo frequently go hand in hand this is particularly evident during times of extended bull markets when the prices of financial securities rise and investor optimism remains high the fear of missing out on an opportunity to earn profits can drive even the most conservative and risk averse investor to ignore warning signs of an impending crash irrational exuberance a phrase famously used by former federal reserve chair alan greenspan refers to this excessive investor enthusiasm that pushes asset prices higher than can be justified by the asset s underlying fundamentals 2 this unwarranted economic optimism can lead to a self perpetuating pattern of investment behavior investors begin to believe that the recent rise in prices predicts the future and they continue to invest heavily asset bubbles form which ultimately burst leading to panic selling this scenario can be followed by a severe economic downturn or recession examples of this include the stock market crash of 1929 the stock market crash of 1987 the dotcom crash of 2001 and the financial crisis of 2007 08 regret theory and the investment processinvestors can reduce their fear of regret from making incorrect investment decisions by automating the investment process a strategy like formula investing which strictly follows prescribed rules for making investments removes most of the decision making process about what to buy when to buy and how much to buy investors can automate their trading strategies and use algorithms for execution and trade management using rules based trading strategies reduces the chance of an investor making a discretionary decision based on a previous investment outcome investors can also backtest automated trading strategies which could alert them to personal bias errors when they were designing their investment rules robo advisors have gained in popularity among some investors as they offer access to automated investing combined with a low cost alternative to traditional advisors 34 | |
what is regtech | regtech is the management of regulatory processes within the financial industry through technology the main functions of regtech include regulatory monitoring reporting and compliance understanding regtechregtech is a community of tech companies that solve challenges arising from a technology driven economy through automation the rise in digital products has increased data breaches cyber hacks money laundering and other fraudulent activities with the use of big data and machine learning technology regtech reduces the risk to a company s compliance department by offering data on money laundering activities conducted online activities that a traditional compliance team may not be privy to due to the increase of underground marketplaces online regtech tools seek to monitor transactions that take place online in real time to identify issues or irregularities in the digital payment sphere any outlier is relayed to the financial institution to analyze and determine if fraudulent activity is taking place institutions that identify potential threats to financial security early on are able to minimize the risks and costs associated with lost funds and data breaches regtech or regtech consists of a group of companies that use cloud computing technology through software as a service saas to help businesses comply with regulations efficiently and less expensively regtech is also known as regulatory technology regtech companies collaborate with financial institutions and regulatory bodies using cloud computing and big data to share information cloud computing is a low cost technology wherein users can share data quickly and securely with other entities a bank that receives huge amounts of data may find it too complex expensive and time consuming to comb through a regtech firm can combine complex information from a bank with data from previous regulatory failures to predict potential risk areas that the bank should focus on by creating the analytics tools needed for these banks to successfully comply with the regulatory body the regtech firm saves the bank time and money the bank also has an effective tool to comply with rules set out by financial authorities financial institutions and regulators both use regtech to deal with complicated compliance processes following the 2008 financial crisis ushered in an increase in financial sector regulation there was also a rise in the disruptive use of technology within the financial sector technology breakthroughs led to an increase in the number of fintech companies that create technology driven products to enhance the customer experience and engagement with financial institutions the reliance on consumer data to produce digital products has led to concerns among regulatory bodies calling for more laws on data privacy usage and distribution the coupling of more regulatory measures and laws with a sector more reliant on technology brought about the need for regulatory technology as of mid 2018 deregulation in the united states as seen in the unwinding of the dodd frank wall street reform and consumer protection act dodd frank rules has led to a slowdown in regtech company financing deals though the compliance burden should still fuel the drive toward greater automation characteristics of regtechsome of the important characteristics of regtech include agility speed integration and analytics regtech can quickly separate and organize cluttered and intertwined data sets through extract and transfer load technologies regtech can also be used to generate reports quickly it can also be used for integration purposes to get solutions running in a short amount of time finally regtech uses analytic tools to mine big data sets and use them for different purposes regtech operates in various spheres of the financial and regulatory space a number of projects that regtech automates include employee surveillance compliance data management fraud prevention and audit trail capabilities a regtech business can t just collaborate with any financial institution or regulatory authority as it may have different goals and strategies that differ from the other parties for example a regtech that seeks to identify credit card fraud in the digital payments ecosystem may not develop a relationship with an investment firm concerned with its employees activities online or the securities and exchange commission sec whose current issue may be an increase in insider trading activities some example of notable regtech companies and the tools they have created include | |
what is a regulated investment company ric | a regulated investment company ric can be any one of several investment entities for example it may take the form of a mutual fund or exchange traded fund etf a real estate investment trust reit or a unit investment trust uit whichever form the ric assumes the structure must be deemed eligible by the internal revenue service irs to pass through taxes for capital gains dividends or interest earned to the individual investors a regulated investment company is qualified to pass through income under regulation m of the irs with the specific regulations for qualifying as an ric delineated in u s code title 26 sections 851 through 855 860 and 4982 regulated investment company ric basicsthe purpose of utilizing pass through or flow through income is to avoid a double taxation scenario as would be the case if both the investment company and its investors paid tax on company generated income and profits the concept of pass through income is also referred to as the conduit theory as the investment company is functioning as a conduit for passing on capital gains dividends and interest to individual shareholders regulated investment companies do not pay taxes on their earnings without the regulated investment company allowance both the investment company and its investors would have to pay taxes on the company s capital gains or earnings with pass through income the company is not required to pay corporate income taxes on profits passed through to the shareholders the only income tax imposed is on individual shareholders requirements to qualify as an ricto qualify as a regulated investment company the business has to meet specific perimeters additionally an ric must derive a minimum of 90 of its income from capital gains interest or dividends earned on investments further an ric must distribute a minimum of 90 of its net investment income in the form of interest dividends or capital gains to its shareholders | |
should the ric not distribute this share of income it may be subject to an excise tax by the irs the ric would also have to issue an irs form 2439 to shareholders stating that the capital gains are being retained | finally to qualify as a regulated investment company at least 50 of a company s total assets must be in the form of cash cash equivalents or securities no more than 25 of the company s total assets may be invested in securities of a single issuer unless the investments are government securities or the securities of other rics real world examplepresident obama signed the regulated investment company modernization act of 2010 into law dec 22 2010 it made changes to the rules governing the tax treatment of regulated investment companies rics including open end mutual funds closed end funds and most exchange traded funds the last update to the rules governing rics was the tax reform act of 1986 the primary reason for the 2010 ric modernization act was due to vast changes in the mutual fund industry in the 25 years between 1986 and 2010 further many of the tax rules applicable to rics became obsolete created administrative burdens or caused uncertainty | |
what is regulation a | under u s securities laws an offering or sale of a security must be registered with the securities and exchange commission sec or meet an exemption regulation a is an exemption from registration requirements instituted by the securities act of 1933 that applies to public offerings of securities companies utilizing the exemption are given distinct advantages over companies that must fully register however there are different tiers depending on the size of the company and companies must still file an offering statement with the sec the offering must also give buyers documentation with the issue similar to the prospectus of a registered offering understanding regulation atypically the advantages offered by regulation a offerings make up for the stringent documentation requirement among the advantages provided by the exemption can be streamlined financial statements without audit obligations three possible format choices to use to arrange the offering circular and no requirement to provide exchange act reports until the company has more than 500 shareholders and 10 million in assets updates to regulation a in 2015 allow companies to generate income under two different tiers it s essential for investors interested in purchasing securities sold by companies utilizing regulation a to understand which tier the security was offered every company must indicate the tier under which the security falls on the front of its disclosure document or offering circular this is important because the two tiers represent two different types of investments regulation a tier 1 vs tier 2companies that use the reg a exemption can sell their securities utilizing two different tiers each with its own requirements however with both tiers the issuer must file an offering statement with the sec including an offering circular which serves as the disclosure document for investors 1under tier 1 a company is permitted to offer a maximum of 20 million in a 12 month period the issuing company must also file offering statements with the sec which need to be qualified by state regulators in the states in which the company plans on selling the securities however companies issuing offerings under tier 1 do not have ongoing reporting requirements but are required to issue a report on the final status of the offering under tier 2 companies can offer up to 75 million in a 12 month period companies offering securities under tier 2 are required to produce audited financial statements and file continual reports including its final status however tier 2 issuers are not required to register or qualify their offerings with state securities regulators but still must file their offering with the sec tier 2 offerings have additional requirements such as limitations on the amount of money a non accredited investor may invest in a tier 2 security 1 | |
what is regulation b reg b | regulation b is intended to prevent applicants from discrimination in any aspect of a credit transaction it outlines the rules that lenders must adhere to when obtaining and processing credit information regulation b protects consumers and prohibits lenders from discriminating based on age gender ethnicity nationality or marital status | |
what is regulation cc | regulation cc is one of the banking regulations set forth by the federal reserve regulation cc implements the expedited funds availability act efaa of 1987 and the check clearing for the 21st century act check 21 these laws set specific requirements for the timely availability of deposits that are made by customers into transaction accounts these laws addressed the lengths of hold times banks previously placed on checks deposited by customers 1understanding regulation ccregulation cc is designed to require financial institutions to correctly process deposited checks on a timely basis unpaid checks are also required to be immediately returned to the paying bank 1congress instituted the expedited funds availability act of 1987 because of concerns regarding the length of time holds were being placed on checks by banks after customers had deposited them the expedited funds availability act created a maximum hold period for checks regulation cc put into effect the disclosure and funds availability provisions of the legislation 1regulation cc requires financial institutions to provide account holding customers with disclosures that indicate when deposited funds will be available for withdrawal 2 | |
how regulation cc works | as part of the policies to regulate the check clearing system the board of governors of the federal reserve adopted rules to hasten the return of unpaid checks 1check return rules and same day settlement rules are outlined and implemented under regulation cc the intent of those rules is to reduce risks to depository banks regarding the availability of funds for withdrawal after checks are deposited the check return rule better ensures that banks can discover whether or not the checks were returned as unpaid same day settlement decreases the disparity between private sector banks and reserve banks when checks are presented for payment 1regulation cc requirementsother rules and policies implemented under regulation cc include the check clearing for the 21st century act check 21 this legislation was created by congress as a means to improve efficiency in the payment system the act reduced certain legal impediments to electronic check processing the act allowed for the creation of a substitute for paper checks in electronic check processing as a legal equivalent for original checks 1the act lets banks send checks electronically instead of requiring them in paper form when processing funds with banks they have agreements in place with this also lets banks send substitute checks to banks with which they do not have electronic processing agreements the enactment of this act under regulation cc has allowed check collection among banks in the united states to become predominantly electronic based this has also given banks the ability to offer their customers other types of electronic based services | |
when you deposit cash or checks into your checking or savings account at a bank regulation cc specifies how soon you can have access to your deposited funds additionally regulation cc requires that your bank discloses to you the schedule of when your funds will be available for withdrawal | for example cash deposits must be available for withdrawal no later than the business day after the business day on which it was deposited government checks and some other types of checks also have similar rules the bank must notify you of the schedule of when your deposits will be available | |
how did the reserve banks reduce check processing offices | the check 21 act enabled banks to send checks electronically rather than as a paper check to banks they have agreements with if there are no agreements the banks may send a substitute check which is a new type of paper instrument which is the equivalent of a paper check as a result of these system improvements the nation s interbank check collection processes have become almost entirely electronic thus the reserve banks have been able to reduce the number of their paper check processing offices from 45 in 2003 to a single office in 2010 1 | |
how long do checks take to clear | for checks collected through the federal reserve banks the accounts of institutions collecting funds are credited for the value of deposits and the accounts of institutions paying funds are debited for the value of checks to be paid most checks are collected and settled within one business day 3the bottom lineregulation cc improves the service banks give to their depositors by regulating the time that funds become available for withdrawal from transaction accounts depending on their origin amount and other factors banks are required to disclose the schedule of times when holds are released to their customers additionally regulation cc streamlined the ability of the nation s banking system to process checks electronically which reduced human error sped up the process and drastically lowered the number of check processing offices throughout the country from 45 locations in 2003 to one location since 2010 1 | |
what is sec regulation d reg d | regulation d reg d is a securities and exchange commission sec regulation governing private placement exemptions it should not be confused with federal reserve board regulation d which limits withdrawals from savings accounts reg d offerings are advantageous to private companies or entrepreneurs that meet the requirements because funding can be obtained faster and at a lower cost than with a public offering it is usually used by smaller companies the regulation allows capital to be raised through the sale of equity or debt securities without the need to register those securities with the sec however many other state and federal regulatory requirements still apply understanding sec regulation d reg d raising capital through a reg d investment involves meeting significantly less onerous requirements than a public offering that allows companies to save time and sell securities that they might not otherwise be able to issue in some cases while regulation d makes raising funds easier buyers of these securities still enjoy the same legal protections as other investors it is not necessary to keep regulation d transactions a secret even though they are private offerings there are directives within the regulation that depending on which rules are applied may allow offerings to be openly solicited to prospective investors in a company s network requirements of sec regulation deven if the reg d transaction involves just one or two investors the company or entrepreneur must still provide the proper framework and disclosure documentation a document known as form d must be filed electronically with the sec after the first securities are sold form d however contains far less information than the exhaustive documentation required for a public offering the form requires the names and addresses of the company s executives and directors it also requires some essential details regarding the offering 12the issuer of a security offered under reg d must also provide written disclosures of any prior bad actor events such as criminal convictions within a reasonable time frame before the sale without this requirement the company might be free to claim it was unaware of the checkered past of its employees in that case it would be less accountable for any further bad acts they might commit in association with the reg d offering 3according to rules published in the federal register transactions that fall under reg d are not exempt from antifraud civil liability or other provisions of federal securities laws reg d also does not eliminate the need for compliance with applicable state laws relating to the offer and sale of securities 1 state regulations where reg d has been adopted may include disclosure of any notices of sale to be filed they may require the names of individuals who receive compensation in connection with the sale of securities exemptions established by regulation dunder sec regulation d there are three rules that create exemptions for companies to make private offerings rule 504 is an sec regulation that allows companies to sell up to 10 million in securities in a 12 month period without registration the company must file form d within 15 days of the first sale it must also comply with all regulations and laws in the states where the securities are being sold or offered some companies are not eligible for a rule 504 exemption these include 4in 2016 the sec phased out rule 505 and integrated many of its provisions into rule 504 5 previously it allowed a company to sell up to 5 million of its securities in any 12 month period these securities could be sold to an unlimited number of accredited investors but no more than 35 non accredited investors 1a company that qualifies under rule 506 can raise an unlimited amount of capital in offerings the seller must be available to answer questions from the buyers and buyers receive restricted securities as with the previous rule 505 a company operating under rule 506 b may sell to an unlimited number of accredited investors and up to 35 non accredited investors unlike under rule 505 however all non accredited investors must be considered sophisticated this meany they must have enough of a financial or business background to evaluate the potential risks and rewards of the investment if the company is selling to accredited investors it has discretion over what company information it discloses if it sells to non accredited investors though it must follow more stringent disclosure rules including disclosing its financial statements 1the securities act of 1933 allows unregistered sales to accredited investors if the total offering price is under 5 million 6 however regulation d does not address private offerings of securities under this provision limitations of sec regulation dthe benefits of reg d are only available to the issuer of the securities not to affiliates of the issuer or to any other individual who might later resell them what is more the regulatory exemptions offered under reg d only apply to the transactions not to the securities themselves |
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