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  • Are Cafeteria plans subject to FICA, ERISA or FUTA?

    Cafeteria plans are employer-sponsored benefit plans that provide both taxable and nontaxable, or qualified, benefit options for employees. Cafeteria plan benefits, therefore, may be subject to Federal Insurance Contributions Act (FICA) and Federal Unemployment Tax Act (FUTA) taxes. If a plan participant chooses the taxable benefit, which is typically cash, the benefit amount is subject to all the income and payroll taxes that apply to wages. Though less common than 401(k) plans offered by many employers, cafeteria plans are still covered under the Employee Retirement Income Security Act (ERISA) and are subject to the same regulations as other qualified plans.


    Because cafeteria plans, also called Section 125 plans, are covered under ERISA, they are subject to the same documentation, reporting and administration requirements as all other ERISA plans, such as 401(k), 401(a) and 403(b) plans; simplified employee pension (SEP) plans; and profit-sharing plans. ERISA requires all participating employees to be provided with a summary plan description within 90 days of plan enrollment. This document must also be filed with the Department of Labor. In addition, ERISA provides a number of protections for cafeteria plan benefits, including the preemption of state escheatment laws.


    Social Security and Medicare payroll taxes are collectively referred to as FICA. In general, qualified cafeteria plan benefits are not subject to FICA or other taxes. However, FICA taxes still apply to certain benefits. For example, group term life insurance benefits that exceed $50,000 are subject to Social Security and Medicare withholding, as are adoption assistance benefits.


    The federal unemployment insurance program is paid through the FUTA tax, which is charged to employers, not employees. Like FICA taxes, most qualified cafeteria plan benefits are not subject to FUTA. However, adoption assistance benefits are subject to FUTA, in addition to FICA, but not income tax withholding.

  • Are fringe benefits deductible for the employer?

    A fringe benefit is any non-wage form of compensation and is usually offered by an employer as both an employee incentive and a way to reduce taxes. In fact, many fringe benefits are tax-advantageous to both the employer and the employee. There are limits to this, and some fringe benefits do not provide a tax deduction, or they have a set limit on the amount that may be used for tax-savings purposes. All fringe benefits provided by an employer are technically considered taxable unless an exception is made. Fortunately, many forms of benefits are made at least partially deductible.

    Health insurance is a very common fringe benefit provided by employers. If the owners of the policies pay for premiums on behalf of employees, those premiums are not taxed and may be deducted by the business. Other tax-free and tax-deductible benefits include dependent care assistance, educational assistance and commuting services. Deductions are not limitless; for instance, educational assistance programs have a maximum deduction set by the Internal Revenue Service, or IRS.

    Fringe benefits do not necessarily have to be offered to a direct employee; independent contractors, partners or directors may all be recipients. The tax treatment of benefits and their recipients are discussed in length in IRS Publication 15-B, specifically Table 2-1. Any fringe benefit not discussed in Section 2 is considered fully taxable.

    Employees also benefit from so-called no-additional-cost services, which include a benefit or service that is typically provided to customers at no additional cost or lost revenue. The value of such services is not taxable to the employee. It is important for employers to keep an eye on discrimination rules that apply to the offering of benefits. In many circumstances, benefits offered to only a select group of employees can lose their tax-advantaged status.

  • Are fringe benefits direct or indirect costs?

    Almost any non-salary benefit provided by an employer to an employee is considered a "fringe" benefit.

    These benefits can include insurance, a company car, or employee discount, etc. While there are some exceptions, fringe benefits are usually a direct cost to the business in terms of accounting as long as they are allocable to direct labor on a consistent basis.

    A direct cost is broadly defined as any cost that can be assigned to a specific item in an accurate way, such as wages, materials, supplies, consulting services and fringe benefits. Indirect costs are simply considered any costs that are not direct. By examining different types of common fringe benefits, you should be able to see that most of these benefits incur costs that can be directly and specifically allocated.

    Common fringe benefits include group-term life insurance coverage and educational assistance, which employers in the United States can offer tax-free to an employee up to a certain annual limit. Food and athletic programs/facilities are also common fringe benefits and are both relatively easy to account for and assign to a specific program.

    In circumstances where a benefit is difficult to assign to a particular project or program, it may be necessary to count it as an indirect cost, though this is rare. Fringe benefits for administrative and clerical staff, for instance, might be classified as indirect costs.

    Costs incurred for the same purpose should be treated consistently. When the cost of a particular fringe benefit is considered direct, any like cost thereafter must be considered the same.

  • Are there any continuing education requirements after I pass the Series 7 examination?

    Yes, there are continuing education requirements after you pass the Series 7 exam. According to the Securities Industry/Regulatory Council on Continuing Education (CEC), there are two parts to the CE requirement: the regulatory element and the firm element.

    The Firm Element of Continuing Education

    The firm element (determined by the firm you work for) varies, as it is designed by the firm itself. It usually consists of an annual training program, tailored specifically to the employee and the skills and knowledge required for his or her job. These programs are created in accordance with minimum criteria and standards. Click here for more information regarding the firm element. For more specific information, contact your firm's registration department.

    The Regulatory Element

    The regulatory element is overseen by the CEC. Professionals are required to take computer-based training modules once they have been registered for two years. This training must be completed within a 120-day period. The professional will then have to complete the regulatory element once every three years. Note that the registration anniversary date is not the day you passed the Series 7 examination, it is the date you became registered with a self-regulatory organization (SRO). For more on the regulatory element, click here.

    (For related reading, see: Solving Mixed Options Problems on th Series 7.)

  • Bob is a registered representative who recently left ABC Securities and has now registered with PDG ...

    Bob is a registered representative who recently left ABC Securities and has now registered with PDG Securities. At the time he resigned from ABC, he had unpaid commissions totaling $5,000. After repeated inquiries and several months, Bob still has not been paid, nor has he been given any definitive reasons why he hasn’t. The best mechanism through which he may attempt to recover his commissions would be:
    a) Through the SEC’s mediation process.
    b) By filing criminal charges in the state courts.
    c) By filing for simplified arbitration under the NASD code.
    d) By filing a suit in the state’s civil court system.


    The correct answer is c.
    Monetary disputes within the securities industry are settled through the NASD Code of Arbitration, rather than by litigation. The maximum amount to be considered under Simplified Arbitration is $25,000. Larger amounts go before the full arbitration panels.

  • Can I Apply for an O-1 Visa If I Don't Get an H-1B?

    Individuals who are eligible for H-1B temporary worker visas, but failed to secure one could receive an O-1 visa instead. It all depends on whether the individual applying meets the more stringent requirements and can make a solid case for why they should be permitted to enter the country.

    What Is an O-1 Visa?

    The O-1 nonimmigrant visa is for individuals with "extraordinary ability or achievement" looking to work in the U.S. temporarily. The O-1A is for people with an extraordinary ability in the sciences, education, business, or athletics, and the O-1B is for those with an extraordinary ability in the arts or extraordinary achievement in the motion picture or television industry.

    Unlike the H-1B program, there is no limit on the number of O-1 visas issued every year, making it very attractive to those who were not able to obtain an H-1B because of the quota. London-based immigration attorney Orlando Ortega told The Atlantic that the "increase in the past decade in O-1 visas is likely a result of tech workers who didn’t get lucky in the annual H-1B lottery." 

    The Trump administration has also said it plans to curb the use of the H-1B visa program, putting the spotlight on alternatives. It's important to note that candidates need a U.S.-based agent or employer to petition for an O-1 visa on their behalf.  

    (See also: The H-1B Visa Issue Explained)

    How Is 'Extraordinary Ability' Determined?

    U.S. Citizenship and Immigration Services (USCIS) doesn't provide details on how it evaluates whether a candidate possesses "extraordinary ability," but it does provide a list of ways applicants can provide evidence of it.

    According to the USCIS website, those seeking an O-1A visa should be able to show they received a major, internationally-recognized award or evidence of at least three of the following:  

    • Receipt of nationally or internationally recognized prizes or awards for excellence in the field of endeavor
    • Membership in associations in the field for which classification is sought which require outstanding achievements, as judged by recognized national or international experts in the field
    • Published material in professional or major trade publications, newspapers or other major media about the beneficiary and the beneficiary’s work in the field for which classification is sought
    • Original scientific, scholarly, or business-related contributions of major significance in the field
    • Authorship of scholarly articles in professional journals or other major media in the field for which classification is sought
    • A high salary or other remuneration for services as evidenced by contracts or other reliable evidence
    • Participation on a panel, or individually, as a judge of the work of others in the same or in a field of specialization allied to that field for which classification is sought
    • Employment in a critical or essential capacity for organizations and establishments that have a distinguished reputation

    If you think you have a major, internationally-recognized award and don't need to meet other requirements, there's a good chance it doesn't make the cut since the USCIS uses the Nobel Prize (no less) as an example of what qualifies.

    But not having sufficient evidence of accomplishments listed here doesn't mean yours is an impossible case. Immigration attorney Jane Orgel, who has handled many many O-1 cases for people who did not manage to obtain H-1B visas, told Investopedia, "I find that even if applicants do NOT strictly meet those requirements, they can get approved for the O-1 if their case has merit and is presented in the right way. I think the Service understands that it's difficult to always fit into those slots and I often use the 'comparable evidence' criterion to explain why the applicant may not have press, for instance, but nevertheless is deserving of the O-1 visa."

    Candidates must also be able to provide a written advisory opinion from a peer group (including labor organizations) or a person with expertise in their area of ability.

  • Can I still pass the CFA Level I if I do poorly in the ethics section?

    You may still pass the Chartered Financial Analysis (CFA) Level I even if you fare poorly in the ethics section, but don't count on it.

    The CFA Institute has long emphasized that ethics is a particular area of focus for it. The seriousness with which the CFA Institute views ethics is evident from the fact that for exam candidates with borderline total scores, performance on the ethics section can mean the difference between passing and failing the exam. This is true for all three levels of the CFA and not just for Level I.

    The FAQ section of the CFA Institute addresses this issue under a question that says "what is the ethics adjustment?" The CFA Institute notes here that when its Board of Governors instituted a policy to place particular emphasis on ethics, from the 1996 exams onwards, performance on the ethics section became a factor in the pass/fail decision for candidates with scores close to the minimum passing score (or MPS, which the Institute never publishes). It adds that this ethics adjustment can have a positive or negative impact on such candidates' final results. Most importantly, the CFA Institute confirms that this adjustment has had a net positive effect on candidate scores and pass rates in most exam sessions.

    You can't ask for clearer evidence than this about the importance of the ethics section in the CFA exams. A good performance in ethics can push a candidate with a borderline score into the coveted group of "pass" candidates, while a poor performance in ethics can doom the borderline candidate to another year of strenuous study.

    Therefore, it might be best to start your CFA studies with the ethics section. If you master ethics, it may well prove to be the swing factor in your favor if you do not fare as well as you had hoped in the exams. Another benefit of mastering ethics is that since much of the study material is similar across all three levels, a good grasp of it in Level I will give you a head start in preparing for Levels II and III. As well, learning to recognize and avoid ethical dilemmas is something that will stand you in good stead throughout your investment career. The bottom line is to put ethics first.

  • Can LLCs have employees?

    A limited liability corporation (LLC) can have an unlimited number of employees. An employee is defined as any individual who is hired for wages or salary. There is a distinction between employees, who work for the company, and independent contractors, who do not.

    Steps to Hiring an Employee

    For LLCs to hire employees, they must first obtain an employment identification number from the U.S. Internal Revenue Service (IRS). This is required in order to report taxes and other documentation to the IRS. LLCs must keep records of employment taxes for at least four years.

    Before hiring an employee, federal law requires the business to verify an employee's eligibility to work in the United States. After hiring an employee, the business must report newly hired or rehired employees to its state of residence within 20 days.

    Any business with employees is required to carry workers' compensation insurance. Certain posters notifying employees of their rights and their employers' responsibilities under labor laws must be posted in the workplace.

    LLCs and Employees

    LLCs are popular for the liability protection they provide to the owners of a company. In the event an employee action leads to liabilities for the company, these protections remain in place only for owners, not for employees. Even though owners of the company are not personally liable for actions of the employees, the LLC is liable. The LLC can be held liable for any damages employees cause.

    LLC members, or owners, are self-employed according to the IRS. LLC employees are not. This requires the filing of returns and payroll taxes similar to every other business type.

  • Consumer Confidence Vs. Consumer Sentiment

    Consumer confidence and consumer sentiment are very similar in that they both refer to the degree of confidence consumers feel about the overall economy and their personal financial state. Consumer confidence or sentiment helps predict the level of spending that consumers will engage in. A high level of consumer confidence means that consumers, generally feel good about their financial condition, especially their ability to obtain and keep jobs.

    If consumer confidence is relatively high, then consumers are going to increase the amount of money that they spend. On the other hand, if consumer confidence is relatively low, then consumers are going to spend less. (See also: Consumer Confidence: A Killer Statistic.)

    Consumer confidence is measured by two indexes: the Consumer Confidence Index (CCI) and the Michigan Consumer Sentiment Index (MCSI). The CCI is a survey conducted by a not-for-profit research organization for businesses called the Conference Board that distributes information about management and the marketplace. The Conference Board usually surveys 5,000 households from the country's nine census regions. The survey usually covers five major sections:

    1. Current business conditions
    2. Business conditions for the next six months
    3. Current employment conditions
    4. Employment conditions for the next six months
    5. Total family income for the next six months.

    The MCSI is a telephone survey of 500 households conducted by the University of Michigan. The purpose of the survey is to collect information about consumer expectations regarding the overall economy. The MCSI also covers five sections:

    1. Personal financial situation now and a year ago
    2. Personal financial situation one year from now
    3. Overall financial condition of the business for the next 12 months
    4. Overall financial condition of the business for the next five years
    5. Current attitude toward buying major household items.

    Although the surveys seek to provide a similar measurement of consumers' views on the economy, they often can and do diverge in the short term. This is due to a variety of factors:

    • The surveys are not always conducted at the same time during the month, so one may miss a significant economic event, such as a rise in gas prices, which would affect consumer outlook.
    • The two surveys query a dramatically different number of households. It stands to reason that the CCI, with 5,000 respondents, would be more sensitive. 
    • The scope of the survey differs, as well; the Michigan survey has significantly more questions and tends to yield more detailed information.
    • In terms of impact, the Conference Board survey tends to better pick up on indicators related to the job market, which the Michigan survey is more sensitive to pocketbook issues like the price of gas. 

    This question was answered by Chizoba Morah.

  • Dividend Reinvestment Plan - DRIP
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    What is a 'Dividend Reinvestment Plan - DRIP'

    A dividend reinvestment plan (DRIP) is a plan is offered by a corporation that allows investors to reinvest their cash dividends into additional shares or fractional shares of the underlying stock on the dividend payment date.

    Most DRIPs allow investors to buy shares commission-free and at a significant discount to the current share price, and do not allow reinvestments much lower than $10. This term is sometimes abbreviated as "DRP."

    Next Up

    BREAKING DOWN 'Dividend Reinvestment Plan - DRIP'

    DRIPs are offered by many companies to give shareholders the option of reinvesting the amount of a declared dividend by purchasing additional shares. Normally, when dividends are paid, they are received by shareholders as a check or a direct deposit into their bank account. Because shares purchased through a DRIP typically come from the company’s own reserve, they are not marketable through stock exchanges. Shares must be redeemed directly through the company.

    Although these dividends are not actually received by the shareholder, they still need to be reported as taxable income. If a company does not offer a DRIP, one can be set up through a brokerage firm, as many brokers allow dividend payments to be reinvested in the shares of any stock held in an investment account.

    Shareholder Advantages of DRIPs

    There are several advantages of purchasing shares through a DRIP. DRIPs offer shareholders a way to accumulate more shares without having to pay a commission. Many companies offer shares at a discount through their DRIP from 1 to 10% off the current share price. Between no commissions and a price discount, the cost basis for owning the shares can be significantly lower than if the shares were purchased on the open market.

    Long term, the biggest advantage is the effect of automatic reinvestment on the compounding of returns. When dividends are increased, shareholders receive an increasing amount on each share they own, which can also purchase a larger number of shares. Over time, this increases the total return potential of the investment. Because more shares can be purchased whenever the stock price decreases, the long-term potential for bigger gains is increased.

    Company Advantages

    Dividend-paying companies also benefit from DRIPs in a couple of ways. First, when shares are purchased from the company for a DRIP, it creates more capital for the company to use. Second, shareholders who participate in a DRIP are less likely to sell their shares when the stock market declines. One reason is the shares are not as liquid as shares purchased on the open market. Another reason is DRIP participants can more easily recognize the role their dividends play in the long-term growth of their investment.

  • Do financial advisors get drug tested?

    Financial advisors are not drug tested by any federal or state regulatory body. This means you may receive your Series 6, Series 7, Series 63 and Series 65 licenses without undergoing drug screening. That said, many employers who hire financial advisors require them to pass a drug test before an official offer of employment is extended.

    Drugs and the Financial World

    The financial industry maintains a reputation of being plagued with recreational drug abuse. Studies analyzing drug use by occupation place finance at seventh to eighth on the list of careers with the most abuse. Pop culture has promulgated this phenomenon with big-budget movies such as "The Wolf of Wall Street" depicting the excesses, including rampant drug abuse, present in finance.

    Types of Drug Tests

    Many variations of drug testing exist. The type of test you are given depends on the firm that orders the testing. The most common type required by financial advisor firms is a five-panel drug test. This test is designed to detect the five most common recreational drugs: marijuana, cocaine, amphetamines, opiates and PCP. Therefore, an advisor who is abusing anabolic steroids or a prescription painkiller such as Percocet would not fail such a test.

    More extensive tests screen for abuses such as steroids and unauthorized prescription drug use. Moreover, tests that analyze hair or skin samples rather than urine or blood can detect drug use from much further back.

    How Often Advisors Are Drug Tested

    Some firms require drug testing at periodic intervals throughout the duration of your employment. Others order testing only upon hire and when reasonable suspicion of drug use exists. Still others require no drug testing at all.

    The easiest way to keep a drug test from jeopardizing your career as a financial advisor is to avoid drugs. Beyond that, it is helpful to make yourself aware of the specific drug testing policy at any firm for which you are considering working.

  • Do financial advisors have to be licensed?

    Financial advisors must possess various securities licenses in order to sell investment products. The specific products an advisor sells, as well as the method by which he receives compensation, determine which licenses he is required to obtain. Common licenses held by financial advisors include the Series 6, Series 7, Series 63 and Series 65.

    Series 6 License

    Administered by the Financial Industry Regulatory Authority, or FINRA, the Series 6 enables financial advisors to sell packaged securities, such as mutual funds and variable annuities. A financial advisor with only a Series 6 may not sell individual stocks or bonds.

    Many advisors start by obtaining a Series 6 before moving on to the more comprehensive and difficult-to-obtain Series 7. By doing so, they can get hands-on experience and even sell a limited range of products while studying for the Series 7.

    Series 7 License

    The Series 7 is the gold standard of financial advisor licenses. Also administered by FINRA, this license enables an advisor to sell nearly every investment product. A Series 7 licensee may sell stocks, bonds, options and futures. The license also authorizes the sale of packaged securities, even if you do not carry an active Series 6 license. The only securities the Series 7 does not cover are commodities, which require a Series 3 license, as well as real estate and life insurance, both of which have their own licenses.

    Because the Series 7 confers such broad authority, it is by far the most difficult license for a financial advisor to obtain. The exam is six hours long and has a first-time pass rate of only 65%.

    Series 63 License

    Every state requires a Series 63 license for financial advisors to conduct business within its borders. This is an exam you must pass in addition to the Series 7 or Series 6. It is shorter and easier, lasting only 75 minutes, but covers a lot of minutiae regarding laws and regulations, some of which is known to trip up test-takers.

    Series 65 License

    States also require the Series 65 but only for financial advisors compensated with fees as opposed to commission. Like the Series 63, this exam is heavy on rules and regulations, the reason being these rules differ greatly for advisors who do not get paid on commission.

    That said, much of the material on the Series 65 is a rehash of what an advisor has already seen on the Series 7 and, therefore, the test is considered rather easy to pass when taken subsequently. Most advisors who take both exams take the Series 7 first. The Series 65 can be difficult for the small percentage of advisors who take it without having passed the Series 7.

  • Do I have to complete all exams within a certain period of time to receive the CFA charter?

    According to the CFA Institute, a candidate can take as much time as necessary to complete all three levels of the chartered financial analyst (CFA) program.

    For example, if you passed the June 2017 CFA Level I examination, you could take the CFA Level II examination in June 2020 (rather than June 2018) and the CFA Level III examination in June 2023.

    Remember, successful completion of all three CFA examinations is only one of several requirements needed to obtain your CFA designation. You also need to:

    • Hold a bachelor's degree
    • Have four years of experience in the investment industry
    • Become a member of the CFA Institute
    • Follow the CFA Institute Code of Ethics and Standards of Professional Conduct

    (For related reading, see: A Key Look at CFA Job Opportunities.)

  • Do minimum wage laws make labor a fixed or variable cost?

    Labor is a semi-variable cost. Semi-variable costs have elements of variable costs and fixed costs. Variable costs vary with increases or decreases in production. Fixed costs remain the same whether production increases or decreases. Wages paid to workers for their regular hours are a fixed cost. Any extra time they spend on the job is a variable cost.

    In a factory that makes dresses, the variable costs are the fabric and the labor used to make the dresses. Assuming the company employs 10 laborers, and the minimum wage in the state of operation is $8, the company has a fixed cost of $80 per hour in the form of salaries. If it takes six hours for a laborer to make a dress with eight yards of fabric, then two laborers would make two dresses in 12 hours and use 16 yards of fabric. An increase in the number of dresses (production) means there must have been an increase in the number of laborers and the size of fabric used.

    If the company in the above example requires all its workers to work six hours per day, the fixed cost for the company, if it pays minimum wage to each worker, per day is $48. If the size of fabric required to make a dress is eight yards, then the company has a fixed cost of 80 yards per day for each worker. If a worker works for more than six hours per day, the extra amount paid to the worker is a variable cost because the worker is free to determine how many extra hours to spend working. The worker may also want to work extra time on a specific day but is free to choose whether to work on a different day.

  • Do real estate agents need a degree?

    Required education or training for real estate agents career

    Most often, an academic degree is not required to become a real estate agent but completing college does help potential career seekers in the field stay competitive and relevant. Instead of a degree, a license as well as any pre-license courses is mandated by the board in any given state may be required. 

    (Learn more read 6 Steps To Becoming A Real Estate Agent and Homebuyer's Guide: Top 6 Things Every Real Estate Pro Knows)

    These pre-licensing requirements vary from state to state. It is imperative to  consult the board from the state or local area when planning  a real estate career.

    To qualify for majority of the real estate positions, an associate or bachelor's degree is more than sufficient.

    Benefits of a real estate degree

    Although a real estate degree is not always required, having one does provide a number of benefits to understand the financial and business relevancy surrounding this field.

    Completing a degree gives agents a solid foundation in the basics of buying and selling of real estate, allowing you to make more informed decisions about properties, mortgages, interest rates, and stay on top of the latest trends in the industry.

    In addition, holding a degree often makes potential agents more attractive to real estate brokerages firms.

    Since working with a brokerage company or licensed broker is a requirement to practice real estate, potential agents will need to fulfill the education requirements of top brokerage firms. While some provide the necessary training, others require agents to have prerequisite knowledge and completed training before agents are hired.

  • Does working capital include salaries?

    A company accrues unpaid salaries on its balance sheet as part of accounts payable, which is a current liability account, so they count towards the calculation of the company's working capital. However, the company would not record paid salaries as current liabilities, so they would not affect the calculation of working capital.

    Unpaid Salaries

    Unpaid salaries represent a company's arrears to its workers for a specific period of time. A company typically expenses unpaid salaries immediately through a debit entry to its income statement. Since the company has not yet paid those salaries, it has a liability to its workers and must accrue them by recording an equivalent credit entry to its accrued salaries account, which is a current liability account on the company's balance sheet.

    Unpaid salaries typically arise as a result of a timing difference between closing the company's books and when the actual payroll payment to its workers goes out of the cash account. Since current liabilities are part of the working capital calculation, unpaid salaries decrease the company's working capital.

    Once an unpaid salary is cleared through a payment to the workers, accountants record a credit entry to the cash and cash equivalents account and a debit entry to the accrued salaries account. If a company has paid all salaries, it does not owe money to its workers and its balance sheet does not contain a current liability account. Therefore, salaries do not affect the working capital for a company that has paid all its wages.

  • For which kind of jobs is having Magna Cum Laude most important?

    Having a magna cum laude degree is most important for jobs in the fields of finance, management consulting and engineering. These jobs are well-paying at the entry level and quite competitive, with more than 100 applicants for each spot. Using grades is an easy way for employers to narrow the field.

    High grades reflect a candidate's work ethic, discipline and intelligence. These attributes are necessary to do good work in any field. In fields that require graduate degrees, including law and medicine, having a magna cum laude degree is quite important in gaining admission to top institutions.

    Students from the best graduate schools tend to get the best job opportunities. For most graduate schools, admission is based on undergraduate grades and standardized test scores. For all of the jobs mentioned, grades only matter for the first or second job. After that, experience and accomplishments play a much larger role, as well as references from past supervisors and colleagues.

    Essentially, a magna cum laude degree signals to employers and graduate schools that the candidate is capable of working hard and competently. Of course, this does not guarantee success in the workplace, as there is little correlation between career success and academic success.

    Career success ends up being more about being able to work well with others, forming meaningful relationships and creating value. These characteristics are different from the drivers of academic designations. However, a magna cum laude degree is an asset that can help a candidate get a foot in the door.

  • How are asset management firms regulated?

    In principle, the asset management industry is largely governed by two bodies: the Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA). However, in practice, there is overlap between these and other agencies; the regulatory picture facing a particular firm can get rather complex.

    The U.S. Securities and Exchange Commission

    The SEC was established in 1934 by the Securities Exchange Act and is an independent government agency. It is mandated with protecting investors and ensuring fairness in securities markets. The SEC has broad regulatory powers relating to U.S. securities markets, including the oversight of exchanges and the enforcement of regulations. The SEC regulates investment advisers that have over $110 million in assets under management. Below this level, investment advisers are required to register with their states, as are the representatives of investment advisers.

    Any firm that gives advice with respect to investing in securities is considered to be an investment adviser. This includes firms that manage portfolios for clients. The SEC is very vocal in stating that registration is not an endorsement of any given investment manager or adviser; it just means that the firm has made certain disclosures and agrees to adhere to SEC rules. Firms regulated by the SEC are subject to unscheduled audits.

    The Financial Industry Regulatory Authority

    FINRA is a self-regulating organization that operates under the scope of the SEC. It is charged with enforcing SEC rules and regulations among its members, and it has wide responsibility for overseeing the activities of brokerage firms and individual brokers. Anyone who sells securities to the public as a stockbroker or as a representative of a broker-dealer is almost certainly regulated by FINRA.

    There is a relatively large overlap between FINRA and SEC regulation. In practice, a firm might have brokers registered with FINRA who are also registered investment adviser representatives. A single asset manager could be subject to oversight and audits by both bodies.

    Other Regulatory Agencies

    Other bodies regulating the financial industry include the Federal Reserve, the Treasury Department, the Federal Deposit Insurance Corporation (FDIC), Commodity Futures Trading, the Office of the Comptroller of the Currency and the Office of Thrift Supervision. There are also state regulatory agencies.

    There is a degree of regulatory complexity for large multi-strategy firms participating in numerous asset management and other activities. An investment bank with an asset management division, a wealth-management division and a traditional banking arm might be regulated by the SEC and FINRA as well as the Federal Reserve, the Treasury Department and the FDIC.

    There are overlapping and sometimes contradictory regulatory frameworks facing financial industry companies. To address areas of conflict or confusion, the Dodd-Frank Act established the creation of the Financial Stability Oversight Council (FSOC). The FSOC acts as a coordinating body charged with simplifying bank regulation and monitoring systemic risks facing the financial industry.

  • How are labor demand forecasts made in human resources planning?

    Human resources planning can use qualitative and quantitative approaches to forecasting labor demand. Quantitative methods rely on statistical and mathematical assessment, such as workforce trend analysis or econometric calculation. Qualitative forecasts use managerial judgement on a more individual basis, spotting needs internally and then bidding for or training the requisite skills. Ultimately, many human resource departments can use the basic supply and demand signals generated in the labor market to estimate demand.

    In the private sector, the type and quantity of demanded labor is a function of the total demand for products and services in the economy. In this sense, it is the consumer who controls labor and not the employer. It is up to producers to predict and deploy demanded labor in a profitable way. The primary source of labor information comes from prices – the wage rate set in the market, the prices of goods and services, and the cost of alternatives to manual labor.

    Conceptually, forecasting labor demand is no different than forecasting the right combination of any capital inputs. Firms must successfully anticipate consumer demand and find cost-effective ways of bringing goods or services to the market. A manufacturing production manager might ask, "How many widgets should I bring to market next year?" Similarly, a human resources manager might ask, "How many employees will we need to produce those widgets next year? At what skill level?"

    Contemporary literature on human resources planning identifies several common methods of estimating a business's human capital needs. These include managerial judgement, work-study techniques (also known as workload analysis), trend analysis, the Delphi Technique and model-based regression analysis.

  • How are real estate agents, brokers, and realtors different?

    Many people unfamiliar with the real estate industry use the terms real estate agent, broker and realtor interchangeably. There are differences among the three, however, in terms of the qualifications and the exact services each professional offers.

    A real estate agent is a professional in the industry who has taken and passed all required real estate classes, along with the real estate licensing exam in the state in which he or she intends to work. As the starting point for most of those going into the real estate field, it is the most encompassing of the titles. Agents are also referred to as real estate associates.

    A real estate broker has continued his or her education past the real-estate-agent level and has passed a state real estate broker license exam. Real estate brokers can work as independent agents or have other agents working for them: Agents who have passed the broker exam, but who choose to work under another broker is typically called a real estate associate broker. An associate broker may share in the brokerage profits above and beyond the typical agent commission.

    A realtor is a real estate professional who is a member of the National Association of Realtors (NAR). To become a member, a real estate professional has to agree to abide by the association's standards and uphold its code of ethics.

    Perhaps the biggest distinction among the three is that a broker can work on his or her own, while an agent has to work under a licensed broker. 

    For more details, see Tips For Working As A Real Estate Agent.

  • How are savings & loan companies different from commercial banks?

    Savings and loan (S&L) companies provide many of the same services to customers as commercial banks, including deposits, loans, mortgages, checks and debit cards. However, savings and loans associations place a stronger emphasis on residential mortgages, whereas banks tend to concentrate on working with large businesses and on unsecured credit services such as credit cards. S&Ls are also owned and chartered differently than commercial banks, and are generally more locally oriented.

    Commercial Banks can be chartered at either the state or federal level. The same is true for S&Ls, also sometimes referred to as thrift banks, savings banks, or savings institutions. The Office of the Comptroller of the Currency (OCC), however, is in charge of monitoring all nationally chartered commercial banks and S&Ls.

    S&Ls can be owned in either of two ways. Under what is known as the mutual ownership model, an S&L can be owned by its depositors and borrowers. Alternatively, an S&L can be established by a consortium of shareholders controlling stock issued by a thrift's charter.

    Commercial Banks, on the other hand, are owned and managed by a board of directors selected by stockholders. Many commercial banks are large, multinational corporations.

    By law, S&Ls may loan up to 20% of their assets for commercial loans, and only half of that can be used for small business loans. Moreover, for Federal Home Loan Bank borrowing approvals, an S&L must be able to show that 65% of its assets are invested in residential mortgages and other consumer-related assets. The banking industry does not have these types of limitations.

    In contrast to the S&L's narrower focus on residential mortgages, banks typically provide a broader range of financial offerings, often including credit cards and wealth management and investment banking services. Although commercial banks are permitted to provide residential mortgages, they tend to focus on loans targeting the construction and expansion needs of regional, national and international businesses.

  • How are share prices set?

    When a company first lists its stock though an initial public offering (IPO), an investment bank evaluates the company's current and projected performance and health to determine the value of the IPO for the business. The bank can do this by comparing the company with the IPO of another similar company or by calculating the net present value of the firm. The company and the investment bank will meet with investors through a series of road shows to help determine the best IPO price. Finally, after the valuation and road shows, the firm must meet with the exchange, which will determine if the IPO price is fair.

    How Supply and Demand Effect Share Prices

    Once trading starts, share prices are largely determined by the forces of supply and demand. A company that demonstrates long-term earnings potential may attract more buyers, thereby enjoying an increase in share prices. A company with a poor outlook, on the other hand, may attract more sellers than buyers, which can result in lower prices. In general, prices rise during periods of increased demand, when there are more buyers than sellers. Prices fall during periods of increased supply, when there are more sellers than buyers. A continuous rise in price is known as an uptrend, and a continuous drop in prices is called a downtrend. Sustained uptrends form a bull market and sustained downtrends are called bear markets.

    Other Factors that Change Stock Prices

    Other factors can affect prices and cause sudden or temporary changes in price. Some examples include earnings reports, political events, company material events and economic news. Not all news or reports affect all securities. For example, the stocks of companies engaged in the gas and oil industry may react to the weekly petroleum status report from the U.S. Energy Information Administration (EIA report).

    Stock prices can also be driven by what is known as herd instinct, which is the tendency for people to mimic the action of a larger group. For example, as more and more people buy a stock, pushing the price higher and higher, other people will jump on board, assuming that all the other investors must be right (or that they know something not everyone else knows). There may be no fundamental or technical support for the price increase, yet investors continue to buy because others are doing so and they are afraid of missing out. This is one of many phenomena studied under the umbrella of behavioral finance.

    (For related reading, see: Forces That Move Stock Prices.)

  • How can I purchase stock directly from a company?

    There are a few circumstances in which a person can buy stock directly from a company. The following is meant to cover some of these instances, which include direct stock purchase plans, dividend reinvestment plans (DRIPs) and employee stock purchase plans (ESPPs).

    Direct Stock Purchase Plan

    This is when a person buys stock directly from the issuing company. There are a number of well-known companies that will sell stock directly to individual investors. Most companies that offer this kind of purchase option don't charge investors a commission, and if they do, the commission or service charges is very low compared to buying stocks through a broker. If you're buying a very small number of shares and want to minimize your costs, a direct stock purchase is a great way to go.

    Dividend Reinvestment Plans

    Investors who own shares in a company with a dividend reinvestment plan have the option of registering with the company and participating in the plan. Instead of receiving dividends from the company, DRIP participants' dividends go directly toward buying more stock in the company. As with direct stock purchases, there are often no commission charges associated with DRIPs. (For more on this, read The Perks of Dividend Reinvestment Plans and What is a DRIP?)

    Here is how a DRIP works:

    Company A pays a dividend of $0.50 per share on an annual basis, and its stock is worth $40 per share. A DRIP participating investor owns 200 shares of Company A's stock. Instead of receiving a $100 check each year in dividends, the investor can buy 2.5 shares ($100/$40 per share) of stock. These shares are given directly from the company and no commission fees are charged.

    Employee Stock Purchase Plans

    For employees that work for public companies, ESPPs provide a great chance to buy the company's stock at a discount. Employees are limited in the number of shares they can buy, and it's not always a good thing to increase your holdings in your employer's company – it's a bit like putting all of your eggs into one basket.

    In general, ESPPs offer employees the chance to buy stock for 85% of the market value. These stocks can go directly into a retirement fund, so there's usually an opportunity to participate in ESPPs with untaxed income; in these cases, money is deducted from an employee's salary.

  • How did Richard Branson make his fortune?

    Sir Richard Branson is the flamboyant entrepreneur behind the Virgin brand, which began with Virgin Records in 1972. The tycoon is the founder and chairman of the Virgin Group, which employs nearly 70,000 people in 35 countries through its 60-plus companies.

    Branson's companies include or have included airlines, wireless communications, radio stations, hotels, health clubs, financial services businesses, the nightclub Heaven, renewable technologies, a Formula One team and even a space tourism company. As of December 2017, Branson's net worth stood at an estimated $5.1 billion, according to Forbes, making him the eighth richest U.K. citizen.

    He became Sir Richard Branson in 2000, and Time magazine named him as one of the top 100 most influential people in the world in 2007.

    Here is a brief look at how the fun-loving Branson grew his Virgin mega-brand and became one of the wealthiest and most successful people in the world.

    The 1960s

    Richard Branson started at age 16 with his magazine, called Student, which interviewed celebrities and sold almost $8,000 worth of advertising for the first issue. The teenager dropped out of school to promote his magazine. In 1969, he started a mail-order record business that used the magazine office as an operating base. Branson and his team of 20 employees called the new business Virgin.

    The 1970s

    In 1970, Branson launched Virgin Mail Order Records. After a rocky start, he grew to own 14 record stores by 1972. He used the profits from his record store chain to found music label Virgin Records in 1972, and he earned his first million dollars in 1973, when Virgin recording artist Mike Oldfield sold over 5 million copies of his record, "Tubular Bells."

    Part of Branson's early success at Virgin Records came as a result of his willingness to sign the Sex Pistols and other controversial artists. Other popular Virgin acts included The Rolling Stones and Ozzy Osbourne. By the end of the decade, Virgin Music had become one of the top six record companies in the world, with branches in Germany, France and Japan.

    In 1979, Branson purchased Necker Island in the British Virgin Islands for $180,000.

    The 1980s

    Virgin Books and Virgin Video were born in 1981. Within two years, Branson's business empire included more than 50 different companies with combined sales of more than $17 million.

    In 1984, Branson paired with lawyer Randolph Fields to start one of his most famous companies yet, Virgin Atlantic. The airline took off (pardon the pun) due to its fine customer service and innovative in-flight comforts, such as free ice cream, seat-back video screens and in-flight massages.

    The 1990s

    In 1992, Branson reluctantly sold Virgin Records for $1 billion in order to keep Virgin Atlantic afloat. These were tumultuous years for Virgin Atlantic. Terrorist attacks kept people from flying, and larger rival British Airways engaged in what Branson called "a hostile campaign designed to cause permanent damage to Virgin." Branson successfully sued British Airways for libel, with a judge ruling in 1993 that British Airways pay Branson and Virgin $945,000 in damages, plus legal fees estimated at around $3 million, and deliver an apology. This was also the year that Branson started Virgin Trains.

    The 2000s

    In 2001, Virgin Group launched Virgin Mobile as a joint venture with Sprint, and Virgin-branded wireless communications services are now available in numerous countries.

    In September 2004, Branson turned his eyes to the sky again and joined forces with Burt Rutan, an American aeronautical engineer, to launch Virgin Galactic, with licensed spacecraft that would take tourists to space. Branson had a vision of providing cheap space tourism. An unfortunate series of events, including a crash in 2014, rerouted the date of the first commercial space flights to some indeterminate time in the future. As of 2016, Branson had signed up 700 clients.

    Branson actually has four space-focused companies now. In addition to Virgin Galactic, Virgin also operates Virgin Orbit for cargo, VOX for government missions and The Spaceship Company, which as the name implies, build spaceships.

    Branson launched social activist projects that included Virgin Unite to combat HIV and AIDS, the Branson Center of Entrepreneurship to teach entrepreneurial skills in developing countries, Virgin Fuels to make cleaner green fuels, and the Virgin Green Fund to help the environment.

    The Bottom Line

    Branson attributes his success to luck, speed and hard work that included nights and weekends. His books and biographies cite his daredevil ideas, originality, willingness to buck norms and persistence. Branson never allowed inexperience to discourage him from being a dynamic and daring entrepreneur. In fact, he named his company Virgin because he and his employees were all new to business.

    His extraordinary service to his employees and clients rated him as the United Kingdom's celebrity dream boss in an opinion poll by Cancer Research U.K. His philanthropy earned him accolades as the most admired business owner over the past five decades in The Sunday Times in 2007. And Branson is currently ranked No. 1 on RichTopia's list of the 100 most influential British entrepreneurs.

  • How did Tim Cook become head of Apple?

    Tim Cook became the chief executive officer of Apple in August of 2011 after the death of founder and CEO Steve Jobs. His path to becoming the head of one of the largest and most recognizable companies in the world was a long one full of hard work and dedication in the technology industry.

    Cook graduated from Auburn University in 1982 with a bachelor's degree in industrial engineering and earned his MBA from Duke University in 1988. After graduate school, Cook took a job with IBM, where he spent 12 years and ultimately became the director of the North American fulfillment. After a short stint at Compaq, Cook joined Apple in 1995 and became the chief operating officer (COO) in 2007, where he remained until his promotion to CEO in 2011.

    At the beginning of Cook's tenure at the company, Apple was struggling to keep up with other computer giants, such as Microsoft and Dell. However, soon after he arrived things began to look up. Apple began to expand its influence abroad and reach further into international markets. The company was also preparing to release a new line of products that the world had yet to be exposed to in the late 1990s. The iPod and iMac were about to be released, followed by a series of computers, phones, tablets and endless accessories that made Apple the international technology powerhouse it is today. Cook's contribution to this expansion and growth came in his role as the head of Apple's Macintosh division, and as a reseller and supplier strategist.

  • How did Warren Buffett get started in business?

    Warren Buffett may have been born with business in his blood. He purchased his first stock when he was 11 years old and worked in his family’s grocery store in Omaha. His father, Howard Buffett, owned a small brokerage, and Warren would spend his days watching what investors were doing and listening to what they said. As a teenager, he took odd jobs, from washing cars to delivering newspapers, using his savings to purchase several pinball machines that he placed in local businesses.

    His entrepreneurial successes as a youth did not immediately translate into a desire to attend college. His father pressed him to continue his education, with Buffett reluctantly agreeing to attend the University of Pennsylvania. He then transferred to the University of Nebraska, where he graduated with a degree in business in three years.

    After being rejected by the Harvard Business School, he enrolled in graduate studies at Columbia Business School. While there, he studied under  Benjamin Graham – who became a lifelong friend – and David Dodd, both well-known securities analysts. It was through Graham's class in securities analysis that Buffett learned the fundamentals of value investing. He once stated in an interview that Graham's book, The Intelligent Investor, had changed his life and set him on the path of professional analysis to the investment markets. Along with Security Analysis, co-written by Graham and Dodd it provided him the proper intellectual framework and a road map for investing.

    Benjamin Graham and The Intelligent Investor

    Graham is often called the "Dean of Wall Street" and the father of value investing. One of the most important early proponents of financial security analysis, Graham was so influential that he helped draft the Securities Act of 1933. He championed the idea that the investor should look at the market as though it were an actual entity and potential business partner – Graham called this entity "Mr. Market" – that sometimes asks for too much or too little money to be bought out.

    It would be difficult to summarize all of Graham's theories in full. At its core, value investing is about identifying stocks that have been undervalued by the majority of stock market participants. He believed that stock prices were frequently wrong due to irrational and excessive price fluctuations (both upside and downside). Intelligent investors, said Graham, need to be firm in their principles and not follow the crowd.

    Graham wrote The Intelligent Investor in 1949 as a guide for the common investor. The book championed the idea of buying low-risk securities in a highly diversified, mathematical way. Graham favored fundamental analysis, capitalizing on the difference between a stock's purchase price and its intrinsic value.

    Entering the Investment Field

    The Buffett that modern investors admire almost wasn’t. When he graduated from Columbia he intended to work on Wall Street, but Graham convinced him to make another career choice. Heading back to Omaha, Buffett worked as a stockbroker and created several investing partnerships. The size of the partnerships grew substantially, and by the time he was 31 he was a millionaire.

    It was at this point – in 1961 – that Buffett’s sights turned to directly investing in businesses. He made a $1 million investment in a windmill manufacturing company, and the next year in a bottling company. Buffett used the value-investing techniques he learned in school, as well as his knack for understanding the general business environment, to find bargains on the stock market. Looking for new opportunities, he discovered a textile manufacturing firm called Berkshire Hathaway (BRK.A), and began buying shares in it. He later took control of the company in 1965. He made some other good investments, like American Express (AXP), a company that doubled in price within two years of his initial purchase of its stock.

    Comparing Buffet to Graham

    Buffett has referred to himself as "85% Graham." Like his mentor, he has focused on company fundamentals and a "stay the course" approach – an approach that enabled both men to build huge personal nest eggs. Seeking a seeks a strong return on investment (ROI), Buffet typically looks for stocks that are valued accurately and offer robust returns for investors.

    However, Buffett invests using a more qualitative and concentrated approach than Graham did. Graham preferred to find undervalued, average companies and diversify his holdings among them; Buffett favors quality businesses that already have reasonable valuations (though their stock should still be worth something more) and the ability for large growth.

    Other differences lie in how to set intrinsic value, when to take a chance and how deeply to dive into a company that has potential. Graham relied on quantitative methods to a far greater extent than Buffett, who spends his time actually visiting companies, talking with management and understanding the corporate's particular business model. As a result, Graham was more able to and more comfortable investing in lots of smaller companies than Buffett. Consider a baseball analogy: Graham was concerned about swinging at good pitches and getting on base; Buffett prefers to wait for pitches that allow him to score a home run. Many have credited Buffett with having a natural gift for timing that cannot be replicated, whereas Graham's method is friendlier to the average investor.

    Buffett Fun Facts

    Buffett only began making large-scale charitable donations at age 76.

    Buffett has made some interesting observations about income taxes. Specifically, he's questioned why his effective capital gains tax rate of around 20% is a lower income tax rate than that of his secretary – or for that matter, than that paid by most middle-class hourly or salaried workers. As one of the two or three richest men in the world, having long ago established a mass of wealth that virtually no amount of future taxation can seriously dent, Mr. Buffett offers his opinion from a state of relative financial security that is pretty much without parallel. Even if, for example, every future dollar Warren Buffett earns is taxed at the rate of 99%, it is doubtful that it would affect his standard of living.

    Buffett has described The Intelligent Investor as as the best book on investing that he has ever read, with Security Analysis a close second. Other favorite reading matter includes:

    • Common Stocks and Uncommon Profits by Philip A. Fisher, which advises potential investors to not only examine a company's financial statements but to evaluate its management. Fisher focuses on investing in innovative companies, and Buffet has long held him in high regard.
    • The Outsiders by William Thorndike, Jr. profiles eight CEOs and their blueprints for success. Among the profiled is Thomas Murphy, friend to Warren Buffett and CEO of Berkshire Halloway. Buffett praises Murphy in a 2012 shareholder's letter, calling him "overall the best business manager I've ever met."
    • Stress Test by former Secretary of the Treasury, Timothy F. Geithner, chronicles the financial crisis of 2008-9 from a gritty, first-person perspective. Buffett has called it a must-read for managers, a textbook for how to stay level under unimaginable pressure.
    • Business Adventures: Twelve Classic Tales from the World of Wall Street by John Brooks is a collection of articles published in The New Yorker in the 1960s. Each tackles famous failures in the business world, from Ford's doomed Edsel to dysfunctional price-fixing at GE, depicting them as cautionary tales. Buffett lent his only copy of it to Bill Gates, who reportedly has yet to return it.

    The Bottom Line

    Warren Buffett’s investments haven't always been successful, but they were well-thought-out and followed value principles. By keeping an eye out for new opportunities and sticking to a consistent strategy, Buffett and the textile company he acquired long ago are considered by many to be one of the most successful investing stories of all time. But you don't have to be a genius "to invest successfully over a lifetime," the man himself claims. "What's needed is a sound intellectual framework for making decisions and the ability to keep emotions from corroding that framework."

  • How do companies balance labor supply and demand in human resources planning?

    Companies can use strategic human resource (HT) planning to forecast current and future staffing needs using a variety of techniques, but the end goal is to limit exposure to surpluses or shortages in labor. Managers need to anticipate the movement of people into, within and out of an organization. They need to be able to approximate the level of future demand for the business' goods and services. Lastly, they need to implement processes and activities that promote employee competencies within the framework provided by supply and demand estimates.

    Labor supply, or the amount of labor required by a business to meet its business objectives, can come from within an organization or from outside sources. Using strategic HR planning, a company assesses the level of skill and overall productivity within the business. It tends to be much more expensive to make new hires than to improve the existing skills of employees, which means companies generally have a strong incentive to foster productivity internally as a first option.

    Demand forecasting is more difficult than supply forecasting. Unsurprisingly, there are competing philosophies on how to best approach it. Businesses need to assess the level of consumer demand in the future and begin building an infrastructure to meet those demands. They need to understand their turnover rates and the labor market. Smaller businesses gravitate toward less technical and qualitative methods. Larger companies, where it is too difficult to assess individual workers off of "gut feeling," must rely on a certain amount of statistical metrics and trend analysis. Workforce planning always involves a certain degree of guessing. Businesses better at recognizing, acquiring and cultivating talent have a large competitive advantage.

  • How do companies measure labor supply in human resources planning?

    Human resources planning uses forecasts about product and service demand and insights about internal labor fluctuations to measure the appropriate supply of labor for a firm's operations. Being able to correctly approximate labor availability and needs is crucial. Labor surplus or shortage can be realized if the workforce does not match up with present infrastructure and needs.

    Most human resources departments rely on external metrics to gauge the demand for labor, since the ultimate cause of demand comes from consumer preferences. When consumers demand more of a product or service, firms have an incentive to increase their output to maximize profits. This can lead to hiring more employees and innovating to realize economies of scale.

    Labor supply, on the other hand, comes from internal movements as much as external factors. Transitional matrices can be used to spot employee movements over time. Businesses need to track turnover – not just when it happens, but when it might happen.

    The effective supply of labor doesn't just depend on having healthy bodies. It also requires having the requisite skills to create and deliver the business's products and services to customers. When skills are not available internally, they must be sought externally. Here, options are limited by the relative cost of acquiring new skills. When new labor is expensive and skilled workers are in high demand, companies may consider alternatives to hiring. The marginal cost of hiring and training an employee must be offset by the added marginal revenue product.

    Human resources planning involves strategies to address imbalances in labor supply and demand. In the face of additional labor needs, companies can encourage overtime work, hire temporary employees, outsource, engage in new retraining programs or find other ways to improve productivity. To reduce an expected labor surplus, a company might downsize, implement a hiring freeze, reduce pay or hours, or increase output.

  • How do firms improve their employees' human capital?

    Human capital describes employees' knowledge, skill sets and motivation that provide economic value to a firm. It is important for a firm to engage in developing its employees' human capital to grow the firm. Improving employees' human capital will result in higher morale, increased productivity and a sense of belonging to a firm. Human capital is not static and can be improved through education. A firm can improve its employees' human capital through continuing education and on-site education.

    A company could look to invest in educating an employee by offering to pay some or all of his college tuition. Investing in an employee's college education prepares him for work in more advanced positions within the company. For example, suppose an employee is working for the engineering division of a firm. The firm can increase its human capital by investing in a graduate business degree for the engineer.

    A company can use on-site education such as workshops to increase its employees' human capital. Through on-site workshops, a firm can improve its employees' skill sets. For example, a company can create a workshop to teach its employees a programming language and data analysis. This equips the employees with a new skill set and helps to improve human capital.

    Another way firms can improve their human capital is by offering seminars. These seminars provide employees with the opportunity to learn from experts who have similar work functions. This could lead to the exchange of ideas, tips and new techniques to increase the employees' overall efficiency.

  • How do I get started with a career in asset management?

    The asset management industry has a variety of different career paths. Depending on what asset management area you would like to enter, getting started may require an advanced degree and a considerable amount of work toward earning difficult certifications, or it may require a simple job transition.

    Asset Management for a Mutual Fund Company or a Wall Street Firm

    If your goal is to be a portfolio manager for a mutual fund company or a prestigious Wall Street firm, a degree in finance or economics from an Ivy League or other top-tier institution would be a good start. These firms are selective and generally only hire extremely promising graduates.

    If you're later in your career, consider going back to a top-tier school for an MBA with a concentration in finance. Even after you are hired, you may be expected to pursue advanced certifications such as a chartered financial analyst, or CFA.

    Asset Management for a Local Bank Trust Company or Lower-Tier Mutual Fund

    If you're happy not playing in the big leagues, you may be able to land a job as an analyst at a local bank trust company or a lower-tier mutual fund without getting an expensive degree. Over time, you may be able to advance to a true portfolio manager position. This offers an opportunity to learn the industry and see if it's a good fit. If you perform well, this type of company may assist you with further education or certifications as they become necessary.

    Starting Your Own Private Asset Management Company or Joining a Local Financial Adviser's Office

    If you're able to study and pass the required securities examinations, you can work as a financial adviser or support an existing adviser. This path is likely to involve selling yourself to increase the number of clients and amount of assets under your management. Further certifications would earn you a trusted reputation with your clients but are not required.

  • How do I register for the CFA program for the first time?

    CFA Institute provides prospective CFA candidates with a couple registration options.

    1) Online registration: This is the quickest and easiest method to register as CFA Institute receives your registration immediately. All you need to do is create an online user account and register for the exam. Online registration is also cheaper as you avoid the costs associated with sending your information through the mail.

    2) Registration form: This form is sent to CFA Institute by prospective CFA candidates through the mail. CFA Institute recommends these registration forms to be sent via courier to ensure the package can be tracked if not received.

    For more information on the registration procedure and requirements, click here.

    (For related reading, see: Pass Your CFA Exams on the First Try.)

  • How Do Insiders Buy Stock at Below Market Value?

    On Oct. 30, 2006, a Google executive purchased 2,541 shares of Google at $9 per share and sold these same shares the same day at $475 per share. The end result of this executive's trading activity was a net change of zero shares, but a net profit of about $1.18 million. How can executives buy the shares so cheap and then sell them at market value making a large profit? The method behind this is employee stock options, which are extremely popular with startups as a way to attract top talent without paying high salaries up front. 

    Basically, the company awards an employee an option that allows them to buy a certain amount of shares for a set price at a set amount of time. The employee purchases the shares from the company, which they can either keep as an investment or sell immediately, usually for a gain. Most incentive stock options, or ISOs, are tax advantaged, in that if the shares are sold in a qualifying disposition, which occurs at least two years after the options were granted and at least one year after they were exercised. The bargain element, or the difference between the exercise price and sale price, is not reported as income, a potentially huge tax savings. 

    Compensation By Other Means

    Stock options aim to motivate managers by linking compensation with company performance, which is measured by share price. Unlike market-traded stock options that are sold for a premium, employee stock options are given either as a portion of salary or a bonus. These options allow employees to share in the success of their companies. For managers involved with new companies, stock options are an attractive means of compensation, as the exercise price is often very low. When the company starts to perform well, such as the Google example, the executives can exercise their options for large gains.

    Stock options do have potential disadvantages for companies that use them, primary among them the possibility of diluting shareholder equity when an employee exercises them. For employees, the main disadvantage is one of liquidity, especially in a privately held company. Unless and until the company goes public, the options aren't equal to cash benefits. In fact, if the company doesn't do well, or fails to grow at a decent rate, the stock may actually lose value and ultimately become worthless. (See also: The True Cost of Stock Options and Lifting the Lid on CEO Compensation.)

  • How do managers measure human capital?

    Human capital is the knowledge, skill sets and intangible assets that add economic value to an individual. Human capital is not a static measure and can be improved. It is an intangible asset and is just as valuable as a tangible asset. A manager can use various measures to evaluate the economic value added by his staff. One approach a manager can use is measuring human capital as a return on investment (ROI).

    Since human capital can be built upon through investing in employees' skill sets and knowledge through higher education and workshops, a manager can calculate the investments made on human capital. Managers can calculate the total profits a company generates before and after investing on its employees' capital. The ROI of human capital is calculated by dividing the company's total profits by its total investment on human capital.

    For example, suppose company TECH, a technology company, launches a new program to invest in its employees' knowledge and skill sets in order to increase productivity and creativity. Assume the company invests $1 million into human capital and has total profits of $20 million. The managers of TECH can compare its human capital's ROI year over year so they can track improvements of profitability and whether it is linked to the current program.

    Managers can also compare the ROI of human capital to other companies to gauge how well the company's investments in human capital are, relative to the industry. In the example above, TECH has a ROI of human capital of 20; managers can compare this to other companies of the technology industry. Suppose the industry average of human capital's ROI is 8; this signals to managers that the company's program is sufficient and outperforms other companies.

  • How does a cost-of-living adjustment (COLA) affect my salary?

    Some companies build salary adjustments into their compensation structures to offset the effects of inflation on their employees. Cost-of-living adjustments, or COLAs, can also refer to annual adjustments made to Social Security and Supplemental Security Income, which are generally equal to the percentage increase in the consumer price index for urban wage earners and clerical workers, or CPI-W, for a specific period.

    Workers who belong to a union may have a cost-of-living adjustment, sometimes referred to as a cost-of-living allowance, built into their contract. One famous example is the COLA required for U.S. Postal Service workers. For most employees, though, cost-of-living adjustments are awarded at the discretion of their employer.

    How Salary Cost-of-Living Adjustments Are Calculated

    Cost of living refers to the amount of money required to maintain a standard of living, accounting for basics like housing, food, clothing, utilities taxes and healthcare. Increases (or decreases) in the price of these necessities affect the cost of maintaining your lifestyle, and this, in turn, shapes how well your income will support you and your dependents.

    The computation involved in cost-of-living adjustments can vary from employer to employer. There is no official cost-of-living metric provided by the federal government, but some employers may use the prior year's rise in the Consumer Price Index, or CPI.

    The Bureau of Labor Statistics measures price inflation with its CPI, which measures temporal changes in a set basket of consumer goods and services. The methodology behind the CPI has changed over time, and there is some debate about whether it is a reliable indicator of real inflation levels. While CPI may be used by employers to calculate COLAs, the official BLS website points out that the CPI is not meant to be a cost-of-living index.

    The Council for Community and Economic Research also provides a reputable Cost of Living Index.

    In general, employers use COLAs to attract and keep valuable employees. A company that does not offer salary adjustments to offset inflation might find itself at a competitive disadvantage to companies that do offer this type of benefit to employees.

    There is another type of cost-of-living adjustment not directly tied to the rate of inflation, but employers may offer it to make employees more willing to accept job transfers.

    Cost-of-Living Adjustments for Relocations

    Sometimes an employee may transfer to a new city while maintaining the same job and receive a salary increase to offset the higher cost of living in the new location. An example is an employee who receives a salary increase because he is transferred from Chicago to New York City where consumer goods and services are more expensive. (For more, see "Know Cost of Living B4 Taking a Relocation Package.")

    If you are considering moving to another city to accept a new job, cost-of-living indexes can be used as an indicator of how suitable a salary offer is relative to your current income and standard of living. Housing, food and taxes vary between states and even regions. Cities, regions and states with a lower cost of living usually mean your income will go further. Living in areas with a higher cost of living usually mean workers have less disposable income, or money in their bank accounts, after paying for the basics and need higher incomes to live as well as they would in a less costly region. 

    Sometimes the term COLA is used to describe salary "adjustments" or allowances for workers, including military personnel temporarily relocated to another city, region or country. Though the idea is to compensate workers for a change in their welfare resulting from moving to a different location, the adjustment or bonus pay may be more accurately described as a per diem allowance to be used for a temporary and specific cost, such as a higher rent payment. The extra payment does not continue when the temporary assignment ends, whereas a true COLA for a permanent salary remains in place.

    COLA and Retirement Income

    Over time, inflation and increasing prices for goods and services can seriously erode investment income and pension benefits for retirees living on a fixed income. If  monthly income remains relatively the same while basic costs – food, shelter, healthcare, taxes – increase, retirees who enjoyed comfortable early retirements may find themselves pinching pennies as time goes on. This is because their purchasing power has been eaten away by inflation.

    Some forms of retirement fixed income do increase with the cost of living, due to a COLA. Income derived from COLA-based pensions, COLA-indexed pensions and government benefits for retirees, such as Social Security, will retain their purchasing power as inflation increases,as long as their COLA formula is sufficiently generous. (For more on Social Security COLAs, see "Is the Cost-of-Living Adjustment Mandatory?")

    The Bottom Line

    The phrase "cost of living" refers to a measure of the cost of sustaining a certain standard of living. Cost-of-living indexes can be used to compare salaries across different areas. A cost-of-living adjustment calculation may be used to increase certain kinds of income such as contracts, pensions or government benefits so they can keep up with increasing basic living costs, as represented by the CPI or a cost-of-living indexes. In general, cost-of-living adjustments to your salary wil be determined by your employer.

  • How Does FIFA Make Money?
    Football (soccer) over the years has become the most popular sport in the world. It is played in over 200 countries and no other sport has managed to achieve such a fan following. In the early part of the 20th century, there were more international competitions, and with them, more need to oversee, organize, and promote. As a result, FIFA (Fédération Internationale de Football Association or International Federation of Association Football) was formed in 1904.

    FIFA says that its mission is to develop and improve the game of football everywhere and for all. FIFA is a non-profit organization that invests most of its earnings back in the development of the game. The earnings come from organizing and marketing major international competitions, with the most popular being the World Cup, which happens every four years. Other competitions like the continental championships and the FIFA Confederations Cup are also quite popular. We look at the simple and effective business plan that has helped FIFA become a successful corporate leader.

    Economies of the World Cup

    The 2018 World Cup is being held in Russia and is a huge event in terms of the numbers it achieves for everyone involved. Of course, FIFA is the sole body charged with organizing the event and has access to all the revenues, but everyone is happy as long as they get a cut from the billion dollar revenues the event generates. The World Cup host country is decided upon by a bidding process, and it is a fierce competition. U.S., Canada and Mexico have been chosen to host the event for its 23rd edition in 2026.

    Organizing such a huge and popular event requires a lot of investment, especially in building and enhancing world-class infrastructure. Thus, the country wins the bid attracts a lot of interest from investors, which can help to boost the economy.  With so many countries vying to host the World Cup, FIFA naturally gets a big bargaining chip and gets away with dictating most of the terms. FIFA does not invest in any infrastructure created for the Cup; the onus for that lies solely on the host nation. However, FIFA gains a lot by selling television rights, marketing rights, and licensing rights, as well as revenue form ticket sales. And FIFA’s costs are minimal. FIFA pays the local organizing committee for organizing and conducting the World Cup. It also pays prize money to the participating nations, accounts for the travel and accommodation of players, and supports staff and match officials. In addition, it makes available for the host country a FIFA World Cup legacy fund to be used in the future for development of the game in the country.

    Apart from the cost related to FIFA events, FIFA's major costs also involve development expenses, personnel expenses, and a financial assistance program.

    FIFA by the Numbers

    FIFA has adopted the International Financial Reporting Standards (IFRS) reporting standards as part of a good governance policy. The numbers are reported around its marquee event—the World Cup. FIFA's revenue stood at $734 million in 2017, totaling over $5.65 billion between 2015-2018. FIFA records its revenue in a four-year cycle leading up to World Cups, therefore most of these figures are for a period between 2015 and 2018. Most of the revenue, 98% came from revenue contracts, other sources of income include board licensing and investment income. Out of the event-related revenue that is recorded in the period between two world cup events, $3 billion was attributable to sale of television rights during the 2015-2018 cycle.

    In a bidding war between ESPN and Twenty-First Century Fox Inc. (FOXA), FOX outbid Disney's ESPN and paid $400 million to FIFA for television rights through the 2022 World Cup. Facebook Inc. (FB) Twitter Inc (TWTR) and Snap Inc. (SNAP) are all offering millions of dollars to FOX for highlight rights. 

    The next biggest source of income is the sale of marketing rights which totaled $1.45 billion in the cycle leading up to the current Word Cup. FIFA also gains from licensing rights, hospitality/accommodation rights and other revenues which account for $363 million, $575 million, and $268 million respectively. Notably, revenue from ticketing rights are 100% owned by a direct subsidiary of FIFA. During the 2014 World Cup, revenue for ticket sales was $527 million. Although the revenue has not yet been reported, over 4.9 million tickets were requested by the end of sales phase 2 for the 2018 World Cup. Additionally, FIFA has a healthy and sustainable balance sheet as 65% of their total assets are in cash, or cash equivalents.  

    FIFA's 2015-2018 expenses of $5.56 billion can be broadly divided between event-related expenses of $2.747 billion (49.4%), development and education projects of $1.650 billion (29.7%), and FIFA governance & administration of $891 million (16%).

    Other notable expenditures from 2015-2018 are on Football Governance which include legal costs, information technology, and building expenses. This came in for a total of $136 million. Lastly, FIFA spent $132 million on Marketing & TV Broadcasting. In 2017, investments were $923 million which is $180 million (16%) in savings against the budget. 

    Business Strategy

    After analyzing the above numbers, it can be easily concluded that organizing the FIFA World Cup alone is a very profitable and low-risk venture for FIFA. With relatively cheap inputs in players, personnel, and ready infrastructure (created by the host country), FIFA manages a revenue of over $5.6 billion.

    FIFA also constantly improves its strategy like it did with its sponsorship model. There are currently three World Cup sponsorship levels: FIFA Partners, FIFA World Cup Partners, and National Supporters. FIFA Partners help develop the FIFA brand and engage in corporate social responsibility. FIFA World Cup Sponsors are given the rights to promote their brand and the World Cup. National Supporters are headquartered in the host nation and have rights to promote their brands within the host country. FIFA is tweaking the model a bit, keeping the top two tiers intact and changing the “National Supporters” to a regional model with up to 20 companies from five regions (North America, Africa, Asia, South America, and Europe). Additionally, ahead of the 2018 and 2022 World Cups, FIFA has implemented a new commercial structure that allows companies to buy regional sponsorship packages.

    The Bottom Line

    Although FIFA is a well run organization, there has been times where they charged with mismanagement and malpractice over the bidding process for the World Cup. (For more, see: Financial Fiasco of the 2022 Qatar World Cup.). The president and other executives who were named in the controversy were arrested on charges of corruption. Over its 114-year history, only nine people have headed the organization, which begs the question of transparency and good governance. Nonetheless, with its little-to-lose business strategy, FIFA is turning out impressive earnings numbers. It does not have to invest in or take on the financial risk of building infrastructure for competitions. Yet, it is FIFA that rakes in revenues in huge numbers, primarily from TV and marketing rights.

  • How does FINRA differ from the SEC?

    With all the financial organizations out there, knowing what they all do can be as complicated as knowing where to invest. The Securities and Exchange Commission (SEC) and the Financial Industry Regulatory Authority (FINRA) – formerly, the National Association of Securities Dealers (NASD) – are two of the most important regulatory bodies in the U.S. financial system, but they have very different scopes and purposes.

    The SEC

    The primary mission of the SEC is to protect investors and maintain the integrity of the securities markets (both formal exchanges and over-the-counter). The SEC rose out of the ashes of the great Stock Market Crash of 1929. After the crash and the ensuing Great Depression, public confidence in the stock market fell to an all-time low. As a result, Congress passed the Securities Act of 1933 and the Securities Exchange Act of 1934. These acts were designed to restore investor confidence through two main principles:

    1. Companies offering securities to the public must be truthful and transparent about their businesses and the risks involved in investing.
    2. Companies that sell and trade securities (brokers, dealers and exchanges) must treat all investors fairly and honestly.

    When these securities laws were passed, the SEC was established to enforce them. Their focus was, and remains, to promote stability in the markets and, most importantly, to protect investors.


    Although it has regulatory powers, FINRA is not actually part of the government. It is a not-for-profit entity, and the largest self-regulatory organization (SRO) in the securities industry in the United States (an SRO is a membership-based organization that creates and enforces rules for members based on federal laws). FINRA is on the front line in licensing and regulating broker-dealers. FINRA is overseen by the SEC.

    The Bottom Line

    To summarize, the SEC is responsible for ensuring fairness for the individual investor and FINRA is responsible for overseeing virtually all U.S. stockbrokers and brokerage firms.

    For further reading, see "Policing The Securities Market: An Overview of The SEC."

  • How is marginal propensity to save calculated?

    Marginal propensity to save is used in Keynesian macroeconomics to quantify the relationship between changes in income and changes in savings. The marginal propensity to save is determined by calculating the change in savings and the change in household income.

    Calculating the Marginal Propensity to Save

    The marginal propensity to save is calculated by dividing the change in savings by the change in income. The marginal propensity to save determines how much of each extra dollar of income is used for saving instead of being spent for consumption of goods and services.

    If income changes by $1, then saving changes by the value of the marginal propensity to save. The Marginal propensity to save is actually a measure of the slope of the savings line, which is created by plotting the change in income on the horizontal x axis and change in savings on the vertical y axis. The slope of the savings line is depicted by the change in saving and the change in income, or change in y axis divided by the change in the x axis. The value of the marginal propensity to save always varies between 0 and 1.

    Example Calculation

    For example, assume an engineer has a $100,000 change in income from the previous year due to a pay raise and bonus. The engineer decides she wants to spend $50,000 of her income on a new car and save the remaining $50,000. Her resulting marginal propensity to save is 0.5, which is calculated by dividing the $50,000 change in savings by the $100,000 change in income. Therefore, for each additional $1 of income, her savings account increases by 50 cents.

  • How is something "brought over the wall" in an investment bank?

    An analyst who lends his or her expertise to an underwriting department is said to have been "brought over the wall". In financial firms, the separation between the investment analyst and the underwriting departments is described as the "wall", as in the Great Wall of China. The division exists as an ethical boundary to guard against the exchange of insider information between the two departments.

    Bringing an employee from the research department of an investment bank "over the wall" is common practice. The research analyst lends his or her knowledgeable opinion about the company so that the underwriters are better informed during the underwriting process. After the process has been completed, the research analyst is restricted from sharing any information about his or her time "over the wall" until the information has been made public - another measure toward preventing the exchange of insider information.

    (For more on this topic, read The Chinese Wall Protects Against Conflicts of Interest.)

    This question was answered by Bob Schneider.

  • How long is the validity period for a Series 63 exam if I have not been registered?

    Most states accept a passing Series 63 result that is under two years old. After two years, accepting the score is up to the state's policy and is not guaranteed. As long as a registered individual remains employed with the firm that sponsored initial registration, the Series 63 result remains valid. If that individual is terminated, the registration ends. The candidate then has two years to find another employer before the score expires.

    State regulators may decide to offer a waiver under some circumstances when registration expires. Usually, waivers are offered to some employees of the financial services industry who no longer work in a position requiring registration. More information about waivers may be obtained by contacting state regulators. The North American Securities Administrators Association maintains a list of state regulators and provides their contact information.

    When registered individuals leave sponsor firms, the sponsor firm files a U5 form to end that employee's registration. The new employer must file a U4 form to renew registration for the applicant. Some employees are not required by the state to obtain registration but do so because of an employer's request.

    Employers are permitted to require registration over and above minimum state requirements. Individual states also differ on what finance careers are required to obtain registrations and licenses. Taking securities orders, for example, is sufficient for registration to be required in some states. Exam candidates should check with state regulators to find state-specific policies that apply to the financial professional careers that interest them.

  • How many attempts at the series 7 test are permitted?

    To become an entry-level broker, one must pass the Series 7 exam, also known as the General Securities Representative Exam. The Financial Industry Regulatory Authority (FINRA) has not placed any limits on the number of times you can attempt to pass the Series 7 exam, and there is no specific education required to take the exam.

    However, there are restrictions on the amount of time that must pass between exam attempts. For your first three attempts you must wait 30 days after each attempt, and for every new attempt after that you must wait a period of six months. As of October 2018, candidates are also required to pass the Securities Industry Essential (SIE) exam in addition to the Series 7 exam to become a general securities representative.

    To read more about the Series 7, see The Series 7 Exam Guide.

  • How many people fail the series 63 exam every year?

    Because the Series 63 is a state exam, statistics vary and there is no official pass or fail rate currently provided. The Series 63 exam, the Uniform Securities State Law Examination, is a North American Securities Administrators Association (NASAA) exam administered by FINRA, the Financial Industry Regulatory Authority, and it is a requirement for anyone who wishes to become a stockbroker or broker dealer. It is therefore necessary before the dealer can partake in active trading.

    There is no limit however on the number of times that a prospective dealer can retake the exam. The Wall Street Journal conducted its own study and found that many brokers failed the exam at least once before passing the second time around. In this analysis of 367,669 brokers, it was found that 86% of brokers passed on their first attempt. That means that 14%, approximately 51,500 brokers, failed the exam the first time they took it. It was also found that those who experienced a higher number of failures before passing the exam had more red flags on their trading records.

    A candidate must wait a minimum of 30 days after failing the exam for the first time before resitting, another 30 days if he fails the second time, and 180 days if he fails the exam for a third time, and each time thereafter. There is no limit on the number of times a candidate can retake these FINRA exams as long as all waiting period requirements are met, all documents submitted and exam fees are paid.

  • How reliable are Glassdoor salaries?

    Information entered into Glassdoor.com is crowdsourced and unverified. While some of the salary information posted on the website may be accurate, some of it is not. Career seekers looking for specific salary information should browse several websites such as Payscale.com and the U.S. Bureau of Labor Statistics website to get as accurate a salary picture as possible.

    Crowdsourced Career Site

    Glassdoor, a tech company founded by Robert Hohman, Rich Barton and Tim Besse and headquartered in Mill Valley, California, burst on the scene in 2007 as a one-stop shop for people looking to make career decisions. At the time, the website was seen as innovative because it included information about companies that career seekers were looking for but could not find on other websites. In particular, the website sought feedback from insiders – company employees – about benefits, interview practices and leadership. Users even uploaded snapshots of their workplace interiors.

    Salary is often the most guarded piece of information held by companies, but Glassdoor lifted the veil of secrecy by making it possible for users to report the amounts of money they earned. The most important reasons users post information considered private, such as their salaries, is because Glassdoor allows them to do so anonymously.

    Glassdoor also offers services to employers seeking to use the brand approach to attract talent. The company provides tools for employers to post open positions and a platform on which to market their brands. This aspect of Glassdoor’s business has drawn criticism about the accuracy of surveys, salary information and the rose-colored picture some of the site’s users paint about their employers. Glassdoor’s toughest critics assert that some employers may have influence over the information that users post about them.

    Accuracy Questions

    While some Glassdoor users share accurate information about their salaries, some users do not. Experts note that the website attracts employees who may be dissatisfied with their jobs, who use the website as a place to rant or vent grievances. There’s also no way to confirm which data is current and whether a company has increased or decreased a salary for a position since the time the user made the entry.

    Consulting Additional Sources

    Career seekers should not dismiss Glassdoor salary information because some of it is accurate; it is just not easy to know how much of it is accurate. Salary averages for positions at large corporations on the website are more likely to be accurate than averages posted for positions at small companies. Generally, the larger the data sample, the more accurate the information. Some classified ads and job postings on company websites include salary, and this information can be compared to information on Glassdoor to confirm whether Glassdoor’s salary information is accurate.

  • Howard Schultz: From Starbucks Comeback to Final Farewell

    The first chapter of Starbucks and Howard Schultz's story is legendary. Schultz became CEO of Starbucks in 1982 with four branches in the Seattle area. In less than two decades, Starbucks had a presence on all continents, with 3,501 total stores and $2 billion in revenue. 

    He left Starbucks in 2000 due to exhaustion from growing Starbucks from a regional coffee chain to a global company over a period of 18 years. He returned eight years later because he felt the coffee chain was drifting from its core values, and he was concerned about its slumping performance.

    Schultz's Return

    When Schultz came back to Starbucks in 2008, the company's fortunes were flagging. Its stock price had been flat over the past eight years, and competitors were eating away at sales and margins from the lower end and the top end.

    Revenue was growing across the board, but it was not keeping up with new store creation. Basically, Starbucks was dependent on opening new stores for growth while same-store sales were declining. Schultz believed this was a critical moment for the company to go back to its core values and make necessary changes to reverse these trends and preserve the integrity of the brand.

    He fired nearly all executives, shut down lagging stores and chartered a new course for the company to ensure that operations would not be sacrificed for growth. Wall Street has been enthusiastic toward Schultz's return and changes, as the stock has climbed more than fivefold between his return as CEO and March 2015. Schultz's original tenure as CEO also coincided with a more than tenfold rise in the stock price between its IPO in 1992 and his resignation in 2000.

    Related: How Starbucks Makes Money

    Leaving the Second Time

    In a press release posted on June 4, 2018, Starbucks announced that Schultz will step down from his position. Schultz has been honored with the position of chairman emeritus, effective June 26, 2018. Myron E. Ullman has been appointed as the next chair of the Board of directors, and Mellody Hobson has been appointed vice chair.

    Schultz intends to spend more time with his family and work on a book focused on Starbucks' social impact work, according to the press release.

    However, his departure from the company has sparked curiosity over his future plans. Responding directly to suspicions of a U.S. presidential run, Schultz said in a New York Times article, “I intend to think about a range of options, and that could include public service. But I’m a long way from making any decisions about the future.”

    Reuters reported on July 9, 2018 that Schultz addressed investor concerns that Starbucks is under pressure in China's fast-growing market, saying that the recent slowdown in China is temporary. He also hinted at potential collaboration with e-commerce giant Alibaba Group Holding Ltd’s (BABA) billionaire founder Jack Ma. Such a partnership could help bolster the company's online coffee sales in China.

    Related: Jack Ma's Worth and Influence

  • Human capital vs. physical capital: What is the difference?

    Capital is the lifeblood of a corporation. It allows a business to maintain liquidity while growing operations. Generally, capital is used to refer to physical assets in business. It is also used to refer to the means in which companies obtain physical assets.

    What Is Physical Capital?

    Physical capital consists of manmade goods that assist in the production process.

    Cash, real estate, equipment and inventory are examples of physical capital. Physical capital values are listed in order of solvency on the balance sheet. The balance sheet provides an overview of the value of all physical and some non-physical assets. It also provides an overview of the capital raised to pay for those assets, which includes both physical and human capital.

    Physical capital is recorded on the balance sheet as an asset at historical cost, not market value. As a result, the book value of assets is generally higher than market value. Accountants refer to physical capital as a tangible asset.

    What Is Human Capital?

    Intangible assets are non-physical capital. A balance sheet only lists intangible assets when they have identifiable values. Intangible assets can't be touched, but they are often represented by a legal document or paper.

    Human capital is represented by more than the company brand. Harvard University is not Harvard University because of its crimson logo. The value of Harvard University is in its human capital. Human capital includes the knowledge base of the employees and is often measured by the quality of the product. It also refers to the network of the employee base and the general level of influence they have on the industry.

    Examples of intangible assets include intellectual property such as brands, patents, customer lists, licensing agreements and goodwill. Goodwill is created when one company acquires or purchases another and the purchase price is more than the physical assets being purchased. The difference is recorded as goodwill, and one of the largest components of goodwill is human capital. In fact, goodwill is one of the only places where an analyst can find a value for human capital on the balance sheet.

    Human Capital vs. Physical Capital

    Unlike physical capital, which is easy to find on the balance sheet (and in the notes to the balance sheet), the value of human capital is often assumed. In addition to goodwill, analysts can value the impact of human capital on operations with efficiency ratios, such as return on assets (ROA) and return on equity (ROE).

    Investors can also determine the value of human capital in the markup on products sold or the industry premium on salary. A company is willing to pay more for an experienced programmer who can produce a higher-margin product. The value of the programmer's experience is captured in the amount the company is willing to pay over and above the market price.

    The Bottom Line

    While human capital can be difficult to measure, the impact of investments in human capital can be measured and analyzed with the same ratios used to measure and analyze the investment performance of physical assets. Investments in physical and human capital both lead to fundamental improvements in the business model and better overall decision-making.

  • If I already hold a professional certification am I eligible for any exemptions from CFA Program requirements?

    No. To obtain a CFA designation, you must complete all levels of the CFA program regardless of whether you hold a professional certification or not. Additionally, you must complete at least four years of qualified work experience before being awarded the CFA charter.

    For further information on CFA program requirements, click here.

  • If I am looking to get an investment banking job, what education do employers prefer? MBA or CFA?

    If you are looking specifically for an investment banking position, an MBA may be marginally preferable over the CFA (Chartered Financial Analyst). The caveat here is that the MBA would most probably need to be from a Top 20 B-School.

    The CFA is well worth considering if you (a) are aiming for an entry-level job in investment banking, and/or (b) cannot afford to shell out six figures for an MBA or have to settle for a lesser-known B-school.That's because in the investment banking field, most entry-level positions are at the analyst level. This position demands a great deal of expertise in number-crunching and financial modeling – skills that are best imparted by the CFA program rather than an MBA.

    The CFA also has perhaps among the best ROIs of any educational program, since the total hard cost of the program over all three levels amounts to a few thousand dollars. In return, successful candidates who obtain the CFA charter can look forward to a significant boost in earnings over the course of their careers.

    But obtaining the CFA charter is no walk in the park. Candidates are required to pass three levels of exams (which take about a combined 1,000 hours of study), and possess four years of qualified experience that involves investment decision-making. The CFA exams are almost legendary for their level of difficulty; according to the CFA Institute, pass rates for Levels I, II and III hover around 43%, 47% and 54%, respectively. In December, only the Level I test can be taken.

    An MBA, on the other hand, can cost tens of thousands of dollars, in addition to the opportunity cost if you have to take a couple of years off to study for it. On the plus side, completion of the MBA can give you direct access to investment banking jobs through firms doing campus recruitments, as well as help you to build a good network of contacts. These benefits are not available with the CFA program, which is primarily a self-study one.

    In summary, if you are fortunate enough to be enrolled in a top B-school, the MBA should be enough for you to get your foot in the door upon completion. But the CFA is increasingly becoming a viable alternative to jumpstart a career in investment banking, not least because of its scarcity value. As of 2017, total CFA charter-holders worldwide numbered just over 142,000; in contrast, something like 200,000 students graduate from U.S. business schools every single year.

  • Investment Banking vs Private Equity

    Private equity and investment banking both raise capital for investing purposes, but they do so in very different ways.

    Both private equity and investment banking aim toward the same goal, but from opposite directions. Private equity firms collect high-net-worth funds and look for investments in other businesses. Investment banks find businesses and then go into the capital markets looking for ways to raise money from the investment crowd.

    Sell-Side Versus Buy-Side

    Investment bankers work on the sell-side, meaning they sell business interest to investors. Their primary clients are corporations or private companies. When a company wants to go public or is working through a merger-and-acquisition deal, it might solicit the help of an investment bank.

    Conversely, private equity associates work on the buy-side. They purchase business interests on behalf of investors who have already put up the money. On some occasions, private equity firms buy controlling interests in other businesses and are directly involved in management decisions.

    Regulatory Challenges

    In 1933, the United States became the first and only country in the world to forcibly separate investment banking and commercial banking. For the next 66 years, investment banking activities were completely divorced from commercial banking activities, such as taking deposits and making loans. These barriers were removed with the Gramm-Leach-Bliley Act of 1999. Investment banks are still heavily regulated, most notably with proprietary trading restrictions from the Dodd-Frank Act of 2010.

    Private equity, like hedge fund investing, has historically escaped most of the regulations that impact banks and publicly traded corporations. The logic behind a light regulatory hand is that most private equity investors are sophisticated and wealthy and can take care of themselves. However, Dodd-Frank gave the SEC a green light to increase its control over private equity. In 2012, the very first private equity regulatory agency was created. Particular attention has been paid to advising fees and taxation of private equity activity.


    Investment banking analysis is much more careful, abstract and vague than private equity analysis. Part of this is explained by the compliance risks investment banks face, as painting too specific or too rosy a picture can be perceived as misleading.

    Another possible explanation is that private equity associates are much more likely to have "skin in the game," so to speak. With their own capital on the line, and less patient clientele, private equity analysts often dig deeper and more critically.


    Colloquial tales of a private equity associate lifestyle appear to be much more forgiving and balanced than their counterparts in investment banking. The strict, suit-and-tie, 14-hour and high-stress corporate culture popularized in movies and television reflects investment banking culture.

    Private equity firms are usually smaller and more selective about their employees. But once a hire is made, they care less about how performance is maintained. There are exceptions and overlaps in every industry but, in general, the average day is a bit less stressful for private equity associates.

  • Licenses for hedge fund manager

    A hedge fund manager does not necessarily need any specific license to operate the hedge fund. But depending on the type of investments the fund makes, he may find it necessary or at least helpful to obtain certain licenses. The legal requirements of the state in which the hedge fund is registered as a business may necessitate the fund manager obtaining a Series 65 license, administered by FINRA.

    A hedge fund is an investment fund that is commonly only available to a limited group of investors who meet certain income and net worth requirements. Hedge funds invest in a wide range of assets. They may be primarily invested in stocks, bonds, futures, currencies, other funds such as exchange-traded funds (ETFs) or even hold direct investments in companies. (For more details, see "What Does a Hedge Fund Do?")

    Licensing Requirements for Hedge Fund Managers

    The only universal license requirement for a hedge fund manager is an ordinary business license. Because hedge fund managers are not regulated as brokers, they do not usually need to have the Series 7 license required for brokers to engage in trading on behalf of customers.

    However, since a hedge fund manager is in the position of acting as an investment advisor, he may be required to take the Series 65 exam and obtain a Series 65 license. It is state laws that determine the licensing requirements for local operating investment advisors, and they vary: Some states simply require official registration as an investment advisor and payment of a licensing fee, but most states require the Series 65 license. Also, some states set a Series 7 license as a prerequisite for obtaining a Series 65 license.

    Additionally, if a hedge fund manager is managing more than $30 million worth of investment assets, he is required to register as an investment advisor at the federal level per the Investment Advisers Act of 1940. If the hedge fund manager is considering investing in commodity futures, the fund manager probably needs to register as a Commodity Pool Operator or Commodity Trading Advisor with the National Futures Association (NFA), which requires obtaining the Series 3 license.

  • Should commercial and investment banks be legally separated?

    Following the financial crisis of 2008-2009, much of the blame was directed at large financial institutions that took on high levels of risk in the years preceding the crash. From 1933 to 1999, investment and commercial banks were legally separated and could not be owned by the same holding company. This was originally seen as necessary because the Federal Reserve started insuring bank deposits in 1933, thereby protecting banks from risk. Allowing banks to merge added fuel to the fire of a previously existing moral hazard.

    Progressives argued that the repeal of the Glass Steagall Act of 1933 sowed the seeds of the recession by allowing commercial and investment banks to merge. Two other schools of thought emerged. One argued that only one of the two main provisions of Glass Steagall was repealed (the other being FDIC Insurance), so banks after Gramm-Leach-Bliley faced extreme moral hazard from not deregulating enough. The last school contended that the facts don't fit the popular blame repeal narrative and that merged institutions actually performed best in the crisis.

    Glass Steagall

    Before the Great Depression, banks in the United States were controlled by unit-banking laws that made it difficult to diversify their risk portfolios. Branching was illegal, so small and relatively vulnerable banks dominated the landscape. Even during the 1920s, more than 600 small banks failed each year in the U.S.

    When the Great Depression struck, some 10,000 banks in the U.S. failed or suspended operations between 1930 and 1933. Canada, which had no such regulations on bank size or branching, experienced zero bank failures from 1930 to 1933. There were only 10 banks in Canada by 1929.

    The U.S. Congress passed the Glass Steagall Act in 1933. Senator Carter Glass wanted to allow branch banking across the country but was opposed by Representative Henry Steagall and Senator Huey Long. They settled by allowing the states to decide if they wanted branch banking.

    To protect smaller, non-branch banks from bank runs, the Act also created the Federal Deposit Insurance Corporation (FDIC). Now, bank deposits would be backed by the Federal Reserve.

    However, Congress knew that this created a moral hazard for banks to potentially take too much risk; after all, the Fed could now bail them out. The last portion of Glass Steagall made it illegal for the same institution, or holding company, to act as both a commercial bank and a securities firm. This was designed to limit the use of deposit accounts to purchase risky investments.

    Graham-Leach-Bliley and Moral Hazard

    In 1999, Congress passed the Gramm-Leach-Bliley Act. This Act repealed the portion of Glass Steagall that separated commercial and investment banks. FDIC Insurance remained in place, however.

    With FDIC Insurance – along with many other types of explicit or implicit government protections – banks could now assume very large, potentially risky investment portfolios. Many economists, including Mark Thornton, Frank Shostak, Robert Ekelund and Joseph Stiglitz, blame Gramm-Leach-Bliley for making these risky institutions too big to fail.

    Others, including former President Bill Clinton, counter that Gramm-Leach-Bliley actually helped the economy through the crisis because commercial banks struggled much more than investment banks in the recession.

    Either way, the ultimate risk appears to be the moral hazard of bank protection, not the merger of commercial and investment banks.

  • The FINRA Series 6 and Series 7 exams: The differences

    The Financial Industry Regulatory Authority (FINRA) offers a variety of licenses that must be obtained by passing examinations before investment advisors can conduct business. Two of the most popular are the Series 6 and Series 7 multiple-choice exams. The Series 6 license allows a representative to sell only a limited set of investment products, whereas the Series 7 license allows a representative to sell a wider variety of securities.

    The Series 6

    The Series 6 exam (officially, the Investment Company and Variable Contracts Products Representative Qualification Examination) is 135 minutes long and carries a passing grade of 70%. Of the 100 scored exam questions, Function 1 deals with regulatory fundamentals and business development and is allocated 22 questions. Function 2 has 47 questions and focuses on evaluating customers' financial information, identifying investment objectives, providing information on investment products and making suitable recommendations. With 21 questions, Function 3 concentrates on opening, maintaining, closing and transferring accounts and retaining appropriate account records. Function 4 has 10 questions that center around obtaining, verifying, and confirming customer purchase and sale instructions.

    Upon successful completion of the exam, representatives are qualified to solicit, purchase and sell certain security products including open-end mutual funds, variable annuities, variable life insurance, unit investment trusts and municipal fund securities – products commonly sold by financial planners. To conduct business in annuity or insurance products, a representative must also pass a state life insurance exam.

    The Series 7

    On the other hand, the Series 7 (General Securities Representative Qualification Examination) is broken into two three-hour segments and contains 260 questions, 250 count towards the final score. The passing grade for the Series 7 exam is 72%.

    The Series 7 license enables financial advisors to engage in buying and selling virtually all securities-related investment products: common and preferred stock, stock options, and government and corporate bonds. This is the license required for stockbrokers.

    The Bottom Line

    A self-regulatory organization or a FINRA-member firm (such as a brokerage) must sponsor a candidate who wants to take these exams. In order to schedule an exam, the sponsoring firm files the Uniform Application for Securities Industry Registration or Form U-4 with FINRA, acting as Appropriate Signatory. Applications without sponsorship are rejected.

    However, beginning in October 2018, un-sponsored individuals will be able to take the new Securities Industry Essentials Exam (SIE), which includes questions common to the Series 6 and Series 7. They will only need sponsorship to take additional "top-off" exams.

    Upon passing the exams and registering with FINRA through the sponsoring firm, the candidate is granted a license and becomes a registered representative.