Chapter 15- (6Qs) Client Profile Flashcards
Financial Profile
Assessment of client’s current living situation
Should Include:
1. Current Expenditures
2. Tax Status
3. Income Sources and
4. A balance sheet containing the client’s assets (including jewelry)
5. Liabilities, including loans against insurance and 401 (K) money
Determines the net worth of the client, ability to invest lump sums or periodically
3 Factors to consider for investment strategy
- Client’s Objectives
- Amount available for investing
- Client’s aversion to risk (risk tolerance)
Preservation of Capital
Bonds, CDs, Savings Accounts and Money market funds
All are exposed to inflation risk
Bank issued CDs are not included as an asset on a BS, insured by FDIC, should be first choice, no interest rate risk
Speculative Securities
High Volatility Stocks
Options on stocks or stock indexes
High-yield (junk) Bonds
Commodity futures
Capital Needs Analysis
Used to determine how much life insurance is needed to cover future needs
Should provide:
1. Payment for client’s mortgage and other debts
2. Income for the survivors for a reasonable time
3. College tuition and
4. Estate taxes if over 45.5 MM
Disability
Three possible replacements of income
- Worker’s Compensation
- Social Security- Depends on age and income and you must not be able to engage in any substantial gainful activity for 12 months or death
- Disability Insurance- Many employees are covered by group medical, disability and life insurance programs
3 Strategies of Tax Planning
- Asset and Income Shifting- Moving income producing assets into name of a child or elderly parent receiving the assets
- Tax deferred accounts
- Tax-Free Income- Municipals (Capital gains are fully taxable)
Time Horizon
The longer the time horizon, the more investment risk can be taken for conservative accounts
DOES NOT END AT RETIREMENT
Life Cycle Considerations
Account Risk should be updated when life goals are changed
Investor Objectives and Suitable Recommendations
Balanced Growth- Large-cap stock and defensive
Aggressive Growth- Tech stocks, sector funds, cyclicals
Liquidity- Money Market Funds