Chapter 3 Flashcards
Firms must report any large cash or otherwise suspicious client transactions to
The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC).
The primary form used to collect client information is the
account application
This financial information gives you a clear picture of the client’s situation and provides valuable
insight into whether their goals are achievable.
Net Worth and Cash Flow Statements
______ are a client’s life needs and aspirations. For example, a 33-year-old client would like to buy a four bedroom house in the next three years and retire at age 63.
Goals
__________ refer to the investment return the client requires and the risk he must tolerate to achieve his goals
Objectives
Any actions that help the client achieve his desired return are considered ___________
Objectives
The ________objective is a measure of how much the client’s portfolio is expected to earn each year on average.
return
The _________objective is a measure of the portfolio’s expected annual total return
Return
A client’s ________ _________ is an estimate of the average annual return needed to meet his or her goals.
required return
Client’s willingness to accept risk is called:
Risk Tolerance
Client’s ability to endure potential financial loss
Risk Capacity
Risk tolerance and risk capacity are separate considerations that together make up the client’s overall risk _______
profile
The risk profile for a client should reflect the ________of their willingness to accept risk and the their ability to endure potential financial loss
lower (lesser)
What is home bias?
Some clients/ investors favor investments inside Canada because it is familiar to them.
Once you and your client have determined the appropriate risk profile, you must explicitly state the
risk objective
You will need this information to recommend an appropriate asset allocation for the client.
Risk profile & Risk objective
Common investment constraints include:
Time horizon, liquidity requirements, and tax situation
A short-term time horizon is less than ______ years
3
A medium-term time horizon is more than ______ years, but less than ______
3 years but less than 10 years
A long-term time horizon is _____ years or more
10
__________ requirements represent a client’s actual and potential cash needs.
Liquidity
When you understand everything about the client’s tax situation, you can suggest or implement techniques to reduce the amount of tax the client must pay. This aspect of wealth management is known as
Tax Management
How far back can you carry capital losses? How far forward?
Capital losses not used to offset capital gains in the current year can be applied against capital gains from the previous 3 years.
They can also be carried forward indefinitely to offset capital gains in future years.
The methods used to collect and document all the information you need to create a comprehensive wealth plan is often called the
client discovery process
The wealth management approach to client discovery has three distinct phases:
- Setting the stage and building rapport
- Conducting emotional discovery
- Bridging to financial discovery
However, the wealth management approach to client discovery focuses the discussion on the _____ issues first, rather than financial issues.
Life Issues
Four general planning issues flow from emotional discovery:
accumulation, protection, conversion, and transfer of financial wealth
It refers to the possibility that a client will fail to meet a personal or financial goal. Some clients define risk in terms of this concept.
Goal Shortfall
These represent a client’s actual and potential cash needs. A high or pressing liquidity requirement may dictate a need for some investments that can be converted to cash quickly and at little cost.
Liquidity Requirements
It is a measure of how much the client’s portfolio is expected to earn each year on average. It may be stated in absolute or relative terms.
return objective
It is an estimate of the average annual return needed to meet a client’s goals. It should take into consideration the client’s current and expected financial situation.
required return
It is a combined measure of a client’s willingness to accept risk and their ability to endure potential financial loss.
Risk Profile
This is a statement declaring how much risk the client can sustain to meet a return objective. It is based on the client’s willingness to accept risk and ability to endure potential financial loss.
Risk Objective
How are return objectives usually stated?
- On an after-tax, inflation-adjusted basis. (real)
2. On an after-tax, before-inflation basis. (nominal)
Investment Industry Regulatory Organization of Canada (IIROC)-licensed advisors are bound by which rules?
- Suitability Requirements.
2. Know Your Client
