Lesson 3 Quiz Questions Flashcards
3 Phases of Client Life Cycle
- Asset Accumulation Phase
- Conservation/Risk Management Phase
- Distribution/Gifting Phase
Life-Cycle Goals
- Lump-Sum Purchases
- Starting a Family
- Education Funding
- Retirement Planning
- Charitable Planning
- Legacy Planning
Life-Cycle Risks
- Untimely Death
- Disability
- Health
- Long-term Care
- Property
- Liability
Two Step Approach
- Cover the Risks
2. Save & Invest
Three-Panel Approach
- Risk Management of Personal, Property, & Liability Risks
- Short-term Savings & Investments and Debt Management
- Long-term Savings & Investments
Strategic Approach
Codifies client goals and objectives into a mission statement
Cash Flow Approach
Uses the statement of income and expenses to make recommendations
Pie Chart Approach
Provides visual display of balance sheet and cash flow statement once internal data collected and financial statements prepared.
Present Value of All Goals Approach
Multi-step process that gives clients a single dollar value to meet all their lifetime goals.
PVOAG Approach Steps
- Determine individual present values of each short, intermediate, and long-term goal
- Sum these present values together
- Reduce them by current resources (investments assets and cash/equivalents)
- The net PV is considered a “debt” obligation to be retired over the remaining work life expectancy.
Financial Statement and Ratio Analysis Approach
Uses data within financial statements to compute a variety of ratios which are then used to gauge a client’s financial health.
Liquidity Ratios
The ability to meet short-term obligations
Debt Ratios
How well debt is managed
Financial Security Ratios
Determines client’s progress toward long-term goals
Performance Ratios
Adequacy of investment returns relative to risk level
Emergency Fund Ratio
Cash & Cash Equivalents / Non-Discretionary Expenses
Current Ratio
Current Assets / Current Liabilities
Front-End Ratio
Housing Costs / Gross Income
Back-End Ratio
(Housing Costs + Other Debt Payments) / Gross Income
Debt to Asset Ratio
Total Liabilities / Total Assets
Savings Rate
(Savings + Employer Contributions) / Gross Income
Metrics Approach
Provides quantitative benchmarks for client to use as guidance for achieving comprehensive financial goals and objectives.
Three Important Tips for Budgeting
- Be realistic with spending behavior
- Budget a line item expense for miscellaneous expenses and unforeseen expenses
- Being successful with a budget takes practice
Budgeting Process Steps
- Determine Client’s Income
- Fixed and Variable Expenses
- Present Expenses
- Net Discretionary Cash Flow
- Rectify
