Lesson 5 of Fundamentals: Internal Analysis Flashcards
Internal Environment
Defines the way people work, spend, save and think.
The focus is on the client’s…
Strengths and Weaknesses
Examples of Strengths:
- Age
- Income
- Amount of emergency funds
- Amount of savings, or savings rate
Examples of Weaknesses:
- Deficiencies in insurance coverage
- Too low emergency funds
- Poor asset allocation
- No estate plan
Internal Data
Impacts a client’s goals and behaviors.
INCLUDES:
- Life cycle position
- Attitudes and Beliefs
- Special Needs
- Financial Positions
- Client’s perception of financial position.
Life Cycle Position
Age
Marital Status
Dependents
Income and Net Worth
Age
- Age is the most important element in financial planning.
Age impacts:
- goals,
- priorities,
- risk, and
- timing.
EXAMPLE:
- A 30-year-old man may have goals of retiring by age 59, saving for a house, paying for a child’s education, life insurance for any dependents, and disability insurance for income replacement.
- Whereas a 62-year-old man will have different goals such as generating retirement income, transferring assets to heirs, minimizing estate taxes, and may not have a need for life insurance or disability insurance.
Marital Status
- Create the need or desire to provide for a spouse.
- Marital status may establish mutual goals for a new house, life insurance to meet goals in the event of an untimely death, disability insurance for income replacement, and liability insurance.
Dependents
- Can be children or elderly parents.
- The number of children impacts education funding decisions and life insurance needs.
Income and Net Worth
A client’s level of income and net worth create the need for tax minimization and asset protection.
Attitudes and Beliefs
- Client’s risk tolerance levels
- Savings and consumption habits
- Attitudes and Beliefs
All impact a client’s goals and behavior.
Clients Risk Tolerance Levels
A planner needs to distinguish between a client’s perception versus reality regarding the client’s risk tolerance levels. Perception versus reality is important.
EXAMPLE:
- Consider the typical technology investor in the 1990s versus today.
- Most technology investors from the 1990s could not take on enough risk. Today technology investors seem to have a much more realistic view of their risk tolerance.
Saving and Consumption Habits
Does the client have a propensity to consume today rather than save for tomorrow?
Their Attitudes and Beliefs
A planner should gather data on
- A client’s views about employment and retirement. (Does the client enjoy working or does she look forward to an early retirement)
- A client’s attitude regarding taxation. (Does the client feel he pays his fair share or would he prefer to pay more).
Crisis events with severe consequences
- Are not predictable, but individuals are likely to experience one or more during their lives that could impact their day-to-day, or future life, in many ways.
- Many times clients will have emotional reactions to events often making it difficult to make accurate, rational decisions at times.
- Depending on the type and severity of the crisis, the entire planning procedure may need to be revised and revised to adapt.
- Will best severe the client by being empathetic to the client’s situation and by demonstrating reliability and competency. This concludes knowing when to refer a client (even when the referral is to a mental health professional. Unpredicted crisis events (such as 2020) remind us to put a heavier emphasis on emergency fund planning.
- Planning steps that could alleviate some of the financial burden of a future crisis event.
Crisis Events
- Planner needs to show empathy
- Planned needs to demonstrate reliability and competency.
Comprehensive Planning with Emphasis on:
- Insurance
- Investments
- Emergency Funds
- Estate Planning
Best Practices for Crisis Events
- Checklists
- Timelines
Insurance
Discuss transferring risk to an insurance company,
- disability,
- liability,
- auto,
- home, and
- long-term care.
Investments (includes retirement holdings)
- Diversify portfolio holdings, and set measurable parameters for unexpected and unusual market volatility.
- Review clients investment policy statement (IPS) annually.
- Market flunctations often concern clients, their IPS will help them remember their overall goals and can help them navigate market corrections.
- Crisis events may lead client to changing asset allocation and or risk tolerance.
Emergency Funds
3-6 months of expenditures to ensure
- some time to transition from a crisis event such as loss of job, or medical event before disability policy pays.
- Ensure emergency fund are “ear marked” as such and not part of their daily use checking or savings account.
Estate planning
Ensure clients update/review their
- will,
- power of attorney,
- health care proxy and
- living will annually.
Financial Issues
Budgeting, investing, and saving
- Bank brokerage, retirement statements
- All debt obligations: car, house, student loan, credit cards, boat
- Insurance policies: life, health, disability, property
- Income: salaries, businesses, property
- Tax returns
Legal Issues
Estate planning, guardianship, and other arrangements such as trust.
- Wills, trusts, legal documents
- Does the client have a former spouse?
- If so, it may create an alimony spouse.
- Does the client have children from a prior marriage?
- If so, it may create a child support issue.
Job loss check list
- Determine what benefits to continue (COBRA) 60 days to elect COBRA
- File for unemployment
- Begin looking for work
- Which benefits can rollover to individual plans (life insurance, retirement plans)
- 60 days to roll over a 401K, some companies may allow the assets to remain part of the company plan.
- Typically 90 days to exercise options or restricted stock.
Know timings of these plans.
Check list for caregivers
List of government assistance available
- Social Security Disability [SSDI]
- Supplemental Social Security Income [SSI])
- Medicaid
notions of legal documents to secure
- Living Wills
- Special Needs Trust
- Letter of Intent
This may inclide include contacts in your area.
Special Needs
At each stage during the life a dependent with special needs will need comprehensive advice and strategies to address each of the following.
- Government benefits (MAINTAIN ELIGIBILITY of Government Benefits)
- Family and support factors
- Emotional Factors
- Financial issues
- Legal issues
Government benefits
Identify, obtain and preserve benefits.
MAINTAIN ELIGIBILITY
Family and support factors
Family values, careers, siblings, extended family, and community resources.
Is the client a nontraditional family?
- If so, there will be issues getting aspects to the appropriate person.
- A planner must ensure that assets are titled appropriately so that assets avoid probate and are directed to the appropriate person.
Does the client have any children or elderely parents with special needs?
- If so, it may create additional medical or care expenses for the client
Emotional Factors
Dealing with positive and negative emotions of the dependent, siblings, and parents.
Federal Programs
- Special Education Programs
- Social Security benefits
- Benefits for Disabled Veterans
Special Educational Programs
Supported by individuals with disabilities education improvements.
Social Security Benefits
Including disability, SSI, and Medicaid.
- SS has a booklet on its website that provides helpful information.
Benefits for Disabled Veterans
Department of veterans affairs offers programs for a disabled veterans.
State and Local Programs
- Residential services
- Transportation services
- Respite care services
- Family support services
- Day program services employment services
Disability Insurance
a type of insurance product that provides income in the event that a policyholder is prevented from working and earning an income due to a disability.
Long-term care insurance
services to assist them with activities of daily living such as bathing, dressing, or eating
