Chapter 15- (6Qs) Client Profile

Question 1

Financial Profile

Answer 1

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

Question 2

3 Factors to consider for investment strategy

Answer 2

1. Client’s Objectives
2. Amount available for investing
3. Client’s aversion to risk (risk tolerance)

Question 3

Preservation of Capital

Answer 3

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

Question 4

Speculative Securities

Answer 4

High Volatility Stocks
Options on stocks or stock indexes
High-yield (junk) Bonds
Commodity futures

Question 5

Capital Needs Analysis

Answer 5

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

Question 6

Disability

Answer 6

Three possible replacements of income

1. Worker’s Compensation
2. 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
3. Disability Insurance- Many employees are covered by group medical, disability and life insurance programs

Question 7

3 Strategies of Tax Planning

Answer 7

1. Asset and Income Shifting- Moving income producing assets into name of a child or elderly parent receiving the assets
2. Tax deferred accounts
3. Tax-Free Income- Municipals (Capital gains are fully taxable)

Question 8

Time Horizon

Answer 8

The longer the time horizon, the more investment risk can be taken for conservative accounts

DOES NOT END AT RETIREMENT

Question 9

Life Cycle Considerations

Answer 9

Account Risk should be updated when life goals are changed

Question 10

Investor Objectives and Suitable Recommendations

Answer 10

Balanced Growth- Large-cap stock and defensive
Aggressive Growth- Tech stocks, sector funds, cyclicals
Liquidity- Money Market Funds