4.f Flashcards
(6 cards)
What three foundational needs should be addressed before a customer begins investing?
Adequate Insurance: Life, health, and disability insurance needs should be met.
Cash Reserves: Sufficient cash (typically three to six months of living expenses) set aside for emergencies like job loss or major repairs.
A solid financial footing to build upon.
What are financial considerations? Give two examples.
A financial consideration is anything that can be expressed as a sum of money or a numerical cash flow. These are the numbers that would appear on a personal balance sheet or income statement.
Examples: Annual income, Net worth, Value of a 401(k), Monthly expenses.
What are nonfinancial considerations? Give two examples.
A nonfinancial consideration is a factor that cannot be expressed as a specific dollar amount but is critical to understanding a customer’s investment profile.
Examples: Age / Marital Status, Risk tolerance, Tax status, Investment experience / temperament, Future educational or health needs.
What is the goal of asking a customer questions about their personal balance sheet?
To determine their net worth (Assets - Liabilities) and understand their overall financial condition at a specific point in time.
This helps the representative understand what the customer owns (home, car, existing investments) and what they owe (mortgage, loans).
What is the goal of asking a customer questions about their personal income statement?
To understand their cash flow. This involves knowing their income, their expenses, and how much net spendable income is available for investment.
What two special considerations apply when making recommendations to an institutional customer?
The institution must have the ability to independently evaluate the recommendation.
The representative must consider how much the institution is relying on their recommendation versus using its own independent judgment.
