Ch. 3 Flashcards
Which of the following best describes the financial approach that provides a visual representation of how a client distributes resources?
Pie chart approach
George age 40, is married with 2 daughters. His primary goals include saving for retirement, paying down the mortgage on his new home, managing his risks and education funding for his daughters. Which phases of the lifecycle is George most likely in?
Asset Accumulation and Conservation/Risk Management Phases
Which of the following best describes the financial approach that uses quantitative benchmarks that provide guidelines of where the client’s financial profile should be.
Metrics approach
Evaluating your client’s emergency fund will fall into which of the following panels of the Three Panel Approach?
Panel 2
Which of the following insurance recommendations will result in positive cashflow?
Raise insurance deductibles
Which of the following is most likely considered a discretionary cash flow?
Netflix Subscription
Megan purchased a new vehicle for $40,000. She put $5,000 down and financed the $35,000 balance over 5 years. What is the impact of this transaction on her net worth?
Her net worth remains the same
List first 4 of 8 approaches to financial planning and analysis
1 life cycle approach
2 pie chart approach
3 financial statement and ratio analysis approach
4 two step three panel approach
List last 4 of eight financial planning analysis…
1 present value of goals approach
2 metrics approach
3 cash flow approach
4 strategic approach
Life cycle approach is used early in financial planning engagement and is a…
Brief overview of client’s financial profile
Pie chart approach is a pictorial representation of the client’s…
Financial profile based on the client’s balance sheet and statement of income and expenses
The financial statement and ratio analysis approach uses ratios derived from the client’s financial statements that are compared to…
Benchmark metrics for evaluation of strengths, weaknesses and deficiencies
The two step/three step panel approach stresses the management of risk and promotes…
Financial independence through savings and investing
The present value of goals approach determines the present value of each of the short term, intermediate term and long term goals and compares the sum to the currently available resources. This comparison will generally yield a deficit that can be amortized over the work life expectancy and compared to the current savings rate. If the deficit amount is in excess of current savings…
Then savings need to be increased
The metrics approach uses benchmarks for the measurement of where a client’s financial profile should be as compared to…
The client actual
The cash flow approach analyzes the income statement to evaluate and prioritize the…
Purchase of financial planning recommendations driving down discretionary cash flow
The strategic approach is a mission, goal and objective driven financial plan that considers’…
A client’s needs versus wants
3 phases of life cycle approach
1 asset accumulation phase
2 conservation/risk management phase
3 distribution/gifting phase
The asset accumulation phase usually occurs in the early twenties to late 50s when…
Cash flow for investing is low and debt to net worth is high
The conservation/ risk management phase occurs from late 20s to early 70s where cash flow and net worth have increased and debt has…
Deceased somewhat
The distribution/gifting phase is from the late 40/ to end of life and usually is characterized by high additional…
Cash flow, low debt and high net worth
The pie charts are effective for assisting client’s to visualize their financial situation including…3
1 where their assets are deployed in cash
2 for long term goals
3 maintaining their current lifestyle
Liquidity ratios measure the ability to meet short term objectives including…2
1 emergency fund ratio
2 current ratio
Discretionary cash flows are expenses that can be…
Avoided in event of loss of income
