Analyzing Your Client's Financial Profile - Client Type

In addition to individuals and married couples, there are many other potential client types. Because the goals of an organization are likely to be very different from those of an individual, you should be familiar with these other client types:


  • Business partnership- In this partnership, all partners are equally responsible for business debts and share equally in business profits (which pass through to be reported on each partner's personal income tax return).
  • Limited partnership - Here the general partner is responsible for managing the business and has unlimited liability for its debts, while the limited partners are not responsible for any of the debts.
  • Family limited partnership - This arrangement is used primarily as a means of minimizing estate and gift taxes, but must have a legitimate business purpose (such as managing investment real estate, family business, etc.).

The main advantage of all types of corporations is that the owners are not personally liable for the corporation's debts. There are three types:

  • C Corporation - Thesecorporations must pay corporate income tax on their income, and the owners pay personal income taxes on profits received as dividends (known as double taxation).
  • S Corporation - This arrangement is suitable for small companies (less than 75 shareholders) that want the legal protection of a corporation but the flow-through taxation of partnerships (corporate losses are applied to personal income tax return).
  • Limited Liability Corporation - This type of structure provides a company's owners with protection from debts, but is taxed as if it is a sole proprietorship.


Look Out!
On the exam, you are likely to be given a description of a new business and be asked which type of corporation it most resembles. If the question states that losses are expected in the first years, "S Corporation" is the correct answer. If it is a single owner and losses are not mentioned but protection from liabilities is noted, "LLC" is usually the correct answer. (Sole proprietorship is usually the fourth choice.)

Other Entities

  • Estates - An estate account is typically open only a short time, until the estate assets are distributed to beneficiaries, so long-term or speculative investments are usually not appropriate.
  • Trusts - The IA must recommend investments that are suitable for the beneficiaries of the trust, not for the trustee.


Exam Tips and Tricks
Consider these sample exam questions about client types:

  1. Which business entity would provide a flow-through of business income or losses as well as limited liability to the owners?
    1. Sole Proprietorship
    2. General Partnership
    3. C Corporation
    4. S Corporation

The correct answer is "d": only the S Corporation offers both of these advantages.

  1. Which investments would be considered suitable for an estate account?
    1. Treasury bonds
    2. Options
    3. Money market fund
    4. Growth stock mutual fund

The correct answer is "c", since Treasury bonds, growth stock mutual funds and options are not suitable for an account with a short time horizon.

Current Status and Financial Goals
Related Articles
  1. Professionals

    Career Advice: Financial Analyst Vs. Investment Banker

    Read an in-depth comparison about working as a Financial Analyst vs. working as an Investment Banker, two highly prestigious business careers.
  2. Professionals

    Who Needs to Take the Series 65?

    Most states require individuals to pass the Series 65 exam in order to act as investment advisors.
  3. Investing Basics

    Brokers and RIAs: One and the Same?

    Brokers and registered investment advisors have some key differences. Here's what you need to know.
  4. Professionals

    Understanding Series 6

    Upon successful completion of the Series 6, an individual will have the qualifications needed to sell open end mutual funds and variable annuities
  5. Professionals

    Top Strategies on How to Become a Stock Broker

    Gunning to be a stock broker and want an edge? Here's some veteran advice.
  6. Trading Systems & Software

    Steps to Starting Up an Independent Broker Dealer

    Launching your own broker-dealer is a lot of work, but the potential payoff is great, both personally and financially.
  7. Professionals

    Understanding Series 63

    Series 63 is a securities license that entitles the holder to sell securities in a particular state.
  8. Professionals

    How To Answer Option Questions On The Series 7 Exam

    Learn how to answer option questions on the Series 7 exam. Pass your Series 7 exam with the help of these tips.
  9. Insurance

    Municipal Bond Tips For The Series 7 Exam

    Learn to distinguish between general obligation and revenue bonds to ace this test.
  10. Retirement

    6 Proven Tips For Series 6 Success

    These techniques can help you pass this test without the added stress.
  1. Series 6

    A securities license entitling the holder to register as a limited ...
  2. Series 79

    A examination to ensure a candidate is qualified to become a ...
  3. Research Analyst

    A person who prepares investigative reports on equity securities. ...
  4. Series 34

    An exam required for individuals seeking to engage in off-exchange ...
  5. Financial Advisor

    One who provides financial advice or guidance to customers for ...
  6. Series 23

    An exam offered by the Financial Industry Regulatory Authority ...
  1. Is a financial advisor required to have a degree?

    Financial advisors are not required to have university degrees. However, they are required to pass certain exams administered ... Read Full Answer >>
  2. If I have only a limited amount of time to study for the Series 6, what should I ...

    The Series 6 Investment Company and Variable Contracts Products Representative Qualification Examination is administered ... Read Full Answer >>
  3. What role does the 'chip cycle' play in the electronics sector?

    There are several highly acclaimed private Series 6 Exam courses in the United States. Many can be completed online. Popular ... Read Full Answer >>
  4. What does passing the Series 6 enable me to do?

    The Series 6, or the Investment Company Products/Variable Contracts Limited Representative, exam is administered by the Financial ... Read Full Answer >>
  5. What are the differences between the Series 6 exam and the Series 7 exam?

    The Financial Industry Regulatory Authority (FINRA) offers a variety of licenses that must be obtained before conducting ... Read Full Answer >>
  6. Do I have to successfully complete the Series 7 exam before I can register for the ...

    There are no prerequisites to register for the Series 63 exam. However, once you have registered for the exam, you must schedule ... Read Full Answer >>
Hot Definitions
  1. Zero-Sum Game

    A situation in which one person’s gain is equivalent to another’s loss, so that the net change in wealth or benefit is zero. ...
  2. Capitalization Rate

    The rate of return on a real estate investment property based on the income that the property is expected to generate.
  3. Gross Profit

    A company's total revenue (equivalent to total sales) minus the cost of goods sold. Gross profit is the profit a company ...
  4. Revenue

    The amount of money that a company actually receives during a specific period, including discounts and deductions for returned ...
  5. Normal Profit

    An economic condition occurring when the difference between a firm’s total revenue and total cost is equal to zero.
  6. Operating Cost

    Expenses associated with the maintenance and administration of a business on a day-to-day basis.
Trading Center
You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!