Determining Customer Objectives - Client Balance Sheet
Of course, an income statement is not enough to determine a potential client's financial situation. You also need an individual balance sheet that shows assets, liabilities and net worth:
|Individual Balance Sheet as of 01 JULY 20xx|
|Marketable securities (stocks, mutual funds)||$28,000|
|Furnishings and collectibles||$22,000|
|Certificates of deposit||$7,000|
|Total current assets||$87,000|
|Mortgage (current portion)||$25,000|
|Taxes and penalties payable||$5,000|
|Auto lease payments payable (current portion)||$3,000|
|Other current obligations||$2,000|
|Total current liabilities||$28,000|
|Liquid net worth||(Total current assets minus total current liabilities)||$59,000|
|Life insurance value||$60,000|
|Retirement accounts and savings bonds||$470,000|
|Total deferred assets||$650,000|
|Mortgage payments (non-current portion)||$200,000|
|Auto lease payments (non-current portion)||$3,000|
|Total deferred liabilities||$203,000|
|Deferred net worth||(Deferred assets minus deferred liabilities)||$447,000|
|Net worth||(Liquid net worth plus deferred net worth)||$506,000|
- Current assets are those things of value that can be turned to cash within the year. Current liabilities are those obligations that must be paid within the year.
- Deferred assets are all those assets that are not current and, likewise, deferred liabilities are those liabilities that are not current.
- Liquid net worth is current assets minus current liabilities.
- Deferred net worth is deferred assets minus deferred liabilities.
- Total net worth is liquid net worth plus deferred net worth.
When looking at the balance sheet, it is prudent to ensure the prospective client has a cash reserve of at least half a year's pay before suggesting she lock into any long-term investments. In this case, the prospect makes $55,000 in half a year (income statement: half of annual salary plus bonus) and has $58,000 in cash and marketable securities, so she appears to be a genuine candidate for a registered representative's services.
You do not know when the CDs or bonds can be cashed in without penalty, so it is best to assume they are not cash-equivalent. Furnishings and collectibles, although they represent a significant amount of current assets, are not cash equivalents.
ProfessionalsTake a look at five primary reasons why financial advisors still choose to recommend mutual funds over other types of investment vehicles.
ProfessionalsDiscover more about the responsibilities of an internal advisor consultant, the average salary he can expect and the qualifications he will need for the job.
BrokersIndependent broker-dealers are a great choice for experienced, self-starter planners who have established practices.
Personal FinanceRIAs and brokers are held to different standards when providing investment advice. Here's how they differ.
Trading Systems & SoftwareLaunching your own broker-dealer is a lot of work, but the potential payoff is great, both personally and financially.
ProfessionalsLearn how to answer option questions on the Series 7 exam. Pass your Series 7 exam with the help of these tips.
ProfessionalsFINRA Series 55 Exam Guide
ProfessionalsFINRA Series 62 Exam Guide
ProfessionalsFINRA/NASAA Series 99 Exam Guide
ProfessionalsFINRA/NASAA Series 65 Exam Guide
- No results found.
The exact nature of a financial advisor's job responsibilities determines whether he must have a Series 7 license. If a financial ... Read Full Answer >>
Financial advisors must possess various securities licenses in order to sell investment products. The specific products an ... Read Full Answer >>
The Financial Industry Regulatory Authority (FINRA) offers a variety of licenses that must be obtained before conducting ... Read Full Answer >>