Series 7

By Investopedia AAA

Determining Customer Objectives - Client Income Statement

A potential client's financial situation should be the first item you consider. The client's income should be adequate to meet his or her needs before any investment program is launched. Once you have established that this is the case, life insurance should be the first investment considered. The payout should typically be seven to 10 times annual salary. Not only does life and disability insurance protect the client's loved ones from hardship in the case of her untimely death or incapacity, it also has a value that can be cashed in after retirement.

At this point, you will need to draw up an individual income statement for your prospective client. Consider the following example:

Individual Income Statement for Year Ended 31 DEC 20xx
Current Income
Salary $100,000
Bonus $10,000
Interest/Dividends $3,000
Royalties, other passive income $1,000
Total current income $114,000
Current Expenses
Mortgage, property tax, mortgage insurance $25,000
Income taxes $20,000
Household budget (food, clothes, fuel, etc.) $18,000
Employee savings plan/401(k) $12,000
Utilities $10,000
Auto lease $6,000
Life, disability and health insurance $5,000
Auto insurance $3,000
Charitable Donations $3,000
Total current expense $102,000
Net Spendable Income Available for Investment (Total current income minus total current expense) $12,000


In this case, the prospective client appears to have about $12,000 to invest after meeting all current expenses - so far, so good.

Client Balance Sheet
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