ChFC - HS300, Chap 05
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21 terms
Terms | Definitions |
|---|---|
 What kinds of things might an advisor disclose during the initial session? | Philosophy Education Employement History Certifications and Licenses Sources of Compensation |
| At a high level, the fact finding process should do what? | Evaluate the client's total financial condition Identify what type of person the client really is Determine where the client wants to be Formulate the most appropriate strategies for getting there |
| What is the formula for the Liquidity Ratio? | Liquidity Ratio = Liquid Assets / Total Current Debts Liquidity Ratio = Liquid Assets / (Current Liabilities + Annual Loan Payments) |
| What does the Liquidity Ratio represent? | The ability of the client to pay off debt with liquid assets. |
| What is the ideal range for a client's Liquidity Ratio? | 1 < liquidity ratio < 2 |
| What is the formula for the Solvency Ratio? | Solvency Ratio = Net Worth / Total Assets |
| What does the Solvency Ratio represent? | The extent to which the market value of a client's total assets could decline before wiping out all of his/her wealth as measured by net worth. |
| What is the ideal Solvency Ratio? | Mathematically, it can be no greater than 1, but the closer to 1 the better. |
| What is the formula for Cash Flow? | Cash Flow = Income - Expenses |
| What is the relationship between one's Financial Position and Cash Flow? | A Financial Position is a snapshot in time; a static view. Cash Flow is dynamic and represents financial activity. Thus, the current Financial Position plus Cash Flow leads to one's future Financial Position. FP + CF = FP' |
| What is Cash Flow Management? | Cash Flow Analysis Cash Flow Planning Budgeting |
| What is Cash Flow Analysis also known as? | Income and Expense Analysis |
| What is Cash Flow Analysis? | Gathering data concering the client's cash flow situation Presenting the data in an organized format Identifying strengths and weaknesses Identifying patterns |
| What is Cash Flow Planning? | Identifying courses of action that will help optimize net cash flow. |
| What is Budgeting? | The process of creating and following an explicit plan for spending and investing the resources available to the client. |
| What are the two types of annual expenses? | Fixed Discretionary |
| What is the formula for one's Savings Ratio? | Savings Ratio = (Net Cash Flow + Recurring Savings & Investments) / Annual After-Tax Income |
| What does one's Saving's Ratio represent? | The percentage of after-tax income saved by a client. |
| What is the formula for one's Debt Service Ratio? | Debt Service Ratio = Total Debt Payments / Net Income |
| What is a financial asset? | Cash and cach-equivalents Investments Life insurance cash-value |
| What is a non-financial asset? | Examples include: House, car, applicances, furniture, jewelry, etc. |
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