WM Lect 2 Wk 3_Constructing a financial plan & budgeting_Jessica

WM Lect 2 Wk 3_Constructing a financial plan & budgeting_Jessica

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Wealth Management FINS2643 Lecture 2 Week 3 Constructing a Financial Plan The six-step financial planning process: 1. Collect client data 2. Determine client objectives and goals 3. Determine financial issues 4. Prepare a written plan - SOA 5. Implement the agreed written plan 6. Review the plan Statement of advice (SOA) – Step 4 1. 2. Basis for advice 3. Assumptions 4. Cash flow, assets and liabilities 5. Risk tolerance assessment 6. a. Investment recommendations b. Taxation c. Super, Retirement Planning, Social Security d. e. Estate Planning f. Specific Product Recommendations g. Post implementation cash flow 7. Fees and commissions 8. Disclosure of capacity & Disclaimers 9. Monitor and Review Process 10. Implementation Schedule 11. Authority to proceed (client sign off) 12. Appendices Key Ratios Solvency ratio = Total net worth / Total assets Measures exposure to insolvency, potential to withstand financial problems Liquidity ratio = Liquid assets / Total current debts Ability to pay current liabilities with liquid assets in event of income loss Savings ratio = Cash surplus / Income after tax Cash surplus/deficit as a result of this period’s activities Debt service ratio = Total monthly loan payments / Mthly gross (before tax) income Monthly loan payments as % of gross income JESSICA YANG 1
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Tutorial Homework Week 3 Chapter 3 Question 8: What does having a conflict of interest mean and how do these conflicts affect the advice/services that clients receive? Generally clients want simple advice they can understand and afford. It is in the adviser’s and the licensee’s best interest (earning more fees and rebates) for advice to be product sales (no real needs-based advice), especially where the products are complex and command high fees. Chapter 4 Question 17: Distinguish between long-term and short-term financial goals. Be sure to mention: a) personal situation and stage of life cycle; b) flexibility; c) inflation considerations; d) goal dates; and e) the key input to the cash budget. Long Term Goals
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WM Lect 2 Wk 3_Constructing a financial plan & budgeting_Jessica

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