ChFC – HS300, Chap 05

What kinds of things might an advisor disclose during the initial session?
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
We will write a custom essay sample on
Any topic specifically for you
For only $13.90/page
Order Now
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
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?
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
Life insurance cash-value
What is a non-financial asset?
Examples include:
House, car, applicances, furniture, jewelry, etc.