7.2 Building Client Profiles
Fiduciary standards require investment advisers to establish a comprehensive client profile before making any investment recommendations or drafting an Investment Policy Statement (IPS).
Key NASAA Exam Takeaways
- Financial profile includes balance sheet items: assets, liabilities, net worth, liquid net worth, annual cash flow, and tax bracket.
- Non-financial profile includes age, marital status, dependent obligations, investment horizon, risk tolerance, and values.
- Capital preservation mandates cash equivalents and short-term Treasuries; growth mandates diversified common equities.
- Liquidity requirements take precedence: an investor needing funds within 12 months should never be allocated to illiquid partnerships or equities.
Knowledge Checkpoint • Section 7.2
A 63-year-old client intends to retire in 18 months and purchase a retirement home using $150,000 of non-qualified savings. Which investment recommendation is most suitable for this specific sum?