Monday, January 23, 2017
2. Gather info thats what we worked on last week and what youre doing
your project on.
3. Clarify you say I think this is what I heard before you spend 6 hours
doing something that they didnt want. You will make this mistake once
and only once if youre an advisor. You dont look professional, plus you
waste time. Everybody when they start out, they miss this step, but its
4. Identify Priorities You say, Here is exactly what you need to do to get
here once you know what they want. Those are the strategies that they
need to follow.
5. Implement its not worth anything if they dont actually do something
with it. If someone spends time to go over a plan with you so you can reach
your goals, if you dont do anything with it, its worthless
6. Monitor performance and update - the triangle means change if
necessary. We talked about things that could make a clients plans change,
like job loss, divorce, having kids, tragedy in the family, winning the lottery,
promotion/new job/more money, inheritances, getting married (now there
are two incomes)
Suitability three pronged approach:
1. Know your client
2. Know your product you cant memorize these because there are
thousands and thousands of them. You cant possibly know the details
about all of them. So you will have help in the field when youre doing this.
3. Make them fit thats the suitability
What happens if someone calls and they want to make a trade in their account but
it doesnt suit what they had been talking about? Thats an unsuitable trade. If a
little old lady who doesnt want to take risk and then she wants to invest in
nothing but medical marijuana companies, does that sound right? Its a new
industry, so its high-risk. It would seem to me that someone who told me they
dont want to take any risk shouldnt be making that trade, so Id talk to her about
it. Maybe she doesnt know its a higher risk venture. Maybe its such a small
portion of her portfolio, it wont make much of a difference. We dont know until
we talk to her. If its still unsuitable, at that point, you say no, and youd refer it to
Notetakers: Andrea & Monique 1 Finance 17-01-23
someone. Otherwise, its your own ass thats on the line. You dont want to do a
trade that is unsuitable for someone.
Leveraging this is borrowing money to invest it. If I put $100 on red, and I win,
my life isnt going to be changed with $200. I could do that same $100 and it comes
up black, and I walk away with nothing. I just lost $100. It doesnt change my life.
Its not nice; I dont want to lose $100, but it wont change your life. So if you do
that same thing, but I also take $1 million from Tony Soprano, and put it all on
black, and it comes up black, I walk away with over $2 million that would change
my life Id pay Tony off, and Id still have $1 million left over. Ive taken a big risk
and its paid off. But the other scenario is if it comes up red, and I had put that all
on black is my life changed? Yes. Id better run really fast. Tony Soprano isnt
going to accept that I just cant pay him back his $1 million. Thats high-risk. Id
probably be in hiding somewhere. That would have a significant change on my life
either way. When I borrowed the money, I had much more risk. Im a lot more
worried about having to tell Tony that I lost his million than the excitement of
possibly winning. It doesnt mean that borrowing money to invest is always bad,
but I hope that example helps you remember that its risky.
You all started on your assignment last week, which is really about gathering
information and clarifying. If you have questions, let me know, because I want
everyone to do really well. Thats why we spent so much time on it.
Personal Financial Statements PowerPoint (SLATE)
We started working on some of these for our projects, and were going to get more
detailed on net worth, and you will get a chance to work through.
Personal Cash Flow Statement (slide)
Cash flow is just how much you make and how much you spend. Just because you
make a lot of money doesnt mean you have a good cash flow situation. My biggest
client ever was always one paycheck away from bankruptcy. He made a TON of
money and he spent it faster than he could make it. Were talking about income
and how much money you have left after all the money that has to go out has gone
out. Thats your net cash flow.
(contd next slide)
There can be all kinds of sources of income. This particular one is after taxes, so
we dont have to worry about having tax here. Typically, people state their income
before taxes come off. In this example, this is how much they make in a month
after taxes are taken off. There can be interest on any deposits, income from
investments: there can be lots of places that income comes from (even a part time
Notetakers: Andrea & Monique 2 Finance 17-01-23
job in addition to a fulltime job). Then we have expenses. We total up the income
and then see the expenses.
Possible student expenses:
- Phone bills
There are lots of different expenses you would have. Whether this is reasonable or
not (like what is rent like now? Is $600 reasonable for a student?)
S: Not here you cant.
T: IN Vancouver, I had an apartment that was downtown and it overlooked the
mountain and ocean and it was $700 a month.
Then we moved to Toronto and I had a one bedroom that was half the price on
Scadding, that was 1200$ a month. So it would surprise me if your rent was only
$600. How many of you have a cable bill every month? Only two of us, wow.
So you'd make a list of all the things that need to be paid in a month. Electricity, it
might be a bill that comes ever other month but you still budget for it. Then you
get total expenses and you subtract that from your total income.
Lets say, when someone is working with you and youre going through this, you
notice their recreation is the same amount as their rent. Would you have a
conversation around that? They have a positive cash flow, they have an extra $300
to spend leisurely to invest. It would be reasonable to have a conversation, is it
possible to save more. Its not a judgment about how people are spending, but
looking for potential to save money. Think about your own spending. Could you
spend a little less on going out? Or drinks? I dont know one student who could
say no. Hell, I could spend less, have one less bottle of wine. We could all probably
change our spending a bit.
This person is not in a bad position though. So what affects their income? What
affects what you make?
T: yes jobs pay different amounts. What else? The next one affects all of you?
Notetakers: Andrea & Monique 3