10.4.1 Customer Profiles
But regardless of your approach, this is where you should start. We saw in the last chapter the importance of a company’s income statement, balance sheet, and cash flow statement in evaluating an issuer’s securities. The same holds true in evaluating the investment possibilities of the individual customer.
Broker-dealers cannot open an account for a new customer until they have completed a suitability analysis based on the customer’s personal and investment profile. Only after a suitability analysis has been approved can the broker-dealer work up an investment strategy for the customer and recommend transactions.
Just like a business, an individual’s financial situation may be analyzed by understanding his/her balance sheet and income statements. Let’s look at Tricia’s financial statements.
|
Balance Sheet |
|
|
Assets |
|
|
Marketable securities (stocks, ETFs, and mutual funds) |
120,000 |
|
Cash, CDs, and money market funds |
20,000 |
|
Treasury securities |
60,000 |
|
House |
400,000 |
|
Belongings |
10,000 |
|
Car |
20,000 |
|
Total Assets |
$630,000 |
|
|
|
|
Liabilities |
|
|
Mortgage |
150,000 |
|
Utility bills |
800 |
|
Personal loans |
5,000 |
|
Total Liabilities |
$155,800 |