Question

Background Tom and Sharon Brown are not happy with their current investment advisor. They are seeking investment managem...

Background

Tom and Sharon Brown are not happy with their current investment advisor. They are seeking investment management and financial advisory services from someone they can trust. You are a registered investment advisor in your home state of Kansas. You have been in business for seven years and work with a select group of 70 clients. You offer financial and investment planning advice for either a percentage of assets under management or hourly fees. During the initial meeting with the Browns, you gather the following financial information:

Personal Data & Background Information

Primary Contact: Tom Brown Age: 53 Occupation/Title: Operations Management / VP of Operations

Secondary Contact: Sharon Brown Age: 56 Occupation: Home Maker

Children: Tom does not have any children of his own. Sharon has three children in college from her previous marriage; Maggie, 18; Shelby, 20; Candy, 22.

Marital Status: Comfortably married for eight years.

Relevant Financial Information

• The Brown’s estimated net worth is $3 million. The majority of their financial wealth is allocated among Individual Retirement Accounts, Tom’s 401(k) plan, and a taxable investment account.

• Sharon was widowed in her first marriage and the majority of the savings in the taxable account is life insurance proceeds. The account is a joint account and Sharon hopes to use a portion of the savings to help her girls purchase their first home. They have a 529 plan for college expenses.

• Tom has an above average risk tolerance and Sharon leans more toward conservative, low risk investments.

Financial Objectives

• Seek and find a reputable, ethical investment advisor to aid in their wealth accumulation and financial development.

• Both have had undesirable experiences in the past working with other financial planning professionals and seek to understand the regulatory and ethical requirements for financial planners.

• Work with an advisor to help them agree on an investment strategy to preserve their savings for future retirement.

3.    Tom and Sharon have asked you to manage and take custody of their investment accounts. You:

a)    Agree to their request because they have over $1 million in assets; the minimum limit required by law.

b)    Disagree because they don't have over the $5 million in assets; minimum limit required by law.

c)    Agree, and begin to transfer the funds, immediately disclosing the holding location.

d)    Disagree, because investment advisors are not allowed to take custody of their client's investment accounts.

4.    Tom and Sharon have asked you to make investment recommendations for their Individual Retirement Accounts. They have agreed to moderate risk, conservative investments that keep up with inflation. Which of the following are suitable recommendations?

I.    Municipal Bonds

II.   Mutual Funds

III.  Corporate Bonds

IV.  Stocks

a)    IV only

b)    I and II

c)    I, III, and IV

d)    II, III and IV

e)    All four are suitable recommendations.

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Answer #1

Question 3: Option A: the minimum assets required has been raised from $750,000 to $1,000,000

Question 4: Option B: The risk tolerance is moderate and investments have to be conservative. Municipal bonds and Mutual Funds are conservative and have low to moderate risk and keep up with inflation. Corporate bonds and Stocks are high risk investments.

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