Wealth planning and client advisory
Wealth planning and client advisory tests whether you can translate goals, taxes and constraints into a plan and communicate it responsibly.
Core rules
- Know the client: goals, horizon, liquidity needs, ability and willingness to take risk, tax position, legal constraints and unique preferences.
- Suitability precedes product selection; a suitable product for one client can be unsuitable for another.
- Asset location: tax-inefficient income assets generally belong in tax-deferred accounts; low-turnover equities suit taxable accounts.
- Compound growth: FV = PV(1 + r)^n. Tax drag depends on the rate and on how often returns are taxed.
Worked example
100,000 grows at 6% for 20 years. Taxed annually at 25%, the after-tax rate is 4.5%, giving 100,000 × 1.045^20 = 241,171. In a tax-deferred account, 100,000 × 1.06^20 = 320,714; after 25% tax on the whole balance, 240,535. Here the taxable account edges ahead because only the return is taxed. If contributions were pre-tax, or the exit rate lower than the annual rate, deferral would win. Reasoning: deferral helps most when the exit tax rate is below the rate applied to annual returns over a long horizon.
Traps that cost marks
- Ignoring inflation for long-horizon education or retirement goals.
- Conflating risk tolerance with risk capacity.
- Overlooking beneficiary designations and estate titling.
- Projecting returns without netting fees and taxes.