CLIENT RECOMMENDATIONS & STRATEGIES — SERIES 66 CHEAT SHEET

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INVESTMENT SUITABILITY & CLIENT PROFILING

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ASSET ALLOCATION FRAMEWORKS

Rule of Thumb: Age-Based Equity %

• Aggressive: 100 − Age (or higher)

• Moderate: 60% stocks / 40% bonds (classic baseline)

• Conservative: 30% stocks / 70% bonds

Life-Cycle Stages

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BOND STRATEGY DECISIONS

Interest Rate Outlook → Duration Action

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Bond Yield Measures

• Current Yield = Annual Coupon ÷ Current Price

• Yield to Maturity (YTM) = Total return if held to maturity (accounts for price, coupon, time)

• Yield to Call (YTC) = Return if bond called before maturity (use for callable bonds)

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EQUITY STRATEGY DECISIONS

Economic Cycle → Sector Rotation

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Growth vs. Value

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PORTFOLIO REVIEW & REBALANCING

Annual Review Trigger:

• Portfolio drift > 5% from target allocation → Rebalance

• Market conditions significantly changed → Reassess suitability

• Client circumstances changed (age, income, risk tolerance) → Update IPS

Tax-Loss Harvesting Opportunity:

• Sell losing positions to offset gains

• Avoid wash sales (repurchase identical security within 30 days)

• Document for compliance & client records

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EASILY-CONFUSED PAIRS

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Client Factor	Key Question	Impact on Recommendation
Age/Time Horizon	How long until funds needed?	Longer horizon → higher equity allocation; shorter → bonds/stable value
Risk Tolerance	Can client stomach volatility?	Low tolerance → conservative mix; high → aggressive growth
Income Needs	How much annual cash flow required?	High need → income-focused (dividends, bonds); low → growth
Tax Situation	What is client's marginal tax bracket?	High bracket → tax-exempt bonds, low-turnover funds; low → taxable yields OK
Net Worth/Liquidity	What's investable assets & emergency fund?	Low liquidity → preserve capital; high → can take risk
Stage	Primary Goals	Typical Allocation
Accumulation (20–40s)	Growth, compound returns	80–90% equities
Peak Earning (40–55)	Growth + some income	60–75% equities
Pre-Retirement (55–65)	Preserve capital, generate income	40–60% equities
Retirement (65+)	Income, capital preservation	30–50% equities
Rate Outlook	Duration Strategy	Rationale
Rising	Shorten duration → shorter bonds	Protects against price decline
Falling	Extend duration → longer bonds	Captures price appreciation
Flat/Uncertain	Maintain intermediate duration (5–7 yrs)	Balance yield and risk
Cycle Phase	Outperformers	Avoid/Underweight
Early Expansion	Financials, Industrials, Tech	Utilities, Staples
Late Expansion	Consumer Discretionary	Cyclicals (turning down)
Contraction/Recession	Utilities, Consumer Staples, Healthcare	Cyclicals, Discretionary
Recovery	Technology, Cyclicals	Defensive stocks
Style	When to Recommend	Key Metrics
Growth	Low rates, early expansion, inflation low	High P/E, high ROE, low dividend yield
Value	High rates, late cycle, inflation rising	Low P/E, P/B < 1.0, high dividend yield
Pair	Distinction
P/E vs. P/B	P/E = price ÷ earnings (growth metric); P/B = price ÷ book value (asset value)
Current Yield vs. YTM	Current yield ignores price gains/losses; YTM is total return
Real vs. Nominal Rate	Nominal = stated rate; Real = nominal − inflation
Duration vs. Maturity	Maturity = years to repayment; Duration = interest-rate sensitivity (weighted average)
Leading vs. Lagging Indicators	Leading signals future economy; Lagging confirms past trends

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HIGH-YIELD FORMULAS

• P/E Ratio = Stock Price ÷ EPS

• P/B Ratio = Stock Price ÷ Book Value per Share

• D/E Ratio = Total Debt ÷ Total Equity

• ROE = Net Income ÷ Shareholders' Equity

• Real Rate ≈ Nominal Rate − Inflation Rate (Fisher Effect)

• Current Yield = Annual Coupon ÷ Current Price

• Bond Price Inverse to Rate: ↑ rates → ↓ bond prices; ↓ rates → ↑ bond prices

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DECISION RULES

✓ Always document suitability analysis in the client's investment policy statement (IPS) ✓ Review annually at minimum; more frequently if markets volatile or client circumstances change ✓ Match risk capacity to risk tolerance — never exceed either ✓ Diversify across asset classes, sectors, and geographies to reduce unsystematic risk ✓ Rebalance to maintain target allocation and lock in gains ✓ Know the client — age, income, goals, liquidity needs, tax bracket, experience level