Financial & Non-Financial Client Data
Overview
Registered representatives must understand their customers well enough to make suitable recommendations. New account forms ask detailed questions to build a complete picture of a client’s financial situation, including:
- Annual income
- Net worth
- Tax status
- Liquidity needs
- Stage in life
- Investment objective
- Risk tolerance
- Investment experience
- Investment goals
This suitability information can be grouped into two categories: financial and non-financial considerations.
| Category | Definition | Includes |
|---|---|---|
| Financial considerations | Suitability attributes that relate directly to money | Annual income, Net worth, Tax status, Liquidity needs |
| Non-financial considerations | Suitability attributes not directly about money — preferences, goals, personal characteristics | Stage in life, Investment objective, Risk tolerance, Investment experience, Investment goals |
Financial considerations
When a suitability attribute relates directly to money, it’s a financial consideration.
Annual income
Annual income is the amount of money an investor receives from employment, investment income, or other sources. It affects both:
- How much the investor can realistically invest
- How much risk the investor can afford to take
In general, higher income means more money available to invest and save for goals (a child’s education, retirement, etc.). With more cash flow, an investor may be able to:
- Invest more aggressively
- Take additional risk with “extra” funds after core goals are funded
- Worry less about short-term liquidity needs
Income and liquidity:
| Income level | Liquidity implication |
|---|---|
| Substantial ongoing income | May be more comfortable investing in less liquid securities (such as municipal bonds and limited partnerships), because they’re less likely to need to sell investments quickly to cover expenses |
| Lower income | Typically less room for error. A major market decline could interfere with essential goals. Should be cautious about securities with high liquidity risk if they may need to sell investments to pay for living expenses |
Personal income statement
In the common stock chapter, we learned about income statements for corporations. Individuals can also create personal income statements to track monthly cash inflows and outflows. For example:
| Event | Amount (monthly) |
|---|---|
| Retirement benefits | $2,000 |
| Investment income | $1,500 |
| Social security | $1,000 |
| Rent payment | -$3,000 |
| Utilities | -$300 |
| Various bills | -$500 |
| Total | +$700 |
When reviewing an investor’s income statement, watch for potential red flags. In this example, rent is a large expense and the investor is only saving $700 per month. That’s a reason to ask follow-up questions about expenses and whether costs could be reduced.
Keep in mind that an income statement is only part of the picture. The investor might also have substantial assets in a bank account or in investments that don’t generate current income, and those wouldn’t appear here.
Net worth
In the common stock chapter, we learned about corporate balance sheets, which help determine a company’s net worth. Individuals can do something similar by listing assets and liabilities to calculate personal net worth. For example:
| Assets | Liabilities | Net worth |
|---|---|---|
| $250k home | $200k mortgage | |
| $20k car | $10k car loan | |
| $100k IRA | $10k credit card | |
| $25k cash | ||
| $5k jewelry | ||
| $400k | $220k | $180k |
Definitions
| Term | Definition | Example |
|---|---|---|
| Assets | Items the person owns | Home, car, investment accounts, checking accounts, jewelry, and other valuables |
| Liabilities | Debts the person owes | Mortgage, car loan, credit card balances, and other loans |
| Net worth | Calculated by subtracting liabilities from assets | $400k assets − $220k liabilities = $180k net worth |
🔑 Net worth = Assets − Liabilities
Net worth often influences how much investment risk is suitable.
| Net worth | Risk implication |
|---|---|
| Higher net worth | Generally means an investor can tolerate more risk. Example: a $1,000,000 portfolio yielding 4% could provide $40,000 per year in income without touching principal. Investors with substantial assets may have capital they can expose to higher-risk investments in pursuit of higher returns |
| Lower net worth | Generally points toward lower-risk investing. May reflect low annual income, high debt, or significant family obligations. Limited ability to save and less capacity to absorb losses |
Tax status
An investor’s tax status can provide useful context about their financial situation. In the U.S., income taxes are based on a marginal tax system: as income rises, the marginal tax bracket increases. As of tax year 2026, these are the income tax brackets for individuals and those filing jointly:
| Rate | Individuals | Married filing jointly |
|---|---|---|
| 10% | $0 | $0 |
| 12% | $12,401 | $24,801 |
| 22% | $50,401 | $100,801 |
| 24% | $105,701 | $211,401 |
| 32% | $201,776 | $403,551 |
| 35% | $256,226 | $512,451 |
| 37% | $640,601 | $768,701 |
Do not memorize these tax brackets; this chart is only for context.
Definitions
| Term | Definition | Example |
|---|---|---|
| Marginal tax bracket | The tax bracket applied to the last dollar earned | An individual making $55,000 would pay a 10% tax on the first $12,400 earned, a 12% tax on additional income up to $50,400, and a 22% tax on the remaining income received. Although the investor is taxed at three different rates, they fall in the 22% tax bracket |
| Disposable income | Income remaining after taxes, rent/mortgages, and all other bills (liabilities) are paid | — |
The higher the income, the higher the marginal tax bracket. When a suitability question includes an investor’s tax bracket, it gives you a quick clue about income level and which investments may be appropriate. For example, if an investor is in the 37% bracket, you can assume they earn more than half a million dollars annually. Investors with incomes at this level may be able to save significant amounts and invest aggressively with disposable income.
Tax brackets and after-tax returns
| Income type | Tax treatment | Suitability note |
|---|---|---|
| Interest income from debt securities | Generally taxed at the investor’s marginal tax rate | — |
| Municipal bonds | Interest may be tax-free for residents of the issuing municipality | One reason municipal bonds can be suitable for investors in high tax brackets |
| Corporate bond interest | Fully taxable | — |
| U.S. government bond interest | Federally taxable, exempt from state and local taxes | Can still create meaningful tax liability for high-income investors |
| Short-term capital gains | Taxed at the investor’s marginal tax rate | Can encourage high-bracket investors to prefer long-term gains |
| Long-term capital gains (securities held more than one year) | Taxed at 15% for most investors and 20% for investors in the two highest tax brackets | — |
| Dividends from common and preferred stock | Taxed at long-term capital gains rates | One reason these securities may be suitable for higher-income investors seeking income |
Liquidity needs
Liquidity is how easily an investment or asset can be converted to cash. Liquidity needs depend on an investor’s financial situation and stage in life.
For example, older investors living on fixed incomes typically should avoid investments with high liquidity risk. If an unexpected expense occurs (such as medical bills), they may need to sell investments quickly to raise cash.
| Securities that can be difficult to sell (high liquidity risk) | Securities more suitable for investors needing short-term liquidity |
|---|---|
| Limited partnerships | Money market funds |
| Hedge funds | Treasury bills |
| Penny stocks | Short term CDs |
| Unlisted and private REITs | |
| Municipal bonds |
Liquidity concerns aren’t limited to older investors. Younger investors living on disability, unemployed investors with children, and investors planning a major purchase soon (such as a home) may also need ready access to cash.
An investor with high annual income or high net worth is often less concerned with liquidity, and may be able to invest in securities with higher liquidity risk.
Non-financial considerations
When a suitability attribute isn’t directly about money, it’s a non-financial consideration. These attributes focus on preferences, goals, and personal characteristics.
Stage in life
People move through stages of life such as childhood, adolescence, adulthood, middle age, and senior years. Stage in life often affects time horizon, income sources, and risk capacity.
| Younger investors | Older investors | |
|---|---|---|
| Employment status | Often employed | Often retired |
| Risk posture | Tend to invest more aggressively | Tend to be more conservative (risk averse) |
| Allocation | May allocate more to stocks | May allocate more to fixed-income securities |
| Income needs | Employment income covers living costs, so typically don’t need investment income right away | Without employment income, may rely on retirement benefits (defined benefit plans, defined contribution plans, IRAs, and annuities), social security, and income from investments (bonds, preferred stock, and mutual funds that invest in these securities) |
| Time horizon | Often long — more time to recover from market declines | Shorter — usually means taking less risk and avoiding riskier growth-oriented investments |
Investment objective
Earlier in this unit, we discussed specific investment objectives. Registered representatives help clients determine an appropriate objective based on the client’s suitability information.
Risk tolerance
Risk tolerance describes how much investment risk an investor is willing and able to accept. It ranges from low-to-no risk tolerance (conservative investors who want to avoid risk) to high risk tolerance (aggressive investors seeking risk for higher return potential).
Risk discussions are essential because higher potential returns typically require taking more risk. Investors who want to pursue large returns need to understand that significant losses are possible if the market moves against them.
Investment experience
Investment experience isn’t always the most critical suitability characteristic, but it can affect how complex a recommendation should be. Some investments are difficult to understand and can behave in unexpected ways, including:
- Hedge funds
- Leveraged and inverse ETFs
Before recommending complex securities, registered representatives should confirm that the client understands how the investment works. Investors with a stronger grasp of market dynamics and basic finance principles are typically the only ones suitable for these products.
Investment goals
Goals often change across a person’s life, and most goals require funding. That’s why goals are a key part of a client’s suitability profile: they strongly influence which products and securities are appropriate.
Examples include:
- Funding a child’s education
- Saving for retirement
- Paying off debt
- Making a real estate purchase
- Financing a small business
- Financially supporting family members
Time horizon
In general, the longer the time horizon, the more risk an investor may be able to take in exchange for return potential.
| Time horizon | Approach | Supporting example from the text |
|---|---|---|
| Long (10–20+ years) — e.g. a 25-year-old saving for retirement, or parents saving for a young child’s college education | More risk may be acceptable. Over long periods, markets may experience short-term declines but generally rise over time | The 1-year S&P 500 return from April 2019 to April 2020 was approximately -3%, while the 30-year annualized return from April 1990 to April 2020 was roughly 9.5% (including dividend reinvestments) |
| Short | Usually requires a more conservative approach. Significant losses can occur over short periods, and there may not be time to recover | An investor with $50,000 for a down payment on a first home in the next 3 months: if invested in an S&P 500 ETF in January 2020, the investor would’ve lost almost $15,000 (the S&P 500 was down nearly 30% from early January 2020 to end of March 2020), leaving $35,000 — possibly losing the house if $50,000 was required |
This is why it’s so important to avoid risk for short-term goals. In the down-payment example, the investor should’ve considered a short term debt security like a Treasury bill or a money market fund.
Key points
Financial considerations
- Suitability factors directly relating to money
- Includes:
- Annual income
- Net worth
- Tax status
- Liquidity needs
Non-financial considerations
- Suitability factors not directly relating to money
- Includes:
- Stage in life
- Investment objectives
- Risk tolerance
- Investment experience
- Investment goals
Sources
Primary/official references for the material in this chapter. Every link was fetched and returned HTTP 200 on 2026-08-15.
| # | Source | Publisher |
|---|---|---|
| 1 | Rule 4512 — customer account information, trusted contact | FINRA |
| 2 | Rule 2111 — suitability, reasonable-basis/customer-specific/quantitative | FINRA |
| 3 | Regulations S-P, S-AM and S-ID — privacy, safeguards, red flags | eCFR (17 CFR Part 248) |
| 4 | Achievable Series 65 — chapter 2.2.2 | Achievable (course text) |