Personal Financial Planning--Case Study For Financial Planners

Objectives

This case study reviews some of the facts, concepts, and practices that were discussed in previous courses. This lesson, "Gathering Information," describes the first step of the personal financial planning process. After completing this case study, you will be able to:

• Gather financial information from clients.
• Prepare a financial plan.
• Develop a plan for each area of financial planning discussed in the program:
• Income Tax
• Retirement Planning
• Risk Management
• Investment Planning
• Stock Options Planning
• Estate Planning
• Education Planning
• Prioritize alternatives to help clients reach their goals.
• Develop an implementation plan.
• Identify the circumstances that cause a client to change his or her plan

Gathering Information

Paul and Deborah Green recently decided that they need advice addressing financial issues. They have set up an appointment with you to assist them with their financial planning needs. They have never sat down and taken a comprehensive look at the following areas:
A. Income tax planning
B. Retirement planning
C. Risk management
D. Investment planning
E. Stock options
F. Estate planning
G. Education funding

The Greens arrive at your office with a shoebox full of information. You need to put this information into net worth and cash flow statements. Click Financial Statements below to start organizing the Greens' financial information.

Financial Statements

To find out more about their family, look at their family profile.

Family Profile

Creating Net Worth and Cash Flow Statements
Deborah and Paul have brought box full of forms—brokerage statement, company benefits statement, income tax return, and several pieces of notebook paper--to your office. You need to organize these items into a net worth and cash flow statement.

To do this, select a piece of paper from the box. Then drag and drop the items on the paper into either the net worth or cash flow statements. When you are finished, go to the next screen and print the finished returns.

Flash File Items:
Items included on pieces of paper in the shoebox:

Paul's Salary $150,000
Paul's Bonus 200,000
Deborah's Pampered Pet Income 30,000
Rental Income 10,000
Credit Card Interest 7,000
Principal Residence Mortgage* 30,000
Rhode Island Mortgage 3,000
Connecticut Property Taxes 7,000
Child Support to Rebecca 12,000
Charity** 15,000
Medical 2,000
Automobile Expenses 2,000
Vacation 10,000
Paul's ABC Corporation 401(k) 100,000
Paul's Estimated Pension (annual, beginning at 55) 100,000
Connecticut Home 400,000
Connecticut Mortgage 300,000
Rhode Island Vacation Home 250,000
Rhode Island Mortgage 100,000
ABC Corporation Stock Options 200,000

Gathering Information - Printing the Statements

Now that you have successfully completed net worth and cash flow statements, click the links below to open and print the net worth and cash flow statements and the Greens' income tax return.
• Net Worth
• Cash Flow
• Income Tax Return

Gathering Information -- Family Profile

Your client, Paul Green, is 45-year-old attorney. His wife, Deborah Green is 30 years of age. This is Paul's second marriage and Deborah's first. They have two children together, Cassidy (age 2) and David (age 5).
Paul also has a daughter, Rebecca (age 17), from his first marriage.

Paul has been a corporate attorney with ABC Corporation for ten years. This is his second job since graduating from law school. Prior to working at ABC, he worked at Oldco for ten years. Deborah owns a pet grooming business, which has grown significantly over the past few years and continues to grow. In addition, she devotes a considerable amount of time to raising the children.

Gathering Information - The Interview

The financial papers the Greens brought with provides a starting point for examining their financial state, but more information is needed. To fill in the gaps, click a question to hear the Greens' answer. (Note: Flash File)

Paul, do you have any benefits from your prior employer, Oldco?

Paul's reply: Oh, I forgot about my old 401(k) plan--it's still sitting at Oldco. I'll have to call you back with the current balance, but I know it's all invested in Oldco company stock, which has shot through the roof in the last year. At some point, I need to ask you what to do with this.

I also had a small pension, but I took it as a lump sum payment when I left.

What about these nondeductible IRA contributions? Where are they invested?
[ZOOM IN TO ITEM #1 ON TAX RETURN]

Deborah's comment: My business did very well last year, so I added some more money to some old IRAs we had set up at the bank. I think they are invested in certificates of deposit.

I see from your tax return you have dividends from GHI. Where is this money invested?
[ZOOM IN TO ITEM #2 ON TAX RETURN]

Paul: That's an account I set up with my brother-in-law a while ago. He is a broker at GHI brokerage house.

I see the property taxes on the Connecticut home. What about the Rhode Island home?

Debbie: Those are about $4,000 per year.

Gathering Information - Question 1

What information could the Greens provide you that will assist in analyzing their financial situation?

A. 401(k) and IRA statements
B. Brokerage account statements
C. Coversheets for property and casualty insurance
D. All of the above

Answers:

A. Incorrect. The more information the Greens can provide, the better your understanding of their financial situation. The 401(k) and IRA and brokerage account statements can show how these assets are currently invested. The property and casualty insurance coversheets can provide information on premiums paid, deductibles, and liability limits.

B. Incorrect. The more information the Greens can provide, the better your understanding of their financial situation. The 401(k) and IRA and brokerage account statements can show how these assets are currently invested. The property and casualty insurance coversheets can provide information on premiums paid, deductibles, and liability limits.

C. Incorrect. The more information the Greens can provide, the better your understanding of their financial situation. The 401(k) and IRA and brokerage account statements can show how these assets are currently invested. The property and casualty insurance coversheets can provide information on premiums paid, deductibles, and liability limits.

D. Correct. The more information the Greens can provide, the better your understanding of their financial situation. The 401(k) and IRA and brokerage account statements can show how these assets are currently invested. The property and casualty insurance coversheets can provide information on premiums paid, deductibles, and liability limits.