xxiii About the Authors... iii Acknowledgments... v Preface...vii Abbreviations... xv

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1 Detailed Table of Contents About the Authors... iii Acknowledgments... v Preface...vii Abbreviations... xv Part I: Overview of the Systematic Process and Computational Skills for Developing a Financial Plan Chapter 1: The Systematic Financial Planning Process: Steps 1 to Defining the Financial Planning Process...6 An Overview of the Systematic Financial Planning Process...9 Step 1: Establish and Define the Relationship...10 Step 2: Gather Data and Frame Goals and Objectives...10 Step 3: Analyze and Evaluate the Client s Financial Status...19 Introducing the Financial Facilitator...25 Introducing the Comprehensive Case: Tyler and Mia Bedo...25 Appendix 1A: Meet Your Clients...33 Introducing the Bedo Case Study...33 The Bedo Family Profile...33 Overview of Family History...34 Cash Flow Planning...35 Income Discussion...35 Expense Summary...36 Asset and Liability Summary...39 Insurance Planning...41 Health Insurance Policies...41 Disability Policies...42 Life Insurance Policies...43 Automobile Insurance...43 Homeowners Insurance...44 Investment Planning...44 Retirement Planning...44 Estate Planning...45 Additional Information and Assumptions...45 Working Assumptions...45 Universal Assumptions...48 Specific Goals and Objectives...48 Issues...48 Cash Reserve Issues...48 Tax Issues...49 Disability Insurance Coverage Issues...49 Long-term Care Issues...49 Asset Management Issues...50 Education Issues...50 Premature Death Issues...51 Retirement Issues...52 Estate Planning Issues...53 xxiii

2 Chapter 2: Computations for Financial Planning...55 Financial Computation: The Basics...58 Historical Rate-of-return Calculations...58 Holding-period Based Returns...59 Average Annual Returns...62 Weighted Average Return...66 Multi-asset Portfolio Returns...66 Scenario-based Return Forecasting...67 Types and Forms of Interest Rates...67 Real vs. Nominal Rates...67 Tax-exempt vs. Taxable Rates...68 Risk and Returns...70 Time Value of Money...71 Effective and Nominal Rates...71 Basic Time Value of Money Calculations...74 Net Present Value and Internal Rate of Return Solving for I/Y...91 Loans and Amortization Schedules An Exercise in Calculating Payment...94 Chapter Summary...96 Part II: Analyzing and Evaluating a Client s Financial Status to Plan for Client Earnings Chapter 3: Cash Flow Planning Financial Situation Analysis: The Basics Cash Flow Management and the Financial Planner Analyze the Client s Current Situation Determine and Quantify the Client s Need for Cash Flow Planning Document and Evaluate the Client s Current Financial Situation Strategies Review Prospective Financial Situation Strategies Identify Prospective Cash Flow Management Strategies Chapter-based Case Study A Client-based Financial Situation Recommendation Example A Sample Recommendation: Refinance the Mortgage Chapter 4: Income Tax Planning Tax Planning: The Basics Analyze the Client s Current Situation Determine and Quantify the Client s Income Tax Planning Needs Document and Evaluate the Current Tax Planning Situation Strategies Review Prospective Tax Planning Strategies Identify Prospective Income Tax Planning Strategies Chapter-based Case Study A Client-based Tax Recommendation Example A Sample Recommendation: Matching Withholding to Liabilities While Increasing Charitable Contributions xxiv

3 Part III: Analyzing and Evaluating a Client s Financial Status to Plan for Client Risk Protection Chapter 5: Life Insurance Planning Life Insurance: The Basics Analyze the Client s Current Situation Understand a Client s Underwriting Factors Determine and Quantify a Client s Need for Life Insurance Document and Evaluate Current Life Insurance Coverage Strategies Review Prospective Life Insurance Planning Strategies Choosing between Cash Value and Term Policies: General Considerations Identify Prospective Life Insurance Strategies Chapter-based Case Study A Client-based Life Insurance Recommendation Example A Sample Recommendation: Purchase a Variable Universal Life (VUL) Policy Chapter 6: Health Insurance Planning Health Insurance: The Basics Analyze the Client s Current Situation Determine and Quantify the Client s Need for Health Insurance Document and Evaluate Current Health Insurance Coverage Strategies Review Prospective Health Insurance Planning Strategies Identify Prospective Health Insurance Planning Strategies Chapter-based Case Study A Client-based Health Insurance Recommendation A Sample Recommendation: Maintain Existing Group Coverage but Add a Flexible Spending Account Appendix 6A: Select Provisions of the Patient Protection and Affordable Care Act (PPACA) of Chapter 7: Disability Insurance Planning Disability Insurance: The Basics Analyze the Client s Current Situation Determine and Quantify the Client s Need for Disability Insurance Document and Evaluate Current Disability Insurance Coverage Strategies Review Prospective Disability Insurance Planning Strategies Identify Prospective Disability Insurance Planning Strategies Chapter-based Case Study A Client-based Disability Insurance Recommendation A Sample Recommendation: Purchase a Long-term Modified Own-occupation Policy Chapter 8: Long-term Care Insurance Planning Long-term Care Insurance: The Basics Analyze the Client s Current Situation Determine and Quantify a Client s Need for Long-term Care Insurance Document and Evaluate Current Long-term Care Insurance xxv

4 Strategies Review Prospective Long-term Care Insurance Planning Strategies Identify Prospective Long-term Care Insurance Strategies Chapter-based Case Study A Client-based Long-term Care Recommendation A Product Recommendation: Purchase Long-term Care Coverage Chapter 9: Property and Liability Insurance Planning Property and Liability Insurance: The Basics Analyze the Client s Current Situation Determine and Quantify a Client s Need for Property and Liability Insurance Document and Evaluate Current Property and Liability Insurance Strategies Review Prospective Property and Liability Insurance Strategies Identify Prospective Property and Liability Insurance Planning Strategies Chapter-based Case Study A Client-based Property and Liability Insurance Recommendation Example A Sample Recommendation: Increase Liability Limits and Purchase a Watercraft Endorsement Part IV: Analyzing and Evaluating a Client s Financial Status to Plan for the Growth and Distribution of Assets Chapter 10: Investment Planning Investment Planning: The Basics Analyze the Client s Current Situation Determine and Quantify the Client s Investment Planning Needs Document and Evaluate the Current Investment Management Situation Strategies Review Prospective Investment Strategies Identify Prospective Investment Management Strategies Chapter-based Case Study A Client-based Investments Recommendation Example A Sample Recommendation: Reallocate a Portfolio for Changing Economic Conditions Appendix 10A: Modern Portfolio (Mean-variance Review) What Creates Return What Causes Variance of Returns Modern Portfolio Statistics Mean-Variance Anaylsis Asset Mean Average Asset Variance Asset Standard Deviation Asset Coefficient of Variation Correlation and Covariance of Two Assets Standard Deviation of a Two-asset Portfolio Modern Portfolio Statistics Using Probabilities Expected Return Expected Return (Using Probabilities) Standard Deviation and Confidence Levies xxvi

5 Postmoderan Portfoloio Statistics Log-normal Distributions Asset Semivariance Downside Risk (DR) The Sortino Ratio Sensitivity Anaylsis: Captial Asset Pricing Model (CAPM) CAPM Expected Return Beta Chapter 11: Education Planning Education Planning: The Basics Analyze the Client s Current Situation Determine and Quantify the Education Planning Need Document and Evaluate Current Education Planning Strategies Strategies Review Prospective Education Planning Strategies Identify Prospective Education Planning Strategies Chapter-based Case Study Sample Client-based Education Planning Recommendation A Sample Recommendation: Using Series EE Savings Bonds to Fund a 529 College Savings Plan Chapter 12: Retirement Planning Retirement Planning: The Basics Analyze the Client s Current Situation Determine and Quantify a Client s Retirement Planning Needs Document and Evaluate Current Retirement Planning Efforts Strategies Review Prospective Retirement Planning Strategies Identify Prospective Retirement Planning Strategies Chapter-based Case Study A Client-based Retirement Recommendation Example A Sample Recommendation: Increase Contributions to a 401(k) Plan Chapter 13: Estate Planning Estate Planning: The Basics Analyze the Client s Current Situation Determine and Quantify Estate Planning Needs Document and Evaluate Current Estate Planning Efforts Strategies Review Prospective Estate Planning Strategies Identify Prospective Estate Planning Strategies Chapter-based Case Study A Client-based Estate Planning Recommendation Example A Sample Recommendation: A Multifaceted Gifting Technique xxvii

6 Part V: Review of the Systematic Process Chapter 14: The Financial Planning Process: Steps 4 to Developing Client-based Recommendations: A Quick Review Step 4: Develop the Comprehensive Plan and Present the Recommendations Developing the Financial Plan Presenting the Plan Step 5: Implement the Plan Who Should Implement the Recommendation? What Should Be Done? Where Should It Be Done? Why Should It Be Done? When Should the Recommendation Take Place? How Should Implementation Take Place? How Much Should Be Purchased, Saved, and Invested to Implement the Recommendation? Step 6: Monitor the Plan, Implementation, and Goal Progress Chapter-based Case Study Appendix 14A: Comprehensive Planning Checklist Part VI: Financial Planning Case Studies Introduction to Case Studies Case 1: The Zimmer Case Case 2: The Ande Case Case 3: The Roth Case Case 4: The Shim Case Case 5: The Butterfield Case Case 6: The Little Case Case 7: The Cantrell Case Case 8: The Alpha Case Case 9: The Edwards Case Case 10: The Mayfield Case Case 11: The Dion Case Case 12: The Graham Case Case 13: The Case of the Good Gone Bad Index xxviii