A REAL WORLD CASE STUDY

In this final section, the DCF analysis is applied to the valuation of Morton Dean &

Associates (MDA), a hypothetical financial consulting firm operating in the Midwest. Income projections for MDA for Year 1 through Year 6 are presented in Table 22.1.

The Assets Generating Highest Fees

These assets (line A-1) represent the accounts that do not exceed $500,000 per account. Owners of these portfolios pay higher management fees because the size of each account is not sufficiently large to qualify for preferred management fees. This category of assets is valued by taking the following three steps:

First, a 10 percent annual rate of growth is applied to the existing assets during the entire period (line A-2).

Second, after a thorough review of the past history, and taking into account the future growth potential, it is assumed that new assets will come under management as indicated on line A-3. Average assets under management during the six-year period are presented on line A-5.

Third, management fees earned by MDA on these accounts, net of broker–

dealer fees, are estimated to be 0.915 percent, and total management fees earned on this type of assets are presented on line A-6.

Assets from Affluent Clients

Assets per account of $1 million or more managed at the average preferred management fees of 0.60 percent (net of broker-dealer fee) are included in this category (B). Using the same method of extrapolation, the average assets under management are determined and presented on line B-5 for the six-year period.

Table 22.1Income Projections For the Year Ending Year 1Year 2Year 3Year 4Year 5Year 6 A. Client Category 1 1 Beginning assets under management25,600,00032,160,00039,376,00046,313,60052,944,96059,239,456 2 Growth in existing assets10.0%2,560,0003,216,0003,937,6004,631,3605,294,4965,923,946 3 New assets4,000,0004,000,0003,000,0002,000,0001,000,000 4 Ending assets under management32,160,00039,376,00046,313,60052,944,96059,239,45665,163,402 5 Average assets under management28,880,00035,768,00042,844,80049,629,28056,092,20862,201,429 6 Management fees0.915% 264,252327,277392,030454,108513,244569,143 B. Client Category 2 1 Beginning assets under management14,200,00015,620,00017,182,00018,900,20020,790,22022,869,242 2 Growth in existing assets10.0% 1,420,0001,562,0001,718,2001,890,0202,079,0222,286,924 3 New assets00000 4 Ending assets under management15,620,00017,182,00018,900,20020,790,22022,869,24225,156,166 5 Average assets under management14,910,00016,401,00018,041,10019,845,21021,829,73124,012,704 6 Management fees0.600% 89,46098,406108,247119,071130,978144,076 C. Annuities and 401(k) 1 Beginning assets under management5,000,0005,500,0006,050,0006,655,0007,320,5008,052,550 2 Growth in existing assets10.0% 500,000550,000605,000665,500732,050805,255 3 New assets00000 4 Ending assets under management5,500,0006,050,0006,655,0007,320,5008,052,5508,857,805 5 Average assets under management5,250,0005,775,0006,352,5006,987,7507,686,5258,455,178 6 Management fees0.500% 26,25028,87531,76334,93938,43342,276 D. Insurance Commissions 1 2nd to die policies40,00040,00040,00040,00040,00040,000 2 Annual increases00000 3 Insurance commission income40,00040,00040,00040,00040,00040,000 E. Other Income 1 Beginning assets under management44,800,00053,280,00062,608,00071,868,80081,055,68090,161,248 2 Ending assets under management53,280,000 62,608,000 71,868,800 81,055,680 90,161,248 99,177,373 3 Average assets under management49,040,00057,944,00067,238,40076,462,24085,608,46494,669,310 4 Other income as a % of assets under mgt.0.200% 98,080115,888134,477152,924171,217189,339 F. Total Income518,042610,446706,516801,042893,872984,834 Implied growth17.8%15.7%13.4%11.6%10.2% Source: Created by Jack DiFranco.

Assets in Qualified Plans

Because of the policy of offering special discounts to these institutions, these assets are assumed to generate average management fees of 0.50 percent (line C-6), and the ending assets under management for the six-year period under review are presented on line C-4.

Other Income

Although MDA is primarily an investment management company, it does provide other services. Chief among them are insurance, financial planning, and consulting services. After considerable discussions it was decided that the sim- plest way of estimating this source of income is to assume that “other income”

will equal 20 percent of assets under management (E-4).

Total Income

Total assets under management (average) are presented on line E-3 and total projected annual incomes during the six-year period are presented on line F.

Discounted Cash Flow Analysis

The next step in the valuation process is the application of the DCF analysis to the estimated FCF of the practice. This analysis is presented in Table 22.2. The salient features of this analysis are now presented.

• First, estimated income figures calculated in Table 22.1 are presented on line 1. Second, subtracting normal expenses (lines 2–8), and interest and taxes (lines 11 and 13), we arrive at net income estimates (line 14). Then, after various adjustments, we arrive at distributable cash flow for the six- year period (line 18).

• Third, a discount rate of 22 percent is selected for discounting the cash flow, because the assumed risk premium included in this rate appears to reflect the risk associated with the operating this practice. Using this rate, the present value of distributable cash flows for five years are presented on line 20.

• For the sixth year a capitalization rate of 19 percent is used by subtracting a residual growth rate of 3 percent from the 22 percent rate used as the present value factor. The present value of the resideal flow is presented on line 29.

• Finally, adding the two present values together, the total operating value, which also equals the business enterprise value, is presented on line 32.

Given that here is no interest-bearing debt, the fair market value of MDA

Table 22.2Discounted Cash Flow Method For the Year Ending Year 1Year 2Year 3Year 4Year 5Residual 1Income$518,042$610,446$706,516$801,042$893,872$984,834 Expenses 2Salary and related benefits119,726125,713131,998138,598145,528149,894 3Executive compensation181,315213,656247,281280,365312,855344,692 4Occupancy costs40,06741,26942,50743,78245,09646,449 5Professional fees23,78324,97226,22027,53128,90829,775 6Fixed expenses60,19763,20666,36769,68573,16975,364 7Variable expenses13,96116,45119,04021,58724,08926,541 8Depreciation0 0 0 0 0 0 9Total expenses439,048 485,267 533,413 581,549 629,645 672,714 10Earnings before interest and taxes78,994125,179173,103219,493264,227312,120 11Interest expense0 0 0 0 0 0 12Earnings before income taxes78,994125,179173,103219,493264,227312,120 13Income taxes (15,108) (32,070) (50,760) (68,852) (86,298) (104,977) 14Net income63,88693,109122,343150,641177,928207,143 Adjustments 15Add: depreciation 000000 16Less: Capital expenditures000000 17Less: additional working capital 0 0 0 0 0 0 18Distributable cash flow63,88693,109122,343150,641177,928207,143 (Continued

(Continued) For the Year Ending Year 1Year 2Year 3Year 4Year 5Residual 19Present value factor22.0% 0.9054 0.7421 0.6083 0.4986 0.4087 20Present value of distributable cash flow$57,840$69,096$74,418$75,108$72,715 21Total present value of cash flows (years 1 to 5) 349,177 29Present value of residual cash flow445,551Residual cash flow$207,143 30Total operating value794.728 Residual capitalization rate 31Plus: nonoperating assets 0Discount rate22.0% Less: residual growth rate–3.0% 32Business enterprise value794,728 Capitalization rate19.0% 33Less: interest-bearing debt0Residual cash flow value 1,090,226 34Marketable, controlling-interest value of equity794,728Present value factor0.4087 35Rounded$800,000Present value of residual cash flow$445,551 Source: Created by Jack DiFranco.

is calculated at $800,000 (rounded) and presented on line 35, the expected cash flow of the firm.

Transaction Structure

There are several ways of structuring a transaction between the buyer and the seller. The buyer may choose to make a cash payment to the seller to consum- mate the sale. The sale can also be structured with the consideration paid on an earn-out basis. Here, the buyer would pay the seller some percentage of reve- nues or profits over a time.

Another method is the seller financing all or a portion of the purchase price with a note to be paid over an amortization period. It is usual for a transaction to be structured with one or more of the features discussed earlier (e.g., a cash down payment, with a seller note and a contingent earn-out for some up-side).

Because of their unique nature as a service business, sales of financial planning practices often require some creativity and flexibility. To illustrate, our hypothetical example involves a sale to management. Under this scenario, the sale calls for 100 percent seller financing. The payment terms of the note will be tailored to track the cash flow generated by the business.

Structural Example

Step 1. The analysis begins by repeating in Table 22.3, line 1, earnings before interest and taxes (see line 10 in Table 22.2). These amounts are adjusted as follows:

1. Estimated compensation for Executive 1 (line 2) and Executive 2 (line 3) are added back to arrive at the adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization).

2. Interest expense (line 5) and intangible amortization (line 6) are deducted to arrive at earnings before taxes (line 7).

3. From the figures calculated in point 2, taxes are deducted (line 8) and amortization is added back (line 10). Now we have total cash flow after tax.

Step 2. The agreed upon value for the transaction is $800,000. The payment schedule is presented on lines 17 through 22. The principal payments are shown on line 18. Interest payments on the unpaid balance, calculated at 9 percent, are presented on line 20.

Annual payments to the seller, spread out over a six-year period by mutual con- sent, are on line 22. These payments were selected to provide a degree of cushion.

Table 22.3Proforma Cash Flow Analysis For the Year Ending Year 1Year 2Year 3Year 4Year 5Year 6Year 7 1Earnings before interest and taxes$78,994$125,179$173,103$219,493$264,227$312,120$321,483 2Executive 1 compensation181,315213,656247,281280,365312,855344,692355,033 3Executive 2 compensation55,00057,75060,63863,66966,85370,19573,705 4Adjusted EBITDA315,309396,586481,021563,528643,935727,007750,221 5Less: interest expense(67,500)(57,375)(45,000)(30,375)(13,500)(2,250) 6Less: intangible amortization(66,667)(66,667)(66,667)(66,667)(66,667)(66,667)(66,667) 7Earnings before taxes181,142272,544369,354466,486563,768658,090683,554 8Distribution for taxes40%(72,457)(109,018)(147,742)(186,594)(225,507)(263,236)(273,422) 9After tax earnings108,685163,526221,613279,892338,261394,854410,133 10Add back amortization66,66766,66766,66766,66766,66766,66766,667 11Total cash flow after taxes175,352230,193288,279346,558404,927461,521476,799 12Less: min. executive distributions10%(50,000)(55,0001)(60,500)(66,550)(73,205)(80,526)(88,578) 13Net available cash125,352175,193227,779280,008331,722380,995388,221 14Less: principal amortization(100,000)(125,000)(150,000)(175,000)(200,000)(50,000) 15Net cash flow (cushion)25,35250,19377,779105,008131,722330,995388,221 16Debt Amortization; 17Beginning balance800,000700,000575,000425,000250,00050,000 18Less: principal amortization(100,000)(125,000)(150,000)(175,000)(200,000)(50,000) 19Ending balance700,000575,000425,000250,00050,0000 20Interest expense9%67,50057,37545,00030,37513,5002,250 21Principal amortization100,000125,000150,000175,000200,00050,000 22Total payments to Seller167,500182,375195,000205,375213,50052,250 23Aggregate payments to Seller$1,016,000 Source: Created by Jack DiFranco.

The total payment by the buyer to the seller, which includes the sale price of

$800,000 plus interest, equals $1,016,000 (line 23).

True Net Cash Flow

The two critical questions for the buyer of a financial planning practice are:

“What is the true bottom line?” and “After meeting all the overhead obligations, can the practice make the payments associated with the sale and generate a reasonable profit?” While these questions are addressed in Table 22.3, the results of this analysis are demonstrated more clearly in Table 22.4 for the first year of the projection. A brief discussion of the items included in this table for the first year now follows.

The analysis begins by restating the total income for Year 1, taken from Table 22.1, line F. From this amount, office expenses of $202,733 are deducted to arrive at the cash flow after expenses. Office expenses are calculated as follows (see Table 22.2):

Total Expenses (line 9) $439,048

Less Executive #1 Compensation (line 3) $181,315 Less Executive #2 Compensation $55,000

Total Expenses $202,733

The compensation of $55,000 for Executive #2 is included in the salaries and benefits figure of $119,726 (line 2). This is what is called the adjusted EBITDA.

From adjusted EBITDA, following items are deducted: (a) Interest on the unpaid Table 22.4 Free Cash Flow

Income $518,042 (Table 22.1, line F)

Less office expenses before

Executive compensation $202,733

Income after office expenses $315,309 (Table 22.3, line 4)

Less interest expense $67,500 (Line 5)

Less principal amortization $100,000 (Line 18)

Less tax payments $72,457 (Line 8)

Cash flow before executive distributions $75,352

Less min. executive distributions $50,000 (Line 12)

Net cash flow (cushion) $25,352 (Line 15)

Source: Created by Jack DiFranco.

balance of the sale price, $67,500; (b) Payment of principal, $100,000; and (c) Tax payment on the profit of the practice, $72,457. This amount equals the cash available before distributions to Executive No. 2. Distributions of $55,000 to this executive results in a net cash flow of $25,352 (Table 22.3, line 15). This is the net profit for running the practice, or it can be called the cushion available for meeting an unexpected contingency.

Incidentally, starting with year seven, after the debt relating to the sale of the practice is liquidated, the buyer will have the potential for making a decent profit on the investment. Still, over the first six years, much would depend upon how the business is run and the ingenuity of the buyer to take this practice to a higher level of profitability and excellence.

In this chapter the real-world case study presented to determine the value of a practice justifies the claim that special skills, good judgment, and an appre- ciation of the biases and idiosyncrasies of both the buyer and the seller are required for the successful sale of a financial planning practice.

Index

A.M. Best Company, 130 accountant(s), 17–19 active income, 471

adjustable life insurance policy, 105

age-weighted profit sharing plans for retirement, 568–570

aggressive growth funds, 341

alimony maintenance payment, 744–746 alternative minimum tax (AMT), 494–497

adjustments or preference items, 496–497 computation of, 495

definition of, 494 American dream, 4

American Exchange (AMEX), 360

American Institute of Certified Public Accountants (AICPA), 28

American Opportunity Credit (AOC), 316–317 American Recovery and Reinvestment Act, 315–316 American Tax Relief Act of 2012 (Tax Relief Act), 474, 642 annuity

calculation of, 58–59 definition of, 58 due

future value, 60–61 present value, 61–62 future value of, 58 present value of, 62 asset allocation funds, 342–343 asset allocation model (AAM), 414–416

steps involved in, 418–419 use by investor, 441–443 asset allocation strategy, 304–305 asset reallocation, 304–305 Attorney, 17–18

auto dealers, 280

automatic savings plans, 269

automatic teller machines (ATMs), 276 average client, 13, 760

average cost method, 407–408 balanced/equity income funds, 342 bank, meaning of, 279

bankers, 17, 19, 281, 784 bankruptcy, 3, 253, 278

how to avoid, 288–290

modern interpretation, 287–288

Bankruptcy Abuse Prevention and Consumer Protection Act of 2005, 289–290 benchmark method, 133

benefit payments, 158, 161–162 blue chip stocks, 336, 361

Blue Cross and Blue Shield (BC/BS) health insurance plan, 165

bond ratings, 335, 383 bond risk, concept of, 379 bond yield, 381

Brochure Rule, 31

budgeting assumptions, 36 Bush, George W., 178, 679 business expenses, 139, 206, 471 business organization

amendment of tax return, 530 corporate executives, 527–528 professionals, 528

S corporations, 528–529 sole proprietorship, 527 tax audit, 530

business uses of life insurance

business protection when lost key employees, 138–146

facilitation of transfer of business ownership buy–sell agreements, 136–137

insurance for professional, 138 key employee life insurance, 137 bypass trust, 665

call option with stock sale, 403 callability risk, 381

callable bonds, 334

capital asset pricing model (CAPM), 410–411 capital gain(s)

and sale of residence, 476 tax calculation, 477 capital gains and losses, 474

computation of, 476–477

capital maximization strategy (CMS), 150–156 capital needs analysis, 121–123, 146–148, 150 cash flow analysis, 255

statement of, 258 steps involved in, 256–257 cash flow management, 254, 261 cash flow planning, 257, 261

cash management, 68–73 objectives of, 250 planning

budgeting, 254–255 meaning of, 253–254

cash value life insurance, 142, 313, 728 cash-value or permanent insurance policies,

97–99

Certified Financial Planner (CFP) Board of Standards, 8, 20, 22–26, 35, 40, 42, 45, 47, 785 Charitable Lead Trust, 673–674, 774

Charitable Remainder Annuity Trust (CRAT), 673, 679 Charitable Remainder Trust (CRT), 510, 674

Charitable Remainder Unitrust, 673 charitable trust, 18, 108–109, 662, 673 Chartered Financial Analyst (CFA), 19 Chartered Financial Consultant (ChFC), 21 Chartered Life Underwriter (CLU), 21 child and dependent care credit, 492, 736 child tax credit, 494

client(s), 3, 8–9, 31–33. See also Engagement, financial ability to fund insurance premiums, 124

circumstances, 34

common denominators, 13–16 emerging, 13

financial welfare, 48 goals, 120–121 lifetime, 10

prospective, 12, 28–29, 31, 45 -specified assumptions, 36 closed-end funds, 339, 359–362 collateral assignment method, 140–141 college debts, reduction of, 321–322 college education, 291

costs, 292–293 investing for, 294

saving for cost of, 295–297 saving plans

Coverdell ESA, 297–299 Section 529 of IRC, 299–304 UGMA and UTMA, 296–297 college funding calculation, 308–309 college funds, best places to invest in, 302 college savings plan, 296–304

commercial banks, 276–277, 279–280, 330 commercial insurance companies, 165–166, 169 common stock

features of, 336 types of, 336–338

community property states, 634–636 comparative insurance policy cost, 132–136

competence of financial planner, 20–23 compounding, 49, 52–54, 56

comprehensive financial planning elements of

action plan, 718–719

analysis of core planning areas, 717–718 appendices, 719

client circumstances and plan assumptions, 716–717

conclusion, 719 cover letter, 715

disclaimer statement, 491 engagement letter, 715 executive summary, 716 introduction, 715

summary of client goals, 716 table of contents, 715 software, 719–720

comprehensive health insurance, 171–172 Consolidated Omnibus Budget Reconciliation Act

(COBRA), 1985, 177 constant ratio plan (CRP), 400–401 consumer credit

based on consumer faith, 281 meaning of, 278

sources of, 279–280

consumer debt, meaning of, 279 consumer finance companies, 279 convertible bonds, 334

coordination, financial planners, 17–20 corporations taxation

Roger and Carol Kurt’s 2015 federal income tax analysis, 499

schedule of, 497

cost of attendance (COA), 308–309

Coverdell Education Savings Account (Coverdell ESA), 297–299

credit, 10, 15, 19, 48, 127 categories of, 283–285 counseling, 289 history

factors influencing, 281–282 importance of, 281

protection of, 282–283 -oriented society, 189 rating standards, 281–282 types of, 283

unions, 279–280

credit for retirement savings contributions, 493–494 cross-purchase agreement, 137, 703

Crummey trust, 680–682, 684

current assumption whole life, 101–102

current income, 111, 122, 129, 142, 341–343, 349, 438 current yield on bond, 383–384

cyclical company stocks, 338 data, financial

assumption and analysis development, 35–37 debentures, 333–334, 471

debt

burden of, 286–287

limit calculation worksheet, 287 planning, 249, 286–290 debt restructuring technique, 257 default risk, 334–335, 381

Defense of Marriage Act (DOMA), 763 defensive stocks, 338

deferment, 314 deferral

with after-tax dollars, 514–515 with pre-tax dollars, 512–514 deferred variable annuity, 363–365 Deficit Reduction Act of 2005, 178

defined benefit plans for retirement, 564–568 defined contribution plans for retirement, 554–564 dental expense insurance, 172

direct consolidation loan, 315 disability benefits

filling of gaps, 199 taxation of, 197

disability income insurance, 190–191 contract, 192–194

group and individual, 195–196 loss sharing, 191–192

disability insurance policy selection, 201

disability-to-long-term-care conversion policies, 210 discharge, 180, 213, 289–290, 314

discounted cash flow (DCF) analysis, 799, 804–805 discounting, 54–55, 57, 121, 740, 790, 804 distribution rules for retirement, 570–572 diversification, power of, 411–412

dividends, 62, 95, 107, 110–111–113, 471–474 divorce process

alimony maintenance payment definition of, 744–745 modification in, 746 types of, 745

child custody and support, 746–747 equitable distribution of property, 728 property and debt, division of

career assets, 743–744 debt allocation, 744

marital property, 739–740 personal residence, 742 property division, 741–742 retirement assets, 742–743 valuation of property, 740

dollar cost averaging (DCA), 269, 365, 382–383, 399–400

domestic partners, 763, 772–775

durable power of attorney (DPOA), 631–633, 699, 737, 768

durable power of attorney for health care (DPAHC), 631–632

dynamic asset allocation model, 421, 461, 465 dynasty trust, 683–684

earned income, 293, 296, 471 credit, 492–493

Economic Growth and Tax Relief Reconciliation Act of 2001, 573

economic life cycle, 13, 15

Economic Recovery Tax Act (ERTA) 1981, 654 education

cost of future, 292–293 credits, 22, 493

financing cost of, 308–309 itemized deductions for, 316–317 savings report, 324–326

tax benefits for, 318

tax credits and itemized deductions for, 316–317 Education Bond Program, 305

educational investment alternatives, instruments of, 305–308

educational planning, 73–75, 29 educational tax incentives, 315–318 effective interest rate, 63–64 efficient frontier portfolio, 413–414 efficient portfolio theory, 409–410

Employee Retirement Income Security Act (ERISA), 549 employer-provided educational assistance, 306, 315,

483

employer-sponsored qualified plans, 512 endorsement method, 140–141

endowment life policy, 101 engagement, financial

letter for, 31–32

qualifying potential client, case studies, 27–31 enrolled agents (EAs), 18

equitable distribution, concept of, 739 equities, trading in

buying of stock, 396–397 stock selling, 397–398

equity return, 385–387 equity risk, 387–389

limiting, 399–403

equity-indexed annuity (EIA), 366–367 estate planning process

advanced strategies, 706–708 common misconceptions, 623 computation of

federal estate taxes, 641–648 state inheritance tax, 648–649 data requirements, 632

distribution of, 633 for business process

business purchase agreement, 703–704 installment sale, 702

private annuity, 702–703 guardian for minor children, 633

in real world, traditional strategies, 708–710 issues in

estate liquidity, 700

federal income tax considerations, 700–701 stepped-up basis rules, 701

survivorship life insurance, 701–702 objectives of, 624

probate, 696–697

solve financial problems created by death, 622 tools of, 624–625

joint ownership, 634–641 lifetime gifts, 640–641 will, 625–634

trusts, 638–640

unauthorized practice of law, 621–622 estate preservation and distribution strategies

probate, 696–697

revocable living trust, 697–699 standby or convertible trust, 699 trust for minor children, 699 the will, 695–696

estate tax reduction strategies Crummey trust, 680–682

dynasty trust leveraging GSTT exemption, 684 family limited partnerships, 675–678

generation-skipping transfer tax (GSTT), 682–683 joint ownership

advantages, 656 disadvantages, 657–658 planning strategies, 658–659 lifetime gifts

calculation of, 660–661 disadvantages of, 662–663

estate with and without, 663–664 planning ideas involving, 661–662 marital deduction, 654–656

split dollar arrangement, 684–685 sprinkling trust, 680

trusts

estate taxes and, 665–675 irrevocable gift trust, 675 wealth replacement trust

covering estate taxes, 679–680 replacing gifted assets, 679 estate trust, 670–671

ethics

commitment by financial planning professionals, 23

definition of, 23 Eurodollar Futures, 371 exchange-traded futures, 371

exchange-traded index funds (ETFs), 357–358, 360 exclusive provider organizations (EPOs), 165–168 expected family contributions (EFC) for college costs,

297

expense needs vs sources of income, 123 family

expected contribution to education cost, 308–309 income policy, 109

patterns, changing scenario in, 3–4 preparation

basic needs, 704 bills payment, 705–706 locating important pages, 706 preparing wife for major tasks, 705 survivors, 706

family limited partnerships (FLPs), 675–678 Federal Deposit Insurance Corporation (FDIC), 129 federal estate taxes, 91, 624, 641–648

Federal Insurance Contributions Act (FICA), 179 Federal Reserve Board (FED), 427

federal taxable income computation of, 470–471

gross income calculation, 471–481 financial aid for education, forms of, 309–313 financial future, demands of, 3

financial planners, 13–14, 17–22

additional information collection by, 34–35 to assist clients reposition cash flow, 254 avoid authorized practice of law, 621–622 goals of, 444–446

restrictions imposed on, 11

financial planning management corporate structure, 785–796 external environment, 782–785 labor intensive, 781, 783

written business plan blueprint, 782 financial planning process

art of, 12

built on cash flow management, 254 communication of recommendations, 42–44 coordination with other professionals, 17–20 definition of, 9

elements of, 40 implementation of, 44

monitoring and review of, 44–45

professional and regulatory standards, 45–47 recommendations of, 39–42

science of, 11–12

since the end of World War II, 13 steps involved in, 9–10

subject areas of, 10

financial stability of insurance policy holder, 129–131 first-in, first-out (FIFO) method, 407

first-to-die insurance policy, 109 Fitch Ratings, 130

fixed income (bond) funds, 342 fixed income investments

bond ratings, 335

certificates of deposits (CDs), 330 corporate bonds, 333–334

marketable government issues, 330–331 municipal bonds, 332–333

nonmarketable government issues, 331–332 rights, 335

savings accounts, 329 warrants, 335

fixed-income security return, 378–379 fixed-income security risk, 379–384

flexible spending arrangement (FSA), 503–504 forbearance, 314

forgotten deductions, 502–503

Free Application for Federal Student Aid (FAFSA), 313 future value of fixed sum, 49–54

gender equality, 3

general obligation bonds, 332

generation-skipping transfer tax (GSTT), 682–685, 694, 709, 774

government health care insurance, 165–166, 169 graduated payment, 314

grantor retained annuity trust (GRAT), 685–688

grantor retained unitrust (GRUT), 685–688 gross estate, 643–646

gross income

adjustments to, 482–484 calculation of, 471–481 group disability policy, 196

group health insurance policy, 155, 175–177, 612 group life insurance policy, 138–139

growth and income funds, 341 growth company stocks, 337 growth funds, 341

guaranteed bonds, 333–334 hard assets, 446, 457–458

health care, 19, 35, 179, 186, 249, 338 coverage, 38

inflation pressure on, 208 licensed practitioner, 115 organizations, 165–169 taxation of benefits, 188 US expenditure on, 164 health insurance

contract provisions, 173–175 coverage of US citizens, 174–175 group and individual, 175–176 planning process, steps in, 189–190 policy selection, criteria for, 188–189 sources of, 166

types of, 169–173 worksheet, 211

Health Insurance Portability and Accountability Act (HIPAA), 1997, 174, 177, 205–207, 209

health maintenance organizations (HMOs), 165–168, 170, 173–174, 177, 181, 189–190

health plan organizations, 165–169 high income taxpayers, 475, 485, 494 home owner contract policy

coinsurance, 212 coverage of, 217 deductibles, 212–213 elements of, 212 forms of, 213–219 insured amount, 213 loss sharing, 212–213 major provisions under

endorsements, 221–222

insured, definition and locations, 219–220 specialty forms of insurance, 222–223 unscheduled personal property, 220–221

NATURE AND STRUCTURE OF ENGAGEMENT

COLLECT QUALITATIVE AND QUANTITATIVE DATA