Question

Below is a case study of a fictional family named Berman. They represent a typical family in the wealth building stage of their financial life; two income earners saving for their future and education for their two children at the same time. The case study will allow you to practice analyzing a situation, using financial calculations and writing suitable recommendations. Begin by reading their background and start making note of the Berman’s goals and concerns.

Background:

Names:

Carl Berman (46), law school professor Matthew (14), son Naomi Berman (43), private junior high school principal Sarah (11), daughter

Financial situation:

Carl and Naomi have spent the majority of their working years focusing on being fiscally responsible with the healthy income they earn. They consider themselves “do it yourselfers” and have managed their money at local banks, Charles Schwab online and through their 401k’s at work. Their only financial relationship is with their State Farm insurance agent who is also their neighbor.

Carl is a professor at the law school at the local university. Naomi is the principal of a private junior high school. They have two children, Matthew (14) and Sarah (11) and they hope to pay for their full college experience out of the savings they have been tucking away for the last ten years.

When they were first married, Carl and Naomi enjoyed a great deal of travel and leisure. Since their children were born they have made saving for the future their primary focus. Now, as they are entering their mid-forties with stable income, very good health and a net worth of over a half a million dollars, they are beginning to ask themselves if they are on track. They have found themselves wondering if fully financing their children’s education is truly possible.

They currently own a home in Harrisonburg, VA valued at $450,000 and dream of one day owning a home in the historic district of the city. They would also love to own a small cabin in the Blue Ridge Mountains of Virginia where they could enjoy the outdoors during retirement. To this point, they have saved money for these accumulation goals into various accounts without any direction from a financial advisor. They are uncertain how much of their savings and future income must be allocated to each of these goals to make them attainable.

A co-worker of Carl’s recently passed away leaving his family with very little life insurance. They do not want to fall victim to the same fate should something happen to one of them. They also have a very good understanding of the time value of money and agree that a loss of income, even temporary, could have a dramatic impact on the progress toward attaining their goals. They would like an advisor’s recommendations on whether their current life and disability insurance coverage is adequate.If Carl was to pass away he wants Naomi to still be able to fund all of their goals. If Naomi passes, Carl wants the kid’s education covered but would not purchase the cabin. In the event of a disability, they agreed that a reduction of current lifestyle would be priority, but would like to have the income replacement to remain on track with their goals. The Berman’s were also embarrassed to admit that they have not yet drafted the appropriate estate documents.

Carl and Naomi were introduced to you by a friend of theirs, a current client of yours, who invited them to your retirement seminar that you hosted. After agreeing to a face-to-face meeting at your office, they prepared the following summary of their financial data and returned it to you.

The written plan should include the following:

• Assess the clients’ current financial condition.
• Identify the major Strengths, Weaknesses, Opportunities, and Threats.(SWOT)
• Identify and disclose specific assumptions used in analyzing each goal andneed.
• Discuss the resolution of any conflicts between the clients’ goals and needs, and the ability to satisfy them due to financial or otherconstraints.
• Identify the extent to which other professionals are required to implement anyrecommendations.
• Identify the recommendations you would make to the clients and how to implement them

Answer 1

A) Client's current financial condition

Carl Berman (46) and Naomi Berman (43) possess a good and stable financial position.

Since they have mentioned that when they got married, they enjoyed a great deal of travel and leisure and that might have taken a great deal of money but since their children were born i.e., from 14 yrs they are doing constant savings for the future in banks.

Also they have made investments in Charles Schwab online which is an American multinational financial services company with US$3.3 trillion in client assets and 401k that is a qualified retirement plan that allows eligible employees of a company to save and invest for their own retirement on a tax deferred basis.

They also own a property in Harrisonburg, VA valued at $450,000. From this we can understand that Mr. and Mrs. Berman has an average financial condition.

B)

Major strengths include following aspects:

i) Both are having job which makes them financial stable.

ii) They have got retirement plans for themselves which eliminates the factor of dependency in future.

iii) They have a got a property so they dont have to depend on their children.

iv) They are still having further plans and an ideology of financing their children which make them great parents.

v) They have also done insurance which shows how much safety concious they are.

Major Weakness includes:

i) They have not done any life insurance or health insurance which can be a great factor after some years.

ii) They have not yet drafted the appropriate estate documents yet.

iii) By now, they should have consulted some financial advisors because the investment done is a risky asset and it depends on market fully whether they have profit or loss. Rather they could have diversed their investments.

Major Opportunities:

i) Still they have time to have a Life or Health insurance.

ii) They can also invest in mutual funds which possess a guaranteed return.

Major Threats:

i) If any one of them passes away or get any serious health problem all sudden one of the bread winner will have to take all the financial burden.

ii) Their investment in Charles Schwab, can be profitable or loss depending on the volatality of market.

C) Assumptions for each Goal and need:

i) The basic and major assumption is both husband and wife will be constantly working and earning and keep saving. Their jobs are kind of foundation to all their plans.

ii)  They planned to own a small cabin in the Blue Ridge Mountains of Virginia where they could enjoy the outdoors during retirement which is agin based on their prominent earning.

iii)  If Carl was to pass away he wants Naomi to still be able to fund all of their goals. If Naomi passes, Carl wants the kid’s education covered but would not purchase the cabin.

iv) In the event of a disability, they agreed that a reduction of current lifestyle would be priority, but would like to have the income replacement to remain on track with their goals.

D) Resolutions include following steps that are important for them.

i) Apart from their savings and property and retirement plant they dont have any guaranteed refundable asset which will provide them higher return and will be risk-free. So, its advisable to have their investments majorly in two places i.e, health insurance and mutual funds. Even if they retire at the age of 60 they have 17 yrs and those return can help them with their dream of cabin or any emergency of health.

ii) They can go for an alternative option in order to fund their children's education by buying a land at a considerable cost and since they are aware of time valuse of money, within five years the price of land may increase if not double at half of what they will invest.

iii) They can also use it for their children if one wants to start bakery or any small scale business or they can start a farm and run it after retirememt for a income. In other words buying land won't be a loss.

iv) They can also buy shares and have dividends for a future period.

E) Different professionals have different areas of knowledge and ideas.For Engineers they plans are mandatory to follow, For doctors' its important to listen to them or it may risk life, for defence it is important to follow them as it for our security and safety. Similarily, Finacial Planning and inancial advisor's recommendation is also important and so they develop and work accordingly so as to ensure a proper and simple financial stability Plan.

i) They Identify and evaluate financial planning strategies.

The financial planning professional considers one or more strategies relevant to the client’s current situation that could reasonably meet the client’s objectives, needs and priorities.

The financial planning professional identifies alternative strategies for achieving the client’s confirmed objectives. The financial planning professional evaluates the ability of each strategy to reasonably address the client’s objectives, needs and priorities.

This evaluation may involve discussing with the client the importance, priority and timing of the client’s objectives and needs; considering multiple assumptions; and/or conducting research or consulting with other professionals. This process may result in a single strategy, multiple strategies or no change to the client’s current course of action.

Strategies and consequences identified by the financial planning professional may differ from those of other practitioners or advisers, illustrating the subjective nature of exercising professional judgment.

ii) They develop the financial planning recommendations.

The financial planning professional develops the financial planning recommendations based on the selected strategies to reasonably meet the client’s confirmed objectives, needs and priorities.

After identifying and evaluating various strategies and the client’s current course of action, the financial planning professional develops financial planning recommendations that can reasonably meet the client’s objectives, needs and priorities. The recommendations may be an independent action or a combination of actions which may need to be implemented collectively.

The recommendations developed by the financial planning professional may differ from those of other practitioners or advisers, yet each may reasonably meet the client’s objectives, needs and priorities. It is important that this part of the financial planning process be sufficiently documented.

iii) They present the financial planning recommendations to the client.

The financial planning professional presents the financial planning recommendations and the supporting rationale in a way that allows the client to make an informed decision. When presenting the financial planning recommendations, the financial planning professional helps the client understand the client’s current situation.

The financial planning professional avoids presenting his or her opinion as fact. The financial planning professional informs the client that the financial planning recommendations will likely need to be modified as the client’s personal, economic and other conditions change.

The financial planning professional discloses to the client any conflict(s) of interest not previously disclosed, and explains how such conflicts impact the financial planning recommendations. At this stage of the financial planning process, the financial planning professional can further assess whether the financial planning recommendations meet the client’s expectations, whether the client is willing to act on the recommendation(s), and whether modifications are necessary.

iv) Agree on implementation responsibilities.

The financial planning professional and the client agree on implementation responsibilities that are consistent with the scope of the engagement, the client’s acceptance of the financial planning recommendations, and the financial planning professional’s ability to implement the financial planning recommendations.

v) They identify and present products and services for implementation.

The financial planning professional investigates and recommends products or services that are suitable to the client’s financial situation and reasonably address the client’s objectives, needs and priorities. The financial planning professional uses professional judgment in identifying the products and services that are in the client’s interest. Professional judgment incorporates both qualitative and quantitative information. Solutions identified by the financial planning professional may differ from those of other professionals since more than one product or service may meet the client’s needs. The financial planning professional makes all disclosures to the client required by applicable regulations. Recommendations regarding products or services may be presented concurrently with the financial planning strategies and recommendations.

F) Recommendation and Implementation :

i) Firstly, calculate the net worth for your assets and riskfree savings and investments.

ii) Secondly, Try to get a broader knowledge about investment and increase your investments towards riskfree plans because you are already running with some plans. Profit of lower amount will be more satiable at this point rather than loss of a single penny.

Like buying a land or having a high return mutual fund or investing on shares paying high dividend

iii) Have Health insurance or Life Insurance, it's must to have. While doing Life insurance go for endowment life insurance.

iv) Limit your extra expenses from now ownwards.

v) Procure an FD, that will be helpful in future anytime, at any emergency for health purpose or education or marriage or any accident.