1. Engagement Letter
Wealth Assurance LLC,
1805 W. Campbell Rd
Richardson, TX 75080
October 1st, 2013
Dear Mr. /Ms. White:
Thank you for the opportunity to meet with you. This letter will confirm the terms of our
agreement regarding the financial planning services we will provide for you.
This engagement letter outlines the specific terms of the financial planning engagement
between:
Wealth Assurance LLC, Ms. Skyler White and Mr. Walter White.
Engagement Objectives
The primary objective of our engagement is to review and analyze your personal
financial situation and make recommendations for your financial plan. This review will
identify your personal financial goals and objectives, and will include possible strategies
to achieve them. Our analysis and recommendations are based on information provided
by you.
If the scope or terms of the financial planning engagement change, they should be
documented in writing and mutually agreed upon by all parties to the engagement.
Activities
 Developing a summary of your current financial situation, including a net worth




statement, cash flow summary, and a financial ratio analysis.
Developing a mortgage refinancing strategy, including financial projections and
analysis.
Providing detailed answers to your questions about the CFP profession and
FDIC policies.
Determining necessity to revise your financial plan. Presenting a written financial
plan that will be reviewed in detail with you. It will contain recommendations
designed to meet your stated goals and objectives, supported by relevant
financial summaries.
Developing an action plan to implement the agreed upon recommendations.
CLIENT LASTNAME
Page 2 of 2
Fees
My services will be charged on a flat-fee basis of $1,500.00 which is due and payable
upon return of this Engagement Letter. This includes development and delivery of your
financial plan, unlimited email communication and a review meeting in October 2013.
Please provide a check for $1,500.00 with a signed copy of this engagement letter.
If additional conferences and interactions are beyond the scope of the services stated
above, our fee for this service is based upon the time necessary to complete the
additional agreed upon tasks. The agreed time allocated to accomplish additional tasks
will be billed at our rate of $50.00 per hour.
Either party may terminate this agreement by notifying the other in writing. Any fees
incurred prior to date of termination will be payable in full.
I have no known conflicts of interest in the acceptance of this engagement. I commit
that I will advise you of any conflicts of interest, in writing, if they should arise. I
acknowledge my responsibility to adhere to the standards established in CFP Board’s
Standards of Professional Conduct. This includes placing your interest ahead of my own
when providing professional services. In addition, since this engagement includes
financial planning services, I am required to act as a fiduciary as defined by CFP Board.
You can learn more about CFP Board’s ethical requirements at www.CFP.net
I look forward to working with you and helping you reach your financial goals.
Sincerely,
Name of CFP® Professional
CFP® Professional:
Client:
I accept the terms of this engagement letter.
I accept the terms of this engagement letter.
_________________________________
________________________________
CLIENT LASTNAME
Page 2 of 3
2. Summary (need more info here)
Client: Walter White
Age: 45 years old
Salary: $63,600
Client: Skyler White
Age: 28 years old
Salary: $30,000
Marital status: Married
Children: Two children, age 16 and 1
Family’s net cash flow:
Family’s net worth:
Total debt:
Client(s) have adequate homeowners’ insurance: Yes
Client(s) have adequate vehicles’ insurance: Yes
Client(s) have life insurance:
Client(S) have education savings: No
3. Balance sheet
Footnote:
Note: for the current liability, we strongly believe that the Principle amounts of loans
which due in the next 12 months will go under this category. Because it will reflect the
true amount that clients need to prepare in the short term in their emergency fund.
Assume that the CD has a term of 12 or less months
Statement of Financial Position - The White Family
As of 12/31/2011
Asset
Current Asset
Checking
CD
Savings Account
Total Current
Assets
Liability and Net Worth
Current Liability
$
$
$
2,000.00
2,000.00
2,300.00
BB National CC
Sears CC
Personal Residence
Student Loan
$
$1,617.28
$1,880.16
$3,554.14
$502.09
6,300.00
Total Current
$7,553.67
CLIENT LASTNAME
Page 2 of 4
Liability
Investment Assets
401(k) His
401 (k) Her
Brokerage Account
Roth IRA
Dividend
Investment
$ 87,368.00
$ 37,581.00
$ 3,700.00
$ 7,298.00
Long-term Liability
BB National CC
Sears CC
Personal Residence
$
$
$
Infiniti E35
2007 Jeep Patriot
Harley Davidson
Student Loan
$ 42,000.00
$ 10,000.00
$ 18,000.00
$36,497.91
564.00
Total Investment Assets
$ 136,511.00
3,619.72
8,319.84
$176,444.38
Personal Use
Assets
Primary Home
Furniture
Boat
Jeep Patriot 2007
Harley Davidson
Infinity E35
Jewelry
$
$
$
$
$
$
$
278,900.00
12,300.00
8,000.00
12,000.00
21,000.00
44,500.00
6,500.00
Total Personal Use Asset
$ 383,200.00
Total Assets
$ 526,011.00
Assets = 100%
Cash & Cash Equivalents
Investment Assets
Personal Use Assets
$ 6,300.00
$ 136,511.00
$ 383,200.00
$ 526,011.00
Total Long-term
Liability
$
294,881.85
Total Liability
$302,435.53
Total Net Worth
$
223,575.47
Total Liability and Net Worth
$526,011.00
Liabilities & Net Worth
1% Current Liabilities
26% Long-term Liabilities
73% Net Worth
100%
$7,553.67
$ 294,881.85
$ 223,575.47
1%
56%
43%
$ 526,011.00
100%
CLIENT LASTNAME
Page 2 of 5
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Too much asset is allocated in Personal Use Assets (benchmark is 25%-60%).
There is not enough Cash and cash equivalents to prepare for emergency
situations.
-
You have too much long-term liabilities (benchmark is 48%)
4. Statement of income and expenses
Statement of Income and Expenses
Mr. and Mrs. White
CASH INFLOWS
Skyler's Salary
Dividend/Interest Income
Walter's Salary
$
$
$
30,000.00
564.00
63,600.00
Total Cash Inflows
CASH OUTFLOWS
Savings
Walter's 401(k) Contributions
Skyler's 401(k) Contributions
Cash Savings Contributions
Walter's Roth Contributions
Dividend/Interest Reinvestment
$ 94,164.00
$
$
$
$
$
3,600.00
3,000.00
3,600.00
1,440.00
564.00
Total Savings
Debt Payments
Mortgage Payment (PITI)
Infiniti Payment
Jeep Payment
Harley Payment
BB National Credit Card Payment
Sears Credit Card Payment
Student Loan Payment
$ 12,204.00
$
$
$
$
$
$
$
21,324.00
5,376.00
2,880.00
2,520.00
2,340.00
3,660.00
3,360.00
Total Debt Payments
Living Expenses
Cable
$ 41,460.00
$
1,440.00
CLIENT LASTNAME
Page 2 of 6
Alarm System
Internet
Gas
Cellphone
Water
Entertainment
Child Care
Home Repairs
Groceries
Dining Out
Hobbies
Club Dues
Dry Cleaning
Charity
Landscaping
Maid
Parking and Tolls
non-discretionary
non-discretionary
non-discretionary
non-discretionary
non-discretionary
non-discretionary
non-discretionary
non-discretionary
non-discretionary
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
468.00
1,200.00
4,440.00
1,560.00
960.00
4,800.00
16,800.00
2,400.00
6,000.00
4,800.00
3,600.00
1,800.00
1,920.00
4,200.00
3,600.00
4,800.00
480.00
Total Living Expense
Insurance Expenses
Life Insurance
Auto Insurance
$ 65,268.00
$
$
1,680.00
2,016.00
$
3,696.00
Total Insurance Expense
Taxes
FICA and Income Tax
$
Total Taxes
Total Savings, Expenses and Taxes
NET DISCRETIONARY CASH FLOW
4,236.00
$
4,236.00
$
126,864.00
$
(32,700.00)
CLIENT LASTNAME
Page 2 of 7
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As you can see from the pie chart depicted above, your top 3 spending areas are
living expenses, debt payments and savings.
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Assuming that the debt payments and savings are discretionary expenses that
you cannot avoid on a daily basis, we took a closer look at items in your living
expenses.
-
According to the living expenses break down bar graph, the largest portion of
your living expenses goes to child care and groceries which are discretionary.
CLIENT LASTNAME
Page 2 of 8
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However, expenses incurred for maid, dining out and entertainment are the third
largest and non-discretionary expenses that can be reduced or avoided. We will
talk more about this in our recommendation section.
5. Ratio analysis
Liquidity Ratios
Emergency Funds =
Current Ratio =
Deb Ratios
Housing Ratio 1
Housing Ratio 2
Debt to Total Assets
Net Worth to Total Assets
Ratios For Financial Security Goals
Savings Rate
Investment Assets to Gross Pay
6. Mortgage Refinance
Loan amount
Annual interest rate
Number of monthly
payments
Loan payment
Tax and insurance
Mortgage payment
Current
Mortgage
$200,000
6.6%
Option 1: 15 years
at 4.6%
$183,500
4.6%
Option 2: 30 years at
5.2%
$183,500
5.2%
360
$1,277.32
$499.68
180
$1,413.16
$499.68
360
$1,007.62
$499.68
$1,777.00
$1,912.84
$1,507.30
CLIENT LASTNAME
Page 2 of 9
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Both refinancing options will have lower interest payments than the current
mortgage payment. We stronly recommend you to refinance.
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Even though the 15-year option has lower total interest, we recommend the 30year option because your housing ratios are high.
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This option will lower both your monthly mortgage payment and your housing
ratio (I and II) and provide you with more flexibility over the long run.
CLIENT LASTNAME
Page 2 of 10
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At the beginning, a large portion of your payments go to pay for interests. The
faster you pay, the less you pay for interests. When your housing ratios get
better, we recommend to increase your payment whenever possible.
7. Answers to customers’ questions
a. What qualifications and responsibilities does a CFP have? What are the fee
structures like to work with a CFP?
b. Could you explain what “a split limit policy of $50k/$100k/$50k and deductible
of $500” mean? Could you provide more guidance on our homeowners’
insurance policy?
-
A split limit insurance policy means that you have different coverage limits for
bodily injury liability and property damage liability.
-
You have a policy of $50k/ $100k/ $50k. The first $50,000 is the maximum
amount the policy will pay for for any one person’s injuries. The maximum
amount paid for all bodily injuries (no matter how many people are involved) is
$100,000. The last $50,000 is the maximum amount paid for property damages.
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Their home insured 100% of its cash value that mean the company will
reimburse amount equal to the price of their home at fair market value less
depreciation. They also had replacement cost coverage on their property which
mean the company will replace any lost or damage item with identical items or a
comparable item with no deduction to depreciation.
c. What can we do to make sure our settlement of $800,000 is protected from a
bank failure? How does FDIC work?
-
FDIC (Federal Deposit Insurance Corporation) functions like an insurance; if a
bank fails, they will insure deposits of up to $250,000 per depositor or institution
as long as the bank is insured under FDIC.
-
Scenario 1: The total amount of $800,000 can be fully insured by opening 3
different accounts within a bank that is a member of FDIC.
CLIENT LASTNAME
Page 2 of 11
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Accounts
Amount Insured
Walter Personal Account
$250,000
Skyler Personal Account
$250,000
Walter & Skyler Joint Account
$300,000
Scenario 2: The total amount of $800,000 can be fully insured by opening
accounts at 3 different FDIC insured banks.
Accounts
Amount Insured
Walter/Skyler Account at Bank A
$250,000
Walter/Skyler Account at Bank B
$250,000
Walter/Skyler Account at Bank C
$300,000
Therefore, the settlement amount of $800,000 can be fully protected from a bank
failure and stay liquid if Mrs. and Mr. White open 3 different accounts within one
FDIC insured bank (Scenario 1) or make deposits to 3 different FDIC member
banks (Scenario2.)
8. General recommendations to get out of debt
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As you (Walter) – the main income of the family – retires at age 62, your Student
Loan and Mortgage will not have been paid-off. In addition, based on the cash
value and payment of your student loan, the implied interest rate is 7.77%. This
is much higher than the average interest rate of 3.86%. We recommend your
family to follow the guidelines below to improve your financial situation:
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You should cut about half of your discretionary expenses. These, as pointed out
above, include ….
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You should refinance the house with the 30-year option because of lower interest
rate. After refinancing the house, if you are still able to make the same amount of
monthly payment of $1,777, you will be able to get out of debt in about 19 years.
(We do not recommend the 15-year option because its monthly payment is too
high for your current financial situation)
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You should sell your Harley Davidson. This will save you $210/ month on loan
payment, lower the premium on your insurance policy, and improve your liquidity.
CLIENT LASTNAME
Page 2 of 12
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With the $210 savings, you can pay increase Student Loan Payment by $100
and Sears Credit Card payment by $110.
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You need to endorse the home insurance from 100% actual cash value to the
replacement cost average.
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You should establish an education funds for your children.