Financial advisor case study

The Stein Case Details

Benny and Jenny Stein have been referred to you by a friend for comprehensive financial planning. The Steins have a number of issues and concerns to resolve.

Personal Data

Benny Stein is 50. Jenny is 47. Both the Steins are professionals. Benny is a principal in a medium-size consulting firm, a professional corporation, and earns $100,000 in annual salary plus around $50,000 in bonuses each year. He anticipates remaining with the firm until retirement at age 67.

Jenny is a seasoned associate in a large law firm, earning $100,000 per year. She wants to stay with the firm and retire around the same time as Benny, but there are internal issues with her firm and rumors persist that some attorneys may be offered severance packages and the firm may close. If Jenny is terminated, she plans to establish her own independent law practice.

The Steins have 3 children: Sally is 24 and has one more year to complete medical school. Her education has been financed by her parents. Betty is 20 and a junior at Homestate University. She does not plan to study beyond her baccalaureate. Jason, age 10, has severe mental and physical impairments. There is no chance of him to live a normal and productive life. His life expectancy is another 20 years at most.

Financial Goals and Objectives

The Steins have discussed their financial goals and objectives with you. They are as follows:

· Provide for an adequate retirement.

· Optimize their investment portfolio.

· Revise their estate plan to ensure proper care for Jason.

· Evaluate their existing insurance program.

· Evaluate their current disability coverage.

The Steins have the following investment objectives and risk tolerance levels. Their priorities are listed in order as:

· Safety of principal

· Long-term growth

· Tax advantage

· Liquidity

· Future income

Economic Assumptions used in this case

Assumption	Data
Long-term inflation	3%
Education inflation	5%
Economic environment	Normal yield curve; moderate growth expected; Federal Reserve willing to maintain current rates
Refinancing costs	1% added to loan amount; 15-year rate is 4.5%; 30-year rate is 5.0%
New auto loans	5.6%
Medical school costs	$50,000 per year (current dollars)
Undergrad school costs	$30,000 per year (current dollars)
State income tax	4% of federal AGI
Federal income tax	Use rates supplied in class
Investment returns	6%

Assets

Asset	Ownership	Amount
Checking	JT	$6,000
Money Market Mutual Funds	JT	$19,000
U.S. Equity Mutual Funds	JT	360,000
Foreign Equity Mutual Funds	JT	$40,000
Balanced Mutual Funds	JT	$35,000
Apartment Complex	H	250,000
Limited Partnership	H	$12,500
401(k)1	H	$83,000
401(k) 1	W	$176,000
IRA1	H	$44,000
IRA1	W	$48,000
Consulting Practice	H	$100,000
Residence	T by E	$350,000
Personal Property	JT	$100,000
Automobile – Lexus	H	$30,000
Automobile – Honda	W	$10,000
Cash value of Life Insurance	H	$40,000
Cash value of Life Insurance	W	$5,000

H=Husband

W=Wife

JT=Joint tenancy with right of survivorship

T by E = Tenancy by the entirety

1Spouse is beneficiary

Liabilities

Credit cards (JT) $8,000

Education PLUS loan $22,000

Mortgage Balance $200,000

Income

Benny’s Salary $100,000

Benny’s Bonus $50,000

Jenny’s Salary $100,000

Net cash flow from apartments $30,000

Interest/Dividends (reinvested) $5,000

Capitan Gains (reinvested) $26,100

Expenses

Mortgage payments (P&I)	$24,000
Real estate taxes	5,000
Homeowners insurance	1,040
Federal Income tax	65,000
State income tax	10,500
Life insurance premiums	3,200
Disability insurance premiums	2,600
Automobile insurance premiums	2,800
Benny’s 401(k)	22,500
Jenny’s 401(k)	17,500
Food	4,800
Utilities	5,200
Telephone	1,840
Laundry	400
Clothing	3,600
Transportation Expenses	4,800
Car repairs	1,800
Home maintenance	2,300
Entertainment	10,000
Vacations	18,000
Education expenses	80,000

Life Insurance Information

Owner	Insured	Beneficiary	Type	Face Amt	Cash Value	Annual Premium
Benny	Benny	Jenny	Group Term	$100,000	$0	Employer Paid
Benny	Benny	Jenny	Whole Life	$100,000	$40,000 1% fixed loan rate	$1,900
Benny	Jenny	Children, equally	Whole Life	$50,000	$4,000 variable loan rate	$1,300
Jenny	Jenny	Benny	Group Term	$80,000	$0	Employer Paid

Disability Insurance Information

Insured	Type	Monthly Benefit	Waiting Period	Benefit Period	Annual Premium
Benny	Personal; guaranteed renewable	$2,500	90 days	To age 67	$1,800
Benny	Group LTD	$1,500	180 days	To age 65	Employer paid
Jenny	Personal; non-cancelable	$1,000	90 days	To age 67	$800
Jenny	Group LTD	$1,000	180 days	To age 65	Employer paid

Health Insurance Information

Insured	Type	Benefits	Coinsurance	Deductible	Premium
Husband & wife, children to age 25	Major medical	Unlimited	80/20 with $1,000 stop-loss	$500/person, $1,000/family per year	Employer paid (Jenny’s employer)

Retirement Plan Information

Participant	Maximum Contribution	Matching Contribution
Benny	Maximum allowed by law	None
Jenny	Maximum allowed by law	None

Estate Planning

Both Benny and Jenny have simple wills with testamentary trusts, durable powers of attorney, and living wills.