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TABLE OF CONTENTS
Engagement Letter . 3
Wilkinson Family Profile ... 5
Statement of Financial Position .. 6
Statement of Income and Expense . 7
Distribution of Income/Expenses . 8
Financial Ratios .... 9
Recommendations .. 12
Question 1 .. 13
Question 2 .. 14
Question 3 .. 15
Question 4 .. 16
Question 5 .. 17

Merit Brand Financial

800 W Campbell Rd
Richardson, TX 75080
10/25/2014

Mr. & Mrs. Wilkinson

1359 Drury Ln.
Dallas, TX 75252
Dear Mr./Mrs. Wilkinson:
Thank you for the opportunity to meet with you. We welcome the opportunity to work with
you as your financial planner. This engagement letter outlines the specific terms of the
financial planning engagement between:
Merit Brand Financial, Sarah Wilkinson, Todd Wilkinson
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.
Please be assured that all information that you provide will be kept strictly confidential.
During the financial planning engagement we may, on occasion, be required to consult with
other third-party professionals at which time we would obtain your written permission to
disclose your personal information.
These services will include:

Developing a summary of your current financial situation, including a net worth

statement, cash flow summary, and insurance analysis.

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.

Referral to other professionals, as required, to assist with implementation of the

action plan.

Assisting you with the implementation of the financial plan.

Determining necessity to revise your financial plan.

This will be an on-going professional relationship. At a minimum, we will meet on an annual
basis to ensure the plan is still appropriate for you. 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.

Our services will be charged on a flat-fee basis. We agreed on a fee of $4,500.00 for the first
year of service. This includes development and delivery of your financial plan, unlimited
email communication and a review meeting in January 15th, 2014. Please provide a check for
$4,500 with a signed copy of this engagement letter. You agree to pay any outstanding
charges in full within 15 days of billing. Please make checks payable to MERIT BRAND
FINANCIAL. Please be advised that we do not receive a referral fee from any other
professionals to whom you may be referred.
In order to ensure that the financial plan contains sound and appropriate recommendations,
it is your responsibility to provide complete and accurate information regarding pertinent
aspects of your personal and financial situation including objectives, needs and values,
investment statements, tax returns, copies of wills, powers of attorney, insurance policies,
employment benefits, retirement benefits, and relevant legal agreements. This list is not allinclusive and any other relevant information should be disclosed in a timely manner. It is
your responsibility to ensure that any material changes to the above noted circumstances
are disclosed to us as your financial planner on a timely basis since they could impact the
financial planning recommendations.
We have no known conflicts of interest in the acceptance of this engagement. We commit
that we will advise you of any conflicts of interest, in writing, if they should arise. We
acknowledge our responsibility to adhere to the standards established in CFP Boards
Standards of Professional Conduct. This includes placing your interest ahead of our own
when providing professional services. In addition, since this engagement includes financial
planning services, we are required to act as a fiduciary as defined by CFP Board. You can
learn more about CFP Boards ethical requirements at www.CFP.net
We look forward to working with you and helping you reach your financial goals.
Sincerely,

Merit Brand Financial

Todd/Sarah Wilkinson:
I accept the terms of this engagement letter.
_________________________________

________________________________

Wilkinson Family Profile

Todd Wilkinson
Age: 35
Occupation: Sales Executive for Insurance Firm (Full-Time)
Annual Gross Salary: $96,000
Filing Status: Married (Jointly)
Sarah Wilkinson
Age: 28
Occupation: Community College Teacher (Part-Time)
Annual Gross Salary: $72,000
Filing Status: Married (Jointly)
Children
Unnamed Child, age 8
Unnamed Child, age 3
Both attending daycare

Statement of Financial Position

Todd and Sarah Wilkinson
Balance Sheet as of December 31, 2013
ASSET
Current Asset
JT
Checking
JT
Saving Account
JT
Bank CD
Total Current Asset
Investment Assets
T
401(k) Plan
T
Roth IRA
S
401(k) Plan
JT
Brokerage Account
Total Investment Assets
Personal Use Assets
JT
Primary Home
Jewelry
2007 Jeep Patriot
Boat
Furniture
Harley Davidson
2010 Infiniti E35
Total Personal Use Assets
Total Assets

LIABILITIES AND NET WORTH

Current Liabilities
BB National CC
Sears CC

$2,000
$2,300
$3,000
$7,300.00

$108,657
$4,295
$65,581
$3,700
$182,233.00

$271,980
$3,500
$9,000
$8,000
$12,300
$21,000
$38,500
$364,280.00
$553,813.00

$5,237
$6,200

Total Current Liabilities

$11,437.00

Long Term Liabilities

Primary Mortgage
T
Student Loan
Jeep Auto Loan
Harley Davidson Loan
Infiniti Loan
Total Long Term Liabilities

$178,000
$37,380
$8,500
$18,000
$42,000
$283,880.00

Total Liabilities

$295,317.00

Total Net Worth

$258,496.00

Total Liabilities and Net Worth

$553,813.00

Percentage

Actual vs Benchmark
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%

Current
Asset

Investment
Assets

Personal
Use Assets

Current
Liabilities

Long-Term
Liabilities

Net Worth

Benchmark Low

5%

0%

55%

10%

40%

8%

Actual

1%

33%

66%

2%

51%

47%

Benchmark High

20%

30%

90%

20%

72%

50%

Statement of Income and Expenses

Todd and Sarah Wilkinson
Statement of Income and Expenses for 2013
CASH INFLOWS
Salary - Sarah
Salary - Todd
Interest income

Totals
$72,000
$96,000
$1,440
Total Cash Inflows

CASH OUTFLOWS
Savings
Todd's 401(K) Contributions
Sarah's 401(K) Contributions
Cash Savings Contribution
Todd's Roth Contributions
Dividend Interest Reinvestment
Total Savings
Debt Payments
Mortgage (PITI)
Infiniti Payment
Jeep Payment
Harley Payment
BB National Credit Card Payment
Sears Credit Card Payment
Student Loan Payment
Total Debt Payments

$169,440.00

$3,600
$3,600
$7,200
$2,760
$1,440
$18,600.00

$21,324
$5,376
$3,360
$2,100
$2,340
$2,400
$3,360

Living Expenses
Cable
Alarm system
Internet
Gas
Cell Phone
Water
Entertainment
Child Care
Home Repairs
Groceries
Dining out
Hobbies
Club Dues
Dry Cleaning
Charity
Landscaping
Maid
Parking and Tolls

$1,260
$468
$1,200
$3,600
$1,560
$960
$4,800
$14,400
$2,400
$6,000
$4,800
$3,600
$1,800
$1,920
$4,200
$3,600
$4,800
$540
Total Living Expenses

$40,260.00

Insurance Payments
Auto Insurance
Life Insurance

$61,908.00

$3,216
$1,200
Total Insurance Payments

$4,416.00

Total Taxes (FICA and INCOME TAX)

$9,600.00

Total Cash Out Flow (Savings, Expenses and Taxes)

$134,784.00

Taxes

NET DISCRETIONARY CASH FLOW

$34,656.00

Distribution of Income/Expenses
Income Distribution
Yearly Amount
Savings
$18,600
Debt Payments
$40,260
Living Expenses
$61,908
Insurance Payments
$4,416
Taxes
$9,600
Net Discretionary Cash Flow
$34,656
Total Income
$169,440
Monthly Living
Expenses
Expense
Groceries
Dining out
Ultilities
Home Maintenance
Entertainment
Charity
Transportation
Child Care
Others
Total

Yearly
Monthly
$6,000
$500
$4,800
$400
$5,448
$454
$10,800
$900
$10,200
$850
$4,200
$350
$4,140
$345
$14,400
$1,200
$1,920
$160
$61,908
$5,159

Financial Ratios
Emergency Ratio Fund:

Current Ratio:

Savings Rate:

Debt Assets and Net Worth Ratios:

Housing Ratios:
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Recommendations and Analysis

Emergency Fund Ratio:
EFR determines the number of months the client can pay non-discretionary cash
flow with current liquidity.
The EFR is typically 3-6 months.
With the current assets and non-discretionary expenses given, you would be able to
pay for your expenses for 1.54 months.
We recommend that you increase your current assets (i.e. deposit more into your
checking, saving, and bank CD).
Current Ratio:
The current ratio provides insight into your ability to meet short-term obligations as
they come due. A larger ratio implies more liquidity.
Currently, you will only be able to pay off 64% of your current liabilities with your
current assets.
We recommend that you increase your current assets (i.e. deposit more into your
checking, saving, and bank CD) or decrease your current liabilities.
Housing Ratio 1:
HR1 calculates the percentage of gross pay that is devoted to basic housing.
Your HR1 indicates that you can qualify for a conforming rate when considering
refinance.
Housing Ratio 2:
Combines HR1 with all other monthly debt payments.
Your housing situation is currently good. You can improve this ratio by paying more
than the minimum payments (i.e. loans, credit cards).
Savings Rate:
Savings rate is calculated by dividing gross savings, any other savings, and employers
contributions by gross pay.
Per recommendation as you are within the age range of 20s to 30s you are
currently on track to retirement. It is our recommendation that you increase your
contributions to your IRA and 401Ks.
Please note that the maximum annual amount for those under the age of 50 for
401K and IRA contributions are $17,500, $5,500 respectively.
Debt to Total Asset Ratio:
This ratio conveys the percentage of assets that is owned by creditors.
Our recommendation is to reduce your total debt in order to decrease your debt to
total asset ratio of 53.2%.

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Net Worth to Total Asset:

The percentage of total assets owned. Typically, a young client has a net worth to
total asset ratio of 20%.
Moving forward, you should work on increasing your net worth by investing in a
diversified portfolio or other long-term investments.

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Question 1
A Certified Financial Planner Practitioner charges fee for various arrangements. He/she can
charge by hourly rate, a flat fee, commission on investment/insurance products sold, or a
percentage of the assets managed. The type of fee structure greatly depends on what fits
the clients and their needs. Please read the engagement letter carefully to see our mutual
agreement in regard to fees. In order to become a CFP, the first step is to obtain a
bachelors degree (in any discipline). Second step is to complete CFP board registered
educational program (18 semester hours). Third step is to sit for and pass the CFP
certification exam. Future CFPs must earn three years of work experience in financial
planning and report to CFP -could opt for two-year apprenticeship as an alternative- before
getting licensed. You can rest assured that we are qualified to help you. Fiduciary
responsibility entails putting clients interest before the planners. We will keep your best
interest in mind while we work together.
Question 2
All important household records should be stored at locations where you can access them in
case of an emergency. We recommend that you create a filing system. Please note that you
should organize your financial records by active, dead storage or discard filing status. A
financial document with an active designation means that if you need to use these
financial documents on a regular basis. A document that you have not referred to in over 3
years but may still need should to be stored is considered dead storage. Lastly, if there are
documents that you no longer need or have updated them, then you should discard/shred
these documents. There are different ways to physically store your financial documents.
One method of storage is by using a safe deposit box. Another option would be a
fireproof/waterproof safe easily accessible in your home. A riskier but the most accessible
option would be to keep your financial records on your computer. It is suggested that you
keep your financial records to yourself and not share them with anyone else.
http://www.usa.gov/Topics/Money/Personal-Finance/Managing-Household-Records.shtml
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/How-long-should-I-keeprecords
http://www.bankrate.com/finance/personal-finance/how-long-to-keep-financialrecords.aspx

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Question 3

Using the Monthly Mortgage Payment Comparison graph, your current monthly payment
(principal, interest, taxes and insurance) is $1,777. We have broken the figure into the
amount that you pay towards principal and interest ($1,277.32) and taxes and insurance
($499.68) If you do choose to refinance your home, please consider the following
implications of each option. Under a 15-year refinancing option, the principal and interest
portion would increase from $1,277.32 to $1,375.79. However, one benefit of the 15-year
option would be paying off the mortgage faster and paying less accumulated interest as
compared to your current mortgage and the 30-year refinancing option. Under the 30-year
refinancing option, the principal and interest portion would decrease from $1277.32 to
$940.70. This could open up some cash that you could apply towards other debt payments
or to deposit into your savings account. On the other hand, it would take longer to pay off
and the amount of accumulated interest would be higher than the 15-year refinancing
option.

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Question 4
A split limit policy of $50k/$100k/$50k can be understood as the maximum liability that
your insurance will cover. The first $50k figure means that $50,000 would be paid for bodily
injuries to each person. The $100k figure is the amount of bodily injuries that would be paid
to all persons per accident. The last $50k figure is the amount of all property damage that
would be paid per accident. The $500 deductible would apply in a situation in which they
possible incurred a collision and sustained damages to their automobile. The insurer would
deduct $500 from the claimed expenses for repairs. Say that your mechanic quotes repairs
for a collision at $2,000. Your insurer will only cover $1,500 because they can deduct $500
from the total repairs. Their dwelling insurance can be understood that their insurer is only
insuring their homes value as replacement cost subtracted by depreciation. Their personal
property, on the other hand, is covered by replacement cost which is not affected by
depreciation.
Question 5

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