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Nov 1993

PFP Partner: a tool for CPA financial planners. (software package) (Personal Financial Planning)

by Fasani, Robert L.

    Abstract- PFP Partner is the latest software offering from AICPA. Conceived with the sole purpose of automating certain workpapers in the AICPA Personal Financial Planning Manual, the package ended up not only achieving this purpose, but improving on the work product of the AICPA material as well. PFP Partner can be of considerable value to professional financial planners, particularly in the area of designing appropriate and reliable spreadsheet templates. Unbound from the tedium of this particular task, the planner is ultimately free to concentrate on assessing and developing sound advice and plan of action for clients. The software is divided into six sections: client information, financial statements, five-year projected statement of net worth, goal-funding computations and projections and insurance needs for life insurance and disability. The software can be bought at $495 with a 10% markdown for AICPA members.

Financial planning calculations and projections can be complex. For a CPA who enters the practice of financial planning, either experienced or as a neophyte, the development of suitable and reliable spreadsheet templates can be confusing and intimidating. Even planners that have been successful in developing templates or who have purchased them may find that they are constantly adapting and modifying the templates to accommodate the circumstances to each particular client. As a result, experienced and inexperienced planners alike may find that they become mired in the development of spreadsheets and in the "number crunching" aspects of the engagement.

The goal of PFP Partner is to increase the efficiency of this aspect of the engagement so that the planner can devote more time to analysis and the development of recommendations and an action plan for the client.

PFP Partner does not produce graphics or a text report for delivery to the client. Instead it automates the calculations and workpapers which become the basis for developing recommendations for the client. The plan itself can only be developed by a planner with the requisite knowledge, experience, and understanding of the particular needs of the client.

PFP Partner has the look and feel of a Windows program. However, it is a DOS application.

PFP Partner consists of the following sections:

* Client information

* Financial statements

* Five year projected statement of net worth

* Five year cash flow projection

* Goal-funding calculations and projections for--

- Education

- Retirement

- User-specified goals

* Insurance needs analysis for life insurance and disability

Each section or module can operate on a stand-alone basis to perform a quick calculation or projection. An education or retirement funding calculation and projection can be quickly completed. Alternatively, the planner may use any combination of the modules for a more integrated approach.

Client Information

The client information section of the program allows for the gathering of basic nonfinancial information. The only information that is essential to enter is the client's name and birthdate. If the education- funding module will be used, the children's names and birthdates are also essential.

Optional information includes addresses, telephone numbers, Social Security numbers, occupations, parent and grandchildren information, and information regarding the client's other advisers, such as attorney, banker, broker, and insurance agent.

Financial Statements

PFP Partner can generate a five year projected statement of net worth and a five year projected cash flow statement. For the five-year projected statement of net worth, the planner enters the current value of the client's assets and liabilities in predefined categories. Assets and liabilities can be entered in total for each category or, alternatively, the planner can open a worksheet to enter detail information for each item within the category. PFP Partner will then transfer the worksheet totals to the appropriate asset category. The planner must also enter a rate of appreciation or depreciation for each category or for each detail worksheet line, along with an income percentage. For assets that are entered in detail, PFP Partner will calculate a weighted-average rate of appreciation and income. For assets that are not expected to have a constant rate of appreciation or depreciation, the planner may enter specific amounts for each of the five years.

Each asset may also be earmarked for a specific goal-funding purpose. PFP Partner can then produce a report of earmarked assets along with weighted average appreciation and income percentages for that group of earmarked assets. These reports can be useful in determining appropriate input for the education, retirement, or other goal funding modules.

The earmarked assets are not linked with the funding modules. This promotes flexibility in the use of the program. For example, the client may own a closely held business that will be sold to provide an additional source of retirement income.


Income taxes on the sale and other selling expenses may substantially reduce the amount available for retirement below the current value of the asset as earmarked on the statement of net worth. The earmarked asset report allows the planner to consider these factors and then determine the appropriate input for the funding modules.

Input for the five year projected statement of cash flow is designed similarly to input for the statement of net worth. All investment income however, is automatically calculated based upon the asset values and the income percentages that are entered in the net worth statement. In addition, goal funding requirements as calculated in the education, retirement, or other goal funding modules may be posted to cash flow to be allocated to funding the client's objectives. Any remaining cash flow is reinvested on the statement of net worth.

Education Funding

In the education funding module the planner enters data pertaining to the current cost of college, the expected inflation rate for college costs, the number of years the child will attend college, and the after- tax rate of return on invested funds. In addition, the planner can specify any period of time over which funding is to take place. Based upon the data entered, PFP Partner calculates three different alternatives for funding the college cost--lump sum, fixed annual funding, and serial funding. In serial funding the annual funding amount increases each year by the inflation factor.

The planner may then view or print a funding table for any of the three funding results. The funding tables allow the planner to analyze and verify the results of the calculations as performed by PFP Partner. Exhibit 1 is an illustration of the funding table for the serial funding alternative.

Once satisfied with the education funding calculation, the planner has the option of transferring the result to the statement of cash flow, the statement of net worth, or both. The appropriate selection is determined by the manner of funding. For example, if the client will establish a custodial account for the children, the required funding should be posted against the client's cash flow but should not be included as an asset on the client's statement of net worth. Alternatively, if grandparents will fund education, it would not be appropriate to post the funding requirements to either the statement of cash flow or the statement of net worth.

Retirement Funding

The retirement funding module is comprised of three input screens. The three screens are retirement assumptions, needs, and resources. In the assumptions screen, the planner enters the client's anticipated retirement age and life expectancy, the average inflation rate, and the anticipated average tax rate during retirement. The planner may also enter an amount for a desired fund at the end of the life expectancy. This entry can be used to accommodate a client who wishes to provide a certain amount of inheritance to heirs or to provide a cushion in the retirement calculations. Like the education funding module, the funding period is flexible.

The retirement needs screen is comprised of the same income and expense categories as the cash flow input screen. Similar to the worksheet in the PFP Manual, the retirement needs screen uses two columns. The first column is for current receipts and expenses. If the planner has previously entered information in the financial statements module, the amounts from the cash flow section will automatically transfer to the current column of the retirement needs screen. The current column then serves as a reference point for determining the appropriate input for the second column--receipts and expenses during retirement years. As an alternative to entering an amount for each individual line, the planner may enter the net annual retirement need on any of the lines. In either case, the net need is then incorporated into the retirement calculation.

Finally, the planner must complete the retirement resources screen. In this screen the planner enters information regarding defined contribution plans and IRAs, defined benefit plans, Social Security benefits, and other retirement assets.

PFP Partner incorporates the information entered into the three screens to calculate the retirement funding shortfall, if any, and the serial annual funding amount to meet the retirement objective. There are 26 separate calculations that PFP Partner performs to determine the funding amount, yet the overall calculation is performed by the program nearly instantaneously. A retirement funding table may then be viewed on screen and printed so that the planner may analyze the result and verify the calculation. Because the planner has complete control over the funding period, the retirement module can also be used to quantify the additional resources that would be necessary to achieve financial security, or the point at which the client would no longer be required to work. This calculation can be performed by restricting the funding period to the current year and by specifying the retirement age as the age that the client will attain next year. In this manner, PFP Partner will calculate the additional lump sum that is necessary for the client to retire today. This may provide a different perspective from which to view the client's retirement objectives.

"What If" Funding

The three primary funding modules--education, retirement, and other goal funding, allow the planner to specify any range of funding periods and methods. This flexibility allows the planner to run numerous "what if" scenarios and accelerate or delay funding. For example, the client may be concerned both with funding education costs and funding their retirement. However, the client's resources and cash flow may not permit the client to concurrently fund both goals. The client and planner may determine that funding education is the primary objective. Retirement funding may then be revised to defer the funding period. PFP Partner can instantly calculate the effect of deferring the retirement funding period. The planner may then determine if the retirement objective still appears attainable. In this manner, competing and conflicting funding goals may be reconciled and resolved.

Life Insurance Needs

The life insurance needs section of PFP Partner is also comprised of three input screens. The screens are for assumptions, liquidity needs upon death, and income-continuation needs. PFP Partner's approach in determining life-insurance needs closely follows the worksheets illustrated in the AICPA Personal Financial Planning Manual. The planner can enter items that affect the client's income continuation needs during three very distinct phases of life. The first is the period until the youngest child is 18 years old. The second is the balance of the years until retirement and the third period is retirement. Similar to the retirement module, the planner also is also able to enter an amount for a desired estate for heirs. Based upon the income continuation needs, liquidity needs, and available resources, PFP Partner calculates the shortfall of assets for meeting future needs. This calculation is performed separately for the husband and wife to determine the life insurance need for each spouse. The planner may then view or print a proof table for verification and analysis.

Disability Insurance Needs

The disability insurance needs module of PFP Partner also closely follows the worksheet in the PFP Manual. The disability input screen has three columns. The first column is for the current level of income and expenses. Similar to the retirement module, if the planner has previously entered information for financial statements, the cash flow information will automatically transfer to the current column of the disability module. The other two columns are for entering the income and expense changes that would occur if the husband or wife became disabled. PFP then calculates the shortfall in income that would occur in the event of each disability. The planner then has a basis for advising the client on the appropriate amount of disability insurance to carry.

Using PFP Partner in Your Practice

Early users of the program have reported that PFP Partner does not represent a radical departure from the way that they are currently practicing financial planning. Users have, however, reported improved efficiency in their engagements as a result of automation and flexibility that PFP Partner provides. Moreover, many CPAs have reported using PFP Partner to generate new engagements. For example, some planners have used PFP Partner to quickly prepare education funding calculations while a client is visiting the CPA's office. The challenge of funding education can be quickly illustrated along with the further compounding of the problem that may result from procrastination in funding. This can immediately capture the client's attention and allow the CPA to follow up with additional planning issues and to establish an engagement for more comprehensive services.

Ordering information: AICPA Order Department 800-862-4272

Price: $495, with a 10% discount for AICPA members.

System Requirements: 386 processor (or higher) with 2MB RAM (520k free), EMS, 3 1/2" high-density drive, and DOS 5.0 or higher.

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