Prepaid expenses benefit both businesses and individuals. Prepaid expenses are the types of expenses that are bought or paid for in advance. Examples of these are insurance, rent and subscriptions. In general accounting, these are the supplies or services that the company has acquired but has not used during a specified accounting period. As they are consumable supplies and services, they are different from the company’s inventory. Unused supplies or services are recorded as assets, while the used or consumed parts of the supplies or services are recorded as expenses. However, in government accounts, they are usually treated under the purchase method. This means that the supply or service is listed as an expenditure instead of an asset.

For individuals, prepaid expenses provide many benefits. On the practical side, for example, it is best to fully pay for a service or product ahead of time, especially if it is an expense that you cannot avoid. For example, if you cannot live without your health insurance, you will want to pay it in advance just to make sure that you will not miss your payment. Another benefit of prepaid expense is savings. One good example is prepaid college plans, or the 529 Plan. A prepaid tuition plan allows you to buy units of tuition in advance. You can pay for several units or one or more semesters of tuition in a college or university of your choice at the present rate. In other words, you will be paying today’s tuition fee rate regardless of when your child attends the university. Considering that tuition fees increase at a rate of 28%, inflation adjusted, if you open a 529 plan ten years before your child goes to college, your savings will be quite significant. It is the same with other prepaid expenses, such as prepaid maintenance costs for cars. The price is locked in, so you avoid the rising cost of the product or service, similar to a 529 plan. Despite the benefits, there are other things to consider before paying in advance, such as whether the company will be able to provide the service or product in the future.

For businesses, prepaid expenses basically offer the same benefits in terms of savings. Aside from savings, there is also the benefit of tax deductions. Many businesses, in fact, prepay some of their future expenses if they need additional business deductions. However, there are various rules as to how you, the business owner, can use your prepaid expenses for tax deductions. One of the basic rules is that you cannot deduct the prepaid expense in the current year. Therefore, if you paid maintenance for your vehicles for five years, you can only deduct a portion of the tax deductible this year and not the entire deduction. Businesses therefore consider the accounting implications of using the prepaid expenses before making the decision to use them in order to take advantage of the tax deductions for the fiscal year.

Co-founder and current chief executive officer (CEO) of Google Larry Page has been paid an annual salary of only $1 every year since the company went public. Though the practice of limiting the top executive’s salary is not widespread, Page is not alone. His long-time partner and Google co-founder Sergey Brin also earns a $1 salary, as do Oracle Corporation’s Larry Ellison, Hewlett-Packard’s Meg Whitman and Facebook founder Mark Zuckerberg.

Despite his virtually non-existent salary, Page has profited immensely from his company. His net worth is estimated at around $44 billion.

CEOs such as Page typically have such large stock holdings that they can afford to make the largely symbolic gesture of accepting only $1 as a paycheck. In most cases, cash compensation, or salary, is only a small component of overall executive compensation packages. More profitable elements of compensation take the form of stock, stock options and performance-based awards.

Large stock compensation is intended to incentivize performance. Page’s foregoing high pay in favor of holding a large equity stake suggests that he is looking out for shareholders. Since his wealth increases only if the stock’s value increases, his interests are more aligned with the company’s success.

Taking pay in the form of equity in the company, options and stocks, though, provides personal benefits to Page. It also carries lower tax liability. Income tax rates are around 35%, whereas capital gains taxes usually are around only 15%.

Aside from the required examination admission ticket, current valid international travel passport, approved calculator, and approved writing instruments, the CFA Institute states that you can also bring:

• Manual pencil sharpeners
• Erasers
• Loose calculator batteries (and a screwdriver for battery replacement if needed)
• Calculator cases and keystroke cards
• Eyeglasses (but no eyeglasses cases)
• Earplugs
• Wristwatches with alarms and timers silenced (smartwatches are not allowed)

Finally, the following personal items are allowed in the examination room, but must be kept off your desk and in your pockets or under your chair when not in use:

• Wallet/Coin purse
• Medicine and other necessary medical items
• Gum, hard candy, cough drops
• Eyeglasses case
• Keys

These items may not enter the examination room:

• Backpacks, handbags, tote bags, clear plastic bags, pencil cases and any other form of baggage
• Highlighters, correction tape or fluid, and rulers
• Food and drinks
• Study guides, textbooks, scrap paper (or paper of any kind)
• Calculator manuals, present or future value tables, scratch paper, or any other academic materials
• Any type of weapon
• Electronic devices such as a cell phone, pager, computer, PDA, camera, etc.
• Any desk clock or timer

CFA Institute provides a work experience self-assessment to help you determine whether or not your experience might qualify you to become a member. 

You must have spent at least 50% of your time utilizing financial data or supervising or teaching those who utilize financial data for financial analysis, investment management or other typical financial decision-making processes. Additionally, your employment with the stated job title must have been full-time. Accrued employment from summer, internship and part-time positions do not qualify.

Sample Questions From CFA Institute Self-Assessment

Here are a couple of the questions to give you an idea of what they are looking for:

• “Do you spend a majority of your time constructing or rebalancing client portfolios, preparing financial models, or performing/evaluating independent analysis leading to an investment decision?”
• “Do you determine capital structure and funding needs through equity, debt, and alternative investments, conduct long-range financial planning, evaluate financial fundamentals, analyze and value securities for public offerings or mergers and acquisitions, and/or make asset sales and capital investment decisions?”

CFA Institute warns that passing the self-assessment does not automatically mean you will be accepted as a member, it is only a guide. Once you have taken the self-assessment, you can create an account and apply.

(For related reading, see: So, You Want to Earn Your CFA?)

More often than not, employers offer employees benefits above and beyond an agreed-upon wage or salary. In addition to a paycheck, employees receive compensation by way of fringe benefits. These company perks can include group life, health and disability insurance options; dependent care; tuition reimbursement or education assistance; and retirement plan contributions and matching contributions. Common fringe benefits such as these are tremendously beneficial to employees, but offering these perks as a bonus can be an advantage to the employer as well.

Recruiting Talent

In the current economy, new businesses are starting up each and every day. With a great deal of competition among similarly focused companies, employers can find it challenging to attract quality recruits based on salary alone. When employers offer bonus compensation through common fringe benefits and benefits that may not be available through a competitor, it has a greater chance at recruiting the level of talent in prospective employees it needs or wants.

Retaining High-performing Employees

Competition can present an issue for a number of companies, not only in the realm of product or service similarity or mission focus, but also in terms of employee retention. Employees who are newer to the workforce are more likely to have the technological prowess that makes them a target for recruitment from competition, while more seasoned employees can be attractive to competing businesses for their knowledge of a specific industry. Employers wanting to retain high-quality talent are then incentivized to offer employees more than just an increase in salary or hourly wage each year. Fringe benefits can play a vital role in keeping current employees content with their work environment, while keeping the competition from poaching top talent.

Financial Advantages

One of the greatest incentives for employers when it comes to offering fringe benefits to employees is the financial advantage a company can reap. The majority of common fringe benefits are not treated the same as conventional compensation through wages or salary, and therefore can present an opportunity for tax deductions for employers. For instance, if an employer offers a health insurance plan for which it pays the majority of the plan premiums for its employees, those premium payments are generally tax deductible as an insurance expense for the employer.

Additionally, offering fringe benefits instead of an increase in annual salary or hourly wage can be much less taxing on a company’s bottom line. For example, offering employees a discount on fitness center access or a transportation stipend each month does not take away a great deal of capital for the employer. These low-cost benefits save employers from the vast expense of increased wages each year while providing employees a benefit they can easily use and appreciate. Common fringe benefits offer a great deal of leverage for employers as recruitment, retention and cost-savings tools.

A blackout period is a period of at least three consecutive business days, but not more than 60 days during which the majority of employees at a particular company are not allowed to make alterations to their retirement or investment plans. A blackout period usually occurs when major changes are being made to a plan.

For example, the process of replacing a pension plan’s fund manager may require a blackout period to allow for necessary restructuring to take place.

What Are the Rules?

The Securities and Exchange Commission (SEC) has set rules to ensure that employees are not at a disadvantage during a blackout period. The SEC prohibits any director or executive officer of an issuer of any equity security from purchasing, selling or otherwise acquiring or transferring securities during a pension plan blackout period.

In addition, the SEC has established rules requiring the issuer to notify the director or executive officer when imposing a blackout period.

The purpose of these rules is to prevent insider trading that could otherwise occur during the period when changes are being made. Insider trading is illegal when material information about a company has not been made public and has been traded on. This is because the information gives those having this knowledge an unfair advantage.

However, the financial security of employees who are unable to make changes during a blackout period may be jeopardized. Therefore, SEC regulations stipulate that employees must receive advance warning about the occurrence of blackout periods.

A rainmaker is any person who brings clients, money, business or even intangible prestige to an organization based solely on his or her associations and contacts. Traditionally, the term “rainmaker” has been applied to members of the legal profession, like attorneys-turned-politicians who retired from public life (forcibly or otherwise) and went on to practice law at nationally recognized firms.

Over time, the term gained usage in many other industries and activities, including investment banking, political campaigning and public speaking. For example, former U.S. Vice President Al Gore’s association with the environmental movement caused numerous venture capital firms to add Gore as a partner in hopes that his “rainmaking” abilities would help them raise hundreds of millions of dollars for alternative energy initiatives.

In everyday usage, the term “rainmaker” can apply to anyone – from the salesperson who always finishes first in billings to the marketing guru who consistently finds innovative ways to present a company’s products. In the purest sense, a rainmaker is a difference-maker.

This question was answered by Justin Bynum.

Very simply, a trailing commission is money you pay an advisor each year that you own an investment. The purpose of the fee is to provide incentive for the advisor to review his clients’ holdings and to provide advice. But when it comes down to it, it is essentially a reward for keeping you loyal to a particular stock or fund.

So is it fair for an advisor to get a fee simply for keeping you, the investor, loyal? Let’s look at the situation.

An Automobile Analogy

Suppose you bought a car. It’s natural that, after the big buy, you also have to lay out money every year for maintenance, insurance and a host of other things. Now suppose each and every year you owned that car, the salesman who originally sold you the vehicle got a cut of the annual auto-related expenses that you were required to pay. Would it make you mad? After all, why should the salesman get a cut of the action given that he didn’t do anything once the car left the lot? And if he didn’t get it, would the fees go down for you?

Well, that’s how a lot of investors feel about trailing commissions.

Incidentally, fees vary depending upon the investment. However, it is not uncommon for the costs to range between 0.25% to 0.50% of the total investment per annum. That is huge! And remember that as the asset grows in value over time, it means that the advisor that initially sold the investment to you is making even more and more money.

How can you tell if you are paying a trailing commission to your advisor?

One way, quite simply, is to ask. If the advisor is ethical, he’ll probably answer the question in a straightforward manner. But if you’d rather do your own homework and find out on your own, consider reading the investment prospectus. And specifically take a gander at the footnotes under the heading(s) “Management Fees.”

Not Always a Bad Thing

They can be bad, but that depends on how you would like to look at it. On the one hand ,as suggested above, it seems offensive that an advisor might receive an income in perpetuity based upon a one-time initial investment. However, paying the advisor every year keeps them loyal to you, too. If the advisor is being paid for how well your stock does, he or she will also be actively reviewing your account, and making constructive suggestions – making the extra fee well worth it.

To learn more about fees, see “Paying Your Investment Advisor – Fees or Commissions?”