This document provides instructions and templates for a capstone project on superannuation and life insurance skills. It includes details on submitting the project, assessment criteria, and a case study on a married couple, Ted and Eliza Hardgraves, and their family's financial situation. The case study provides background on Ted and Eliza, their assets, debts, income, expenses, investment objectives, estate planning details, and requests for financial advice.
This document provides instructions and templates for a capstone project on superannuation and life insurance skills. It includes details on submitting the project, assessment criteria, and a case study on a married couple, Ted and Eliza Hardgraves, and their family's financial situation. The case study provides background on Ted and Eliza, their assets, debts, income, expenses, investment objectives, estate planning details, and requests for financial advice.
This document provides instructions and templates for a capstone project on superannuation and life insurance skills. It includes details on submitting the project, assessment criteria, and a case study on a married couple, Ted and Eliza Hardgraves, and their family's financial situation. The case study provides background on Ted and Eliza, their assets, debts, income, expenses, investment objectives, estate planning details, and requests for financial advice.
Superannuation and Life Insurance Skills (Capstone project)
FP3B-1SN3-2 Capstone project
Project Cover Sheet This document includes: student identification project instructions project submission instructions project result, result summary and feedback project checklist Case study Project sections (including fact finder templates, cash flow templates and managed funds calculations) Student identification (student to complete) Please complete the fields shaded grey. Student number INT###### Student name [name] Telephone number [phone no.] Project instructions Only Microsoft Office compatible projects submitted in the template file will be accepted for marking by Kaplan Professional Education (KPE). PDF projects will not be accepted. Do not delete/remove any sections of the template. The project must be COMPLETED before submitting it to KPE. The maximum file size is 5MB. Once you submit your project for marking you will be unable to make any further changes to it. You will have 12 weeks from the date of your enrolment in this subject to submit your project. Should your project be deemed not yet competent you will be give an additional 4 weeks to resubmit your project. Your project must be submitted to KPE on or before your project due date. Please check KapLearn for the due date. Project submission instructions Please refer to the Project submission/resubmission instructions (pdf) in the Assessment section of KapLearn for details on how to submit your project. Note: Assessors should double-click on the fields below to select the students result. Project result (assessor to complete) Result first submission Not Yet Competent Sections that must be re-submitted: [insert assessor feedback] Result re-submission (if applicable) Not Yet Competent Result summary (assessor to complete) First submission Re-submission (if required) Section 1 Not yet demonstrated Not yet demonstrated Section 2 Not yet demonstrated Not yet demonstrated Section 3 Not yet demonstrated Not yet demonstrated Section 4 Not yet demonstrated Not yet demonstrated Section 5 Not yet demonstrated Not yet demonstrated Feedback (assessor to complete) [insert assessor feedback] Superannuation and Life Insurance Skills Capstone project This project contains five sections based on the information provided on your clients, Ted and Eliza Hardgraves, and their family. Complete all sections. The following checklist is provided as a guide to ensure you have completed the project requirements. Project checklist (student to complete) Step Action Completed? 1. Read the Study Guide Go to the What you need to know section and read the advice in the Study Guide on preparing your project.
2. Familiarise yourself with the project Think about the project tasks while reading your learning materials and completing the activities and review questions.
3. Answer Sections 1 - 2 up to Section 2 Part F Ensure that you complete the fact finder for Section 2 Part A. 4. Answer Section 2: Part G Statement of Advice Follow the steps given in the Statement of Advice Preparation Checklist you must submit the completed checklist Use the family cash flow templates provided Use an Excel spreadsheet to prepare SOA Appendix 3.
5. Answer Sections 3 - 5
6. Upload your completed project. You must submit the following completed items in this template: the project cover sheet answers to all five project sections the completed Statement of Advice Preparation Checklist the completed Statement of Advice and appendices.
Case study Ted and Eliza Hardgraves Background You work for the financial planning company, B and N Pty Ltd, which is a licensed securities dealer and a registered life insurance broker. Your company specialises in investment, insurance and retirement planning advice but does not provide stockbroking, real estate evaluations and advice, income tax preparation, superannuation fund accounting, superannuation fund administration or the preparation of legal documents such as Wills or trusts. Ted Hardgraves is a successful senior geologist with an international mining company. He has been working for the same company for the last seven years and due to his success has recently received a significant promotion and pay rise. He believes there is potential for further improvement in his salary as well as growth prospects within the company. His wife, Eliza Hardgraves works part-time as a paralegal with the same company she worked for prior to having their children, Harriett and Bill. She has a good relationship with the owners of the firm and does not see any change in her current employment situation for the time being. Both Ted and Eliza are in good health and are non-smokers. They have private health cover for the family. Ted and Eliza have approached you for financial advice. They advise you that they are confused in regard to their financial situation. This has come about due to conflicting information they have read, which states that although they will be living longer, nearly half of all 40-year-olds will die over the next forty years. Also, their children have asked questions about the insurance plan advertisements they have seen on television which has raised concerns as to whether they have adequate insurance cover. Further, they want to make sure their children will be adequately provided for if something were to happen to them. They also believe they should have surplus income following Teds recent promotions and pay rises. They would like to save any surplus in the most tax effective vehicle for the long term. Both Ted and Eliza are concerned that if they have access to these funds they may spend them. Ted and Eliza would like to reduce their mortgage faster than the current repayment schedule and believe that this could help them to get ahead before they have to pay large school fees. Their current loan has a redraw facility. However; they enjoy their annual holidays and have an active social life, and want to make sure they have income available to continue these activities. Ted also advised you that his aunt, Jenny, recently died and he has inherited around $63,700 made up of $10,000 in cash and approximately $53,700 in shares. They have never considered owning shares before but Ted is keen to understand the share market and perhaps buy some shares. Ted is prepared to take some risks in order to accumulate wealth quickly. However, Eliza is more concerned about risk and does not wish to gamble any of their funds. Detailed below are Ted and Elizas current details. Personal information Surname Name: Hardgraves Hardgraves Christian Name: Ted Eliza Salutation Mr Mrs Age/Date of birth 28 March 1970 17 August 1971 Status Married Married Home address 4 Pringle Ave, Kensington 4 Pringle Ave, Kensington Health Good Good Smoker No No Occupation Senior Geologist Paralegal Employer Lemon Gold Pty Ltd Ranier and Jackson Start date 2004 2008 Sick leave currently available 14 days plus 10 days per annum 6 days plus 10 days per annum Retirement age 65 64 Dependants/Family relationships Harriett (aged 9 years) Bill ( aged 8 years) Professional relationships Solicitor Carlie Mattieson Time span of relationship 10 years Quality of relationship Poor Service provided Conveyancing for home purchase Accountant John Watson Time span of relationship 7 years Quality of relationship Excellent Service provided Annual tax return Annual income details Name: Ted Eliza Salary $140,000 $55,000 Inheritance - interest $510 Dividends (99% franked) $3,436 Notes: Ted and Elizas salaries exclude superannuation guarantee (SG) contributions, which are currently paid at 9% per annum. Annual expenditure Mortgage $37,800 General living expenses $50,400 Accountants fees $550 Donations $1,000 Holidays (annually) $11,000 Assets and investments Principal residence $650,000 Purchased 6 years ago for $550,000. Outstanding mortgage $470,000 joint names, variable rate 6.25% Contents $50,000 Joint names Car $18,000 Fully paid off joint names Savings Account $5,000 Everyday savings account paying no interest joint names Cash management account - inheritance $10,000 Cash management account earning 5.1% p.a. Teds name only ABC Superannuation - Ted $220,000 Invested in a retail fund, balanced option. No beneficiaries or binding nominations specified. The fund accepts salary sacrifice. SOH Industry Superannuation - Eliza $58,000 Invested in an accumulation industry fund, balanced option. The fund only has a defensive, balanced or high growth options available. No beneficiaries or binding nominations specified. The fund accepts salary sacrifice. Share portfolio $53,691 Dividend yield of 6.4% p.a. 99% franked dividends in Teds name only Current share portfolio Number of shares Company ASX Code Current Value (same as value at date of death) Price of Shares when acquired by aunt Jenny 500 AMP Limited AMP $2,158 $4.40 1,300 Insurance Australia Group Limited IAG $5,473 $1.75 400 Commonwealth Bank Limited CBA $22,052 $27.7 400 Telstra Corporation Limited TLS $1,552 $4.48 400 Westpac Banking Corporation WBC $9,900 $19.60 400 BHP Billiton Limited BHP $12,556 $11.41 All shares were acquired by the deceased after 1 January 1986 and prior to 1 December 2011. Investment objectives They have rated their investment objectives, using a scale ranging from 1 (not concerned) to 5 (very concerned). Ted Hardgraves Income to keep pace with inflation 2 Legal logical and appropriate tax relief 5 Easy access to your capital 1 Regular income from your investments 1 Easy to administer 3 Capital growth 5 Volatility 2 Eliza Hardgraves Income to keep pace with inflation 2 Legal logical and appropriate tax relief 5 Easy access to your capital 1 Regular income from your investments 1 Easy to administer 4 Capital growth 5 Volatility 4 Estate planning Ted and Eliza have Wills which they quickly wrote using packs bought from the post office when Bill was born. They do not have powers of attorney. Insurance and risk management Ted has three times his salary in term life and total permanent disability (TPD) insurance within his superannuation. He cannot take out any higher cover within this superannuation fund. Eliza has $50,000 of life and TPD in her superannuation fund. Ted and Eliza do not have income protection or trauma cover. They have family private hospital cover. Planning issues Ted and Eliza are seeking a long-term tax effective investment plan which will provide for them in their retirement. Ted has recently inherited $63,700 from his aunt and would like advice on how to invest these funds to contribute to securing their future. Ted has told you that he understands the risks associated with investing and is willing to invest in riskier securities in order to increase their returns. Eliza is more risk averse. She would like to ensure they do not lose any of their inheritance. Ted and Elizas children currently attend a public school but they would like to send both children to a private school to complete their secondary education. Ted and Eliza would like to do some renovations to their home, such as replacing the old bathroom which they believe will cost approximately $17,500. They are happy to use some of their inheritance to do this and anticipate the work to be done this year. Both Ted and Eliza are not sure if the current asset allocation used in their superannuation is appropriate and are seeking your advice on determining an asset allocation that they are comfortable with, and will improve the potential to meet their lifestyle and financial objectives. They would also like to know if they are on track to reach their retirement income goal of $125,000 per annum when Ted reaches age 65. Eliza is unhappy with the service she receives from her industry fund and the limited number of choices she has for her account. In addition Ted has been earning better returns every year even after fees are deducted. They wish to have their full insurance needs reviewed. Ted and Eliza would like to reduce their mortgage and believe that this could help them to get ahead before they have to pay large school fees. They express concern about the fees that you charge and seek clarification on your fees. As their financial planner, your task is to prepare a Statement of Advice (SOA) that will include strategies to meet Ted and Elizas goals. Project questions (student to complete) Section 1 Establish the relationship with the client and identify their objectives, needs and financial situation Part A List particular strategies you will use to ensure that the Hardgraves are comfortable with the interview process. (200 words) A comfortable interview process definitely helps to establish good connection between the client and the partner. Comfortable interview process could be established by doing following: 1. There should not be any disturbance while doing interview process. 2. Mobile phones should be switched off, computers should be on standby mode, there should be no noise near to interview room, and tea-snacks should be used for breaking the ice. 3. Client should be greeted in very courteous manner to make them feel valued and respected. 4. Agenda for the meeting/ interview should be conveyed 1-2 days before so as to make Hardgraves can do initial research and they can be comfortable within the discussion. 5. Conversation should be started with some casual talks so that client can adjust to the new environment and can think rationally. 6. Showing interest is the most important aspect, it can be achieved by cross questioning, making eye contact, never interrupt. 7. Notes should be made while listening to the Hardgraves concerns, expectations and demands. 8. Simple language and timely breaks should be used so that Hardgraves can keep their full attention to the meeting. 9. Body language should be positive which indicates helpful nature and open for the suggestion. Part B Give details of any legal requirements you need to comply with at the initial stage of your relationship with the clients. (250 words) A financial planner should meet the minimum training requirements as defined in the Australian Securities and Investments Commission (ASIC) Regulatory guide 146 licensing. Financial planner should be up-to-date with the training knowledge as per Australian Securities and Investments Commission (ASIC) Regulatory guide 146 A financial planner is recognised through law and he has a duty of care for their clients and he is legally obliged to exercise as much as the circumstance require. He has to ensure that client is in no way mislead. It is mandatory to provide a Financial Service Guide (FSG) to the clients before providing them any service, as defined by Australian Securities and Investments Commission (ASIC) Regulatory guide 175. It is very important to comply with privacy legislation. It says that, All the personal information collected by financial planner and/or the licensee is governed by the Privacy Act 1988 which contains a national scheme for the collection, use, correction, disclosure and transfer of personal information by organizations in the private sector. It is also important for the financial planners to comply with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CFT. It says that, A planner is obliged to establish and verify the identity of the client regardless of the nature of the client. Part C If, at a later stage, Ted and Eliza wish to make a complaint about your advice, what are their options? How much information are you required to give them, initially, about complaints procedures? (150 words) If Ted and Eliza have a complaint, they could take the following steps: 1. They can tell to their financial planner about their complaint. Financial planner can resolve the complaint at his end. 2. If Ted and Eliza are still not satisfied with the solution, they can complain in the company of financial planner (B n Y Pty Ltd.). 3. If Ted and Eliza are still not satisfied with the solution they can move to complain in Financial Ombudsman Service (FOS). FOS is an external dispute resolution body that provides free consultation and assistance to consumers so as to resolve the complaint related to financial services industry. 4. In the end Ted and Eliza can also contact Australian Securities and Investments Commission (ASIC) to complaint and know their rights. This information is also available in the Financial Service Guide (FSG). Part D Neither of your clients have trauma insurance and they are unsure about the adequacy of their current level of life and TPD insurance. Prepare a list of questions that you could use during the initial interview to help you determine appropriate levels of cover. You should cover asset preservation, income preservation and future expenditure needs and the answers to the questions should enable you to complete the risk needs section of the fact finder (250 words) Below is the list of questions that will be used by financial planner to interview about the level of insurance cover: Hi, Ted and Eliza please answer my questions so that I can give my best to judge your insurance needs. 1. Do you have insurance for your home, car, medical, income, life? 2. What are your income sources and what are your assets? (This will gauge the present value of Ted, what he will leave to his family in case something bad happens to him) 3. Can you please explain your lifestyle? It will be your monthly and annually expenses and liabilities. 4. How much do you have in your superannuation account? 5. What are your short term and long term liabilities? What is the remaining amount of debt if you have any? 6. What are the expenses of your dependents? 7. How much is your basic necessity amount? How do you pay this amount, cash or credit? 8. Do you have any other big liability in mind which can occur and can change your way of living? 9. Do you have anything else to ass to your Trauma insurance estimate? Part E Discuss the benefits and drawbacks of using tools to gather the information required to develop a financial plan for clients as compared to a more casual, conversational style approach. (200 words) A financial planner should never only rely on their intuition when determine clients risk profile and needs. There are many tools that can be used to gather the necessary information for developing a financial plan. These tools can be factor-finders, questionnaires, psychometric testings, etc. The data gathered from these tools will help the financial planner to have a clear picture of the clients financial position and expectation. However, most of these tools are normally in standardised form and may not be able to cover the full image of the clients real situation. For instance, the client may think none of the pre-listed model in the risk profile questionnaire matches their particular circumstance. Alternatively, a financial planner could adopt a more casual and conversational approach to find out their personal needs and therefore discover the client risk tolerance. Psychometric testing could be another method to reveal clients psychological profile. This tool offers a relatively cheap and easy way to assess clients risk acceptance. Nevertheless the results can be misinterpreted by not taking account of clients personal circumstance. On the other hand, a more casual and conversational style might help the financial planner to determine a clients psychological acceptance of risk, but it could be time consuming. The effectiveness of using conversational style approach relies on the communication skills of the financial planner. Section 2 Analyse client objectives, needs, financial situation and risk profile to develop appropriate strategies and solutions Part A Record the information you have gathered from your clients in the fact finder below. Include the information you obtained from your questions in Section 1 Part D. [insert student response] Part B Identify any gaps in your data collection form as well as any other issues that would need to be followed up with Ted and Eliza. (100 words) Below are the gaps in the data as provided by Ted and Eliza, In the home address section, state and post code are not mentioned There is no contact phone number given Dates of birth of their children are not given, neither the school details are mentioned Home and content insurance coverage are not given Superannuation details, date of joining fund is missing Amount of insurance premiums is not mentioned Fact finder Personal and employment details Personal details Client 1 Client 2 Title Mr Mrs Surname Hardgraves Hardgraves Given & preferred names Ted Eliza Home address 4 Pringle Ave, Kensington 4 Pringle Ave, Kensington Business address NA NA Contact phone NA NA Date of birth 2!Mar"h!#$ %#!A&g&st!#% Age 44 4' Sex Male Male Female Male (e)al e Female Smoker Yes No No Yes No No Expected retirement age *+ *4 Dependants (children or other) : Name Date of birth Sex School Occupation Harriett NA NA NA NA Bill NA NA NA NA Employment details Client 1 Client 2 Occupation ,enior -eologist Paralegal Employment status Self employed Employee Self employed Employee Not employed Pensioner Not employed Pensioner Permanent Part time Permanent Part time Casual Contractor Casual Contractor Other Government Other Government Business status Sole proprietor Partnership Sole proprietor Partnership Private company Trust Private company Trust Notes: Any other person to be contacted? E.g. accountant, bank, solicitor, etc. ,oli"itor. /arlie Mattieson with %$ years poor relationship with Ted and Eliza and providing servi"e o0 /onveyan"ing 0or ho)e p&r"hase A""o&ntant. 1ohn 2atson with # years e3"ellent relationship with Ted and Eliza and providing servi"e o0 Ann&al ta3 ret&rn Income, expenditure and net worth Cash flow statement Income and expenses Client 1 Client 2 Notes Income from employment Salary %4$,$$$ ++,$$$ Salary sacrifice %2,*$$ 4,4+$ (9 % SG) Salary after salary sacrifice %2#,4$$ +$,$+$ Rental income Unfranked dividends Franked dividends ',4'* (state % return if applicable) Franking (imputation) credits (state franking % if applicable) Interest +%$ (state % return if applicable) Other income, e.g. taxable benefits Capital gains <1yr Capital gains >1yr Tax-free component of capital gains Assessable income %'%,'4* +$,$+$ Deductible expenses Rental expenses, repairs etc. Taxable income %'%,'4* +$,$+$ Tax on taxable income NA NA Non-refundable tax offsets (e.g. LITO/SAPTO) Medicare levy Medicare levy surcharge Franking rebate Refundable rebates and offsets Net tax payable NA NA Family cash flow Client 1 Client 2 Combined Comment Salary less any salary sacrifice amount %2#,4$$ +$,$+$ %##,4+$ Non-taxable income (e.g. income from superannuation income streams for a person aged over 60, Family Tax Benefits) Interest income +%$ +%$ Dividends received (excluding franking credits) ',4'* ',4'* Rental income Other income Total income received before tax %'%,'4* +$,$+$ %%,'4* Living expenses Mortgage '#,$$ General Living expense +$,4$$ Accountants Fees ++$ Donations %,$$$ Holidays (Annually) %%,$$$ Other expenses Total expenses %$$,#+$ Total income received before tax less expenses $,*4* Net tax payable from the Income and Expense table above NA Net cash flow $,*4* Assets and liabilities Asset Owner Value Liabilities Net value Notes Personal assets Family Home 1oint tenant 5*+$,$$$ 54#$,$$$ 5%$,$$$ Home contents 1oint tenant 5+$,$$$ 5+$,$$$ Car 1oint tenant 5%,$$$ 5%,$$$ Total #%,$$$ 4#$,$$$ 24,$$$ Investment assets Savings account 1oint tenant +,$$$ +,$$$ Cash management account - inheritance Ted %$,$$$ %$,$$$ ,hares Ted +',*4% +',*4% Total *,*4% Superannuation assets AB/ ,&perann&ation Ted 22$,$$$ 22$,$$$ ,6H 7nd&stry ,&perann&ation Eliza +,$$$ +,$$$ Total 2#,$$$ Net worth +44,*4% Liabilities Loan Current debt Percentage deductible Comments Repayment Ho)e 8oan 4#$,$$$ Total 4#$,$$$ Goals and objectives Details Comments Save any surplus in the most tax effective vehicle for the long term, long-term tax effective investment plan for retirement Long term Ted received $63,700 inheritance and would like advise how to invest these fund, Eliza would like to ensure they do not lose any of their inheritance Discuss possible options for using the inheritance money Ted is willing to invest in riskier securities Discuss possible options Send both children to private school to complete their secondary education Estimate cost and discuss possible options Home renovation cost approximately $17,500 Short term Review superannuation asset allocation, Eliza is also not happy with her current industry fund Discuss possible options Protect income against sickness or accident To be reviewed Protect family and/or assets in the event of death To be reviewed Protect against serious illness or trauma To be reviewed Reduce/pay off mortgage To be discussed Estate planning Do you have a Will? Yes No When was it last updated? 2hen Bill was born9 Executor/rixs name and contact details: Do you have powers of attorney? Yes No Attorneys name and contact details: Do you have a funeral plan? Yes No Funeral provider and contact details: Amount paid Do you have superannuation beneficiaries in place? Yes No Type Binding Non-binding Beneficiary names and contact details: Current superannuation, rollovers, insurances & investments Superannuation details Member Ted Eliza Superannuation fund name ABC Superannuation SOH Industry Superannuation Date of joining fund Type of fund Accumulation Defined benefit Pension Accumulation Defined benefit Pension Contributions By employer By yourself Other By employer By yourself Other Current value of your superannuation fund 22$,$$$ +,$$$ Amount of death & disability cover Is there provision for additional contributions or salary sacrifice? Yes No Yes No Non-concessional contributions Amount Year Amount Year Amount Year Amount Year Spouse contributions received Amount Year Amount Year Amount Year Amount Year Concessional contributions Amount Year Amount Year Amount Year Amount Year Any other contributions Amount Year Amount Year Amount Year Amount Year Life insurance details Life insured Policy Owner Company Policy number Benefit type Benefit or insured amount Annual premium NA General insurance details Item covered Owner Policy type Company Policy number Cover Amount Other benefit Annual premium NA NA Investment details Investment type Company Purchase date Units held/ fixed rate Current value Owner Risk needs Insurance needs life and TPD Client 1 Client 2 Gross annual income (before tax) %'%,'4* +$,$+$ Less business expenses Number of years income required 2$ 2$ Property repayment 4#$,$$$ 4#$,$$$ Other debts Sub-total = (income years) + debts ',$4*,42$ %,4#%,$$$ Less existing realisable assets (Insurance/savings/superannuation) Insured benefit shortfall (before tax) Gross income is the total of earned income (i.e. before tax earnings derived from personal exertion, including salary, fees, commission, bonuses, fringe benefits or similar payments that would cease on disablement). Business expenses are expenses incurred by you in the process of earning income from your profession, business or partnership. Insurance needs Income protection/trauma Income protection Client 1 Client 2 Gross annual income %'%,'4* +$,$+$ Employer superannuation contributions Other employer fringe benefits NA NA Maximum allowable benefit (75% of annual income) 4,+$4 '#,+'# Monthly income ,2$4 ',%2 Less existing insurance Monthly benefit required (pre-tax) ,2$4 ',%2 Waiting period to be served *$ :ays *$ :ays Trauma Medical costs (to cover out-of-pocket health costs) $100,000 $100,000 Additional expenses of a permanent nature, wheelchairs, home alterations etc. $100,000 $100,000 Additional income: income protection only covers 75%, would you need extra? Total funds required $200,000 $200,000 Less cash available or assets that can be readily cashed $122,000 $122,000 Shortfall/surplus $78,000 $78,000 Acknowledgment The information provided in this financial fact finder is complete and accurate to the best of my knowledge. I understand that a policy purchased without the completion of a fact finder, or following a partial or inaccurate completion, may not be appropriate to my needs. I also understand that a policy purchased that differs from that recommended by the planner may not be appropriate to my needs. I acknowledge that the planner has provided me with the completed financial fact finder, signed by me. Customer(s) signature(s) Ted Hardgrave Eliza Hardgrave Adviser's name Adviser's signature Date Part C Now that you have determined the Hardgraves needs and objectives you need to identify their likely risk profile based on the information they have provided. Ted and Eliza completed the risk profile below prior to your meeting with them. Identify any concerns that you may have with their responses compared with the information in the case study and suggest questions you could use to clarify the responses. Justify why you do or do not think that the score and the resulting risk profile category is an accurate reflection of their tolerance to risk. (250 words). [insert student response] Investment attitude details Please answer the following questions regarding your attitude to financial issues. Are you concerned about the amount of tax that you are paying? Yes/No Why? 2o&ld li;e to pay less9 How important is liquidity (i.e. funds available) to you? Very/Moderately/Not Why? Eno&gh "ash is present If you had funds available for investing, how would you choose to invest them? Why? ,ee;ing g&idan"e 0or this9 Are there certain sorts of investment that you wish to avoid? Yes/No Which ones? <is;y invest)ents sho&ld be avoided RISK PROFILE Determining your investor risk profile Points This investor risk profile questionnaire has been designed to help you understand the type of investor you are, so that with the help of your adviser, you can choose the investments that best match your financial objectives. Which of the following best describes your current stage of life? Ted Eliza Single with few financial commitments. You are keen to accumulate wealth for the future. Some funds must be kept available for enjoyment, such as cars, clothes, travel and entertainment. 50 50 A couple without children. You may be preparing for the future by establishing and furnishing a home. There are a lot of things you need to buy. You are probably better off financially now than you may be in the future. 40 40 Young family. This is the peak home purchasing stage. You have a mortgage and a very small amount of savings. Probably dissatisfied with your financial position and the amount of money saved. 35 35 Mature family. You are in your peak earning years and have the mortgage under control. Many partners also work and any children are growing up and have either left home or require less supervision. You are starting to think about retirement, although it may be many years away. 30 30 Preparing for retirement. You probably own your own home and have few financial commitments; however, you want to ensure that you can afford a comfortable retirement. Interested in travel, recreation and self-education. 20 20 Retired. No longer working and must rely on existing funds and investments to maintain your lifestyle. You may be receiving the pension and are keen to enjoy life and maintain your health. 10 10 What return do you reasonably expect to achieve from your investments? Client 1 Client 2 A return without losing any capital. 10 10 37% p.a. 20 20 812% p.a. 30 30 1315% p.a. 40 40 Over 15% p.a. 50 50 If you did not need your capital for more than 10 years, for how long would you be prepared to see your investment performing below your expectations before you cashed it in? You would cash it in if there were any loss in value 10 10 Less than 1 year 20 20 Up to 3 years 30 30 Up to 5 years 40 40 Up to 7 years 45 45 Up to 10 years 50 50 How familiar are you with investment markets? Very little understanding or interest 10 10 Not very familiar 20 20 Have had enough experience to understand the importance of diversification 30 30 Understand that markets may fluctuate and that different market sectors offer different income, growth and taxation characteristics 40 40 Experienced with all investment sectors and understand the various factors that may influence performance 50 50 If you can only get greater tax efficiency from more volatile investments, which balance would you be most comfortable with? Preferably guaranteed returns, before tax savings 10 10 Stable, reliable returns, minimal tax savings 20 20 Some variability in returns, some tax savings 30 30 Moderate variability in returns, reasonable tax savings 40 40 Unstable, but potentially higher returns, maximising tax savings 50 50 Six months after placing your investment you discover that your portfolio has decreased in value by 20%, what would be your reaction? Horror. Security of capital is critical and you did not intend to take risks 10 10 You would cut your losses and transfer your money into more secure investment sectors 20 20 You would be concerned, but would wait to see if the investments improve 30 30 This was a calculated risk and you would leave the investments in place, expecting performance to improve 40 40 You would invest more funds to lower your average investment price, expecting future growth 50 50 Which of the following best describes your purpose for investing? You want to invest for longer than five years, probably to the age of 5560. You are mainly investing for growth to accumulate long-term wealth 50 50 You are not nearing retirement, have surplus funds to invest and you are aiming to accumulate long- term wealth from a balanced fund 40 40 You have a lump sum, e.g. an inheritance or an eligible termination payment from your employer, and 30 30 you are uncertain about what secure investment alternatives are available You are nearing retirement and you are investing to ensure that you have sufficient funds available to enjoy retirement 20 20 You have some specific objectives within the next five years for which you want to save enough money 20 20 You want a regular income and/or totally protect the value of your savings 10 10 Investor profile total points 220 140 INVESTOR RISK PROFILE SUMMARY 050 Defensive You are a conservative investor. Risk must be very low and you are prepared to accept lower returns to protect capital. The negative effects of tax and inflation will not concern you, provided that your initial investment is protected. 51130 Moderate You are a cautious investor seeking better than basic returns, but risk must be low. Typically an older investor seeking to protect the wealth that you have accumulated, you may be prepared to consider less aggressive growth investments. 131210 Balanced You are a prudent investor who wants a balanced portfolio to work towards medium to long-term financial goals. You require an investment strategy that will cope with the effects of tax and inflation. Calculated risks will be acceptable to you to achieve good returns. 211300 Growth You are an assertive investor, probably earning sufficient income to invest most funds for capital growth. Prepared to accept higher volatility and moderate risks, your main concern is to accumulate assets over the medium to long term. You require a balanced portfolio, but more aggressive investment strategies may be included. 301350 High growth You are an aggressive investor prepared to compromise portfolio balance to pursue potentially greater long-term returns. Your investment choices are diverse, but carry with them a higher level of risk. Security of capital is secondary to the potential for wealth accumulation. (Section 3 Part D commences on the next page) Part D Given the information you now have on the Hardgraves current situation and their tolerance of risk, what are the critical issues you need to consider to appropriately advise them? What sorts of investments would they each be comfortable with? (400 words) Debt: The mortgage interest rate of 6.5% is higher than the return from rest of their investment assets. So, It would be beneficial if they could reduce the mortgage. Risk protection: The couple seems to be under insurance. Ted and Eliza need to increase their Life and TPD insurance cover. They do not have income protection or trauma insurance either. Investment: Majority of their investments are cash. They need some fund to support their childrens secondary education. Tuitions for private school can be costly in the near future; they should be well prepared before it happens. Also school fees for the private school will be very high compared to the government schools. Retirement funding: Teds superannuation risk option does not quite match his risk profiles. Elizas superannuation seems not performing well enough. Certain analysis and adjustments can be made to help them reach their retirement goals. Social security & Taxation: The Hardgrave family is entitled to receive family tax benefit. Estate planning: The couple wrote their Will when Bill was born, the Will has not been reviewed since then. They have no Powers of Attorney or guardianship for their children. Part E Prepare appropriate insurance and superannuation strategies for Ted and Eliza, and provide a detailed explanation as to why you consider them to be appropriate. Include the lump sum amount that they will need in retirement and strategies to help them reach that goal. Include recommendations on the amounts and types of insurance cover you will recommend. Provide a summary of other recommendations that you will include in your SOA for Ted and Eliza. (500 words) Ted contributes about 66% of the total income to the family. So it will be very unfortunate to Eliza and their kids if something bad happens to Ted or he dies prematurely. Hence Hardgraves need to increase Teds Life and TPD insurance cover to an appropriate level (current shortfall $1.6 million). Further assume that it is also found out that Eliza actually performs lot more home duties than Ted. So, Ted may need to pay extra house keepings if something bad happens to Eliza to cover Elizas death. Eliza should also increase her Life and TPD insurance cover (current shortfall $1 million). Having appropriate life and TPD insurance will help to pay off debts and maintain their familys standard of living if either Ted or Eliza could no longer provide for them. Income protection insurance Suggest Ted or Eliza undertakes income protection insurance that can cover 75% of their salary. Hardgraves should also have reasonable trauma insurance just in case they cannot afford medical costs if too many bad things happen. The main purpose of having trauma insurance is to have a amount to cover the medical cost for medical conditions. The estimated trauma insurance cover is $100,000 each. Superannuation: It is estimated that the couple will have a combined superannuation fund of $1.1 million when Ted turns 60. Oct - 2012 Oct - 2013 Oct - 2014 Oct - 2028 Oct - 2029 Mar - 2030 Ted Age 42 43 44 58 59 60 A/C Balance $190,000 $211,224 $233,758 $742,471 $797,771 $821,807 Eliza Age 41 42 43 57 58 58 A/C Balance $85,000 $94,079 $103,624 $301,843 $322,017 $330,725 Ted Net return 6% p.a. Monthly contribution $770.60 Total $1,152,532 Eliza Net return 5% p.a. Monthly contribution $385.30 Assume the couple switch to more conservative option when Ted turns 60. The combined fund will provide a net return of 3% per annum. It could provide an annual income of $60,000 ($5000 per month) for them and would be run out before Ted turn 88. The estimation is shown below Mar 2030 Mar 2031 Mar 2032 Mar 2057 Mar 2058 Apr 2059 Ted 60 61 62 87 88 89 A/C Balance $1,152,532 $1,126,756 $1,100,196 $96,896 $39,012 -$20,634 It appears out that they have thought well enough about their retirement goal. However, Teds current superannuation option does not match his risk preference. Since salary sacrifice contributions are taxed at a rate of 15%, it is another option that both Ted and Eliza can undertake to effectively build their wealth. The salary sacrifice can reduce the taxable income and this way Hardgraves will be able to pay less tax. Part F Provide a summary of the research that you have conducted to support one insurance product recommendation you will make for Eliza or Ted. (250 words) Life and TPD insurance can help to mitigate the financial impact that arose as a result of the death or terminal illness of the life insured. It can supply a lump sum to pay off debts and maintain the familys standard of living if you can no longer provide them. If something bad happen to Eliza (e.g. worst case: death), the family will lose about $45,000 net income and may even increase further expenses (e.g. Ted need to pay for extra house keepings). The financial burden on Teds shoulders will be dramatically increased. Considering the mortgage and future financial needs for their childrens education, their family will certainly have difficult times if without proper insurance. I would recommend Eliza to have life and total and permanent disability insurance within her superannuation to $1,000,000. This amount should be able to cover the shortfall. Assume Eliza will continue work for another 17 years (until Ted reach 60). Her overall life & TPD insurance need is calculated by adding 17 years of her total income with current debt, which is $1,241,800. Then subtract this figure by her current realisable assets of $257,000 (See table below) to determine Elizas insurance shortfall. Realisable Assets Owner Amount Death Benefit Eliza $50,000 Superannuation Eliza $85,000 Cash management account Joint $15,000 Saving Account Joint $5.000 Cash management account Ted $75,000 Shares Ted $27,000 Total Realisable Assets $257,000 Assume I did my research and find out Elizas superannuation fund has the option of $1 million coverage for life and TPD insurance. Having life & TPD insurance through superannuation can also be cost effective option as the premium are deducted from super contribution, which means paying for the cover before tax. Part G You must now prepare a Statement of Advice (SOA) based on the recommendations made, which will be used to record this advice (including amendments, if any) for Ted and Eliza. Remember that the SOA must be of a standard that is compliant and would be suitable to present to a client. [insert student response] Important instructions What to submit: you have been provided with a Statement of Advice Preparation Checklist and cash flow templates to use for the project SOA. Please include these with your submission. Template SOAs and SOA preparation software: it is preferable that you do not use the sample SOA published by ASIC as a basis for your submission. The use of financial planning software and dealer templates to prepare your SOA is also not permitted. Submissions that exhibit excessive reliance on SOA templates may be considered a case of plagiarism or collaboration, and may not be considered to be a reasonable attempt at the project. Assumptions: you must list the assumptions used in your SOA in your project submission. These will generally include: any assumptions you have made regarding missing background information on the clients any assumptions you have used to calculate future income from your recommended investments any assumptions used for fees relating to the products you have recommended. Strategy advice: you must provide strategy recommendations in the following areas based on the information given: personal investment or debt reduction personal insurance superannuation estate planning. Use the information on each of these areas given in the subject notes to provide reasons for each of the strategies recommended. Product advice: product recommendations for any personal investment or estate planning recommendations are not required. However, you should recommend an appropriate superannuation and/or life insurance product to implement the advice you have provided. You are required to source, or develop, your own fund details. It is not necessary to include Product Disclosure Statements in your project for any products you may recommend in your SOA. Including insurance quotes in the SOA is not required. For insurance recommendations you may estimate the premiums based on the clients ages, health and occupations but they do not have to be prepared from actual quotes. Cash flow projections: you must include detailed cash flow tables using Appendix 1 and Appendix 2 as a template showing Eliza and Teds situation before and after your recommendations. These should be included as Appendices 1 and 2 to your SOA. Remember to include any insurance premiums in the analysis. Recommendations: You should include superannuation projections up to the retirement age of your clients before and after your recommendations as Appendix C to your Statement of Advice. In addition please show that your strategy will enable your clients to meet their retirement income goal until Ted is at least 84 (Eliza is 83, her life expectancy). Statement of Advice preparation checklist (student to complete) SOA section Action Completed? i. Cover sheet The following elements should appear on the cover sheet: the words Statement of Advice the clients name the authorised representatives name, AR number and contact details (if different to the licensee) a statement that the authorised representative is an authorised representative of the licensee the licensees name, ABN number, AFSL number, address and contact details the date of issue of the SOA a warning about the importance of the document
ii. Table of contents Check that the pages in the table of contents agree with the page numbers in the completed SOA.
iii. Executive summary Headings should include: Summary of our recommendations Summary of expected outcomes if you implement our advice Risks in our advice Summary of our fees and commissions Your next steps
iv. Present position information about the client Headings should include: Important information about you Your reasons for seeking advice What you would like to achieve Your personal and financial information Personal information Your existing insurance Your existing estate planning Financial information Current income and expense details
v. Risk profile Heading: Your risk profile vi. Strategy recommendations (analysis of the investment strategies) Headings should include: Recommended action: personal investment or debt reduction personal insurance superannuation estate planning Reasons for recommendations: personal investment or debt reduction personal insurance superannuation estate planning Things you should consider (risks)
vii. Product selection You are only required to provide a superannuation and or insurance product recommendation. Do not provide product recommendations for personal investments or estate planning. Headings should include: Product recommendations Cooling off period advice
viii. Recommended asset allocation Headings should include: Recommended asset allocation Comments on proposed asset allocation versus your risk profile
SOA section Action Completed? ix. Disclosure of fees, commission and/or benefits Headings should include: How are we paid Commission and fees upfront, ongoing commissions and financial planning advice fees Product management and/or operational fees Other benefits
x. Ongoing service and review Headings should include: Ongoing services Implementation
xi. Authority to proceed Headings should include: Authority to proceed Consent to ongoing contact
xi. SOA Appendix 1 Use the family cash flow template below. Heading: Financial position before implementation of strategy
xii. SOA Appendix 2 Use the family cash flow template below. Heading: Financial position after implementation of strategy
xii. SOA Appendix 3 Include detailed projections of the clients super account balances before and after your recommendations up to their retirement age. Also show how the resultant balance can be drawn down until Eliza reaches age 84, her current life expectancy. You should include all assumptions for calculations and rates of return should be in todays dollars (i.e. net of inflation).
Statement of advice [Complete your SOA in this section of the template] Assumption List for SOA Assume I have got the missing information from Ted and Eliza such as their superannuation details, insurance detail, etc.; Assume I met Ted and Eliza in Oct 2012; All the s&perann&ation, ins&ran"e and invest)ent prod&"ts in the ,6A are 0i"tional, in"l&ding 0ees, pre)i&), ret&rn, "ooling o00 period, et"9= Ass&)e all Prod&"t :is"los&re ,tate)ent 0or invest)ent and ins&ran"e prod&"ts are given to Ted and Eliza= All the "o))ission, 0ees and bene0its in0or)ation are 0i"tional= Ass&)e their ho)e is ins&red 0or 5+$,$$$ and the "ontents 0or 5+$,$$$= Mr Ted and Mrs Eliza Hardgrave 4 Pringle Ave, Kensington :ear Ted and Eliza, Than; yo& 0or the opport&nity to )eet and dis"&ss how we "an help yo&r a"hieve yo&r 0inan"ial goals and ob>e"tives9 Based on the in0or)ation "ontained in yo&r "o)pleted 0a"t 0inder and o&r "onversation at o&r )eeting, 7 believe that 7 have a reasonably "lear &nderstanding o0 yo&r "&rrent sit&ation, yo&r goals and ob>e"tives, and yo&r attit&de to invest)ent ris;, se"&rity, and volatility9 2e are pleased to provide o&r re"o))endations in the detailed ,tate)ent o0 Advi"e that 0ollows9 This ,tate)ent o0 Advi"e has been prepared e3"l&sively 0or yo& and is based on the in0or)ation yo& have provided9 Please ta;e the ti)e to "are0&lly read and &nderstand it, to ens&re that it is "onsistent with yo&r views and re0le"ts the in0or)ation we dis"&ssed9 70 there are any o)issions or any details are in"orre"t, please bring the) to o&r attention9 7n addition, i0 yo&r "ir"&)stan"es have "hanged, or i0 this plan is not i)ple)ented in the ne3t '$ days, we )ay need to revise the re"o))endation to ens&re that they are still appropriate9 6n"e i)ple)ented, the re"o))endations in this ,tate)ent o0 Advi"e sho&ld be reviewed on a reg&lar basis to ens&re that they "ontin&e to )eet yo&r ongoing needs9 /hanges in legislation, 0inan"ial )ar;ets and yo&r personal sit&ation will o""&r over ti)e, and as yo&r 0inan"ial adviser we "an wor; with yo& to &pdate yo&r 0inan"ial plan so that yo& stay on tra"; to a"hieve yo&r goals and ob>e"tives9 70 yo& a""ept o&r re"o))endation and are "o)0ortable to pro"eed with i)ple)entation, please sign the atta"hed A&thority to Pro"eed and ret&rn it to &s9 2e loo; 0orward to helping yo& i)ple)ent the en"losed re"o))endations, and in the )eanti)e we re)ain available to assist yo& with any ?&eries yo& )ay have in relation to this ,tate)ent o0 Advi"e9 @o&rs sin"erely, Statement of Advice Prepared 0or Mr. Ted & Mrs. Eliza Hardgraves Prepared by B n Y Pvt. Ltd. @o& are entitled to re"eive a ,tate)ent o0 Advi"e AB,6ACD whenever we provide yo& with any personal 0inan"ial advi"e9 Personal 0inan"ial advi"e is advi"e that ta;es into a""o&nt that any one or )ore o0 yo&r ob>e"tives, 0inan"ial sit&ation and needs9 This ,6A is a re"ord o0 the personal 0inan"ial advi"e provided to yo& and in"l&des in0or)ation on the basis whi"h this advi"e is given, in0or)ation abo&t 0ees and "o))issions and any interests or asso"iations whi"h )ight in0l&en"e the advi"e9 70 this advi"e in"l&des a re"o))endation to yo& to a"?&ire a parti"&lar 0inan"ial prod&"t Aother than se"&rities or an o00er to iss&e or arrange the iss&e o0 a 0inan"ial prod&"t to yo&, we will also provide yo& with a Prod&"t :is"los&re ,tate)ent "ontaining highly detailed s&pportive in0or)ation abo&t the parti"&lar prod&"t to help yo& )a;e well in0or)ed de"isions abo&t the prod&"t9 Be aware that the advi"e "ontained in the 0ollowing ,6A is valid 0or a period o0 '$ days only9 70 the plan is not i)ple)ented within this ti)e, it will no longer be "&rrent and will need to be reviewed 0or a""&ra"y Statement of Advice Content FP3B-1SN3-2 Capstone project 1 Project Cover Sheet 1 Capstone project 4 Project checklist (student to complete 4 Back!round " Personal in#ormation $ Pro#essional relationships $ %nnual income details $ %nnual e&penditure ' %ssets and investments ' Current share port#olio ' (nvestment o)jectives * +ed ,ard!raves * -li.a ,ard!raves * -state plannin! * (nsurance and risk mana!ement * Plannin! issues / Section 1 -sta)lish the relationship 0ith the client and identi#1 their o)jectives2 needs and #inancial situation 13 Part % 13 Part B 13 Part C 11 Part 4 11 Part - 12 Section 2 %nal1se client o)jectives2 needs2 #inancial situation and risk pro#ile to develop appropriate strate!ies and solutions13 Part % 13 Part B 13 Fact #inder 13 3 Personal and emplo1ment details 13 (ncome2 e&penditure and net 0orth 1" 5oals and o)jectives 1* Current superannuation2 rollovers2 insurances 6 investments 1/ Part C 22 Part 4 2" Part - 2" Part F 2$ Part 5 2' (mportant instructions 2* Statement o# %dvice preparation checklist (student to complete 2/ Executive Summary...............................6 ..................................................................................................................................................... 6 ..................................................................................................................................................... 7 ..................................................................................................................................................... 7 ..................................................................................................................................................... 7 ..................................................................................................................................................... 7 Important information ..........................8 ..................................................................................................................................................... 8 ..................................................................................................................................................... 8 Your personal and financial information.........9 ..................................................................................................................................................... 9 ..................................................................................................................................................... 9 ..................................................................................................................................................... 9 Financial information..........................10 ................................................................................................................................................... 10 Your risk profile..............................11 ................................................................................................................................................... 13 ................................................................................................................................................... 14 ................................................................................................................................................... 15 ecommended asset allocation...................16 Implementation.................................19 ................................................................................................................................................... 20 ................................................................................................................................................... 21 4 S7% %ppendi& 1 8 Financial position )e#ore implementation o# strate!1 22 S7% %ppendi& 2 8 Financial position a#ter implementation o# strate!1 (231292313 #inancial 1ear 24 S7% %ppendi& 3 8 Superannuation Projections 2$ S7% %ppendi& 4 8 :ana!ed (nvestment Projections 2/ S7% %ppendi& " 8 :ort!a!e Projections 31 S7% %ppendi& $ 8 (mplementation schedule 32 5 Executive Summary For the short term up to one year <e"o))endations 0or Ted Total and permanent disability insurance outside of his superannuation should be equal to $1,500,000 (Approx.) Use income protection insurance within the superannuation (maximum allowable limit is 75% of salary) Take out trauma insurance outside of superannuation Move superannuation to a growth portfolio within superannuation fund Make salary sacrifice contribution of $1,200 ( about 10% of salary) per month to superannuation account Reinvest the dividends <e"o))endations 0or Eliza. Increase total and permanent disability insurance within superannuation to $1,000,000 Use income protection insurance within superannuation (maximum allowable limit 75% of salary) Take out trauma insurance outside of superannuation Make salary sacrifice contribution of $600 (about 10% of salary) per month to superannuation account (inan"ial Planner <e"o))endations. Double mortgage repayments on home Use $17,500 from the inheritance to renovate house. keep $15,000 in bank account as emergency fund Review existing home and contents insurance to be sure that it is sufficient For the long term more than five years Invest $62,500 in a conservative managed fund with a monthly contribution of $600, this fund should be accessed when children go to their secondary studies 6 70 these re"o))endations are 0ollowed then, Hardgraves will have. Appropriate insurance cover and health cover in the unforeseen event in which either of them die or become injured Established appropriate levels of general insurance Enough fund for emergency purpose No inefficient debt Growing childrens education over time so as to meet the financial needs to pay for their studies The managed investment fund so that their share portfolio can grow over time Updated Wills so that it can protect family in case of unlikely events As has been dis"&ssed, all invest)ent options are s&b>e"ted to )ar;et ris; and )ay or )ay not in"rease to in"rease the port0olio val&e9 The 0ees 0or preparation o0 )a;ing this ,tate)ent o0 Advi"e is total 54,$$$ 7n order to de"ide whether to ta;e o&r advi"e yo& sho&ld. Read the Statement of Advice fully to understand our advice. Feel free to ask us any questions you have as a result of reading the Statement of Advice. To 0ollow o&r advi"e, please si)ply "o)plete the BA&thority to Pro"eedC at the end o0 this ,tate)ent o0 Advi"e and ret&rn it to &s9 7 Important information This se"tion "ontains in0or)ation that are &sed in preparing this state)ent o0 advi"e, s&"h as. Reasons for seeking advice Goals to achieve Personal and financial information 7n "ase any in0or)ation )entioned in this do"&)ent is in"orre"t, please 0eel 0ree to "onta"t Bn @ pvt9 8td9 Ted and Eliza E we agreed that we wo&ld provide advi"e on. Risk management and Insurance Investments Superannuation Estate Planning (ollowing the dis"&ssion, a""ording to &s yo&r )ain ob>e"tives and needs are as 0ollows. You like to ensure that you have protection in the unlikely event You like to have a long-term tax effective investment that could give sufficient funds for your future needs and for your children to complete secondary education You like to do some renovation to your home You like to have your annual family holiday You like to retire at 60 (Ted) with $60,000 per annum You want to ensure that your estate planning is adequate 8 Your personal and financial information 8ist below is a s&))ary o0 yo&r relevant personal and 0inan"ial details that yo& have provided9 Personal details Client 1 Client 2 Title Mr Mrs Surname Hardgraves Hardgraves Given & preferred names Ted Eliza Home address 4 Pringle Ave, Kensington 4 Pringle Ave, Kensington Business address NA NA Contact phone NA NA Date of birth 2!Mar"h!#$ %#!A&g&st!#% Age 44 4' Sex Male Male Female Male (e)ale Female Smoker Yes No No Yes No No Expected retirement age *+ *4 Dependants (children or other) : Name Date of birth Sex School Occupation Harriett NA NA NA NA Bill NA NA NA NA Ted. yo& "&rrently have 5'*$,$$$Athree ti)es salaryD, li0e and TP: "over &nder yo&r s&perann&ation 0&nd9 Eliza. yo& have 5+$,$$$ li0e and TP: "over also &nder yo&r s&perann&ation9 @o&r ho)e is ins&red 0or 5+$,$$$ and the "ontents 0or 5+$,$$$9 @o& both have private health ins&ran"e9 @o& have advised that both o0 yo& have not reviewed yo&r 2ills sin"e 2$$49 Neither o0 yo& has a Power o0 Attorney AP6AD in pla"e9 9 Financial information ncome and e!"enses Ted Eliza Total Assessa#le income 5%%*,* 5++,4*2 5%#2,%+$ ncome after ta! 54,+4% 54+,$+4 5%24,*$$ Ann$al e!"enses 542,*$$ 542,*$$ 5+,2$$ Estimated s$r"l$s%deficit &''(')) Ted and Eliza E based on the above in"o)e and e3pendit&re s"hed&le yo& have a s&rpl&s o0 544,4$$ in"o)e available9 Please see B/ash (low ,tate)entC in ,6A Appendi3 % 0or details9 Assets and lia#ilit* +al$e Lia#ilit* ,et val$e Total "ersonal assets 54%,$$$ 5'$$,$$$ 5*%,$$$ Total investment assets 5'4#,$$$ 5'4#,$$$ 5'4#,$$$ ,et -ort. &/()/0())) Please re0er to BAssets and 8iabilitiesC table in ,6A appendi3 % 0or details9 ncom"lete and%or inacc$rate information -arning Note that i0, 0or any reason, the in0or)ation on whi"h o&r advi"e is based &pon, is either ina""&rate or not "o)plete, then it )ay be ne"essary to "onsider its appropriateness in respe"t to yo&r parti"&lar "ir"&)stan"es, needs and ob>e"tives9 10 Your risk profile All invest)ents have a "ertain ele)ent o0 ris;9 However, as a general r&le, invest)ent that have high rates o0 ret&rn involve high levels o0 ris;, and )ore "onservative invest)ents bear lower ret&rns9 (ro) o&r dis"&ssions, and 0ro) the answers o0 yo&r ris; pro0ile ?&estionnaire, we believe that Mr9 Brown is a B1ro-t.2 investor and Mrs9 Brown is a BBalanced2 investor9 (or -rowth investors. @o& are relatively assertive investors, probably earning s&00i"ient in"o)e to invest )ost 0&nds 0or "apital growth9 @o& are prepared to a""ept higher volatility in the short to )edi&) ter) to a""&)&late growth asset over the long ter)9 @o& invest)ent will spread a"ross all asset se"tors b&t will "onsist o0 )ore growth assets, whi"h wo&ld be. About 30% in defensive assets, e.g. cash, fixed interest, and About 70% in growth assets, e.g. Australian equities, international equities, property The target asset allo"ation 0or yo&r ris; pro0ile is ill&strated below9 11 (or Balan"ed investors. @o& are a "a&tio&s investor who is e?&ally "on"erned with ris; and ret&rn9 @o& are willing to "hase )edi&) to long!ter) goals while a""epting the ris; o0 short to )edi&)!ter) negative ret&rns9 @o&r invest)ent )i3 is li;ely to in"l&de an e?&al )i3 o0 assets whi"h wo&ld be. About 40% in defensive assets, e.g. cash, fixed interest, and About 60% in growth assets, e.g. Australian equities, international equities, property The target asset allo"ation 0or yo&r ris; pro0ile is ill&strated below9 12 Strategy recommendations This section states: what are our advices and why these are appropriate for Hardgraves reasons for the recommendations things to consider and risks of the advice <ead this se"tion and as; i0 yo& have any ?&estions9 Personal Investment 2e re"o))end that. Double your mortgage repayments on your home so as to remove the debt early Use $17,500 from the inheritance to renovate the house. keep $15,000 in bank account as emergency fund maintain your share portfolio and reinvest the dividend proceeds Personal Insurance Recommendations ,ame T*"e of cover Prod$ct Total amo$nt of cover Ted 8i0e and TP: Mediassist ins&ran"e 5%,+$$,$$$ Eliza 8i0e and TP: ,6H ,&per (&nd 5%,$$$,$$$ Ted 7n"o)e prote"tion Ato age *$D *$ days waiting periodF AB/ ,&per (&nd 5#,2 p9)9 Eliza 7n"o)e prote"tion Ato age *$D *$ days waiting periodF ,6H ,&per (&nd 5',4*' p9)9 Ted Tra&)a Mediassist ins&ran"e 5%$$,$$$ Eliza Tra&)a Mediassist ins&ran"e 5%$$,$$$ FA waiting period o0 *$ days has been re"o))ended as it is esti)ated yo& will have eno&gh 0&nds available to enable yo& servi"e any debts 0or this period o0 ti)e9 A *$!day waiting period will also red&"e the "ost o0 pre)i&)s9 The longer the waiting period, the lower the pre)i&)s yo& pay9 A Prod&"t :is"los&re ,tate)ent AP:,D has been in"l&ded 0or the tra&)a prod&"t 0ro) Medi (&t&re 7ns&ran"e9 This will e3plain all details o0 yo&r "over9 Altho&gh we are not a&thorised to provide general ins&ran"e, 7 wo&ld re"o))end that yo& ens&re that yo&r ho)e and "ontents are reviewed with ade?&ate levels in pla"e9 13 Superannuation Recommendations: Ted moves his current superannuation investment strategy from a balanced investment to a growth investment. Ted makes salary sacrifice contribution of $1,200 (about 10% of his salary) per month to the superannuation fund Eliza makes salary sacrifice contribution of $600 (about 10% of her salary) per month to the superannuation fund Personal investment (ro) the /ash (low ,tate)ent in Appendi3 %, Hardgraves "&rrently have s&rpl&s 0&nds o0 544,4$$ per year, whi"h "an be invested9 This 0&nd "an also be &sed to in"rease the )ortgage repay)ent9 ,ooner the debt is paid o00, the larger they will have disposable )oney9 ,hares sho&ld be retained, as shares "an give the) long!ter) "apital growth9 <einvesting the dividends "an be a good way to in"rease the potential ret&rns9 S.are "ortfolio -it.o$t dividend reinvestment 7nitial 7nvest)ent @ear % @ear 2 @ear ' 3 @ear @ear 4 @ear %$ Port0olio Gal&e 52#,$$$ 52#,$$$ 52#,$$$ 52#,$$$ H 52#,$$$ 52#,$$$ 52#,$$$ :ividend <e"eived 5%,#+$ 5%,#+$ 5%,#+$ H 5%,#+$ 5%,#+$ 5%,#+$ Total val&e in @ear %$ I 2#$$$ J %#+$F%$ years I &''(0)) = Total <et&rn I &/4(0)) S.are "ortfolio -it. dividend reinvestment 7nitial 7nvest)ent @ear % @ear 2 @ear ' 3 @ear @ear 4 @ear %$ Port0olio Gal&e 52#,$$$ 52,#+$ 5'%,*'$ 5'2,+4* H 54%,4$' 544,*% 54#,+$4 :ividend <einvested 5%,#+$ 5%,*$ 52,$+$ H 52,++$ 52,#%+ 52,4% Total val&e in @ear %$ I &'4(0)5 = Total <et&rn I &6)(0)5 <e!invest)ent o0 dividends will generate %%K )ore ret&rns "o)pared to retaining the dividends ba"; to po";et every year9 Besides, )any "o)panies also have dividend reinvest)ent plan that do not re?&ire additional transa"tion 0ees9 7t wo&ld be a "ost! e00e"tive way to p&r"hase shares thro&gh reinvesting dividends9 14 Personal insurance 7ns&ran"e is a )ethod whi"h provides 0inan"ial prote"tion in a "ost e00e"tive way9 8i0e ins&ran"es are designed in s&"h a way that i0 so)ething happens to the ins&rer than 0a)ilyCs living standard "an be )aintained9 An a)o&nt o0 5%,+$$,$$$ 0or Ted and 5%,$$$,$$$ 0or Eliza is appropriate at this ti)e9 These a)o&nts will "over the short0all as identi0ied in gap analysis9 Additional li0e and TP: ins&ran"e is re"o))ended to Ted be"a&se he "annot ta;e o&t higher "over within his s&perann&ation 0&nd9 Superannuation Ted needs to "hange his s&perann&ation ris; pre0eren"e so as to )at"h it with his ris; pro0iles9 Eliza is s&ggested to )aintain her s&perann&ation in a balan"ed invest)ent style9 The salary sa"ri0i"e "ontrib&tion will help the) to in"rease their wealth in a ta3 e00e"tive way over the long ter)9 Paying off the mortgage There )ay be early repay)ent penalty by ban;s whi"h sho&ld be ;eep in )ind be0ore paying early9 15 ecommended asset allocation HardgravesC invest)ent assets are invested a"ross di00erent asset "lasses as )entioned in below table.
Table 1: Asset allocation Asset Allocation Ted Eliza 7eig.t 8is9 Profile 7eig.t +ariance :7eig.t; 7eig.t 8is9 Profile 7eig.t +ariance :7eig.t; <efensive Assets A&stralian /ash '494K +K 2494K %49+K %$K 49+K A&stralian (i3ed 7nterest %29*K %+K !294K %#94K 2$K !29%K 7nternational (i3ed 7nterest *9'K %$K !'9#K 94K %$K !%9%K Total for <efensive Assets 0=.=> =)> 6=.=> '?.=> ')> ?.=> 1ro-t. Assets A&stralia E?&ities 2#9K '+K !#92K 2*9K '$K !'92K A&stralian Property *9'K %$K !'9#K 94K %$K !%9%K 7nternational E?&ities %29*K 2+K !%294K %#94K 2$K !29%K Total for 1ro-t. Assets '?.4> 4)> @6=.=> 0=.4> ?)> @?.=> 16 Table 2: Asset allocation for managed funds Asset Allocation Ed$cation Ao$ndation nvestments A$nds Defensive Assets A&stralian /ash %+K A&stralian (i3ed 7nterest 2+K 7nternational (i3ed 7nterest %+K Total for Defensive Assets 55% Growth Assets A&stralia E?&ities 2+K A&stralian Property %$K 7nternational E?&ities %$K Total for Growth Assets 45% 1rand Total /))> Table 3: Asset allocation after implementation of recommendations Asset Allocation Ted Eliza 7eig.t 8is9 Profile 7eig.t +ariance :7eig.t; 7eig.t 8is9 Profile 7eig.t +ariance :7eig.t; :e0ensive Assets A&stralian /ash *9*K +K %9*K %+94K %$K +94K A&stralian (i3ed 7nterest %%9#K %+K !'9'K 2%92K 2$K %92K 7nternational (i3ed 7nterest #9K %$K !292K %%9*K %$K %9*K Total 0or :e0ensive Assets 6?./> =)> @=.5> 'B.4> ')> B.4> -rowth Assets A&stralia E?&ities 4*9*K '+K %%9*K 2*9#K '$K !'9'K A&stralian Property #9K %$K !292K 49*K %$K !$94K 7nternational E?&ities %49+K 2+K !+9+K %+9%K 2$K !494K Total 0or -rowth Assets 4=.5> 4)> =.5> 0/.=> ?)> @B.4> -rand Total /))> /))> )> /))> /))> )> 17 Table 4: Asset value Asset Allocation Ted Eliza C$rrent +al$e +al$e after recommendation C$rrent +al$e +al$e after recommendation <efensive Assets A&stralian /ash 5%$4,$$$ 5%,%4 5%,+$$ 52#,4*4 A&stralian (i3ed 7nterest 5',$$$ 5'2,$+% 5%#,$$$ 54*,4+4 7nternational (i3ed 7nterest 5%4,$$$ 52%,'*# 5,+$$ 5%4,4*4 Total for <efensive Assets &/?/())) &4/(?)/ &''())) &B=(B56 1ro-t. Assets A&stralia E?&ities 54,$$$ 5%2#,#+ 52+,+$$ 54+,4* A&stralian Property 5%4,$$$ 52%,'*# 5,+$$ 5%*,44 7nternational E?&ities 5',$$$ 5+',4% 5%#,$$$ 52+,444 Total for 1ro-t. Assets &/'/())) &6)6(0?5 &0/())) &BB('0/ Total +al$e &=)6())) &64'(/4/ &50())) &/46(='= 18 Implementation Ted and Eliza are s&ggested that in order to pro"eed with these re"o))endations, below steps sho&ld be "o)pleted 0irst. <ead, sign and ret&rn the A&thority to Pro"eed atta"hed9 <ead the atta"hed Prod&"t :is"los&re ,tate)ent and s&pporting )aterial9 /o)plete and sign the appli"able 0or)Ls "ontained in the Prod&"t :is"los&re ,tate)ent 0or Medi (&t&re 7ns&ran"e Pty9, 8td9 /o)plete and sign the appli"able 0or)Ls "ontained in the Prod&"t :is"los&re ,tate)ent 0or Ed&"ation (o&ndation 7nvest)ents, in"l&ding yo&r ta3 0ile n&)ber9 Arrange an appoint)ent with )e and bring any "o)pleted appli"ation 0or)s9 Note. The re"o))endations "ontained in this ,6A are "&rrent 0or '$ days only9 Please "onta"t )e 0or 0&rther dis"&ssion i0 yo& are &nable to a"t on o&r re"o))endation within this ti)e 0ra)e9 19 Authority to proceed 2e a";nowledge that the prod&"tAsD listed in the table below are to be i)ple)ented in o&r na)es. ns$rance Prod$ct Amo$nt of Cover 8i0e and TP: "over 0or Ted with Medi (&t&re 7ns&ran"e 5%,+$$,$$$ Tra&)a "over 0or Ted with Medi (&t&re ins&ran"e 5%$$,$$$ Tra&)a "over 0or Eliza with Medi (&t&re ins&ran"e 5%$$,$$$ nvestments Amo$nt Ed&"ation (o&ndation 7nvest)ents (&nds 5*2,+$$ Be0ore signing this do"&)ent, please "he"; that 7 have. given yo& the BB n @ Pvt9 8td9 (inan"ial ,ervi"es -&ide A(,-D given yo& all the Prod&"t :is"los&re ,tate)ents 0or the prod&"ts re"o))end "on0ir)ed that the personal in0or)ation 7 have "olle"ted is "orre"t dis"&ssed yo&r goals and ob>e"tives "on0ir)ed that yo& are happy with yo&r ris; pro0ile dis"&ssed any ris;s in the re"o))endations dis"&ssed 0ees that need to be paid Also before signing this document, confirm that: we have ;ept a "opy o0 the ,6A and we have had the opport&nity to read, "onsider and &nderstand the do"&)ent, s&pporting )aterial and have as;ed ?&estions the ,6A dated %4 6"t 2$%2 a""&rately s&))arises o&r "&rrent sit&ation, invest)ents, ins&ran"es and 0inan"ial goals9 2e &nderstand that any ina""&rate or in"o)plete in0or)ation provided to &s, )ay bring ris; to )eeting o&r needs appropriately we have read and &nderstood the B:is"los&re o0 "o))issions, 0ees and bene0itsC se"tion o0 ,6A we &nderstand that the val&e o0 re"o))ended invest)ents )ay rise and 0all in line with the )ar;et "onditions and yo& "annot g&arantee 0&t&re per0or)an"e we &nderstand that this state)ent is solely 0or o&r &se o0 the "lients to who) it is addressed and B n @ Pvt9 8td9 Pty9, 8td, does not a""ept any liability whatsoever to third parties who &se or rely on the whole or any part o0 the "ontent, and we hereby re?&est (inan"ial Planner to provide servi"es detailed in the se"tion B6ngoing ,ervi"esC 20 2e "onsent to being "onta"ted by o&r adviser on an ongoing basis, in line with the agreed ongoing servi"e review str&"t&re detailed within this re"o))endation9 6&r pre0erred ho&rs o0 "onta"t are between MMMMMM Aa)Lp)D and MMMMMM Aa)Lp)D9 ,igned MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM :ate MMMM L MMMM L MMMM /lient Na)e ,igned MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM :ate MMMM L MMMM L MMMM /lient Na)e ,igned MMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMMM :ate MMMM L MMMM L MMMM (inan"ial Planner 21 SCA A""endi! / D Ainancial "osition #efore im"lementation of strateg* Cas. Alo- Statement Ted Eliza ,otes ncome from em"lo*ment ,alary 5%2$,#4 5*$,44$ ,- /ontrib&tion 5%$,#4 5+,44$ 4K ,- Salar* after salar* sacrifice &//)())) &00())) <ental in"o)e Nn0ran;ed dividends (ran;ed dividends 5%,#+$ 2#$$$F*94K I 5%,#+$ A4*9#K 0ran;edD (ran;ing Ai)p&tationD "redits 5#2+ %#+$FA'$L#$DF4*9#K I 5#2+ 7nterest 54,2%' 54*' %+$$$ O +K p9a9 I 5#+$ +$$$ O '9+K p9a9 I 5%#+ Total I 542+, +$K share I 54*' ea"h #+$$$ O +K p9a9 I 5',#+$ 6ther in"o)e, e9g9 ta3able bene0its /apital gains P%yr /apital gains Q%yr Ta3!0ree "o)ponent o0 "apital gains Assessa#le income &//?(?BB &00('?= :ed&"tible e3penses <ental e3penses, repairs et"9 Ta!a#le income 6)/6%6)/= &//?(?BB &00('?= Ta! on ta!a#le income &=/(/66 &5(046 Non!re0&ndable ta3 o00sets Ae9g9 87T6L,AT6D Medi"are levy 5%,#+$ 5'2 Medi"are levy s&r"harge (ran;ing rebate !5#2+ <e0&ndable rebates and o00sets Total ta! &=/(/'4 &/)(')' ncome after ta! &B'(0'/ &'0()05 22 Aamil* cas. flo- Ted Eliza Com#ined ncome after ta! :as calc$lated a#ove; &B'(0'/ &'0()05 &/65(?)) Living e!"enses Ho)e )ortgage 5%4,'+$ 5%4,'+$ 52,#$$ -eneral living e3penses 522,+$$ 522,+$$ 54+,$$$ A""o&ntantCs 0ee 52+$ 52+$ 5+$$ :onations 5+$$ 5+$$ 5%,$$$ Ann&al Holiday 5+,$$$ 5+,$$$ 5%$,$$$ Total e!"enses &B0(6)) ,et cas. flo- &''(')) Assets and lia#ilities Asset C-ner +al$e Lia#ilities ,et val$e ,otes Personal assets (a)ily Ho)e 1oint tenant 5+$,$$$ 5'$$,$$$ 5++$,$$$ Ho)e "ontents 1oint tenant 5+$,$$$ 5+$,$$$ /ar 1oint tenant 5%,$$$ 5%,$$$ Total &5/B())) &=))())) &?/B())) nvestment assets ,&perann&ation Ted 5%4$,$$$ 5%4$,$$$ ,&perann&ation Eliza 5+,$$$ 5+,$$$ /ash )anage)ent a""o&nt 1oint 5%+,$$$ 5%+,$$$ ,avings a""o&nt 1oint 5+,$$$ 5+,$$$ /ash )anage)ent a""o&nt E inheritan"e Ted 5#+,$$$ 5#+,$$$ ,hares Ted 52#,$$$ 52#,$$$ Total &=54())) &=54())) ,et -ort. &/()/0())) Lia#ilities Loan C$rrent de#t Percentage ded$cti#le nterest onl* 8e"a*ment Ho)e loan 5'$$,$$$ No9 52'42 p9)9 Total &=))()))
23 SCA A""endi! 6 D Ainancial "osition after im"lementation of strateg* :6)/6%6)/= financial *ear; Cas. flo- statement Ted Eliza ,otes ncome from em"lo*ment ,alary 5%2$,#4 5*$,44$ ,- /ontrib&tion 5%$,#4 5+,44$ 4 K ,- ,alary ,a"ri0i"e /ontrib&tion 54,*$$ 54,$$ /ontrib&tion start 0ro) early Nov 2$%2, e00e"tively )onth "ontrib&tions Salar* after salar* sacrifice &/))(')) &0)(6)) <ental in"o)e Nn0ran;ed dividends (ran;ed dividends 5%,#+$ 2#$$$F*94K I 5%,#+$ A4*9#K 0ran;edD (ran;ing Ai)p&tationD "redits 5#2+ %#+$FA'$L#$DF4*9#K I 5#2+ 7nterest 5'#+ 5'#+ %+$$$ O +K p9a9 I 5#+$ +$K share I 5'#+ ea"h 6ther in"o)e, e9g9 ta3able bene0its /apital gains P%yr /apital gains Q%yr Ta3!0ree "o)ponent o0 "apital gains Assessa#le income &/)=(60) &0)(040 :ed&"tible e3penses <ental e3penses, repairs et"9 Ta!a#le income 6)/6%6)/= &/)=(60) &0)(040 Ta! on ta!a#le income &6?(/0) &4(5B' Non!re0&ndable ta3 o00sets Ae9g9 87T6L,AT6D Medi"are levy 5%,+44 5#+4 Medi"are levy s&r"harge (ran;ing rebate !5#2+ <e0&ndable rebates and o00sets Total ta! &6?(54= &B(4'= ncome after ta! &4?(644 &'/(B== 24 Aamil* cas. flo- Ted Eliza Com#ined ncome after ta! :as calc$lated a#ove; &4?(644 &'/(B== &//B(/)5 Living e!"enses Ho)e )ortgage 52',4%# 52',4%# 54#,'4 -eneral living e3penses 522,+$$ 522,+$$ 54+,$$$ A""o&ntantCs 0ee 52+$ 52+$ 5+$$ :onations 5+$$ 5+$$ 5%,$$$ Ann&al Holiday 5+,$$$ 5+,$$$ 5%$,$$$ E( Managed (&nd O 5*$$ p9)9 0or )onth 52,4$$ 52,4$$ 54,$$ Medi (&t&re Tra&)a ins&ran"e "over 52*$ 524$ 5+$$ Medi (&t&re 8i0e and TP: "over 5%,2$$ 5%,2$$ Total e!"enses &//)(B== ,et cas. flo- &4(640 ,oteE )ortgage e3pense in"l&des old repay)entsA1&ly 2$%2 E 6"t 2$%2D and new repay)entANov 2$%2 E 1&n 2$%'D Assets and lia#ilities Asset C-ner +al$e Lia#ilities ,et val$e ,otes Personal assets (a)ily Ho)e 1oint tenant 5+$,$$$ 52#4,244 5+#+,#+% Ho)e "ontents 1oint tenant 5+$,$$$ 5+$,$$$ /ar 1oint tenant 5%,$$$ 5%,$$$ Total &5/B())) &64'(6'5 &?'=(40/ FAss&)e that appro3i)ately 52+,#+% has been paid o00 ho)e loan 0ro) Nov 2$%2 t$ 1&ne 2$%' nvestment assets ,&perann&ation Ted 52%',*#% 52%',*#% ,&perann&ation Eliza 54+,%4' 54+,%4' /ash )anage)ent a""o&nt 1oint 5%+,$$$ 5%+,$$$ ,hares Ted 52,#+$ 52,#+$ E( )anaged invest)ent Eliza 5*4,#$* 5*4,#$* Total &'66(=?5 &'66(6?5 ,et -ort. &/()??()6) FAss&)e "ontrib&tions period 0or s&perann&ation R )anaged invest)ent is 0ro) Nov 2$%2 to 1&ne 2$%' Lia#ilities Loan C$rrent de#t Percentage ded$cti#le nterest onl* 8e"a*ment Ho)e loan 52#4,244 No9 54#' p9)9 Total &64'(6'5
25 SCA A""endi! = D S$"erann$ation ProFections Table 1 Superannuation account balance projections C$rrent sit$ation After recommended strateg* Ted2s age <ate Ted2s acco$nt #alance at *ear end Eliza2s acco$nt #alance at *ear end Com#ined acco$nt #alance Ted2s acco$nt #alance at *ear end Eliza2s acco$nt #alance at *ear end Com#ined acco$nt #alance 42 6"t!2$%' 5%4$,$$$ 5+,$$$ 52#+,$$$ 5%4$,$$$ 5+,$$$ 52#+,$$$ 4' 1&n!2$%' 52$4,$$ 54%,$$' 524+,$%% 52%',*#% 54+,%4' 5'$,%' 44 1&n!2$%4 522*,$4# 5%$$,'4$ 5'2*,4* 52+%,'$# 5%%%,$$4 5'*2,'%% 4+ 1&n!2$%+ 5244,+4 5%%$,2+# 5'+4,$+ 524%,**4 5%2#,*#* 54%4,'4$ 4* 1&n!2$%* 52#4,44+ 5%2$,*24 5'4+,$#4 5''4,4'4 5%4+,2$2 54$,%4% 4# 1&n!2$%# 5'$$,# 5%'%,+'2 54'2,4%$ 5'%,'42 5%*',*24 5+44,4** 4 1&n!2$% 5'2,442 5%42,442 54#%,4'4 54'%,$44 5%2,4 5*%4,$ 44 1&n!2$%4 5'+,#'* 5%++,$'4 5+%',##+ 544,4+4 52$','44 5*#,#4# +$ 1&n!2$2$ 5'4$,'* 5%*#,#$2 5++,$#$ 5+4%,**+ 5224,#4$ 5#**,4$+ +% 1&n!2$2% 542',4+$ 5%%,$%' 5*$4,4*4 5*$',$%2 524#,2'2 5+$,244 +2 1&n!2$22 54+4,*$+ 5%4+,$$+ 5*+4,*%$ 5**,#44 52#$,#4 54'4,** +' 1&n!2$2' 544#,4+ 52$4,#%' 5#$#,%#% 5#'4,''2 524+,#2* 5%,$'+,$+# +4 1&n!2$24 5+'#,*4* 522+,%#' 5#*2,%4 5%4,4* 5'2%,44 5%,%'*,%# ++ 1&n!2$2+ 5+$,'%' 524%,42+ 52%,#'# 54*,$#' 5'44,'$ 5%,24+,'% +* 1&n!2$2* 5*2+,*%% 52+,+$ 54,%% 54',$4$ 5'#,%#' 5%,'*%,2%' +# 1&n!2$2# 5*#',#$' 52#*,4*4 54+$,%*# 5%,$#*,244 54$,+%4 5%,44,$4 + 1&n!2$2 5#24,#*% 524+,'4$ 5%,$2$,%$% 5%,%#*,24$ 544$,4$ 5%,*%*,*4 +4 1&n!2$24 5##,4*4 5'%+,%% 5%,$44,%+$ 5%,2',+%4 54#',4'' 5%,#+#,44 *$ Mar!2$'$ 52%,$# 5''$,#2+ &/(/06(0== 5%,'*,44 5+$$,%4 &/(B?5(/BB Table 1(a) Assumptions: Value Ted: current Eliza: current Ted: strategy recommendations Eliza: strategy recommendations Contribution amount: SG and any other (pmt) $906.60 before contribution tax $770.60 after contribution tax $453.30 before contribution tax $385.30 after contribution tax $2,106.60 before contribution tax $1,790.60 after contribution tax $1,053.30 before contribution tax $895.30 after contribution tax Contribution frequency Monthly Monthly Monthly Monthly Rate = the rate of return of the fund, net of inflation 6% p.a. 5% p.a. 7% p.a. 5% p.a. 26 Table 2Superannuation income analysis post retirement Ted2s age Com#ined acco$nt #alance Ass$m"tions Com#ined f$nd *$ 5%,*4,% <ate o0 ret&rn net o0 in0lation 'K *% 5%,*+,2$4 (re?&en"y o0 drawdown Monthly *2 5%,*%,%$4 7n"o)e per ann&) 5*$,$$$ *' 5%,+*,+ *4 5%,+2,+'2 *+ 5%,4,$4* ** 5%,4',42+ *# 5%,',**2 * 5%,'',#++ *4 5%,2,*4 #$ 5%,2',4 #% 5%,%,%%4 #2 5%,%2,+# #' 5%,$*,# #4 5%,$%,$%' #+ 5%,#44,4*% #* 5%,#,#24 ## 5%,#2,24 # 5%,##+,*## #4 5%,#*,+4 27 $ 5%,#*%,2' % 5%,#+4,+#4 2 5%,#4#,%%4 ' 5%,#'4,422 4 5%,#'%,44* 28 SCA A""endi! ' D Managed nvestment ProFections Year HarriettGs age BillGs age <ate 7it.dra- A$nd Balance % %% 6"t!2$%2 5*2,+$$ :e"! 2$%2 5*4,2## 2 %2 4 :e"! 2$%' 5#+,2# 5%2,$$$ 5*',2# ' %' %$ :e"! 2$%4 5#4,24% 5%2,$$$ 5*2,24% 4 %4 %% :e"! 2$%+ 5#',%'* 5%2,$$$ 5*%,%'* + %+ %2 :e"! 2$%* 5#%,4*4 524,$$$ 54#,4*4 * %* %' :e"! 2$%# 5+,$+4 524,$$$ 5'4,$+4 # %# %4 :e"! 2$% 54','*+ 524,$$$ 5%4,'*+ % %+ :e"! 2$%4 52#,42 5%2,$$$ 5%+,42 4 %4 %* :e"! 2$2$ 524,%%4 5%2,$$$ 5%2,%%4 %$ 2$ %# :e"! 2$2% 52$,%# 5%2,$$$ 5,%# 29 Ass$m"tionsE 6pening balan"e. 5*2,+$$ Monthly /ontrib&tion. 5*$$ <ate o0 ret&rn net o0 in0lation. +9+K p9a9 All "ash withdraw will be )ade at the end o0 year 30 SCA A""endi! 0 D Mortgage ProFections Year <ate C$rrent sit$ation After recommended strateg* A""o&nt Balan"e A""o&nt Balan"e $ 6"t!2$%2 5'$$,$$$ 5'$$,$$$ 1&n!2$%' 524',#44 52#4,244 % 6"t!2$%' 524$,+2% 52*$,4+$ 2 6"t!2$%4 52$,4$# 52%4,2+ ' 6"t!2$%+ 52*4,*%* 5%#4,'$ 4 6"t!2$%* 52+,%$2 5%2#,'4# + 6"t!2$%# 524+,%# 5#*,# * 6"t!2$% 52'2,#$4 522,#4 # 6"t!2$%4 52%,#2' !5'4,2* 6"t!2$2$ 52$',$% 4 6"t!2$2% 5%#,#4 %$ 6"t!2$22 5%#$,4% %% 6"t!2$2' 5%+2,#*+ %2 6"t!2$24 5%'',42+ %' 6"t!2$2+ 5%%2,#4% %4 6"t!2$2* 54$,##4 %+ 6"t!2$2# 5*#,22 %* 6"t!2$2 542,2% %# 6"t!2$24 5%+,4#4 % 6"t!2$'$ !5%',$*$ Ass$m"tionsE 6pening balan"e. 5'$$,$$$ Mortgage interest rate. *9+K p9a9 /&rrent )onthly repay)ent. 52,'42 <e"o))ended )onthly repay)ent. 54,#4 Please note. The )ortgage will be 0&lly repaid in %#9* years i0 &nder "&rrent repay)ent The )ortgage will be 0&lly repaid in *94 years i0 &nder re"o))ended repay)ent 31 SCA A""endi! ? D m"lementation sc.ed$le Action B* 7.om Timeframe Arrange ti)e 0or ne3t )eeting A2 wee;sD (inan"ial Planner 7))ediately <ead and sign A&thority to Pro"eed Ted R Eliza % wee; <ead Prod&"t :is"los&re ,tate)ent Ted R Eliza % wee; /o)plete appli"ation 0or)s Ted R Eliza % wee; Arrange to )eet with a""o&ntant to dis"&ss a""o&nting Lta3 iss&es Ted R Eliza % wee; /onta"t s&per 0&nd to in"rease ins&ran"e Eliza 2 wee;s /onta"t s&per 0&nd to "hange assetLris; allo"ation Ted 2 wee;s /onta"t s&per 0&nd to add ins&ran"e Ted R Eliza 2 wee;s /onta"t ban; to in"rease )ortgage repay)ents Ted R Eliza 2 wee;s Meet with Ted R Eliza to "olle"t 0or)s and "he"; on progress (inan"ial Planner 2 wee;s :eposit 0&nds 0ro) savings into )anaged invest)ent Ted R Eliza 2 wee;s Arrange to )eet with soli"itor to &pdate 2ill and powers o0 attorney Ted R Eliza 2 wee;s Arrange 0or review )eeting (inan"ial Planner * )onths
32 Section 3 Present appropriate strategies and solutions to the client and negotiate a financial plan, policy or transaction Part A The SOA has been completed and a meeting has been organised with Ted and Eliza to present the recommendations and, if they agree, to implement them. Outline the steps that should be followed in presenting this advice to Ted and Eliza. In your answer, you should address at least four of the following requirements regarding presentation of advice: the order in which you present the information what back-up information and documents you might need any risks associated with the solution two predictable questions the Browns might ask you and the answers you will give the language you will use to present the strategy to Ted and Eliza. (250 words) The following procedures shall apply when presenting the advice to Ted and Eliza: Restate the reasons why they come to seek the financial advice and they expectations (goals & objectives) Reconfirm whether there is any significant change to their situation Revisit all information collected from the data find form and summarise their current situation including the area where they can make improvement Talk about their risk profile and explain the rationale behind Go through each recommendations and explain how these recommendation can meet their goals and objectives, including further explanation about particular recommended products Product Disclosure Statement if necessary Give a summary of recommendations and strategies; explain how their asset allocations can meet with their risk profile after taking recommendations Explain the cost of taking recommendations and associated risks Disclose fees, commissions and benefit involved Explain the ongoing service and implementation plan Ensure they are clear about every forms that need to signed It is also important to ask questions when following above steps to ensure both Ted and Eliza are fully understand the plan and the implications of the advice provided. FP3B-1SN3-2 Part B Suggest a minimum of two concerns that the Browns might have with the strategy that you have proposed. Explain how you would address each of these concerns. (100 words) Concern 1: How are these investment funds selected? These investments are all from approved product list (APL) of B n Y pvt. Ltd. This approved products are optimized after extensive research, by simulation and practice. These investment products are studied in detail and then ranked as the best options to suit the Hardgraves current risk profile. Concern 2: What if we do not like the investments you recommend? If you are not happy with taking the recommended investment you can simply inform your concerns. Prior to undertaking any actions on investment, we have to get your permission first. Thats why the Authority to proceed is provided to you. Part C During the course of your discussion with Ted, you discover that he has suffered from a back injury and you suspect that this may result in a premium loading being applied to his income protection. Explain how you would justify the need for this policy to him, despite the extra costs. (150 words) It would be beneficial to Teds family if he take adequate income protection insurance. Imagine he is unable to work due to unexpected illness/injury/partial or total disability; the family will lose approximately $84,000 annual income (after tax). They may even find difficulties to keep the life style they used to enjoy as Elizas income can only cover their general living expenses. They probably need to extend their mortgage, cancel their annual holiday, and save more for their childrens future education. Unlike life & TPD insurance (protection on death & disability) and trauma insurance (protection on defined medical conditions), Income protection insurance can provide a monthly payment (usually up to 75% of the income) if the insured is temporarily unable to work due to illness or injury. Income protection insurance is perhaps the easiest policy on which to make a claim, given a legitimate disability and a reasonable contract of insurance. This type of policy only requires the life insured to be able to prove they are disabled at least one month at a time The Australian Taxation Office allows tax deductions for insurance premiums where it can be proven that those premiums relate to the earning of assessable income; therefore income protection insurance is also tax deductible. If Ted is more concerned about the cost of loading, certain adjustments on waiting period/ benefit period may help to reduce the premium. FP3B-1SN3-2 Section 4 Agree on the plan, policy or transaction and complete documentation Part A Ted and Eliza have finally agreed to proceed with your recommendations. Explain your fee and cost structure to Ted and Eliza in plain English. (100 words) The total fee for our advice and for the preparation of this Statement of Advice is $4000. B n Y Pvt. Ltd. is entitled to receive $2000 and I will receive the balance amount of 2000. If you wish to implement the products I have recommended, I will receive commission from the issuer of the products I have recommended. All fees and commissions are clearly disclosed in both the SOA and the PDS. All remuneration, commission and other benefits are presented in dollar terms in the SOA. A fee of $200 per hour will be charged for any additional services performed (e.g. ongoing service). Part B Prepare a timeframe for implementing the plan. Explain the reasons behind the timeframe. (100 words) Action By Whom Timeframe Arrange time for next meeting (2 weeks) Planner Immediately Read and sign Authority to Proceed Ted & Eliza 1 week Read Product Disclosure Statement Ted & Eliza 1 week Complete application forms Ted & Eliza 1 week Arrange to meet with accountant to discuss accounting /tax issues Ted & Eliza 1 week Contact super fund to increase insurance Eliza 2 weeks Contact super fund to change asset/risk allocation Ted 2 weeks Contact super fund to add insurance Ted & Eliza 2 weeks Contact bank to increase mortgage repayments Ted & Eliza 2 weeks Meet with Ted & Eliza to collect forms and check on progress 2 weeks Deposit funds from savings into managed investment Ted & Eliza 2 weeks Arrange to meet with solicitor to update Will and powers of attorney Ted & Eliza 2 weeks Arrange for review meeting Financial Planner 6 months Ted and Eliza should have enough time to read and review all the application and PDS during the first week. They should also talk with their accountant to make sure they understand all the accounting/taxation implications that may affect them after taking the recommended actions. Increasing mortgage repayment involves lots of money; they may need more time to think about it. Once their written confirmation and application are being received during the meeting in two weeks time, further actions can be implemented. Lastly, it would be easy for them to meet with solicitor when everything else has been arranged. Another meeting in 6 months time should be enough to perform a review on their progress. FP3B-1SN3-2 Part C Identify the documentation that you may require from Ted and Eliza before proceeding with your advice. (100 words) The final updated SOA with Authority to proceed that signed by Eliza and Ted is needed before implementing the advice. It simply gives the planner a permission to proceed with planned actions. The application forms for recommended insurance and investment products have to be completed and signed as well. The identity verification document (e.g. Drivers licence, passport) may also be need for confirming the signature. Part D List the documentation that you may need to present to Ted and Eliza at this stage. (100 words) A checklist of all the possible activities associated with the provision of financial advice Product Disclosure Statements for all recommended insurance and investment products Copies of all singed documents (e.g. SOA and application forms) The implementation schedule A letter to the solicitor that explains their needs for updating the Will and establishing powers of attorney A confirmation of next meeting for review FP3B-1SN3-2 Section 5 Provide ongoing service where requested by client Part A Draft an outline of the level of ongoing service you intend to recommend to Ted and Eliza. In your outline, discuss the type of information that you would regularly provide to Ted and Eliza in relation to their portfolio. (250 words) Ongoing financial planning reviews are important part of ensuring the financial plan remains relevant over time. The ongoing review is similar to what have been done in the previous meeting before implement SOA. The planner will collect data, examine resources, prioritise clients goals and objectives, make recommendation and initiate implementation plan if necessary. The review process will normally address changes to the following areas and adjusts the financial plan accordingly: Income and expenditure: its vital to maintain their budget in an acceptable level and make sure Eliza and Ted have adequate savings. A change in career, or earning ability, may have a significant impact on their lifestyle habits or retirement planning capabilities. Balance sheet: it is important to ensure that all their assets and liabilities are reflected accurately. These will affect not only the content of the advice relevant to them, such as level of assurance cover, but also impact investments where tax is relevant. Their family situation: they may be able to receive more social benefits as their family situation changes. Their financial planning needs and objectives should be reviewed before considering any changes on your financial and investment strategies Their insurance needs: their family member might need more health insurance cover as everyone grows older. The general economic environment: the economy can change without notice, a new regulation or legislation will impact on their financial plan. Superannuation: if either Ted or Eliza decides retire earlier, they would have to adopt relevant adjustment to their superannuation so that to have sufficient income stream when they retire. Investment product: there may be a new product available in the market which better suits their risk profile and need. Taxation: their taxation position and any relevant changes in the current tax law should be updated regularly. There may be opportunities to reduce the tax payable. Estate Planning: If they've had any life or family changes, such as a birth, adoption or divorce, they may need to revise their beneficiary designations. The above points should be reviewed at least once a year through a formal meeting. If there is any change needs to be handled in an urgent manner, a special review can be arranged. Reviewing their financial plan at least once a year could help ensure Ted and Eliza are on track to reach their long-term goals. It is also an opportunity for them to compare their investment portfolio performance with the original expectations. Although the purpose of the review process is not necessarily to change the investment, making certain investment amendments may be needed if there are significant difference between the existing performance and the expectation. The review simply offers a chance to implement any new plan of action that has been developed in light of changing goals or changing performance. Any urgent issue should be reviewed immediately; the investment portfolio could be reviewed every 3 to 6 months; a full review would be given on an annual basis. FP3B-1SN3-2 Part B What would you do to ensure that Ted and Eliza know the specific costs relating to an ongoing service? (100 words) Other than simply explaining the cost structure to Ted and Eliza, a written service fee schedule should be given to them. Any remuneration, commission, fees or other benefits in relation to providing ongoing service and how these cost are calculated shall all be explained and included in the fee schedule. The estimated total cost of an ongoing service will be confirmed with them prior to any work being commenced. FP3B-1SN3-2