Case study solution

Foundations of Financial Planning

Superannuation and Life Insurance Skills (Capstone project)FP3B-1SN3-2 Capstone projectProject Cover Sheet

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Feedback (assessor to complete)[insert assessor feedback]Superannuation and Life Insurance SkillsCapstone projectThis 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)

StepActionCompleted?

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 projectThink 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 FEnsure 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 HardgravesBackgroundYou 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 informationSurname Name:HardgravesHardgraves

Christian Name:TedEliza

SalutationMrMrs

Age/Date of birth28 March 197017 August 1971

StatusMarriedMarried

Home address4 Pringle Ave, Kensington4 Pringle Ave, Kensington

HealthGoodGood

SmokerNoNo

OccupationSenior GeologistParalegal

EmployerLemon Gold Pty LtdRanier and Jackson

Start date20042008

Sick leave currently available14 days plus 10 days per annum6 days plus 10 days per annum

Retirement age6564

Dependants/Family relationshipsHarriett (aged 9 years)Bill ( aged 8 years)

Professional relationshipsSolicitorCarlie Mattieson

Time span of relationship10 years

Quality of relationshipPoor

Service providedConveyancing for home purchase

AccountantJohn Watson

Time span of relationship7 years

Quality of relationshipExcellent

Service providedAnnual tax return

Annual income detailsName:TedEliza

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$50,000Joint names

Car$18,000Fully paid off joint names

Savings Account$5,000Everyday savings account paying no interest joint names

Cash management account - inheritance$10,000Cash management account earning 5.1% p.a. Teds name only

ABC Superannuation - Ted$220,000Invested in a retail fund, balanced option. No beneficiaries or binding nominations specified. The fund accepts salary sacrifice.

SOH Industry Superannuation - Eliza$58,000Invested 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$53,691Dividend yield of 6.4% p.a. 99% franked dividends in Teds name only

Current share portfolioNumber of sharesCompanyASX CodeCurrent Value (same as value at date of death)Price of Shares when acquired by aunt Jenny

500AMP LimitedAMP$2,158$4.40

1,300Insurance Australia Group LimitedIAG$5,473$1.75

400Commonwealth Bank LimitedCBA$22,052$27.7

400Telstra Corporation LimitedTLS$1,552$4.48

400Westpac Banking CorporationWBC$9,900$19.60

400BHP Billiton LimitedBHP$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 inflation2Legal logical and appropriate tax relief5

Easy access to your capital1Regular income from your investments1

Easy to administer3Capital growth5

Volatility2

Eliza Hardgraves

Income to keep pace with inflation2Legal logical and appropriate tax relief5

Easy access to your capital1Regular income from your investments1

Easy to administer4Capital growth5

Volatility4

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 1Establish the relationship with the client and identify their objectives, needs and financial situationPart 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 2Analyse client objectives, needs, financial situation and risk profile to

develop appropriate strategies and solutionsPart 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 mentionedFact finder

Personal and employment details

Personal details

Client 1Client 2

TitleMrMrs

SurnameHardgravesHardgraves

Given & preferred namesTedEliza


Business addressNANA

Contact phoneNANA

Date of birth28-March-7017-August-71

Age4443

SexMaleMaleFemaleMaleFemaleFemale

SmokerYesNoNoYesNoNo

Expected retirement age6564

Dependants (children or other) :

NameDate of birthSexSchoolOccupation

HarriettNANANANA

BillNANANANA

Employment details

Client 1Client 2

OccupationSenior GeologistParalegal

Employment statusSelf employedEmployeeSelf employedEmployee

Not employedPensionerNot employedPensioner

PermanentPart timePermanentPart time

CasualContractorCasualContractor

OtherGovernmentOtherGovernment

Business statusSole proprietorPartnershipSole proprietorPartnership

Private companyTrustPrivate companyTrust

Notes: Any other person to be contacted? E.g. accountant, bank, solicitor, etc.

Solicitor: Carlie Mattieson with 10 years poor relationship with Ted and Eliza and providing service of Conveyancing for home purchase

Accountant: John Watson with 7 years excellent relationship with Ted and Eliza and providing service of Annual tax return

Income, expenditure and net worthCash flow statement

Income and expenses

Client 1Client 2Notes

Income from employment

Salary140,00055,000

Salary sacrifice12,6004,950(9 % SG)

Salary after salary sacrifice127,40050,050

Rental income

Unfranked dividends

Franked dividends3,436(state % return if applicable)

Franking (imputation) credits(state franking % if applicable)

Interest510(state % return if applicable)

Other income, e.g. taxable benefits

Capital gains 1yr

Tax-free component of capital gains

Assessable income131,34650,050

Deductible expenses

Rental expenses, repairs etc.

Taxable income131,34650,050

Tax on taxable incomeNANA

Non-refundable tax offsets (e.g. LITO/SAPTO)

Medicare levy

Medicare levy surcharge

Franking rebate

Refundable rebates and offsets

Net tax payableNANA

Family cash flow

Client 1Client 2CombinedComment

Salary less any salary sacrifice amount127,40050,050177,450

Non-taxable income (e.g. income from superannuation income streams for a person aged over 60, FamilyTax Benefits)

Interest income510510

Dividends received (excluding franking credits)3,4363,436

Rental income

Other income

Total income received before tax131,34650,050181,396

Living expenses

Mortgage37,800

General Living expense50,400

Accountants Fees550

Donations1,000

Holidays (Annually)11,000

Other expenses

Total expenses100,750

Total income received before tax less expenses80,646

Net tax payable from the Income and Expense table aboveNA

Net cash flow80,646

Assets and liabilities

AssetOwnerValueLiabilitiesNet valueNotes

Personal assets

Family HomeJoint tenant$650,000$470,000$180,000

Home contentsJoint tenant$50,000$50,000

CarJoint tenant$18,000$18,000

Total718,000470,000248,000

Investment assets

Savings accountJoint tenant5,0005,000

Cash management account - inheritanceTed10,00010,000

SharesTed53,69153,691

Total68,691

Superannuation assets

ABC SuperannuationTed220,000220,000

SOH Industry SuperannuationEliza58,00058,000

Total278,000

Net worth594,691

Liabilities

LoanCurrent debtPercentage deductibleCommentsRepayment

Home Loan470,000

Total470,000

Goals and objectives

DetailsComments

Save any surplus in the most tax effective vehicle for the long term, long-term tax effective investment plan for retirementLong 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 inheritanceDiscuss possible options for using the inheritance money

Ted is willing to invest in riskier securitiesDiscuss possible options

Send both children to private school to complete their secondary educationEstimate cost and discuss possible options

Home renovation cost approximately $17,500Short term

Review superannuation asset allocation, Eliza is also not happy with her current industry fundDiscuss possible options

Protect income against sickness or accidentTo be reviewed

Protect family and/or assets in the event of deathTo be reviewed

Protect against serious illness or traumaTo be reviewed

Reduce/pay off mortgageTo be discussed

Estate planning

Do you have a Will?YesNo

When was it last updated?When Bill was born.

Executor/rixs name and contact details:

Do you have powers of attorney?YesNo

Attorneys name and contact details:

Do you have a funeral plan?YesNo

Funeral provider and contact details:

Amount paid

Do you have superannuation beneficiaries in place?YesNo

TypeBindingNon-binding

Beneficiary names and contact details:

Current superannuation, rollovers, insurances & investments

Superannuation details

MemberTedEliza

Superannuation fund nameABC SuperannuationSOH Industry Superannuation

Date of joining fund

Type of fundAccumulation

Defined benefit

PensionAccumulation

Defined benefit

Pension

ContributionsBy employer

By yourself

OtherBy employer

By yourself

Other

Current value of your superannuation fund220,00058,000

Amount of death & disability cover

Is there provision for additional contributions or salary sacrifice?YesNoYesNo

Non-concessional contributionsAmountYear

AmountYear

AmountYear

AmountYear

Spouse contributions receivedAmountYear

AmountYear

AmountYear

AmountYear

Concessional contributionsAmountYear

AmountYear

AmountYear

AmountYear

Any other contributionsAmountYear

AmountYear

AmountYear

AmountYear

Life insurance details

Life insuredPolicy OwnerCompanyPolicy numberBenefit typeBenefit or insured amountAnnual premium

NA

General insurance details

Item coveredOwnerPolicy typeCompanyPolicy numberCover AmountOther benefitAnnual premium

NA

NA

Investment details

Investment typeCompanyPurchase dateUnits held/fixed rateCurrent valueOwner

Risk needs

Insurance needs life and TPD

Client 1Client 2

Gross annual income (before tax)131,34650,050

Less business expenses

Number of years income required2020

Property repayment470,000470,000

Other debts

Sub-total = (income years) + debts3,096,9201,471,000

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 protectionClient 1Client 2

Gross annual income131,34650,050

Employer superannuation contributions

Other employer fringe benefitsNANA

Maximum allowable benefit(75% of annual income)98,50937,537

Monthly income8,2093,128

Less existing insurance

Monthly benefit required (pre-tax)8,2093,128

Waiting period to be served60 Days60 Days

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 HardgraveEliza Hardgrave

Adviser's name

Adviser's signatureDate

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?Would like to pay less.

How important is liquidity (i.e. funds available) to you?Very/Moderately/Not

Why?Enough cash is present

If you had funds available for investing, how would you choose to invest them?

Why?Seeking guidance for this.

Are there certain sorts of investment that you wish to avoid?Yes/No

Which ones?Risky investments should be avoided

RISK PROFILE

Determining your investor risk profilePoints

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?TedEliza

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.5050

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.4040

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.3535

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.3030

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.2020

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.1010

What return do you reasonably expect to achieve from your investments?Client 1Client 2

A return without losing any capital.1010

37% p.a.2020

812% p.a.3030

1315% p.a.4040

Over 15% p.a.5050

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 value1010

Less than 1 year2020

Up to 3 years3030

Up to 5 years4040

Up to 7 years4545

Up to 10 years5050

How familiar are you with investment markets?

Very little understanding or interest1010

Not very familiar2020

Have had enough experience to understand the importance of diversification3030

Understand that markets may fluctuate and that different market sectors offer different income, growth and taxation characteristics4040

Experienced with all investment sectors and understand the various factors that may influence performance5050

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 savings1010

Stable, reliable returns, minimal tax savings2020

Some variability in returns, some tax savings3030

Moderate variability in returns, reasonable tax savings4040

Unstable, but potentially higher returns, maximising tax savings5050

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 risks1010

You would cut your losses and transfer your money into more secure investment sectors2020

You would be concerned, but would wait to see if the investments improve3030

This was a calculated risk and you would leave the investments in place, expecting performance to improve4040

You would invest more funds to lower your average investment price, expecting future growth5050

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 wealth5050

You are not nearing retirement, have surplus funds to invest and you are aiming to accumulate long-term wealth from a balanced fund4040

You have a lump sum, e.g. an inheritance or an eligible termination payment from your employer, and you are uncertain about what secure investment alternatives are available3030

You are nearing retirement and you are investing to ensure that you have sufficient funds available to enjoy retirement2020

You have some specific objectives within the next five years for which you want to save enough money2020

You want a regular income and/or totally protect the value of your savings1010

Investor profile total points220140

INVESTOR RISK PROFILE SUMMARY

050Defensive

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.

51130Moderate

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.

131210Balanced

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.

211300Growth

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.

301350High 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 - 2012Oct - 2013Oct - 2014 Oct - 2028Oct - 2029Mar - 2030

TedAge424344 585960

A/C Balance$190,000$211,224$233,758 $742,471$797,771$821,807

ElizaAge414243 575858

A/C Balance$85,000$94,079$103,624 $301,843$322,017$330,725

TedNet return6% p.a.Monthly contribution$770.60Total$1,152,532

ElizaNet return5% 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 2030Mar 2031Mar 2032 Mar 2057Mar 2058Apr 2059

Ted606162 878889

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 AssetsOwnerAmount

Death BenefitEliza$50,000

SuperannuationEliza$85,000

Cash management accountJoint$15,000

Saving AccountJoint$5.000

Cash management accountTed$75,000

SharesTed$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 sectionActionCompleted?

i.Cover sheetThe 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 contentsCheck that the pages in the table of contents agree with the page numbers in the completed SOA.

iii.Executive summaryHeadings 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 clientHeadings 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 profileHeading:

Your risk profile

vi.Strategy recommendations (analysis of the investment strategies)Headings should include:

Recommended action:


personal insurance

superannuation

estate planning

Reasons for recommendations:


personal insurance

superannuation

estate planning

Things you should consider (risks)

vii.Product selectionYou 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 allocationHeadings should include:

Recommended asset allocation

Comments on proposed asset allocation versus your risk profile

ix.Disclosure of fees, commission and/or benefitsHeadings 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 reviewHeadings should include:

Ongoing services

Implementation

xi.Authority to proceedHeadings should include:

Authority to proceed

Consent to ongoing contact

xi.SOA Appendix 1Use the family cash flow template below.

Heading:

Financial position before implementation of strategy

xii.SOA Appendix 2Use the family cash flow template below.

Heading:

Financial position after implementation of strategy

xii.SOA Appendix 3Include 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 superannuation, insurance and investment products in the SOA are fictional, including fees, premium, return, cooling off period, etc.; Assume all Product Disclosure Statement for investment and insurance products are given to Ted and Eliza; All the commission, fees and benefits information are fictional; Assume their home is insured for $850,000 and the contents for $50,000;Mr Ted and Mrs Eliza Hardgrave4 Pringle Ave, KensingtonDear Ted and Eliza,

Thank you for the opportunity to meet and discuss how we can help your achieve your financial goals and objectives.

Based on the information contained in your completed fact finder and our conversation at our meeting, I believe that I have a reasonably clear understanding of your current situation, your goals and objectives, and your attitude to investment risk, security, and volatility. We are pleased to provide our recommendations in the detailed Statement of Advice that follows.

This Statement of Advice has been prepared exclusively for you and is based on the information you have provided. Please take the time to carefully read and understand it, to ensure that it is consistent with your views and reflects the information we discussed. If there are any omissions or any details are incorrect, please bring them to our attention. In addition, if your circumstances have changed, or if this plan is not implemented in the next 30 days, we may need to revise the recommendation to ensure that they are still appropriate.

Once implemented, the recommendations in this Statement of Advice should be reviewed on a regular basis to ensure that they continue to meet your ongoing needs. Changes in legislation, financial markets and your personal situation will occur over time, and as your financial adviser we can work with you to update your financial plan so that you stay on track to achieve your goals and objectives.

If you accept our recommendation and are comfortable to proceed with implementation, please sign the attached Authority to Proceed and return it to us.

We look forward to helping you implement the enclosed recommendations, and in the meantime we remain available to assist you with any queries you may have in relation to this Statement of Advice.

Yours sincerely,

Statement of Advice

Prepared for

Mr. Ted & Mrs. Eliza HardgravesPrepared by

B n Y Pvt. Ltd.You are entitled to receive a Statement of Advice (SOA) whenever we provide you with any personal financial advice. Personal financial advice is advice that takes into account that any one or more of your objectives, financial situation and needs.

This SOA is a record of the personal financial advice provided to you and includes information on the basis which this advice is given, information about fees and commissions and any interests or associations which might influence the advice.

If this advice includes a recommendation to you to acquire a particular financial product (other than securities or an offer to issue or arrange the issue of a financial product to you, we will also provide you with a Product Disclosure Statement containing highly detailed supportive information about the particular product to help you make well informed decisions about the product.

Be aware that the advice contained in the following SOA is valid for a period of 30 days only. If the plan is not implemented within this time, it will no longer be current and will need to be reviewed for accuracy

Statement of Advice

Content

3Executive Summary

3Recommendations

4Expected outcomes if advices are implemented

4Risks in advice

4Details of fees & other charges

4Future Steps

5About yourself

5Resaons behind seeking advice

5Goals to achieve

6Personal information

6Insurance Details

7Financial information

7Current income and expense details

10Recommended action

13Things to remember

14Cooling off period

15Asset allocation recommendations

15Proposed asset allocation and risk profile

18Details of Fees and Other Charges

18Method of Payment

24SOA Appendix 1 Financial position before implementation of strategy

26SOA Appendix 2 Financial position after implementation of strategy (2012/2013 financial year)

28SOA Appendix 3 Superannuation Projections

30SOA Appendix 4 Managed Investment Projections

31SOA Appendix 5 Mortgage Projections

32SOA Appendix 6 Implementation schedule

Executive Summary

Summary of our recommendations

For the short term up to one year

Recommendations for 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 dividendsRecommendations for 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 Financial Planner Recommendations:

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

Summary of expected outcomes if you implement our advice

If these recommendations are followed 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 eventsRisks in our advice

As has been discussed, all investment options are subjected to market risk and may or may not increase to increase the portfolio value.

Summary of our fees and commissions

The fees for preparation of making this Statement of Advice is total $4,000

Your next steps

In order to decide whether to take our advice you should:

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 follow our advice, please simply complete the Authority to Proceed at the end of this Statement of Advice and return it to us.

Important information This section contains information that are used in preparing this statement of advice, such as:

Reasons for seeking advice

Goals to achieve

Personal and financial information

In case any information mentioned in this document is incorrect, please feel free to contact Bn Y pvt. Ltd.Your reasons for seeking advice

Ted and Eliza we agreed that we would provide advice on:

Risk management and Insurance

Investments

Superannuation

Estate PlanningWhat you would like to achieve

Following the discussion, according to us your main objectives and needs are as follows:

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 adequateYour personal and financial information

List below is a summary of your relevant personal and financial details that you have provided.

Personal information

Personal details

Client 1Client 2

TitleMrMrs

SurnameHardgravesHardgraves

Given & preferred namesTedEliza


Business addressNANA

Contact phoneNANA

Date of birth28-March-7017-August-71

Age4443

SexMaleMaleFemaleMaleFemaleFemale

SmokerYesNoNoYesNoNo

Expected retirement age6564

Dependants (children or other) :

NameDate of birthSexSchoolOccupation

HarriettNANANANA

BillNANANANA

Your existing insurance

Ted: you currently have $360,000(three times salary), life and TPD cover under your superannuation fund. Eliza: you have $50,000 life and TPD cover also under your superannuation. Your home is insured for $850,000 and the contents for $50,000. You both have private health insurance.

Your existing estate planning

You have advised that both of you have not reviewed your Wills since 2004. Neither of you has a Power of Attorney (POA) in place.

Financial information

Current income and expense details

Income and expenses

TedElizaTotal

Assessable income$116,688$55,462$172,150

Income after tax$84,541$45,059$129,600

Annual expenses$42,600$42,600$85,200

Estimated surplus/deficit$44,400

Ted and Eliza based on the above income and expenditure schedule you have a surplus of $44,400 income available. Please see Cash Flow Statement in SOA Appendix 1 for details.

Assets and liability

ValueLiabilityNet value

Total personal assets$918,000$300,000$618,000

Total investment assets$397,000$397,000

$397,000

Net worth$1,015,000

Please refer to Assets and Liabilities table in SOA appendix 1 for details.

Incomplete and/or inaccurate information warning

Note that if, for any reason, the information on which our advice is based upon, is either inaccurate or not complete, then it may be necessary to consider its appropriateness in respect to your particular circumstances, needs and objectives.

Your risk profile

All investments have a certain element of risk. However, as a general rule, investment that have high rates of return involve high levels of risk, and more conservative investments bear lower returns.From our discussions, and from the answers of your risk profile questionnaire, we believe that Mr. Brown is a Growth investor and Mrs. Brown is a Balanced investor.For Growth investors:

You are relatively assertive investors, probably earning sufficient income to invest most funds for capital growth. You are prepared to accept higher volatility in the short to medium term to accumulate growth asset over the long term. You investment will spread across all asset sectors but will consist of more growth assets, which would 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 allocation for your risk profile is illustrated below.

For Balanced investors:

You are a cautious investor who is equally concerned with risk and return. You are willing to chase medium to long-term goals while accepting the risk of short to medium-term negative returns. Your investment mix is likely to include an equal mix of assets which would 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 allocation for your risk profile is illustrated below.

Strategy recommendationsThis 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

Read this section and ask if you have any questions.

Recommended action

Personal Investment

We recommend 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 proceedsPersonal Insurance RecommendationsNameType of coverProductTotal amount of cover

TedLife and TPDMediassist insurance$1,500,000

ElizaLife and TPDSOH Super Fund$1,000,000

TedIncome protection (to age 60)60 days waiting period*ABC Super Fund$7,288 p.m.

ElizaIncome protection (to age 60)60 days waiting period*SOH Super Fund$3,463 p.m.

TedTraumaMediassist insurance$100,000

ElizaTraumaMediassist insurance$100,000

*A waiting period of 60 days has been recommended as it is estimated you will have enough funds available to enable you service any debts for this period of time. A 60-day waiting period will also reduce the cost of premiums. The longer the waiting period, the lower the premiums you pay.

A Product Disclosure Statement (PDS) has been included for the trauma product from Medi Future Insurance. This will explain all details of your cover.

Although we are not authorised to provide general insurance, I would recommend that you ensure that your home and contents are reviewed with adequate levels in place.

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 fundReasons for recommendations

Personal investmentFrom the Cash Flow Statement in Appendix 1, Hardgraves currently have surplus funds of $44,400 per year, which can be invested. This fund can also be used to increase the mortgage repayment. Sooner the debt is paid off, the larger they will have disposable money. Shares should be retained, as shares can give them long-term capital growth. Reinvesting the dividends can be a good way to increase the potential returns.

Share portfolio without dividend reinvestment

Initial InvestmentYear 1Year 2Year 3Year 8Year 9Year 10

Portfolio Value$27,000$27,000$27,000$27,000$27,000$27,000$27,000

Dividend Received$1,750$1,750$1,750$1,750$1,750$1,750

Total value in Year 10 = 27000 + 1750*10 years = $44,500 ; Total Return = $17,500

Share portfolio with dividend reinvestment

Initial InvestmentYear 1Year 2Year 3Year 8Year 9Year 10

Portfolio Value$27,000$28,750$31,630$32,596$41,903$44,618$47,509

Dividend Reinvested$1,750$1,860$2,050$2,550$2,715$2,891

Total value in Year 10 = $47,509 ; Total Return = $20,509

Re-investment of dividends will generate 11% more returns compared to retaining the dividends back to pocket every year. Besides, many companies also have dividend reinvestment plan that do not require additional transaction fees. It would be a cost-effective way to purchase shares through reinvesting dividends.

Personal insurance

Insurance is a method which provides financial protection in a cost effective way. Life insurances are designed in such a way that if something happens to the insurer than familys living standard can be maintained.

An amount of $1,500,000 for Ted and $1,000,000 for Eliza is appropriate at this time. These amounts will cover the shortfall as identified in gap analysis. Additional life and TPD insurance is recommended to Ted because he cannot take out higher cover within his superannuation fund.Superannuation

Ted needs to change his superannuation risk preference so as to match it with his risk profiles.

Eliza is suggested to maintain her superannuation in a balanced investment style. The salary sacrifice contribution will help them to increase their wealth in a tax effective way over the long term.

Things you should consider

Paying off the mortgage

There may be early repayment penalty by banks which should be keep in mind before paying early.

Recommended asset allocationHardgraves investment assets are invested across different asset classes as mentioned in below table:

Table 1: Asset allocationAsset AllocationTedEliza

WeightRisk Profile WeightVariance (Weight)WeightRisk Profile WeightVariance (Weight)

Defensive Assets

Australian Cash34.4%5%29.4%19.5%10%9.5%

Australian Fixed Interest12.6%15%-2.4%17.9%20%-2.1%

International Fixed Interest6.3%10%-3.7%8.9%10%-1.1%

Total for Defensive Assets53.3%30%23.3%46.3%40%6.3%

Growth Assets

Australia Equities27.8%35%-7.2%26.8%30%-3.2%

Australian Property6.3%10%-3.7%8.9%10%-1.1%

International Equities12.6%25%-12.4%17.9%20%-2.1%

Total for Growth Assets46.7%70%-23.3%53.7%60%-6.3%

Table 2: Asset allocation for managed fundsAsset AllocationEducation Foundation Investments Funds

Defensive Assets

Australian Cash15%

Australian Fixed Interest25%

International Fixed Interest15%

Total for Defensive Assets55%

Growth Assets

Australia Equities25%

Australian Property10%

International Equities10%

Total for Growth Assets45%

Grand Total 100%

Table 3: Asset allocation after implementation of recommendationsAsset AllocationTedEliza

WeightRisk Profile WeightVariance (Weight)WeightRisk Profile WeightVariance (Weight)

Defensive Assets

Australian Cash6.6%5%1.6%15.9%10%5.9%

Australian Fixed Interest11.7%15%-3.3%21.2%20%1.2%

International Fixed Interest7.8%10%-2.2%11.6%10%1.6%

Total for Defensive Assets26.1%30%-3.9%48.7%40%8.7%

Growth Assets

Australia Equities46.6%35%11.6%26.7%30%-3.3%

Australian Property7.8%10%-2.2%9.6%10%-0.4%

International Equities19.5%25%-5.5%15.1%20%-4.9%

Total for Growth Assets73.9%70%3.9%51.3%60%-8.7%

Grand Total100%100%0%100%100%0%

Table 4: Asset valueAsset AllocationTedEliza

Current ValueValue after recommendationCurrent ValueValue after recommendation

Defensive Assets

Australian Cash$104,000$18,184$18,500$27,469

Australian Fixed Interest$38,000$32,051$17,000$46,454

International Fixed Interest$19,000$21,367$8,500$19,969

Total for Defensive Assets$161,000$71,601$44,000$83,892

Growth Assets

Australia Equities$84,000$127,785$25,500$45,968

Australian Property$19,000$21,367$8,500$16,484

International Equities$38,000$53,418$17,000$25,999

Total for Growth Assets$141,000$202,569$51,000$88,451

Total Value$302,000$274,171$95,000$172,343

Implementation

Ted and Eliza are suggested that in order to proceed with these recommendations, below steps should be completed first: Read, sign and return the Authority to Proceed attached.

Read the attached Product Disclosure Statement and supporting material.

Complete and sign the applicable form/s contained in the Product Disclosure Statement for Medi Future Insurance Pty., Ltd. Complete and sign the applicable form/s contained in the Product Disclosure Statement for Education Foundation Investments, including your tax file number.

Arrange an appointment with me and bring any completed application forms.

Note: The recommendations contained in this SOA are current for 30 days only. Please contact me for further discussion if you are unable to act on our recommendation within this time frame.Authority to proceedWe acknowledge that the product(s) listed in the table below are to be implemented in our names:Insurance ProductAmount of Cover

Life and TPD cover for Ted with Medi Future Insurance$1,500,000

Trauma cover for Ted with Medi Future insurance$100,000

Trauma cover for Eliza with Medi Future insurance$100,000

InvestmentsAmount

Education Foundation Investments Funds$62,500

Before signing this document, please check that I have:

given you the B n Y Pvt. Ltd. Financial Services Guide (FSG)

given you all the Product Disclosure Statements for the products recommend

confirmed that the personal information I have collected is correct

discussed your goals and objectives

confirmed that you are happy with your risk profile

discussed any risks in the recommendations

discussed fees that need to be paid

Also before signing this document, confirm that:

we have kept a copy of the SOA and we have had the opportunity to read, consider and understand the document, supporting material and have asked questions the SOA dated 19 Oct 2012 accurately summarises our current situation, investments, insurances and financial goals. We understand that any inaccurate or incomplete information provided to us, may bring risk to meeting our needs appropriately we have read and understood the Disclosure of commissions, fees and benefits section of SOA we understand that the value of recommended investments may rise and fall in line with the market conditions and you cannot guarantee future performance we understand that this statement is solely for our use of the clients to whom it is addressed and B n Y Pvt. Ltd. Pty., Ltd, does not accept any liability whatsoever to third parties who use or rely on the whole or any part of the content, and

we hereby request Financial Planner to provide services detailed in the section Ongoing Services

Consent to ongoing contact

We consent to being contacted by our adviser on an ongoing basis, in line with the agreed ongoing service review structure detailed within this recommendation.

Our preferred hours of contact are between ______ (am/pm) and ______ (am/pm).

Signed _________________________________

Date ____ / ____ / ____

Client Name

Signed _________________________________

Date ____ / ____ / ____

Client Name

Signed _________________________________

Date ____ / ____ / ____

Financial Planner

SOA Appendix 1 Financial position before implementation of strategyCash Flow Statement

TedElizaNotes


Salary$120,879$60,440

SG Contribution $10,879$5,4409% SG

Salary after salary sacrifice$110,000$55,000

Rental income

Unfranked dividends

Franked dividends$1,75027000*6.48% = $1,750 (96.7% franked)

Franking (imputation) credits$7251750*(30/70)*96.7% = $725

Interest$4,213$46315000 @ 5% p.a. = $7505000 @ 3.5% p.a. = $175Total = $925, 50% share = $463 each75000 @ 5% p.a. = $3,750


Capital gains 1yr


Assessable income$116,688$55,463

Deductible expenses


Taxable income 2012/2013$116,688$55,463

Tax on taxable income$31,122$9,572

Non-refundable tax offsets (e.g. LITO/SATO)

Medicare levy$1,750$832


Franking rebate-$725


Total tax$31,147$10,404

Income after tax$84,541$45,059

Family cash flow

TedElizaCombined

Income after tax (as calculated above)$84,541$45,059$129,600

Living expenses

Home mortgage$14,350$14,350$28,700

General living expenses$22,500$22,500$45,000

Accountants fee$250$250$500

Donations$500$500$1,000

Annual Holiday$5,000$5,000$10,000

Total expenses$85,200

Net cash flow$44,400



Personal assets




Total$918,000$300,000$618,000

Investment assets

SuperannuationTed$190,000$190,000

SuperannuationEliza$85,000$85,000

Cash management accountJoint$15,000$15,000

Savings accountJoint$5,000$5,000

Cash management account inheritanceTed$75,000$75,000

SharesTed$27,000$27,000

Total$397,000$397,000

Net worth$1,015,000

Liabilities

LoanCurrent debtPercentage deductibleInterest onlyRepayment

Home loan$300,000No.$2392 p.m.

Total$300,000

SOA Appendix 2 Financial position after implementation of strategy (2012/2013 financial year)

Cash flow statement

TedElizaNotes


Salary$120,879$60,440

SG Contribution$10,879$5,4409 % SG

Salary Sacrifice Contribution$9,600$4,800Contribution start from early Nov 2012, effectively 8 month contributions

Salary after salary sacrifice$100,400$50,200

Rental income

Unfranked dividends

Franked dividends$1,75027000*6.48% = $1,750 (96.7% franked)

Franking (imputation) credits$7251750*(30/70)*96.7% = $725

Interest$375$37515000 @ 5% p.a. = $75050% share = $375 each


Capital gains 1yr


Assessable income$103,250$50,575

Deductible expenses


Taxable income 2012/2013$103,250$50,575

Tax on taxable income$26,150$7,984

Non-refundable tax offsets (e.g. LITO/SATO)

Medicare levy$1,549$759


Franking rebate-$725


Total tax$26,973$8,743

Income after tax$76,277$41,833

Family cash flow

TedElizaCombined

Income after tax (as calculated above)$76,277$41,833$118,109

Living expenses

Home mortgage$23,917$23,917$47,834

General living expenses$22,500$22,500$45,000

Accountants fee$250$250$500

Donations$500$500$1,000

Annual Holiday$5,000$5,000$10,000

EF Managed Fund @ $600 p.m. for 8 month$2,400$2,400$4,800

Medi Future Trauma insurance cover$260$240$500

Medi Future Life and TPD cover$1,200$1,200

Total expenses$110,833

Net cash flow$7,275

Note: mortgage expense includes old repayments(July 2012 Oct 2012) and new repayment(Nov 2012 Jun 2013)



Personal assets




Total$918,000$274,249$643,751

*Assume that approximately $25,751 has been paid off home loan from Nov 2012 t0 June 2013

Investment assets

SuperannuationTed$213,671$213,671

SuperannuationEliza$95,143$95,143

Cash management accountJoint$15,000$15,000

SharesTed$28,750$28,750

EF managed investmentEliza$69,706$69,706

Total$422,369$422,269

Net worth$1,066,020

*Assume contributions period for superannuation & managed investment is from Nov 2012 to June 2013

Liabilities

LoanCurrent debtPercentage deductibleInterest onlyRepayment

Home loan$274,249No.$4783 p.m.

Total$274,249

SOA Appendix 3 Superannuation ProjectionsTable 1Superannuation account balance projectionsCurrent situationAfter recommended strategy

Teds ageDateTeds account balance at year endElizas account balance at year endCombined account balanceTeds account balance at year endElizas account balance at year endCombined account balance

42Oct-2013$190,000$85,000$275,000$190,000$85,000$275,000

43Jun-2013$204,008$91,003$295,011$213,671$95,143$308,813

44Jun-2014$226,097$100,390$326,486$251,307$111,004$362,311

45Jun-2015$249,548$110,257$359,805$291,664$127,676$419,340

46Jun-2016$274,445$120,629$395,074$334,939$145,202$480,141

47Jun-2017$300,878$131,532$432,410$381,342$163,624$544,966

48Jun-2018$328,942$142,992$471,934$431,099$182,988$614,088

49Jun-2019$358,736$155,039$513,775$484,454$203,344$687,797

50Jun-2020$390,368$167,702$558,070$541,665$224,740$766,405

51Jun-2021$423,950$181,013$604,964$603,012$247,232$850,244

52Jun-2022$459,605$195,005$654,610$668,794$270,874$939,668

53Jun-2023$497,458$209,713$707,171$739,332$295,726$1,035,057

54Jun-2024$537,646$225,173$762,819$814,968$321,849$1,136,817

55Jun-2025$580,313$241,425$821,737$896,073$349,308$1,245,381

56Jun-2026$625,611$258,508$884,118$983,040$378,173$1,361,213

57Jun-2027$673,703$276,464$950,167$1,076,294$408,514$1,484,809

58Jun-2028$724,761$295,340$1,020,101$1,176,290$440,408$1,616,698

59Jun-2029$778,969$315,181$1,094,150$1,283,514$473,933$1,757,448

60Mar-2030$821,807$330,725$1,152,533$1,368,989$500,198$1,869,188

Table 1(a)Assumptions:

ValueTed: currentEliza: currentTed: strategy recommendationsEliza: 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 frequencyMonthlyMonthly MonthlyMonthly

Rate = the rate of return of the fund, net of inflation6% p.a.5% p.a.7% p.a.5% p.a.

Table 2Superannuation income analysis post retirementTeds ageCombined account balanceAssumptionsCombined fund

60$1,869,188Rate of return net of inflation3%

61$1,865,209Frequency of drawdownMonthly

62$1,861,109Income per annum$60,000

63$1,856,885

64$1,852,532

65$1,848,046

66$1,843,425

67$1,838,662

68$1,833,755

69$1,828,698

70$1,823,488

71$1,818,119

72$1,812,587

73$1,806,887

74$1,801,013

75$1,794,961

76$1,788,724

77$1,782,298

78$1,775,677

79$1,768,854

80$1,761,823

81$1,754,579

82$1,747,114

83$1,739,422

84$1,731,496

SOA Appendix 4 Managed Investment Projections

YearHarriett's ageBill's ageDateWithdrawFund Balance

1118Oct-2012$62,500

Dec-2012$64,277

2129Dec-2013$75,287

$12,000$63,287

31310Dec-2014$74,241

$12,000$62,241

41411Dec-2015$73,136

$12,000$61,136

51512Dec-2016$71,969

$24,000$47,969

61613Dec-2017$58,059

$24,000$34,059

71714Dec-2018$43,365

$24,000$19,365

81815Dec-2019$27,842

$12,000$15,842

91916Dec-2020$24,119

$12,000$12,119

102017Dec-2021$20,187

$12,000$8,187

Assumptions:Opening balance: $62,500

Monthly Contribution: $600

Rate of return net of inflation: 5.5% p.a.

All cash withdraw will be made at the end of yearSOA Appendix 5 Mortgage Projections

YearDateCurrent situationAfter recommended strategy

Account BalanceAccount Balance

0Oct-2012$300,000$300,000

Jun-2013$293,749$274,249

1Oct-2013$290,521$260,950

2Oct-2014$280,407$219,285

3Oct-2015$269,616$174,830

4Oct-2016$258,102$127,397

5Oct-2017$245,817$76,788

6Oct-2018$232,709$22,789

7Oct-2019$218,723-$34,826

8Oct-2020$203,801

9Oct-2021$187,879

10Oct-2022$170,891

11Oct-2023$152,765

12Oct-2024$133,425

13Oct-2025$112,791

14Oct-2026$90,774

15Oct-2027$67,282

16Oct-2028$42,218

17Oct-2029$15,474

18Oct-2030-$13,060

Assumptions:Opening balance: $300,000

Mortgage interest rate: 6.5% p.a.

Current monthly repayment: $2,392

Recommended monthly repayment: $4,784

Please note:The mortgage will be fully repaid in 17.6 years if under current repayment

The mortgage will be fully repaid in 6.4 years if under recommended repayment SOA Appendix 6 Implementation schedule

ActionBy WhomTimeframe

Arrange time for next meeting (2 weeks)Financial PlannerImmediately

Read and sign Authority to ProceedTed & Eliza1 week

Read Product Disclosure StatementTed & Eliza1 week

Complete application formsTed & Eliza1 week

Arrange to meet with accountant to discuss accounting /tax issuesTed & Eliza1 week

Contact super fund to increase insuranceEliza2 weeks

Contact super fund to change asset/risk allocationTed2 weeks

Contact super fund to add insuranceTed & Eliza2 weeks

Contact bank to increase mortgage repaymentsTed & Eliza2 weeks

Meet with Ted & Eliza to collect forms and check on progressFinancial Planner2 weeks

Deposit funds from savings into managed investmentTed & Eliza2 weeks

Arrange to meet with solicitor to update Will and powers of attorneyTed & Eliza2 weeks

Arrange for review meetingFinancial Planner6 months

Section 3Present 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. (250words)

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.

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. (100words)

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. (150words)

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.Section 4Agree 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. (100words)

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

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