QUESTION
Scenario
Wilfred and Lillian Martin are a couple approaching retirement. Wilfred is 59 and Lillian is 55, and they have three children, Jeff 29, Leanne 25, and Chris 21. Based on the risk profile questionnaire, Wilfred has a risk profile of three and Lillian has a risk profile of four out of a possible five.
They have a large four-bedroom family home in an inner city suburb. This home is valued at $850,000. Only one of the children is still living at home. The couple spent most of their surplus income reducing the mortgage, but now they wish to secure their investments for their retirement. There is an outstanding mortgage of $35,000, with an interest rate of 7.4 percent and total annual mortgage payments of $8,000. They have indicated that they wish to sell this home and downsize within the next two years. They expect the new property to cost no more than $600,000. Excluding their mortgage payments and holiday expenses, they have estimated day-to-day living expenses of $45,000 per annum.
Wilfred and Lillian drive a Nissan X-Trail valued at $25,000 and they own a caravan valued at $27,000.
Wilfred is currently working for a blue chip company and is earning $160,000 per annum. Lillian is semi-retired earning approximately $30,000 gross per annum for part-time work at a local gift store. Both would like to retire in two years’ time.
Wilfred has an employer superannuation account with a balance of $620,000 (including $98,000 of Tax Free Component).
Lillian previously worked for 28 years in the Commonwealth public service and had a defined benefit scheme in place. She is now receiving a pension of $23,000 per annum from this scheme. Lillian has a superannuation fund in place with her new employer with a balance of approximately $10,000 (all Taxable Component). She is not making any voluntary contributions to this fund; however, her part time employer is making SG contributions. This is invested in a Colonial First State Superannuation Fund.
Wilfred and Lillian have a NAB Smart Access Account with a balance of $6,000, which they use for day-to-day expenditure and as an emergency buffer. Lillian has a CommSec Margin Loan at 8.4% interest. She originally invested $5,000 of her own capital and borrowed $30,000. The following investments are held in her portfolio.
Shares held in the Margin Lending Portfolio (Lillian):
Seven Network Ltd (SEV) (bought on 10/9/2004 for $7,000) $16,000
BHP Billiton (BHP) (bought on 11/10/2004 for $11,000) $25,000
Origin Energy Ltd (ORG) (bought on 18/10/2004 for $6,000) $10,000
Foster’s Group (FGL) (bought on 26/10/2004 for $11,000) $14,000
Total $65,000
They also have the following managed funds and direct shares held jointly in their names.
Managed funds (joint names):
BT Active Balanced Fund (bought on 1/1/2007 for $42,000) $53,000
Colonial First State – Conservative Fund (bought on 1/1/2007 for $61,000) $65,000
Total $118,000
Direct share holdings (joint names):
Telstra Corporation (TLS) (bought on 1/8/1998 for $3,200) $5,000
Woolworths (WOW) (bought for $3,000) $10,000
Total $15,000
Lillian also has an investment unit owned with her daughter Wendy (joint tenants), purchased early in 2002 for $280,000. The value of the unit is $350,000. There is an outstanding investment interest only loan of $260,000 currently at 7.4% per annum. The unit is leased, returning an income of $350 rent per week.
Wilfred and Lillian have valid wills that were written ten years ago but do not have Powers of Attorney in place. It is important for them to make sure their affairs are organised and that their wishes are clearly set out. They are keen to leave an estate for their children in the event of their deaths.
Wilfred and Lillian have full private health cover. Wilfred also has $450,000 life insurance cover but Lillian has no life insurance cover.
Wilfred and Lillian enjoy travelling and they travel overseas for a holiday every two years, with an estimated cost of $10,000 per holiday. They also take two to three trips in their caravan each year, with an estimated cost of $800 per trip.
They want a specific SOA that will allow them to plan for retirement in two years’ time. In retirement, they would like to maintain their current lifestyle. They would also like to provide their children with a gift of $20,000 each when they sell the family home. They are keen to know how to best utilise their current investments and which investment selections may not be appropriate for them in their current situation.
Task 2.1
Prepare a comprehensive Statement of Advice for Wilfred and Lillian, addressing their issues and concerns outlined above. As part of your SOA, you should address the following points and anything else that you consider relevant given their personal circumstances.
You may use Financial Planning software to generate your SOA. For projections, you may use modelling software, your financial calculator, or a spreadsheet. Results must be analysed and discussed in the SOA and be used to demonstrate the achievement of the clients’ goals and objectives.
For insurance quotes, you may use proprietary software to determine likely premiums. Alternatively, you may contact an insurer directly.
Whilst the use of software is permissible, you must personalise all text to suit the clients’ situation. You must provide a clear indication of how the recommended strategies would help to meet the clients’ specific goals and objectives.
You may produce a shorter form SOA using ‘incorporation by reference’.
If a shorter form SOA is produced, all reference material must be detailed in the ‘related documents’ section of the SOA which should be attached as supporting documentation to the SOA.
Your submission should incorporate the following:
Planning issues:
- Complete a personal covering letter
- Identify the issues Wilfred and Lillian are facing
- List their short, medium and long term goals
- Describe the features of their risk profile
- Discuss if Wilfred and Lillian are on track to be able to fully retire
- Calculate if they are on track to fund their lifestyles for a long, healthy life. Clearly state your assumptions made for this calculation.
Investment and taxation issues:
- Develop initial strategic options based on strategic assumptions and client specifications
- Analyse, model and prioritise strategic options
- Develop supporting arguments for each strategic option and include them in the overall strategy
- Calculate their income, tax payable, and expenditure position
- State your recommendations based on the information given, and outline any assumptions you have made in formulating these recommendations. Give reasons for making these recommendations
- Discuss the options if Joanne was to sell the investment unit or keep it.
Risk issues:
- Discuss the current levels of life insurance cover for Wilfred and Lillian and whether they are appropriate for their situation
- Discuss personal and general insurance issues for Wilfred and Lillian
Superannuation issues:
- Explain the advantages and disadvantages of investing within the superannuation environment as well as outside superannuation
- Explain the tax on death benefits paid to adult children
Estate planning issues:
- Describe the importance of using a solicitor to prepare a Will and the need to review it regularly
- Explain the role of an Enduring Power of Attorney and its importance in estate planning
- Identify the tax issues of passing assets through an estate
- Explain tax issues for non-estate assets
Other:
- Attach copies of product data sheets to support investment recommendations
- Attach disclaimer and disclosure statements in the plan
- Include a section titled Related Documents if applying the Incorporation by Reference method.
As best practice, the structure of your SOA should follow the headings listed below:
- Covering letter, coversheet and table of contents
- Related documents
- Scope of Advice (‘Executive Summary’, ‘Our Advice to You’ or similar)
- Current Situation
- Goals and Objectives
- Risk Profile
- Financial Planning Strategy
- Strategy recommendations (Investment and Insurance Recommendations)
- Investment
- Risk Management
- Estate Planning
- Asset allocation
- Ongoing service offer
- Costs and Risks
- Disclaimer
- Summary of Fees and Commissions
- Disclosures
- Authority to Proceed
- Supporting Documentation (can include current situation, current income and tax position, proposed income and taxation position if using the ‘Incorporation by Reference’ method.)
- Assumptions (client specific and generic/economic)
Task 2.2
Create a written plan for implementing the SOA you have constructed. In your plan make sure that you include information about:
- A suggested timetable covering implementation and ongoing service
- Responsibilities
- Documentation requiring completion
- Instructions on how money is to be handled
- How you will be remunerated
- How you will provide ongoing service and how reviews are to be conducted
- How you will handle dissatisfied clients
SOLUTIONS
FINANCIAL PLANNING AND FORECASTING
Student name:
Student Id:
Course code:
Financial Plan
For
Wilfred and Lillian Martin
Date:
Prepared by: JJ Associates
Phone number: 87293000
M & A Lawyers
Phone Number: 84294100
Cover letter
Mr. and Mrs. Martin
Inner City Suburb
It is a pleasure to us to have this chance to support you by providing advice related to the existing financial scenario. We are happy to prepare this statement of advice for clarifying the existing financial scenarios on the basis of fact findings arranged by our team from your provided references and related documents. There are at the same time, the statement of advice will help to take better investment decision and other financial planning.
The description of the current financial status of you have been discussed here with all types of possibilities. The objectives and your desire for getting retired within next two years as well as maintaining life style in the similar manner as you are living off now. We have prepared the advice as per the objectives and the goals stated by you. In this regard, the fact finding sheet was the main source of information to prepare the SOA. There is also the discussion that is based on compliance regulations and other privacy laws for updating a different kind of financial and personal information of the organization.
The statement of advice entirely depends upon the existing financial scenarios and personal details that are not mentioned by the organization. It is a kind request from both of you to manage the current financial scenarios of the organization within a specified period. Last but least, it is hearty request to both of you that if you have any query regarding this proposal need to be discussed opinions. All the related documents are protected in the office premises of ours. According to the overall scenario, the recommendation will be proposed to make a statement of advice, entirely based on the essential financial scenarios and collection of personal information alters by the advisors. It will take 30 days to prepare this statement of advice, and it is a kind request doesn’t jump to the conclusion without discussing with us.
Yours sincerely
JJ Associates
Union Road, Surrey Hills
Table of Contents
Part 1. 6
Related documents. 6
Our Advice to You. 7
Current Situation. 8
Assets and investment 15
Goals and Objectives. 18
Risk Profile. 19
Financial planning strategy. 31
Strategy recommended. 33
Investment 36
Risk management 37
Estate Planning. 38
Asset Allocation. 39
Ongoing service offer 40
Authority to proceed. 41
Assumptions. 42
Part 2. 43
Disclosure of remunerations, commissions and other benefits. 43
Investment recommendations. 43
Ongoing services. 44
Responsibilities. 44
Documentation Requiring Completion. 44
Implementation schedule. 45
How you will handle dissatisfied clients. 46
Links for investment strategy. 48
Part 1
Related documents
We need some of the financial and personal information for providing you the advice on your personal financial objectives. The fact-finding sheet is the main document that you have to fill up and provide us at the first stage of the prices to evaluate your current financial position. The documents related to gather information are tax invoice, bank statement, fact-finding sheet, declaration, personal information, occupational details, insurance details, travelling details and future objectives and goals. Additionally, one copy of estate planning paper can be submitted to us for getting through the future information and planning after your death. In addition to this, we will also need the letter to authorize us to provide you advice for planning and managing your wealth. We will also provide you the documents related to the fees and charges of commissions for providing advice and other services.
Our Advice to You
We have the scope to provide you advising on the wealth management. The information provided with the application form [if filled up as per the requirements] from your side may provide us the enough information to make analysis on your current stage. Further, we have the scope to provide you to meet you the goals and the objectives for future from the viewpoint of your retirement as well as the living style. We also can suggest you to make investment or lay off investment from any asset in the market. However, we do not entertain to make investment for you unless you provide us the authority to proceed with the decision.
Financial planning will be based on the current economic and your financial position. However, it can be changed in future due to change in the economy as well as the valuation of the current investments and assets. In this regard, the main concern is to review the plan in future. We also do have reviewing system of the current plan in future as per your requirements. However, we are extremely sorry to acknowledge you that we do not have any scope of providing the tax plan in this advice, as we do not have the license to prepare any tax plan. Thereby, you are requested to hire any professional tax planner as well as company to prepare the same for you.
Current Situation
Background information
Personal details
| Title | Mr | Mrs |
| First name | Wilfred | Lillian |
| Surname | Martin | Martin |
| Gender | Male | Female |
| Age | 59 | 55 |
Contact details
| Particulars | Address |
| Street | Not provided |
| Suburb | Inner City suburb |
| State | Not mentioned |
| Home phone / Mobile | Not provided |
| Not provided |
Employment details
| Particulars | Wilfred | Lillian |
| Employment type | Full time | Part time [currently working as a semi-retired person] |
| Occupation | Not mentioned | Not mentioned |
| Employer | Blue chip Company | Local Gift Shop |
| Job title | Not mentioned | Not mentioned |
| Career | Working for several years | Had worked in Commonwealth Service for 28 years; now working for local gift shop |
| Proposed retirement date | At the age of 61 if financially feasible | At the age of 57 if financially feasible |
Dependents
| Dependants or children | ||||
| Name | Age | Sex | Staying with | Parents |
| Jeff | 29 | Male | Do not stay | Both |
| Leanne | 25 | Female | Do not stay | Both |
| Chris | 21 | Male | Staying with parents | Both |
| Wendy | Not disclosed | Female | Do not stay with Lillian | Lillian |
Health Details
| Particulars | Wilfred | Lillian |
| Private health cover | Yes | Yes |
| Health status | Good | Good |
| Smoking status | No | No |
| Existing conditions | Ok | Ok |
| Previous insurance assessments | Not required | Not required |
| Health issues | N.A. | N.A. |
We could not find any serious health issue for both of you. Thereby, we have imagined that both of you are sound fit and have no chronic illness. You two are not addicted towards any type of drugs or smoking. Further, both of you have full coverage of private insurance. However, we do not have any previous insurance details from your side.
Financial information
Current financial status of Wilfred
| In AUD | Details | |
| Annual income | 160000 | Annually including tax |
| Tax | $47147 | |
| Savings | $6000 | Joint account |
| Term deposit | – | |
| Debt | $35000 | Joint for the their existing home |
| Credit card [NB Visa] | – | – |
| Superannuation contribution | 620000 | Personal [$98000 is non-taxable] |
| Insurance | 450000 | |
| TDP | – | |
| Salary sacrifice | – | |
| Car | AUD 25000 | Joint assets – Current valuation |
| Caravan | $27000 | Joint assets |
| Estate details | Yes | Not updated |
The above information had clearly started the financial position and current earnings of Wilfred. You have solid earnings of $160000 per year while you want to remain in work for the next two years. Additionally, you have only $6000 in your joint account with Lillian while no personal savings details had been disclosed by you. However, you have two vehicles in your garage, which have good asset-value in current market. You have personal life insurance cover of $450000 while the superannuation contribution in your service account is $620000 currently.
Lillian’s financial details
| In AUD | Details | |
| Annual income | $30000 | Annually from the local shop [part-time job] |
| Pension income | $23000 | Benefit scheme from previous job |
| Rental income | $18200 | Jointly with Wendy; rent from the investment property [joint tenant] |
| Tax | $11729 | |
| Savings | $6000 | Joint account |
| Term deposit | – | |
| Debt | $35000 | Joint for the their existing home |
| Debt | $30000 | Comm. Sec Margin Loan @ 8.4% |
| Debt | $260000 | Jointly with daughter Wendy @ 7.4%; interest only payment |
| Credit card [NB Visa] | – | – |
| Superannuation contribution | 10000 | Employer |
| Insurance | – | |
| TDP | – | |
| Salary sacrifice | – | |
| Car | AUD 25000 | Joint assets – Current valuation |
| Caravan | $27000 | Joint assets |
| Estate details | Yes | Not updated |
The above information shows your financial information, Lillian, separately from Wilfred. We have found that you have income from the local gift store where you work as a part-timer. Additionally, you have a pension income of $23000 annually from your previous employer’s super fund. In the meantime, we have discovered that you have an investment property in your portfolio with your daughter, Wendy. You earned jointly with her from that property at a rate of $350 per week. Currently you have a super fund of $10000 that is contributed by your current employer. Additionally, we have found that you have some personal loan for making some investment in security market as well as in the property. The amount of debt in margin security is $30000 while a joint debt with her daughter has been amounted to $260000. The half of the rental income is considered as the income of Lillian.
Income details
| Income | Wilfred | Lillian | Joint |
| Salary | 160000 | 30000 | 190000 |
| Rental income | 0 | 9100 | 9100 |
| Insurance income | 0 | 23000 | 23000 |
| Expenses | |||
| Household expenses | 45000 | ||
| Travelling once in two years | 5000 | ||
| Caravan trip | 2400 | ||
| Mortgage payment | 8000 | ||
| Interest payment of debt by Lillian | 21760 | 21760 | |
| Total expenses | 82160 | ||
| tax | 45211 | 12903 | 58114 |
| Surplus | 114789 | 27437 | 81826 |
The above table shows your income details for the last year. In this context, the accumulated income and the expenses are measured for both of you. The tax calculation is also prepared for both of you separately. The surplus amount for your family is $81826. Interest payment for the joint debt of the existing home is being accumulated in the expenses while the expenses for the individual interest expense of Lillian is being considered here too as the family expense for the year.
Insurance
| WILFRED | Lillian | |
| Insurance | ||
| Life | 450000 | 0 |
| Medical | 5000 | 5000 |
| Superannuation | 620000 | 10000 |
Lillian has no life insurance currently while Wilfred, you have $450000 surrender value. Both of you are covered under the private medical insurance. Wilfred, you have superannuation fund of $620000 while your wife has $10000 in the super fund contributed by the current employer.
Liabilities
| Liabilities | ||||
| Existing home | annual payments $8000 | 35000 | ||
| Comm. Sec Margin Loan | 8.4% interest rate | 30000 | ||
| Investment in lease loan | interest only [7.4%] | 260000 |
You have joint loan of existing home and the arrear of repayment is $35000. The annual repayment value is $8000. Lillian has some separate loan – investment loan for margin lending system of $30000 at a rate of 8.4% per annum. She also has borrowing of $260000 jointly with her daughter, Wendy, which asset is being leased for rental income of $350 per week.
Assets and investment
| Assets [investments] | Joint | Wilfred | Lilian | |
| Savings-liquid | $6000 | |||
| Funds | ||||
| BT Active Balanced Fund | bought on 1/1/2007 for $42,000 | $53,000 | ||
| Colonial First State – Conservative Fund | bought on 1/1/2007 for $61,000 | $65,000 | ||
| Shares | ||||
| Telstra Corporation (TLS) | bought on 1/8/1998 for $3,200 | $5,000 | ||
| Woolworths (WOW) | bought for $3,000 | 10,000 | ||
| Shares held in the Margin Lending Portfolio | ||||
| Seven Network Ltd (SEV) | bought on 10/9/2004 for $7,000 | $16,000 | ||
| BHP Billiton (BHP) | bought on 11/10/2004 for $11,000 | $25,000 | ||
| Origin Energy Ltd (ORG) | bought on 18/10/2004 for $6,000 | $10,000 | ||
| Foster’s Group (FGL) | bought on 26/10/2004 for $11,000 | $14,000 | ||
| Assets [fixed] | ||||
| car | Nissan X-Trail | $25,000 | ||
| caravan | $27,000 | |||
| home | $ 850,000.00 | |||
| Leased investment units | $ 350,000.00 |
The savings of $6000 in NAB Smart Access Account is the only savings stated in your fact-finding. Thereby, it is found that the investments made in the funds and the shares are the only known savings for your life. The value of the savings is $139000 in current context. However, your wife has savings and investment in many securities like shares. The current valuation of those assets is $65000. In addition to this, surplus amounts after incurring all the expenses is $81826 per year. As there is no information of savings or the term deposit has been said in the case study, we have to assume about your savings in bank or in general frame. The rate of savings is considered same for the last five years that may yield $460000 in current context. Further, both of you have saved almost $250000 for the rest of the professional life. Thereby, cash in hand is estimated as $610000 for your joint account. However, after two years, they may have different scenario due to liquefying the super fund as well as surrendering the insurances.
Goals and Objectives
You have already express the goals and the objectives in the details you have provided with the fact-finding. We have found that you have the objective of selling the existing home and shift in a smaller home after two years. Additionally, both of you want to enjoy your retirement after two years from now onwards. In this regard, we have also found that you want to provide gift to your three children after selling the existing home. The expenses of the gift will be $20000 for each. However, Wendy has not been considered for providing her any gift after selling the home. It was also found that the both of you want to make some savings for your retirement plan after two years. In this context, you have decided to have travelling with your caravan every year as you are doing now. Additionally, you would like to visit new places in the international spots on every two year after retiring from your job. The regular expenses for household will be $45000 per year as you have estimated. The price of the target home after retirement is $600000 while you have the existing home of currently worth of $850000.
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. | |||
| Q1. Which of the following best describes your current stage of life? | Client 1 | ||
| 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 | ||
| 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 | ||
| 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 | ||
| Mature family. You are in your peak earning years and have got 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 | ||
| 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 | 20ü | ||
| Retired.You areno longer working, so you 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 | ||
| Q2. What return do you reasonably expect to achieve from your investments? | Client 1 | ||
| A return without losing any capital | 10 | ||
| 1–3% p.a. | 20 | ||
| 3–6% p.a. | 30 | ||
| 6–9% p.a. | 40ü | ||
| Over 9% p.a. | 50 | ||
| Q3. 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 was any loss in value | 10ü | ||
| Less than 1 year | 20 | ||
| Up to 3 years | 30 | ||
| Up to 5 years | 40 | ||
| Up to 7 years | 45 | ||
| Up to 10 years | 50 | ||
| Q4. How familiar are you with investment markets? | |||
| Very little understanding or interest | 10 | ||
| Not very familiar | 20 | ||
| Have had enough experience to understand the importance of diversification | 30 | ||
| Understand that markets may fluctuate and that different market sectors offer different income, growth and taxation characteristics | 40 | ||
| Experienced with all investment sectors and understand the various factors that may influence performance | 50ü | ||
| Q5. 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 | ||
| Stable, reliable returns, minimal tax savings | 20 | ||
| Some variability in returns, some tax savings | 30 | ||
| Moderate variability in returns, reasonable tax savings | 40ü | ||
| Unstable, but potentially higher returns, maximising tax savings | 50 | ||
| Q6. 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 | ||
| You would cut your losses and transfer your money into more secure investment sectors | 20 | ||
| You would be concerned, but would wait to see if the investments improve | 30ü | ||
| This was a calculated risk and you would leave the investments in place, expecting performance to improve | 40 | ||
| You would invest more funds to lower your average investment price, expecting future growth | 50 | ||
| Q7. Which of the following best describes your purpose for investing? | |||
| You want to invest for longer than five years, probably to the age of 55–60. You are mainly investing for growth to accumulate long-term wealth | 50 | ||
| You are not nearing retirement, have surplus funds to invest and you are aiming to accumulate long-term wealth | 40 | ||
| 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 available | 30ü | ||
| You are nearing retirement and you are investing to ensure that you have sufficient funds available to enjoy retirement | 20 | ||
| You have some specific objectives within the next five years for which you want to save enough money | 20 | ||
| You want a regular income and/or totally protect the value of your savings | 10 | ||
| Investor profile total points | 305 | ||
| INVESTOR RISK PROFILE SUMMARY | |||
| 0–50 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 | |||
| 51–130 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 | |||
| 131–210 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 | |||
| 211–300 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 | |||
| 301–350 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 | |||
Risk profile of Lillian
| 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. | |||
| Q1. Which of the following best describes your current stage of life? | Client 1 | ||
| 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 | ||
| 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 | ||
| 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 | ||
| Mature family. You are in your peak earning years and have got 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 | ||
| 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 | 20ü | ||
| Retired.You areno longer working, so you 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 | ||
| Q2. What return do you reasonably expect to achieve from your investments? | Client 1 | ||
| A return without losing any capital | 10 | ||
| 1–3% p.a. | 20 | ||
| 3–6% p.a. | 30 | ||
| 6–9% p.a. | 40 | ||
| Over 9% p.a. | 50ü | ||
| Q3. 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 was any loss in value | 10 | ||
| Less than 1 year | 20 | ||
| Up to 3 years | 30 | ||
| Up to 5 years | 40 | ||
| Up to 7 years | 45ü | ||
| Up to 10 years | 50 | ||
| Q4. How familiar are you with investment markets? | |||
| Very little understanding or interest | 10 | ||
| Not very familiar | 20 | ||
| Have had enough experience to understand the importance of diversification | 30 | ||
| Understand that markets may fluctuate and that different market sectors offer different income, growth and taxation characteristics | 40 | ||
| Experienced with all investment sectors and understand the various factors that may influence performance | 50ü | ||
| Q5. 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 | ||
| Stable, reliable returns, minimal tax savings | 20 | ||
| Some variability in returns, some tax savings | 30 | ||
| Moderate variability in returns, reasonable tax savings | 40 | ||
| Unstable, but potentially higher returns, maximising tax savings | 50ü | ||
| Q6. 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 | ||
| You would cut your losses and transfer your money into more secure investment sectors | 20 | ||
| You would be concerned, but would wait to see if the investments improve | 30 | ||
| This was a calculated risk and you would leave the investments in place, expecting performance to improve | 40ü | ||
| You would invest more funds to lower your average investment price, expecting future growth | 50 | ||
| Q7. Which of the following best describes your purpose for investing? | |||
| You want to invest for longer than five years, probably to the age of 55–60. You are mainly investing for growth to accumulate long-term wealth | 50 | ||
| You are not nearing retirement, have surplus funds to invest and you are aiming to accumulate long-term wealth | 40 | ||
| 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 available | 30 | ||
| You are nearing retirement and you are investing to ensure that you have sufficient funds available to enjoy retirement | 20ü | ||
| You have some specific objectives within the next five years for which you want to save enough money | 20 | ||
| You want a regular income and/or totally protect the value of your savings | 10 | ||
| Investor profile total points | 305 | ||
| INVESTOR RISK PROFILE SUMMARY | |||
| 0–50 Defensive: scale 1 | |||
| 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 | |||
| 51–130 Moderate: scale 2 | |||
| 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 | |||
| 131–210 Balanced: scale 3 | |||
| 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 | |||
| 211–300 Growth: scale 4 | |||
| 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 | |||
| 301–350 High growth: scale 5 | |||
| 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 | |||
From the above assessment of risk profile of both of you, we understood that Wilfred, you are moderate risky person in terms of investment as well as decision-making for future. The total score of your risk profile is 210 out of 350 that comes under the scale of 3 out of 5. Your wife’s risk profile has scored higher than that of you – total of 275 – coming at the fourth scale out of five with a growth option of investment.
Financial planning strategy
The financial planning for you and your wife can be possible from this situation. In this scenario, we have found that strategic movement towards planning for the future financing of your retirement is possible if you have enough funds. The forecasting of the funds after two years from now can be predicted using the assumed information and provided information with your fact-finding. The strategy of planning the financial investment of the funds and savings made by both of you has to be in line with the objectives set by you – retiring after two years with a healthy lifestyle. However, in the present context, the savings account shows that you have $610000. The funds can be liquefied into $204000. Further, you can reduce the loan of $30000 for the investment in Margin loan investment. Thereby, the balance of the fund will be $174000. The major contribution can be seen in this context from the investment made for the retirement planning. You are being requested to review your financial plan as well as the investment plan so that you can earn maximum capital gain from your investment at the time of retirement. It will help you to lead a healthy lifestyle after retiring from your job and you can meet the goals without proper income.
You have already considered seeing your existing house at the price of $850000 and repaying the entire outstanding debt of $35000 after two years from now. In this context, the cost associated with the loan repayment is considered the amount equal to the outstanding debt. In this strategy, you may have $815000 in cash after two years. If you buy the new home of price $600000 using this fund, then you will have $215000 cash before paying for the gifts to the children. After providing the gifts to the children of $20000 each, you may have $155000 in cash. The annual expenses show that you may bear your expenses for the next three years. Thereby, the funds provided with the savings of $610000 and the liquefied asset funds of $204000 are considered here too. This will help both of you to sustain the healthy living style for additional fifteen years. However, the superannuation fund of Wilfred and Lillian have not been considered in this strategy.
If you consider to run the family and lifestyle using the fund of super of Wilfred only then we can see that retiring age at 61 for you is not feasible for you. However, in this case, the income from the pension fund of your wife is being considered too. Your monthly income will be around $6800. The interest earned from the super is also not considered in this case and the fund of retirement will last for 18 years after your retirement. The retirement income from the super becomes $82160 to meet all the expenses. However, your wife will retired after two years from now.
Strategy recommended
The above discussion has showed that retiring on age 61 for Wilfred is not feasible unless you make some solid planning and manage your funds to attain the age of 78 [normal age of Australian mortality] []. It is being considered that you will be able to redeemed your super fund after two years. Thereby, the funds available from the previous investment funds like managed funds and in the shares will be redeemed at current price. The strategy is to repay the loan of Comm. Sec Margin loan of Lillian right now. The cash $174000 will be available for making investment in different funds for secured return. In the following table, there are two types of feasibility projection of retirement plan for both of you. In the first one, you cannot meet all the goals and the objectives. In the projection 2, we can show you that sacrificing the caravan and tour of every year with the caravan may provide you other facilities and the reasons for enjoyment for both of you. However, in this projection, you will have to sacrifice the travelling thrice in a year with your caravan across the country. However, it is considered to make your investment strategy lesser risky as both of you have considered to have a retired life after two years. Therefore, risky investment proposal is not suitable for both of you as loss in assets for uncertainties may affect your healthy lifestyle and may deteriorate to reach the objectives. In both of the projections, the loan of Lillian was not repaid after they retired from their job.
| Wilfred | Lillian | Combined | |
| Projection with taking money from existing funds | |||
| Super fund | 620000 | 10000 | |
| future super fund | 44284 | 2000 | |
| Income | 23000 | ||
| interest earned | 18932.09 | 342 | 19274.094 |
| savings after two years | 988000 | ||
| Interest earned Westpac regular scheme annually | 29640 | ||
| Annual income | 71914.094 | ||
| Expenses | 52400 | ||
| expenses of debt | 21760 | ||
| 74160 | |||
| Projection with taking money from existing funds and selling the caravan | |||
| Super fund | 620000 | 10000 | |
| future super fund | 44284 | 2000 | |
| Income | 23000 | ||
| interest earned | 18932.09 | 342 | 19274.094 |
| savings after two years | 1015000 | ||
| Interest earned Westpac regular scheme annually | 30450 | ||
| Annual income | 72724.094 | ||
| Expenses | 50000 | ||
| expenses of debt | 21760 | ||
| Total expenses | 71760 | ||
However, we can repay the loan of Comm. Sec Margin loan after redemption of the funds. Therefore, total funds right now will be $784000. The projection of the fund and retiring plan is shown in the following table where selling the caravan or car is not necessary for both of you. In this way, you can lead the healthy and all types of entertainment in your life.
| Projection of income for the next two years | |||
| savings of funds after repaying the margin loan | 784000 | ||
| Interest rate at 2.85% | |||
| Interest earned | 44688 | ||
| total savings | 991688 | ||
| cash after purchasing new home | 155000 | ||
| Super fund | 664284 | 12000 | 676284 |
| total available fund | 1822972 | ||
| interest earned | 54689.16 | ||
| income from pension | 23000 | ||
| income from rent | 9100 | ||
| total income | 86789.16 | ||
| total expenses | 60400 | ||
| expenses of investment property of Lillian | 9620 | ||
| total family expenses | 70020 | ||
| surplus annually | 16769.16 | ||
The surplus of the amount will be $16769.16 per year for both of you and you can have more expense plan as well as a handy cushion limit for living the retired life.
Investment
The recommended investment is towards the secured fund and the term deposit in the banks. Initially, the amount in hand from liquefying all the existing investments and deducting the repayment of the loan of Lillian must be invested in ‘Term deposit special’ provided by Bank of Australia. The return from this term deposit is 2.85% for the invested amount over $50000. Therefore, from the liquid fund, you may earn $22344 for each of the next two years. Then the total fund can be invested in Westpac Guaranteed plan where the normal interest earned is more than 3% per annum. The total income from the investment may become $86789 while the desired expenses may be $70020 per year. However, there will be enough cushion for paying the premium for medical levy of $5000 for both of you.
Risk management
The risk management of the recommended strategy is to lower the risk value of both of your profile. It is desired to reduce the risk associated with the investment, as after retirement, there will be no income from job. The life will be depended on the savings and investment made from the savings.
However, there will be risk associated with the service provided to you as advice for future asset allocation and wealth management. The scenario of the economy can be changed as the interest rate of the instruments can be changed. Therefore, it is advised to you for reviewing the SOA for every three month; either yourself or by professional service. We provide the service of reviewing the SOA at a nominal charge, which can be seen in the Ongoing fees section.
Estate Planning
You have disclosed that you have made your estate planning. However, there was no potential information provided to us for analysing the estate planning, as it was not updated right now. Further, it is seen that power of attorney is absent from their estate planning. Therefore, it is recommended to take consultancy from the professional lawyer or solicitor for making the will appropriate as per the terms and conditions required in society.
Asset Allocation
The allocation of assets was seen in the term deposit for the next two years. The asset of new home will be a different asset other than investment in the financial instruments. The investment will be made in the term deposit and in the income guaranteed fund where the risk will be lesser than other instruments. The maximum assets will be allocated to the Westpac guaranteed fund while $600000 will be invested in purchasing the home.
Ongoing service offer
| Fee type | Initial fee | Initial fee paid to licensee | Initial fee paid to adviser |
| SOA fee | $1600 | $950 | $650 |
| Implementation fee | $550 | $550 | $0 |
| Ongoing advice fee* | $950 | $550 | $400 |
| Total | $3100 | $2050 | $1050 |
We have offered you the service of taking our advice regarding financial planning for your retirement. The fees charged for ongoing service for updating the SOA is clearly encapsulated in the above table.
Authority to proceed
By signing this authority to proceed, we Wilfred and Lillian Martin acknowledge the following:
• We acknowledge that the information I provided in the financial needs analysis has been used to arrive at the recommendations contained in this SOA.
• We have read, understood and retained a copy of the SOA prepared by <Your name> dated <Date>. This document contains information which accurately summarises my/our current situation, investments and financial objectives.
• We have been provided with an JJ Associates FSG.
• We have read and understood the PDSs for the recommended products.
• Please note that a cooling-off period may apply to your initial investment or insurance policy. Refer to the PDS.
• We acknowledge that the product(s) listed in the table below are to be implemented in my/our name/s:
|
Product(s) |
Amount |
| (Representative of JJ Associate) Will managed funds | $3100 |
• I/We wish to make the following change/s to the recommendations within the SOA
|
Product(s) |
Amount |
| (Representative of JJ Associate) Will managed funds | $3100 |
Signed__________________________________ Date /____ /_____
Client Name
Signed__________________________________ Date /____ /_____
Client Name
Signed__________________________________ Date /____ /_____
Financial Planner
Assumptions
There are many assumptions are made. The most important one is the savings of Mr. and Mrs. Martin from the previous years of income. The value of savings is considered as $610000. Further, it is also considered that no income tax has to pay by Mr. Martin as he will reach the age of 60. Additionally, the investment in the fund of term deposit as well as in the guaranteed fund – will show the same interest rate as shown in current period
Part 2
Disclosure of remunerations, commissions and other benefits
How are we paid?
Commissions and fees — upfront, ongoing and financial planning advice fees
| If you are charging SOA preparation fees, implementation fees, on-going advice fees, or any other non-product related fees you must provide the details here. You may need to source information outside of the subject notes to complete this requirement. However, you can use the examples of how fees are shared between advisers and licensees from the sample SOA if needed.
If you are not charging these fees you may either delete the table below or fill it in with $3100 as the fee charged to make it clear.
|
Investment recommendations
If you wish to implement the products I have recommended, there may be initial and ongoing fees applicable as detailed below.
| Product | Initial fee | Initial fee paid to licensee | Initial fee paid to adviser | Ongoing fees paid to licensee |
Ongoing fees paid to adviser |
| Advices | $1100 | $550 | $550 | $350 | $300 |
| SOA | $1600 | $950 | $550 | $750 | $300 |
| Total | $2700 | $1500 | $1100 | $1050 | $600 |
Ongoing services
| We will provide you service for planning of you future investment and it will helps you to secure your future secure. In regards of that, we will provide you SOA and projected investment report by every interval of 6 months. We will take care of your all investments and will inform you regularly if any changes happen. We are open to provide any kind of support and you can always feel free to contact regarding any requirement you have. |
Responsibilities
| You can expect full support from us regarding the future plan. We will take your full responsibility for preparing investment strategies to get potential return and to secure your future. We will check your fund and other investment time to time and will provide you status periodically. We can assure that you will meet your goal and objectives fruitfully through taking our services. |
Documentation Requiring Completion
You need to provide following documents of both applicants for taking our recommended strategies:
|
Implementation schedule
| Action | By Whom | By When |
| Read and sign the agreement to accept our advice | Wilfred and Lillian | After understanding the all the terms and conditions and when you become agreed to take the advice. |
| Product Disclosure | Wilfred and Lillian | After reading and signing the agreement. |
| Client Agreement- Ongoing Service | Wilfred and Lillian | After reading the product brochures and becoming proper understanding of our product recommendation |
| Application forms | Wilfred and Lillian | After reading and signing the agreement to receive our ongoing services. |
| Lodge applications | Thomas | After filling and signing the form by client. |
| Call to confirm regarding that everything is implemented | Carly | After processing and approving of application. |
How you will handle dissatisfied clients
| We will try to identify the problem of the clients what is the reason behind the dissatisfaction. Face to face conversion will be better to identify the problem of clients and provide the solution regarding the issues. If clients yet do not become satisfy, he/she can write letter to management regarding those issues and management can go for reconciliation procedure to provide solution regarding the issues. |
Links for investment strategy
- https://www.australiansuper.com/tools-and-resources/calculators/retirement-income-calculator.aspx
- http://www.westpac.com.au/docs/pdf/pb/WBC_Guaranteed_Income_Plan_1.pdf
- https://forms.westpac.com.au/forms/UnitTrustPrices.nsf/f_unitTrustPrices?OpenForm&referrer=http%3A%2F%2Fwww.westpac.com.au%2Fpersonal-banking%2Fsuperannuation%2Ftools-calculators-rates%2F#GIP
- https://bankaust.com.au/personal/save/term-deposits/term-deposit-special/?&utm_source=Comparison-site&utm_medium=RateCity_SponsoredLink&utm_content=SponsoredLink&utm_campaign=tdspecial
