Introduction
In this case, the SOA for Richard and Renuka Bradely is prepared. Mr Richard and renuka Bradely is going to retire within 5 to 6 years. Now they realise that they require the help of the financial planners who will prepare a statement of advice for them which will guide the couple to manage their wealth and spend their retirement life peacefully and without thinking about any financial crisis.
Discussion
Compliance
Scope of Advice
The products which are suggested by us are all financial product which are generally relating to Australian equities and international equities along with investments which can be made in balanced funds. In addition to this, we also suggest products which are provided by small equities in order to enhance the income of the clients with the help of such an investment. Furthermore, we also suggest products which are related to life insurance which can help the client in securing his life. In addition, it is also notified that our services are limited to recommending you necessary products which can fulfil your needs and expectations.
Goals and Objectives of the Clients
On the basis of the information which is provided to us by you, the following can be identified as your goals and objectives which you expect:
- In a period of approximately 5-6 years the clients are planning to retire which means that they would be needing an appropriate retirement plan so that their current standards of living is maintained.
- At the time of retirement, the clients want to pay off mortgage loan and also have appropriate amount of cash in hand for purchasing a new care and for a holiday trip.
- The current super funds are not appropriate and therefore the clients want to switch the current super funds so that proper investments can be made towards securing their future.
- The clients also want to establish savings plans for their children and keep aside a sum of $ 50,000 for each.
- The client also wants to establish a will so that their wishes are carried out even after their deaths.
Richard and Renuka Bradley retiree
Statement of advice
Retirement planning
What is contained in the document
This document contains the advice requested by Richard and Renuka Bradley and the cost details of implementing the advice. The document contains every details of the financial planning that will help Mr and Mrs Bradley to spend their retirement life smoothly.
The scope of this advice
The advice provides planning to increase the wealth of the couple during the time of their retirement within 5 to 6 years. The scope of the report includes the steps of financial planning and not any recommendation of any specific products.
About the clients
| particulars | Richard | Renuka |
| Age | 58 | 55 |
| occupation | Running a business named live wire electrics earning 140000 per year. | Employed full time florist in the company named Thanks a bunch annual salary of 30000 per year plus 8.50%super annuation guarantee contribution |
| Health condition | No major health issue | Have some minor health issues |
| Life style | He maintain a healthy life style and does not have any unhealthy practices like consumption of alcohol, smoking and other bad habits. | She maintains a healthy life style. |
| Diseases | There is no background of hereditary diseases or early age death. | She has family background of genetically diseases ( diabetes) |
| Health coverage’s | He has been covered by the standard private hospital coverage | She is also covered by the standard private hospital coverage |
| Will | He has a current will, which is updated last in the year 2007. | She does not have any will |
| Power of attorney | There is no power of attorney of Richard. | She has no power of attorney. |
Beside that both of them has two self-dependent son and daughter named Rowena (21) and Reece.
Assets and liabilities of the couple
Assets
| Details of the property | Owner | Value |
| Residence | Both | $650000 |
| Cash and bank | Joint | $14000 |
| Motor vehicles | Joint | $62000 |
| Investment property | Joint | $400000 |
| Home contents | Joint | $125000 |
| Managed funds | Joint | $85000 |
| Superannuation | Richard | $270000 |
| Superannuation | Renuka | $150000 |
| Holiday home | Joint | $150000 |
Liabilities
| Nature | Owe | Value |
| Mortgadge | Joint | $150000 |
| Investment property | Joint | $185000 |
| Personal loans | Joint | $20000 |
| Credit card | Single | $2000 |
Annual income and expenditure
| Particular | Richard (amounts in $) | Renuka (amounts in$) |
| Gross salary | 140000 | 30000 |
| Investment income | 4750 | 9750 |
| Total income | 144750 | 39750 |
| Income tax | 41850 | 2750 |
| Net income | 102900 | 37000 |
| Expenditure Mortgage principle home | 15252 | 15252 |
| Household expenses | 21000 | 21000 |
| Super life contribution | 10000 | |
| Total expenditure | 46252 | 36252 |
| Annual income | 56448 | 748 |
Details of the superannuation
| Name of fund | Richard | Renuka |
| Fund name | Sweet super | Ultimate future |
| Type of fund | Retail | Retail |
| Contribution by employer | NA | $2850 |
| Personal | $15000 | NA |
| Current value | $270000 | $150000 |
| Transfer value | $270000 | $150000 |
| Policy numbers | 9234795 | 123456 |
| Tax free amount | 50000 | 40000 |
Current investments
Descriptions date cost maturity date current value annual income
Investment property 1/11/2003 $220000 $400000 $16500
UA managed fund 21/04/2010 $100000 $85000 $5000
What the client want to achieve
The primary objective of the client
| Objective | Detail | When |
| Retirement | Both Richard and renuka wants to retire on their 65th birthday | Both of them wants retire on 01/07/2025 |
| Maximise age pension | Both of them should try to obtain the maximum age pension. | Both Richard and renuka obtain their maximum age pension on 01/07/2025. |
| Income at retirement | Richard should target $82000 per annum to maintain current lifestyle and renuka should try to have $52000 per annum to ensure that the current life style can be maintained during the time of retirement. | From 01/07/2025 onwards both of them should have an annual income of $82000 and $52000 respectively to have a smooth lifestyle. |
How the clients can achieve the objective
Summary of the recommendation given to the clients
Step 1
Advice for renuka
Renuka should put her proceed from into cash account for the retirement purpose. In addition, the balance in the joint account of the couple, which is valued of approximately $150000 including the interest from the term, deposit which is going to be matured recently.
Step 2
Advice to Richard
The amount in the super benefit fund the value of which is approximately 250000 should be withdrawn and deposited in the cash account.
Step 3
Advice to Renuka
It is required for Renuka to invest in a super fund in her own name .
Step 4
Advice to Richard
Richard should adopt the re contribution strategy by withdrawing cash and again deposit the fund in to another super fund.
Step 5
Advice to Richard
From the super fund he should open, an Account based pension scheme wherefrom it will be possible for him to draw a pension equivalent to $25000 per annum.
Step 6
Advice to Richard
Richard is now in a position to apply for the age pension
Explanation of the advices given to the clients
Step 1 deposit Renuka’s term deposit in to the cash account
| How When renukas term deposit of $150000 matures on 2024 this should be deposited in the joint account | Reason These funds are kept to implement in the strategy to give a tax benefit on the retirement income. On the maturity of the term deposit , renuka will not lose any accumulated interest on the withdrawal. The term deposit gives an interest rate of 7.1% the interest earned on maturity will be estimated $8000. |
Step 2 withdraw Richards super fund
| How Richard super fund is required to be withdrawn which currently values $250000 and it should be deposited into the joint account | Reason This will give Richard a super fund which is free of tax to increase his age pension entitlement at the age of 65. Richard at the age of 65 at retirement and therefore he will access to your super benefits which can be taken out without paying any tax. Both Richard and renuka should roll over their super fund to minimise the risk and to earn more from the super fund. |
Step 3 invest $200000 in superannuation for renuka
| How By using the fund that is kept in the joint account make a $200000 non-concessional contribution into super fund for renuka. | Reason On the basis of the estimated level of assets Renuka should come under centre links assets test to calculate the age pension entitlement. Non-concessional super contribution are those fund on which no tax exemption can be claimed. The contribution that can be made in these funds are restricted to $150000 but as renuka is aged under 65 it will be possible for her to invest $200000 in the current financial year by selecting to bring forward the next one years contribution limits. Any contribution over that will attract tax at the rate 16.50%. This strategy deduct your centre link assessable assets by $200000 and it is budgeted that this will then raise Richards age pension entitlement from $2000 per annum to approximately $10000 per annum. |
Step 4-contribution strategy for Richard
| How 300000 can be used from the cash account to make a non-concessional contribution into Richard super fund immediately | Reason At the age of 65 Richard will be required to meet the work test to be able to make contribution to the super fund. Richard is also important that he should make more investment in the non-concessional contribution to super fund in this financial year . From then Richard can no longer be able to access the $4500000 cap. If Richard expires then these funds would be transferred to Renuka tax-free. Again if Richards want to pay taxable benefit to his self-dependent children then he has to pay tax at the rate 16.50%.by using this strategy it will be possible to reduce the liability of the individual. If Richard kept $300000 dollars in the super fund then it will force his self-dependent children’s to pay tax $50000 dollars. |
Step 5 creation of the account based pension
| How Bills super fund is required to be transformed in to an account based pension | Reason The pensions payments made from the account based pension are free from tax when the lump sum is withdrawn. Investment incomes in the ABP is tax free in comparison to investments kept in privately, which may be taxed at the marginal tax rate. Investment in the super fund will be taxed at the 15%. Despite the value of the ABP incorporated in the assessable assets of Richards when centre link determines Richards’s age pension entitlement, the earnings of Richard is concessional assessed under the centre links earnings test. The amount which is assessed is based on the amount taken away from the ABP from which the amount which is calculated at the starting of the ABP will be deducted. In case of Richard the estimated amount that can be deducted is 18000 dollars. Richard will be able to recommend Renuka as beneficiary if anything happen to Richard then Renuka will be able to take the benefit. |
Step6 achieving the retirement income
| How Richards estimated age pension entitlement | Reason Richard’s age pension entitlement is estimated to be 20000 dollars. The amount is taxable and the due to availability of various tax deductions the tax liability will become nil. |
| Withdrawing the minimum level from Richards account based pension | Richard has the opportunity to draw any amount of income from the ABP above minimum of 5% of the account based pension’s asset value. This is approximately $15000 dollars in the first year. Richard’s pension payment will be fully tax-free as his age is more than 60 years. Withdrawing the minimum from the ABP allows Richard to retain more of the funds, which is tax free. |
| Make continuous withdrawals of 18000 from super fund | Earnings in superannuation are liable for tax at the rate of 15% in comparison to 0% in an ABP. By withdrawing from the renukas super fund instead of withdrawing from the ABP it will be possible to avoid the burden of tax. Based on the retirement earnings need of $ 30000 pa Richards age pension entitlement of $12000 and the minimum ABP income of $15000.it is estimated that Richards will need to make total annual withdrawal of about $18000. |
Richard as an age pensioner he will be entitled for the pensioner concession card which entitle him to some concession when buying medication. In addition to that on the concession card it its other benefits are incorporated in the information section of this statement advice.
In summary, it is shown how this plan fulfils the goal of the couple.
| Objective | How the strategy fulfils the objective | When |
| Retirement | The maximising of Richards’s age pension over the next 5 to 6 years it will be possible to reduce the dependence on the assets to fund retirement. This will enable Richard to retire without the tension of joining the business again. | 01/07/2025 |
| Maximise age pension | This recommendation reduce the overall computable assets and hence increases Richards age pension entitlement. | July 2025 |
| Retirement income | In between the age pension and ABP | Retirement onward |
Appropriateness of the advice
| Recommendation | Reason of recommendation |
| Both Richard and renuka obtain higher level of life and tdp cover | Richard’s recommended level of life cover would provide renuka with lump sum in the occasion of the expiry of Richard The quantity of life cover of Richard will create enough cash inflow which will replace 50% pf the current earning to the age of 65This will give economic protection to renuka as there will be no debt to pay.The suggested level of TDP cover takes into account that if Richard become enduringly disabled his income shield policy will provide him with $5000 per month which will be adequate as there will be no obligation to reimburse the mortgage.Funds will also provide to cover extra expenses such as medicinal or retrieval cost.If both of them agonise any unadorned disease or injury, the recommended trauma cover will provide funds to met the medicinal expenses and also to cover 2 years burden of mortgage reimbursements.Renukas recommended level of life cover is higher than the amount of coverage of Richard which will protect her from any severe diseases.The recommended level of TDP will provide supplementary income for about 9 years. This takes in to consideration of the inability to obtain any income protection cover.The policy will also provide additional funds to cover medical expenses and the recovery costs.If Richard or renuka suffers a severe illness the recommended trauma policy will offer fund to meet medical expenses and also to cover 2 year’s value of mortgage payments.It will also offer funds to replace Richard’s revenue for 2 month so he can take time off work to provision him. |
| Recommendation | Reason of suggestion |
| Both of them should obtain trauma cover through MNO insurance | Richard should increase the existing superannuation fund and take a TDP strategy up to the suggested levels. The preliminary annual premium would have been $ 2000 which is cheaper than the MNO recommended policy.The TDP policy would only pay if the disability of Richard left him unable to work in any occupation for which Richard is qualified given his training or experience.This is recommended mainly because the MNO insurance’s constructive arrangement of the profession for the purpose of the TDP cover.The MNO strategy will make a TDP advantage payment when in the estimation of medical specialist Richard is doubtful to ever work again owing to illness or injury. |
Risks and disadvantages
General risks
Every investment instruments has some amount of risks associated with it but it is possible to mitigate the risk buy hedging the risk through investment in various instruments in order to achieve the objectives it is required to take some amount of risk. Some of the key risks of the plan.
Rule changes
Rules governing account based pensions and super fund can change. There are some transition provisions that allow a particular strategy to adapt with the changes in the legislative rule changes.
Funds out of the market
During the roll over period, the funds will be out of the market. If the market improves during the period, the individual will not have the purchasing power. If the market comes down during that period then the purchasing power of the individual, will also increases.
Superannuation savings
Renuka should invest more in the superannuation fund that will enable her to take more benefits from the superannuation fund.
Account based pensions
The ABP does not stay for the entire life. The pension allocated will be invested based on the risk profile. It will increase and decrease on the returns on investments and the pensions payments. Once the balance is totally used the pension payment will stop. The pension of $40000 per annum is 11% of Richards ABP values moreover, $300000 has been set aside for renuka.
Advice for personal insurance
| Cover and product | Insurer | Owner | Amount of cover | Annual premium |
| Income protection fund for Richard. income protection cover 90 days waiting period until age 65.agreed value, level premium, super contribution option | Mantra financial services pty ltd | Richard | $5000 monthly plus $600 super fund | $1000 paid by cash |
| Life and total and permanent disability first term life | Second corporate superannuation fund ( provided by ABD insurance ) | Renuka | $200000 | $700 paid by renuka |
| Life and total and permanent disability | AIA AUSTRALIA LTD superannuation fund(provided by AMP LIFE LIMITED) | Renuka | $10000 | $300 paid from super fund |
Insurance needs of Richards
| Financial need | Amount of cover | Explanation |
| Mortgage clearance | $150000 | In the event of the death of Richard his mortgage burden will be cleared. |
| Replacement of income | $500000 | In case Richard died his family will receive $500000 to replace approximately 50% of his income to age 65 which will help his family to maintain their current life style( it is assumed that the inflation rate will be 2.5% per year and the investment returns will be 5% per year) |
Total and permanent disability insurance
| Financial requirement | Amount of coverage | Explanation |
| Mortgage clearance | $150000 | If Richard become partial or permanently the mortgage burden will be cleared. |
| Medical cost | $50000 | If the couple become totally or permanently disable they will receive $50000 to cover their medical expenditure. |
| Replacement of income | N/A | If Richard or renuka become disabled their income protection policy will replace 80% of your income and cover employer superannuation guarantee contributions. Further, the household expenses will be decreased as the burden of mortgage is cleared. |
Income protection insurance
| Financial need Richard can obtain coverage of 80% of his income. | Explanation This is the maximum portion of his income that he will be able to insure. |
| Richard have a 90 days waiting period and a benefit period to age 65 | This policies make monthly payments on arrear basis so it is required to maintain a cash buffer. |
Insurance needs of renuka
| Financial need | Amount of coverage | Explanation |
| Mortgage clearance | 150000 | In case of death of renuka the mortgage can be cleared. |
| Funeral cost | $10000 | In case of death of renuka $12000 will be available to meet the funeral cost. |
| Replacement of income | $120000 | In the event of the death of renuka the family of renuka will receive amount of $120000 to get an income stream of about $15000per year. This will provide her family sufficient cash to maintain their current life style. |
Total and permanent disability
| Financial requirement | Amount of coverage | Explanation |
| Clear mortgage | $150000 | If renuka become permanent or partial y disable then also her mortgage burden will be cleared. |
| Medical cost | $70000 | The medical expenses in ace she become partially or permanently disable then she will receive $70000 to meet such expenses. |
| Replacement income | $50000 | If renuka become totally and permanently she will receive $50000.this will help renuka to maintain her current lifestyle. |
Recommended product for Richard
| Cover and product | Insurer | Amount of cover | Premium paid | Key featurtes of the policy |
| Life cover and temporary disability cover | Richard | $200000(life)and $50000(temporary disability) | $2000(from super fund) $150(cash) | Advanced terminal diseasesUncertain disabilityProtection against occupational diseases.Stepped premium |
| Income protection (retain) | Richard | $5000 per month plus $600 super contributions | Cash | Waiting period of 90days Richard will get the benefit from the age of 65 yearsPremium level Agreed valueSuper contribution option. |
| Trauma insurance | Richard | $75000 | Cash | Premium |
Additional information to assist decision-making
| Title | Description |
| Financial services guide | The financial has been provided to Richard and renuka which will provide a range of products including the services provided by us. |
| Working materials | The spreadsheet workbook used to decide the financial plan contained in the subject of advice. |
| Ongoing service Boucher | The Boucher that has been provided to client contains all the details of the services that can expect from us in the coming years. |
Services provided to you and next step
It’s essential that the client take full ownership of their financial decisions. The decisions of the client is to make appropriate decisions and the client will be solely responsible for the decision that they take regarding investment.
Product advice
The product advice is given as per the need of the client and no preference is given to any particular product. I would be pleased to issue you with an additional statement of advice that will contain appropriate recommendations that will be closer to richard’s retirement date.
Cost of advice
At the initial stage the couple has to pay $2000 to me for the job involved in the research and preparation of the strategies for investment.
Total commission
If you buy the recommended products then in that case I will receive commission the amount of commission that I will get from AIA AUSTRALIA LIMITED is stated below
Detail AIA AUSTRALIA LIMITED me total
First year $500 $1000 $1500
Following years $100 per year $400 per year $500 per year
Conflicts of interest
Apart from the above mentioned commission that we receive from the clients we do not have any relationship with each other which may create a conflict of interest.
Authority to proceed
Both Richard and renuka has given me the authority to proceed and take necessary actions that are required to prepare the statement of advice.
Continuing review service
I recommend both Richard and renuka that their needs and products should be reviewed regularly on an interval of 1 year to adapt with the changes to your goals or situations.
To make sure that you wants to take part in an ongoing review service, please let me know so that I can provide you the details of services and costs.
Risk profile assessment
At the time of retirement clients does not want to high amount of risk so for that reason all the financial products that are suggested to Richard and renuka are less risky and defensive in nature.the risk matrix of Richard and renuka is given below
Conclusion
From the above discussion it can be concluded that financial planning is a dynamic process that require special attention in order to manage the wealth of an individual. An individual require money during the time of their retirement. During the time of retirement an individual lose their potentiality of earning and for that the wealth that has been accumulated during the working life gets affected and that brings financial crisis. The need of financial planner is to advice the clients about the possible ways using which the client can increase the value of their wealth and spend a comfortable life at the time of retirement. So financial planner by providing the services to the individual help them to manage their fund so that they do not have to face fincila crisis at the time of retirement. In addition to the fincila planning the financial planner also give recommendation of various products like insurance which will help the individual to protect the wealth from any risk.
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