Superannuation and Retirement Planning Assignment

Template Statement of Advice

Superannuation and Retirement Planning

Answer Template

Version DSRv1309.1

Please read carefully before commencing

You are to answer the questions where indicated in this document

 

Questions 1-11 are to be answered in the SOA template

 

The question order in the document is the same as in the Question Guide and you simply need to work through both documents

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Paul and Diana Keogh Statement of Advice DATE: 7 December 201X

What this document is about	Page
The scope of the advice, your current financial position and where you want to be in retirement. (See sections ‘The scope of the advice ’, ‘where you are now’ and ‘what you want to achieve’).
The recommended strategy and the advantages and disadvantages of implementing this strategy. (See sections ‘How you get there and why’ and ‘Risks and disadvantages’).
The direct costs to you associated with the advice, as well as any other indirect benefits I may receive by giving the advice. (See section ‘What this advice will cost you and how we are paid’).
Additional information to assist in your decision making including product costs, and a list of other resources to which you should refer in making your decision. (See section ‘Additional information to assist your decision making’).
The next steps you should take moving forward and Authority to Proceed (See section ‘Services being provided to you and next steps’).
Additional documents to be submitted (See this section to find out what you need to submit with the SOA)

 

What to do after reading this Statement of Advice (SOA)

If you have any questions please don’t hesitate to contact me.

It’s very important that you take full ownership of your financial decisions. I can assist you to make the appropriate decisions, however those decisions remain yours. If you don’t feel totally comfortable with what’s in this SOA, you should seek more information and advice from me.

If, however, you are completely satisfied with all the information and have no further questions, simply sign the ‘Authority to Proceed’ form and other documents marked with a tag ‘Sign Here’.

You The adviser is an authorised representative (no. 11111) of ABC Financial Planning Pty Ltd, an Australian Financial Services Licensee (No. 789123), of 75 Castlereagh Street, Sydney NSW 2000, Tel: 02 9989 0000  .Email: utheadviser@abc.com.au

The scope of this advice

You have elected to provide me with limited or incomplete personal information on your financial needs, objectives and goals. As a result this advice has been, at your request, restricted to superannuation and retirement planning only. This advice does not consider investments held outside of superannuation, insurance (risk or general), estate planning or any legal structure.

Consequently, the advice does not address all of your financial needs, objectives and goals and should not be deemed to do so. Before acting on the advice provided, you should consider its appropriateness in relation to your own investment objectives, financial situation and goals.

After discussions concerning the importance of a full wealth protection plan, and highlighting the danger of not covering financial risks, you declined any advice in this area.

Where you are now

Here are your relevant personal details that you provided to me at our meetings, and which I took into consideration when developing your strategy:

• Paul and Diana, you are a married couple, age 58 and 53 respectively. Married for 33 years and still going.
• Paul, you are a client service manager for Anta Australia and a restructure at work could bring a redundancy within 12 months.
• Diana, you are a registered nurse for Hospital Care
• Paul, you wish to retire at the age of 65 whilst Diana wants to retire at the age of 60.
• You jointly own your home which has a value of $750,000, with an outstanding debt of $110,000.
• You consider yourselves to be in good health
• You have two children: Danielle (age 21 in her final year of university and managing her own expenses) and Alison (age 17 in her final year of high school and will still be dependent until she graduates from TAFE)
• Paul, you previously worked in the insurance sector and expressed your confidence that you and Diana do not wish any advice in reference to your insurances, either risk or general.
• Paul and Diana, you both recently visited a solicitor and updated your wills and powers of attorney. Again, you have expressed that you do not desire any advice in estate planning.

The following table summarises your current financial position:

	Paul		Diana
Gross salary per annum (p.a.) (excluding compulsory superannuation)	$90,000		$40,000
Investment income p.a.	NA		NA
Estimate annual tax liability (including Medicare)	$22,597		$4,747
Current top tax paid	38.5% (including Medicare)		34%  (including Medicare)
Investment assets	Cash at call $15,000 (Joint)
Superannuation assets	$280,000 – XYZ super $60,000 ABC super		$95,000 – DEF super
Insurance (as part of a superannuation policy)	Not disclosed		Not disclosed
Property value	$750,000 as joint tenants (principal residence). A liability of $110,000
Net personal financial assets (approx.)	$505,000 (includes car value $35,000, superannuation of $435,000, cash of $15,000, home content $20,000)
Cash requirements	$69,285 per annum (includes mortgage payments)
Other liabilities	$2,000 credit card
Total net worth	$1,143,000

 

Question 1

What you want to achieve

Here is what I understand to be your primary objectives:

Objective	Detail	When
To build retirement corpus	Before retirement couple wishes to enough retirement corpus so that they needs to compromise with their life style when they retire.	When they retire
To find lost part of Diana’s superannuation	Her early career superannuation contribution is lost and she wants to trace down.	As soon as possible before her retirement

Assessor use only Marks:  /3

Question 2a

How you get there and why

About the co-contribution scheme

Start typing your answer here…

Operations

If you are a low or middle-income earner and make personal (after-tax) super contributions to your super fund, the government also makes a contribution (called a co-contribution) up to a maximum amount ($500 in 2013-14).

Eligibility

Below are eligibility for co-contribution scheme

• If you made one or more eligible personal super contributions to your super account during the financial year
• If you pass the two income tests
  • your total income for the financial year is less than the higher income threshold of $48,516 for 2013-14.
  • And 10% or more of your total income comes from eligible employment-related activities or carrying on a business, or a combination of both
• you were less than 71 years old at the end of the financial year
• you did not hold a temporary visa at any time during the financial year (unless you are a New Zealand citizen or it was a prescribed visa)
• you lodged your tax return for the relevant financial year.

Question 2b

Do Paul or Diana qualify for co-contribution? Show workings

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Paul does not qualify for the co-contribution as his annual income is in higher income bracket as his income is $90,000 that around of the threshold for eligibility criteria. But Diana is eligible for the co-contribution scheme as her annual income is $40,000 and this lower than that of the threshold of $48,516.

Question 2c

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The co-contribution scheme will not have any impact on the Paul’s salary sacrifice as he is not eligible for the scheme.

Assessor use only Marks:  /5

Question 3a

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Yes Paul can sacrifice $15000 from income towards his super fund. Under the Australian rules an individual above the age of 50 years has contribution cap at $25,000 for 2013. The contribution of $15000 would not have any impact next year.

Question 3b

Fill in the table below
Paul’s situation:	Pre-salary sacrifice	After salary sacrifice
Base salary:	$90,000	$90,000
SG	$8,325	$8,325
Less salary sacrifice:	0	$20,000
Equals assessable/ taxable income:	$81,675	$61675
Tax Payable:		$17,547
Plus Medicare levy:		$925.13
Estimated total income tax payable:	$22,597	$18,472
Net income:(½ mark pre sal sac, ½ mark for post sal sac)	$59,078	$43,203
Total Employer contribution:	$8325	$8325
Contributions tax:	0	$247.50
Net super investment: (½ mark pre sal sac, ½ mark for post sal sac)	$16,650	$36,402.50

Question 3c

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Yes I will suggest Paul to undertake salary sacrifice as this will not only increase the super fund but also the tax amount is lower than that with no salary sacrifice.

Assessor use only Marks:  /7

Question 4

“Lost” superannuation and how Diana can find her superannuation

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Your super fund will report you as a lost member if:

• they have not been able to contact you;
• they have not received any contributions or rollover amounts for you in the last five years; or
• your account was transferred from another fund as a lost member account and no new address has been found.

Diana can request the to superannuation fund to find the lost super by providing file number, date of birth and family name.

Assessor use only Marks:  /2

Question 5a

What are the ASIC regulatory requirements?

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As a financial planner I need to follow the doctrine of best interests duty. I have to do fact find of the client about his goals and objectives and find a product (super fund) that can meet his requirements as well as the consequences of the advice.

Question 5b

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No I will not advise Paul to roll his superannuation fund with XYZ to ABC  as there would not be any benefits from the roll over because the final fund value in both the cases remains same.

Question 5c

Paul’s investment risk profile

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From the information available it is clear that Paul is following different strategy for different super fund. For XYZ he is following a balanced approach while at the same time he is following aggressive approach for ABC. In case of XYZ his exposure to growth investment is 51% to 70% while in case of ABC it is in range of 71-85%. But the asset value of XYZ is $280,000 and for ABC is only $60,000. So from this detail it is clear that Paul is not ready to take very high risk. He is ready to high risk on a small portion of his total portfolio. This on overall will result in lower returns on the portfolio.

Assessor use only Marks:  /10

Question 6a and 6b

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On the basis of the combined value of the superannuation funds of couple the current income could be $48,417 and this would be available for the age of 90 years both reach. This requires them to change their investment approach separately to achieve this goal. Paul needs to increase his investment exposure to risky assets to increase retirement corpus. Similarly Diana needs to change her fund investment approach from conservative to growth. This will result into a balanced portfolio. During the retirement period they will have to rely both on the self funded income as well as government benefits. The proposed benefits is expected to last till they attain age of 90 years.

Assessor use only Marks:  /4

Question 7a

TTR strategy and eligibility

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Under the transition to retirement rules, if you have reached your preservation age, you may now be able to reduce your working hours without reducing your income. You can do this by topping up your part-time income with a regular ‘income stream’ from your super savings.

Under these rules you can only access your super benefits as a ‘non-commutable’ income stream. A non-commutable income stream is one that cannot be converted into a lump sum. This generally means you cannot take your benefits as a lump sum cash payment while you are still working. You must take your super benefits as regular payments.

Employers still need to make compulsory super guarantee contributions for all their eligible employees, including people on transition to retirement.

Question 7b

Fill in the table below
Income payment	12500
Tax-free amount	2500	½ mark
Taxable amount	10000
Tax payable	3250	½ mark
15% tax offset	1500	½ mark
Final tax payable	1750	½ mark

 

Question 7c

TR strategy, age 60 and permanently retired

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She will keep receiving the income stream even after retirement at age of 60.

Assessor use only Marks:  /4

Question 8a

Question 8a: Fill in the table below
Assets	Current Values	Liabilities	Marks
	$	$
Family Home:	750000	110000
Home contents:	20000	0
Motor Vehicle:	26000
Motor Vehicle:	9000
Cash at Call:	15000
Superannuation – Paul:	340000
Superannuation – Diana:	95000
Credit Card:	0	2000
Assessable Assets:	485000	2000	½ mark

Benefits under the assets test	Amounts	Marks
Assessable assets:	485000
Lower threshold:	$1126500	½ mark
Excess:	0	½ mark
Reduction (per fortnight):	0	½ mark
Payment rate (excluding pension supplement) (per fortnight):	0	½ mark
Benefit payment (per fortnight):	0	½ mark

Question 8b

Question 8b: Fill in the table below
Assets	Current Values	Included for Deeming	Marks
	$	$
Family Home:	750000
Home contents:	20000
Motor Vehicle:	26000	Yes
Motor Vehicle:	9000	Yes
Cash at Call:	15000	Yes
Superannuation – Paul:	340000	Yes
Superannuation – Diana:	95000	Yes
Credit Card:	2000	Yes
Deemed Investments:	487000		½ mark

 

Benefits under the income test			Marks
Financial Investments:
Deemed income (per fortnight):*	681		½ mark
Income Free area (per fortnight):	0		½ mark
Reduction (per fortnight):**	0		½ mark
Maximum Payment rate (per fortnight):	0		½ mark
Benefit payment (per fortnight):	681		½ mark
**Maximum age pension = *Deemed income – **Reduction

 

Question 8c

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Assessor use only Marks:  /7

Risks and disadvantages

(Note – list Risks & Disadvantages in the relevant recommendations)

What this advice will cost you and how we are paid

(Information only – there is no disclosure question in the Project)

Advice costs

In providing our services and advice to you, we may be paid as follows:

• Fees charged by us to you (‘fees for services’). These are set out in the first row of the table below.
• Commissions paid by product providers to us from their annual fees. This is calculated as a percentage of the balance of your investment assets and is set out in the second row of the table. These payments are intended to cover the cost of annual ongoing advice. Please note there is no ongoing commission for these recommendations.

Should you wish to proceed with the proposed advice and strategies, the costs we have agreed for the advice will be:

What the fee is	Description	How paid	Amount
Initial	Initial financial planning fee the research, preparation and implementation of the strategies	Direct cost charged as flat fee	$770 (standard cost is $1,320) This is the total amount for plan preparation and implementation of the advice. A percentage of the fee (10%) will be charged if you decide not to implement my advice ($77).
Ongoing (annual)	Commission. Further information is available in our Financial Services Guide (FSG)	Paid by product provider from their management fees	There is no commission payable for the advice contained in this SOA.

 

Notes

• As the Licensee, ABC Financial Planning Pty Ltd (ABCFP) receives these product provider fees and retains 2%, paying the remainder to us as the financial planner. This equates to $754.60 of the initial fee and $0 of the ongoing commission per annum.
• Other fees related to the product, such as switching fees or member fees, may apply to your investments.  These are paid to the product provider. Please refer to the relevant Product Disclosure Statement for specific details on fees regarding each product recommended to you.

Benefits, interests and associations

• ABCFP may receive sponsorship payments from the product providers recommended in this SOA. Annual sponsorship per product provider is typically between $10,000 and $20,000. This is not a direct cost to you.
• Your financial planner does not receive any of these payments directly. ABCFP may use these payments to pay for the cost of conferences, training or professional development for your financial planner. In return, the product provider receives a range of benefits including being recognised as a sponsor, attendance at conferences and the right to give presentations to your financial planner.
• For further information regarding benefits, interests and associations please refer to the Financial Services Guide previously provided to you.

Additional resources

Title	Description
Product Disclosure Statement (PDS)	PDS containing technical particulars about the recommended product, including product features and costs that apply.
Financial Services Guide (FSG)	The FSG that has already been provided to you provides information on a range of issues including the services we offer, how we operate, how we get paid, and any interests, associations or relationships that could influence them.
Research materials	Research materials relevant to product selection. This material is independently appraised by a credible research house engaged by the Licensee. You should read this information so that you gain a better understanding of what you are investing in.
Educational materials	As above, we recommend that you read the Financial Planning Association booklet, ‘The Trade Off – Understanding Investment Risk’.

 

Services being provided to you and next steps

This advice is relevant for the period up to retirement but does not consider your needs and objectives in retirement. You will need to review your financial affairs in the immediate lead up to retirement.

Financial planning is a dynamic process and your financial development needs to be regularly monitored for changes in your circumstances, as well as economic conditions, government legislation and a range of issues that may impact on your financial wellbeing. Should you receive a pay rise, or have any other change in your employment circumstances, you should notify me immediately so that your strategy can be reviewed to ensure it remains in step with your objectives.

If you wish to proceed with the recommendations outlined in the SOA you should sign the Authority to Proceed below and return it to us.

Authority to Proceed

Before you sign this authority, please check that I have:

• given you my Financial Services Guide (FSG)
• given you a Product Disclosure Statement (PDS) about each financial product that I have recommended:
• talked to you about your personal circumstances, insurance needs and financial goals in a way you understand, and answered your questions:
• discussed the risks involved in investing and how much risk you are prepared to take
• discussed any fees and charges associated with the recommended products and insurances that you will have to pay

If I haven’t done all of these things, don’t sign the Authority to Proceed below.

Before you sign this authority, please also make sure that you have:

• read all the documents I have given you
• checked that your personal information in this document is accurate
• asked me any questions you have
• understood the fees and charges associated with the recommended products and insurances, as well as initial and ongoing charges

If you have any questions about please don’t hesitate to contact us on (02) 9989 0000 during business hours (Monday to Friday, 9am to 6pm).

Once you are happy with the advice and recommendations outlined in this SOA and wish to implement them you should both sign the Authority to Proceed below and return it to us. We will arrange for the necessary paperwork and appointments to be completed (this can be mailed out to you or completed during our next meeting).

By signing below, you agree to the following products and investments being purchased on your behalf by representatives of ABCFP.

Paul Keogh                                                                                Date

Diana Keogh                                                                             Date

Question 9

Complete the action plan in the table below

Action/Implementation plan

When	Who	What	Why	Evidence
Once plan is accepted	Paul	Increase exposure to growth investment assets	So that can build enough retirement corpus
Once plan is accepted	Diana	Increase exposure to growth investment assets	So that can build enough retirement corpus

Assessor use only Marks:  /4

Question 10

List 10 (ten) items that need to be retained on the client file to record the advice provided.

1.       Income details
2.       Home details
3.       Content details
4.       Superannuation Fund details
5.       Motor details
6.       Tax details
7.       cash on call details
8.       Credit card details
9.       TTR details
10.     Lost fund details

Assessor use only Marks:  /5

Question 11

Part a)

Start typing your answer Part A here…

Paul and Diana have been living a normal life where they have amenities to enjoy. Their financial position looks good at present but seeing the level of savings and investments in different forms, they may fail to meet their post retirement annual income plan as their savings are on lower side and to achieve that they need to invest their money growth funds. This will help them to achieve their financial goals. The most important aspect of financial planning is post sales services. Firs important activity is review. The second is churning of portfolio leading to sales of new products. Third is recommendation and sales of other products that can help them earn some extra money. The forth opportunity can be post retirement advice and fifth can be providing some advice post retirement that can help them earn some money. So these increase possibility of cross selling and up-selling

 

 

Part b)

Start typing your answer Part B here…

Review is an important aspect of overall financial planning. This helps the investors to churn their investments from time to time so that their investments are adjusted with new reality as it is not possible to sit passively on investments for so many years in a very volatile and highly changing environment. To this service I will illustrate them the importance of the review. For this I will provide real life examples so that they can understand the benefits of review and drawbacks of passive investment strategy. This will help me achieve my goal of offering review services at some cost.

 

Part C)

Start typing your answer Part C here…

How do you rate my services for securing your financial goals?

Can I provide some other services as well?

Would you like to give some references?

Assessor use only Marks:  /10