Case Study - CHARLES AND ANN GUPTA

Background Charles and Ann saw your advertisement in the local newspaper and have booked an appointment with you on May 1 2019 to review their retirement plan and their investment portfolio. They say that they already have a financial adviser who is a Certified Final Planner (as you are), but they have decided that they would like a second opinion about some of his recommendations. They are concerned that their investments are not performing as well as they had expected, and are worried that they may not be on track to reach their early retirement goal. Ann tells you that she is the one who keeps track of the family finances, and she has prepared a net worth statement and a cash flow statement so that you can have a better idea of their financial position. (See tables.) Both Charles and Ann are surprised when you provide them with your letter of engagement and fee schedule. They say that their other adviser has never provided them with a letter of engagement. Personal Information Charles (age 48) and Ann (age 27) live in Kingston, Ontario. They have been living together for four years. Both are in good health. They used to be fairly heavy smokers, but they tell you that they have cut back to almost nothing now. They say they now only smoke a cigarette one or two times a week when they are out with friends. This is Charles' second marriage, and Ann's first. Charles is making regular support payments to his first wife, Mary, under an agreement signed in June 2009.Charles and Mary did not have any children. Charles and Ann have a child, Isabel, who is two years old. They are paying $880 a month to send her to a nearby daycare program. Employment Information Details of Charles', Employment Capstone Case Study 2 Charles is a professor at a nearby community college, and earns $96,000 a year. He says that while he enjoys his research work there, the day-to-day grind of teaching students is starting to get to him. He would like to retire in the next five to ten years. He thinks that in addition to the pension funds provided by the college, he has enough money set aside to provide him with the sort of lifestyle he wants. Besides his regular employment income, Charles has published several books on history and popular culture. He receives royalties from his publisher, and is often asked to contribute articles to the national newspapers. This usually makes him an extra $850 a month. He says that when he retires from teaching, he hopes to spend more time doing this sort of work. He says that, between writing and appearing as an expert on TV and radio he should be able to earn $40,000 a year. Details of Ann's Employment Ann works for the local newspaper as a commissioned employee, selling advertisement to businesses in the area. Instead of working at the newspaper, she meets with clients at their offices or at her own home. She uses her own car to travel to and from appointments, and has converted one of the rooms in their house into an office, where she has installed a separate phone line. Ann's income varies a little bit from year to year, but as a rule she earns $48,000 annually. Of that $48,000, she says $35,000 is the base salary paid by her employer, and $13,000 is commission income. She is quite happy with her job, and says that the newspaper offers all of their salespeople perks, including a laptop computer to use, subsidized meals in their cafeteria, sales training courses every year, as well as use of the company gym. Financial Position Real Estate Charles and Ann live in a house that they purchased four years ago. It is a large Victorian era home with 12 rooms and cost them $250,000 at the time. He says that, after the renovations and improvements the two have made over the last couple of years, he believes its current value should be around $350,000. They are currently making mortgage payments of $1,100 a month, $700 of which is interest. Last year, the house adjacent to them went up for sale for a very low price - just Capstone Case Study 2 $200,000. While it was (and still is) a little run down, the couple decided to purchase the home as an investment, and they are now renting it out to students. They tell you that, because of the shortage of housing in the area, they are able to demand a fairly high rent despite the house's ramshackle condition. They are making monthly mortgage payments of $1,300 for the house ($900 of which is interest), but are bringing in $1,000 more than that in rental income every month. They think the property is currently worth about $240,000. Charles' Investments, Registered The community college has a defined contribution pension plan, managed by the Super Insurance Company, and the balance in Charles' account is as follows: $78,000 in the Super Canadian Balanced Fund $52,000 in the Super Canadian Small Cap Fund $44,000 in the Super Canadian Blue Chip Fund Charles' Investments, Non-Registered Charles owns the stock of two firms listed on the TSX. 800 shares of JKL Communications, currently trading at $10 a share 450 shares of QRS Manufacturing, currently trading at $12 a share He says that he purchased JKL at $8 a share two years ago, and picked up QRS at just $4 a share last year. Both of these purchases were made on advice he received from his brother in-law, Dan, who spends a great deal of time researching the stock markets. JKL last reported earnings per share of $0.40, while QRS posted earnings per share of $0.85. Ann's Investments, Registered Charles has contributed $6,000 to a spousal RRSP for Ann each year for the last two years. The funds are in an account with High Street Investment Management and they are invested as follows: $6,000 in the High Street Canadian Tactical Asset Allocation Fund $6,000 in the High Street Long-Term Bond Fund Capstone Case Study 2 Ann's Investments, Non-Registered Ann was very close to her great-aunt, Beatrice, and lived with her for a year while she was on a student exchange in the Netherlands. When Beatrice died late last year, she left Ann an amount equivalent to C$85,000 in her will. Ann travelled to Amsterdam last summer and received the money from her aunt's solicitor, which she then deposited into a savings account at a bank in the Netherlands Insurance Information Charles has life insurance for three times his salary from the college, and Ann has life insurance through her employer for twice her salary. Charles and Ann each purchased five year term individual insurance policies from a local insurance broker when they purchased the house, with a face value of $250,000. Charles and Ann also took out life insurance when Isabel was born - a joint first-to-die T-100 policy for $300,000. Charles says that if something were to happen to him, he would want Ann to have an income of at least $35,000 a year until she reaches the age of 65. Children Charles and Ann said that they have heard they can shelter funds for lsabel's education by purchasing a life insurance policy for her, but are not sure what face value to purchase or what riders to consider. They would like your advice on whether this is really the best way to set aside education savings. Risk Profile Charles and Ann describe themselves as low to moderate risk takers, and are prepared to accept a little risk in exchange for better returns - especially inside of their RRSPs, where they have a longer time horizon. Charles says that he has been very fortunate in the stock market recently, but through no effort of his own - he has taken a couple tips from Ann's brother-in-law. He says he's started to feel a bit uncomfortable investing in individual securities, and would like to "get out while the going is good".

Charles and Ann Gupta Statement of Net Worth at December 31, 2018 Assets

Charles Ann Total Liquid Assets Joint Chequing Account

$500 $500 $1,000

Savings Account $0 85,000 $85,000 Total Liquid Assets

$500 $85,500 $86,000 Investment Assets Non-Registered Assets $13,400 $13,400 Registered Assets $174,000 $12,000 $186,000 Rental Property $120,000 $120,000 $240,000 Total Investment Assets $307,400 $132,000 $439,400 Personal-Use Assets Residence $175,000 $175,000 $350,000 Automobiles $12,000 $15,000 $27,000 Personal Effects (owned jointly) $12,000 $12,000 $24,000 Total Personal-Use Assets $199,000 $202,000 $401,000 TOTAL ASSETS $506,900 $419,500 $926,400 LIABILITIES Short-Term Liabilities Car Loan $8,000 $8,000 Long-Term Liabilities Mortgage (Home) $61,000 $61,000 $122,000 Mortgage (Rental Property) $50,000 $50,000 $100,000 TOTAL LIABILITIES $111,000 $119,000 $230,000 NET WORTH $395,900 $300,500 $696,400 Capstone Case Study 2 Charles and Ann Gupta Monthly and Annual Cash Flow as of December 31, 2018 INCOME Monthly Annually Charles' Employr4ent Income $8,000 $96,000 Charles' Self-Employment Income 850 $10,200 Ann's Employment Income 4,000 $48,000 Ann's Interest Income 187 $2,244 Rental Income 2,300 $27,600 Total Income $15,337 $184,044 EXPENSES Taxes, CPP and EI Withhold at Source - Charles 1,900 $22,800 Taxes, CPP and EI Withholdings at Source - Ann 700 $8,400 Taxes, Instalments 675 $8,100 Mortgage Payments Home 1100 $13,200 Rental House 1300 $15,600 Maintenance, Repairs Home 175 $2,100 Rental House 280 $3,360 Home Insurance Home 150 $1,800 Rental House 250 $3,000 Heating, Water and Electricity Home 550 $6,600 Property Taxes Home 345 $4,140 Capstone Case Study 2 Rental House 215 $2,580 Automobile - Charles - Insurance 85 $1,020 Gas and Operating Expenses 180 $2,160 Repairs and Maintenance 115 $1,380 Automobile -Ann Insurance 125 $1,500 Gas and Operating Expenses 280 $3,360 Repairs and Maintenance 145 $1,740 Life Insurance Premiums Charles' 5 YRT Policy 71 $852 Ann's 5 YRT Policy 29 $348 Joint Policy 350 $4,200 Telephone 50 $600 Telephone Ann 75 $900 Food 650 $7,800 Clothing 620 $7,440 Personal Care 220 $2,640 Entertainment 215 $2,580 Daycare 880 $10,560 Support Payments to Mary 600 $7,200 RRSP - Charles 1,100 $13,200 RRSP-Ann 700 $8,400 TOTAL EXPENSES $14,130 $169,560 SURPLUS $1,207 $14,484

Section 6 - Retirement Planning ................................................ 10 marks

What is their current situation?

How much do they need for retirement?

How much do they have for retirement (Gov't sources, pensions, personal savings) Summarize your specific recommendations

Section 7 - Investment Planning ................................................ 10 marks

Explain current situation regarding their investments (i.e. asset allocation, risk tolerance) What is your recommended asset allocation?

What is your justification?

Discuss current investments and explain various investment options

Make specific recommendations for their investments