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1202AFE Financial Planning 1 Semester 2, 2016 File Note - Statement of Advice Client's name: Date of contact: Re: Liam Sem 17 August 2016 Initial Appointment FSG and adviser profile Liam was handed Financial Services Guide (FSG) version 4 010716 and my Adviser Profile at the interview on 17 August 2016. The FSG was explained to him. Scope of advice Full statement of advice (SOA). Specifically, the SOA will provide advice on the achievement of wealth creation and lifestyle goals, personal insurances (that is life, total & permanent disability (TPD), income protection (IP), trauma and private health insurance), superannuation (including salary sacrifice and/or after tax contributions) and taxation planning where relevant. The SOA excludes any budgeting and cash flow analysis, as well as any advice on debt repayment, social security and estate planning. Client to be advised on the risks of not receiving advice in these areas. Current situation Outline Liam's current situation - this should be fact based, e.g. his income, assets / liabilities etc, plus any other facts that are relevant to your advice (especially those that you will refer to later) - think about the interview transcript and the questions asked to gather the facts - this information should be summarised here. Do not include his goals in this section - these would be included in the objectives section below. Please note, while in practice, this would be more summarised and a fact find usually attached, for the purposes of this assessment item, please include all relevant information. Potential issues / special consideration Outline any potential issues or special considerations that you would like to mention e.g. anything unusual or issues that may not be relevant to your current advice, but could be an issue in the future etc. Objectives Clearly state all of Liam's goals / objectives, including non-financial objectives (such as 'play more golf'). Do not include your goals or objectives or what you will recommend to the client. This section simply covers what the client's goals are. Best practice is to be as specific as possible, e.g. where possible include timeframes, priorities and $ amounts. 1202AFE Financial Planning 1 Semester 2, 2016 Risk profile State the risk profile you arrived at in the interview and any details arising from your discussion about risk. Best practice is to include how you determined your client's risk profile (e.g. did they just tell you or did you complete a questionnaire with them etc), what it means (in terms of timeframes, asset allocation etc) and what the client thought about this. Wealth creation recommendations - outside superannuation Before completing this section, I strongly suggest you watch the video's below if you have not already done so: Getting started: how to complete Part A: https://www.youtube.com/watch?v=6ZZMqfMr6xI&feature=youtu.be Investment choices: https://www.youtube.com/watch?v=GLyK9oIyR_s For each part of the wealth creation / lifestyle recommendation sections below, you need to outline your recommended strategy(s) which should be linked to the client's objectives and the advantages and disadvantages of each strategy, i.e. why the strategy is appropriate to the client and any potential costs / downsides. You also need to include details of any alternative strategies considered and why these were not recommended. An example format is given for objective 1 below. 1. Objective [change the title to the client's objective you are advising on] Outline your recommended strategy to achieve this goal, i.e. what should Liam do? This may be multiple steps, if so; a separate bullet point should be used for each step. Make sure you are specific about the type of investment (i.e. not he should invest in x or y - which one? Or both?), how much should he invest? Should the investment have any particular features? Please be as specific as possible without actually recommending a particular product. Your advantages / disadvantages below should then be directly relevant to your recommendations (not just generic advantages / disadvantages). Overall, your recommendations must be clear on where his savings (both current and any monthly surplus) are being directed to achieve his specific goals. Where Liam has a specific $ goal he is wanting to achieve, make sure your recommendations do actually allow Liam to achieve this goal. For his house deposit goal, please complete a Future Value (FV) calculation(s) (as covered in Topic 2), or use an online calculator to back up your recommendations. Show any workings / calculators used in Appendix 1 below. Before completing this, I suggest you refer to the video, 'FV calculations': https://www.youtube.com/watch?v=ORUGNLMVqik Make sure you do actually provide recommendations on how Liam can achieve his goals - leaving it up to the para-planner (the person who will receive your file note) or saying we will discuss this further with Liam is not acceptable. The reasons for your recommendations should form part of your advantages below. This section is simply what Liam should do to achieve his first objective. 1202AFE Financial Planning 1 Semester 2, 2016 Advantages of strategy This is where you need to include the reasons why you have recommended the strategy above. As per above, please ensure you provide specific advantages for Liam, not just generic advantages that may apply to any client. Disadvantages of strategy There are always disadvantages with any recommended strategy. For your recommended strategy(s) what are the disadvantages - again, be specific rather than general. For example, rather than stating 'taxation implications' you would need to explain what taxation implications and how this is a disadvantage. If there are severe disadvantages with your recommended strategy that cannot be overcome you should consider changing your strategy - particularly if your strategy means he cannot achieve his goals. Alternatives considered You need to consider all 'reasonable' alternatives and why these where not recommended. If you are recommending a defensive investment option you should include other defensive investment options and why these were not recommended. Likewise with any growth investment recommendations. Remember an alternative is always 'do nothing' (i.e. leave as it) - if you are not recommending this, why not? Repeat this process for all of Liam's wealth creation / lifestyle goals (including his superannuation goals below). Lifestyle recommendations 1. Objective [change the title to the client's objective you are advising on] Recommended strategy (as per above) Advantages of strategy As per above Disadvantages of strategy As per above Alternatives considered As per above 1202AFE Financial Planning 1 Semester 2, 2016 Wealth creation recommendations - superannuation What is Liam's superannuation objective(s)? Recommended strategy to achieve this objective i.e. what should Liam do? o Should he consolidate his superannuation funds? Why / why not? o Remember you don't know anything about the two superannuation funds he holds so you can't recommend one of these above the other. You are also not required to recommend a specific product, so consider instead what investment option his superannuation should be in (and why) and any particular features his superannuation fund should have. As part of your recommendations you must discuss salary sacrifice - if you are recommending this, make sure you recommend either a monthly $ amount or % of Liam's salary and discuss the advantages (why) and disadvantages with your recommendation below. If you are not recommending salary sacrifice, your reasons for this must be included in the 'alternatives considered' section below to show you have thought of this and did not recommend it because of ... Advantages of strategy As per above (e.g. if you are recommending consolidating the two funds what are the advantages / disadvantages of this etc etc) Disadvantages of strategy As per above Alternatives considered As per above Wealth protection (insurance) - recommendations Note 1: all insurance recommendations should be based on Liam's goals and objectives - i.e. could he still achieve these should an accident / illness / injury occur? Note 2: in this course you are not required to price insurance. In reality, any insurance recommendations outside of superannuation will have an impact on Liam's cash flow, though for the purposes of this assessment item you do not need to consider how Liam would fund this (i.e. feel free to use his entire monthly surplus for any wealth creation / lifestyle goals). Note 3: if you are recommending Liam not take out a particular insurance cover, you must explain why. 1. Life insurance Advise whether you recommend Liam take out life insurance cover or not If recommending Liam obtain life insurance, please advise whether this should be inside / outside superannuation and why Provide any advantages / disadvantages with your recommendation 1202AFE Financial Planning 1 Semester 2, 2016 2. Total and permanent disability (TPD) insurance Advise whether you recommend Liam take out TPD cover or not If recommending Liam obtain TPD insurance, please advise whether this should be: o own occupation or any occupation TPD and why; and o inside / outside superannuation and why Provide any advantages / disadvantages with your recommendation 3. Income protection (IP) insurance Advise whether you recommend Liam take out IP cover or not If recommending Liam obtain IP insurance, please advise: o What level of cover he should obtain (e.g. what % of his income); o What his waiting period and benefit period should be; o Whether this should be an agreed value or indemnity policy; and o Whether this should be held inside / outside superannuation. For each of the above points, please ensure you explain your reasons why. Provide any advantages / disadvantages with your recommendations 4. Trauma insurance Advise whether you recommend Liam take out trauma cover or not A reminder trauma insurance must be held outside of superannuation Provide any advantages / disadvantages with your recommendation 5. Other insurance Does Liam require advice on any other insurance products, such as private health insurance? Why / why not? Other Insert any other objectives / issues that you have not previously dealt with. If you have previously covered everything, you wouldn't be expected to have anything for this section - so just delete. 1202AFE Financial Planning 1 Semester 2, 2016 Appendix 1 - Future value (FV) calculations Include in this section any FV workings and/or a screenshot of any online calculators you have used, which prove Liam can meet his goal(s) based on your recommendations. A reminder that this section is required. Students who do not complete this section will have their marks for the wealth creation (outside superannuation) section reduced. Please refer to the FV calculations video which explains this section further: https://www.youtube.com/watch?v=ORUGNLMVqik 1202AFE Financial Planning 1 Semester 2, 2016 Full assignment instructions Your task Based on the interview transcript 'Liam - Initial Client Interview' (below) you are required to prepare a detailed file note using the template provided on L@G. This file note should include an overview of the interview with Liam, including his goals and objectives and any issues raised; and then based on this information, your strategic recommendations based on these circumstances and goals. These recommendations should include wealth creation, wealth protection (insurance), and any debt management and lifestyle recommendations (as appropriate). In practice, your file note would most likely go to a paraplanner who would use the recommendations (and reasoning) given in your file note to prepare a Statement of Advice (SoA) for Liam. However, you are not required to prepare a SoA. Please note that a standard SOA template generally contains generic information such as what is a managed fund, total and permanent disability insurance etc. Accordingly, you are not required to include generic product information such as this in your file note. Instead, the focus of your file note should be your strategy recommendations (and reasons why etc) as indicated in the file note template instructions. Your file note: Must be prepared using the file note template provided on L@G; Is a strategy document only, as such you are NOT required to recommend specific investment products or price any actual quotes; Should be approximately 2,000 words (although there is no set word limit). As illustrated in the template, please bullet point your responses. The purpose of this assessment item This assessment item is a practical, real world assessment task. It has been designed to assist students in putting the course content into practice and increasing student's workreadiness. This assessment task is also designed to assist students in preparing for latter courses, such as Financial Planning, Construction and Review which requires students to complete a full SOA, the next step in the financial planning process. Marking It is important you refer to Marking Rubric (also in the Assessment folder on L@G) which details the expected standards of each section of the file note. The assessment is worth a total 35% of your final grade, that is, 5% for Part A and 30% for Part B. You will be advised of your mark via 'My Marks' on L@G. Page 1 1202AFE Financial Planning 1 Semester 2, 2016 Resources provided Please refer to L@G (Assessment folder) for templates and detailed instructions on how to complete these, as well as a number of short videos to help you get started and help clarify certain areas of the assignment. These include: Assignment background Getting started: how to complete Part A Investment choices Future value calculations Getting started: how to complete Part B Individual or joint submission Students may complete the assignment individually or with another student. The choice is up to each student. Groups of three or more are not permitted. If students choose to complete the assignment together, then each student will receive the same mark. The teaching team will not discuss any disputes or complaints from students asserting that one student did more work than the other, given working with another student is optional. Accordingly, students should make sure that the person they choose to work with carries their responsibilities and completes their allocated tasks on time and to the desired standard. Please note, all students must complete the group sign up process on L@G, even those completing the assignment individually. If you do not complete the sign up process, you will not be able to see the assignment submission points referred to below. Submission Your Assignment will be submitted in two parts as follows: Part A: You are required to submit your intended wealth creation recommendations, together with any lifestyle recommendations for feedback. This will be worth 5% of your final grade and is due on Friday 16 September by 4pm (AEST). More details on Part A, including the template and marking guide are available on L@G. Part B: You are required to submit your full file note as detailed above. This will be worth 30% of your final grade and is due on Friday 14 October by 4pm (AEST). The full file note includes any wealth creation recommendations for Liam, which may or may not be the same as your Part A recommendations. Based on your feedback for Part A, you can chose to update / change your recommendations as desired. All submissions must be submitted via the Blackboard Assignment submission point on L@G (within the assessment folder) and an electronic coversheet must also be completed. Further instructions on this are provided on L@G. Please note, is your responsibility to ensure you upload the correct file and the complete assignment is submitted by the due date. Additional information Page 2 1202AFE Financial Planning 1 Semester 2, 2016 Please ensure that you check the L@G Announcements regularly for any clarifications or amendments to this assignment. Page 3 Liam - Initial Client Interview Stage Rapport Nutshell Adviser Client Liam, welcome to our financial planning firm. Did you have any trouble finding us? No trouble at all thanks. Can I offer you a tea or coffee? A coffee would be great thanks. [Advisor organises this] Can I ask, in a nutshell - how can I be of assistance? Basically there's a few reasons why I wanted to see a financial planner, firstly, a close friend of mine was recently quite badly injured in a car accident and I saw what a difference the insurance payments made to her while she was recovering, so it made me think about my insurance situation and I know I need to get that sorted. I'm also wanting to buy my first home in the next 5 or so years, so I need some advice on saving for a deposit too. Finally, I want to get my superannuation sorted. I've never had the time to look into this and I don't know whether the fund I'm with is right for me or whether I should be making extra contributions or not. So some advice on this would be great. Bridge between rapport and compliance I'm sorry to hear about your friend, I take it she's ok now? Yes thanks, she's back at work full time now, and her recovery has been pretty good too. That's great news, it must be a huge relief to everyone. In terms of why you're here, I'm confident we can help you achieve... [state the client's goal(s)]. That's great, thanks. Before, we go any further, have you ever seen a financial planner before? No, I never really had much of an interest in finance and it's only recently that I've realised I really need to get my insurances and finances sorted ... Ok great, so what we'll do today, is I'll firstly explain how we work, ask a few more questions, and then get an understanding of your current situation. How does that sound? Sounds great. Page 4 Stage Adviser Client Advisor goes through FSG [Advisor goes through the Financial Services Guide (FSG), explaining: key points, including the company, authorisation; services; fees and the complaints process how the financial advice process will work, including the various stages, ongoing reviews etc [Client signs acknowledgement that they have received FSG] Bridge between FSG and Fact Find Before I make any recommendations, I need to understand more about your goals and objectives and then we'll consider your current financial situation. Sounds great - based on what I've heard I'm keen to proceed. Every financial plan is unique to each client. Having you achieve your goals is as important to us as it is to you. To do this, if you can answer the questions as openly and accurately as possible - we can better understand your needs and concerns. Any details you don't know - we'll itemise them for follow up. If you have any questions - don't hesitate to ask - let me give you my card - for future reference. How does that sit with you? Gather some personal details Before we look more closely at your goals and objectives - let me find out more about you personally. [USING FACT FIND: collect details re client's background, goals and objectives and current financial situation] What is your date of birth? What is your current marital status? Do you have any dependents? DOB: 16 / 12 / 1987 [aged 28] Are you an Australian citizen? What is your current address? Do you own or rent this property? What is your best contact number? Email address? I am an Australian citizen and my details are as follows: Address: 30 Northcote Street, East Brisbane - renting Phone: 0412 345 678 Email: Liam123@gmail.com Page 5 Single, no dependents Stage Adviser Client Occupation What do you do for work? And what is your annual salary? I'm employed by Jones & Young Ltd as an architect and I earn $95,000 per year plus super. What's on your mind You mentioned that getting your insurance and superannuation sorted are all concerning you; and that you'd like to buy your own home. Can you tell me more about these? I've never really thought too much about getting insurance, it's just something I assumed I'd look at later. Though with my friend's accident it made me realise I need to get this sorted sooner rather than later. I really just want to make sure I'm financially covered if anything happened to me. I want also want to make sure my super is sorted, it's another area I haven't put too much thought into, given that I can't access this for so long. When getting some of my documents together for you I actually realised that I have an old fund that I'd forgotten about so it would be good to consolidate these and just make sure I'm in an appropriate fund too as I don't know anything about super. In terms of buying a house, I'd love to be able to be able to do this, it would be nice to have my own space and be paying off my own mortgage rather than somebody else's. How would you like to get there? Ok thanks for that. Let's look at each of these concerns in a little more detail. Let's talk about your insurance goals first. What are you specifically hoping to achieve here? As I don't have any dependents, my key concern is making sure that I'm financially protected if I was seriously ill or injured and couldn't work for a period of time. I don't want to be in a situation where my parents are forced to take care of me, as they're both still working full-time and trying to pay off their mortgage as well as saving for their retirement, so I don't want to be a burden to them. That sounds reasonable, we can definitely look into this. We'll discuss how much insurance you may need shortly when we do an insurance needs analysis. I want to make sure I have a 20% deposit so I avoid the lenders mortgage insurance, so I'm probably looking at being able to afford what I want in 5-6 years' time. Now, let's discuss your goal of buying your own home. Have you considered how much you will need for a deposit and when you want to purchase a house? In terms of a deposit, I've looked into what I would like and given house prices are increasing, I'd say I'll probably be looking at a house around $500,000 in 5- Page 6 Stage Adviser Client 6 years' time, so I'd be looking at a deposit of around $100,000 plus another say $5,000 for legal fees, insurance, building and pest inspections etc. So far I've managed to save $25,000 which is sitting in a high interest savings account. Ok, great. In terms of these savings, did you have any other goals or objectives that you wanted to achieve but haven't mentioned yet? For example any holidays, large purchases such as a car? I don't actually own a car, I've thankfully managed fine without one so far, so I don't have any plans to buy one at this stage. However, I do love to travel, and I'm actually planning a trip to Europe in July 2019, to tie in with a family wedding, which I'm really looking forward to. Sounds great, what are you planning to do and do you have any idea on your budget for this? At this stage, I'm planning on travelling around Europe for a couple of months with my brother. We'll probably travel mainly by ourselves, but we're looking at doing a sailing tour in Croatia, and maybe a general tour in Ireland too. In terms of a budget, we're probably looking at around $10,000 each including flights, accommodation and any tours we may do. Ideally, I'd like to have at least another $5,000 easily accessible should I need it for emergency purposes or if we decide to extend our trip! That all sounds like fun and Croatia is amazing that time of year. You'll definitely have to keep me posted on how your travel plans develop. Yeah I'm really looking forward to it, a wedding is always a great excuse to do more travelling! It definitely is! I haven't specifically thought about my retirement - it's just seems so far away. So at this stage, I'm more interested in making sure I'm in the right fund and making the most of my employer's contributions than anything else. Though I'm definitely open to discussing any extra contributions if you think I need too be making these... Looking at your superannuation now, you mentioned earlier sorting this out and making sure that you're in the right fund is important to you. Though I was wondering whether you'd given any specific thought to your retirement at all? Page 7 Stage Budgeting Adviser Client Retirement planning is an important consideration, even for someone young, like yourself. Though I understand you do have strong goals outside of superannuation, so we'll look at this as part of reviewing your superannuation funds. Ok, that sounds good. So now that I've got a good idea of what you want to do, let's talk about your cash flow and budgeting now. I'm not really interested in budgeting advice as such, I'm happy with how much I'm saving per month, I just need advice on what I should be doing with it. Ok that's fine, how much are you saving each month then? Around $1,000. [Liam produces bank statements with Best Bank which show regular savings deposits of approximately $1,000 per month over the last few months]. What's important to you? Thanks for that. We'll have a look at this in more detail shortly, though based on what you have said, I know we can help. Clearly you have a few concerns. Now we need to determine the priorities for each area and develop an appropriate timeline to achieve each of your objectives. How does that sound? Sounds good, let's do that. Getting appropriate insurance cover in place to ensure you are financially protected in the event you were unable to work due to illness or injury, what priority would you give this? Definitely high priority, it's something I know I need to get sorted. Ok great. Now buying your first home, you've said that you'd like to achieve this within 5-6 years, though what priority would you give this? I'd say its high priority. I think 5-6 years is a reasonable timeframe, but if I could do it sooner with my current savings that would be great. Great. Your holiday to Europe, that's more short-medium term - what priority would you say this is? I'd also say it's a high priority, it's something I really want to do, even if it means I have to delay buying a house. Page 8 Stage Risk Profile Questionnaire Adviser Ok just to confirm, would you say your holiday is a higher priority than buying your own home? Client Yes, that's correct. Thanks for that. Getting advice on choosing a superannuation fund - what would you say the timeframe and the priority was for that? It's definitely a short-term timeframe and high priority as well. Ensuring you have enough money for your retirement, would you say this is a long-term goal? And what priority? Yes, a long-term, low priority goal. Great, thanks for that. Now that I have a good understanding of your needs and objectives the next task is to look more closely at your risk preferences. To do this we will conduct a risk profile questionnaire. It will take a little time but it's very important - it's all about making sure you can sleep at night. [Liam gives his understanding of risk.] With any investment there is risk. Understanding how much risk you are comfortable with and prepared to take is an important part of any financial plan. Here is a copy of the risk profile questionnaire. Before we go through it - tell me what is your understanding of risk in terms of investment? Discussing Risk Let's go through it together. The questions are designed to determine how to match your risk preferences with recommended investment strategies. When we've finished the questions we'll discuss your scores and whether or not you are comfortable with the outcome. [Liam answers the questionnaire]. [Advisor gives a detailed explanation of how risk and return works, how each investor could be categorised into one of at five different risk profiles etc. For example;] Yes that sounds about right, I'm fairly comfortable with risk, I just don't know how I should be investing... Your attitude to investment risk is a crucial factor in determining an appropriate investment strategy to meet your goals. Investing is considered risky because there is uncertainty about the Page 9 Stage Adviser investment and how it will perform over the short and long-term. Different types of investments experience different levels of volatility. Negative returns can happen at any time, so during periods of poor performance, remaining invested for the recommended minimum investment term will provide an opportunity for your portfolio to recover. Client Liam, you are a growth or an aggressive investor. You are prepared to accept high volatility in the short to medium term, because your primary concern is to accumulate growth assets over the long term. Therefore you would prefer to maintain an investment mix that spreads across all sectors which consist of more aggressive investments. To achieve the returns you expect, these investments need to be invested for at least five years. So, because your profile is more aggressive you would prefer 80% of your investments in growth assets and only 20% into defensive investments such as cash and fixed interest. Do you agree with this description? Are there any changes you would like to make? Great, we can definitely help with that. In some cases it may be appropriate to use a different risk profile approach to your assets or strategies. For example to meet your retirement objectives, we may recommend that a specific risk profile be applied to your superannuation investment due to your timeframe, which may be different to other savings you have available. That sounds good to me. I don't have any investment preferences, as long as I don't have to manage the investment myself, I'm not really comfortable doing that. Otherwise, I'm happy to go with what you recommend. About your income and expenses Great. Now let's talk more about your employment and income. I am employed as an architect on a permanent and full-time basis. I generally work 40 hours a week, though sometimes more. I'm mainly based in the Brisbane office. We collect details of your current employment as this information can affect your eligibility for certain insurances, the cost of the insurance premiums, eligibility for any tax concessions on certain types of superannuation contributions as well as whether you can access your superannuation or not. Page 10 As I mentioned earlier, my salary is $95,000 per year and I also get I also get the 9.5% superannuation guarantee on top of this as well. Stage Adviser What are your employment arrangements? Client Thanks for that, is this your only income? Yes, that's correct. I'm also hoping to get a promotion within the next year, but given I predominately deal with mining clients I'm not sure whether it will happen and if it does, how much increase in pay it will actually mean. Available Cash Good luck with that! Now I see from the bank statement you gave me earlier that you currently have the $25,000 in a high interest savings account earning 2.5% interest. Do you have any other savings / bank accounts? No, that's it. In terms of your cash flow, you said earlier that you now have a monthly surplus of $1,000, is this all available for investment / achieving your goals? Yes that's correct. The $1,000 surplus is after my lifestyle expenses, credit card repayments etc. Assets Great. Other than your bank account do you have any other assets? Just some home contents worth around $20,000. I've spent quite a lot on travelling in the past so I haven't accumulated many assets to date. Superannuatio n Assets That's fine, thanks for that. Let's look at your superannuation now. You mentioned you have a couple of funds, can you tell me more about these? My main fund is Best Super, this is where my current employer contributions are going. This has a balance of $36,980 and I also have another $9,890 with Max Retirement Super from my previous employer. [Note that this is not a term deposit, but a variable savings account. For completeness, if you recommend he continue to keep any savings in a bank account please use a 2.5% interest rate.] [Liam produces his latest superannuation statements which show both superannuation funds are accumulation funds currently invested in the 'balanced' option.] Thanks for providing those, it makes our job a bit easier. Page 11 Stage Personal liabilities including credit cards. Adviser For completeness, do you know if your employer allows salary sacrifice? Client Yes they do, we received some information on this recently, though I don't remember much about it to be honest... [Advisor explains salary sacrificing and how it could apply to Liam] Ok that makes sense, thanks. I'm not that keen on putting extra money into super because I can't access it for so long, but as I said before, if you think it's in my best interests I'll definitely consider it. Great. Let's look at your personal liabilities now. This section captures information about your personal liabilities so that we can consider the impact of these when providing advice to you. I have around $2,500 owing on the credit card at the moment, though I pay everything off in full each month so I don't pay any interest. You mentioned a credit card before, can you tell me more about this? And do you have any other personal labilities, such as a personal loan or FEE-HELP debt? I also have a FEE-HELP debt which currently has a balance of $20,000. I'm just making the compulsory repayments on this. Other than these I don't have any personal liablities. [For completeness, FEE-HELP is an Australian Government loan scheme that assists eligible fee paying students by paying all or part of their tuition fees. If you would like more information (not required to do this assignment) please refer here]. Insurance Are you wanting to look at repaying your HECS debt faster? Not really, given that the loan is just indexed in line with inflation the effective interest rate is really low, so I'd just rather use any extra money I have to travel or achieve my other goals, such as buying a house faster. Ok great, let's move on to insurance. What insurance cover do you currently have in place? I've got extras cover with Bupa so I can claim back the cost of some of my expenses such as my glasses and dentist fees. I'm not sure whether I have any insurance within my super, I have a vague recollection that I ticked no to those boxes when I joined though I'm not 100% sure. That's fine, we'll have a look at those for you too. Page 12 [When reviewing Liam's superannuation funds you confirm that he has no insurance cover in either Best Super or Stage Insurance Needs Analysis Adviser Client Max Retirement Super]. Do you have any particular health concerns that you are worried about or any family history that I should know about? No, overall, I'm pretty healthy and I don't smoke. Most of my family is pretty healthy too, and generally live until their 90s. Though my father does have a minor heart condition. Do you know anything about your father's heart condition? For example, whether he's currently being treated for this? He does take some regular medication to keep it under control, though I'm not sure what that is. He also sees his doctor fairly regularly for check-ups and it seems like it's all under control at the moment. Thanks for that. Now, to help me understand how much insurance you need we need to talk about your requirements and do what is called an Insurance Needs Analysis (INA). So let's outline your key insurance requirements. Ok sounds good. [As part of this process, Liam, reiterates his concern of making sure that he's financially protected should he become ill or injured and can't work for a period of time. [Advisor goes through INA with Liam]. Please note an INA and/or the amount of cover Liam should take out is not required as part of this assignment and will be discussed further in Insurance & Risk Management]. Estate Planning [Excluded from this assignment]. Wrap Up Ok, thanks for all of the information you have provided today. Now I have asked all the standard questions - and feel I have a strong understanding of your situation. No - I think we've covered everything. I'm happy to proceed with the advice. But I have just one last question ... Is there a question - related to your financial situation - that I haven't asked - or one that you hoped I wouldn't ask? Great - so my job is to go away and analyse the information you have given me and prepare my recommendations based on this. Page 13 [Set the date] Stage Adviser Your Statement of Advice will go through 2 compliance checks - we will have it ready in 10 business days. So can we diarise the next appointment? Thanks for that, until our next meeting here's a little reading material - a couple of good news stories about people just like you - working effectively to create and protect their wealth. Page 14 Client 1202AFE Financial Planning 1 Semester 2, 2016 File Note - Statement of Advice Client's name: Date of contact: Re: Brian and Jane Knight 19 August 2016 Initial Appointment FSG and adviser profile Brian and Jane were handed Financial Services Guide (FSG) version 4 010716 and my Adviser Profile at the interview on 19 August 2016. The FSG was explained to them. Scope of advice Full statement of advice (SOA). Current situation Brian (aged 36) and Jane (34) are married and have twin boys (Zac and Sam) aged 2. Brian is employed as a property manager for Westfield and earns $82,000 per year plus 9.5% superannuation guarantee. Jane runs her own online reselling business from home (part-time). Last financial year her taxable income was $15,000. This year, it is expected to be around $25,000. Likely to gradually increase each year. They own the following assets: o Family home $510,000 (mortgage owing of $320,000) - in joint names o Etc etc ... Potential issues / special consideration Jane is considering returning to work on either a full or part-time basis once the children are in school. Any additional income from this has not been taken into account in this advice. This will need to be discussed in future reviews. Objectives Jane and Brian's primary goal is to ensure their children are financially protected in the event of their deaths (high priority, short-term timeframe) The clients also want to: o Set up an education fund to provide for their children's high school education (10+ years' time); amount required approximately $35,000 per annum (high priority) o Etc. Risk profile We went through separate risk profile questionnaires with Brian and Jane and determined Brian is a 'balanced' investor (x% growth / y% defensive) and Jane a 'growth' investor (x% growth / y% defensive). 1202AFE Financial Planning 1 Semester 2, 2016 We discussed the risk profiles with the clients [insert any comments the client's made re this] etc. 1202AFE Financial Planning 1 Semester 2, 2016 Wealth creation recommendations - outside superannuation 1. Education fund Invest $30,000 of current savings into a 'growth' investment bond (education bond) for 10 years Contribute an additional $1,000 per month of surplus income to this investment Advantages of strategy Based on the FV calculations in Appendix 1 this will ensure the client's will be able to achieve their goal of $x. Allow for a regular savings plan Money can be accessed at any time, though there may be minimum investment values required Investment earnings are taxed at 30% which is paid by the bond provider - so this investment provides tax savings for Brian given he is currently on a MTR of 37% There is no tax payable on withdrawals after 10 years (provided the 125% rule is met - refer below) Brian & Jane can nominate their children as beneficiaries so if they were to pass away their children would receive the funds tax free Using a 'growth' asset allocation (risk profile) ... Etc etc. Disadvantages of strategy Jane is currently on the lowest MTR, so for her, there are no tax savings with this investment. However, if Jane does go back to work, or her business income increases beyond $37,000, her MTR is likely to increase at which point an investment bond is likely to provide greater tax savings (provided her MTR is greater than 30%) If Brian or Jane needed to withdraw the funds before 10 years some or all of the tax savings would be lost (how much, would depend on when the withdrawal occurred) Cannot contribute more than 125% than the previous year's contributions, otherwise the 10 year tax period is restarted. This means if they make no contribution in a particular year for any reason, than any subsequent contribution will exceed this limit. Etc etc. Alternatives considered Managed investment scheme - invested in a growth option. This was not recommended due to the greater tax savings with an investment bond compared to a MIS. When making withdrawals from a MIS (selling investments), capital gains tax is likely to apply, which is not the case with an investment bond. Etc etc. Lifestyle recommendations As per above example