Please help me please i will give good rating please

Case study

At the recently concluded two-day annual financial planning conference held at a major international hotel in Kuala Lumpur, your firm put up an exhibition booth to market financial planning services. The conference was organised by Financial Planning Association of Malaysia (FPAM). You were on duty at the booth on first day of the conference. It was just after the morning coffee break, conference participants were returning to the main function hall to continue with the conference. Your staff on duty took advantage of the quiet situation and went off for a quick bite, leaving you alone to manage the booth. You noticed a middle-aged smartly dressed lady, enthusiastically browsing through brochures and materials placed at the booth. Since there was no visitor at the booth, you walked over to her and introduced yourself. She hesitated for a second and then responded. I think I need financial planning advice, is there anyone I can speak with? she asked. Without hesitation, you answered Well, you are looking at that person and added I am a Certified Financial Planner registered with the Securities Commission Malaysia as a licensed financial planner. Then, you extended your business card to her. Sandra, she introduced herself, with a rather low business-like tone. I worked here, she added, referring to the hotel where the financial planning conference is being held. She then explained that working at the hotel has nothing to do with her asking for a qualified financial planner. She was having some issues with her financial affairs and intends to seek expert advice. Come over and take a seat you invited her to the part of the booth where there was a table and some chairs. Once she was comfortably seated, you shared with her the background of your firm and services it offered to clients. After hearing what you told her, she decided to engage you and your firm to look into her financial issues. She was eager to get started but you explained that you need to know more about her financial situation and what she would like to do going forward. But as this takes time, you set up a meeting for her at your office the following business day. Sandra came to your office, on time, the next day and the meeting went on as planned. At the meeting, she shared her financial concerns and financial goals with you. You patiently heard her out and proceeded with preparation of the data collection process. You also told her that a letter of engagement will be prepared for her acceptance, prior to any personal data being collected. Sandra is a forty-one year old widow. Her husband passed away recently, less than a month ago, due to heart attack. She is still mourning his death but at the same time, she is very worried about her financial situation. She has very poor understanding of financial matters and hates numbers. Before this, she was hardly concerned with her finances, as there is always money in the bank account to pay expenses. The only thing that bothers her was James education but she has been stashing away whatever she has in fixed deposit accounts at banks, which she believes will be adequate. James is Sandras only child. With the passing of her husband, she quickly began to take a more active role in managing her finance and found that things are not so simple. The first thing she attended to is her husbands estate. She admitted that she has no clue where to begin. She would like your advice on this matter. She lives in a three-room apartment in Ampang, Kuala Lumpur with James, and her mother, who looks after James when Sandra is working. She hired a live-in Indonesian maid to help out. This apartment was purchased jointly by Sandra and her late husband after their marriage. She works as Project Director at the hotel, located in Shah Alam. The distance between her apartment and office is about 45km. On a normal day, it would take her more than an hour to drive to work. Her family originates from Penang. After gaining a diploma in interior design from a local college, she started working for a property construction company on the island. After three years on the job, she decided to further her studies in Australia. In 2006, she graduated with a Bachelor of Hospitality Management from Box Hill Institute in Melbourne. Prior to joining her current employer, she worked in different hotels in Malaysia. Despite being poor, her parents still managed to support Sandra and her younger sister, Anita, through their tertiary education. Sadly, one year after her graduation and return to Malaysia, her father passed away. Since then, Sandra has been supporting her mother and Anita until Anita got married. James is ten years old. He is currently attending primary five at Sayfol International, a private school. He is expected to continue his secondary education at the same school until he heads overseas for his tertiary education, three years for an undergraduate programme and two years for post graduate. Just like any other mother, Sandra is very proud of James. She always places high importance on education for James, she believes with proper education, especially high quality global education, James can inculcate a strong sense of security and value systems that would serve him well in the absence of his parent, in future. Sandra wants to establish a specific savings plan for James education, so that he will be able to complete his tertiary education. She confessed to you that her late husband hardly provided any financial support the last few years. He was drinking heavily and addicted to gambling. He was seldom at home nor spent time with family. During this period, it was Sandra who had to put food on the table. When he died, he was almost broke. Despite the shortcomings, Sandra was very loyal to him. She is worried James may pick up his fathers undesirable habits when he grows up. She would like to set up a plan that provides for James to receive a certain level of income when she dies. The level of income should be adequate to fund his desired lifestyle. However, James will not be able to get his hands on the assets she left behind until he reaches 35 years of age or married and has children, whichever is later. If he predeceased his children before attaining age 35, the assets will be given equally to his children after deducting 5% for their mother. Both James and her mother will continue to live in the apartment as long as they want. Neither Sandra nor her late husband has a will. Sandras mother has been staying with her since the birth of James. All her mothers expenses were provided by Sandra. Anita hardly offered any assistance in the past and it is unlikely that the situation will change in the future, as she is currently going through some marital challenges. She would like to ensure that enough income support is provided for James and her mother should something happen to Sandra or that Sandra is no longer able to support the family. She has no insurance policy other than those provided by her employer. Her employment package comes with a term life/disability policy with death benefits of up to twenty four months of salary and a medical benefit plan covering hospital visits, doctor visits, surgeries and prescriptions for immediate family. Her mother is not covered under the plan. Bonus is not contractual and paid based on performance of the company and employee. Sandra wants her family to be adequately provided for in case of any eventualities including pre-mature death, total permanent disability, loss of job or medical emergencies. She is also considering healthcare provision for mother at RM18,000 per annum at todays cost. When she retires, she would like to move back to Penang and buy a retirement home. She is thinking of investing in a property in Kuala Lumpur in the interim, which she believes would serve as the capital to purchase retirement home in Penang and to mitigate the risk of lack of affordability of real estate when she retires. The property she is considering to invest in should range between RM500,000 to RM600,000. Average inflation rate for residential properties is estimated at 4% for Klang Valley and 4.5% for Penang Island. She would also like to have retirement income to support her retirement expenses of RM60,000 per annum at todays cost. Currently, the global economy is in turmoil due to the geopolitical tensions and many analysts are predicting a recession in the coming months which may cause uncertainties in the job market. Industry sectors that are likely to be affected are tourism and hospitality and this has made Sandra extremely insecure. To provide for this uncertainty, she is planning to start her entrepreneurial venture in interior design, considering using her professional skills in design. She has estimated the seed capital for the entrepreneurial venture at RM50,000 per year for 3 years at 8% inflation per annum. She doesnt expect to work or run her business beyond 60 years of age, which is her official age of retirement. However, she told you that the planning for her independent retirement and her entrepreneurial venture must not compromise any of the goals mentioned earlier. She intends to replace her car every seven years and budget around RM150,000 (todays cost) for each replacement. Cost of cars is expected to increase 2% annually. She also wants to set aside RM100,000 (todays cost) for James wedding when he is 26 years old. Before his passing, Sandras late husband was working as a senior sales executive in a motor vehicle spare-parts company. The latest balance of his Employees Provident Fund (EPF) accounts amounted to RM385,000. According to Sandra, her husband nominated Sandra, James and his mother as equal beneficiaries. However, his mother passed away three years ago and no update has been done on the nomination. He bought a 20-year endowment insurance policy with death benefits of RM60,000 when James was born. Since the policy was purchased to support his education, James is the sole beneficiary of the death benefits. His salary was credited to a current account jointly maintained by him and Sandra at Malayan Banking Berhad. The account statement showed the latest balance stands at RM7,800. He still owes RM12,500 on his credit card accounts.

Sandra also provided you with a list of her estimated yearly expenses.

astro (satellite tv)2,160car insurance and road tax2,400car maintenance3,000clothing 3,000electricity 4,500gas912groceries, food and drinks6,500holiday8,000home maintenance and repairs4,200james school fees and expenses22,000personal expenses3,200maid10,800mother medical expenses3,200petrol charges4,800others6,000recreation 2,500tabloids and magazines600telephone/internet4,500water120

The above list of expenses is not exhaustive and excludes cash outflows such as income tax payments, contributions to EPF and monthly loan instalments.

Other information:

1. Sandras current monthly salary is RM18,000. She is also paid an allowance of RM1,500 per month to defray her work related travelling expenses. Her income is also subject to statutory tax deduction (STD).

2. She contributes 11% of her salary to the Employees Provident Fund. She has RM460,000 in her EPF accounts.

3. In the past years, her husbands tax liabilities are consistent with the STD on his salary.

4. Her apartment was purchased exactly twelve year ago with a 20-year mortgage of RM400,000. The monthly instalment amounts to RM2,477 and Sandra alone has been paying the last four years. The mortgage was secured against a mortgage reducing term assurance (MRTA) which is under the husbands name. The apartment is worth around RM650,000 today. The current average interest rate for mortgages in Malaysia in 4.5%.

5. She is driving a Toyota Camry 2.4, purchased three year ago with a RM153,000 hire-purchase loan. The interest charged is 3.5% per annum. Monthly, she pays the bank RM2,268. The current market value for such a car is around RM110,000.

6. Some years ago, her mother gave Sandra a large sum of money. The money was left behind by her late father. Sandra has been keeping the money in the bank since then. Today, together with her own savings, she has accumulated RM520,000 in fixed deposit accounts at various banks. She has two other bank accounts, a savings account of RM4,500 and current account of RM7,500 which she uses to pay her expenses. She also carries couple of credit cards which she always settled in full on due date.

7. Current average tuition fees for private schools is RM17,500 per annum for primary schools and RM25,500 per annum for secondary school. The fees are exclusive of school uniforms, extra curriculum activities such as sports and items such as computer, internet costs and stationary.

8. Current overseas tertiary education cost is estimated at RM150,000 per year. The average inflation rate is 4% per annum, covering both education inflation and possible MYR depreciation.

9. The average general inflation rate is 3% whereas the average inflation rate for medical expenses and local education is 4%.

Question 1

(a) It is common that people use the terms financial goals and financial objectives interchangeably. But for financial planners, these terms are not the same. Explain the difference between these terms.

(b) List the financial goals of Sandra.

(c) List the financial objectives of Sandra.

Question 2

(a) Are Sandra and her family ADEQUATELY protected for risk on pre-mature death, loss of job or medical emergencies? Support your answer with relevant calculations, if necessary.

(b) Describe your proposals to Sandra for managing the risk mentioned in 2(a) above. You are required to JUSTIFY the proposals, including the use of the appropriate risk management instruments, and consider their PRACTICALLY AND AFFORDABILITY