Superannuation and Life Insurance Skills (Capstone project)
FP3B-1SN3-2 Capstone project
Project Cover Sheet
This document includes:
• student identification
• project instructions
• project submission instructions
• project result, result summary and feedback
• project checklist
• Case study
• Project sections (including fact finder templates, cash flow templates and managed funds calculations)
Student identification (student to complete)
Please complete the fields shaded grey.
Student number INT######
Student name [name]
Project instructions
Only Microsoft Office compatible projects submitted in the template file will be accepted for marking by Kaplan Professional Education (KPE). PDF projects will not be accepted. Do not delete/remove any sections of the template.
The project must be COMPLETED before submitting it to KPE. The maximum file size is 5MB. Once you submit your project for marking you will be unable to make any further changes to it. You will have 12 weeks from the date of your enrolment in this subject to submit your project. Should your project be deemed ‘not yet competent’ you will be give an additional 4 weeks to resubmit your project.
Your project must be submitted to KPE on or before your project due date. Please check KapLearn for the due date.
Project submission instructions
Please refer to the Project submission/resubmission instructions (pdf) in the Assessment section of KapLearn for details on how to submit your project.
Note: Assessors should double-click on the fields below to select the student’s result.
Project result (assessor to complete)
Result — first submission
Not Yet Competent
Sections that must be re-submitted:
[insert assessor feedback]
Result — re-submission (if applicable)
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Result summary (assessor to complete)
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Section 1 Not yet demonstrated Not yet demonstrated
Section 2 Not yet demonstrated Not yet demonstrated
Section 3 Not yet demonstrated Not yet demonstrated
Section 4 Not yet demonstrated Not yet demonstrated
Section 5 Not yet demonstrated Not yet demonstrated
Feedback (assessor to complete)
Superannuation and Life Insurance Skills
Capstone project
This project contains five sections based on the information provided on your clients, Ted and Eliza Hardgraves, and their family. Complete all sections.
The following checklist is provided as a guide to ensure you have completed the project requirements.
Project checklist (student to complete)
Step Action Completed?
1. Read the Study Guide
Go to the What you need to know section and read the advice in the Study Guide on preparing your project.
2. Familiarise yourself with the project
Think about the project tasks while reading your learning materials and completing the activities and review questions.
3. Answer Sections 1 - 2 up to Section 2 Part F
Ensure that you complete the fact finder for Section 2 Part A. 4. Answer Section 2: Part G – Statement of Advice
• Follow the steps given in the Statement of Advice Preparation Checklist — you must submit the completed checklist
• Use the family cash flow templates provided
• Use an Excel spreadsheet to prepare SOA Appendix 3. 5. Answer Sections 3 - 5
6. Upload your completed project.
You must submit the following completed items in this template: • the project cover sheet
• answers to all five project sections
• the completed Statement of Advice Preparation Checklist • the completed Statement of Advice and appendices.
Case study
— Ted and Eliza Hardgraves
Background
You work for the financial planning company, B and N Pty Ltd, which is a licensed securities dealer and a registered life insurance broker.
Your company specialises in investment, insurance and retirement planning advice but does not provide stockbroking, real estate evaluations and advice, income tax preparation, superannuation fund accounting, superannuation fund administration or the preparation of legal documents such as Wills or trusts.
Ted Hardgraves is a successful senior geologist with an international mining company. He has been working for the same company for the last seven years and due to his success has recently received a significant promotion and pay rise. He believes there is potential for further
improvement in his salary as well as growth prospects within the company.
His wife, Eliza Hardgraves works part-time as a paralegal with the same company she worked for prior to having their children, Harriett and Bill. She has a good relationship with the owners of the firm and does not see any change in her current employment situation for the time being.
Both Ted and Eliza are in good health and are non-smokers. They have private health cover for the family.
Ted and Eliza have approached you for financial advice.
They advise you that they are confused in regard to their financial situation. This has come about due to conflicting information they have read, which states that although they will be living longer, nearly half of all 40-year-olds will die over the next forty years. Also, their children have asked questions about the insurance plan advertisements they have seen on television which has raised concerns as to whether they have adequate insurance cover. Further, they want to make sure their children will be adequately provided for if something were to happen to them.
They also believe they should have surplus income following Ted’s recent promotions and pay rises. They would like to save any surplus in the most tax effective vehicle for the long term. Both Ted and Eliza are concerned that if they have access to these funds they may spend them.
Ted and Eliza would like to reduce their mortgage faster than the current repayment schedule and believe that this could help them to get ahead before they have to pay large school fees. Their current loan has a redraw facility. However; they enjoy their annual holidays and have an active social life, and want to make sure they have income available to continue these activities. Ted also advised you that his aunt, Jenny, recently died and he has inherited around $63,700 made up of $10,000 in cash and approximately $53,700 in shares. They have never considered owning shares before but Ted is keen to understand the share market and perhaps buy some shares. Ted is prepared to take some risks in order to accumulate wealth quickly. However, Eliza is more concerned about risk and does not wish to ‘gamble’ any of their funds.
Personal information
Surname Name: Hardgraves Hardgraves
Christian Name: Ted Eliza
Salutation Mr Mrs
Age/Date of birth 28 March 1970 17 August 1971
Status Married Married
Home address 4 Pringle Ave, Kensington 4 Pringle Ave, Kensington
Health Good Good
Smoker No No
Occupation Senior Geologist Paralegal
Employer Lemon Gold Pty Ltd Ranier and Jackson
Start date 2004 2008
Sick leave currently available 14 days plus 10 days per annum 6 days plus 10 days per annum
Retirement age 65 64
Dependants/Family relationships Harriett (aged 9 years) Bill ( aged 8 years)
Professional relationships
Solicitor Carlie Mattieson
Time span of relationship 10 years
Quality of relationship Poor
Service provided Conveyancing for home purchase
Accountant John Watson
Time span of relationship 7 years
Quality of relationship Excellent
Service provided Annual tax return
Annual income details
Name: Ted Eliza
Salary $140,000 $55,000
Inheritance - interest $510
Dividends (99% franked) $3,436
Notes:
Ted and Eliza’s salaries exclude superannuation guarantee (SG) contributions, which are currently paid at 9% per annum.
Annual expenditure
Mortgage $37,800
General living expenses $50,400
Accountant’s fees $550
Donations $1,000
Holidays (annually) $11,000
Assets and investments
Principal residence $650,000 Purchased 6 years ago for $550,000. Outstanding mortgage $470,000 – joint names, variable rate 6.25%
Contents $50,000 Joint names
Car $18,000 Fully paid off – joint names
Savings Account $5,000 Everyday savings account paying no interest – joint names
Cash management account - inheritance $10,000 Cash management account earning 5.1% p.a. – Ted’s name only
ABC Superannuation - Ted $220,000 Invested in a retail fund, balanced option. No beneficiaries or binding nominations specified.The fund accepts salary sacrifice.
SOH Industry Superannuation - Eliza $58,000 Invested in an accumulation industry fund, balanced option. The fund only has a defensive, balanced or high growth options available. No beneficiaries or binding nominations specified. The fund accepts salary sacrifice.
Share portfolio $53,691 Dividend yield of 6.4% p.a. – 99% franked dividends – in Ted’s name only
Current share portfolio
Number of shares Company ASX Code Current Value (same as
value at date of death)
Price of Shares when acquired by aunt Jenny
500 AMP Limited AMP $2,158 $4.40
1,300 Insurance Australia Group Limited IAG $5,473 $1.75
400 Commonwealth Bank Limited CBA $22,052 $27.7
400 Telstra Corporation Limited TLS $1,552 $4.48
400 Westpac Banking Corporation WBC $9,900 $19.60
400 BHP Billiton Limited BHP $12,556 $11.41
Investment objectives
They have rated their investment objectives, using a scale ranging from 1 (not concerned) to 5 (very concerned).
Ted Hardgraves
Income to keep pace with inflation 2 Legal logical and appropriate tax relief 5 Easy access to your capital 1 Regular income from your investments 1
Easy to administer 3 Capital growth 5
Volatility 2
Eliza Hardgraves
Income to keep pace with inflation 2 Legal logical and appropriate tax relief 5 Easy access to your capital 1 Regular income from your investments 1
Easy to administer 4 Capital growth 5
Volatility 4
Estate planning
Ted and Eliza have Wills which they quickly wrote using packs bought from the post office when Bill was born. They do not have powers of attorney.
Insurance and risk management
Ted has three times his salary in term life and total permanent disability (TPD) insurance within his superannuation. He cannot take out any higher cover within this superannuation fund.
Eliza has $50,000 of life and TPD in her superannuation fund. Ted and Eliza do not have income protection or trauma cover.
Planning issues
Ted and Eliza are seeking a long-term tax effective investment plan which will provide for them in their retirement.
Ted has recently inherited $63,700 from his aunt and would like advice on how to invest these funds to contribute to securing their future.
Ted has told you that he understands the risks associated with investing and is willing to invest in riskier securities in order to increase their returns.
Eliza is more risk averse. She would like to ensure they do not lose any of their inheritance. Ted and Eliza’s children currently attend a public school but they would like to send both children to a private school to complete their secondary education.
Ted and Eliza would like to do some renovations to their home, such as replacing the old bathroom which they believe will cost approximately $17,500. They are happy to use some of their inheritance to do this and anticipate the work to be done this year.
Both Ted and Eliza are not sure if the current asset allocation used in their superannuation is appropriate and are seeking your advice on determining an asset allocation that they are comfortable with, and will improve the potential to meet their lifestyle and financial objectives. They would also like to know if they are on track to reach their retirement income goal of $125,000 per annum when Ted reaches age 65.
Eliza is unhappy with the service she receives from her industry fund and the limited number of choices she has for her account. In addition Ted has been earning better returns every year even after fees are deducted.
They wish to have their full insurance needs reviewed.
Ted and Eliza would like to reduce their mortgage and believe that this could help them to get ahead before they have to pay large school fees.
They express concern about the fees that you charge and seek clarification on your fees. As their financial planner, your task is to prepare a Statement of Advice (SOA) that will include strategies to meet Ted and Eliza’s goals.
Project questions (student to complete)
Section 1
Establish the relationship with the client and identify their objectives,
needs and financial situation
Part A
List particular strategies you will use to ensure that the Hardgraves are comfortable with the interview process. (200 words)
A comfortable interview process definitely helps to establish good connection between the client and the partner. Comfortable interview process could be established by doing following:
1. There should not be any disturbance while doing interview process.
2. Mobile phones should be switched off, computers should be on standby mode, there should be no noise near to interview room, and tea-snacks should be used for breaking the ice. 3. Client should be greeted in very courteous manner to make them feel valued and
respected.
4. Agenda for the meeting/ interview should be conveyed 1-2 days before so as to make Hardgraves can do initial research and they can be comfortable within the discussion. 5. Conversation should be started with some casual talks so that client can adjust to the new
environment and can think rationally.
6. Showing interest is the most important aspect, it can be achieved by cross questioning, making eye contact, never interrupt.
7. Notes should be made while listening to the Hardgraves’ concerns, expectations and demands.
8. Simple language and timely breaks should be used so that Hardgraves can keep their full attention to the meeting.
9. Body language should be positive which indicates helpful nature and open for the suggestion.
Part B
Give details of any legal requirements you need to comply with at the initial stage of your relationship with the clients. (250 words)
A financial planner should meet the minimum training requirements as defined in the Australian Securities and Investments Commission (ASIC) Regulatory guide 146 licensing.
Financial planner should be up-to-date with the training knowledge as per Australian Securities and Investments Commission (ASIC) Regulatory guide 146
A financial planner is recognised through law and he has a duty of care for their clients and he is legally obliged to exercise as much as the circumstance require. He has to ensure that client is in no way mislead.
It is mandatory to provide a Financial Service Guide (FSG) to the clients before providing them any service, as defined by Australian Securities and Investments Commission (ASIC) Regulatory guide 175.
It is very important to comply with privacy legislation. It says that, “All the personal information collected by financial planner and/or the licensee is governed by the Privacy Act 1988 which contains a national scheme for the collection, use, correction, disclosure and transfer of personal information by organizations in the private sector.”
It is also important for the financial planners to comply with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (AML/CFT. It says that, “A planner is obliged to establish and verify the identity of the client regardless of the nature of the client.”
Part C
If, at a later stage, Ted and Eliza wish to make a complaint about your advice, what are their options? How much information are you required to give them, initially, about complaints procedures? (150 words)
If Ted and Eliza have a complaint, they could take the following steps:
1. They can tell to their financial planner about their complaint. Financial planner can resolve the complaint at his end.
2. If Ted and Eliza are still not satisfied with the solution, they can complain in the company of financial planner (B n Y Pty Ltd.).
3. If Ted and Eliza are still not satisfied with the solution they can move to complain in Financial Ombudsman Service (FOS). FOS is an external dispute resolution body that provides free consultation and assistance to consumers so as to resolve the complaint related to financial services industry.
4. In the end Ted and Eliza can also contact Australian Securities and Investments Commission (ASIC) to complaint and know their rights.
This information is also available in the Financial Service Guide (FSG).
Part D
Neither of your clients have trauma insurance and they are unsure about the adequacy of their current level of life and TPD insurance. Prepare a list of questions that you could use during the initial interview to help you determine appropriate levels of cover. You should cover asset
preservation, income preservation and future expenditure needs and the answers to the questions should enable you to complete the risk needs section of the fact finder (250 words)
Below is the list of questions that will be used by financial planner to interview about the level of insurance cover:
Hi, Ted and Eliza please answer my questions so that I can give my best to judge your insurance needs.
1. Do you have insurance for your home, car, medical, income, life?
2. What are your income sources and what are your assets? (This will gauge the present value of Ted, what he will leave to his family in case something bad happens to him) 3. Can you please explain your lifestyle? It will be your monthly and annually expenses and
liabilities.
4. How much do you have in your superannuation account?
5. What are your short term and long term liabilities? What is the remaining amount of debt if you have any?
6. What are the expenses of your dependents?
7. How much is your basic necessity amount? How do you pay this amount, cash or credit? 8. Do you have any other big liability in mind which can occur and can change your way of
living?
9. Do you have anything else to ass to your Trauma insurance estimate?
Part E
Discuss the benefits and drawbacks of using tools to gather the information required to develop a financial plan for clients as compared to a more casual, conversational style approach. (200 words)
A financial planner should never only rely on their intuition when determine client’s risk profile and needs. There are many tools that can be used to gather the necessary information for developing a financial plan. These tools can be factor-finders, questionnaires, psychometric testings, etc. The data gathered from these tools will help the financial planner to have a clear picture of the client’s financial position and expectation.
However, most of these tools are normally in standardised form and may not be able to cover the full image of the client’s real situation. For instance, the client may think none of the pre-listed model in the risk profile questionnaire matches their particular circumstance. Alternatively, a financial planner could adopt a more casual and conversational approach to find out their personal needs and therefore discover the client risk tolerance.
Psychometric testing could be another method to reveal client’s psychological profile. This tool offers a relatively cheap and easy way to assess client’s risk acceptance. Nevertheless the results can be misinterpreted by not taking account of client’s personal circumstance. On the other hand, a more casual and conversational style might help the financial planner to determine a client’s psychological acceptance of risk, but it could be time consuming. The effectiveness of using conversational style approach relies on the communication skills of the financial planner.
Section 2
Analyse client objectives, needs, financial situation and risk profile to
develop appropriate strategies and solutions
Part A
Record the information you have gathered from your clients in the fact finder below. Include the information you obtained from your questions in Section 1 Part D.
[insert student response]
Part B
Identify any gaps in your data collection form as well as any other issues that would need to be followed up with Ted and Eliza. (100 words)
Below are the gaps in the data as provided by Ted and Eliza,
• In the home address section, state and post code are not mentioned
• There is no contact phone number given
• Dates of birth of their children are not given, neither the school details are mentioned
• Home and content insurance coverage are not given
• Superannuation details, date of joining fund is missing
• Amount of insurance premiums is not mentioned
Fact finder
Personal and employment details Personal details
Client 1 Client 2
Title Mr Mrs
Surname Hardgraves Hardgraves
Given & preferred names Ted Eliza
Home address 4 Pringle Ave, Kensington 4 Pringle Ave, Kensington
Business address NA NA
Contact phone NA NA
Date of birth 28-March-70 17-August-71
Age 44 43
Sex Male Male Female Male Femal
e
Female
Smoker Yes No No Yes No No
Expected retirement age 65 64
Name Date of birth Sex School Occupation
Harriett NA NA NA NA
Employment details
Client 1 Client 2
Occupation Senior Geologist Paralegal
Employment status Self employed Employee Self employed Employee
Not employed Pensioner Not employed Pensioner
Permanent Part time Permanent Part time
Casual Contractor Casual Contractor
Other Government Other Government
Business status Sole proprietor Partnership Sole proprietor Partnership
Private company Trust Private company Trust
Notes: Any other person to be contacted? E.g. accountant, bank, solicitor, etc.
Solicitor: Carlie Mattieson with 10 years poor relationship with Ted and Eliza and providing service of Conveyancing for home purchase
Accountant: John Watson with 7 years excellent relationship with Ted and Eliza and providing service of Annual tax return
Income, expenditure and net worth Cash flow statement
Income and expenses
Client 1 Client 2 Notes
Income from employment
Salary 140,000 55,000
Salary sacrifice 12,600 4,950 (9 % SG)
Salary after salary sacrifice 127,400 50,050
Rental income Unfranked dividends
Franked dividends 3,436 (state % return if applicable)
Franking (imputation) credits (state franking % if applicable)
Interest 510 (state % return if applicable)
Other income, e.g. taxable benefits Capital gains <1yr
Tax-free component of capital gains
Assessable income 131,346 50,050
Deductible expenses Rental expenses, repairs etc.
Taxable income 131,346 50,050
Tax on taxable income NA NA
Non-refundable tax offsets (e.g. LITO/SAPTO) Medicare levy
Medicare levy surcharge Franking rebate
Refundable rebates and offsets
Net tax payable NA NA
Family cash flow
Client 1 Client 2 Combined Comment
Salary less any salary sacrifice amount 127,400 50,050 177,450 Non-taxable income (e.g. income from superannuation
income streams for a person aged over 60, Family Tax Benefits)
Interest income 510 510
Dividends received (excluding franking credits) 3,436 3,436 Rental income
Other income
Total income received before tax 131,346 50,050 181,396
Living expenses
Mortgage 37,800
General Living expense 50,400
Accountant’s Fees 550
Donations 1,000
Holidays (Annually) 11,000
Total expenses 100,750
Total income received before tax less expenses 80,646
Net tax payable from the ‘Income and Expense’
table above NA
Net cash flow 80,646
Assets and liabilities
Asset Owner Value Liabilities Net value Notes
Personal assets
Family Home Joint tenant $650,000 $470,000 $180,000
Home contents Joint tenant $50,000 $50,000
Car Joint tenant $18,000 $18,000
Total 718,000 470,000 248,000
Investment assets
Savings account Joint tenant 5,000 5,000
Cash management
account - inheritance Ted 10,000 10,000
Shares Ted 53,691 53,691
Total 68,691
Superannuation assets
ABC Superannuation Ted 220,000 220,000
SOH Industry
Superannuation Eliza 58,000 58,000
Total 278,000
Net worth 594,691
Liabilities
Loan Current debt Percentage deductible Comments Repayment
Home Loan 470,000
Goals and objectives
Details Comments
Save any surplus in the most tax effective vehicle for the long term, long-term tax effective investment plan for retirement
Long term Ted received $63,700 inheritance and would like advise how to
invest these fund, Eliza would like to ensure they do not lose any of their inheritance
Discuss possible options for using the inheritance money
Ted is willing to invest in riskier securities Discuss possible options Send both children to private school to complete their
secondary education
Estimate cost and discuss possible options Home renovation cost approximately $17,500 Short term
Review superannuation asset allocation, Eliza is also not happy with her current industry fund
Discuss possible options Protect income against sickness or accident To be reviewed
Protect family and/or assets in the event of death To be reviewed Protect against serious illness or trauma To be reviewed
Reduce/pay off mortgage To be discussed
Estate planning
Do you have a Will? Yes No
When was it last updated?
When Bill was born.
Executor/rix’s name and contact details:
Do you have powers of attorney? Yes No
Attorney’s name and contact details:
Do you have a funeral plan? Yes No
Funeral provider and contact details:
Amount paid
Do you have superannuation beneficiaries in place?
Yes No
Type Binding Non-binding
Current superannuation, rollovers, insurances & investments Superannuation details
Member Ted Eliza
Superannuation fund name
ABC Superannuation SOH Industry Superannuation
Date of joining fund
Type of fund Accumulation
Defined benefit Pension Accumulation Defined benefit Pension Contributions By employer By yourself Other By employer By yourself Other
Current value of your
superannuation fund 220,000 58,000
Amount of death & disability cover Is there provision for additional contributions or salary sacrifice? Yes No Yes No Non-concessional contributions Amount Year Amount Year Amount Year Amount Year Spouse contributions received Amount Year Amount Year Amount Year Amount Year Concessional contributions Amount Year Amount Year Amount Year Amount Year
Any other contributions Amount Year
Amount Year
Amount Year
Life insurance details
Life insured Policy Owner Company Policy number Benefit type Benefit or insured amount
Annual premium NA
General insurance details
Item covered Owner Policy type Company Policy number
Cover Amount
Other benefit Annual premium NA
NA Investment details
Investment type Company Purchase date Units held/ fixed rate
Current value Owner
Risk needs
Insurance needs — life and TPD
Client 1 Client 2
Gross annual income (before tax) 131,346 50,050
Less business expenses
Number of years income required 20 20
Property repayment 470,000 470,000
Other debts
Sub-total = (income × years) + debts 3,096,920 1,471,000
Less existing realisable assets (Insurance/savings/superannuation) Insured benefit shortfall (before tax)
Gross income is the total of earned income (i.e. before tax earnings derived from personal exertion, including salary, fees, commission, bonuses, fringe benefits or similar payments that would cease on disablement).
Business expenses are expenses incurred by you in the process of earning income from your profession, business or partnership.
Insurance needs – Income protection/trauma
Income protection Client 1 Client 2
Gross annual income 131,346 50,050
Employer superannuation contributions
Maximum allowable benefit
(75% of annual income) 98,509 37,537
Monthly income 8,209 3,128
Less existing insurance
Monthly benefit required (pre-tax) 8,209 3,128
Waiting period to be served 60 Days 60 Days
Trauma
Medical costs (to cover out-of-pocket health costs)
$100,000 $100,000
Additional expenses of a permanent nature, wheelchairs, home
alterations etc.
$100,000 $100,000
Additional income: income protection only covers 75%, would you need extra?
Total funds required $200,000 $200,000
Less cash available or assets that can be readily cashed
$122,000 $122,000
Shortfall/surplus $78,000 $78,000
Acknowledgment
The information provided in this financial fact finder is complete and accurate to the best of my knowledge.
I understand that a policy purchased without the completion of a fact finder, or following a partial or inaccurate completion, may not be appropriate to my needs. I also understand that a policy purchased that differs from that recommended by the planner may not be appropriate to my needs. I acknowledge that the planner has provided me with the completed financial fact finder, signed by me.
Customer(s) signature(s) Ted Hardgrave Eliza Hardgrave Adviser's name
Part C
Now that you have determined the Hardgraves’ needs and objectives you need to identify their likely risk profile based on the information they have provided. Ted and Eliza completed the risk profile below prior to your meeting with them.
Identify any concerns that you may have with their responses compared with the information in the case study and suggest questions you could use to clarify the responses. Justify why you do or do not think that the score and the resulting risk profile category is an accurate reflection of their tolerance to risk. (250 words).
[insert student response]
Investment attitude details
Please answer the following questions regarding your attitude to financial issues.
Are you concerned about the amount of tax that you are paying? Yes/No Why? Would like to pay less.
How important is liquidity (i.e. funds available) to you? Very/Moderately/Not Why? Enough cash is present
If you had funds available for investing, how would you choose to invest them? Why? Seeking guidance for this.
Are there certain sorts of investment that you wish to avoid? Yes/No Which ones? Risky investments should be avoided
RISK PROFILE
Determining your investor risk profile Points
This investor risk profile questionnaire has been designed to help you understand the type of investor you are, so that with the help of your adviser, you can choose the investments that best match your financial objectives.
Which of the following best describes your current stage of life? Ted Eliza Single with few financial commitments. You are keen to accumulate wealth for the future. Some funds
must be kept available for enjoyment, such as cars, clothes, travel and entertainment. 50 50
A couple without children. You may be preparing for the future by establishing and furnishing a
home. There are a lot of things you need to buy. You are probably better off financially now than you may be in the future.
40 40
Young family. This is the peak home purchasing stage. You have a mortgage and a very small
amount of savings. Probably dissatisfied with your financial position and the amount of money saved. 35 35
Mature family. You are in your peak earning years and have the mortgage under control. Many partners
also work and any children are growing up and have either left home or require less supervision. You are starting to think about retirement, although it may be many years away.
30 30
Preparing for retirement. You probably own your own home and have few financial commitments;
however, you want to ensure that you can afford a comfortable retirement. Interested in travel, recreation and self-education.
20 20
Retired. No longer working and must rely on existing funds and investments to maintain your lifestyle.
You may be receiving the pension and are keen to enjoy life and maintain your health. 10 10
What return do you reasonably expect to achieve from your investments? Client 1 Client 2
A return without losing any capital. 10 10
8–12% p.a. 30 30
13–15% p.a. 40 40
Over 15% p.a. 50 50
If you did not need your capital for more than 10 years, for how long would you be prepared to see your investment performing below your expectations before you cashed it in?
You would cash it in if there were any loss in value 10 10
Less than 1 year 20 20
Up to 3 years 30 30
Up to 5 years 40 40
Up to 7 years 45 45
Up to 10 years 50 50
How familiar are you with investment markets?
Very little understanding or interest 10 10
Not very familiar 20 20
Have had enough experience to understand the importance of diversification 30 30 Understand that markets may fluctuate and that different market sectors offer different income, growth
and taxation characteristics 40 40
Experienced with all investment sectors and understand the various factors that may
influence performance 50 50
If you can only get greater tax efficiency from more volatile investments, which balance would you be most comfortable with?
Preferably guaranteed returns, before tax savings 10 10
Stable, reliable returns, minimal tax savings 20 20
Some variability in returns, some tax savings 30 30
Moderate variability in returns, reasonable tax savings 40 40
Unstable, but potentially higher returns, maximising tax savings 50 50
Six months after placing your investment you discover that your portfolio has decreased in value by 20%, what would be your reaction?
Horror. Security of capital is critical and you did not intend to take risks 10 10
You would cut your losses and transfer your money into more secure investment sectors 20 20 You would be concerned, but would wait to see if the investments improve 30 30 This was a calculated risk and you would leave the investments in place, expecting
performance to improve 40 40
You would invest more funds to lower your average investment price, expecting future growth 50 50
Which of the following best describes your purpose for investing?
You want to invest for longer than five years, probably to the age of 55–60. You are mainly investing
for growth to accumulate long-term wealth 50 50
You are not nearing retirement, have surplus funds to invest and you are aiming to accumulate
long-term wealth from a balanced fund 40 40
you are uncertain about what secure investment alternatives are available
You are nearing retirement and you are investing to ensure that you have sufficient funds available to
enjoy retirement 20 20
You have some specific objectives within the next five years for which you want to save
enough money 20 20
You want a regular income and/or totally protect the value of your savings 10 10
Investor profile total points 220 140
INVESTOR RISK PROFILE SUMMARY 0–50 Defensive
You are a conservative investor. Risk must be very low and you are prepared to accept lower returns to protect capital. The negative effects of tax and inflation will not concern you, provided that your initial investment is protected.
51–130 Moderate
You are a cautious investor seeking better than basic returns, but risk must be low. Typically an older investor seeking to protect the wealth that you have accumulated, you may be prepared to consider less aggressive growth investments.
131–210 Balanced
You are a prudent investor who wants a balanced portfolio to work towards medium to long-term financial goals. You require an investment strategy that will cope with the effects of tax and inflation. Calculated risks will be acceptable to you to achieve good returns.
211–300 Growth
You are an assertive investor, probably earning sufficient income to invest most funds for capital growth. Prepared to accept higher volatility and moderate risks, your main concern is to accumulate assets over the medium to long term. You require a balanced portfolio, but more aggressive investment strategies may be included.
301–350 High growth
You are an aggressive investor prepared to compromise portfolio balance to pursue potentially greater long-term returns. Your investment choices are diverse, but carry with them a higher level of risk. Security of capital is secondary to the potential for wealth accumulation.
Part D
Given the information you now have on the Hardgraves’ current situation and their tolerance of risk, what are the critical issues you need to consider to appropriately advise them?
What sorts of investments would they each be comfortable with? (400 words)
Debt: The mortgage interest rate of 6.5% is higher than the return from rest of their investment assets. So, It would be beneficial if they could reduce the mortgage.
Risk protection: The couple seems to be under insurance. Ted and Eliza need to increase their Life and TPD insurance cover. They do not have income protection or trauma insurance either.
Investment: Majority of their investments are cash. They need some fund to support their children’s secondary education. Tuitions for private school can be costly in the near future; they should be well prepared before it happens. Also school fees for the private school will be very high compared to the government schools.
Retirement funding: Ted’s superannuation risk option does not quite match his risk profiles. Eliza’s superannuation seems not performing well enough. Certain analysis and adjustments can be made to help them reach their retirement goals.
Social security & Taxation: The Hardgrave family is entitled to receive family tax benefit.
Estate planning: The couple wrote their Will when Bill was born, the Will has not been reviewed since then. They have no Powers of Attorney or guardianship for their children.
Part E
Prepare appropriate insurance and superannuation strategies for Ted and Eliza, and provide a detailed explanation as to why you consider them to be appropriate. Include the lump sum amount that they will need in retirement and strategies to help them reach that goal. Include
recommendations on the amounts and types of insurance cover you will recommend. Provide a summary of other recommendations that you will include in your SOA for Ted and Eliza.
(500 words)
Ted contributes about 66% of the total income to the family. So it will be very unfortunate to Eliza and their kids if something bad happens to Ted or he dies prematurely. Hence Hardgraves need to increase Ted’s Life and TPD insurance cover to an appropriate level (current shortfall $1.6 million). Further assume that it is also found out that Eliza actually performs lot more home duties than Ted. So, Ted may need to pay extra house keepings if something bad happens to Eliza to cover Eliza’s death. Eliza should also increase her Life and TPD insurance cover (current shortfall $1 million). Having appropriate life and TPD insurance will help to pay off debts and maintain their family’s standard of living if either Ted or Eliza could no longer provide for them.
Income protection insurance Suggest Ted or Eliza undertakes income protection insurance that can cover 75% of their salary.
Hardgraves should also have reasonable trauma insurance just in case they cannot afford medical costs if too many bad things happen. The main purpose of having trauma insurance is to have a amount to cover the medical cost for medical conditions. The estimated trauma insurance cover is $100,000 each.
Superannuation:
It is estimated that the couple will have a combined superannuation fund of $1.1 million when Ted turns 60. Oct - 2012 Oct - 2013 Oct - 2014 … … Oct - 2028 Oct - 2029 Mar - 2030
A/C Balance $190,000 $211,224 $233,758 … … $742,471 $797,771 $821,807
Eliza Age 41 42 43 … … 57 58 58
A/C Balance $85,000 $94,079 $103,624 … … $301,843 $322,017 $330,725 Ted Net return 6% p.a. Monthly contribution $770.60
Total $1,152,532 Eliza Net return 5% p.a. Monthly contribution $385.30
Assume the couple switch to more conservative option when Ted turns 60. The combined fund will provide a net return of 3% per annum. It could provide an annual income of $60,000 ($5000 per month) for them and would be run out before Ted turn 88. The estimation is shown below
Mar 2030 Mar 2031 Mar 2032 … … Mar 2057 Mar 2058 Apr 2059
Ted 60 61 62 … … 87 88 89
A/C Balance $1,152,532 $1,126,756 $1,100,196 … … $96,896 $39,012 -$20,634
It appears out that they have thought well enough about their retirement goal. However, Ted’s current superannuation option does not match his risk preference. Since salary sacrifice contributions are taxed at a rate of 15%, it is another option that both Ted and Eliza can undertake to effectively build their wealth. The salary sacrifice can reduce the taxable income and this way Hardgraves will be able to pay less tax.
Part F
Provide a summary of the research that you have conducted to support one insurance product recommendation you will make for Eliza or Ted. (250 words)
Life and TPD insurance can help to mitigate the financial impact that arose as a result of the death or terminal illness of the life insured. It can supply a lump sum to pay off debts and maintain the family’s standard of living if you can no longer provide them.
If something bad happen to Eliza (e.g. worst case: death), the family will lose about $45,000 net income and may even increase further expenses (e.g. Ted need to pay for extra house keepings). The financial burden on Ted’s shoulders will be dramatically increased. Considering the mortgage and future financial needs for their children’s education, their family will certainly have difficult times if without proper insurance.
I would recommend Eliza to have life and total and permanent disability insurance within her superannuation to $1,000,000. This amount should be able to cover the shortfall.
Assume Eliza will continue work for another 17 years (until Ted reach 60). Her overall life & TPD insurance need is calculated by adding 17 years of her total income with current debt, which is $1,241,800. Then subtract this figure by her current realisable assets of $257,000 (See table below) to determine Eliza’s insurance shortfall.
Realisable Assets Owner Amount
Death Benefit Eliza $50,000
Cash management account Joint $15,000
Saving Account Joint $5.000
Cash management account Ted $75,000
Shares Ted $27,000
Total Realisable Assets $257,000
Assume I did my research and find out Eliza’s superannuation fund has the option of $1 million coverage for life and TPD insurance. Having life & TPD insurance through superannuation can also be cost effective option as the premium are deducted from super contribution, which means paying for the cover before tax.
Part G
You must now prepare a Statement of Advice (SOA) based on the recommendations made, which will be used to record this advice (including amendments, if any) for Ted and Eliza. Remember that the SOA must be of a standard that is compliant and would be suitable to present to a client.
Important instructions
• What to submit: you have been provided with a Statement of Advice Preparation Checklist and
cash flow templates to use for the project SOA. Please include these with your submission. • Template SOAs and SOA preparation software: it is preferable that you do not use the
sample SOA published by ASIC as a basis for your submission. The use of financial planning software and dealer templates to prepare your SOA is also not permitted. Submissions that exhibit excessive reliance on SOA templates may be considered a case of plagiarism or collaboration, and may not be considered to be a reasonable attempt at the project.
• Assumptions: you must list the assumptions used in your SOA in your project submission.
These will generally include:
– any assumptions you have made regarding missing background information on the clients – any assumptions you have used to calculate future income from your
recommended investments
– any assumptions used for fees relating to the products you have recommended.
• Strategy advice: you must provide strategy recommendations in the following areas based on the information given:
– personal investment or debt reduction – personal insurance
– superannuation – estate planning.
Use the information on each of these areas given in the subject notes to provide reasons for each of the strategies recommended.
• Product advice: product recommendations for any personal investment or estate planning
recommendations are not required. However, you should recommend an appropriate
superannuation and/or life insurance product to implement the advice you have provided. You are required to source, or develop, your own fund details. It is not necessary to include Product Disclosure Statements in your project for any products you may recommend in your SOA. Including insurance quotes in the SOA is not required. For insurance recommendations you may estimate the premiums based on the clients ages, health and occupations but they do not have to be prepared from actual quotes.
• Cash flow projections: you must include detailed cash flow tables using Appendix 1 and
Appendix 2 as a template showing Eliza and Ted’s situation before and after your
recommendations. These should be included as Appendices 1 and 2 to your SOA. Remember to include any insurance premiums in the analysis.
• Recommendations: You should include superannuation projections up to the retirement age of
your clients before and after your recommendations as Appendix C to your Statement of Advice. In addition please show that your strategy will enable your clients to meet their retirement
Statement of Advice preparation checklist (student to complete)
SOA section Action Completed?
i. Cover sheet The following elements should appear on the cover sheet: • the words ‘Statement of Advice’
• the client’s name
• the authorised representative’s name, AR number and contact details (if different to the licensee)
• a statement that the authorised representative is an authorised representative of the licensee
• the licensee’s name, ABN number, AFSL number, address and contact details
• the date of issue of the SOA
• a warning about the importance of the document
ii. Table of contents Check that the pages in the table of contents agree with the page numbers in the completed SOA.
iii. Executive summary Headings should include:
• Summary of our recommendations
• Summary of expected outcomes if you implement our advice • Risks in our advice
• Summary of our fees and commissions • Your next steps
iv. Present position — information about the client
Headings should include: • Important information about you • Your reasons for seeking advice • What you would like to achieve • Your personal and financial information • Personal information
• Your existing insurance • Your existing estate planning • Financial information
• Current income and expense details
v. Risk profile Heading: • Your risk profile
vi. Strategy
recommendations (analysis of the investment strategies)
Headings should include: • Recommended action:
– personal investment or debt reduction – personal insurance
– superannuation – estate planning
• Reasons for recommendations: – personal investment or debt reduction – personal insurance
– superannuation – estate planning
• Things you should consider (risks)
vii. Product selection You are only required to provide a superannuation and or insurance product recommendation. Do not provide product recommendations for personal investments or estate planning.
Headings should include: • Product recommendations • Cooling off period advice
viii. Recommended asset allocation
Headings should include: • Recommended asset allocation
SOA section Action Completed? ix. Disclosure of fees,
commission and/or benefits
Headings should include: • How are we paid
• Commission and fees — upfront, ongoing commissions and financial planning advice fees
• Product management and/or operational fees • Other benefits
x. Ongoing service and review
Headings should include: • Ongoing services • Implementation
xi. Authority to proceed Headings should include: • Authority to proceed • Consent to ongoing contact
xi. SOA Appendix 1 Use the family cash flow template below. Heading:
• Financial position before implementation of strategy
xii. SOA Appendix 2 Use the family cash flow template below. Heading:
• Financial position after implementation of strategy
xii. SOA Appendix 3 Include detailed projections of the clients’ super account balances before and after your recommendations up to their retirement age. Also show how the resultant balance can be drawn down until Eliza reaches age 84, her current life expectancy.
You should include all assumptions for calculations and rates of return should be in today’s dollars (i.e. net of inflation).
Statement of advice
[Complete your SOA in this section of the template]
Assumption List for SOA
• Assume I have got the missing information from Ted and Eliza such as their superannuation
details, insurance detail, etc.;
• Assume I met Ted and Eliza in Oct 2012;
•
All the superannuation, insurance and investment products in the SOA are fictional,
including fees, premium, return, cooling off period, etc.;
•
Assume all Product Disclosure Statement for investment and insurance products are
given to Ted and Eliza;
•
All the commission, fees and benefits information are fictional;
Mr Ted and Mrs Eliza Hardgrave
4 Pringle Ave, Kensington
Dear Ted and Eliza,
Thank you for the opportunity to meet and discuss how we can help your achieve your
financial goals and objectives.
Based on the information contained in your completed fact finder and our conversation at
our meeting, I believe that I have a reasonably clear understanding of your current
situation, your goals and objectives, and your attitude to investment risk, security, and
volatility. We are pleased to provide our recommendations in the detailed Statement of
Advice that follows.
This Statement of Advice has been prepared exclusively for you and is based on the
information you have provided. Please take the time to carefully read and understand it, to
ensure that it is consistent with your views and reflects the information we discussed. If
there are any omissions or any details are incorrect, please bring them to our attention. In
addition, if your circumstances have changed, or if this plan is not implemented in the next
30 days, we may need to revise the recommendation to ensure that they are still
appropriate.
Once implemented, the recommendations in this Statement of Advice should be reviewed
on a regular basis to ensure that they continue to meet your ongoing needs. Changes in
legislation, financial markets and your personal situation will occur over time, and as your
financial adviser we can work with you to update your financial plan so that you stay on
track to achieve your goals and objectives.
If you accept our recommendation and are comfortable to proceed with implementation,
please sign the attached Authority to Proceed and return it to us.
We look forward to helping you implement the enclosed recommendations, and in the
meantime we remain available to assist you with any queries you may have in relation to
this Statement of Advice.
Statement of Advice
Prepared for
Mr. Ted & Mrs. Eliza Hardgraves
Prepared byB n Y Pvt. Ltd.
You are entitled to receive a Statement of Advice (‘SOA’) whenever we provide you with any personal financial advice. Personal financial advice is advice that takes into account that any one or more of your objectives, financial situation and needs.
This SOA is a record of the personal financial advice provided to you and includes information on the basis which this advice is given, information about fees and commissions and any interests or associations which might influence the advice.
If this advice includes a recommendation to you to acquire a particular financial product (other than securities or an offer to issue or arrange the issue of a financial product to you, we will also provide you with a Product Disclosure Statement containing highly detailed supportive information about the particular product to help you make well informed decisions about the product.
Be aware that the advice contained in the following SOA is valid for a period of 30 days only. If the plan is not implemented within this time, it will no longer be current and will need to be reviewed for accuracy
Statement of Advice
Content
FP3B-1SN3-2 Capstone project 1
Project Cover Sheet 1
Capstone project 4
Project checklist (student to complete) 4
Background 5
Personal information 6
Professional relationships 6
Annual income details 6
Annual expenditure 7
Assets and investments 7
Current share portfolio 7
Investment objectives 8
Ted Hardgraves 8
Eliza Hardgraves 8
Estate planning 8
Insurance and risk management 8
Planning issues 9
Section 1 Establish the relationship with the client and identify their objectives, needs and financial
situation 10 Part A 10 Part B 10 Part C 11 Part D 11 Part E 12
Section 2 Analyse client objectives, needs, financial situation and risk profile to
develop appropriate strategies and solutions13
Part A 13
Part B 13
Fact finder 13
Personal and employment details 13
Income, expenditure and net worth 15
Goals and objectives 18
Current superannuation, rollovers, insurances & investments 19 Part C 22 Part D 25 Part E 25 Part F 26 Part G 27 Important instructions 28
Statement of Advice preparation checklist (student to
complete) 29 Executive Summary...6 ... 6 ... 7 ... 7 ... 7 ... 7 Important information ...8 ... 8 ... 8
Your personal and financial information...9
... 9 ... 9 ... 9
Financial information...10
... 10
Your risk profile...11
... 13 ... 14 ... 15
Recommended asset allocation...16 Implementation...19
... 20 ... 21
SOA Appendix 1 – Financial position before implementation
of strategy 22
SOA Appendix 2 – Financial position after implementation of
strategy (2012/2013 financial year) 24
SOA Appendix 3 – Superannuation Projections 26 SOA Appendix 4 – Managed Investment Projections 29
SOA Appendix 5 – Mortgage Projections 31
SOA Appendix 6 – Implementation schedule 32
Executive Summary
For the short term – up to one year
Recommendations for Ted
• Total and permanent disability insurance outside of his superannuation should be equal
to $1,500,000 (Approx.)
• Use income protection insurance within the superannuation (maximum allowable limit
is 75% of salary)
• Take out trauma insurance outside of superannuation
• Move superannuation to a growth portfolio within superannuation fund
• Make salary sacrifice contribution of $1,200 ( about 10% of salary) per month to
superannuation account
• Reinvest the dividends
Recommendations for Eliza:
• Increase total and permanent disability insurance within superannuation to $1,000,000
• Use income protection insurance within superannuation (maximum allowable limit 75%
of salary)
• Take out trauma insurance outside of superannuation
• Make salary sacrifice contribution of $600 (about 10% of salary) per month to
superannuation account
Financial Planner Recommendations:
• Double mortgage repayments on home
• Use $17,500 from the inheritance to renovate house.
• keep $15,000 in bank account as emergency fund
• Review existing home and contents insurance to be sure that it is sufficient
For the long term – more than five years
• Invest $62,500 in a conservative managed fund with a monthly contribution of $600, this
fund should be accessed when children go to their secondary studies
If these recommendations are followed then, Hardgraves will have:
• Appropriate insurance cover and health cover in the unforeseen event in which either of them die or become injured
• Established appropriate levels of general insurance
• Enough fund for emergency purpose
• No inefficient debt
• Growing children’s education over time so as to meet the financial needs to pay for their
studies
• The managed investment fund so that their share portfolio can grow over time
• Updated Wills so that it can protect family in case of unlikely events
As has been discussed, all investment options are subjected to market risk and may or
may not increase to increase the portfolio value.
The fees for preparation of making this Statement of Advice is total $4,000
In order to decide whether to take our advice you should:
• Read the Statement of Advice fully to understand our advice.
• Feel free to ask us any questions you have as a result of reading the Statement of Advice.
To follow our advice, please simply complete the ‘Authority to Proceed’ at the end of this
Statement of Advice and return it to us.
Important information
This section contains information that are used in preparing this statement of advice, such
as:
• Reasons for seeking advice
• Goals to achieve
• Personal and financial information
In case any information mentioned in this document is incorrect, please feel free to contact
Bn Y pvt. Ltd.
Ted and Eliza – we agreed that we would provide advice on:
• Risk management and Insurance
• Investments
• Superannuation
• Estate Planning
Following the discussion, according to us your main objectives and needs are as follows:
• You like to ensure that you have protection in the unlikely event
• You like to have a long-term tax effective investment that could give sufficient funds for your future needs and for your children to complete secondary education
• You like to do some renovation to your home
• You like to have your annual family holiday
• You like to retire at 60 (Ted) with $60,000 per annum
• You want to ensure that your estate planning is adequate
Your personal and financial information
List below is a summary of your relevant personal and financial details that you have
provided.
Personal details
Client 1 Client 2
Title Mr Mrs
Surname Hardgraves Hardgraves
Given & preferred names Ted Eliza
Home address 4 Pringle Ave, Kensington 4 Pringle Ave, Kensington
Business address NA NA
Contact phone NA NA
Date of birth 28-March-70 17-August-71
Age 44 43
Sex Male Male Female Male Female Female
Smoker Yes No No Yes No No
Expected retirement age 65 64
Dependants (children or other) :
Name Date of birth Sex School Occupation
Harriett NA NA NA NA
Bill NA NA NA NA
Ted: you currently have $360,000(three times salary), life and TPD cover under your
superannuation fund. Eliza: you have $50,000 life and TPD cover also under your
superannuation. Your home is insured for $850,000 and the contents for $50,000. You
both have private health insurance.
You have advised that both of you have not reviewed your Wills since 2004. Neither of you
has a Power of Attorney (POA) in place.
Financial information
Income and expenses
Ted Eliza Total
Assessable income $116,688 $55,462 $172,150
Income after tax $84,541 $45,059 $129,600
Annual expenses $42,600 $42,600 $85,200
Estimated surplus/deficit $44,400
Ted and Eliza – based on the above income and expenditure schedule you have a surplus
of $44,400 income available. Please see ‘Cash Flow Statement’ in SOA Appendix 1 for
details.
Assets and liability
Value Liability Net value Total personal assets $918,000 $300,000 $618,000
Total investment assets $397,000 $397,000 $397,000
Net worth $1,015,000
Please refer to ‘Assets and Liabilities’ table in SOA appendix 1 for details.
Incomplete and/or inaccurate information warning
Note that if, for any reason, the information on which our advice is based upon, is either
inaccurate or not complete, then it may be necessary to consider its appropriateness in
respect to your particular circumstances, needs and objectives.
Your risk profile
All investments have a certain element of risk. However, as a general rule, investment that
have high rates of return involve high levels of risk, and more conservative investments
bear lower returns.
From our discussions, and from the answers of your risk profile questionnaire, we believe
that Mr. Brown is a ‘Growth’ investor and Mrs. Brown is a ‘Balanced’ investor.
For Growth investors:
You are relatively assertive investors, probably earning sufficient income to invest most
funds for capital growth. You are prepared to accept higher volatility in the short to medium
term to accumulate growth asset over the long term. You investment will spread across all
asset sectors but will consist of more growth assets, which would be:
• About 30% in defensive assets, e.g. cash, fixed interest, and
• About 70% in growth assets, e.g. Australian equities, international equities, property
The target asset allocation for your risk profile is illustrated below.
For Balanced investors:
You are a cautious investor who is equally concerned with risk and return. You are willing
to chase medium to long-term goals while accepting the risk of short to medium-term
negative returns. Your investment mix is likely to include an equal mix of assets which
would be:
• About 40% in defensive assets, e.g. cash, fixed interest, and
• About 60% in growth assets, e.g. Australian equities, international equities, property
The target asset allocation for your risk profile is illustrated below.
Strategy recommendations
This section states:
• what are our advices and why these are appropriate for Hardgraves
• reasons for the recommendations
• things to consider and risks of the advice
Read this section and ask if you have any questions.
Personal Investment
We recommend that:
• Double your mortgage repayments on your home so as to remove the debt early
• Use $17,500 from the inheritance to renovate the house.
• keep $15,000 in bank account as emergency fund
• maintain your share portfolio and reinvest the dividend proceeds
Personal Insurance Recommendations
Name Type of cover Product Total amount of cover
Ted Life and TPD Mediassist insurance $1,500,000
Eliza Life and TPD SOH Super Fund $1,000,000
Ted
Income protection (to age 60)
60 days waiting period*
ABC Super Fund $7,288 p.m.
Eliza
Income protection (to age 60)
60 days waiting period*
SOH Super Fund $3,463 p.m.
Ted Trauma Mediassist insurance $100,000
Eliza Trauma Mediassist insurance $100,000
