FINS5537

Individual Assignment – Term 3 2024

Due to be submitted no later than 11.59 pm * Sunday the 17th  of November 2024 in a soft copy format via the Turnitin link placed on the Moodle course website.

No submission will be accepted via email

*Please allow a minimum of 20 to 30 minutes to upload your assignment.

Do not wait untill the due date to upload your assignment as the system can become slow closer to the due date.

This assignment will comprise a total of 40% of the marks allocated for this unit.

The  assignment  consists  of the  preparation  of  an  advice  document  in  a  form.  of  a professional & compliant Statement of Advice (SOA) in relation to the case study. The SOA  must  adhere ASIC  RG175  requirements  in  particular  the  “Clear,  Concise  and effective” requirement.

Important Notes:

•    The assignment must be typed (Font 11)

•    Attempt ALL questions and issues raised in the case study assignment.

•    Ensure your SOA contains all the relevant sections, to ensure your SOA is compliant with the relevant financial services laws, technically accurate and professionally presented in line with the industry best practice.

•    Where appropriate, the use of tables, graphs, flowcharts, etc. is encouraged to help illustrate your point clearly.

•    Show workings and calculations where applicable.

•    Clearly state your source references. Be clear in answering the questions and or clients’ enquiry.

•    Assumptions must be clearly stated, assumptions need to be reasonable and logical and cannot conflict with the facts in the question/s

•    Provide the excel spreadsheet projection/working in the appendix of the SOA document.

Assumptions

o Inflation 2.5%

o AWOTE 3% (use for wages inflation)

o The investment growth rate is to be provided by you, however, you must apply due  diligence  on  the   rate  provided  and  provide  your  source   or  research reference/s.  This  would  be  based  largely  off  the  investment  and  the  asset allocation of your investment portfolio

o Use 2022-2023 tax rates where applicable

Refer to the mark allocation and what is expected from you section below for further details and tips.

Case Study - The Marshal Family

John Marshal (aged 44) is married to Betty (aged 43). They are living in Sydney. They have two children, Siena (aged 8), Leila (aged 6), they both attend a private school, and they are in years 2 and kindergarten respectively.

John is a corporate Lawyer for a large financial institution. and Betty is a senior accountant. for an investment firm.

John and Betty have been discussing the need for them to see a financial adviser to help them put a plan in place to help achieve their goals and objectives.

They would like to ensure they have appropriate budget to allow them to maintain their current  lifestyle.  and  help  them  save  for  their  key  goals,  including  their  children’s education, paying off their debt, while also making sure they have plans to ensure they are saving well for their long-term retirement objectives.

Although John and Betty can see the need to focus their attention on their key immediate priorities of paying off their debt and saving for their children’s education, however, they also would like to make sure their superannuation is well invested to help them save for their retirement.

Both John and Betty have reasonable experience when it comes to investment and management of their financial affairs. Although in recent times John and Betty have been too busy to pay attention to their financial affairs, they feel with the appropriate help from the professionals in the field (financial adviser, accountant, etc.) they would be able take control of their finances and investments and be directed towards achieving their goals and objectives.

John and Betty have made wills soon after they got married, however, they haven’t updated them since.

John and Betty have a home and contents insurance cover they established when they purchased their current family home. They have their motor vehicle comprehensively insured. They also have family private health insurance coverage. However, they are unsure if their general insurance covers are adequate and appropriate.

Their  personal  life   insurance   is  limited  to  what  they   have  inside  their  respective superannuation accounts.

John and Betty have met with you and left you with the information below after the first interview.

Notes to the supplied information:

*The employer makes only the mandated employer contribution (SGC) to their nominated superannuation fund.

You need to advise John and Betty on the issues below, taking into account the following specific issues and concerns:

You need to clearly address the following issues: where you are providing advice on each of the points below you need to ensure you highlight the benefits and the risk of the advice relevant to the clients’ personal circumstances. You also need to clearly demonstrate how your advice to the clients meets the best interest duty

Analyse and address the following goals, objectives, needs, and concerns and whether  they  can  achieve  their  objectives  for  John  and  Betty  including  their retirement objectives and how. (Providing them with options and alternatives)

1.   Retirement Planning: 

John would like to retire once he reaches age 65. Betty is planning to retire when she reaches age 60. However, they are happy to postpone retirement for a few more years if this would help them achieve a more comfortable retirement as John is happy to scale down his workload and stay working on a consultancy basis for a few more years as a semi- retirement plan.

John and Betty think they need an after-tax income of $85,000 in today’s dollars during their retirement as by then they think their debt will be paid out (assume this income can be produced tax free at retirement). You need to provide the calculation supporting your projections of their retirement needs.

2.   Superannuation 

John and Betty’s currently have their superannuation contributions go to an employer  nominated  retail  fund.  They  would  like  to  know  whether  their superannuation are invested appropriately, they also would like to know the benefits and risks of establishing an SMSF relevant to their own specific and personal circumstances. Be specific by relating to John and Betty specific circumstances.

3.   Gearing and debt Management:

John and Betty would like to pay off their current debt particularly their home loan as soon as possible.

However, they are happy to consider the concept of borrowing to invest if they feel it can help them achieve their retirement aim. Advice John and Betty and the pros and Cons of such a strategy. Be specific on relating you advice to John and Betty’s personal circumstances.

4.   Investments

I.      Managed Funds: John and Betty would like to get some advice on the Australia shares managed funds they hold and to be provide    options on whether they should continue to hold this investment currently held in John’s name. Advise John and Betty on the pros  and cons on holding this investment and explain, you also need to elaborate on what can be done to make their investment more diversified and potentially what other options available to them.

II.      Term Deposit: the TD is maturing soon, and they would like some advice on possible options available for them.

5.   Children education

John  and  Betty  feel   strongly  about  providing  their   children  with   good education, They would like to continue to be able to provide a private school education for their children. They feel they should have a budget of around $30,000 p.a. in today’s per child for both primary and secondary school

6.   Holiday 

They would also like to take a family trip to Disney Land with the kids in the next 2- 4 years for which the expected cost is approximately $25,000 in today’s dollars.

7.   Insurance 

John and Betty would like to ensure they have adequate general and personal insurance. For the personal insurance John and Betty only have the insurance inside their employer superannuation fund, you are required to provide a clear needs analysis to identify their different personal insurance needs (Life, TPD, Trauma and income protection) and make appropriate recommendations on the amount and type of covers required. You also need to provide insurance product recommendations and supply quotes of premiums.

8.   Estate Planning

They would like you to consider their estate planning and asset protection needs.  You  need  to  provide  a  clear  recommendation  on  all  their  estate planning needs. (Avoid large generic contents in this section). Information provided needs to be relevant and specific to the clients’ circumstances.

9.   Risk Profiling - John and Betty’s attitude to risk:

o John likes owning shares as from his financial background he understands that Australian shares and shares in general may have a higher volatility than some other asset classes. However, he also understands shares tend to perform well over the long term. John is comfortable with taking risk if he can understand it and see that there are possible rewards.

o Betty on the other hand was brought up in a very conservative family where her family had most of their money invested either in government bonds or term deposits with one of the major banks. Betty’s family have always talked in front of her that they dislike share investments as they feel they can't sleep for worry about market events. However, they have also  said to  Betty  several  times  that  she  could  never  go  wrong with property investment and have always encouraged her and John to buy a house when they first got married. Betty therefore is more conservative than John when it comes to risky investments; however, as a result of studying finance subjects at university she can see that sometimes there could be some merit in taking calculated risks to achieve better returns.

o John  and  Betty  have  both  indicated  they  wouldn’t  mind  taking  some calculated investment risks to help them achieve their objectives.

10. Projections 

Projections should be made up to John & Betty’s life expectancy + 8 years.

As part of your advice to the clients you need to address the following:

i.      Get to know the clients by clearly analysing their goals and objectives needs and concerns.

ii.      Cash flow and net worth tables.

a)   Establish their personal financial statements (balance sheet or net worth i.e. asset less liability, cash flow analysis i.e. income less expenses to identify the client surplus/deficit cash position). This needs to be done for both before your advice (i.e. the current status quo) and post your advice incorporating your recommendations

b)   Prepare and present cash flow and asset projections (include projections of cash flows for John and Betty, presenting both pre-tax and post-tax results).

iii.      Risk profile and asset allocations

a)   Establish their risk profile and as a result their appropriate asset allocations,

addressing their target asset allocations diversification for their different investment including their superannuation. And their investment portfolio recommendations, providing reasoning and justifications.

iv.      Goals objectives funding

a)  You need to illustrate a clear projected estimate of the financial target and the source and method of funding the clients different goals and objectives , this includes their retirement and other short-, medium- and long-term goals, etc. as and where applicable)

v.      Insurance needs analysis

a)   Perform. clear needs analysis of the insurance needs and establish their needs and affordability of the insurance premium to justify your recommendations.

b)   Provide appropriate and accurate insurance costing by obtain premium quotes and estimates there are some websites that provide you with insurance quotes online).

vi.      Provide  assumptions used and justifications (cost, risk, suitability, etc.) where required.

vii.      Use visual aids like diagrams tables and charts to assist with your illustrations.

viii.      Clear calculation and projections as needed.

Your task in summary is to prepare a complete and compliant Statement of Advice (SOA) for John and Betty. The information provided in the client scenario is to be used in preparing your calculations and advice. As the assignment is to be a SOA for clients, it should be in a suitable format and use appropriate language. Clarity and conciseness are important but full explanations are required.

Your SOA should clearly show the structure you recommend for their portfolio, how they can achieve their goals and where the capital and income will be sourced. Your SOA should address a long-term plan to provide income and should include projections.