2Identify Client Objectives and Financial Situation Statement of Advice Case Study (Dennis and Donna Barker) Case Study You are an authorised representative of a full-service licensed dealer group,...

2Identify Client Objectives and Financial Situation
    
Statement of Advice Case Study
(Dennis and Donna Barker)
    
    
    
    
    
    
    Case Study
    You are an authorised representative of a full-service licensed dealer group, Doggie Financial Planning Pty Ltd. Dennis and Donna Barker have come in to see you to ask for your assistance to plan out their next seven years and then help them settle into retirement.
Donna (aged 53 – DOB 15/07/--) and Dennis (aged 52 – DOB 23/07/--) have been married for 29 years and live at Lot 3 Wattle Road, Hurstbridge, Victoria. Their only child, a daughter, Megan, is financially independent and has two children.
Donna works full time as a business development manager for Best Marketing and has recently been promoted. She is paid a base salary of $95,000 p.a., and her employer pays a Superannuation Guarantee contribution of 9.5% on top of that. She has heard about salary sacrifice and is interested in how this might be used to help build funds for her retirement She wants to salary sacrifice as much as she can to help build funds for her retirement in 7 years’ time.
Donna’s superannuation is currently in a balanced retail superannuation fund, MM Superannuation. Her current balance is $290,000 and earns on average 7% p.a. after fees and taxes. She also has $300,000 in term life and TPD insurance cover within her superannuation fund.
Dennis works full time as a joiner making custom furniture for Newbold’s Pty Ltd. He earns a base salary of $45,000 p.a. His employer pays Superannuation Guarantee contribution of 9.5% on top of that
Dennis has $138,000 in superannuation savings, held within the PP Superannuation Fund. The funds are invested in a capital stable portfolio with a very low allocation to growth assets. Returns on this fund are around 4% p.a. after fees and taxes.
They would like you to review their insurances. Dennis has $150,000 term life and TPD with PP Super.
They are living on a semi-rural property which has a house valued at around $750,000, and they have a mortgage of $110,000 in the form of a line of credit. The interest rate on this facility is 5.5% and they are currently making interest payment of $6,050 per year ($504.17 pm).
    
Both are non-smokers and in excellent health. They do not have a current will or any powers of attorney, and Dennis would like you to assist them with setting these up. Donna would feel more comfortable seeing a female estate planner.
Diploma Case Study, Continued
Their personal expenses are around $40,000 p.a. and they spend an additional $10,000 p.a. on holidays. (Total outgoings are therefore $56,050.00). They have private health cover, car and house and contents insurance.
Donna intends to work for seven more years (until aged 60), once she retires they believe they will need $40,000 p.a (in today’s dollars) for their living expenses in retirement. However, Dennis intends to then start working part-time once Donna retires in 7 years’ time and will do this until age 65 and estimates that he will earn $25,000 p.a. and they intend to use this income to fund any holidays or other expenses as required.
They would like to find a way to reduce their mortgage repayments, and still have this paid off by the time Donna retires. They also want to increase the amount of money in both of their superannuation funds.
They have also stated that they want to ensure they have sufficient money for their grandchildren (now aged 6 and 4 years) to attend university. They estimate they will need to accumulate approximately $120,000 (in today’s dollars) over the next 12 years to pay for this.
Aside from their superannuation funds, they also have $9,000 in a bank account earning 4% p.a., $15,000 in a term deposit earning 4% p.a. and $12,000 in a cash management account earning 5% p.a.
However, they are not happy with the taxation implications of these accounts, as any interest earned seems to go in tax. Their everyday transaction account holds $3,000 but this has been set aside for emergencies and the clients do not want this changed.
After completing a comprehensive risk profile analysis, you ascertain that they both have ‘balanced’ risk profiles.
    
    
Lifestyle Assets
    Assets
    Owner
    Value ($)
    Liabilities ($)
    Net Asset Value ($)
    Home
    Joint
    750,000
    110,000
    640,000
    Cars
    Joint
    40,000
    Nil
     40,000
    Contents
    Joint
    50,000*
    Nil
     50,000*
    Total
    
    840,000
    
    730,000
Investment Assets
    Assets
    Owner
    Value ($)
    Return (%)
    Liabilities ($)
    Net Asset Value ($)
    Bank Account
    Joint
    9,000
    4
    Nil
    9,000
    Term Deposit
    Joint
    15,000
    4
    Nil
    15,000
    Cash Management Account
    Joint
    12,000
    5
    Nil
    12,000
    Total
    
    36,000
    
    
    36,000
Assessment Task 1    
    
    From the scenario in your case study, list in the table below what documents you would review to analyse the integrity of the information provided by the client.
Enter your answers in the space provided below.
    Information provided by client
    What documents would you review to confirm accuracy or analyse the integrity of the information provided?
    Marks
    Cashflow Management
    1. Income
$95,000
$1,38,000
    i) Wife’s income: Salary certificate from Best Marketing and bank statement.
    / 1
    
    ii)    Husband’s income: Salary certificate from NewBold Pty Ltd and bank statement.
    / 1
    2. Tax
    i)    Wife’s annual tax: Tax calculation
    / 1
    
    ii) Husband’s tax: Tax calculation
    / 1
    3. Expenses
$1,50,000
$10,000
    i)    Living expenses/mortgage: Bank statement of earlier years with utility bills and credit card statement
    / 1
    
    ii)    Discretionary expenses (holidays etc.): Bank statement, travelling bills and credit card statement
    / 1
Assessment Task 1, continued    
    Information
    What documents would you review to analyse
the integrity of the information provided?
    Marks
    Wealth Creation
    4. Super
$2,90,000
$1,38,000
    i)    Wife’s superannuation: Super account statement balance
    / 1
    
    ii) Husband’s superannuation: Super account statement balance
    / 1
    5. Investments
($36,000)
    i)    Cash Investments Held: Bank account statement, Term deposit policy document and cash management account statement
    / 1
    6. Debt Reduction
($1,10,000)
($ K)
    i)    Mortgage: Housing loan statement
    / 1
    
    ii) Credit Cards: Credit card statement
Details of credit card payment is not available
    / 1
    Wealth Protection
    7. Personal Insurance
$3,00,000
$1,50,000
    i)    Wife’s current Life/TPD insurance: Term insurance policy document and last premium payment receipt
    / 1
    
    ii) Husband’s current Life/TPD insurance: Term insurance policy document and last premium payment receipt
    / 1
    8. Estate Planning
No
No
    i)    Wife’s estate planning: Estate planning not clearly disclosed
    / 1
    
    ii)    Husband’s estate planning: Estate planning not clearly disclosed
    / 1
Assessment Task 1    
    
    Use the http://www.taxcalc.com.au/[footnoteRef:1] and a current tax rate to calculate Dennis and Donna’s: [1: ]
· Investment income
· Superannuation contributions, and
· Surplus income after tax.
Use the Financial Planning Research spreadsheet provided to assist you in your calculations and then enter your results in the table below. You should use the copy and paste function to copy the calculations from the spreadsheet into the tables below.
As your clients have private health insurance, the Medicare Levy surcharge does not apply. Also, assume that investments are jointly held so that 50% of the income is earned by each.
    
Investment Income
    Investment
    Amount
    Rate
    Income
    Bank Account
    9000
    4%
    $360
    Term deposit
    15000
    4%
    $600
    Cash Management Account
    12000
    5%
    $600
    Total
    
    
    $1560
/ 2
Superannuation Contributions (current situation)
     
    Base Salary
    SG Rate
    Amount
    Donna
    $95,000
    9.5%
    $9,025
    Dennis
    $45,000
    9.5%
    $4,275
    Total
    
    
    $13,300
/ 2
Surplus Income (current situation)
     
    Base Salary
    Investment Income
    Taxable Income
    Tax on Income
    Medicare levy
    Tax Payable
(incl LITO)
    Expenses
(incl mortgage payment)
    Surplus income
    Donna
    $95,000
    $780
    $95,780
    $21,595
    $1,916
    $22,064
    $25,000
    $48,176
    Dennis
    $45,000
    $780
    $45,780
    $5,346
    $916
    $5,034
    $25,000
    $15,746
    Total
    
    
    
    
    
    
    
    $63,922
/ 6
    
Assessment Task 1    
    
    From the scenario in your case study,
a) write down one or more specific financial objectives and expectations for the generic needs provided,
b) quantify the objective by expressing the amount in today’s dollars (PV- Present Value), and
c) Describe how you would verify each objective.
    Generic Needs
    (a) Specific client objectives and time frames (if applicable)
    (b) Amount
(PV)
    (c) How would you verify the amounts in (b) or test for viability? (No calculations are required)
    Marks
    Cashflow Management
    1. Income
    Income currently earned $95,000 by Donna and $45,000 by Denis
    $1,40,000
    We will verify the amount by discounting the amount to the future value
    /3
    2. Tax minimization
    Tax minimization by investing the investment in the name of Denis who is in small tax bracket
    $70
    The future value for current value shall be calculated
    / 3
    3. Expenses
    Living expenses shall be $40,000 to be covered after retirement and travelling expense of $10,000
    $50,000
    The future value for current expense can be calculated using discounting factor
    /3
    Wealth Creation
    4. Superannuation
    Objective is to increase the wealth to gain living expense in retirement
    $4,28,000
    The Future value for superannuation after investing shall be the amount with interest
    / 3
    5. Investment Planning
    Investment planning should as such to earn living expense and travelling after retirement and repay the entire mortgage before retirement
    $50,000
    Present value should be calculated using the discounting factor
    / 3
    6. Debt reduction
    Debt reduction in the form of repayment of entire mortgage
    $1,10,000
    Future value of mortgage shall be calculated using current value
    / 3
    Wealth Protection
    7. Personal Insurance
    Term insurance of Donna $3,00,000 and Dennis of $1,50,000 and the premium for the same should be arranged timely
    $4,50,000
    Term insurance premium shall be payable
    / 3
    8. Estate Planning
    Estate planning is especially important though there is no mention in task 1 but planning should be done
    $7,50,000
    Cost of house in future usually appreciates
    / 3
    
Assessment Task 1, continued    
    
    From the scenario in your case study, establish the basis for strategy development by identifying the strategic options for each generic need.
You should develop a minimum of three options for each generic need which would act as a hypothesis for you to investigate further.
    Generic Needs
    Possible Options
    Marks
    Cashflow Management
    i) Income
    Investing super fund in other investment plan to yield higher return
Sacrificing salary to increase the balance of super funds
Repayment of debt during earning period and then let out portion of the house to earn income from it.
    / 3
    ii) Tax minimization
    Tax can be minimized by transferring income earning investment in the name of Dennis.
Tax can be reduced for donna in case of salary sacrifice which will increase the savings
Repayment of interest on mortgage loan is an allowable deduction increasing the amount shall help in reducing taxes.
    / 3
    iii) Expenses
    Expense of living shall be earned using super fund saved
Expense can be earned by letting part of the house to earn rentals
Additional saving during earning period will help in saving for retirement expenses.
    / 3
    Wealth Creation
    iv) Superannuation
    Investing superannuation fund into other investment fund to yield higher return
Increasing the balance of superannuation by sacrificing salary in next 7 years of working
Return from super fund of Denis is quite low and should be used to invest in other fund to earn higher return and Donna Super fund remains in super.
    / 3
    v) Investment Planning
    Investment of emergency fund cannot be planned as they want it to be intact
Investment of term deposit and cash management account could be to earn higher return in riskier portfolio in the form of shares
Investment of term deposit and cash management account could be invested in diversified portfolio to earn moderate returns but higher than 4 or 5%
    / 3
    vi) Debt Reduction
    Mortgage should be repaid from Donna salary and Dennis complete salary should be used for living expenses
Mortgage should be repaid by letting part of the property to earn rentals and use the same fund to repay mortgage.
Debt reduction should be done over a period of 12 years instead of 7 years by using the earnings of Dennis in next 5 years after retirement of Donna.
    / 3
    Wealth Protection
    vii) Personal Insurance
    Personal insurance should be nominated in the name of daughter or their grand children
Initially personal insurance should be nominated in the name of spouse and second nominee should be in the name of grand children or daughter
Personal insurance shall be mentioned in the will
    / 3
    viii) Estate Planning
    Estate planning should be created in the form of will for the education of both the grandchildren.
The fund shall be required after 12 years and the planning for the same can be done by saving $10,000 every year for next 12 years.
The will should be create to leave the house in the name of their daughter
    / 3
    
Assessment Task 1, continued    
    
    From the various options that you have given in 1.3 (a), please list four (4) options / alternatives that you would want to present to the clients to get their approval before conducting detailed research.
For example, you might start this discussion to confirm objectives with “I understand that you have a preference to do X, but if I could show you a significant advantage in doing Y, would you consider it?”
    Would you consider:
    Marks
    1
    Invest the super fund of Dennis after 5 years in the alternative fund that gives higher return, leaving the Donna super fund intact that provides return of 7% after retirement.
     /1
    2
    Investment from bank, term deposit and cash management fund should be invested into the fund giving higher returns leaving aside the emergency fund of $3000 at the time retirement.
     /1
    3
    Donna shall start sacrificing salary as may be allowed into super fund and shall also start repaying mortgage loan.
     /1
    4
    Dennis salary shall be used to take care of living expenses for next 7 years and after retirement the salary should be used to save for the education of grandchildren.
     /1
    
Assessment Task 2    
    
    The next step in the Financial Service Advice Process includes the identification of research requirements and parameters.
This requires that:
· Aims and objectives of research including strategy, product and performance parameters are established against client requirements and expectations with all issues identified,
· Intended use of the research information is clearly established
· A wide range of relevant internal and external information resources required for the research are identified and accessed,
· Information requirements not met by regular sources are identified and strategies developed to access them legitimately, and
· Timeframes are established and requests for information prioritised to ensure milestones are met.
Complete your answers to this assessment task in the space in the table provided:
The first column you are required to fill in is (b) - What are some research questions that you could ask to determine the clients’ aims and objectives?
You are required to provide 1 or 2 additional Research Questions for each generic need, but no calculations or sums are required at this stage.
The second column you are required to fill in is (c) - Where would you find this information?
You are required to provide some examples of websites, on-line calculators type of spreadsheet etc. you could utilise to answer the questions in part (b).
The final column (d) - Priority requires you to allocate a level of importance to each generic need.

Use the numbers 1 – 3 with 1 being the highest priority.
An example of a research question is provided in the first row for each generic need.
Assessment Task 2, continued    
    Generic Needs
    (a) What is the expected outcome for the clients?
(Intended use or reason)
    (b) What are some research questions that you could ask to determine the clients’ aims and objectives?
(Please provide 1 or 2 additional research questions for each)
    (c) Where would you find this information?
(e.g. websites, calculators, spreadsheets etc)
    (d) Priority
1 - 3
(1 being highest)
    Marks
    Cashflow Management
    · Income
    · Maximize savings
· Maintain current level of income
    · How much of the surplus income can be allocated to other investments to maximize savings over the next 7 years?
· Maximize saving by salary sacrifice
·
    · Spreadsheet of Surplus income 1.1 (b) in excel $13,922 after...