Financial Planning Case Study SPRING 2016

This subject introduces you to many aspects of the financial planning industry including regulation, products, tax issues and client relationships.  The Case Study detailed below has discrete questions that match the topic areas.  The assignment can be (and is encouraged to be) completed sequentially and the open ended nature of many of the questions will allow to demonstrate your understanding of the material.  You will need to make (and justify) several assumptions in this case study.

Students can complete the case study individually or in groups of up to four people.  If there is a dispute in any group then assignments will need to be completed individually.

Students should submit two files on canvas and all files (including excel) will be checked for plagiarism.

1. Word document:
   • Title page must include the course title, student names, student’s signatures, student’s ID numbers
   • Executive summary outlining some of the recommendations in your report
   • The answers to each of the eight questions (clearly marked) must be complete and not refer to excel spreadsheet (excel is only submitted as a supporting document).
   • Any assumptions need to be justified with supporting evidence where appropriate.
   • A reference section where all sourced material, including direct quotations must be appropriately acknowledged. Websites should also be referenced where material is incorporated (in any form) in your assignment.
   • Professionally presented (the use of colour and graphs is encouraged)
   • Documents should not exceed 25 pages in total (including title page and references).
   • Marks may be deducted for late submissions of assignments after the due date. This will account for 10% per day.

1. Excel spreadsheet:

• You should also provide a supporting spreadsheet showing your calculations.
• Each worksheet should be clearly labelled with the question number

Case study:

You are an ASIC registered financial advisor operating as an authorised representative of an AFS licensee with Universal Financial Planning (UFP) Pty Ltd.  Two new clients, Rodger (male 56) and Diane (female 55) have approached you  seeking some advice.  They are a married couple with two adult children (Julia, female, 23 and Michael, male, 21).  Their personal and financial information is detailed in the attached file notes.

They have come to you for advice on a number of issues:

1. Rodger and Diane were self employed for many years but their business closed in 2019 and they have had to find to salaried positions.
2. They tried to keep the business operational and incurred a significant credit card debt trying to keep it afloat.
3. They are often stretched each month to pay the credit card minimum payment, the mortgage and their car loans.
4. Julia and Michael, the couples adult children live at home with Rodger and Diane and don’t appear to have any plans to move out.   Rodger and Diane would like to ensure that the adult children are protected should either or both of them die prematurely.
5. Rodger and Diane only contribute the minimum amount to superannuation and they are concerned about their ability to fund their retirement. They recently saw an advertisement on TV that showed cryptocurrencies as a stable way  to fund their retirement and would like to consider this as an option.
6. Neither Rodger or Diane have any experience in investments

Question 1:

You have an initial meeting with Rodger and Diane, collect a range of information (see attached file note), outline your services and what you hope to achieve for them.  Outline the documents you need to provide them in the initial meeting.

The couple ask you to explain how you would be remunerated, whether you would receive any conflicted remuneration and what guarantees you will give them to put their interests first.

Question 2:

Rodger and Diane have been approached by a former client.  The client, Bill, would like to use Rodger and Diane’s business structure to run a number of large transactions.  Rodger and Diane’s company possesses no significant assets and no longer performs any operations.  Bill has asked Rodger and Diane to invoice him for $9,000 per month for consulting services.   Bill will pay the invoice in cash.  In return Bill will invoice Rodger and Diane for $7,000 in consulting services and they will pay him by bank transfer.  Bill says that this is a quick and risk free way of earning $2,000 per month. What advice would you offer Rodger and Diane?  What are your AML/CTF obligations in this situation?

Question 3:

Rodger and Diane have a limited understanding of financial affairs and are struggling to grasp the importance of long term investing for retirement.  In the last year they were only contributed the superannuation guarantee amount to their super.  You would like to them to consider the following options:

1. Contributing the superannuation guarantee only
2. Contributing a further $3000 every second year in addition to the superannuation guarantee
3. Contributing a further $30,000 as a lump sum today in addition to the superannuation guarantee

Illustrate to the couple the expected value of these investments at retirement.  Ignore taxes in this illustration and be specific about any assumptions (e.g. growth and inflation rates).

Question 4

Rodger and Diane have discussed their desire to reduce their credit card debt.  Conduct an analysis of their current financial position (including financial statements and projections) and suggest a strategy to reduce their short term debt and illustrate the impact on their financial analysis if the strategy is implemented.

Question 5

Provide an analysis of Rodger and Diane’s current asset allocation and analyse whether this matches the allocation suggested for their risk profile.    Suggest a strategy (and provide an analysis) to adjust their asset allocation to more accurately reflect their risk profile and retirement objectives.  Estimate the expected rate of return for the new asset allocation and use this growth rate to adjust your figures in question 3 and provide an updated illustration to your clients.

 

Question 6

One of Rodger and Diane’s concerns is their ability to provide for the family if either parent was to fall ill or die prematurely.  Conduct a risk management assessment and suggest a strategy to alleviate these concerns.

 

Question 7

Rodger has been offered a position with an advertised gross salary of $90,000 plus the superannuation guarantee.   Calculate Rodger’s tax payable if he takes the new role.    Assume that he also receives dividend income of $290 from the Qantas shares.

 

Question 8

Consider your projected superannuation balances in question 3.  Illustrate to Diane and Rodger whether they will be eligible for the aged pension under these scenarios if they withdraw their superannuation balance as a lump sum and invest in a balanced managed fund (use today’s pension rates and limits and their expected retirement ages).  In addition to their superannuation assets, assume at retirement age they each earn $10,000 p.a. in after tax income from an investment property worth $300,000.  Illustrate to Rodger and Diane how the combination of investment income and aged pension will provide for their living expenses in retirement.

Personal Details

 

Personal information	Client A	Client B
Title	Ms	Mr
Given Name	Diane	Rodger
Surname	Kennedy	Erickson
Gender	Female	Male
DOB	25 March 1965	24 July 1964
Age	55	56
Marital Status	Married	Married
Home Address	123 Ruby Lane, Smithfield	Same as A
Contact number	0411 XXX XXX	0422 XXX XXX
Email address	Diane_K@Kmail.com	Rodger_E@Kmail.com
Children (details and notes)	Julia, female, 23 Michael, male, 21	Same as A
Health
Personal health details	Good health, non-smoker	Good health, non-smoker
Family health history	Poor – cancer and dementia	Fair
Will in place	Yes	Yes
Power of attorney in place	Yes (Rodger)	Yes (Diane)
Employment details
Primary role	Administrator	Sales assistant
Years in the role	1	1.5
Type (FT/PT/SE)	Full time	Full time
Leave balance	1 week	2 weeks
Retirement planning
Intended retirement age	69	70
Retirement income needs	Moderate income	Moderate income

Financial Details (at 29/08/2014)

 

After tax Income	Combined
Primary employment Diane	$65,000
Primary employment Rodger	$75,000
Dividends from Qantas shares (Rodger)	$290 (50% franked)
Expenses
Basic needs	$95,000
Entertainment and travel	$35,000
Mortgage, loan and credit card repayments	$94,320
Non-superannuation Assets
Home and contents	$1,150,000
Cash in savings account	$2,000
Cars (2)	$32,000
Qantas shares (Rodger)	$28,000
Superannuation Assets
Diane (Australian Super Socially aware)	$30,000
Rodger (Australian Super High Growth)	$20,000
Liabilities
Mortgage	$450,000
Car loans	$22,000
Credit Card	$27,000
Insurance
Life insurance Diane (inside super)	$100,00
Life insurance Rodger (inside super)	$75,000
Private Health cover Diane	None
Private Health cover Rodger	None

 

Notes:

Rodger was bought Qantas shares on the advice of a friend in 2002.  They were valued at $30,000 in October 2019.

Risk Profile

 

Using UFP’s Risk Profiling questionnaire Rodger and Diane were assessed as following and we walked them through their outcomes.  We also provided them with likely scenarios using historical returns and explored alternative asset weightings.

Rodger’s personal attitude to risk and his long investment horizon place him as in the conservative category. Rodger’s income is slightly unstable and insecure and he doesn’t have any experience or training in financial products.  When shown the historical risk and return characteristics of various funds Rodger tended to focus solely on the negative returns.  His answers indicated that he could personally tolerate a 15% decline in capital value.

Diane’s personal attitude to risk place her in the aggressive category.  She has some knowledge of accounting and this helped with her grasp of investment structures.  When shown the historical risk and return characteristics of various funds Rodger tended to focus solely on the high returns and was interested in how to capture these in the future.

Superannuation

 

Rodger and Diane both recently opened superannuation accounts with Australian Super.  Neither remembered what investment option they chose but their statements reveal that Rodger is in a Super High Growth strategy and Diane is in a Socially Aware strategy.  In 2019 they only contributed the superannuation guarantee amount.