FINC3004-Financial Planning Autumn Case Study – Management Assignment Help

Task 

Financial Planning Autumn 

Task Requirement
Students are required to read and analyse a case study for potential clients.
You are then required to produce a legally compliant Statement of Advice (SoA) addressing the goals, objectives and issues raised in the case study provided. The SoA you prepare for the case study must be clear, concise and effective as well as understandable and useful to assist the client in understanding your advice and recommendations Your completed SoA should focus on key areas which will help the client make an informed decision about the advice given. The focus of the document should be on the advice given, the basis of that advice, how it meets the client’s objectives and the costs associated with that advice.

You are not allowed to use commercial financial planning software
You are required to adopt the following SoA framework.

Your SoA should not exceed a maximum length of 25 pages (12 font size, 1.5 line spacing). You can tailor the format of your SOA as you see fit to suit your client, however you should ensure it includes the following components (with indicative page lengths provided):

• An original cover letter to client (1 page)
• SoA cover page (1 page)
• Summary of Advice (1-2 pages)
• Table of contents (1 page)
• Basis of advice: including scope of advice, client’s current situation including goals, financial situation, issues and concerns (3-4 pages)
• Risk Profile and assessment (2 pages)
• Advice: your recommendations including assumptions used to develop the advice, justification of how recommended strategies address goals and concerns, post implementation projections (6-10 pages)
• Disclosure and disclaimers: all direct costs to client associated with the advice as well as any other indirect adviser benefits (2-4 pages)
• Next Steps and Actions Required (3 pages)
• Reference list to acknowledge all source material (not included in page length)
• Appendix if required (not included in page length)

You may make appropriate assumptions about any issue which is unclear from the case study. These should be provided as an additional page outside of your SoA, in the form of Question and Answer as if clarification of these issues was sought from the client as you would do in a real life advice situation.

Case Study Information

About you and your role…..
You are an authorised representative (use your student ID to identify this number) of SPT Financial Advisers (SPT) with Australian Financial Services License 627 152 and ABN 15 000 111 234.   SPT offices are located at Suite 2, 5 Estate Avenue, Plannerville NSW 2123; telephone 02 1300 1500, fax 02 1300 1501 and business email address SPT@spt.com.au. You have many years’ experience in the financial planning industry with your most recent qualification being a 3 year Bachelor’s degree in Financial Planning. You are authorised to provide advice in relation to financial planning, superannuation, retirement planning, managed funds and insurance products. 

You have recently had an initial introductory meeting with your new client Sam Capilano. Sam has been referred to you by his brother Rocco who is an existing client of yours. Sam has had some disappointing past experiences with financial advisers/planners that has been neither extensive nor positive. Before seeing you, Sam had fallen into a rather unsatisfactory arrangement with another financial planner Marco Mannelli whose client contact and model of managing clients’ funds was limited – he did no more than loosely “advise” Sam to invest into a particular managed fund on his approved product list and to possibly consider some personal risk management issues that he thought may apply to Sam. 

It seems that Sam is not happy with this limited level of service and feels that this is not what financial planning is all about and that there must be a much better way to address his financial planning situation with a more actively managed strategy. Sam wants his own unique circumstances to be fully considered and does not simply want to be sold something for which the planner does little and inevitably receives a large fee. Sam really felt he was not that important to Marco Mannelli and in the end, all he was getting from the whole process was adhoc “bits” of advice and not a comprehensive analysis and appreciation of his overall situation. Sam is convinced that a good financial plan based on an ongoing relationship with a trusted financial planner like you, will set him on a path to be able to meet his desired goals, but at the same time will still be dynamic and flexible enough to allow for changes in his life circumstances, people, markets and government policy that may occur.  

Sam sees you as being able to provide expert financial guidance to him which he is confident will result in the preparation of a financial plan including a Statement of Advice (SOA). Sam is very conscious of the fact that he wants to gain positive future benefits by careful and astute investment from this point on in his life. Sam’s contact with you to date has been limited, but he already feels that you have made a very good impression on him. Sam has acknowledged to himself that he feels that he could build an ongoing relationship with you over time and will be able to rely on you as his trusted financial planner. Sam also feels quite strongly that you are not just after his business for the money, but that you really care about him as a person and what you want to achieve. Sam was impressed by and appreciated the way you asked him questions that were designed to ascertain not only him attitude to money but also to find out about  and explore the  many aspects of Sam’s  life in general i.e. to be able to really know and understand Sam as a client.

Your next task as Sam’s financial planner was to instruct your assistant Sue-Ellen to send Sam SPT’s data-gathering/data collection instrument or fact finder. The Financial Services Guide (FSG) and Privacy Statement have already been sent. Sam duly completed and returned the fact finder to you within 7 days. Sam is also informed by your staff that the eventual advice provided to him will expire in 30 days of receipt of his SOA and that all information provided by Sam (to SPT) will not be given to anyone without his express written permission. The fact finding process reveals the following information. Sam is now single, but has just recently ended, via a divorce, a 27 year marriage with Stella. Sam did not see the end of this relationship coming and still feels very upset about it but is glad that things have now ended and that a fair and equitable property settlement was possible.

Things are certainly looking up for Sam though because he has recently inherited $1,150,000 from his mother on her death. Both Sam’s parents have now passed away so he does not expect to receive any other inheritances in the future. From this windfall Sam hopes to use some of the funds to clear the remaining $425,000 mortgage on his home, do some urgent house repairs (painting, recarpeting etc) costing $60,000,  pay out some outstanding credit card debt of $15,000 and give his only son, Sam junior who is 26, a gift of $105,000 to use as a deposit on a home.  Sam has no other children. Sam would also like to continue to make regular trips domestically and internationally both before and after he retires. Sam fancies going back to Italy and doing a long boat cruise in southern France, taking regular short breaks to Hong Kong to visit his best mate, going to Darwin to visit his brother & possibly going to Broome and the eastern states of the US. Sam would like to do the first of these trips in 2023 costing $20,000 and then complete the rest in retirement. Sam estimates a post retirement travel budget of $50,000 would be necessary.

Sam is usually not very good where financial matters are concerned, and feels somewhat confused and overwhelmed at present. He is unsure what the best use is for whatever money remains from the inheritance and for the moment he has simply deposited inheritance in an existing on-line savings account with ING earning 1% pa (assume no interest earned to date). Sam really is unsure and quite confused as to what is the best long term use for this money – he does not know whether to put it into superannuation or keep it out or a bit of both. He does realise though that he should use what remains of the money very wisely to maximise his savings for retirement in the most tax effective way possible. Sam feels very strongly, that everyone, especially those approaching retirement need to take a more active role in managing their finances as many depend on their partners to sort out their affairs. Sam knows he has to rely on himself, now that Stella is no longer around.

Sam has not done much about estate planning for the moment – it has been on his agenda of “things to do” since he finished with Stella. Sam knows his last will was made some 20 years ago, with Stella as the major beneficiary and included an executor who is also now deceased. Sam would like his new executor to be his brother Rocco and would like most of his estate to go to his only child. Sam will continue to use the “family” firm of solicitors, William Blair and Sons, who are located in the same building as SPT, but in Suite 10. Sam thinks it is wise to now take the opportunity to review other estate related issues which may also be applicable. Sam is not concerned about thinking about such issues – he is pragmatic that death could occur at any time and wants to be organised. He is thinking about prepaying his own funeral and making associated burial instructions, as he does not want his family and friends to have to fork out their own dollars for this or be worried should he die suddenly.  He also has heard about powers of attorney and the like. He obviously needs this area to be considered carefully.

Sam turns 56 on August 1 this year. Sam is now single again and has one son who he loves very much. Sam is very generous to him and on a regular basis, “gives” him monetary gifts and assistance. Sam now lives on his own, with 2 very spoilt dogs in his own home, at 60 Zebadiah  Street, Rose Bay, in Sydney – his telephone contact is  02 9727 1123 and his email is Sam15@gmail.com. Sam’s home was recently valued at $1,225,000 – he still has a the mortgage owing on it with the CBA Bank, at 3% pa variable interest; he currently makes a monthly payment $2,600. Sam is happy living where he is at the moment, but he of course realises that as he ages in the future he may have to consider other forms of accommodation – but he does not want to commit to anything or even really think about that at the moment, and hopes that this will be many, many years away.

Sam is a successful and well-respected podiatrist and has had his own practice for the past 40 years (the last 20 in partnership with Dobra Jankcovich, also 55 years of age). The practice, FootHealth, is located at Unit 9, 11 Costco St, Bondi. The practice is realistically valued at approximately $800,000 and pays each of the 50/50 partners a gross salary of $150,000 pa. Both partners have talked positively about selling the business and retiring in 5 years’ time. Sam has a small personal investment portfolio (currently valued at $100,000) of 1000 bank shares which pay a fully franked dividend of 4% pa, which he bought in 2010, paying $10,000 in total for them. 

Sam usually spends the yearly dividend on a holiday or gifts for family and friends – he knows this is not the best use of any residual funds and really should work out a regular savings plan, and a budget!  Sam’s home contents are valued at approximately $110,000. He has one vehicle – a 5 year old Honda (valued at $12,000), which of course will need replacing quite soon (this year) at a cost of $30,000 after a trade-in.  Sam operates an everyday account with the local Community credit union (current balance $6,000; interest is negligible) and also has a CBA Bank term deposit of $20,000 which he has just rolled over for another 12 months at 1.0%pa. Sam feels this is a good emergency fund should anything untoward happen. He is conscious of having adequate emergency funding available and wonders what might be necessary for his needs, now and in retirement.

Sam’s health is not good and is a significant area of concern both to himself and to his family. Two years ago he had bowel cancer, which required surgery, extensive drug and radiation treatment and many months away from the practice. He is well now, and continues to have regular check-ups every three months, but is conscious and fearful that the disease will return.  Luckily the full cost of the surgery and his associated rehabilitation (approximately $20,000) was covered by his private health insurance from PHS Health Society. Sam does smoke quite heavily and drinks every Friday night with friends, but he believes this to be normal social drinking. He eats wisely but is 15kg overweight and is reasonably inactive in both his job and personal life. Sam also has elevated cholesterol and blood pressure issues, but this is successfully controlled by medication. Sam has personal insurance cover, a term life policy with trauma bundled ($100,000 life and $100,000 trauma) with Zurich Life (policy no 1234567) which he took out in 1980. The premiums are becoming very, very expensive as he ages (currently $3,500 pa) but given his recent medical history he does not know whether to keep the cover or not. 

Sam would like to retire from working life hopefully at age 65 – he currently has a superannuation balance of $320,000 with Podsuper, which is an industry super fund (begun July 1992). The business contributes the statutory super guarantee into the Podsuper fund. Sam has never made any additional concessional (salary sacrifice) contributions to super but he is thinking he might have to do this at some stage and possibly make some non-concessional contributions – but he is very unclear about what this involves. The business would have no problem with salary sacrificing arrangements. Sam is aware that investment markets rise and fall all the time. It seems that with retirement approaching he needs a clear assessment of what his options are regarding superannuation. The current investment asset allocation that Sam has elected for his superannuation is the moderately aggressive category. Sam is unsure whether this is appropriate for him now – he is very interested to know how his tolerance to investment risk would be determined. You note that fees associated with his Podsuper fund are: management expense ratio (MER) 1.5 % pa, monthly member fee of $100 and exit fee of $10,000.

In relation to Sam’s annual expenditure, he is reasonably organised in regard to the management of his money. Sam “sort of” keeps to a budget and if there is anything left over he usually deposits it in his everyday account or spends it on a treat for the family.

An analysis of Sam’s current expenditure reveals the following:

• Monthly mortgage payment of $2,600
• Term life insurance premium $3,500pa 
• Building and contents insurance $1,000 pa (insured with ABC Insurance – replacement cover for building $300,000 and contents $60,000 – Sam has not bothered to increase his contents cover for the past few years)
• Yearly telephone and internet charges $1,000
• Golf membership $900 pa
• General living expenses $22,500 pa
• Medical and dental expenditure $1,200 pa
• Discretionary leisure/recreation/holidays for the year, maximum  $8,000 
• Annual utilities charges for council rates $2,000; water $2,100; gas $1,400 and electricity $2,200 
• Home maintenance expenses $2,500 averaged over the year
• Motor vehicle expenditure including third party insurance and CTP insurance $1,000 (insured with GIO); servicing costs $200 every six months; petrol $2,000 pa and annual total  registration $500
• Private health insurance $2,200; rebate not included  (top cover with MHS health insurance; Sam has prepaid for the 2021-22 time frame to ensure he receives a rebate)

Sam feels that in retirement he would be able to manage on less annual cash flow than currently and wonders how much he would require. Obviously in retirement he would not be doing as much travelling back and forth to the practice. Also he doubts whether he will be travelling too extensively once he is past 65 years of age. Sam is a disciplined person and if necessary would make changes to reduce his spending. Sam is quite emphatic that he does not want to incur any additional debt and is not interested in borrowing to invest at this stage in his life. He thinks he might require $40,000 pa in retirement income to live on in addition to his travel budget, but he would need to carefully consider whether this was feasible or even necessary.

It is very important for you as Sam’s financial adviser to determine how he feels about risk (his risk profile in other words). Acquiring knowledge of this aspect of your client is a critical step in designing the right investment strategy for him and of course will be a necessary inclusion in the basis of your advice to Sam. Currently Sam sees himself as a moderate investor (although he is not really sure what this means). In your subsequent discussions with Sam he has indicated the following in regard to his attitude and approach to investment risk. You will of course need to carefully analyse Sam’s responses to decide and describe for him the risk profile that best suits him.

Sam wants to protect the capital value of his investments but at the same time wants them to grow – receiving an income from them at the moment is not his priority – he wants to ensure he has enough funds to feel secure for his financial future. He would be reluctant to enter into any investment borrowing arrangements at this stage and is adamant that all debt should be cleared before retirement. Sam rates his knowledge of shares, managed funds, property and investments as moderate (he indicated a 4 on a scale of 0-10). Sam also indicates that he certainly understands that he will have to take some risk to ensure his investment returns beat inflation – he expects that his investments will achieve 2+?ove inflation.

Sam indicates that he is prepared and willing to take on a low to moderate levels of risk if it means a better long term returns for him; he also expects to invest the majority of his funds for say 3-5 years.

You asked Sam hypothetically if a long term investment he held started to drop significantly in value over a short period of time what he might most likely do – Sam says he would consider selling the investment – he would not want to be constantly worried about the rise and fall of his portfolio. Sam recognises that overseas shares are very risky, and would not want to invest in this asset class.

As Sam’s adviser you understand that the SOA you prepare for him must be in suitable format, use appropriate language and provide full explanations and justifications which are clear and concise. As a respected  financial planner  you are always driven by the ethical principle that it is your responsibility to know your client and know your product by researching a broad range of products before recommending particular products and replacement products (for example for superannuation and managed funds). SPT provides a research approved product list (APL) of investments, with which you are required to be fully familiar. However you are required to only make recommendations that are in the interest of your clients. This is particularly the case with replacement products such as superannuation, which you may only recommend upon demonstration that they are more suitable than the client’s existing products for meeting their needs. It is possible for you to conduct additional research into other investments beyond the APL but approval by the research committee is required before finalising a recommendation.

You are also aware that the key costs associated with Sam proceeding with any proposed strategy and advice must be clear and concise to him, and not long and complex. The SOA you prepare should explain to Sam why he needs to know this information – clients need to know all costs involved in dollar and percentage terms when deciding whether to act on personal advice. Disclosure is a matter of good business practice and your SOA will inform Sam of any fees & commissions you will receive and will explain to him what product fees he will pay and will answer other questions he might have about the advice you give. 

You will need to consider the following information:
Initial advice is charged by SPT as a fee for service for the work involved in the preparation and implementation of the strategies – it is a flat fee which will cost Sam $3,000; of this SPT will receive 55% and the adviser will receive 45%. This fee must be paid within 7 days of Sam receiving the SOA.

You may need to make a number of relevant assumptions, for example for any other product fees you include in your recommendations. These assumptions must be supported by market research. You may assume the following in relation to investment returns (income/growth):

• Cash 1%/0%
• Australian fixed interest 1.5%/0%
• International fixed interest 3%/0%
• Listed property 4.0%/3.5%
• Residential property 3%/3.5%
• Australian shares 4.0%/6%
• International shares 2.5%/7%

Remember that the purpose of the SOA is to communicate important and relevant information to Sam about the advice given, so that he can make an informed decision about whether to act on that advice. So when designing and developing Sam’s SOA keep in mind that it is a communication tool. Ensure you use straight forward but professional design and layout techniques so as to highlight the key information for him and of course make the document easier for him to read and understand. Ensure you clearly cross-reference to other parts of the document (as well as other disclosure documents such as the FSG & PDS) instead of repeating information. Use language that is appropriate and likely to be easily understood by Sam i.e. use simple, plain English. 

This is a challenging and time consuming task so you are advised to begin work on it as soon as possible in the semester and to allocate sufficient time on an ongoing and regular basis to its completion. The SOA you prepare for the case study must be clear, concise, understandable, useful and cost effective. Your completed SOA should focus on key areas which will help the client make an informed decision about the advice given. The focus of the document is on the advice given, the basis of that advice and the costs associated with that advice. 

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