507371 1 Capstone Project Feb12 1

Foundations of Financial Planning

Superannuation and Life Insurance Skills (Capstone project)FP3B-1SN3-2 Capstone projectProject 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 numberINT######

Student name[name]

Telephone number[phone no.]

Project instructionsOnly 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 students result.

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Feedback (assessor to complete)[insert assessor feedback]Superannuation and Life Insurance SkillsCapstone projectThis 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)

StepActionCompleted?

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 projectThink 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 FEnsure 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 HardgravesBackgroundYou 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 Teds 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. Detailed below are Ted and Elizas current details.Personal informationSurname Name:HardgravesHardgraves

Christian Name:TedEliza

SalutationMrMrs

Age/Date of birth28 March 197017 August 1971

StatusMarriedMarried

Home address4 Pringle Ave, Kensington4 Pringle Ave, Kensington

HealthGoodGood

SmokerNoNo

OccupationSenior GeologistParalegal

EmployerLemon Gold Pty LtdRanier and Jackson

Start date20042008

Sick leave currently available14 days plus 10 days per annum6 days plus 10 days per annum

Retirement age6564

Dependants/Family relationshipsHarriett (aged 9 years)Bill ( aged 8 years)

Professional relationshipsSolicitorCarlie Mattieson

Time span of relationship10 years

Quality of relationshipPoor

Service providedConveyancing for home purchase

AccountantJohn Watson

Time span of relationship7 years

Quality of relationshipExcellent

Service providedAnnual tax return

Annual income detailsName:TedEliza

Salary$140,000$55,000

Inheritance - interest$510

Dividends (99% franked)$3,436

Notes:

Ted and Elizas salaries exclude superannuation guarantee (SG) contributions, which are currently paid at 9% per annum.

Annual expenditure

Mortgage$37,800

General living expenses$50,400

Accountants 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$50,000Joint names

Car$18,000Fully paid off joint names

Savings Account$5,000Everyday savings account paying no interest joint names

Cash management account - inheritance$10,000Cash management account earning 5.1% p.a. Teds name only

ABC Superannuation - Ted$220,000Invested in a retail fund, balanced option. No beneficiaries or binding nominations specified. The fund accepts salary sacrifice.

SOH Industry Superannuation - Eliza$58,000Invested 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$53,691Dividend yield of 6.4% p.a. 99% franked dividends in Teds name only

Current share portfolioNumber of sharesCompanyASX CodeCurrent Value (same as value at date of death)Price of Shares when acquired by aunt Jenny

500AMP LimitedAMP$2,158$4.40

1,300Insurance Australia Group LimitedIAG$5,473$1.75

400Commonwealth Bank LimitedCBA$22,052$27.7

400Telstra Corporation LimitedTLS$1,552$4.48

400Westpac Banking CorporationWBC$9,900$19.60

400BHP Billiton LimitedBHP$12,556$11.41

All shares were acquired by the deceased after 1 January 1986 and prior to 1 December 2011.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 inflation2Legal logical and appropriate tax relief5

Easy access to your capital1Regular income from your investments1

Easy to administer3Capital growth5

Volatility2

Eliza Hardgraves

Income to keep pace with inflation2Legal logical and appropriate tax relief5

Easy access to your capital1Regular income from your investments1

Easy to administer4Capital growth5

Volatility4

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.

They have family private hospital 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 Elizas 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 Elizas goals.Project questions (student to complete)Section 1Establish the relationship with the client and identify their objectives, needs and financial situationPart A

List particular strategies you will use to ensure that the Hardgraves are comfortable with the interview process. (200 words)

[insert student response]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)[insert student response]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)[insert student response]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)[insert student response]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)[insert student response]Section 2Analyse client objectives, needs, financial situation and risk profile to

develop appropriate strategies and solutionsPart 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)[insert student response]Fact finder

Personal and employment details

Personal details

Client 1Client 2

Title

Surname

Given & preferred names

Home address

Business address

Contact phone

Date of birth

Age

SexMaleFemaleMaleFemale

SmokerYesNoYesNo

Expected retirement age

Dependants (children or other)

NameDate of birthSexSchoolOccupation

Employment details

Client 1Client 2

Occupation

Employment statusSelf employedEmployeeSelf employedEmployee

Not employedPensionerNot employedPensioner

PermanentPart timePermanentPart time

CasualContractorCasualContractor

OtherGovernmentOtherGovernment

Business statusSole proprietorPartnershipSole proprietorPartnership

Private companyTrustPrivate companyTrust

Notes: Any other person to be contacted? E.g. accountant, bank, solicitor, etc.

Income, expenditure and net worthCash flow statement

Income and expenses

Client 1Client 2Notes

Income from employment

Salary

Salary sacrifice(state % if applicable)

Salary after salary sacrifice

Rental income

Unfranked dividends

Franked dividends(state % return if applicable)

Franking (imputation) credits(state franking % if applicable)

Interest(state % return if applicable)

Other income, e.g. taxable benefits

Capital gains 1yr

Tax-free component of capital gains

Assessable income

Deductible expenses

Rental expenses, repairs etc.

Taxable income

Tax on taxable income

Non-refundable tax offsets (e.g. LITO/SAPTO)

Medicare levy

Medicare levy surcharge

Franking rebate

Refundable rebates and offsets

Net tax payable

Family cash flow

Client 1Client 2CombinedComment

Salary less any salary sacrifice amount

Non-taxable income (e.g. income from superannuation income streams for a person aged over 60, FamilyTax Benefits)

Interest income

Dividends received (excluding franking credits)

Rental income

Other income

Total income received before tax

Living expenses

Other expenses

Total expenses

Total income received before tax less expenses

Net tax payable from the Income and Expense table above

Net cash flow

Assets and liabilities

AssetOwnerValueLiabilitiesNet valueNotes

Personal assets

Total

Investment assets

Total

Superannuation assets

Total

Net worth

Liabilities

LoanCurrent debtPercentage deductibleCommentsRepayment

Total

Goals and objectives

DetailsComments

Estate planning

Do you have a Will?YesNo

When was it last updated?

Executor/rixs name and contact details:

Do you have powers of attorney?YesNo

Attorneys name and contact details:

Do you have a funeral plan?YesNo

Funeral provider and contact details:

Amount paid

Do you have superannuation beneficiaries in place?YesNo

TypeBindingNon-binding

Beneficiary names and contact details:

Current superannuation, rollovers, insurances & investments

Superannuation details

Member

Superannuation fund name

Date of joining fund

Type of fundAccumulation

Defined benefit

PensionAccumulation

Defined benefit

Pension

ContributionsBy employer

By yourself

OtherBy employer

By yourself

Other

Current value of your superannuation fund

Amount of death & disability cover

Is there provision for additional contributions or salary sacrifice?YesNoYesNo

Non-concessional contributionsAmountYear

AmountYear

AmountYear

AmountYear

Spouse contributions receivedAmountYear

AmountYear

AmountYear

AmountYear

Concessional contributionsAmountYear

AmountYear

AmountYear

AmountYear

Any other contributionsAmountYear

AmountYear

AmountYear

AmountYear

Life insurance details

Life insuredPolicy OwnerCompanyPolicy numberBenefit typeBenefit or insured amountAnnual premium

General insurance details

Item coveredOwnerPolicy typeCompanyPolicy numberCover AmountOther benefitAnnual premium

Investment details

Investment typeCompanyPurchase dateUnits held/fixed rateCurrent valueOwner

Risk needs

Insurance needs life and TPD

Client 1Client 2

Gross annual income (before tax)

Less business expenses

Number of years income required

Property repayment

Other debts

Sub-total = (income years) + debts

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 protectionClient 1Client 2

Gross annual income

Employer superannuation contributions

Other employer fringe benefits

Maximum allowable benefit(75% of annual income)

Monthly income

Less existing insurance

Monthly benefit required (pre-tax)

Waiting period to be served

Trauma

Medical costs (to cover out-of-pocket health costs)

Additional expenses of a permanent nature, wheelchairs, home alterations etc.

Additional income: income protection only covers 75%, would you need extra?

Total funds required

Less cash available or assets that can be readily cashed

Shortfall/surplus

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)

Adviser's name

Adviser's signatureDate

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?

How important is liquidity (i.e. funds available) to you?Very/Moderately/Not

Why?

If you had funds available for investing, how would you choose to invest them?

Why?

Are there certain sorts of investment that you wish to avoid?Yes/No

Which ones?

RISK PROFILE

Determining your investor risk profilePoints

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?TedEliza

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.5050

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.4040

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.3535

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.3030

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.2020

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.1010

What return do you reasonably expect to achieve from your investments?Client 1Client 2

A return without losing any capital.1010

37% p.a.2020

812% p.a.3030

1315% p.a.4040

Over 15% p.a.5050

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 value1010

Less than 1 year2020

Up to 3 years3030

Up to 5 years4040

Up to 7 years4545

Up to 10 years5050

How familiar are you with investment markets?

Very little understanding or interest1010

Not very familiar2020

Have had enough experience to understand the importance of diversification3030

Understand that markets may fluctuate and that different market sectors offer different income, growth and taxation characteristics4040

Experienced with all investment sectors and understand the various factors that may influence performance5050

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 savings1010

Stable, reliable returns, minimal tax savings2020

Some variability in returns, some tax savings3030

Moderate variability in returns, reasonable tax savings4040

Unstable, but potentially higher returns, maximising tax savings5050

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 risks1010

You would cut your losses and transfer your money into more secure investment sectors2020

You would be concerned, but would wait to see if the investments improve3030

This was a calculated risk and you would leave the investments in place, expecting performance to improve4040

You would invest more funds to lower your average investment price, expecting future growth5050

Which of the following best describes your purpose for investing?

You want to invest for longer than five years, probably to the age of 5560. You are mainly investing for growth to accumulate long-term wealth5050

You are not nearing retirement, have surplus funds to invest and you are aiming to accumulate long-term wealth from a balanced fund4040

You have a lump sum, e.g. an inheritance or an eligible termination payment from your employer, and you are uncertain about what secure investment alternatives are available3030

You are nearing retirement and you are investing to ensure that you have sufficient funds available to enjoy retirement2020

You have some specific objectives within the next five years for which you want to save enough money2020

You want a regular income and/or totally protect the value of your savings1010

Investor profile total points220140

INVESTOR RISK PROFILE SUMMARY

050Defensive

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.

51130Moderate

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.

131210Balanced

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.

211300Growth

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.

301350High 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.

(Section 3 Part D commences on the next page)

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)

[insert student response]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)

[insert student response]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)

[insert student response]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.

[insert student response]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 Teds 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 income goal until Ted is at least 84 (Eliza is 83, her life expectancy).

Statement of Advice preparation checklist (student to complete)SOA sectionActionCompleted?

i.Cover sheetThe following elements should appear on the cover sheet:

the words Statement of Advice

the clients name

the authorised representatives 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 licensees 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 contentsCheck that the pages in the table of contents agree with the page numbers in the completed SOA.

iii.Executive summaryHeadings 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 clientHeadings 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 profileHeading:

Your risk profile

vi.Strategy recommendations (analysis of the investment strategies)Headings should include:

Recommended action:


personal insurance

superannuation

estate planning

Reasons for recommendations:


personal insurance

superannuation

estate planning

Things you should consider (risks)

vii.Product selectionYou 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 allocationHeadings should include:

Recommended asset allocation

Comments on proposed asset allocation versus your risk profile

ix.Disclosure of fees, commission and/or benefitsHeadings 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 reviewHeadings should include:

Ongoing services

Implementation

xi.Authority to proceedHeadings should include:

Authority to proceed

Consent to ongoing contact

xi.SOA Appendix 1Use the family cash flow template below.

Heading:

Financial position before implementation of strategy

xii.SOA Appendix 2Use the family cash flow template below.

Heading:

Financial position after implementation of strategy

xii.SOA Appendix 3Include 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 todays dollars (i.e. net of inflation).

SOA Appendix 1

Note: The items listed in this template are indicative only and must be adapted to your clients personal circumstances. There may be other relevant income or expense items that are not included in this template. You should add, delete or substitute items where appropriate.

Cash flow statement

Income and expenses



Salary



Rental income

Unfranked dividends





Capital gains 1yr


Assessable income

Deductible expensesInclude income protection premiums if held outside superannuation


Taxable income

Tax on taxable income(state year applied)


Medicare levy


Franking rebate


Net tax payable

Family cash flow

Client 1Client 2Combined


Non-taxable income (e.g. income from superannuation income streams for a person aged over 60, Family Tax Benefits)

Interest income


Rental income

Other income


Investment expenses

Interest payments

Rental expenses

Other

Living expenses

General living expenses

Home mortgage

Car payment

Credit cards

Holiday

Childrens education

Other loans, e.g. personal

Insurance premiums

Other

Total expenses



Net cash flow



Personal assets

Family home

Home contents

Car 1

Car 2

Other

Total

Investment assets

Investment property

Savings account

Term deposit

Shares

Other

Total


Client 1 superannuation


Total

Net worth

Liabilities

LoanCurrent debtPercentage deductibleInterest onlyRepayment

Loan

Home loan

Investment property

Other

Total

SOA Appendix 2

Note: The items listed in this template are indicative only and must be adapted to your clients personal circumstances. There may be other relevant income or expense items that are not included in this template. You should add, delete or substitute items where appropriate.

Cash flow statement

Income and expenses



Salary



Rental income

Unfranked dividends





Capital gains 1yr


Assessable income

Deductible expensesInclude income protection premiums if held outside superannuation


Taxable income

Tax on taxable income(state year applied)


Medicare levy


Franking rebate


Net tax payable

Family cash flow

Client 1Client 2Combined


Non-taxable income (e.g. income from superannuation income streams for a person aged over 60, Family Tax Benefits)

Interest income


Rental income

Other income


Investment expenses

Interest payments

Rental expenses

Other

Living expenses

General living expenses

Home mortgage

Car payment

Credit cards

Holiday

Childrens education

Other loans, e.g. personal

Insurance premiums

Other

Total expenses



Net cash flow



Personal assets

Family home

Home contents

Car 1

Car 2

Other

Total

Investment assets

Investment property

Savings account

Term deposit

Shares

Other

Total




Total

Net worth

Liabilities

LoanCurrent debtPercentage deductibleInterest onlyRepayment

Loan

Home loan

Investment property

Other

Total

SOA Appendix 3

Use an excel spreadsheet to project the balance of the clients super funds up until the age of retirement (i.e. Ted is 65) before and after your recommendations. You should then show the analysis that proves that the clients can generate $125,000 per annum from their super up until Eliza is aged 83.

You can use the FV formula in excel to calculate annual balances for the accumulation and you can also use it to show drawdown of the income in a separate calculation.

Assume that in retirement the clients funds are invested in the same asset allocation and have the same rate of return. All rates of return should be net of inflation and net of fees.

Copy the projections into tables like the one shown below and complete the list of assumptions in the table on the following page.

Please ensure that you use a rate of return that is net of inflation and is appropriate to the clients risk profile.

Include details of all assumptions that you have made. You may ignore the impact of contributions tax on the SG and salary sacrifice if any.Table 1: Superannuation account balance projectionsCurrent situationAfter recommended strategy

Teds ageTeds account balance at year endElizas account balance at year endCombined account balanceTeds account balance at year endElizas account balance at year endCombined account balance

Table 1(a): Assumptions. Assessors note: This table should be complete and appropriate for the clients.ValueTed: currentEliza: currentTed: strategy recommendationsEliza: strategy recommendations

Contribution amount: SG and any other(pmt)

Contribution frequency

Rate = the rate of return of the fund, net of inflation

Hints for using the FV formula in Excel to predict account balances. Nper = either 1 for annual or 12 for monthly contributions; PV = value of the super at the end of the previous year and should be entered as a negative value; rate = annual rate divided by the frequency of contributions; pmt is the contribution amount and should be a negative value when accumulating funds and positive when funds as being drawn from the super; type can be left blank and indicates that the payments happen at the end of each period.

Table 2: Superannuation income analysis post-retirementTeds ageCombined account balanceAssumptionsCombined fund

60Rate of return net of inflation

61Frequency of drawdown

62Income per annum$125,000

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(Section 3 commences on the next page)

Section 3Present appropriate strategies and solutions to the client and negotiate a financial plan, policy or transactionPart A

The SOA has been completed and a meeting has been organised with Ted and Eliza to present the recommendations and, if they agree, to implement them.

Describe the steps that should be followed in presenting this advice to Ted and Eliza. In your answer, you should address at least four of the following requirements regarding presentation of advice:

the order in which you present the information

what back-up information and documents you might need?

any risks associated with the solution

two predictable questions the Hardgraves might ask you and the answers you will give

the language you will use to present the strategy to Ted and Eliza. (250 words)


Suggest a minimum of two concerns that the Hardgraves might have with the strategy that you have proposed. Explain how you would address each of these concerns. (100 words)

[insert student response]Part C

During the course of your discussion with Ted, you discover that he has suffered from a back injury and you suspect that this may result in a premium loading being applied to his income protection. Explain how you would justify the need for this policy to him, despite the extra costs. ? (150 words)

[insert student response]Section 4Agree on the plan, policy or transaction and complete documentation

Part A

Ted and Eliza have finally agreed to proceed with your recommendations. Explain your fee and cost structure to Ted and Eliza. Ensure that you use language that Ted and Eliza will understand. (100 words)


Prepare a timeframe for implementing the plan. Explain the reasons behind the timeframe. (100 words)

[insert student response]Part C

Identify the documentation that you may require from Ted and Eliza to implement your insurance recommendations. (100 words)

[insert student response]Section 5Provide ongoing service where requested by the clientPart A

Draft an outline of the level of ongoing service you intend to recommend to Ted and Eliza. In your outline, discuss the type of information that you would regularly provide to Ted and Eliza in relation to their superannuation. (250 words)


What would you do to ensure that Ted and Eliza know the specific costs relating to an ongoing service? (100 words)

[insert student response]VETAB 1.02 Kaplan Education Pty Limited. All rights reserved.VETAB 1.012 Kaplan Education Pty Limited. All rights reserved.FP3B-1SN3-2

507371 1 Capstone Project Feb12 1

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