Finance Assignment - Capstone Project

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Superannuation and Life Insurance Skills (Capstone project)

FP3B-1SN3-2 Capstone project

Project 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 number	INT######
Student name	[name]
Telephone number	[phone no.]

Project instructions

Only 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 student’s result.

Project result (assessor to complete)

Result — first submission

FORMDROPDOWN

Sections that must be re-submitted:

[insert assessor feedback]

Result — re-submission (if applicable)

FORMDROPDOWN

Result summary (assessor to complete)

	First submission	Re-submission (if required)
Section 1	FORMDROPDOWN	FORMDROPDOWN
Section 2	FORMDROPDOWN	FORMDROPDOWN
Section 3	FORMDROPDOWN	FORMDROPDOWN
Section 4	FORMDROPDOWN	FORMDROPDOWN
Section 5	FORMDROPDOWN	FORMDROPDOWN

Feedback (assessor to complete)

[insert assessor feedback]

Superannuation and Life Insurance Skills

Capstone project

This 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)

Step	Action	Completed?
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 project Think 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 F Ensure 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 Hardgraves

Background

You 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 Ted’s 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 Eliza’s current details.

Personal information

Surname Name:	Hardgraves	Hardgraves
Christian Name:	Ted	Eliza
Salutation	Mr	Mrs
Age/Date of birth	28 March 1970	17 August 1971
Status	Married	Married
Home address	4 Pringle Ave, Kensington	4 Pringle Ave, Kensington
Health	Good	Good
Smoker	No	No
Occupation	Senior Geologist	Paralegal
Employer	Lemon Gold Pty Ltd	Ranier and Jackson
Start date	2004	2008
Sick leave currently available	14 days plus 10 days per annum	6 days plus 10 days per annum
Retirement age	65	64
Dependants/Family relationships	Harriett (aged 9 years)	Bill ( aged 8 years)

Professional relationships

Solicitor	Carlie Mattieson
Time span of relationship	10 years
Quality of relationship	Poor
Service provided	Conveyancing for home purchase

Accountant	John Watson
Time span of relationship	7 years
Quality of relationship	Excellent
Service provided	Annual tax return

Annual income details

Name:	Ted	Eliza
Salary	$140,000	$55,000
Inheritance - interest	$510
Dividends (99% franked)	$3,436

Notes:

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

Annual expenditure

Mortgage	$37,800
General living expenses	$50,400
Accountant’s 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	$50,000	Joint names
Car	$18,000	Fully paid off – joint names
Savings Account	$5,000	Everyday savings account paying no interest – joint names
Cash management account - inheritance	$10,000	Cash management account earning 5.1% p.a. – Ted’s name only
ABC Superannuation - Ted	$220,000	Invested in a retail fund, balanced option. No beneficiaries or binding nominations specified. The fund accepts salary sacrifice.
SOH Industry Superannuation - Eliza	$58,000	Invested 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	$53,691	Dividend yield of 6.4% p.a. – 99% franked dividends – in Ted’s name only

Current share portfolio

Number of shares	Company	ASX Code	Current Value (same as value at date of death)	Price of Shares when acquired by aunt Jenny
500	AMP Limited	AMP	$2,158	$4.40
1,300	Insurance Australia Group Limited	IAG	$5,473	$1.75
400	Commonwealth Bank Limited	CBA	$22,052	$27.7
400	Telstra Corporation Limited	TLS	$1,552	$4.48
400	Westpac Banking Corporation	WBC	$9,900	$19.60
400	BHP Billiton Limited	BHP	$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 inflation	2	Legal logical and appropriate tax relief	5
Easy access to your capital	1	Regular income from your investments	1
Easy to administer	3	Capital growth	5
Volatility	2

Eliza Hardgraves

Income to keep pace with inflation	2	Legal logical and appropriate tax relief	5
Easy access to your capital	1	Regular income from your investments	1
Easy to administer	4	Capital growth	5
Volatility	4

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 Eliza’s 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 Eliza’s goals.

Project questions (student to complete)

Section 1 Establish the relationship with the client and identify their objectives, needs and financial situation

Part 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 2 Analyse client objectives, needs, financial situation and risk profile to develop appropriate strategies and solutions

Part 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 1	Client 2
Title
Surname
Given & preferred names
Home address
Business address
Contact phone
Date of birth
Age
Sex		Male		Female	Male	Female
Smoker		Yes		No	Yes	No
Expected retirement age
Dependants (children or other)
Name	Date of birth	Sex	School	Occupation

Employment details
	Client 1	Client 2
Occupation
Employment status		Self employed	Employee	Self employed	Employee
		Not employed	Pensioner	Not employed	Pensioner
		Permanent	Part time	Permanent	Part time
		Casual	Contractor	Casual	Contractor
		Other	Government	Other	Government
Business status		Sole proprietor	Partnership	Sole proprietor	Partnership
		Private company	Trust	Private company	Trust
Notes: Any other person to be contacted? E.g. accountant, bank, solicitor, etc.

Income, expenditure and net worth

Cash flow statement
Income and expenses
	Client 1	Client 2	Notes
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
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 1	Client 2	Combined	Comment
Salary less any salary sacrifice amount
Non-taxable income (e.g. income from superannuation income streams for a person aged over 60, Family Tax 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
Asset	Owner	Value	Liabilities	Net value	Notes
Personal assets



Total
Investment assets



Total
Superannuation assets


Total
Net worth
Liabilities
Loan	Current debt	Percentage deductible	Comments	Repayment


Total

Goals and objectives

Details	Comments

Estate planning
Do you have a Will?	Yes	No
When was it last updated?
Executor/rix’s name and contact details:
Do you have powers of attorney?	Yes	No
Attorney’s name and contact details:
Do you have a funeral plan?	Yes	No
Funeral provider and contact details:
Amount paid
Do you have superannuation beneficiaries in place?	Yes	No
Type	Binding	Non-binding
Beneficiary names and contact details:

Current superannuation, rollovers, insurances & investments

Superannuation details
Member
Superannuation fund name
Date of joining fund
Type of fund		Accumulation Defined benefit Pension		Accumulation Defined benefit Pension
Contributions		By employer By yourself Other		By employer By yourself Other
Current value of your superannuation fund
Amount of death & disability cover
Is there provision for additional contributions or salary sacrifice?		Yes		No	Yes	No
Non-concessional contributions	Amount		Year
	Amount		Year
	Amount		Year
	Amount		Year
Spouse contributions received	Amount		Year
	Amount		Year
	Amount		Year
	Amount		Year
Concessional contributions	Amount		Year
	Amount		Year
	Amount		Year
	Amount		Year
Any other contributions	Amount		Year
	Amount		Year
	Amount		Year
	Amount		Year

Life insurance details
Life insured	Policy Owner	Company	Policy number	Benefit type	Benefit or insured amount	Annual premium

General insurance details
Item covered	Owner	Policy type	Company	Policy number	Cover Amount	Other benefit	Annual premium

Investment details
Investment type	Company	Purchase date	Units held/ fixed rate	Current value	Owner

Risk needs
Insurance needs — life and TPD
	Client 1	Client 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 protection	Client 1	Client 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 signature		Date

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 profile	Points
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?	Ted	Eliza
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.	50	50
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.	40	40
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.	35	35
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.	30	30
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.	20	20
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.	10	10
What return do you reasonably expect to achieve from your investments?	Client 1	Client 2
A return without losing any capital.	10	10
3–7% p.a.	20	20
8–12% p.a.	30	30
13–15% p.a.	40	40
Over 15% p.a.	50	50
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 value	10	10
Less than 1 year	20	20
Up to 3 years	30	30
Up to 5 years	40	40
Up to 7 years	45	45
Up to 10 years	50	50
How familiar are you with investment markets?
Very little understanding or interest	10	10
Not very familiar	20	20
Have had enough experience to understand the importance of diversification	30	30
Understand that markets may fluctuate and that different market sectors offer different income, growth and taxation characteristics	40	40
Experienced with all investment sectors and understand the various factors that may influence performance	50	50
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 savings	10	10
Stable, reliable returns, minimal tax savings	20	20
Some variability in returns, some tax savings	30	30
Moderate variability in returns, reasonable tax savings	40	40
Unstable, but potentially higher returns, maximising tax savings	50	50
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 risks	10	10
You would cut your losses and transfer your money into more secure investment sectors	20	20
You would be concerned, but would wait to see if the investments improve	30	30
This was a calculated risk and you would leave the investments in place, expecting performance to improve	40	40
You would invest more funds to lower your average investment price, expecting future growth	50	50
Which of the following best describes your purpose for investing?
You want to invest for longer than five years, probably to the age of 55–60. You are mainly investing for growth to accumulate long-term wealth	50	50
You are not nearing retirement, have surplus funds to invest and you are aiming to accumulate long-term wealth from a balanced fund	40	40
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 available	30	30
You are nearing retirement and you are investing to ensure that you have sufficient funds available to enjoy retirement	20	20
You have some specific objectives within the next five years for which you want to save enough money	20	20
You want a regular income and/or totally protect the value of your savings	10	10
Investor profile total points	220	140

INVESTOR RISK PROFILE SUMMARY

0–50 Defensive

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.

51–130 Moderate

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.

131–210 Balanced

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.

211–300 Growth

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.

301–350 High 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 Ted’s 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 section	Action	Completed?
i. Cover sheet	The following elements should appear on the cover sheet: • the words ‘Statement of Advice’ • the client’s name • the authorised representative’s 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 licensee’s 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 contents	Check that the pages in the table of contents agree with the page numbers in the completed SOA.
iii. Executive summary	Headings 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 client	Headings 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 profile	Heading: • Your risk profile
vi. Strategy recommendations (analysis of the investment strategies)	Headings should include: • Recommended action: – personal investment or debt reduction – personal insurance – superannuation – estate planning • Reasons for recommendations: – personal investment or debt reduction – personal insurance – superannuation – estate planning • Things you should consider (risks)
vii. Product selection	You 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 allocation	Headings should include: • Recommended asset allocation • Comments on proposed asset allocation versus your risk profile
ix. Disclosure of fees, commission and/or benefits	Headings 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 review	Headings should include: • Ongoing services • Implementation
xi. Authority to proceed	Headings should include: • Authority to proceed • Consent to ongoing contact
xi. SOA Appendix 1	Use the family cash flow template below. Heading: • Financial position before implementation of strategy
xii. SOA Appendix 2	Use the family cash flow template below. Heading: • Financial position after implementation of strategy
xii. SOA Appendix 3	Include 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 today’s 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 client’s 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
	Client 1	Client 2	Notes
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
Capital gains >1yr
Tax-free component of capital gains
Assessable income
Deductible expenses			Include income protection premiums if held outside superannuation
Rental expenses, repairs etc.
Taxable income
Tax on taxable income			(state year applied)
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 1	Client 2	Combined
Salary less any salary sacrifice amount
Non-taxable income (e.g. income from superannuation income streams for a person aged over 60, Family Tax Benefits)
Interest income
Dividends received (excluding franking credits)
Rental income
Other income
Total income received before tax
Investment expenses
Interest payments
Rental expenses
Other
Living expenses
General living expenses
Home mortgage
Car payment
Credit cards
Holiday
Children’s education
Other loans, e.g. personal
Insurance premiums
Other
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
Asset	Owner	Value	Liabilities	Net value	Notes
Personal assets
Family home
Home contents
Car 1
Car 2
Other
Total
Investment assets
Investment property
Savings account
Term deposit
Shares
Other
Total
Superannuation assets
Client 1 superannuation
Client 2 superannuation
Total
Net worth
Liabilities
Loan	Current debt	Percentage deductible	Interest only	Repayment
Loan
Home loan
Investment property
Other
Total

SOA Appendix 2

Cash flow statement
Income and expenses
	Client 1	Client 2	Notes
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
Capital gains >1yr
Tax-free component of capital gains
Assessable income
Deductible expenses			Include income protection premiums if held outside superannuation
Rental expenses, repairs etc.
Taxable income
Tax on taxable income			(state year applied)
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 1	Client 2	Combined
Salary less any salary sacrifice amount
Non-taxable income (e.g. income from superannuation income streams for a person aged over 60, Family Tax Benefits)
Interest income
Dividends received (excluding franking credits)
Rental income
Other income
Total income received before tax
Investment expenses
Interest payments
Rental expenses
Other
Living expenses
General living expenses
Home mortgage
Car payment
Credit cards
Holiday
Children’s education
Other loans, e.g. personal
Insurance premiums
Other
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
Asset	Owner	Value	Liabilities	Net value	Notes
Personal assets
Family home
Home contents
Car 1
Car 2
Other
Total
Investment assets
Investment property
Savings account
Term deposit
Shares
Other
Total
Superannuation assets
Client 1 superannuation
Client 2 superannuation
Total
Net worth
Liabilities
Loan	Current debt	Percentage deductible	Interest only	Repayment
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 projections

	Current situation	After recommended strategy
Ted’s age	Ted’s account balance at year end	Eliza’s account balance at year end	Combined account balance	Ted’s account balance at year end	Eliza’s account balance at year end	Combined account balance

Table 1(a): Assumptions.

Assessors note: This table should be complete and appropriate for the clients.

Value	Ted: current	Eliza: current	Ted: strategy recommendations	Eliza: 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-retirement

Ted’s age	Combined account balance	Assumptions	Combined fund
60		Rate of return net of inflation
61		Frequency of drawdown
62		Income per annum	$125,000
63
64
65
66
67
68
69
70
71
72
73
74
75
76
77
78
79
80
81
82
83
84

(Section 3 commences on the next page)

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

Part 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)

[insert student response]

Part B

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 4 Agree 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)

[insert student response]

Part B

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 5 Provide ongoing service where requested by the client

Part 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)

[insert student response]

Part B

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

[insert student response]

FP3B-1SN3-2