Superannuation and Insurance: Create a financial plan/Statement of Advice (SoA) which will assist Dean and Hamish in achieving their life objectives with emphasis on their insurance and superannuation needs.

Superannuation and Insurance

Statement of Advice Assignment Details

IMPORTANT INSTRUCTIONS TO STUDENTS:

1. COMMENCE THIS ASSIGNMENT IMMEDIATELY.
2. Title page must include the course title, student names, student’s signatures, student’s ID numbers, the lecturer’s name and your workshop time.
3. The assignment must be well presented, typed using a word processing package, on one side of the paper only. Page numbers must also be printed. Marks will be deducted for poor presentation quality.
4. Any tables and figures that require calculations should use a spreadsheet application such as Microsoft Excel.
5. Use sub-headings and/or sections to highlight/structure the main points in your assignment.  This will make it easier for you when completing the assignment and help to maximise your marks through ease of reading/marking.
6. All assignments must include a reference section. All sourced material, including direct quotations must be appropriately acknowledged. Websites should also be referenced where material is incorporated (in any form) in your assignment. Plagiarism will not be tolerated!
7. Marks may be deducted for late submissions of assignments after the due date. This will account for 10% per day.
8. The assignment is to be completed individually or in groups of maximum of up to three persons. Only one assignment should be submitted per group. If a group has a dispute then the assignment is to be submitted individually.
9. You will need to do further research such as in finding appropriate products (and associated fees) for the client.

Statement of Advice for Dean and Hamish Ventura

Source: https://commons.wikimedia.org/wiki/File:Male_Couple_With_Child-01.jpg

A de facto couple with one child has come to you seeking your professional help in constructing a financial plan. From your first meeting you obtain their personal financial details are listed below:

• Dean (48, male) and Hamish (50, male) Ventura live in 55 Dragonfruit Crescent, Castle Hill.
• They have one son, Hayden (2).
• When you interview them, you find that Dean has a conservative risk profile while Hamish has a balanced risk profile.
• Both Dean and Hamish are fully employed, earning $68,000 p.a. and $88,000 p.a. before tax, respectively. Dean works as a nurse while Hamish works as a pharmacist. Both receive compulsory superannuation contributions in addition to these stated remuneration at the rate of 9.50% p.a. of gross salary.
• The couple have no investment experience and hold some direct investments, on advice of a friend.
• They both expect to retire when Hamish reaches 65.
• They are both in good health and do not smoke.

• The assets (and income) of the couple are all jointly held/received and include the following:
  • Family home of a 3 bedroom townhouse in Castle Hill valued at $850,000 (cost base $700,000 in October 2015),
  • Personal items and household contents $50,000.
  • A 2018 Mercedes C250 currently worth $65,000.
  • $20,000 invested in a savings account earning 1.5% p.a.
  • $10,000 in a transactional bank account, for everyday living needs, which pays interest equal to 0.25% p.a.
  • 10,000 Healthscope (ASX Ticker HSO) shares and 8,000 Resmed (ASX Ticker RMD. HSO was bought at $3.14 per share on 28/9/16. RMD was bought at $4.86 per share on 5/3/2014.
  • Superannuation assets equal to $150,000 ($70,000 for Dean and $80,000 for Hamish) with the same balanced asset allocation in HESTA, the industry superannuation fund for health professionals. The superannuation is entirely taxed element in the fund as they did not make any non-concessional contributions into the fund.
    • Their superannuation has built in death benefits of a lump sum of $400,000 for Dean and $500,000 for Hamish. The premiums are $400 per annum and $500 per annum, respectively.

• The liabilities of the couple are as follows:
  • $600,000 mortgage balance. Interest is paid at the variable rate of 5.20% p.a. with principal and interest payments and 8 year left. The mortgage provider allows lump sum repayments and provides an offset account. However Dean and Hamish do not make use of repayments or the offset facility.
  • $50,000 in credit card debt. Interest is paid at the variable rate of 15% p.a., compounded monthly. The debt was incurred from a combination of house renovations and holidays that the couple took. The credit card has a $55,000 limit.
  • $50,000 in outstanding car loans from the bank at a fixed rate of 11% p.a. for 3 years with monthly repayments of $350/month. There are no fees on the loan due to a promotional offer. There is an administrative fee for $350 should the loan be repaid early or refinanced with another financial company.

• The estimated expenses of the couple amount to:
  • $800 per week in living expenses. These exclude repayments on loans and increases with inflation per year). Hayden is not expected to leave the house during the life of the couple.

• The insurance policies that the couple hold are:
  • House and contents are fully insured. They have no other forms of insurance. The premium is $3,000 per annum for HYZ Insurance.
  • Comprehensive car insurance of $1,500 per annum with a $1,200 excess
  • They hold no other forms of insurance such as life policies.

The couple are seeking scaled advice on their below life priorities. You do not need to provide advice on their other financial planning issues such as estate planning and social security.

Life Priorities

During you interview with the couple the following life priorities were identified:

• The Ventura’s main priority is retirement when Hamish turns 65. They would like to retire comfortably on $650 a week debt free. They wish to remain in their own home.

 

• Their second priority is to have $100,000 in 5 years’ time as an education grant to their young son.

 

• The third priority is a thorough assessment of their personal insurance needs. What is needed and to budget these in now and for the future.

 

• Their fourth priority is a round the world trip in 15 years’ time to commemorate their 21^st The total cost of the trip is expected to be $50,000. (Their sign will be taken care of by their grandparents during this time).

YOUR TASK

Create a financial plan/Statement of Advice (SoA) which will assist Dean and Hamish in achieving their life objectives with emphasis on their insurance and superannuation needs.

You must first collate their information so that you may undertake analysis of the information. This is in tasks A.1 to A.6. You will then need to analyse the information to identify the strengths and weakness of their existing financial position. This is in tasks A.17.

The SoA needs to be written using a professional format. Instructions are provided in Tasks B.1 to B.4. A SoA template must be used, the recommendations must be written in a short and concise manner in plain simple English clients that are not financially literate will understand. Tables and figures must be made in a consistent style/format for visual clarity.

From the initial analysis, you provide recommendations on their life objectives. This is the most important part of the SoA as it provides your specific advice tailored to the clients. These are in C.1 to C.4. A special note must be made on C.4 where integration of recommendations is of great importance. This is because recommendations interact with each other. For example, contributing more to superannuation means they have less money to repay their mortgage. Recognition of these interactions is important in providing useful and practical recommendations.

The below marking rubric shows how marks will be awarded and what needs to be considered in the financial plan:

 

Complete required tasks (A)	Marks	Total Marks
Tabulate the information from the fact finder in a structured manner. This includes their short, medium and long term life objectives, risk profiles and personal information such as name age and marital status. (A.1)	1
Income and income statement clearly tabulated including tax. (A.2)	1
Balance sheet clearly tabulated (A.3)	1
Conduct financial ratio analysis is sound (A.4)	1
Asset allocation of couple’s assets and recommended asset allocation with reason of why you recommend the asset allocation (A.5)	1
Construct a 5 year cash flow projection based on their information (A.6)	1
Provide an analysis of the strengths and weaknesses of their financial position based on the above information you have collected. (A.7)	2
TOTAL (A)		8
Presentation, structure, readability clarity (B)
The format follows a statement of advice structure from a respected source such as the ASIC website or financial planner website. ‘Boilerplate’ statements need not to be made (B.1)	1
There is an executive summary which clearly summarises the recommendations to the couple and reasons. It is recommended that this executive summary be written after you have finished your assignment. The summary should provide specific recommendations (with justification) as contained in the SoA to suit the client. (B.2)	1
Easy to read and understand, even for non-financial (use of point form helps). Few grammatical errors and spelling mistakes (B.3)	1
Table and text font are consistent and neat. (B.4)	1
TOTAL (B)		4
Critical analysis (C)
Recommend a realistic solution in detail of how to fund their comfortable retirement using superannuation:   i) Quantify the lump sum requirement they will need based on their retirement income needs and life expectancy.   ii) Project their superannuation to retirement and calculate the retirement shortfall (or surplus) without any changes to the recommendation   iii) Provide a recommendation on how they may contribute more (or less) to superannuation to fulfil their lump sum requirement.   The retirement needs analysis needs to consider their risk profile, recommended asset allocation and effect of the recommendation on their other life priorities.   Reasonable assumptions on life expectancy, investment returns, tax rates and inflation among other things must be made and clearly stated.   You must provide calculations in an appendix. These will not be shown to the client so make sure all relevant information is in the SOA.   (C.1)	4
Recommend and quantify their insurance needs using the risk management approach. i) what kind of insurance do they need? ii) How much insurance cover do they need (using the needs approach) and what insurance features? iii) how much would it cost to suit their budget?   Clearly explain your basis of advice for your insurance recommendations (even if you think the client(s)’ current level is enough). You must obtain quotes from insurance companies as estimates of costs.   You must provide calculations in an appendix. These will not be shown to the client so make sure all relevant information is in the SOA. (C.2)	4
Recommend a way to finance the gift to their son and to fund their trip. Consider the impact this would have on their asset allocation strategy, risk management recommendation, house downsizing strategy and retirement strategy. (C.3)	2
Consider your recommendations on asset allocation, budget, taxation, debt repayment, insurance and retirement as an integrated recommendation which affects one another. For example acknowledging that budgeting for retirement impedes on their other life priorities. There are many other constraints and so the recommendations should be considered together rather than individually.(C.4)	3
TOTAL (C)		13
GRAND TOTAL (A+ B + C)		25
Penalties  (P)
Lateness (P.1)	2.5 marks per day
Plagiarism (P.2)	Up to 100% deduction.
Notes
I will award fractions of marks depending on how well each criteria is met. E.g. a 1 mark criteria may be split into 1/4’s or 1/2’s.

 

The recommended assignment length is 30 pages (excluding title page and references and appendices that are not shown to client). You may exceed the limit by a few pages.

 

 

A soft copy of the final assignment is to be uploaded on UTS online via turnitin by midnight Friday, 24th May 2019.

ASSIGNMENT FAQ

1. How are de facto couples (same sex or otherwise) treated for tax purposes?
2. De facto couples are treated the same as married couples/families. See tax planning lectures for details.
3. What is direct and indirect investing?
4. See funds management lecture. Direct investing is where you buy the investment yourself and manage it yourself. Indirect is where you give funds to a fund manager/superannuation fund to manage the investments on your behalf.
5. When we do the current budget, do we need to put tax in it? If we do, should the tax include the income tax and super contribution tax?
6. You should think of the budget as a cash flow statement. So yes eventually tax would come out of it if the couple will have to pay it to the government.

 

1. When we analyse the financial position of this couple, I think we should use the financial ratios from lecture 2, but we are not quite clear how to get some figures, such as current debt in liquidity ratio, in this assignment, is it the credit card+overdraft+the part of mortgage & car loan which should be repaid this year?
2. Yes some figures aren’t clear. You would need to get some estimates for things such as the current year’s mortgage repayments and car loans. This is up to your judgment and research.
3. How should we allocate the asset category of personal items and home contents and superannuation?
4. A. Superannuation is usually decomposed into different asset classes. It is not a separate asset class. Personal items and home contents insurance is not part of asset allocation.

 

1. Q. What are the projected returns of their investments?
2. A. You must do some research into similar funds to find what are reasonable rates of returns for their given investments or investments that you recommends to them. This also applies to other items such as superannuation and insurance premium costs.

 

1. Q. What are some tips to doing well in the assignment?
2. A. Read ahead of lecture notes as there may be strategies there to help couple (e.g. on retirement planning). Follow the weekly tips in class. Also follow the marking rubric.