Financial Planning Client Interview - Case Study Example

File Note – Statement of Advice Prepared by: [insert your name] Client's name: William Young Date of contact: 30 March 2015 Re: Initial Appointment FSG and adviser profile William was handed Financial Services Guide (FSG) version 1 010903 (which includes my Adviser Profile) at the interview on 30 March 2015. This document was explained to the client. Scope of advice Full statement of advice (SOA). Current situation The client is an engineer at Buildzone Pty Ltd where he earns$70,000 per year alongside superannuation The client is keen to purchase his own house within 5 years In order to ensure appropriate investment of his employers money, the client wishes to get his superannuation Potential issues / special consideration Besides hoping to purchase a house in five years time, the client has a plan of having a holiday trip to Japan in less than a year's time, thus he ought to be considered with some urgency Objectives Purchase a descent home for himself Visit Japan for a snowboarding holiday To sort his superannuation out Risk profile Growth Summary of ideas regarding potential strategies Insurance cover e.g. life Superannuation scheme Health cover Investment in property and funds The strategy should ensure that the client has an insurance cover to manage the risk posed by the activities. The insurance covers against tax defaults and health issues. Upon the receipt of superannuation funds, the client can embark into investments in property and shares. This will help to reduce the risk of having all funds in one investment sector, and thus the risk is distributed. The client should have tax covers that help to protect him in the case that he is deemed bankrupt. The tax cover is important because his property may be auctioned to repay the taxes when he is unable or fails to comply due to incapacitation. Advantages Low interest rates Tax cover Accessibility of the superannuation funds Disadvantages The client will run into unprecedented costs The level of risk involved might be less expensive than the insurance costs The economic recessions may induce inflation Wealth creation 1. Colonial Margin Lending Lending facilities and investment funds are ideal avenues of wealth creation since one can access enough funds to make worthwhile investments in shares, managed funds and property. The client can take the It is recommended for the client to make an application of Colonial Margin Lending facility which will have $20,000 worth minimum approved credit limit. This package is known of employing instalment gearing choices. The property investment has a low amount of risk Shares enable the client to engage in other businesses as the shares market grows The strategy makes use of instalment gearing options The strategy fits clients with higher marginal; tax rate There is defined timeframe for the repayment of funds borrowed using this facility Advantages of strategy The strategy is characteristic of a credit limit which in this case is $20,000 the money will be monitored This facility does not expose the client to a big financial burden since it is proportional to his income and has relatively low interest rates The client boasts of a high marginal tax rate which is favoured by this package This facility is convenient for the client since its accessibility is not limited to specific times. The client can access the facility at any given time as long as he meets the threshold requirements Disadvantages of strategy Client adds to his liability as the loan ought to be paid up according to the agreement Tax and insurance is needed and it poses and extra cost Alternatives considered Perhaps the client can make an application for Colonial Margin Lending facility with $10,000 as the minimum credit limit. This has the capability of lowering the client’s liability as he can only borrow up to $10,000 Personal Contributions Plus Lending It is recommendable for the client to combine his lending with a definite figure of personal contributions in making the investment decision in shares, managed funds and property investment Advantages The client is likely to borrow less thus minimizing his liability in the share prices fluctuation The tax cover is subsidised Due interest is likely to be less as personal contributions lead to less borrowing The client funds are managed and it reduces the possibility of risk and losses There are higher chances of the client achieving his profits in shares and property funds Disadvantages The client might tend to use his personal funds instead of exploiting the available lending facility Ideally, the client has a time limit. The prospected holiday in Japan is due in some months` time. This has the implication that in case of more reliability on personal contributions than the lending facility, the client might not be able to make it for the journey. 2. Maintain a limit cash reserve It is recommended that the client maintains a specific cash reserve on a monthly basis Advantages The client will develop a sense of responsibility as he will have to make a specific contribution each month The specific monthly contribution will act as a cover up for the lending facility implying that there are minimum chances of the client borrowing more than he can pay Disadvantages This strategy has the primary disadvantage of increased liability for client as a fixed amount of money ought to be remitted from his salary on a monthly basis. Wealth protection 1. Superannuation The client is advised to invest inside superannuation. Superannuation is meant for Australians to secure a source of income after retiring from work. In this case, the client can choose to only rely on superannuation funds for his source of income. In our meeting, with William, it was concluded that his home will be insured completely. The total cost of the insured home is $20,000. It is suggested that the cost insurance includes all the home contents and the total comes to about $25,000. William has been advised to also insure the business liabilities upon death at a cost of $1000. The cash reserve is about $4000 bringing the sub total to about $25,000. Inside superannuation, the assets to be insured is about $20,000 having investment assets such as managed funds and investment property at $10,000. The business assets secured by funded arranges are $4000. The total life cover costs $18,572. The TPD cover that William is advised to take for outstanding debts, home modifications and cash reserve as well as medical expenses and disability is $32,571.Wealth protection needs to cover the annual income which is only $4375 per month. the cover needed to maintain Williams his lifestyle is $128,571 and considering immediate needs the total cover for trauma adds up to $131,771. Advantages A person can only withdraw his/her money at stipulated times. This allows for one to invest wisely Appropriate superannuation is an ideal means of ensuring that the wealth of the client is protected considering that he can only access the money upon his retirement It can also be considered as part of the client’s savings since he cannot access the funds any time he wishes The funds are well managed and planned for by both the employer and the employee Employers set aside the funds and they are deemed as a savings plan. Disadvantages The funds cannot be accessed without prior request The superannuation funds are taxed The money that is contributed is fixed and cannot be allocated to other personal needs There is a high probability of loss of track of the superannuation fee being paid by the client These funds are not reliable for emergency cases since a process ought to be followed before accessing them In case of untimely job termination the client is likely to lose all his savings 2. Outside Superannuation Another option that has been discussed with the client is advised to protect his assets as a superannuation program as well as other additional modes of investment. Australians are advised to set aside additional or other funds outside superannuation. These include shares, managed funds and property In this case, the client ought to be aware that products to be capital protected will have to attract high fee for management. However, this strategy is recommendable considering that such products will have the capability of protecting the client’s capital in the course of market downturn. Tax cover and personal insurance is important to protect his property and health. Client to provide capital and protect his assets Uphold policies of income protection Uphold insurance policies Advantages Investment risk is low if the product to invest upon is invested well This is also an ideal way of ensuring the proper investment of the employer’s funds Insurance covers are readily available to cover any risks. e.g. health and property covers These funds are reliable for emergency cases Flexibility of managed funds Disadvantages The risk involved is high considering the nature of source of funds Tax charged and insurance cost presents a new additional cost The funds are highly risky and more costs will be incurred in advisory services to best advise the client Shares may be affected by global recessions and economic downturns Tax implications that apply in shares and managed funds The risk involved in shares and managed funds is high compared to property Managed funds have a low return in investment(ROI) Estate planning In terms of Estate Planning, we recommend William: Complete a will and establish an enduring POA (none current). Establish binding death benefit nominations for his superannuation fund. Establish an advanced health directive. Other Besides buying a home, taking a trip to Japan, and getting superannuation the client also has other objectives. The client has the intention of starting his own business somewhat in the engineering field The client also intends to ensure that he has funds outside superannuation; these is to make sure that he can go about his activities without having to rely on superannuation Fees and commissions Plan Fee: $2,000 – 50% payable upfront, 50% due when SOA is presented to client and recommendations discussed. Ongoing fees: to be discussed at next meeting categorised in operational costs. Action Please send to par planners. Par planners will act upon the advise that has been suggested to the client Attachments There will be a fact finding process that shall be completed at initial appointment. The advice given is based upon the available data and information. Read More