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FINS3637 Wealth Management Advice

Individual Assignment Semester 2 2016

Due to be submitted no later than 5 pm Wednesday the 17th of October 2016 in a
soft copy format via the Turnitin link placed on the Moodle course website.
This assignment will comprise a total of 40% of the marks allocated for this unit.
The assignment consists of the preparation of an advice document in a form of a
compliant Statement of Advice (SOA) in relation to the case study which follows.
The work must be your own. Turnitin similarity reporting/rules are strictly applied
The submission must include the following in 2 separate files:
* The assignment (SOA) in a word document format, incorporating all the relevant
elements to ensure the prepared SOA is compliant with the relevant financial
services laws, technically accurate and professionally presented in line with the
industry best practice.
* 10-15 slides in a PowerPoint presentation including speaker notes
summarising your Statement of Advice. The aim of the presentation is a way to
present your advice to the clients in the case study.
Important Note: You need to answer the question in a Statement of Advice (SOA)
format in accordance with ASIC guidelines. The SOA must have a 2 page Executive
Summary section where you summarise the clients current situation, needs &
concerns, goals & objectives and your recommended strategy.
Important Notes:
The Assignment must be typed (Font 11)
Attempt ALL questions and issues raised in the case study assignment.
Ensure your SOA contains all the relevant sections, to ensure your SOA is
compliant with the relevant financial services laws, technically accurate and
professionally presented in line with the industry best practice
Where appropriate, the use of tables, graphs, flowcharts, etc. is encouraged
to help illustrate your point clearly
Show workings and calculations where applicable
Assumptions must be clearly stated, assumptions need to be reasonable and
logical and cannot conflict with the facts in the question/s
Clearly state your source references
o Inflation 3%
o AWOTE 3.5%
o The investment growth rate is to be provided by you, however, you must apply
due diligence on the rate provided and provide your source or research
o Use 2016-2017 tax rates where applicable
o Use FBT rates effective 1 April 2016

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Case Study - The Pedro Family

John Pedro (age 60) is married to Georgina (57). They are living in a lovely beach side
suburb south of Sydney with their two children, Tina (30) and William (26).
Tina is married to Mathew, they have 2 children, Dianna age 5 and Joshua age 3.
William has recently broke off his engagement with his long time fianc soon after he
declared bankruptcy from his web design business venture. William has since moved
back home with his parents as he can no longer afford paying rent.
John is the Chief Financial Officer of a large IT company. John works very long hours
and travels frequently. He cant wait for the opportunity to slow down so he can have
more time to see his wife and play with his grand children. Georgina works as a HR
The other day John was having lunch with Roberto (an old friend from university) and
as part of the conversation, John was complaining to Roberto about the fact that
although he is earning a good income, he is working hard at providing for his family and
paying off the mortgage but feels he cant keep doing this forever. John would one day
like to be able to slow down or retire.
Roberto asked John if he has ever had a financial plan completed, or if he has ever
sought advice from a financial adviser. John replied that he had never had the time to
even think about it, but he now thinks that he should do something about it.
John spoke to Georgina and they decided to come and see you. Georgina made an
appointment for both John and herself for an initial consultation with you.

They have left you with the information below after the first interview.
The Pedro family personal and financial information
salary & wages *
(excludes employer SG





Home (principal residence)

Home contents
Bank Account (at call)
Term deposit
@ 5% matures in Sep 2016
Share portfolio***

Employer superannuation
(retail funds)
Home loan @5.85% variable
Income requirement **

$3,200,000 (Joint tenancy)

$65,000 (Joint)
($800K life and TPD
($500K life and TPD
Balanced investment option Balanced investment option
$90,000 p.a

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Notes to the supplied information:

*The employer makes only the mandated employer contribution (SGC) to their
superannuation nominated superannuation fund.
** John and Georginas total current income requirement will continue until retirement, it
includes mortgage repayments.

*** The share portfolio was recently acquired by John after he received a cash
inheritance of $300,000. He invested $75,000 in each of the following shares
Westfarmers, Woolworths, CBA and Westpac.
You need to clearly address the following issues:

Their goals, objectives, needs, and concerns and whether they can achieve their
objectives including their retirement objectives and how (attempt to present
them with more than one option where applicable).

They also ask you to address and take into account the following specific

John would like to retire once he reaches age 65. Georgina is planning to
retire when she reaches age 60. However, they are happy to postpone
retirement for a few more years if this would help them achieve a more
comfortable retirement as John is happy to scale down his work load and
stay working on a consultancy basis for a few more years. They think that
they need an after tax income of $75,000 in todays dollars during their
retirement as by then the mortgages will be paid out (assume that this
income can be produced tax free at retirement).

John and Georgina would like to pay off their home loan as soon as

They would like to save and invest.

They are happy to consider the concept of borrowing to invest if they feel it
can help them achieve their retirement aim.

John and Georgina would like to help their son William get back on his feet
again, however, they acknowledge William is not very good with money.

John and Georgina would also like to assist their daughter Tina in providing
for their grandchildrens high school education. They would like to provide
$15,000 pa per child for the high school years.

Georgina would like to do some renovations on the house after they have
both retired. The expected cost is approximately $200,000 in todays

John and Georgina would also like to go on a trip around Europe for which
the expected cost is approximately $68,000 in todays dollars.

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They would also like to replace their car for which the expected cost is
approximately $120,000 in todays dollars.

John has asked you about the ability of starting his own SMSF as some of
his work colleagues have done just that. At present John and Georginas
superannuation contribution goes to an employer nominated retail fund.

John has heard from a colleague at work that the SMSF can borrow to
purchase a property under an instalment warrant type arrangement. John
and Georgina would like to know more about that and the possibility to use
such a facility through a SMSF to buy an apartment for their son William to
live in and also possibly an office space for John to run his consultancy
business if and when he decides to retire.

John & Georgina heard from one of their friends about a strategy that was
referred to as "using salary sacrifice to superannuation to maximise
retirement income". They are questioning whether such a strategy would be
suitable to either and or both of them (provide the relevant calculation/s with
your explanation).

John would like to get some advice on his share portfolio has recently
purchased after he received some tips from an old friend of his who invests
regularly in the market. Advise John if his share portfolio is well diversified
and explain why or why not. Also elaborate on what can be done to make
the share portfolio more diversified. Provide John with a clear illustration/

John and Georgina would like to get some advice on their possible eligibility
to obtain the age pension once they are retired. Provide them with a clear
explanation of the reason why or why not. Explain any other social security
issues, if any.

John and Georgina would like to help William; however, they are concerned
about him particularly in light of his recent bankruptcy.

John and Georgina would also like to assist in providing for their
grandchildrens high school education. They would like to provide $15,000
pa per child for the high school years.

John and Georgina would like to get some advice on the different types of
pensions they can start with their superannuation savings.

John and Georgina would like to ensure they have adequate general and
personal insurance.

John and Georgina would like you to consider their estate planning needs.

The term deposit maturing soon and they would like some advice on what
they should be doing and possible options available for them.

Projections should be made up to John & Georginas life expectancy + 8


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Risk Profiling - John and Georginas attitude to risk:


John likes owning shares as from his financial background, he

understands that Australian shares and shares in general may have
higher volatility than some other asset classes however they tend to
perform well over the long term. John is comfortable with taking risk if he
can understand it and see that there are possible rewards.

Georgina on the other hand was brought up in a very conservative family

where her family had most of their money invested either in government
bonds or term deposits with one of the major banks. Georginas family
have always talked in front of her that they dislike share investments as
they feel they can't sleep for worry about market events. However, they
have also said to Georgina several times that she could never go wrong
with property investment and have always encouraged her and John to
buy a house when they first got married. Georgina therefore is more
conservative than John when it comes to risky investments; however, as
a result of studying finance subjects at university she can see that
sometimes there could be some merit in taking calculated risks to
achieve better returns.

John and Georgina have both indicated they wouldnt mind taking some
calculated risks to help them achieve their objectives.
You are required, to assist John and Georgina identifying their
appropriate investment risk profile based on John and Georginas goals,
objectives, risk concerns, time horizon and liquidity needs.

Asset allocations and diversification.

Investment portfolio recommendations provide reasoning and justifications.

Cash flow and asset projections (include projections of cash flows for John and
Georgina, presenting both pre-tax and post-tax results).

Cash flow and net worth tables.

Provide assumptions used and justifications (cost, risk, suitability, etc.) when

Use diagrams and charts to assist with your illustrations.

Your task now is to prepare a complete Statement of Advice (SOA) for John and
Georgina. The information provided in the client scenario is to be used in preparing
your calculations and advice. As the assignment is to be a SOA for clients, it should be
in a suitable format and use appropriate language. Clarity and conciseness are
important but full explanations are required.

Your SOA should clearly show the structure you recommend for their portfolio,
how they can achieve their goals and where the capital and income will be
sourced. Your SOA should address a long-term plan to provide income and
should include projections.

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End of the Assignment Question

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