FPI Examination Sample Question 2

Transcription

1 FPI Examination Sample Question 2 CLIENT OVERVIEW You recently conducted two meetings with a new client, Sam Thomson, who got divorced only six (6) weeks ago and is very concerned about his financial affairs as a result. All the information you gathered from Sam is supplied in the attached information gathering sheets. You were also able to ascertain the following from the divorce order: Date of divorce: 15 January 2014 Sam s ex-wife, Alexa, was awarded 50% of his pension interest as at 15 January 2014 an amount of R Alexa was awarded the family home where she and the children will continue to live. Sam had to buy and move into a townhouse. Alexa retained most of the household goods to the value of R They each retained the investments that belonged to them at the date of divorce. Sam is responsible for all the children s school fees and medical expenses until they reach the age of 18. Sam needs to pay maintenance of R5 000 per month per child to Alexa, escalating at inflation annually, until the children reach the age of 18. No maintenance is payable for Alexa, who is an accountant and continues to earn a good salary. The divorce was not an amicable one and has been very traumatic for Sam. He has asked his employer for a special secondment to an office in Brazil, run by an international affiliate of his employer. He will be working in Brazil from 1 April 2014 until 31 December From 1 January 2015 he will resume his normal duties in South Africa. During this period he will only visit South Africa for 10 days during August. He will be paid a salary in US Dollars during this period see detail in Annexure A. Goals and concerns Sam is very depressed not only about his failed marriage, but also about the impact of the divorce on his financial affairs. His motivation when asking for the secondment to work abroad was to get away from his immediate environment in order to clear his head and rethink his future. He feels that he has lost the financial security that he has built up over the years and that he has no idea 1 P a g e

2 how he will be able to recover from this setback. His children and his aging mother are now his top priorities. He does not know how to structure his investments in order to ensure that he meets his obligations. Given that the family home was awarded to Alexa, Sam had to purchase the townhouse in December The bond is now an additional liability which he did not have before the divorce. He is also very concerned about his retirement, considering that he has lost almost half of his retirement provision. He had always hoped to retire at age 55 and spend time writing a book based on research he conducted throughout his career. Initial Analysis Your calculations indicate that Sam s monthly cash flow (both whilst working abroad and after his return) is sufficient to support his maintenance requirements towards the children. You have also calculated that there is currently sufficient liquidity available in Sam s estate to meet all needs should he pass away today. 2 P a g e

3 ANNEXURE A Full names Personal detail Sam Anthony Thomson Date of birth 1 September 1972 Marital status Spouse s name (if applicable) Divorced N/A Children s names & ages Liam (5) Lisa (7) Other dependants Mother - Sue (age 79) I pay R3 000 per month to my mom she cannot survive without this money and I escalate the amount annually at the rate of inflation. General Comments Got divorced on 15 January Occupation Employer Employment Research specialist Global Technologies Gross annual salary R Other income (provide description) Bonus (paid annually in March) R General comments See comments on employment above will be working in Brazil from 1 April December 2014 at a salary of $8 000 per month. Retirement fund name Global Tech Pension Fund Date joined 1 November 2000 Type of fund Current fund value (DC)/formula (if DB fund) Details of underlying investment Defined contribution R % equity 30% bonds 10% property 30% cash 3 P a g e

4 Employer contribution R6 975 p.m. (9%, but risk benefit premiums are included) Employee contribution R5 812 p.m. (7.5%) Other benefits? Unapproved group life cover: 4 x annual salary Beneficiaries: Liam and Lisa Disability income scheme: 75% of salary General Comments R of the individual reserve in the pension fund was paid to Alexa on 15 February 2014 in terms of the divorce order. NB: group benefits remain intact while working overseas, but no contributions will be made to the pension fund during this period. The international affiliate of Global Technologies also does not deduct any income tax from the income earned offshore. Name Type Dependants Medical Scheme Suremed Comprehensive Plus cover Liam and Lisa Monthly premium R4 150 Type Town house Assets and Liabilities Current Base cost/ Liability Comments value original value R R R Brought in December Car R R R Personal R effects Motor cycle R R R0 4 P a g e

5 Investments Owner Type Current Base Cost/ value Original value Sam Local unit R R6 per unit, Comments units trusts purchased in Sam Retail bonds January 2004 R R Monthly investment of R500 Policies No. Type Premium Current value Beneficiary/ Nominee 1 Retirement R2 000 p.m R Liam Comments Investment annuity Escalating at Lisa fund as per 10% p.a. Annexure B 2 Endowment R200 p.m. Escalating R None Life assured: Sam annually at inflation 3 Life policy R300 Life cover R None Owner and premium payer: Sam No cash Life assured: value Alexa 4 Life policy R350 Life cover R None Owner and premium payer: Alexa Life assured: Sam 5 P a g e

6 Budget Monthly expenses Item Amount Payment to mother R Bond R Car R Groceries R Cell phone R Domestic help R School fees: Liam R School fees: Lisa R Medical scheme R Rates and taxes R Electricity R Policies and investments R Entertainment R Petrol R DSTV R 520 Short-term insurance R Maintenance R R P a g e

7 ANNEXURE B 7 Page

8 QUESTION 1 (25 marks) Whilst there are many steps in the financial planning process, financial planning is ultimately about finding solutions for clients given their unique circumstances. Based on all the information you have gathered from Sam above, prepare a short report (maximum 3 pages) to outline your proposal on how to deal with his retirement situation and concerns. Please Note: NO calculations are required. Please ensure that you consider all the information provided. Marks will also be allocated for the structure, logic and flow of your proposal. Only 3 pages will be marked. 8 P a g e

9 RATES AND ASSUMPTIONS Use the following rates and assumptions when you make recommendations: An inflation rate of 5% For any life cover recommended, use the following premium rates per R cover: o Male adult R6,50 p.m. o Female adult R5,75 p.m. For any lump sum disability cover recommended, use the following premium rates per R cover. o Male adult R6,75 p.m. o Female adult R6,20 p.m. For income protector recommended, use the following premium rates per R p.m.: o Male adult R240 p.m. o Female adult R180 p.m. For any critical illness cover recommended, use the following premium rates per R cover: o Male adult R7,25 p.m. o Female adult R6,30 p.m. A mortgage rate of 7% In respect of any investment product that you recommend, use a growth rate of 12%. For any Medical aid product that you recommend, the premiums are: o Adult R2 600 p.m. o Adult dependent R1 800 p.m. o Child dependent R600 p.m. CPI in 2005 was 34,5; current CPI is 140,7. All instalments for a given year are payable in advance at the beginning of the year Income after retirement is payable in advance at the beginning of the year Should the details provided prove insufficient for your purposes, you may make the necessary assumptions, provided that: o You indicate that you have made an assumption, o You give reasons for your assumption, and 9 P a g e

10 o The assumptions are in keeping with the preferences of the clients and the information already supplied. When answering questions please note: o Do NOT just show total values in any calculations; show a full breakdown of your calculations and list all items where applicable o Round all amounts to the nearest Rand o When using the resultant rate use four decimals 10 P a g e