Managed Investments Case Study Version

Transcription

1 Managed Investments Case Study Version

2 Published by Pty Limited Level 7, 100 William Street Woolloomooloo, NSW Tel: Fax: Copyright: Pty Limited (ACN ) 2013 This publication is protected by copyright. Subject to the conditions prescribed under the Copyright Act 1968 (Cth), no part of it may be reproduced, stored in a retrieval system, communicated to the public or transmitted in any form or by any means (electronic, mechanical, micro copying, photocopying, recording or otherwise) without prior written permission. Enquiries for permission to use or reproduce this publication or any part of it must be addressed to Pty Limited by to: info@pinnacle.edu.au/ Version number: Disclaimer: This course material ( Material ) has been developed as a guide to current students of Pty Limited (ACN ) ( Pinnacle ) and is to be used by such students subject to the terms and conditions on which such students are enrolled with Pinnacle. This Material is not intended to be a comprehensive or exhaustive resource relating to financial services education, but a basis on which knowledge and skills can be formed. Pinnacle believes that the Material is up-to-date as at the date identified on the front page of the Material but does not warrant that the Material is up-to-date as at the date on which the student uses the Material. Students undertaking education within the financial services arena should be aware that the law, regulations and policy in relation to the content of the Material are liable to change without notice and students must ensure that they keep themselves informed of any such changes. The Material is provided solely for the purposes of individual study by the student who is enrolled in the relevant course offered by Pinnacle to which this Material directly relates, during the period of enrolment. It is not intended to, and does not, constitute legal, taxation, accounting or other professional advice. While reasonable care has been taken in preparing the Material, Pinnacle and its employees, consultants and agents who assisted in the development of the Material are not responsible for any losses or damages suffered by persons relying on the information contained in the Material or arising from error or omission in the Material. The Material is provided by Pinnacle on the condition that: 1. Pinnacle takes no responsibility for any actions taken based on the information contained within the Material nor for errors or omissions 2. Pinnacle disclaims any liability to any person or legal entity in respect of anything, or the consequences of anything, either done or omitted to be done by such a person or legal entity in reliance, wholly or partly, upon the whole or part of the contents of the Material 3. Pinnacle does not purport to provide legal advice or expert advice in the Material so if legal advice or personal advice is required, the services of a qualified and licensed professional should be sought

3 Table of Contents Fact Finder & Risk Profile Questionnaire... 5 Statement of Advice Additional Workings Managed Investments Case Study Version

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5 Fact Finder & Risk Profile Questionnaire Your Personal Fact Finder Client Details John (client 1) Maria (client 2) Your preferred title: Mr Mrs Salutation: John Maria First Name: John Maria Last Name: Dunlop Dunlop Address: Preferred Phone Contact: Mr J & Mrs M Dunlop 101 Treeline Drive, Nicesuburb, NSW (work) (home) Contact by: Work phone John at work Home Address: 101 Treeline Drive, Nicesuburb, NSW 2999 Home Phone: Work Phone: N/A Fax: N/A N/A Address: jdunlop123@optusnet.com.au mdunlop123@optusnet.com.au Adviser Details Name: You (i.e. the Financial Adviser) Contact Details: 75 Castlereagh St, Sydney, NSW 2000 P: F: E: yourtheadviser@abcfp.com.au Meeting Details Date: 20 September 2013 Location: 75 Castlereagh St, Sydney, NSW 2000 Attended by: Notes: John & Maria Dunlop All information was recorded by John & Maria Dunlop and yourself (i.e. the Financial Adviser) Adviser Use Only Document Date of document: Version Number: Personal Financial Services Guide 20/9/2013 ABCAR*130105v4.7 * ABCAR = ABC Financial Planning Authorised Representative Managed Investments Case Study Version

6 Personal Information Details John Maria Occupation: Store Manager Administration Officer Employer: Nicesuburb Plumbing Supplies Super Stationary Stockers Employment Commencement Date: March 1990 February 2008 Age last Birthday: Marital Status: Married Married Dependants: Emily 4 and Tara 2 Emily 4 and Tara 2 Proposed Retirement Age: (when John retires) Employment Status John Maria Self Employed Employed Self Employed Employed Full time Part time Full time Part time Retired Allowee/Pensioner Retired Allowee/Pensioner Employment Security John Maria Good Average Poor Good Average Poor Health John Maria Good Average Poor Good Average Poor Are you an Australian Tax Resident? John Maria Yes No Yes No We may need to provide you with information from a CD. Are you familiar with the use of a computer? John Maria Yes No Yes No Do you have access to a computer that can read CDs? John Maria Yes No Yes No Managed Investments Case Study Version

7 Additional Information Maria works three days per week for five hrs per day at $20 per hour. Her mother looks after the girls two days per week and the third day they go to day care. They do not plan to have any more children. Maria recently returned to the workforce after being at home with the girls for four years. Financial Goals Please tell me if you have any specific financial objective(s). For example, you may want to: Retire at age 65 with an annual income, after tax, of $30,000, and Create and maintain an emergency fund at $5,000 per annum Protect the lifestyle of your partner and children in the event of unexpected death. 1 Establish an investment portfolio to cover high school education costs for their children. Emily will commence high school in nine years while Tara will start high school in eleven years. $60,000 (Future value of $30,000 each) would be required for the funding of children s education. 2 Take the girls to Disneyland in eight years time ($15,000). 3 Maintain current living expenses of $50,000 per annum 4 Retain access to funds for any emergency expenses of $4,000 Needs & Objectives Please tell me about any concerns you have with your current situation (both personal and financial) that you would like me to pay particular attention to. For example, you may want to: Investigate your income distributions from your family trust, and Ensure you have adequate health insurance in the event of an accident or birth of a child. 1 How can we minimise tax? 2 What is a good investment to save into for the girl s education and the trip to Disneyland? 3 Would like to increase access to emergency funds to $10,000 Are there any specific investments, fund managers, companies, strategies, etc. that you are particularly interested in or perhaps would like to avoid? 1 Would like good quality shares, nothing risky. 2 We request no advice on our superannuation assets or insurance cover at this stage as we are comfortable with these investments at this point in time. Notes on Goals, Needs & Objectives Would like to reassess financial position outside of superannuation to ensure we are doing the best we can. We haven t bothered with investments before as we were finding things fairly tight on one wage however it is now a lot easier. Managed Investments Case Study Version

8 Family Information, Estate Planning & Power of Attorney Please list your children and their age: Please list any grandchildren & their year of birth: Please list any dependants living at home: Please list any invalid relatives: Please list any dependants who receive Centrelink or DVA* benefits: If you have dependants, when might each dependency end? E.g. Lucas at age 25 Major gifts planned: E.g. Louisa 21st birthday in 2015 Previous marriages / de facto relationships * Department of Veteran Affairs (DVA) N/A Inheritances Please tell me if you are expecting any inherit any money or assets: Emily (4 years) and Tara (2 years) Nil Nil Nil Nil Emily age 20 Tara age 20 Nothing at this stage 1 Maria s mother is in her mid 60 s and healthy and her estate value is over $1m. This is to be split between Maria and her sister 50/50. Maria s father is deceased six months ago from cancer. She received an inheritance of $100,000 from the estate which cleared John s car loan ($18,000), the credit card ($2,000) and they paid the remainder into the mortgage ($80,000). John s parents are both deceased father in car accident 15 years ago and mother two years ago with cancer. There was no major inheritance. If you would like to leave any inheritances to family and charities, for example, please list the money and, or asset below. Please also advise if you want any conditions attached to your legacy. For example, you may want to ensure that your grandchildren only receive their inheritance when they reach age As long as the children inherit the house debt free we are not concerned about the investments as they are to fund our retirement. Estate Planning NOT DISCLOSED Please tell me John Maria Who will receive your super benefits on your death? N/A N/A Who will receive your income stream when you die? N/A N/A Do you have a current and valid will? E.g. If you have left everything to a spouse you are no longer with, do you want them to inherit your entire estate? Does your will have the ability to create a testamentary trust? E.g. When you die would you prefer all your income and assets to be placed in a trust for the benefit of your partner and children? Nil NA N/A N/A Managed Investments Case Study Version

9 Power of Attorney (POA) NOT DISCLOSED Please tell me John Maria Do you have a POA? E.g. If you go overseas, do you want someone handle your affairs during that time? Is your POA enduring? E.g. If you are disabled, can someone pay your bills on your behalf? Notes on Estate Planning & Power of Attorney NOT DISCLOSED You might like to record additional information here such as any assets you sold recently that are mentioned in your will. Nil Income Details Employment Income John Maria Employer Name: Nicesuburb Plumbing Supplies N/A N/A Super Stationary Stockers PAYG Salary (before tax): $60,000 $15,600 SG Contributions: $5,400 $1,404 Salary Sacrifice (super): - - Other Package Details (e.g. car, gym, etc.): Bonus (estimate & before tax): Note: Excluded from income calculations as not guaranteed % of salary per annum or $3,000 paid annually based on company profit. Remuneration Plan (e.g. share plan): - - Retirement Income Pension Income: - - Annuity Income: - - Centrelink / DVA: - - Overseas Pension: - - Other Income Centrelink / DVA: FTB A & B $4,910 - Income Maintenance Payments: - - Rental Income: - - Unit Trust Distributions: - - Interest: $10.00 $10.00 Dividends (unfranked): $20.00 $20.00 Family Trust Distributions: - - Partnership Drawings: - - Non-taxable Income: - - Total (excluding super): $64,940 $15,630 Assessable Income for Tax: $60,030 $15,630 - Managed Investments Case Study Version

10 Income Details 2013/2014 Estimated Taxation Liability#: $11,857 $0 Net Income: $53,083 $15,630 Combined Net Income $68,713 #includes Medicare levy and Low Income Tax Offset Annual Expenses To have a clear idea of your income needs it s important to have insight into where your major expenses lie. This helps me in understanding your capability to invest, as well as understanding your fixed and discretionary expenditure requirements now and in retirement. Annual Expenses Summary Your Total Cost of Living $50,000 Annually: $50,000 Detailed Annual Expenses: Housing (loan and interest payments, $24,000 (2,000 per month into home loan) Utilities: $1,000 Groceries & other Food: $7,200 Clothes & Haircuts: $1,400 Medical & Pharmaceutical: $1,000 Child care, School Fees, etc.: $1,500 Transport Costs: Car: $6,000 Other: Insurance: John Maria Income / Salary Continuance: Nil Nil Trauma / Crisis: Nil Nil Home & Contents: $1,000 Car: Yes Yes Health $3,000 Other: Life & TPD Nil Nil Superannuation & Other Investments: John Maria Salary Sacrifice: Nil Nil Gearing Arrangement: Nil Nil Savings Plan: Nil Nil Annual Expenses Summary Leisure: Holidays: $2,000 Entertainment: $1,000 Sports, Hobbies, Memberships, etc. $900 Gifts: Other Annual Income & Expenditure Notes Combined (John & Maria) Nil Managed Investments Case Study Version

11 Annual Expenses Summary Combined (John & Maria) Are you expecting any possible changes to income over the next few years, such as maternity leave, bonus payments, career changes, etc.? John Nil Assets & Liabilities Maria Once the girls are at school Maria will return to work five days per week (5 hours per day) Your current asset and liability position gives me a snapshot of your net financial position. By understanding the nature of your assets and liabilities, including who owns and controls them, we can help grow your current assets and recognise the risks associated with your liabilities. Assets & Liability Summary (Totals Only) Assets Current Values Liabilities Owner Family Home: $350,000 $150,000 Home Contents $20,000 Nil Motor Vehicle: $40,000 Nil Cash at Call: $4,000 Nil Term Deposits: Nil Nil Superannuation John (Keats Ltd): Superannuation Maria (Byron Ltd): Pension / Annuity: Nil Nil Overseas Pension: Nil Nil Direct Shares: IAG $2,000 Nil Managed Investments: Nil Nil Life & TPD Insurance John: Life & TPD Insurance Maria: Credit Card: Nil Nil Personal Loan: Nil Nil Other: Nil Nil J M Joint Other* $40,000 Nil SF $8,000 Nil SF Nil Nil SF Nil Nil SF Please confirm ( ) you have attached all relevant documents: * Other = Trust (T); Super fund (SF); Company (COY); Partnership (P) Any concerns in regards to the Assets and Liability Summary? Please tell me of anything else we may not have covered above. For example: Have you personally guaranteed a loan for your company? Are there any specific asset sales likely to occur? Managed Investments Case Study Version

12 Are you comfortable with your current level of debt? Priority is to repay home loan as quickly as possible. We currently make extra repayments in our minimum monthly mortgage repayments. Would it be feasible to make additional repayments to the mortgage? We also have a redraw facility for any emergencies that may arise $80K was recently deposited into the mortgage due to Maria s inheritance from her father s estate. Maria s credit card and John s car loan was also paid out from the inheritance monies. Details of Investments (exclude Superannuation & Retirement Income Streams) Please note: You may wish to complete this section with your financial adviser. Investm t Owner Purchase IAG Shares No of units Approx. value Income Return % Geared ( ) Retain/ Review ( ) Joint Demutualisation 480 $2,000 2% No? No Savings Joint N/A N/A $4, % No Yes Yes Please confirm ( ) you have attached all relevant documents: Any concerns with current investments? Please tell me of anything we may not have covered above, such as any capital losses you have. Reinvest ( ) We wish not to make any extra dollars into super at the moment. Will consider at a later date. Prefer to accumulate wealth outside of the superannuation environment so we can access the funds when required. We are open to investment advice on the IAG shares we currently hold. Prefer not to retain these and wonder if these could be better invested elsewhere. Superannuation John As at (dd/mm/yy): 01/09/12 Investment 1 Investment 2 Institution: Keats Ltd Amount Invested: $40,000 Investment Option(s): Average Returns: Start Date: Nominated Beneficiary: Is the nomination binding on the trustee? Date rolled into the Fund: Eligible Termination Components Tax Free Component: NA NA NA NA NA N/A NA Taxable Component: $40,000 Eligible Termination Payments (ETP) Payer Date Component $ Have you cashed out any super benefits in the past? No Managed Investments Case Study Version

13 Superannuation Maria As at (dd/mm/yy): 01/09/12 Investment 1 Investment 2 Institution: Byron Ltd Amount Invested: $8,000 Investment Option(s): Average Returns: Start Date: Nominated Beneficiary: Is the nomination binding on the trustee? Date rolled into the Fund: Eligible Termination Components Tax free Component: Taxable Component: NA NA NA NA No NA Nil NA Eligible Termination Payments (ETP) Payer Date Component $ Have you cashed out any super benefits in the past? Do you have any concerns regarding your superannuation? John N/A Insurance NOT DISCLOSED No Maria N/A The aim of this section is to have an understanding of how well you are currently protected. The information you provide to me here enables me to examine your current insurance cover and determine if you are adequately protected by it. I have also included a section to assist my understanding of any specific conditions that you wish to be covered for. This information is required to ensure that your existing cover, or that the cover I recommend, can meet those needs. With this information I can assess if there are any shortfalls in your personal protection strategy and advise you on how best to achieve your personal wealth protection needs. Question John Maria Based on your current living expenses, what annual income would you require for your family to live on in the event of your unexpected death or incapacity? If the circumstances above were to occur, would you want to pay off your mortgage? What other debt do you want to reduce if this happened? N/A N/A Would child care be required? N/A N/A Would nursing care be required? N/A N/A What qualifications do you hold? Nil Nil What are your hobbies/pastimes? N/A N/A What sports/activities do you do? N/A N/A N/A N/A N/A N/A Managed Investments Case Study Version

14 Current Insurance Details & Considerations NOT DISCLOSED Life insurance N/A N/A Insurer: N/A N/A Is your insurance via your super fund? N/A N/A Policy No.: N/A N/A Premium (per annum mthly, etc.): N/A N/A Who owns the Policy? N/A N/A Whose life is Insured? N/A N/A Amount Insured: N/A N/A Type of Premium (stepped / level): N/A N/A Exclusions: N/A N/A General Insurance Cover Amount Premiums p.a. ($) Owner Details Home Home Contents Motor Vehicle N/A John and Maria are happy with these insurances and did not want advice in this area. Total & Permanent Disability (TPD) NOT DISCLOSED Insurer: N/A N/A Is your insurance via your super fund? N/A N/A Policy No.: N/A N/A Premium (per annum, mthly, etc.): N/A N/A Who owns the Policy? N/A N/A Whose life is Insured? N/A N/A Amount Insured: N/A N/A Type of Premium (stepped / level): N/A N/A Exclusions: N/A N/A Trauma / Crisis NOT DISCLOSED Insurer: N/A N/A Policy No.: N/A N/A Premium (per annum, mthly, etc.): N/A N/A Who owns the Policy? N/A N/A Whose life is Insured? N/A N/A Amount Insured: N/A N/A Type of Premium (stepped / level): N/A N/A Exclusions: N/A N/A N/A N/A N/A N/A Managed Investments Case Study Version

15 Income Protection / Salary Continuance NOT DISCLOSED Insurer: N/A N/A Is your insurance via your super fund? N/A N/A Policy No.: N/A N/A Premium (per annum, mthly, etc.): N/A N/A Who owns the Policy? N/A N/A Whose life is Insured? N/A N/A Amount Insured: N/A N/A Type of Premium (stepped / level): N/A N/A Exclusions: N/A N/A Health Insurance Cover Amount Premiums p.a. Owner Details NIB Hospital & Ancillary N/A $3,000 Family Cover N/A Top Hospital Notes on Life insurance, TPD, Trauma/Crisis, Income Protection/Salary Continuance Not comfortable with level of cover now the girls need to be considered. However they do not require advice on this at the current time. Please confirm ( ) you have attached all relevant documents: N/A Centrelink (Social Security) & Department of Veterans Affairs (DVA) Centrelink John Maria What payment/benefits do you currently receive? Are you interested in qualifying for any Centrelink or DVA payments or benefits? Are you likely to make a substantial gift (over $10,000) in the near future? What substantial gifts have you made in the last five years? People often arrange their financial affairs to qualify for a Government benefit or obtain a tax advantage. However, a change in legislation can leave them worse off than if they d done anything. With this in mind, would you take a risk in arranging your affairs to qualify for a Government benefit or obtain a tax advantage? Are you willing to forego access to capital to qualify for Centrelink benefits? Family Benefit A and B Yes No None No Nil No No None DVA John Maria What payment/benefits do you currently receive? No Nil No No Nil Managed Investments Case Study Version

16 Did your partner die as a result of war service or eligible defence service? N/A N/A Centrelink & DVA Notes Please advise me of any issues such as who will succeed you as trustee if one or both of you were to die and whether this person still appropriate. N/A Mortgages & Financial Debts How you manage your mortgages and other debts can have a significant influence on your ability to achieve your financial goals. By examining your current debts in detail, we can provide an objective review of your mortgage and financial debts. This is an obligation free service at no cost to you. Notes on Mortgages & Financial Debt When Maria s father died she inherited $100,000 which they used to reduce the mortgage and clear the car loan. They are now trying to pay all surplus income off the mortgage and currently have a $20,000 re-draw available. Your Attitude to Investing This section aims to uncover your attitude to investing, your understanding of financial markets and how you may react during certain investment market and economic conditions. Financial planning is long-term process, and many of the investments that can be used to help achieve long-term financial goals are also long term. However, while long-term growth is generally achieved, it is usually not without negative returns during certain periods of time. To ensure your financial goals are reached, generally you must remain invested true to your financial plan during these periods. Please indicate with an X on the risk / return scale below where your acceptance of investment risk meets your desire for higher returns (1 is low risk, low return; 5 is high risk, high return please note that this represents a long term perspective). Maria: Low risk, low return John: Low risk, low return Conservative Moderate Balanced Aggressive Aggressive growth X Conservative Moderate Balanced Aggressive Aggressive growth X High risk, high return High risk, high return Your concerns Mark each dotted line with a number (1 5). Key: Not Concerned = 1; Slightly Concerned = 2; Concerned = 3; Very Concerned = 4; Extremely Concerned = 5 Maria (John) Managed Investments Case Study Version

17 Your concerns 1 (1) Income keeps pace with inflation 5 (5) Legal, logical & appropriate tax relief 5 (4) Capital growth 2 (2) Easy access to your capital 5 (5) Easy to manage 1 (2) Regular income from your investments 2 (4) Volatility / capital stability Notes regarding concerns Both want investment in growth assets as they are looking to build assets for planned education expenses and a Disneyland holiday. Privacy Statement ABC Financial Planning Pty Ltd is committed to being open about how we use personal information. Our primary purpose in collecting information from you is to enable us to provide you with financial services including: The preparation of your financial plan The provision of financial planning advice to you Making securities and investment recommendations Reviewing your financial plan Reviewing securities and investment recommendations This information may be used for related purposes such as to provide you with ongoing information about a range of financial services that may be useful for your financial needs. We are required, pursuant to the Corporations Act, certain regulations issued by the Australian Securities and Investments Commission and Rules of Professional Conduct of the Financial Planning Association, of which this organisation is a member, to collect information about you for the purpose of providing you with the services referred to above. You may choose not to provide information we request but that may mean we are unable to provide you with the services you require of us. Where sensitive information such as information about your health, race, sexual preference and activities is collected, it will only be used or disclosed for the primary purpose (and not for any other purpose) unless we have your consent, or as otherwise permitted by law. Managed Investments Case Study Version

18 Client Declaration That we have read the Privacy Policy and understand the contents That to the best of our knowledge the information provided is accurate and up to date That we authorise ABC Financial Planning to hold my Tax File Number on file for the sole purpose of supplying it to authorised recipients of Tax File Numbers That we are aware that ABC Financial Planning will take no responsibility for advice based on any inaccurate information provided by us That we authorise ABC Financial Planning to use this information in line with the Privacy Statement That we have been provided with a current Financial Services Guide by our Adviser John Dunlop Maria Dunlop Signatures: Date: John Dunlop Maria Dunlop 20/9/ /9/2013 Managed Investments Case Study Version

19 Maria s Risk Profile Questionnaire Your Attitude to Investing This section aims to uncover your attitude to investing, your understanding of financial markets and how you may react during certain investment market and economic conditions. Financial planning is a long term process, and many of the investments that can be used to help achieve long term financial goals are also long term. However, while long term growth is generally achieved, it is usually not without negative returns during certain periods of time. To ensure your financial goals are reached, generally you must remain invested true to your financial plan during these periods. The following questions help us to understand your tolerance of financial risk. The information gives us an overall understanding of your investment profile and helps us to understand what investment mix and products will be appropriate, or inappropriate, in helping to achieve your financial goals. Your Previous Experience with Investment Markets 1. Which of the following best describes your understanding of investment markets? A. I am not familiar with investments or financial markets B. I am somewhat familiar and am keen to learn more C. I understand the investment markets, the important of diversification and some of the reasons for investment market performance D. I am experienced investor who has had exposure to many sectors and am very aware of the factors that can influence the performance of financial markets and specific investments 2. What degree of risk have you taken with your investments in the past? A. Only a small degree of risk, generally cash or term deposits B. Medium C. High D. Very High 3. In recent years, how have your personal investments changed? A. Always toward lower risk B. Mostly toward lower risk C. No changes or changes with no clear direction D. Mostly toward higher risk Your Investment Attitude and Tolerance for Risk 4. If your investments were to decline in value by 15% over a one year period how would you react? A. Withdraw all my fund immediately and move them to cash B. Concerned C. Unconcerned and would remain invested D. An opportunity to invest more 5. You decide to choose a five year investment. What would you do if your investment had a negative return for three years? A. Withdraw all my money and move into cash B. Withdraw part of my money or move into an alternative investment C. Remain invested until at least five years D. Remain invested and increase my amount (if able) 6. This table shows examples of annual returns from four different portfolios over a five year period. Choose the portfolio that best sums up your expectations from the returns on your investments. A B C D Year 1 5.5% 8.0% -8% 35% Year 2 5.5% 12.0% 7% -13% Year 3 4.5% -5.0% 18% 3% Year 4 4.5% 7.0% 8% 16% Year 5 5.0% 6.0% 7% -4% Managed Investments Case Study Version

20 7. Which one of the following statements describes your feelings towards choosing an investment? A. I am happy to only have a smaller return that may limit future possibilities, including underperforming inflation, in order to maintain my capital B. I am willing to take on a small amount of uncertainty and infrequent negative returns, in order to outperform inflation over the medium term. C. I am looking to achieve a good return from my portfolio over the long term and am prepared to have negative returns in order to do so D. I am keen to have the highest return possible over the long term (7 years plus) and I am prepared to have frequent and sustained negative returns in order to achieve my long term aim 8. Assume the average return for a diversified portfolio has been 12% per annum, while inflation has averaged 4% per annum, a real return of 8% per annum Over the next ten years, if inflation is expected to average 3% per annum What do you believe would be a satisfactory rate of return per annum? A. 9% B. 10% C. 11% D. 12% 9. How often do you usually replace your investment? A. You would change your investment if, at any stage, there was a loss in value B. Usually within the first three years C. You usually keep your investments for 3-5 years D. You usually retain investments for longer than 5 years 10. How long do you intend to maintain this investment? A. One year or less B. 2 4 years C. 5 7 years D. Longer than 7 years We may recommend an investment mix that is outside of your overall investor profile in order to achieve your financial goal, and it is important that you understand and are comfortable with this if we do so. Not being willing to accept the risks required to achieve a goal is okay, but it may mean that we have to make other changes if you are willing to accept less risk than this. Investor Profile How many As did you select How many Bs did you select How many Cs did you select How many Ds did you select No 0 0 X X X X 40 Total Total Score 330 Managed Investments Case Study Version

21 Tick which profile is applicable to you: 0-120: Conservative Investor An investor with this profile is one who is normally unwilling to see a reduction in the capital of their investment even over the short term. Your aim is a high level of capital security. Generally, investors in this profile would be expected to have a high amount of cash deposits and high quality bonds, immediate annuities, investments in their portfolio : Moderate Investor A moderate investor is one who is prepared to accept a small amount of risk in their portfolio. Your priority is preservative of capital over the short to medium term with very small emphasis on capital growth. You will be prepared to accept the risk of short term negative returns on your portfolio, but only if you are confident that the negative returns would be likely to last for a year or two. A large portion of your portfolio would be in cash, terms deposits, listed fixed interest investments and other defensive assets, with a small portion of growth assets, such as shares and property : Balanced Investor A Balanced investor is someone who is willing to pursue greater long term returns in exchange for short to medium term negative returns. Your investment will generally be spread across a number of asset classes, including international shares, in order to achieve long term returns : Aggressive Investor An Aggressive investor is normally one willing to pursue greater potential long term returns while accepting the risk of medium term negative returns. Your aim s growth across your portfolio and your investment mix is likely to include all asset classes : Aggressive Growth Investor An Aggressive Growth investor is one prepared to pursue strong long term returns in exchange for medium negative returns and a high level of volatility. You will hold few defensive assets (such as cash and fixed interest) in your portfolio, with the focus being on holding growth assets only such as shares and property. John s Risk Profile Questionnaire Your Attitude to Investing This section aims to uncover your attitude to investing, your understanding of financial markets and how you may react during certain investment market and economic conditions. Financial planning is a long term process, and many of the investments that can be used to help achieve long term financial goals are also long term. However, while long term growth is generally achieved, it is usually not without negative returns during certain periods of time. To ensure your financial goals are reached, generally you must remain invested true to your financial plan during these periods. The following questions help us to understand your tolerance of financial risk. The information gives us an overall understanding of your investment profile and helps us to understand what investment mix and products will be appropriate, or inappropriate, in helping to achieve your financial goals. Your Previous Experience with Investment Markets 1. Which of the following best describes your understanding of investment markets? A. I am not familiar with investments or financial markets B. I am somewhat familiar and am keen to learn more C. I understand the investment markets, the important of diversification and some of the reasons for investment market performance D. I am experienced investor who has had exposure to many sectors and am very aware of the factors that can influence the performance of financial markets and specific investments 2. What degree of risk have you taken with your investments in the past? A. Only a small degree of risk, generally cash or term deposits B. Medium Managed Investments Case Study Version

22 C. High D. Very High 3. In recent years, how have your personal investments changed? A. Always toward lower risk B. Mostly toward lower risk C. No changes or changes with no clear direction D. Mostly toward higher risk Your Investment Attitude and Tolerance for Risk 4. If your investments were to decline in value by 15% over a one year period how would you react? A. Withdraw all my fund immediately and move them to cash B. Concerned C. Unconcerned and would remain invested D. An opportunity to invest more 5. You decide to choose a five year investment. What would you do if your investment had a negative return for three years? A. Withdraw all my money and move into cash B. Withdraw part of my money or move into an alternative investment C. Remain invested until at least five years D. Remain invested and increase my amount (if able) 6. This table shows examples of annual returns from four different portfolios over a five year period. Choose the portfolio that best sums up your expectations from the returns on your investments. A B C D Year 1 5.5% 8.0% -8% 35% Year 2 5.5% 12.0% 7% -13% Year 3 4.5% -5.0% 18% 3% Year 4 4.5% 7.0% 8% 16% Year 5 5.0% 6.0% 7% -4% 7. Which one of the following statements describes your feelings towards choosing an investment? A. I am happy to only have a smaller return that may limit future possibilities, including underperforming inflation, in order to maintain my capital B. I am willing to take on a small amount of uncertainty and infrequent negative returns, in order to outperform inflation over the medium term. C. I am looking to achieve a good return from my portfolio over the long term and am prepared to have negative returns in order to do so D. I am keen to have the highest return possible over the long term (7 years plus) and I am prepared to have frequent and sustained negative returns in order to achieve my long term aim 8. Assume the average return for a diversified portfolio has been 12% per annum, while inflation has averaged 4% per annum, a real return of 8% per annum Over the next ten years, if inflation is expected to average 3% per annum What do you believe would be a satisfactory rate of return per annum? A. 9% B. 10% C. 11% D. 12% 9. How often do you usually replace your investment? A. You would change your investment if, at any stage, there was a loss in value B. Usually within the first three years C. You usually keep your investments for 3-5 years D. You usually retain investments for longer than 5 years 10. How long do you intend to maintain this investment? A. One year or less B. 2 4 years Managed Investments Case Study Version

23 C. 5 7 years D. Longer than 7 years We may recommend an investment mix that is outside of your overall investor profile in order to achieve your financial goal, and it is important that you understand and are comfortable with this if we do so. Not being willing to accept the risks required to achieve a goal is okay, but it may mean that we have to make other changes if you are willing to accept less risk than this. Investor Profile How many As did you select How many Bs did you select How many Cs did you select How many Ds did you select No 0 1 X X X X 40 Total Total Score 280 Tick which profile is applicable to you: 0-120: Conservative Investor An investor with this profile is one who is normally unwilling to see a reduction in the capital of their investment even over the short term. Your aim is a high level of capital security. Generally, investors in this profile would be expected to have a high amount of cash deposits and high quality bonds, immediate annuities, investments in their portfolio : Moderate Investor A moderate investor is one who is prepared to accept a small amount of risk in their portfolio. Your priority is preservative of capital over the short to medium term with very small emphasis on capital growth. You will be prepared to accept the risk of short term negative returns on your portfolio, but only if you are confident that the negative returns would be likely to last for a year or two. A large portion of your portfolio would be in cash, terms deposits, listed fixed interest investments and other defensive assets, with a small portion of growth assets, such as shares and property : Balanced Investor A Balanced investor is someone who is willing to pursue greater long term returns in exchange for short to medium term negative returns. Your investment will generally be spread across a number of asset classes, including international shares, in order to achieve long term returns : Aggressive Investor An Aggressive investor is normally one willing to pursue greater potential long term returns while accepting the risk of medium term negative returns. Your aim is growth across your portfolio and your investment mix is likely to include all asset classes : Aggressive Growth Investor An Aggressive Growth investor is one prepared to pursue strong long term returns in exchange for medium negative returns and a high level of volatility. You will hold few defensive assets (such as cash and fixed interest) in your portfolio, with the focus being on holding growth assets only such as shares and property Managed Investments Case Study Version

24 ABC Financial Planning Pty Ltd Australian Financial Services Licensee No ABN Statement of Advice What to do after reading this Statement of Advice If you have any questions please don t hesitate to contact me. It s very important that you take full ownership of your financial decisions. I can assist you to make the appropriate decisions, but those decisions remain yours. If you don t feel totally comfortable with what s in this SOA, you should seek more information and advice from me. If, however, you are completely satisfied with all the information and have no further questions, simply sign the Authority to Proceed form and other documents marked with a tag Sign Here. John Planner is an authorised representative (no ) of ABC Financial Planning Pty Ltd, an Australian Financial Services Licensee (No ), of 75 Castlereagh Street, Sydney NSW 2000, Tel: jplanner@abc.com.au What this document is about Page The scope of the advice, your current financial position and where you want to be in retirement. (See sections The scope of the advice, where you are now and what you want to achieve ). The recommended strategy and the advantages and disadvantages of implementing this strategy. (See sections How you get there and why and Risks and disadvantages ). The direct costs to you associated with the advice, as well as any other indirect benefits I may receive by giving the advice. (See section What this advice will cost you and how we are paid ). Additional information to assist in your decision making including product costs, and a list of other resources to which you should refer in making your decision. (See section Additional information to assist your decision making ). The next steps you should take moving forward. (See section Services being provided to you and next steps ). Ongoing review agreement Prepared by John Planner CFP Completed 15/01/2011

25 The scope of this advice This advice covers strategies which will assist you to position your financial situation, create wealth and reach your long term goals in a tax effective manner, as well as protecting your ability to meet your financial goals. You have elected to provide me with limited or incomplete personal information on your financial needs, objectives and goals. As a result, at your request, we are not providing any advice in relation to your existing superannuation funds, personal and general insurances and estate planning. Consequently, the advice does not address all of your financial needs, objectives and goals and should not be deemed to do so. Before acting on the advice provided, you should consider its appropriateness in relation to your own investment objectives, financial situation and goals. After discussions concerning the importance of a full wealth protection plan, and highlighting the danger of not covering financial risks, you declined any advice in this area. Where you are now Here are your relevant personal details that you provided to me at our meetings, and which I took into consideration when developing your strategy: John and Maria, you are a married couple age 35 and 32. John, you are a Store Manager for Nicesuburb Plumbing Supplies. You are entitled to a yearly bonus of $3,000 but this not guaranteed by the company as is dependent on company performance. Maria, you are working part time as an Administration Officer for Super Stationary Stockers. You own your own home valued at $350,000 which has a mortgage of $150,000, and you have no foreseeable plans to move. You have two dependent children Emily age 4 and Tara age 2. You consider yourselves and your children, in good health and neither of you smoke The table following summarises your current financial position: Gross salary per annum (per annum) (excluding compulsory superannuation) Investment income per annum Estimate annual tax liability (2013/14) Current top tax paid (including Medicare levy) Investment assets John Maria $60,000 (excludes potential bonus) $15,600 $30 $30 $11,857 $0 34% 0% Cash at call - $4,000 in joint names IAG Shares - $2,000 in joint names Superannuation assets $40,000 Keats Ltd $8,000 Byron Ltd Insurance (as part of a superannuation policy) Property value Net personal assets (approx) N/A $350,000 as joint tenants (Principal home) Mortgage 6.34% per annum N/A $114,000 (includes value of the car $40,000, home contents Managed Investments Case Study Version

26 Cash requirements Total net worth $314,000 What you want to achieve John Maria valued at $20,000, superannuation valued at $48,000, investments valued at $6,000 (cash and shares) and excludes value of home) Lifestyle expenses Mortgage repayments Regular investment Here is what I understand to be your primary objectives: $26,000 per annum $24,000 per annum ($2,000 per month) $ 5,400 pa 9% SGC for John $ 1,404 pa 9% SGC for Maria Objective Detail When To legally minimise your ongoing income tax liabilities To maintain a cash reserve To maintain your current living expenses To reduce your current home-loan debt as quickly as possible. To fund your expenditure of $15,000 in eight years time for a holiday trip to America. To ensure you retain sufficient funds to meet your daughter s education expenses: How you get there and why Minimise tax paid on any income earned To ensure you retain an ongoing cash reserve of at least $10,000 to meet any financial contingencies. To receive an after tax income of $26,000 per annum (not including your current loan repayments of $24,000 per annum) in order to meet your current normal living expenses. To determine whether making extra repayments into our home loan (on top of the extra repayments already made) is an appropriate strategy You would like to take the girls to Disneyland in eight years for an amount of $15,000 To establish a savings plan to meet future expenses for the girls educational expenses. $30,000 (future value) for each child. A time frame of nine years ( Emily) and eleven years (Tara) Now Now Now 8-10 years 8 years 9-11 years Here is a summary of what I recommend to you: Step 1: To ensure you retain an ongoing cash reserve to meet any financial contingencies. Step 2: Review your budget surplus and ensure it is realistic to fund future recommendations. Step 3: Create a diversified portfolio of managed funds to assist in funding the children s secondary education, commencing in 9 years for Emily and 11 years for Tara. Step 4: To accelerate the reduction of your home loan Step 5: Utilise the redraw facility to fund your holiday trip in eight years Managed Investments Case Study Version

27 Step 1: Retain a cash reserve How Reasons Move your existing The purpose of holding a cash reserve is to reduce the likelihood that funds from your joint longer term growth investments will need to be sold at inopportune savings account to a times to meet short term capital requirements. high yielding cash The DEFX High Yield Bank account earns 4.5% pa compared to account (DEFX High 0.25% per annum from your savings account. A higher rate of Yield Bank) in Maria s interest paid to your DEFX account will increase the return, enabling name. your capital to grow more quickly compared to your current saving account. Having additional funds in your account will ensure you can continue to meet any contingencies (emergencies) which may occur. Funds held in Maria s name (0% tax rate including Medicare levy) will be taxed at a lower rate than those held in John s name (34% tax rate including Medicare levy), reducing your overall tax liability. The DEFX High Yield Bank account offers maximum flexibility and accessibility within 24 hours at no cost. This address your investment concerns regarding capital stability, easy access and management, as well as tax relief. Excess income earned from the interest paid to your account should be re-invested into the account in order to build your cash reserve further. Additional emergency funds can be drawn down from the re-draw facility currently built -up through your mortgage. John, you are likely to receive an annual bonus of approximately $3,000 (5% of salary per annum) based on the company s profit. I recommend this to be directed into the DEFX account in order to build your cash reserve or contributed into super but this will be reviewed at a later stage. Step 2: Review current budget and ensure it can fund future recommendations How Review your budget using the Budget Planner to ensure it is realistic in terms of funding current lifestyle and living expenditure while taking on new investments and providing for large upcoming expenses Reasons The recommendations are only sustainable if the budget surplus you have provided reflects your true spending habits. Your current living expenses total $26,000 per annum (not including mortgage loan repayments of $24,000 per annum). With your combined net income you currently have a cash surplus of $18,713 per annum. I recommend that $6,000 of your annual cash flow surplus be invested for your children s education (see step 3c) and another $4,800 to be directed to the home loan (see step 4B). From our recommendations this will leave a $7,913 cash surplus of which could be directed into your mortgage to help accelerate the repayments or contributed to superannuation. However, this has not been included in our recommended investment projections, contained in the Appendix to this plan titled My financial projections. Managed Investments Case Study Version

28 Step 3 : Commence investment plan to save for children s education How 3A Maria to open a diversified managed fund account. A range of appropriate investment options will be selected on your behalf to provide investment diversification Reasons I recommend a diversified portfolio of managed funds with a range of mainly growth assets that aligns with your Aggressive risk profile. It matches your timeframe of 9 to 11 years. The portfolio is invested across a range of professional fund managers and market sectors including property, shares and high yielding assets. This provides diversity and reduces the risk of exposure to any one investment which may not perform as expected in the short term You will have access to professional expertise for the management of your funds in a cost-effective manager. The investment is to be placed in Maria s name to minimise the taxation liability, as she is on the lower tax rate 3B Liquidate IAG shares to commence the above managed fund which requires a minimum amount of $2,000. 3C $500 regular monthly contributions to be made into the Quantum Horizon to build up the value of the investment. I recommended you initially adopt an aggressive risk profile however as you approach the need to draw on the funds in nine years (when Emily commences high school) you should adopt a more conservative risk profile closer to when the to minimise fluctuations of capital. We will review this with you periodically to ensure it remains appropriate. John and Maria, you have requested investment advice for your jointly held IAG shares and would consider selling them due to a lack of investment diversification. I recommend the sale of the jointly held IAG shares of approximate value $2,000 to open the Quantum Horizon account where the funds will be professionally managed. I recommend that you seek advice from your tax specialist to determine any capital gains tax (CGT) liability. Quantum Horizon will invest the following funds to a total value of $2,000 with the following breakdown: Skyblue Australian Growth Fund 52% - $1,040 McArthur International Growth Fund 33% - $660 Lyndall s Property Fund 15% - $300 I recommend from your current cash surplus an amount of $500 per month ($6,000 per annum) to be regularly contributed into the Quantum Horizon Managed Fund to accumulate capital wealth. A regular savings plan gains the benefit of purchasing investment units at differing prices and therefore reduces the risk of mis-timing the market. Your regular investment amount purchases fewer units when the markets are rising and more units when the markets are falling (this is referred to as dollar cost averaging ). This will provide you with a disciplined approach to saving for your children s education. All investment income (dividends) from the managed funds should be re-invested to further build the investment value over the long term. Managed Investments Case Study Version

29 Step 3 : Commence investment plan to save for children s education My investment projections indicate that your initial investment may grow to $55,800 by the end of the 9th year (before tax and includes re-investments and monthly contributions). This indicates that your goal of $30,000 in year 9 for Emily s education should be exceeded. In the 11th year my projections indicate an investment of $37,200 (before tax and includes re-investment and the monthly contribution). Tara s secondary education of $30,000 in timeframe of 11 years will be funded by my recommendations. All re-invested income will still form part of Maria s assessable income for taxation purposes even though this is to be reinvested. You should speak to your accountant about your complete taxation situation. Details of the investment projections are contained in the Appendix to this plan titled My financial projections. 3D The investment portfolio and funds should be reviewed annually. Breakdown of asset allocation It is important that your investment portfolio is reviewed on a regular basis to confirm that it continues to meet your financial goals and objectives and that it remains relevant to your overall situation and risk profile. The performance of your investments should also be reviewed regularly to assess the effects of changing economic and market conditions: Investment and fund manager performance The economic environment Investment products and vehicles available Changing taxation legislation Centrelink issues such as Family Tax Benefits The following tables and pie charts below show how the recommended investment portfolio is invested per asset class (i.e. cash, shares etc.). Current superannuation assets have been excluded (as you do not wish advise on you superannuation investment), as have your lifestyle assets (such as your home and contents). General information on what constitutes an Aggressive risk profile is included in the Additional information to assist your decision making section of the SOA. Investment assets Amount Owner MacKellar Wsale Growth Multi-Blend Fund -100% $2,000 Maria Total $2,000 Investment assets On-going monthly contribution Owner MacKellar Wsale Growth Multi-Blend Fund -100% $500 Maria Total $500 Graph 1 below shows the recommended asset allocation including the $4,000 in the DEFX High Yield Bank) cash account. Managed Investments Case Study Version

30 Graph 2 below shows the recommended asset allocation excluding the cash account and including the initial investment amount of $2,000 only. Step 4: Accelerate repayment of your home loan How 4A Continue with your current arrangements of $2,000 monthly repayments into the home loan. Reasons Non-deductible debt such as your home loan is a debt that does not provide any tax concessions. Paying this non-deductible debt as soon as possible is aligned with your personal objectives. Paying off non-deductible debt effectively provides you with a risk free, after tax investment return equivalent to the interest rate on the debt John and Maria, you have requested specific advice as to whether to make additional mortgage repayments from your current cash flow. Maria, recently you made an $80,000 mortgage repayment due to the inheritance received from your late father s estate. This brought your mortgage down to $150,000 from $230,000. The minimum loan repayments on your home mortgage ($150,000) are $998 per month ($1,976 per annum) with extra repayments of Managed Investments Case Study Version

31 Step 4: Accelerate repayment of your home loan $1,002 per month ($12,024 per annum) being currently made from your cash flow surplus. In total you are making repayments of $2,000 per month ($24,000 per annum) into the mortgage, at the moment. By directing the extra repayments of $1,002 per month into your home loan (as you are currently doing), projections indicate you are able to repay the mortgage in approximately eight years as compared to 25 years if only making the minimal repayments. Maintaining your current repayments you will save approximately $107,842 in interest paid over the life of the loan. 4B Additional repayment of $400 per month to be made to accelerate the repayment of the home loan even further In order to accelerate the repayment of the home mortgage, I recommend an additional $400 per month on top of the $2,000 per month you are currently making. My projections on the recommended additional repayment of $400 will reduce the life of the outstanding loan from 8 to 6 1/2 years and save in total an amount of $116,817 in interest paid. However, in the seventh year I recommend returning to the minimal repayments on the loan in order to retain the redraw facility on the loan (see step 5) to fund any large unexpected expenses (see step 5) Additional funds paid are available for emergency and other large expenses. Details of the mortgage repayment projections are contained in the Appendix to this plan titled My financial projections. Step 5: Utilise the redraw facility to fund the holiday trip How Redraw $15,000 from the home loan facility to fund the holiday trip depending on your cash reserves. Reasons The redraw facility linked to the home loan allows the additional repayments you make into the loan account to be accessed when the funds are required. A redraw facility has two key advantages: It encourages borrowers to make extra repayments, thereby saving on interest costs It provides flexible access to funds when you are in need of the extra monies In order to fund the holiday trip to America (Disneyland) of $15,000 in 8 years I recommend re-drawing on the home loan to fund the holiday trip. While you may have accumulated cash flow in order to fund the holiday trip, I recommend you do not extinguish the home loan before meeting this goal so the cash savings can be used for emergencies if required. In summary, here s how the recommendations fulfil your goals and objectives Objective How the strategy fulfils the objective When Managed Investments Case Study Version

32 In summary, here s how the recommendations fulfil your goals and objectives Cash reserve Maintain current living expenses Fund your children s educational expenses Accelerate payment of the home loan Holiday trip for $15,000 Partially met by a high yielding cash account and your redraw facility, if required. Maintain living expenses of $26,000 per annum (this does not include the mortgage repayments). This will mean an estimated cash surplus of $8,061 per annum in the first year after the recommendations are in place. Liquidating the IAG shares can be used to initiate the savings plan for you children s education in a qualified managed fund investment portfolio (initial investment of $2,000) A regular savings plan of $500 per month to be contributed into managed investment in order to build capital and growth Our projections show in 9 years the value of the managed fund will approximately come to $55,800 which will allow you to fund Emily s education to the amount of $30,000. In 11 years he managed fund investment after Emily s expenses will approximately be value at $37,200 which will also fund Tara s educational expenses. You are to make additional monthly repayments of $400 into the home loan. This means the loan will be repaid in six and a half years, and result in savings of $116,817 in interest paid. Retain the re-draw facility on the mortgage in order to fund the holiday trip in 8 years for an amount of $15,000, while also building up cash flow surpluses to fund the trip. NOW NOW 9-11 years NOW 8 years Risks and disadvantages The risks Everything we do in life has some level of risk attached to it. With investment, there s the risk that returns won t meet expectations or that we might incur short-term losses. If we want to reduce this investment risk, the trade-off is usually reduced returns. Some level of risk has to be accepted if you re to meet your objectives. We have discussed these and agree that the strategy recommended is appropriate for your needs. Here are the key risks of the strategy: Market Risk. This is the risk that affects specific markets. Factors such as investor sentiment, economic impacts, regulatory conditions and political events will determine market performance. Investment Risk. Each of the recommended investments, except cash, is subject to market fluctuations. While designed to provide greater diversification and higher long term returns, investments in Australian shares, listed property securities and international shares can be more volatile than other investments. Values are likely to move up and down when valued on a regular basis. Legislative Risk. Rules governing investments and superannuation could change. However, it s my experience that there are usually transitional provisions, allowing those already using a particular strategy to adapt that strategy to legislative rule changes. Inflation Risk. While your investment may product a positive return, when it is compared to the increase in the cost of living, you may have reduced purchasing power. Managed Investments Case Study Version

33 Company and Credit Risk. Investments such as shares provide exposure to a company and its business environment, factors that are outside the market s control. Changes to a company s management, legal action against the company and its profit and loss announcements, for example, can have a positive or negative effect on market perceptions and in turn, affect investment return. Currency Risk. Investments in international markets usually involve currency risk. Currency risk is the potential for adverse movements in exchange rates to reduce the Australian dollar value of international investments. Currency risk applies to all investment options that have international assets exposure. Interest Rate Risk. This refers to changes in the market values of securities, especially fixed interest securities. An increase in market interest rates usually produces a reduction in the market value of fixed interest securities. Similarly, a reduction in market interest rates usually produces an increase in the market value of fixed interest securities. The disadvantages Dilution of funds. There are now so many funds available in the market that it can be difficult, even for professional financial advisers, to keep abreast of all the products on offer or therefore to be confident of making optimal decisions. No investment control. Investors have no real decision making in buying and selling individual shares and assets. All this is done by fund managers. Some investors prefer to be more in control of their investments. Costs. Your financial adviser may also charge a fee for providing advice in regards to the investments. Personal and estate planning. Not making proper personal and estate planning provisions may create family issues and result in delays in passing on your assets to your beneficiaries. Additional taxes may be payable should your estate planning issues not be appropriately addressed. Underperformance. Some managed funds perform below others. Some, which were stellar performers in previous years fail to maintain their status so that newer investors don t gain the benefits they were hoping to achieve. Superannuation. Funds are not able to be accessed until preservation age which can be a problem if clients require the funds immediately Not addressing superannuation and overall retirement planning may impede on your future retirement goals Insurance. Insurances held within superannuation means it can be difficult to pay out the lump sum or income protection income stream until the client meets a superannuation condition of release. Premiums can be very high and could reduce the available funds to be invested. By not addressing wealth protection requirements, your other wealth accumulation plans may be jeopardised in the event of accident, sickness or death. What this advice will cost you and how we are paid Advice costs In providing our services and advice to you, we may be paid as follows: Fees charged by us to you ( fees for services ). These are set out in the first row of the table below. Commissions paid by product providers to us from their annual fees. This is calculated as a percentage of the balance of your investment assets and is set out in the second row of the table. These payments are intended to cover the cost of annual ongoing advice. Should you wish to proceed with the proposed advice and strategies, the costs we have agreed for the advice will be: Managed Investments Case Study Version

34 What the fee is Initial Ongoing (annual) Description How paid Amount Initial financial planning fee the research, preparation and implementation of the strategies Direct cost $500 (Total amount for plan preparation and implementation of the advice. 10% of the fee will be charged if you decide not to implement my advice) Ongoing service fee Direct cost $440 per annum Notes Please note that all insurance commissions have been rebated. Ongoing fees listed above are paid from the investment return of the fund. They are calculated throughout the year and, as they are charged as a percentage, the amount of the fee depends on your investment balance at the time. Therefore the figures should be used only as a guide and may not exactly equate to the charges that will be made. Benefits, interests and associations ABCFP may receive sponsorship payments from the product providers recommended in this SOA. Annual sponsorship per product provider is typically between $10,000 and $20,000. This is not a direct cost to you. Your financial planner does not receive any of these payments directly. ABCFP may use these payments to pay for the cost of conferences, training or professional development for your financial planner. In return, the product provider receives a range of benefits including being recognised as a sponsor, attendance at conferences and the right to give presentations to your financial planner. ABCFP may also receive additional ongoing remuneration from Quantum Horizon Management (owned by Patrick s Bank) for recommending their products. This amounts to 0.06% of the funds invested ($8,000 x 0.06% = $480) in the first year and is paid out of the management fees charged by the fund. This is not a direct additional cost to you. For further information regarding benefits, interests and associations please refer to the Financial Services Guide previously provided to you. Product annual fees The ongoing costs of maintaining the product are set out below. The management fees are calculated as a percentage of the balance in each investment option. Other fees related to the product, such as switching fees or member fees, may apply to your investments. These are paid to the product provider. Please refer to the relevant Product Disclosure Statement for specific details on fees regarding each product recommended to you. %of portfolio Investment sector Investment options Amount Management fee (%) Cost PA $ 100% Growth Multi-Sector $2, % $ % $2, % $30.00 %of portfolio Investment sector Investment options Monthly Contribution Contribution Fee Cost PA $ 100% Growth Multi-Sector $ % $ % $ % $10.00 Notes Managed Investments Case Study Version

35 Details about all fees and costs associated with this financial service are contained at pages 13 and 14 of the Product Disclosure Statement under Management & Transaction Costs and Performance Fees. Additional information to assist your decision making Your investment risk profile To assist in the development of an investment strategy appropriate to your particular situation, we discussed your attitude to investment risk and your concerns in the areas of inflation, taxation, safety, liquidity, current income, ease of management and estate planning. When assessing risk profile we examine the mix of investment sectors with which you feel most comfortable, i.e. the allocation of your investments across the asset classes including cash, fixed interest, listed property and shares. From our discussions and your completion of a Risk Profile Questionnaire we have ascertained Maria is an Aggressive risk profile and John, you are a Balanced risk profile. After discussion with you both we concluded that the investments would be placed in accordance with Maria s risk profile, and John you indicated you were comfortable with that level of risk. If you feel that this profile and final decision does not reflect your concerns then we should have further discussions before you implement the recommendations in this SOA. Maria, your risk profile (Aggressive) is summarised as follows: Aggressive investors are willing to accept a higher level of volatility in exchange for greater growth. An aggressive investor s portfolio will be invested primarily in equities. This approach concentrates on achieving a good overall return on your investment while avoiding the most speculative areas of the market. Significant short-term fluctuations in value can be expected. The eventual return for the entire investment timeframe could fall within a relatively wide range of possibilities. In most circumstances, particularly for time-periods greater than five years, these returns should outperform the returns the returns that could be achieved from a more conservative approach. Asset allocation Aggressive (%) Cash 0% Fixed interest 15% Total defensive assets 15% Domestic equity 37.5% International equity 37.5% Property 10% Total growth assets 85% Managed Investments Case Study Version

36 As an aggressive investor you should review your portfolio, at least annually, to ensure your actual portfolio asset allocations do not deviate from your chosen investor profile percentages. This may necessitate a re-balancing of the actual portfolio percentages back to the initial percentages chosen. You should re-assess your profile as your personal circumstances change. John, your risk profile (Balanced) is summarised as follows: Balanced investors want some growth as well as a reasonably stable income. Balanced investors portfolios will include investment in equities, balanced by exposure to more risk-averse areas of the market such as cash, fixed income securities, and real estate. This approach aims to achieve a balance between stability and return, but is likely to involve at least some short-term volatility. The overall return is not guaranteed, although the range of possible outcomes should not be extreme. In most circumstances, particularly for time periods greater than five years, these returns should outperform the returns that could be achieved from a more conservative approach, but may underperform the returns that could be achieved from a higher risk approach. Asset allocation Balanced (%) Cash 5% Fixed interest 25% Total defensive assets 30% Domestic equity 30% International equity 30% Property 10% Total growth assets 70% As a balanced investor you should review your portfolio, at least annually, to ensure your actual portfolio asset allocations do not deviate from your chosen investor profile percentages. This may necessitate a re-balancing of the actual portfolio percentages back to the initial percentages chosen. You should re-assess your profile as your personal circumstances change. Managed Investments Case Study Version

37 Additional resources Title Product Disclosure Statement (PDS) Financial Services Guide (FSG) Working materials Research materials Educational materials Description PDS containing technical particulars about the recommended product, including product features and costs that apply. The FSG that has already been provided to you provides information on a range of issues including the services we offer, how we operate, how we get paid, and any interests, associations or relationships that could influence them. A copy of the spreadsheet workbook used to determine the financial figures and strategy contained within this SOA can be made available to you upon request.* Research materials relevant to product selection. This material is independently appraised by a credible research house engaged by the Licensee. You should read this information so that you gain a better understanding of what you are investing in. As above, we recommend that you read the Financial Planning Association booklet, The Trade Off - Understanding Investment Risk. * The financial workings titled My financial projections have been included at the end of this SOA for the purposes of this case study. Services being provided to you and next steps This advice is relevant for the period up to retirement but does not consider your needs and objectives in retirement. You will need to review your financial affairs in the lead up to retirement. Financial planning is a dynamic process and your financial development needs to be regularly monitored for changes in your circumstances, as well as economic conditions, government legislation and a range of issues that may impact on your financial wellbeing. Should you receive a pay rise, or have any other change in your employment circumstances, you should notify me immediately so that your strategy can be reviewed to ensure it remains in step with your objectives. If you wish to proceed with the recommendations outlined in the SOA you should sign the Authority to Proceed and return it to us. Implementation plan Managed Investments Case Study Version

38 When Who What Why Evidence As soon as possible As soon as possible As soon as possible As soon as possible As soon as possible As soon as possible As soon as possible John & Maria Read this SOA To confirm you have read & understood the advice provided to you John & Maria Maria John & Maria John & Maria John & Maria John & Maria Move your existing funds from your joint savings account to the specified account in Maria s name. Read the PDS and strategy for the diversified managed fund account in Maria s name Liquidate IAG shares to open the managed fund account Commence monthly direct debit into managed fund Arrange for additional monthly payment off home loan Ask any questions prior to final implementation To meet contingencies, increase return and the first step to investment To confirm you have read & understood the PDS and strategy & are comfortable in proceeding To commence investment To enable Maria to access the government cocontribution scheme To pay off home loan faster and resulting in significant savings Ensure that you are comfortable with all elements of the advice provided and the costs of that advice Provide me with the signed SOA Please confirm when actioned Ask any outstanding questions Provide me with completed exit and entry forms Provide me with completed direct debit authorisation Please confirm when actioned Please confirm when actioned Managed Investments Case Study Version

39 Authority to proceed Before you sign this authority, please check that I have: given you my Financial Services Guide (FSG) given you a Product Disclosure Statement (PDS) about each financial product that I have recommended talked to you about your personal circumstances, insurance needs and financial goals in a way you understand, and answered your questions discussed the risks involved in investing and how much risk you are prepared to take discussed any fees and charges associated with the recommended products and insurances that you will have to pay If I haven t done all of these things, don t sign the Authority to Proceed below Before you sign this authority, please also make sure that you have: read all the documents I have given you checked that your personal information in this document is accurate asked me any questions you have understood the fees and charges associated with the recommended products and insurances, as well as initial and ongoing charges If you have any questions about please don t hesitate to contact us on (02) during business hours (Monday to Friday, 9am to 6pm). Once you are happy with the advice and recommendations outlined in this SOA and wish to implement them you should both sign the Authority to Proceed below and return it to us. We will arrange for the necessary paperwork and appointments to be completed (this can be mailed out to you or completed during our next meeting). By signing below, you agree to the following products and investments being purchased on your behalf by representatives of ABCFP. John Dunlop Date Maria Dunlop Date Managed Investments Case Study Version

40 Ongoing review agreement John and Maria Dunlop of 101 Treeline Drive Nicesuburb NSW 2999 The importance of reviews Investment markets and legislation constantly change along with your needs, goals and circumstances. Therefore it is necessary to regularly review your investment position to ensure you are on track to achieve your objectives. Our review service Every six months we will review your personal and financial details. Once a year we will report formally on your portfolio s performance and review your position to keep you on track to attaining your investment goals. Your superannuation, risk insurance and estate planning requirements will be reviewed once a year. Your cash flow and budgetary position and address any saving and expenditure requirements will be reviewed once a year. You will have access to view your portfolio online. You will also receive our quarterly informative newsletter. You will also be invited to ad hoc client seminars and investment briefings. At all times you retain discretion over all your investments and we do not implement any changes unless discussed and agreed by you. Our fee for service for the year is $440. The next steps In providing you with the above service, we ask for your commitment to undergoing the process with us by indicating your preferred service package, signing below and returning this letter in the envelope provided. The above agreement is understood and accepted by: John Dunlop Maria Dunlop. Signature... Date Signature Date Managed Investments Case Study Version

41 Additional Workings Income generated by investments: Workings % Initial Monthly Income Dist Month Month Month Month Month Income Month Month Month Month Month Month Income Month Total Dist 455 Managed Investments Case Study Version

42 Managed Funds Calculator Emily s Investments 1. Print 'Your guide to the managed funds calculator'. The calculator uses assumptions about unpredictable events that cannot be guaranteed. The Guide explains them. 2. The calculator uses macros. Please select 'Enable Macros' when opening the calculator. 3. Fill in white boxes and choose tick boxes. The Guide explains them. 4. Red triangles contain instructions. Select View>Comments or mouse over cell to read. 5. You can see and change some assumptions. Click Assumptions tab. 6. Click Workings and Zero fees tabs for detailed calculations (reference only). Are you considering: a new investment? or a transfer to a new fund? Amount to invest Amount to invest $2,000 Additional amount you contribute each year $6,000 Total years in your fund 9 What type of fund? Growth (This sets assumed investment earning rates) Fund 1 Fund 1 name Quantum Horizon Fund 1 investment earnings Earning rate after management costs? Earning rate before management costs 8.50% Fund 1 fees Management cost (% of accumulation) 1.50% Any extra $ per year management fee $0.00 Contribution fee (% of contributions) 2.00% Adviser service fee (% of accumulation) 0.00% Restore all fees & earnings to default rates Result in today's dollars for fund 1 Your final accumulation before tax $55,800 'Your final accumulation' is an estimate based on limited information and not guaranteed. Don't just rely on the calculator to choose a fund. Please consider your own circumstances. You might need advice from a licensed advisory business. Managed Investments Case Study Version

43 Assumptions Expected inflation CPI Rise in community living standards Adjusted 2.5% 1.0% 3.5% Conservative limits Upper Lower Long term fund earning Nominal Real Range +/- Nominal Real Nominal Real Growth 8.5% 4.8% 3.0% 11.5% 7.7% 5.5% 1.9% Balanced 8.0% 4.3% 3.0% 11.0% 7.2% 5.0% 1.4% Cap stable 6.0% 2.4% 2.0% 8.0% 4.3% 4.0% 0.5% Cash mgt 4.5% 0.9% 1.5% 6.0% 2.4% 3.0% -0.5% Other 0.0% -3.4% 6.0% 6.0% 2.4% -6.0% -9.2% Default values for fees Management cost 2.00% Extra $ per year $0 Contribution fee 2.00% Adviser service fee 0.00% Managed Investments Case Study Version

44 Workings Fund 1 Opening balance or initial contribution $2,000 Less contribution fee $40 Adjusted balance $1,960 Final balance $55,828 Activity variables Contributions Fees Investment account - current $ Year Contributing New contributions As % bal As % new conts Absolute ASF Total Open bal Conts Fees Earning Net Close bal Constant $ 1 1 6, ,960 6, ,179 7,900-2, , ,179 6, ,829 13,837-6, , ,829 6, ,499 1,112 21,941 19,775-6, , ,941 6, ,099 1,605 29,546 25,722-6, , ,546 6, ,741 2,132 37,678 31,686-6, , ,678 6, ,427 2,696 46,374 37,671-6, , ,374 6, ,160 3,300 55,674 43,685-6, , ,000 55,674 6,000-1,000 4,945 3,945 65,619 49,735-6, ,000-1, ,149 65,619 6,000-1,149 5,784 4,634 76,253 55,828-6, ,253 Close bal Cash flow Cash flow Managed Investments Case Study Version

45 Managed Funds Calculator Tara s Investments Managed Investments Case Study Version

46 Workings Fund 1 Opening balance or initial contribution $25,800 Less contribution fee $516 Adjusted balance $25,284 Final balance $37,206 Activity variables Contributions Fees Investment account - current $ Constant $ Cash flow Year Contrib -uting New contributions As % bal As % new conts Absolute ASF Total Open bal Conts Fees Earning Net Close bal Close bal Cash flow 1 1 6, ,284 6, ,681 1,136 32,420 31,317-25, , ,420 6, ,106 1,454 39,875 37,206-6, ,875 Managed Investments Case Study Version

47 Multi Loan Calculator Standard (Minimum) Repayment Rates Loan 1 Balance outstanding $150,000 Annual interest rate 6.34% Monthly payments $998 Time to pay off Years 25 Months 1 Results 25 1 Debt outstanding now $150,000 Current monthly repayments $1,242 Combined interest - yearly 6.34% - monthly 0.53% Longest loan - years 25 and months 1 Option 1 - Pay off your debt faster without re-financing? Keep up your current monthly payments of $998 Estimated time to pay all debts - years 25 and months 1 This supposes you could get a single loan of $150,000 at the same combined interest rate you pay now: 8.84%. Estimated interest saved $0 You could generally pay off debts in about the same time with similar savings without re-financing. As soon as one loan is paid off, add the regular payments for that loan to your next highest-interest loan. Do this progressively until all debts are paid off. Option 2 - Refinance with new loan term and new payments? What could it cost? Managed Investments Case Study Version

48 Current Establishment fees and costs Time to pay off debt - years 25 & months 1 Regular monthly repayment $998 Your annual interest 6.34% Total interest and fees paid $149,400 If the offer costs more in interest rate and fees than your current loans, you may be worse off. Option 3 - Change payments on some loans? Change loan payments? FALSE From loans you select, put in a once-off payment or new (higher) regular payments in the relevant white cells. New Current Total debt (reduced) $150,000 New monthly repayments $998 Your annual interest 6.34% Time to pay off debt - years 25 - months 1 Total interest paid $149,400 Managed Investments Case Study Version