Statement of Advice. Prepared for. Mr. Walter Gannon. Prepared by. Tracy Burton

Transcription

1 Statement of Advice Prepared for Mr. Walter Gannon Prepared by Tracy Burton Authorised Representative Number: Cemex St.,Turramurra NSW Authorised representative of Burton Financial Planning Group ABN: Australian Financial Services Licensee License No Head Office: Level 26, 1 Carlyle St., MELBOURNE VIC February 2010 You are entitled to receive a Statement of Advice ( SOA ) whenever we provide you with any personal financial advice. Personal advice is advice that takes into account your goals, objectives, financial situation and needs. This SOA is a report of the personalised financial advice provided to you and includes information on the basis on which this advice is given, information about fees and commissions and any connective information which might influence the advice. If this advice includes a recommendation to you to acquire a particular financial product (other than securities) or an offer to issue or arrange the issue of a financial product to you, we will also provide you with a Product Disclosure Statement containing highly detailed supportive information about the particular product to help you make well informed decisions about the product. Be aware that the advice contained in the following SOA is valid for a period of 30 days only. If the plan is not implemented within this time, it will no longer be current and will need to be reviewed for accuracy. February 2010 Page 1

2 Statement of Advice Table of Contents Executive Summary...3 Summary of our recommendations..3 Summary of expected outcomes if you implement our advice....3 Risks in our advice.. 4 Summary of our fees and commissions...4 Your next step.. 4 Important information about you.. 5 Your reasons for seeking us..5 What you would like to achieve. 5 Your personal and financial information....6 Personal information...6 Your existing insurance..6 Your existing estate planning...6 Financial Information...7 Current income and expense details...7 Your risk profile...8 Strategy recommendations 9 Recommended action after one year...9 Reasons for recommendation first year..10 Things you should consider..11 Investment product recommendations. 12 Recommended asset allocation..13 Disclosure of commissions, fees and benefits...14 Ongoing services...15 Authority to Proceed..16 SOA Appendix 1 Cash flow projections after one year No implementation of strategy..18 SOA Appendix 2 Cash flow projections after one year After implementation strategy 21 SOA Appendix 3 Cash flow projections.24 February 2010 Page 2

3 Summary of our recommendations For the short term - up to one year I recommend that: Executive summary You pay off your personal debt including the car loan and mortgage of $ You open a high yielding savings account and place $15000 within as an emergency fund. You set up Family Tax Benefit B. You see a solicitor to update your Will. For the medium term - one to five years Invest $40000 in a balanced managed fund, and then be accessed in 4 years when Chloe begins her high school studies. Invest $50000 in a growth managed fund for the build up of retirement wealth. For the long term - ten years+ Invest $80000 in a growth investment bond which can be accessed in 10 years when Chloe begins her university studies. Maintain current super arrangements and review in 12 months time. Maintain general and personal insurance and private health cover. Maintain existing share portfolio of $ Summary of expected outcomes if you implement our advice If you decide to follow through with the recommendations of this report, we estimate that your daughters education funds should grow over time and meet the financial needs to pay for their high school and university studies. Your personal debts being paid off and setting up your high savings account will generate further savings. This will allow you to enjoy the lifestyle you require with minimum worry. The growth managed funds and your existing share portfolio will grow over time while still being accessible. This will help you achieve your retirement goals. You will have effective insurance and health cover in the unlikely events of death, sickness or injury. Your updated Will can protect your family in the case of unlikely events. February 2010 Page 3

4 Risks in our advice As has been discussed, all investment options do carry some risk. You are to be aware that your managed investments may not increase as quickly as you expect, or the value may not change or go down. Non disclosure of personal information Under RG , we are required to give you warnings on the accuracy of advice, due to not being able to obtain all information required, regarding your personal circumstance, e.g. (Superannuation, Insurance cover). Our advise may be limited if we do not have all relevant information required. It is up to you to assess how appropriate our recommendations are in your circumstances. Summary of fees and commissions The fee required for our advice and the preparation of making this Statement of Advice is $2600 including GST. Burton Financial Planning Pty Ltd is entitled to receive $1600 and I will receive the balance. There are no ongoing commission costs for investment recommendations. Where necessary, the costs will be rebated. You may be charged fees for purchasing and investing in some products we recommend. Further details on the fees, commissions and benefits relevant to our advice can be found in the Disclosure of commissions, fees and benefits section. Your next steps In order to decide whether to take our advice you should: Read the Statement of Advice fully to understand our advice Feel free to ask any questions you have as a result of reading the Statement of Advice. To proceed with your advice, please complete the Authority to Proceed at the end of the statement and return it to us. February 2010 Page 4

5 Important information about you This section shows information about you we have used to prepare advice: Why you are seeking advice What you would like to achieve Personal and financial information Please inform us if you feel any of this information is incorrect or incomplete. Your reasons for seeking advice Walter - we agreed that we would provide advice on: Investments Taxation Estate Planning Walter - you mentioned you did not want any advice on: Insurance Superannuation What you would like to achieve After our discussion, we understood your main objectives and needs as follows: You would like Patricia s Super invested in best possible way, producing as much income as possible with minimum worry; You want Patricia s Super to pay for your daughters future high school & university studies of $115000; You wish to maintain family lifestyle whilst working part-time till Larissa is 13. You expect to retire at 65 with $40000pa. As mentioned previously, because some of your information regarding your circumstances, needs and objectives is limited, you will have to consider if our advice is appropriate before acting upon it. February 2010 Page 5

6 Your personal and financial information Written below is a summary of your personal and financial details you have provided. Personal Information Personal Details First name Walter Surname Gannon Date of Birth?/? /1974? Current Age 36 Martial Status Single Health Status - Smoker Status - Employment Status Part-time Employer name - Occupation Manufacturing Annual Salary $42000 Children & Dependent details Name Date of birth Sex School Occupation Larissa Gannon?/? /2004? F Primary Student Chloe Gannon?/? /2002? F Primary Student Your existing insurance Walter - you have $ Life and TPD cover under your superannuation fund and your family has private health insurance. Your existing estate planning You have advised us that your Will requires updating, and need to see a solicitor. February 2010 Page 6

7 Current income and expense details Income and expenses Financial information Walter Total Assessable income $44014 $44014 Income after tax $37604 $37604 Yearly expenses $52636 $52636 Estimated surplus/deficit -$15032 Walter- based upon the income and expenses schedule above, you have a deficit - $15032 income available if after 1 year this implementation is not followed. Please refer to your Cash Flow Statement in Appendix 1. Assets and Liabilities Value Liabilities Net Value Total personal assets $ $ $ Total investment assets $ $0 $ Net Worth $ Please refer to Assets and Liabilities in Appendix 1 for more details. Incomplete and/or inaccurate information warning Be advised, that for any reason, information on which our advice is based upon, is either inaccurate or not complete, then it may be necessary to consider its appropriateness in respect to your particular circumstances, needs and objectives. February 2010 Page 7

8 Your risk profile All choices of investment have a certain element of risk. Generally, however, investments that have high rates of return involve high levels of risk, and more conservative investments bear lower returns. From our discussions, and from the answers of your risk profile questionnaire, we believe that you are a Balanced investor. You are a cautious investor who wants a balanced portfolio that can work towards medium and long-term financial goals. You require an investment strategy that will cope with the effects of tax and inflation. Calculated risks will be acceptable to you to achieve good returns. An appropriate asset mix for you would be: 40% in defensive assets for example: cash, fixed interest, and 60% in growth assets such as Australian equities, international equities, property. The target asset allocation for your risk profile is seen below: Target asset allocation- balanced growth February 2010 Page 8

9 Strategy Recommendations The aim of this section is to tell you: what our advice is; reasons for our recommendations; things to consider and risks of our advice. Read this section and ask if you have any queries. Recommended actions - after one year I recommend that you: Repay all personal debt including the car loan and mortgage of $242000, this will reduce your interest expense, resulting in future savings over time and a greater income level. With $15000, set up a high yielding savings account for use as an emergency fund, where further income earned can be saved here. Set up a balanced managed fund of $40000 for secondary school expenses. This will provide greater returns then a bank account. Organise a growth managed fund of $50000 to help fund retirement and necessary expense. Set up a growth investment bond of $80000 that can be used in 10 years for University expenses. This will provide returns as well as tax advantages. Set up your entitlement Family Tax Benefit B with Centerlink. Update you Will. Product recommendations Note that we can only recommend products that have received approval by Burton Financial Planning Pty Ltd. February 2010 Page 9

10 Reasons for recommendations- first year Personal investment As can be seen in the Cash Flow Statement in Appendix 1, you currently have a deficit of funds which is largely due to the mortgage and car loan. The faster these are paid off, the sooner you will have access to greater funds at your disposal. This is due to the fact you will not be paying interest on your debts. Setting up the high yield savings account will help you have added security as an emergency fund in reserve. Managed funds Managed funds will give you diverse investment over different types of assets which will help create wealth. Your fund managers have the advantage of much expertise and resources as well as good administration procedures for regular reports. This has contributed to reason why Colonial First State is one of the largest in Australia. The recommendation to place $40000 in a balanced managed fund is for your daughters high school expenses. This fund will provide a balanced level of risk and will likely provide greater growth of funds then keeping it in a bank account. Having $50000 in growth managed fund is for your personal investment. These funds have the potential for greater growth then the balanced managed funds. This should help you achieve your retirement goals and any other necessary expense. By using managed fund shares and keeping your existing shares, you allow yourself long term capital growth as well as interest income Also, shares by their nature, can easily be sold on the stock exchange and provide you with funds on short notice. Growth Investment Bond The growth investment bond of $80000 is for the purpose of funding your daughters university expenses whilst generating growth from its interest payments. The growth investment bond will keep its yearly earnings and pay its 30% tax on its own, so you won t have to be taxed on anything unless you withdraw within the 10 year period, for which it will be listed as an earning in your assessable income. Otherwise you do not have to declare anything on your income statement even when it is matured in10 years time. This method is a popular instrument used to save for children s education whilst minimising risk and benefiting from tax advantages. Gearing Gearing is another method investors uses. It is the practice of borrowing funds to purchases investments that produce assessable income, e.g. shares or property. Although there is possibility of gaining returns from an investment, exposure to risk also increases. The risk of gearing can occur when an investment does not perform well, interest rates may change and affect the value of the investment and interest on the borrowing must still be paid in the process. I would not recommend gearing at this time. Family Tax Benefit February 2010 Page 10

11 Family Tax Benefit is an exempt tax benefit which Australian citizens have the right to use. Family Tax Benefit B gives benefits for single parent families. Depending on the age of your youngest child, you should be entitled for $ /year. Please check the Cash Flow and Assets and Liabilities Statements in SOA Appendix 2, for your financial position after recommendations. Things you should consider Paying off your mortgage Please be aware there may be discharge or legal fees associated with paying the mortgage off early. You will have to discuss this with your mortgage provider. This may also be the case with the car loan. Family Tax Benefit B You need to be aware that you should discuss this with a Centerlink representative, as I have limited knowledge in this advice. Taxation issues Taxation is fairly complex and beyond my limited taxation advice. I recommend that you see a taxation advisor/accountant on any taxation advice you may require. February 2010 Page 11

12 Investment product recommendations Colonial First State investments: was established in 1988 and manages $90 billion worth of investments globally. Colonial First State also has one of the largest investment teams; it also has wide range of investments and fund managers and can bring highly diversified portfolios. Lastly, Colonial First State is a leader in providing value for money. Cooling off period You have 14 days from the time your investment is confirmed to change your mind on any products. If you wish to return a product and get a refund you must notify us within 14 days after confirmation. Please note that if you return a product within the cooling off period you may get back less than you originally paid for. This can be due to market fluctuations, taxes and administrative costs. February 2010 Page 12

13 Recommended Asset Allocation Your managed funds assets are invested across different classes. The table below shows a comparison of your balanced managed fund allocation and your growth managed fund allocation. Comments on proposed asset allocation vs. your risk profile As we discussed, your likely risk profile is a balanced investor. Your investment for your children s high school education is a balanced managed fund, however your personal investment is a growth managed fund. This bears more risk then a balanced managed fund; however, it is set to a higher growth to help you generate extra income for future expense and retirement more quickly. Asset allocation after implementation of recommendations Assets Allocation Balanced Managed Fund ($40000) Defensive assets Australian Cash 10% 10% Australian Fixed interest 20% 5% International fixed interest 10% 5% Total for defensive assets 40% 20% Growth assets Australian equities 30% 35% Australian property 10% 30% International equities 20% 15% Total for growth assets 60% 80% Grand Total 100% 100% Growth Managed Fund ($50000) This chart indicates how your assets have been allocated for your managed funds. Notice the balanced fund bears 40% defensive assets and 60% for growth assets, whilst your growth fund is set to 20% defensive and 80% growth. Defensive assets are asset classes such as fixed interest and cash, whilst growth asset classes are equities and property. Defensive assets are less risky but generate less return compared to growth assets, which bear greater risk but potential for much greater returns. February 2010 Page 13

14 Disclosure of fees, commissions and/or benefits How are we paid? The total fee for our advice is $2600 (including GST). $1600 will be received by Burton Financial Planning Pty Ltd and I will receive the balance. Please make this payment within 14 days of receiving this Statement of Advice. Neither Burton Financial Planning Pty Ltd nor I will receive any commissions earned, and where necessary will be rebated. You may be charged for buying and investing in products that have been recommended in this statement. The product providers usually charge fees, such as the management fee at 1.2%. As an example if you invest $40000, you will pay $480. Other Benefits Burton Financial Planning Pty Ltd and I may sometimes receive other benefits in addition to our fees. With benefits exceeding $300, they are recorded on alternative forms of remuneration. A copy of this Register can be publicly made available if requested. February 2010 Page 14

15 Ongoing services This Statement of Advice is a snapshot of your current circumstances, needs and objectives. Over time, finance changes. The Australian government passes new laws that can affect tax and superannuation rules, which may also apply to your investments. Also with time, new products will be introduced. These changes may bring benefit to you when taken advantage of. Changes such as these must be assessed in an ongoing manner, and related to your particular situation. This will ensure you have the best resources to meet your goals and objectives. The ongoing review is to: Keep us updated on your circumstances, both personal and financial; Revise your risk profile; Keep you updated on the economy and any investment and legislative changes that can impact your current strategy; Keep you updated on your investment portfolio performance; When necessary, recommend changes to your investment or insurance strategy. February 2010 Page 15

16 Implementation Walter- for you to proceed with this recommendation, you need to complete the following: Read, sign and return the Authority to Proceed attached; Organise an appointment with me and bring any completed application forms. February 2010 Page 16

17 Authority to Proceed Firstly, before signing this document please check that I have: Given the Burton Financial Planning Pty Ltd s Financial Services Guide; Confirmed that the personal information I have collected is correct; Discussed your goals and objectives; Confirmed that you are happy with your risk profile; Discussed any risks in the recommendations; Discussed fees that need to be paid. Secondly, confirm that: You have kept a copy of the SOA and have had the opportunity to read, consider and understand the document, supporting material and have asked questions. The SOA dated 17 February 2010 accurately summarises your current situation, investments, insurances and financial goals. You understand that any inaccurate or incomplete information provided to us, may bring risk to meeting your needs appropriately. You have understood the Disclosure of commissions, fees and benefits section of SOA. You understand that recommended investments may rise and fall with the market, and cannot guarantee future performance. You understand that this statement is solely for yourself; Burton Financial Planning Pty Ltd does not accept liability to others who rely on any of the information in this SOA. You hereby request Tracy Burton to provide services in the Ongoing Services. Consent to ongoing contact We consent to being contacted by our Advisor on an ongoing basis, in line with the ongoing service review within this recommendation. Our preferred hours of contact between and. Signed Date / / Client Name Signed Date / / Financial Advisor February 2010 Page 17

18 Income and expenses SOA Appendix 1 Cash flow projections after one year - No implementation of strategy Walter Notes Taxable income Salary $42000 Salary sacrifice $0 (state % if applicable) Salary after salary sacrifice $42000 Rental income $0 Unfranked dividends $1200 Assume Walter mentioned 3% return on his existing portfolio Franked dividends $514 $1200/.70x.30 Franking (imputation) credits $0 Interest $300 $5000@6%=$300(fixed term deposit interest) Other income, e.g. taxable benefits $0 Capital gains <1yr $0 Capital gains >1yr $0 Tax-free component of capital gains $0 Assessable income $44014 Deductible expenses $0 Rental expenses, repairs etc. $0 Taxable income $44014 Tax on taxable income 2009/10 $7054 $ %>$35000 Medicare levy 2007/08 $660 $44014 x 1.5% Medicare levy surcharge N/A Franking rebate -$514 Tax Refund Tax offsets (e.g. LITO/SATO)2009/10 -$790 LITO= $1350-[4%x($44014-$30000)] Other rebates and offsets $0 Total tax $6410 Income after tax $37604 =assessable income total tax Notes These figures are based on our assumption that you have received your dividend of 3%. These figures are based on our assumption that you have received your fixed interest deposit of 6%. February 2010 Page 18

19 Family cash flow Walter Income after tax (as calculated above) $37604 Investment expenses Living expenses Living Expenses $27400 Holiday $1500 Home mortgage $17256 Car Loan $6480 Total expenses $52636 Net cash flow -$15032 February 2010 Page 19

20 Assets and liabilities Asset Owner Value Liabilities Net value Notes Personal assets Home Walter $ $ $ Mortgage applied Savings Account Walter $ $15032 $ $12000, Patricia s Contribution & Car ($410000), Fixed term deposit+ interest ($5300), portfolio dividends ($1200)- ($15032) deficit Walter s Car Walter $32000 $15520 $16480 Car Loan applied Total $ $ $ Investment assets Shares Portfolio Walter $40000 $40000 Employer Super Walter $ $ Not Requiring Advice 9%=$3780) Total $ $ Net worth $ Liabilities Loan Current debt Percentage deductible Interest only Repayment Home Loan Mortgage $ % No -($1438x12=$17256) Car Loan $ % No -($540x12=$6480) Total $ February 2010 Page 20

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22 Income and Expenses SOA Appendix 2 Cash flow projections after one year - After implementation of strategy Walter Notes Taxable income Salary $42000 Salary sacrifice $0 (state % if applicable) Salary after salary sacrifice $42000 Rental income $0 Unfranked dividends $0 Franked dividends $1200 Assume Walter mentioned 3% return on his existing portfolio Franking (imputation) credits $514 $1200/.70x.30 Interest $7750 $5000@6%=$300(fixed term deposit interest prior to its investment elsewhere) $40000@8%=$3200(balanced mgt.fund) $50000@8.5%=$4250(growth mgt.fund) Excluded: (Investment bond- no income tax liability): $80000@4.5%=$3600) Other income, e.g. taxable benefits $0 Capital gains <1yr $0 Capital gains >1yr $0 Tax-free component of capital gains $0 Assessable income $51464 Deductible expenses $0 Rental expenses, repairs etc. $0 Taxable income $51464 Tax on taxable income 2009/10 $9289 $ %>$35000 Medicare levy 2007/ $51464 x 1.5% Medicare levy surcharge N/A Franking rebate -$514 Tax Refund Tax offsets (e.g. LITO/SATO) 2009/10 -$492 LITO= $1350-[4%x($51464-$30000)] Other rebates and offsets $0 Total tax $9055 Income after tax $42409 =assessable income total tax Inclusion Family Tax Benefit B $45084 $ Income after tax Family cash flow Walter Income after tax (as calculated above) $45084 Investment expenses Interest payments February 2010 $0 Page 22 Rental expenses $0

23 SOA Appendix 3 Cash flow projections Projected returns for Walter s growth managed investment fund Opening Balance $50000 Final Balance after year 1= $54250 Assumptions: Growth fund net return after fees= 8.5% Management Fee 1.2% Contribution Fee 0.5% Projected returns for Walter s balanced managed investment fund Opening Balance $40000 Final balance reinvested in 4 years time= $54419 Assumptions: Balanced fund net return after fees=8.0% Management fees 1.2% Contribution fee 0.5% Projected returns for Walter s growth investment bond Opening Balance $80000 Final Balance reinvested in 10 years time=$ Assumptions Growth investment bond net return after fees=4.5% Management fees 1.2% Contribution fee 0.5% The table below shows a year by year estimate of your recommended investment portfolio. In addition, the table shows your growth managed fund being reinvested for illustrative purposes. Please refer to the assumptions as all illustrations are based on these assumptions. These illustrations are indicative only and are not guarantee of a future performance. Investment Year 1 Year 2 Year 3 Year 4 Year 10 Growth Fund $54250 $58861 $63864 $69292 Balanced Fund $43200 $46656 $50388 $54419 Growth Investment Bond $83600 $87362 $91293 $95401 $ Net Assets $ $ $ $ $ February 2010 Page 23