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Compliant Statement of Advice SoA - David’s Investment Risk Profile - Accounting Case Study Assessment Answer
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Accounting Case Study Assessment Answer
TASK Case Study Details About You.... You are an authorised representative (your no. is your student ID) for a medium-sized accounting firm, Accounting and Financial Concepts Pty Ltd (AFC Pty Ltd) which also has an Australian Financial Services Licensee (No. 226513) and ABN 12 345 678 900. 6 The main office and registered address of the practice is located at; Level 2, 121 Baker St. Parramatta NSW 2124 Tel: 02 8234 7377. You have 6 years’ industry experience in the accounting and financial planning industry and hold the CFP designation. Your current educational qualifications are a Bachelor of Business (WSU) and an Advanced Diploma of Financial Services (Financial Planning). As an authorised representative of AFC, you can provide advice in relation to financial planning, investment and wealth creation, superannuation and retirement planning, managed funds, direct shares, risk assessment and management and general and life insurance products. There are no costs associated with the production of this preliminary investment report. Any costs will be included when the Statement of Advice is subsequently developed at some future date. About your Client..... David Wheeler is 64 years old (DoB: 4/2/1955) and intends to cease work in the next 4 weeks. He has worked with an educational institution where he was responsible for running the English language program for international students and was in that role for the last 12 years. David had originally intended to work for another 2-3 years, however, a restructure at his workplace made him uncomfortable with his new role so he decided to “retire early”. Before making his decision to leave work, he did not really consider his financial position and is now a little concerned about his decision. He has come to you for advice on what she should do financially now that he will no longer be working. His main concern is whether he can generate enough income to retain the lifestyle ‘to which he has become used to’. His address for mail is 8/195 Bayview Street, Potts Point NSW2011. His other contact details are 0411 544 583 and his email is davidw@email.com.au David is single (and intends to remain so) and has no financial dependents. He owns his own unit in Potts Point which he thinks is worth about $1.4m based on what other units in the block have recently sold for. He has lived here for over 5 years and has no debt on this property. Insurance cover for the building is provided through the strata of the building and he has his contents insured with AAMI for $220,000 replacement value. He does not have a car and is happy to continue to use public transport once he stops work. David has been given an estimate of his payout from his employer. His payout includes unused annual leave as well as a small amount of Long Service leave. After tax, this amount works out to be about $65,000 and will be paid on his final day of employment. While working David enjoyed a salary of $135,000 and was paid 10% superannuation in addition to his salary. Although, he has not really given it much thought, David feels that in retirement he needs effectively the same level of income (after tax) as when he was working. He cannot see that he will make many changes to his lifestyle including taking at least one overseas trip each year. David has used his employment income to fund his lifestyle including the overseas trips and has never really “saved” much from his income in the last 5 years or so. David has previously worked overseas where he earned significant tax-free income which he has used to pay off his mortgage and accumulate some savings. David has also recently received an inheritance from his father’s estate. As David has been quite busy with work he has just put the funds he received from his father’s estate into his everyday personal bank account which is earning about 0.50% interest. The Commonwealth Bank has been calling him every few weeks asking him to come in to discuss “options” for the $460,000 balance he has in this account. This includes his savings of $60,000 and the $400,000 cash he received from his father’s estate. David’s last superannuation statement shows a balance of $720,000 and is invested in the MLC Masterkey Super - MLC Horizon 3 Conservative Growth Portfolio. He believes that when he leaves work and the final contributions are made by his employer, the balance will be closer to $765,000. David also has a small defined benefit superannuation pension from work he did before he worked offshore paid by State Super. This currently pays him a guaranteed income of $455 per month and is payable for his lifetime and is indexed to inflation each year. While the income from this fund will be payable for his lifetime he is unable to access any lump sum from this account. Benefits paid from this fund have been made since he reached age 55 and as he did not need the income he has directed all payments to a managed fund, the Perpetual Industrial Share Fund. He is pretty happy with the return on this account as the account balance is now $76,500 but he is not really sure if it is suitable now that he is effectively retiring. David has acquired direct shareholdings from various sources and basically ignores them and is not clear about how good they are as investments. He is not emotionally attached to any of these holdings and is happy to hear options for what he could do with them. Currently, dividends simply go into his CBA cash account. He has looked up the current holding details and confirms he has the following:- 1,225 AMP (ASX:AMP) shares which he received when they demutualised and he held an AMP insurance policy (long since cancelled)
- 835 IAG (ASX:IAG) shares from his membership with NRMA when they demutualised
- 1,000 Telstra (ASX:TLS) share he bought when they floated initially (the T1 offer)
- 1,398 NIB Holdings (ASX:NHF) shares he was given when they floated based on his private health insurance membership
- 35,000 Australian Pharmaceutical shares (ASX:API) that were transferred to him from his father’s estate
- List additional questions you would ask David and outline the answers you have assumed. This will of course involve an investigation and assessment of David’s investment risk profile. These assumptions should be consistent with the case study.
- Provide investment recommendations in the form of an investment report (not a Statement of Advice) for David’s funds inclusive of superannuation that meets his objectives and concerns. Ensure you justify your recommendations and describe any risks or limitations with the recommendations. Your recommendations should enable achievement of David’s retirement goals and highlight any issues that may stop them from being achieved.
- The following assumptions should also be used. It may be necessary for you to make more assumptions depending on your strategy and recommendations. The Inflation rate is 2.2% pa. David’s living expenses (income requirement) will increase by 3% pa.
- David will need to understand the implications of what you recommend, including the final investment result (simple calculations will do for the sake of this exercise) and the consequences of the various options. You will also need to show available cash flow and any excess cash, as well as the taxation liabilities both before AND after your recommendations.
- Valuations and past performance for David’s current investment holdings are easily.
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