Personal Wealth Management Spring 2015 /Statement of Advice Assignment Details

IMPORTANT INSTRUCTIONS TO STUDENTS:
1.    COMMENCE THIS ASSIGNMENT IMMEDIATELY.
2.    Marks will be deducted if the word length of the assignment is excessive (only provide information which appropriately addresses the Statement of Advice, type in 12 point fonts at 1.5 line spacing).
3.    Title page must include the course title, student names, student’s signatures, student’s ID numbers, the lecturer’s name and your workshop time.
4.    The assignment must be well presented, typed using a word processing package, on one side of the paper only. Page numbers must also be printed. Marks will be deducted for poor presentation quality.
5.    Use Sub-headings and/or sections to highlight/structure the main points in your assignment.  This will make it easier for you when completing the assignment and help to maximise your marks through ease of reading/marking.
6.    All assignments must include a reference section. All sourced material, including direct quotations must be appropriately acknowledged. Websites should also be referenced where material is incorporated (in any form) in your assignment. Plagiarism will not be tolerated!
7.    Marks may be deducted for late submissions of assignments after the due date. This will account for 10% per day.
8.    The assignment is to be completed individually or in groups of maximum of up to three persons. Only one assignment should be submitted per group. If a group has a dispute then the assignment is to be submitted individually.

Statement of Advice for Dina and Tones Ying

Source: http://commons.wikimedia.org/wiki/File:Family_eating_a_meal_%281%29.jpg

A married couple has come to you seeking your professional help in constructing a financial plan. Their personal financial details are listed below:

•    Dina (30, f) and Tones (33, m) Ying are recently married and live in Sydney.
•    They have a daughter, Olivia, 3 years old.
•    When you interview them, you find that Dina has a moderate risk profile while Tones has an aggressive risk profile.
•    Both Dina and Tones are fully employed, earning $45,000 p.a. and $84,000 p.a. before tax, respectively. Dina works as a TAFE teacher while Tones works as a lecturer at STU university. Both receive compulsory superannuation contributions in addition to these stated remuneration at the rate of 9.50% p.a. of gross salary.

•    The assets  (and income) of the couple are all jointly held/received and include the following:
o    Family home of a 2 bedroom unit in Kogarah valued at $650,000 (cost base $530,000 in October 2011),
o    Personal items and household contents $50,000.
o    A 2014 Mazda CX-5 worth $35,000.
o    $60,000 invested in a term deposit earning 2.5% p.a. and matures in 6 months.
o    $7,500 in a transactional bank account, for everyday living needs, which pays interest equal to 0.25% p.a.
o    40,000 invested in a balanced fund (whose asset mix is 30% Australian shares, 20% international shares, 15% listed property, 20% Australian fixed interest, 15% cash). $20,000 invested in another balanced fund (45% Australian shares, 25% international shares, 5% listed property, 10% Australian fixed interest, 5% international fixed interest, 10% cash). The 5 year average performance of the first fund is 5% p.a. with an indirect cost ratio of 1% p.a. The 5 year average performance of the second fund is 10% pa. with an indirect cost ratio of 0.9%.
o    Superannuation assets equal to $80,000 ($45,000 for Tones and $35,000 for Dina) with a bonds asset allocation in an industry super fund.
o    Both the house and contents are fully insured. They have no other forms of insurance.

•    The liabilities of the couple are as follows:
o    $450,000 mortgage. Interest is paid at the variable rate of 4.50% p.a. with principal and interest payments and a 28 year term. The mortgage provider allows lump sum repayments and provides an offset account. However Dina and Tones do not make use of repayments or the offset facility.

•    The estimated expenses of the couple amount to:
o    $1000 per week in living expenses. These exclude repayments on loans and  increases with inflation per year)

Life Priorities
•    Dina and Tones have expressed a desire to have another child in five years’ time as a high priority. Plans to have another child in five years’ time is estimated to cost them $100,000 when the child is born and needs to be provisioned in their savings plan. Weekly expenses will also increase to $1,500 (inflation-adjusted) after the birth of their second child (excluding repayments on loans, net of any social security benefits and increases with inflation per year).

•    Their second priority is to buy a house in Oatley in 10 years’ time to raise their growing family. The price of a house they want in Oatley is currently $1.5 million. They expect homes in both Kogarah and Oatley to grow at a rate of 3% p.a.

•    Their third priority is to retire comfortably. When asked how much they would need for a comfortable lifestyle they reply ‘probably about $700 a week and debt free when we’re 70’.

•    The Ying’s as good parents have a desire to ensure their children are cared for should they pass away. However, when quizzed on why they have no personal risk insurance they say that ‘it is too expensive and not needed. Our savings will take care of Olivia’.

YOUR TASK

Create a financial plan/statement of advice which will assist Dina and Tones in achieving their life objectives.

The below marking rubric shows how marks will be awarded and what needs to be considered in the financial plan:
Complete required tasks (A)    Marks    Total Marks
Short term goals clearly identified (A.1)    1
Long term goals clearly identified (A.2)    1
Income and income statement clearly tabulated including tax and child budgeted. (A.3)    1
Balance sheet clearly tabulated (A.4)    1
Financial ratio analysis is sound (A.5)    1
Direct and indirect assets clearly identified (A.6)     1
Asset allocation of couple’s assets and recommended asset allocation (A.7)    1
Reasonable assumptions for estimates of income, expenses, assets and liabilities used and clearly stated in a separate section. (A.8)    1
TOTAL (A)        8

Presentation, structure, readability clarity (B)
The format follows a statement of advice structure from a respected source (e.g. Textbook , ASIC website or financial planner website). ‘Boilerplate’ statements need not to be made (B.1)    2
The structure is easy to follow (headings and sub headings, follows the financial planning steps (B.2)    1
There is an executive summary which clearly summarises the recommendations to the couple and reasons (B.3)    1
Very few grammatical or spelling mistakes. (B.4)    1
Easy to read and understand, even for non-financial (use of point form helps) (B.5)    1
Table and text font are consistent and neat. (B.6)    1
TOTAL (B)        7

Critical analysis (C)
Recommend a realistic solution in detail of how to fund the birth of their second child. (C.1)    1
Recommend a realistic solution in detail of how to fund their comfortable retirement using superannuation. Quantify their retirement needs and how they will achieve it taking into consideration their risk profile, recommended asset allocation amongst other things. (C.2)    2
Recommend and quantify their insurance needs using the risk management approach. How much insurance do they need, what kind of insurance need and how much would it cost to suit their budget? How would you convince them that insurance is important given the reason they provided for not having insurance? (C.3)    2
Recommend a detailed and suitable strategy so the Ying’s may attain their dream home. (C.4)    2
Consider your recommendations on asset allocation, budget, taxation, debt repayment, insurance and retirement as an integrated recommendation which affects one another. For example acknowledging that budgeting for retirement impedes on their other life priorities. There are many other constraints and so the recommendations should be considered together rather than individually.(C.5)    3
TOTAL (C)        10
GRAND TOTAL (A+ B + C)        25

Penalties  (P)
Lateness (P.1)    2.5 marks per day
Plagiarism (P.2)    Up to 100% deduction.
Exceed page limit (excluding title/cover page but includes appendices) (P.3)    2 marks per page exceeded

Notes
I will award fractions of marks depending on how well each criteria is met. E.g. a 1 mark criteria may be split into 1/4’s or 1/2’s.

The entire assignment is to be 18 pages maximum (excluding title page and references but including appendices).

A soft copy of the final assignment is to be uploaded on UTS online via turnitin by 6pm Monday, 16th October 2015.

ASSIGNMENT FAQ
Q. When we do the current budget, do we need to put tax in it? If we do, should the tax include the income tax and super contribution tax?
A. You should think of the budget as a cash flow statement. So yes eventually tax would come out of it if the couple will have to pay it to the government.

Q. When we analyse the financial position of this couple, I think we should use the financial ratios from lecture 2, but we are not quite clear how to get some figures, such as current debt in liquidity ratio, in this assignment, is it the credit card+overdraft+the part of mortgage & car loan which should be repaid this year?
A. Yes some figures aren’t clear. You would need to get some estimates for things such as the current year’s mortgage repayments and car loans. This is up to your judgment and research.
Q. How should we allocate the asset category of personal items and home contents and superannuation?
A. Superannuation is usually decomposed into different asset classes. It is not a separate asset class. Personal items and home contents insurance is not part of asset allocation.

Q. What are the projected returns of their investments?
A. You must do some research into similar funds to find what are reasonable rates of returns for their given investments or investments that you recommends to them. This also applies to other items such as superannuation and insurance premium costs.

Q. What are some tips to doing well in the assignment?
A. Read ahead of lecture notes as there may be strategies there to help couple (e.g. on retirement planning). Follow the weekly tips in class. Also follow the marking rubric.