Assignment
Superannuation and Retirement Planning (DFP3)
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Assignment result (assessor to complete)
Result — first submission (Details for each activity are shown in the table below)
Parts that must be resubmitted:
Result — resubmission (if applicable)
Result summary (assessor to complete)
First submission Resubmission (if required)
Task 1 — Section 1 Assignment questions Demonstrated
Not yet demonstrated Demonstrated
Not yet demonstrated
Strategy recommendations
Cash flow table
Task 1 — Section 2 Assignment questions Demonstrated
Not yet demonstrated Demonstrated
Not yet demonstrated
Task 2 Assignment questions Demonstrated
Not yet demonstrated Demonstrated
Not yet demonstrated
Strategy recommendations and questions
Cash flow table
Feedback (assessor to complete)
[insert assessor feedback]
Before you begin
Read everything in this document before you start your assignment for Superannuation and Retirement Planning (DFP3).
About this document
This document includes the following parts:
• Instructions for completing and submitting this assignment
• Task 1 — Section 1: Superannuation contributions
– Case study with Fact finder
– Section 1 questions
• Task 1 — Section 2: Engaging your clients
– Section 2 questions
• Task 2: Superannuation benefit payments
– Case study with fact finder
– Task 2 questions.
Instructions for completing and submitting this assignment
How to use the study plan
We recommend that you use the study plan for this subject to help you manage your time to complete the assignment within your enrolment period. Your study plan is in the KapLearn Superannuation and Retirement Planning (DFP3) Subject room.
Word count
The word count shown with each question is purely indicative. You may exceed the word count by a minimal amount, however, please do not include additional information which is outside the scope of the question.
Additional research
When completing this assignment, assumptions are permitted although they must not be in conflict with the information provided in the Case Studies.
You may also be required to source additional information from other organisations in the finance industry to find the right products or services to meet your client’s requirements, or to calculate any service fees that may be applicable.
Saving your work
Download this document to your desktop, type your answers in the spaces provided and save your work regularly.
Submitting the assignment
You must submit your completed assignment in a compatible Microsoft Word document.
You need to save and submit this entire document.
Do not remove any sections of the document.
Do not save your completed assignment as a PDF.
The assignment must be completed before submitting it to Kaplan Professional Education. Incomplete assignments will be returned to you unmarked.
The maximum file size is 5MB. Once you submit your assignment for marking you will be unable to make any further changes to it.
You are able to submit your assignment earlier than the deadline if you are confident you have completed all parts and have prepared a quality submission.
The assignment marking process
You have 12 weeks from the date of your enrolment in this subject to submit your completed assignment.
Should your assignment be deemed ‘not yet competent’ you will be give an additional four (4) weeks to resubmit your assignment.
Your assessor will mark your assignment and return it to you in the Superannuation and Retirement Planning (DFP3) Subject room in KapLearn under the ‘Assessment’ tab.
‘Not yet competent’ and resubmissions
Should sections of your assignment be marked as ‘not yet competent’ you will be given additional opportunities to amend your responses so that you can demonstrate your competency to the required level.
You must address the assessor’s feedback in your amended responses. You only need amend those sections where the assessor has determined you are ‘not yet competent’.
Make changes to your original submission. Use a different text colour for your resubmission. Your assessor will be in a better position to gauge the quality and nature of your changes. Ensure you leave your first assessor’s comments in your assignment, so your second assessor can see the instructions that were originally provided for you. Do not change any comments made by a Kaplan assessor.
Units of competency
This assignment is your opportunity to demonstrate your competency against these units:
FNSASICU503A Provide advice in superannuation
FNSINC501A* Conduct product research to support recommendations
FNSIAD501A* Provide appropriate services, advice and products to clients
FNSCUS505A* Determine client requirements and expectations
FNSCUS506A* Record and implement client instructions
* These are pre-requisite units of competency for FNSASICU503A.
We are here to help
If you have any questions about this assignment you can post your query at the ‘Ask your Tutor’ forum in your subject room. You can expect an answer within 24 hours of your posting from one of our technical advisers or student support staff.
Instructions for completing and submitting this assignment
Completing the assignment
The assignment
Task 1: The Ian and Janet Davidson case study — Superannuation contributions
Section 1: Superannuation contributions
Read the case study and fact finder, then:
• answer the six (6) questions they have about superannuation contributions
• answer Question 7 by documenting the strategy you would recommend to meet their needs and objectives
• complete a cash flow table showing their financial position should they take your advice.
Section 2: Engaging your clients
Re-read the case study for Ian and Janet, then:
• answer the six (6) questions relating to client engagement at each stage of the financial planning process.
Task 2: The Heather and Mark Wallace case study — Superannuation benefit payments
Read the case study and fact finder, then:
• answer the five (5) questions they have about superannuation benefit payments
• answer Question 6 by documenting the strategy you would recommend to meet their needs and objectives
• complete a cash flow table showing their financial position should they take your advice.
Statement of advice
Please note that the preparation of a statement of advice (SOA) is not required for this assignment.
Task 1 — Section 1: Superannuation contributions
Case study 1 — Ian and Janet Davidson
You are a financial planner for AFS licensee EANWB Financial Planning. Ian and Janet Davidson have been doing their own research into their retirement planning and recently attended one of your firm’s retirement seminars. Following this seminar they spoke with you about their concerns that they may not accumulate enough money in superannuation to fund their retirement.
You meet with them and during your initial meeting you provided them with some basic information including a fact finder for them to fill out and then organised a second meeting in which you collected more information on their current financial situation and spent time clarifying their needs and objectives. A summary of their financial situation and the fact finder and risk profile is shown below.
Current situation
Ian (age 54) and Janet (age 52) are married and have two children, Jonathan and Sarah who are nearing the end of their schooling.
They own their own home, valued at $600,000, and have recently received an inheritance from the estate of Janet’s mother.
They have deposited an amount equal to their outstanding mortgage into their offset account reducing the amount of the outstanding loan to nil. They still have access to these funds. However, they do not want to touch these funds and will use it only as an emergency account.
Ian is a full-time sales representative for an agricultural supplies company. He earns $140,000 p.a. plus superannuation guarantee (SG) contributions from his employer paid into the employer’s default fund.
Janet is primarily a self-employed marketing consultant and has net business income of $65,000 p.a. She also works as a contracted employee in a mining engineering company. Her hours vary but typically she earns about $5600 p.a. plus SG paid into the employer’s default fund.
Jonathan and Sarah attend a private school and Ian and Janet pay $7000 p.a. in fees, uniforms, books, school trips etc.
The only other assets they have are their two cars.
Superannuation
Ian has $270,000 in his superannuation fund and Janet has $99,000. They are both invested in the default balanced option. Further details of their superannuation are in the fact find.
Neither Ian nor Janet have made any additional contributions to their superannuation fund.
Ian’s employer will allow salary sacrificing to superannuation without impacting on any other employee benefits and will maintain his SG contribution based on his pre-salary sacrifice income.
Janet’s employer will not allow her to salary sacrifice to superannuation but does make SG contributions to Janet’s superannuation fund.
Ian and Janet are happy with their current superannuation funds and the underlying investments they are invested in. They do not wish to receive advice in regard to changing their funds or investment portfolios.
Insurance
Ian and Janet have their life insurance and total and permanent disability (TPD) insurance owned by their superannuation funds.
Ian and Janet both have self-owned trauma policies and income protection policies. Janet also has business overheads insurance.
Their cars are fully comprehensively insured and they have home building and contents insurance cover including legal liability cover.
Ian and Janet have family private health insurance cover.
Further details on their insurance policies are in the fact find.
They have specifically requested that they do not require any advice on their insurance policies.
Investments
Ian and Janet do not have any investments. Surplus income was used to pay off their mortgage.
However, they do have $350,000 in their savings account that was left over from the inheritance from Janet’s mother’s estate after paying off their mortgage. This savings account does not pay any interest.
Other information
Ian and Janet have a credit card with a limit of $30,000 that they use for all their general expenses and entertainment. However, they never spend up to their limit and their average expenses are $7500 per month, which they repay within the interest free period.
Ian and Janet go on regular annual holidays with their children and spend over $10,000 per trip.
Other expenses include deductible charity donations and accountant’s expenses of $500 p.a.
Needs and objectives
Ian and Janet are concerned they will not have enough money to provide an adequate income in retirement. They do not want to rely on the age pension and would like to be fully self-sufficient if they could.
After the initial meeting with you they reviewed their situation and have decided they would like you to prepare advice using a retirement income of $80,000 a year (in today’s dollars). They based this figure on their current spending after deleting items that will not apply after retirement (like school fees) and considering their desired lifestyle in retirement. Their son who is studying spreadsheets at school has done some calculations and determined that if they live to age 95 and earn 4% (net of inflation) on their investments they will need almost $1.3 million when Ian is age 65.
Ian and Janet would like to channel their surplus income into their retirement planning now they have do not owe anything on their mortgage.
They have ‘parked’ the inheritance money in their savings account and plan to retain $50,000 in a secure investment to support the children in their last years at school and into university. They want to invest the balance tax effectively and are considering adding it to Janet’s superannuation to help her ‘catch up’ because she earns less than Ian and took time out of the workforce to raise the children when they were young.
Like most people they would also like to reduce their overall tax liability.
Closing the interview
Prior to concluding your meeting, you review the information provided by Ian and Janet to check that it is complete and accurate and ask if they have any questions.
Ian and Janet understand from their own research that there are many ways to add money to their superannuation but are confused about which will be most appropriate for them.
You advise Ian and Janet of what happens next and explain that with their agreement you will prepare a written report based on the information they have just shared with you, which will include recommended strategies to assist them in achieving their financial goal of having adequate funds for retirement.
Ian and Janet agree to proceed to the next stage of the financial planning process and you make an appointment to present the plan in a fortnight.
Fact finder — Ian and Janet Davidson
Important notice to customers
Your planner must act in your best interest when making any superannuation and retirement recommendations. Therefore, before making a recommendation, the planner must ask you about your investment objectives, financial situation and your particular needs.
The information requested in this form will be used strictly for that purpose.
Warning
The planner could make inappropriate recommendations or give inappropriate advice if you fail to fully and accurately complete this form.
Personal and employment details
Personal details
Client 1 Client 2
Title Mr Mrs
Surname Davidson Davidson
Given & preferred names Ian Janet
Home address 1 Galbraith Grove, Stanhope Gardens, NSW 1 Galbraith Grove, Stanhope Gardens, NSW
Business address n.a. n.a.
Contact phone (02) 6655 4477 (02) 6655 4477
Date of birth 18 December 1961 12 June 1963
Sex ? Male Female Male ? Female
Smoker Yes ? No Yes ? No
Expected retirement age Age 65 When Ian retires
Dependants (children or other)
Name Date of birth Sex School Occupation
Jonathan 18 April 1997 M Yes
Sarah 20 March 1999 F Yes
Employment details
Ian Davidson Janet Davidson
Occupation Sales Representative Marketing Consultant
Employment status Self-employed ? Employee ? Self-employed ? Employee
Not employed Pensioner Not employed Pensioner
? Permanent Part-time Permanent Part-time
Casual Contractor Casual ? Contractor
Other Government Other Government
Business status Sole proprietor Partnership ? Sole proprietor Partnership
Private company Trust Private company Trust
Notes
Any other person to be contacted (e.g. accountant, banker, solicitor etc.)?
Janet is primarily a self-employed sole trader but is also an employed contractor.
Income and tax statement
Tax calculation Client 1 Client 2 Combined Comments
Income from employment
Salary or Income from employment $140,000 $70,600 $210,600 Janet — $65,000 net business income and $5600 from employer
Salary sacrifice
Salary after salary sacrifice $140,000 $70,600 $210,600
Rental income
Unfranked dividends
Franked dividends
Franking (imputation) credits
Interest
Other income (e.g. taxable benefits, trust income, investment income)
Capital gains 1 yr
Capital gains 1 yr
Tax-free component of capital gains
Assessable income $140,000 $70,600 $210,600
Deductible expenses $150 $350 $500 Accountant’s fees
Donations $610 $610 $1,220 $1200 p.a. to the National Breast Cancer Foundation
$20 bucket donation
Income protection insurance $1,884 $420 $2,304
Business overheads insurance $972 $972
Other
Taxable income $137,356 $68,248 $205,604
Tax on taxable income $38,768 $13,727 $52,495
Non-refundable tax offsets (e.g. LITO/SAPTO)
Medicare levy $2,747 $1,365 $4,112
Medicare levy surcharge
Franking rebate
Refundable rebates and offsets
Total tax $41,515 $15,092 $56,607
Cash flow statement
Cash flow Ian Janet Combined Comment
Salary less any salary sacrificed amount $140,000 $70,600 $210,600 Includes for Janet income net of business expenses and income from employment as above
Non-taxable income nil nil
Rental income n.a. n.a.
Unfranked dividends received nil nil
Franked dividends received nil nil
Interest nil nil
Other income (e.g. taxable benefits, trust income, investment income) nil nil
Total income received before tax $140,000 $70,600 $210,600
Investment expenses nil
Expenses
Mortgage nil nil
School fees $3,500 $3,500 $7,000
Utilities n.a. n.a. Paid as part of the expenses through credit card
Personal insurance $5,496 $3,564 $9,060 Ian’s annualised premiums: $3612 trauma, $1884 income protection
Janet’s annualised premiums:
$2172 trauma, $420 income protection, $972 business overheads
Car insurance $1,600 $1,600 $3,200
Home building and contents insurance $750 $750 $1,500
Health insurance $1,422 $1,422 $2,844
Living expenses $45,000 $45,000 $90,000 $7500 per month through credit card
Holidays $5,000 $5,000 $10,000
House maintenance n.a. n.a. Paid as part of the expenses through credit card
Motor vehicle n.a. n.a. Paid as part of the expenses through credit card
Other
$610 $610 $1,220 Donations
Cash flow Ian Janet Combined Comment
$150 $350 $500 Accountant’s fees
Total expenses $63,528 $61,796 $125,324
Total income received before tax less total expenses $76,472 $8,804 $85,276
Total tax payable from tax table above $41,515 $15,092 $56,607
Total net cash flow $34,957 –$6,288 $28,669
Assets and liabilities
Asset Owner Value Liabilities Net value Notes
Personal assets
Family home Ian/Janet $600,000 $0 $600,000
Home contents Ian/Janet $150,000 $0 $150,000 Insured value
Car Ian/Janet $11,000 $0 $11,000 2007 Ford Focus
Car Ian/Janet $16,000 $0 $16,000 2007 Ford Falcon XR6
Total $777,000 $0 $777,000
Superannuation
Employer superannuation Ian $270,000 n.a. $270,000
Employer superannuation Janet $99,000 n.a. $99,000
Total $369,000 $369,000
Other Assets
Savings account Ian/Janet $350,000 Nil $350,000 Transaction account
Total $350,000 Nil $350,000
Net worth $1,496,000 $0 $1,496,000
Liabilities
Loan Current debt Percentage tax deductible Interest only Repayment
Home loan n.a. n.a.
Investment property n.a. n.a.
Investment loan n.a. n.a.
Personal loan n.a. n.a.
Other n.a. n.a.
Total $0 $0
Needs and objectives
Details Comments
Accumulate sufficient funds in superannuation to retire in 11 years on $80,000 a year They estimate that they will need $1.3m in superannuation when Ian is age 65
Use excess income for retirement saving
Retain $50,000 in a secure investment to support children in their last years at school and into university
Invest balance of Janet’s inheritance for retirement
Reduce overall tax liability
Other
Estate planning
Do you have a will? ? Yes No
When was it last updated: October 2009
Do you have powers of attorney? ? Yes No
Current superannuation, insurances and investments
Superannuation
Member Ian Janet
Fund name ASSF Super Fund CISF Super Fund
Date of joining fund 1 July 1992 (service date) 1 July 1992 (service date)
Type of fund ? Accumulation Defined benefit ? Accumulation Defined benefit
Pension Pensioner Pension Pensioner
Contribution (e.g. 5% of salary) SG By employer By yourself SG By employer By yourself
Current value of your superannuation fund $270, 000 $99,000
Amount of death and disability cover $720,000 $720,000
Is there provision for you to top-up or salary sacrifice? ? Yes No Yes ? No
Superannuation taxation details
Ian Janet
Current value $270, 000 $99,000
Tax-free component $0 $0
Taxable component:
Taxed element $270,000 $99,000
Untaxed element $0 $0
Preservation:
Preserved $270,000 $99,000
Unrestricted non-preserved $0 $0
Restricted non-preserved $0 $0
Previous years contributions:
Non-concessional contributions:
Year 1 $0 $0
Year 2 $0 $0
Year 3 $0 $0
Year 4 $0 $0
Concessional contributions:
Year 1 SG only SG only
Year 2 SG only SG only
Year 3 SG only SG only
Year 4 SG only SG only
Other contributions:
Small business CGT exempt contributions: $0 $0
Personal injury payments $0 $0
Nominated beneficiaries
Name Binding Non-binding
(Yes/No) Trustee discretion
(Yes/No)
Yes/No Amount
Ian — Beneficiary is Janet Yes 100% No No
Janet — Beneficiary Ian Yes 100% No No
Are there any current flags or splits on a superannuation benefit of yours following a marriage breakdown? Yes/No N Details
Are you a beneficiary of any current flags or splits of a superannuation benefit following a marriage breakdown? Yes/No N Details
Life insurance details
Life insured Owner Policy type Company Policy number Death benefit Comments Annual premium
DOES NOT WISH TO BE REVIEWED
Disability insurance details
Life insured Owner Policy type Company Policy number Death benefit Comments Annual premium
DOES NOT WISH TO BE REVIEWED
Income protection insurance details
Life insured Owner Policy type Company Policy number Benefit amount Waiting period Benefit payment period Annual premium
DOES NOT WISH TO BE REVIEWED
General insurance details
Item covered Owner Policy type Company Combined policy number Cover amount Other benefit Total annual premium
DOES NOT WISH TO BE REVIEWED
Investment details
Investment type Company Purchase date Units held/fixed rate Current value Owner
Savings account East Antipodean National Wealth Bank n.a. $350,000 Ian and Janet
Acknowledgment
The information provided in this financial fact finder is complete and accurate to the best of my knowledge.
I understand that a policy purchased without the completion of a fact finder, or following a partial or inaccurate completion, may not be appropriate to my needs. I also understand that a policy purchased that differs from that recommended by the planner may not be appropriate to my needs. I acknowledge that my planner has provided me with the completed financial fact finder, signed by me.
Customer(s) signature(s)
Planner’s name
Planner’s signature
Date
Section 1 questions
Ian and Janet have a number of questions about superannuation contributions following their research and the seminar they attended. Respond to their questions basing your answer on their personal situation. You may be required to re-educate the clients where they are confused or misunderstand the superannuation rules.
Ian and Janet Davidson’s questions
Question 1
Ian and Janet are confused concerning the tax deductibility of superannuation contributions. They ask:
‘Are we correct in assuming that we can both claim personal tax deductions for any superannuation contributions we make?’ Could you explain the tax deduction rules that apply to our situations?’
Employers, the self-employed, and those who can claim a tax deduction for
superannuation contributions can claim a full tax deduction on all contributions made.
However, there are limits as to how much of the contributions are concessionally taxed. Where the contributions exceed the concessional limit, the member may elect: • to have the excess contributions released to them and include them in their assessable income and taxed accordingly, or • retain the excess concessional contributions within the fund. Excess concessional contributions are included in an individual’s assessable income and taxed accordingly. Further, an additional charge is payable by the individual to account for the deferral of tax.
Assessor feedback:
Question 2
Ian asks:
‘As Janet’s income from employment is $5600, what do I need to do to claim the spouse contributions tax offset?’
If all the conditions are met, in which they are, then the contributing spouse is entitled to a tax offset, which is 18% of the lesser of:
• $3000 reduced by $1 for every $1 that the spouse’s assessable income, reportable fringe benefits and reportable employer superannuation contributions exceeds $10,800,
or
• the total of the eligible spouse contributions made in relation to the spouse by the contributing spouse in that year.
But keep in mind, the maximum tax offset is $540 (i.e. 18% of $3000)
Assessor feedback:
Answer here
Question 3
Janet comments that as Ian is the main salary earner they should consider using Ian’s income to make contributions and asks:
‘How does Ian make tax-effective contributions to superannuation from his income if he cannot claim the contributions as a tax deduction?’
Answer here
Assessor feedback:
Question 4
Janet asks:
‘We read an article recently that said Ian can split the superannuation contributions he makes to my superannuation account. Is that correct and how does it work?’
Answer here
Assessor feedback:
Question 5
Ian is concerned about tax payable if they invest the balance of the inheritance money into superannuation. He says:
‘I’ve heard that some people have had to pay tax at the highest tax rates on superannuation contributions. Can we be sure we won’t fall into that trap?’
Answer here
Assessor feedback:
Question 6
Ian asks:
‘What would be the outcome and any tax consequences for me if I salary sacrifice an amount equivalent to our excess income?’
Answer here
Assessor feedback:
Question 7: Your strategy recommendations
As part of an SOA a financial planner must justify their strategies by showing how they meet their clients’ needs and objectives.
In this case study Ian and Janet have the following needs and objectives:
• Accumulate $1.3 million (in today’s money) combined in retirement assets within 11 years so they can retire on $80,000 a year.
• Use excess income for retirement saving.
• Retain $50,000 in a secure investment to support their children in their last years at school and into university.
• Invest the balance of Janet’s inheritance for retirement.
• Reduce their overall tax liability.
Guidance
You will need to perform some calculations and modeling to achieve a justifiable recommendation for the clients. Your recommendations should include consideration of salary sacrificing by Ian, Janet making tax deductible contributions and investing the balance of the inheritance money into superannuation. Note: There is no one ‘right’ answer but whatever recommendations you make must meet their objectives and be justified.
You should take care to use appropriate assumptions in your calculations. Make sure you project Ian’s superannuation to age 65 and Janet’s to age 63. In particular ensure you use real investment returns so the projections are in today’s dollars. For instance it would be reasonable to assume the returns for a balanced fund at 7 or 8% p.a. If inflation is assumed to be 2% or 3% then the return used for the illustrations should be between 4% and 6%. It is usually better to be conservative in preparing illustrations.
You should first model their current situation if they carry on as they are today. You can then show Ian and Janet the ‘gap’ that needs to be filled by making further contributions.
Once you have developed suitable strategies you must develop a report for Ian and Janet.
This must set out:
• their objectives
• what you recommend they do
• an explanation of the expected outcomes
• identifying any risks or limitations in your recommendations.
You should also provide a tax and cash flow statement illustrating your clients’ financial position if your strategies are adopted. A template for the cash flow statement follows the report field.
Use the space provided below to communicate to your clients your strategy recommendations.
Make sure you have addressed all their needs and objectives and that you have provided a rationale for your recommendations.
Answer here
Assessor feedback:
To support your recommendations you will need to provide a cash flow statement that shows your clients’ financial position should they decided to take your advice.
Use the cash flow template provided below.
Financial position after implementation of strategy
Income and tax statement, and cash flow after implementation of strategies
Note: The items listed in this template are indicative only and must be adapted to your clients’ personal circumstances. There may be other relevant income or expense items that are not included in this template. You should add, delete or substitute items where appropriate.
Accurately completed cash flows are essential in the financial planning process to support recommendations. They are key to demonstrating your competency.
Tax calculation Client 1 Client 2 Notes
Income from employment
Salary
Salary sacrifice (state % if applicable)
Salary after salary sacrifice
Other income
Bank account interest (state % return if applicable)
Interest from other investments (state % return if applicable)
Share dividends (state % return if applicable)
Imputation credits (state % return if applicable)
Other income liable for tax (e.g. rental income)
Assessable capital gains
Total assessable income
Deductable expenses
Donations
Income protection insurance
Business overheads insurance
Other
Taxable income
Income tax on taxable income (state tax rates and year applied)
less non-refundable tax offsets (e.g. LITO/SAPTO)
plus Medicare levy
plus Medicare levy surcharge
less imputation credits
less refundable tax offsets
Net tax payable
Family cash flow Client 1 Client 2 Combined Comments
Salary less any salary sacrificed amount
Non-taxable income (e.g. income from a superannuation pension for a person aged over 60, Family Tax Benefits etc.)
Interest income
Dividends received
(excluding franking credits)
Other income
Total income received before tax
Investment expenses
Expenses
Mortgage
School fees
Utilities
Personal insurance
Car insurance
Home building and contents insurance
Health insurance
Living expenses
Holidays
House maintenance
Motor vehicle
Other
Total expenses
Total income received before tax less expenses
Net tax payable from tax table above
Total net cash flow
Asset Owner Value Liabilities Net value Notes
Personal assets
Family home
Home contents
Car 1
Car 2
Other
Total
Superannuation
Client 1 superannuation
Client 2 superannuation
Total
Investment assets
Investment property
Savings account
Term deposit
Shares
Other
Total
Net worth
Liabilities
Loan Current debt Percentage deductible Interest only Repayment
Loan
Home loan
Investment property
Other
Total
Task 1 — Section 2: Engaging with your clients
The financial planning process is usually broken down into a series of six (6) steps. Each step is an opportunity to engage your clients in an ongoing conversation:
Using the particulars for Ian and Janet, you will be asked to respond to questions centred on elements found in each of the six steps.
Your assessor is looking for your ability to communicate accurately in a clear and concise manner, taking into consideration your clients’ relevant circumstances and requirements.
Use the spaces provided to write your answers.
Section 2 questions
Step 1: Collecting data (and defining scope)
Ian and Janet have found the data collection stage pretty daunting. They are concerned about all the personal information you are requesting from them and they are starting to feel uncomfortable. Ian asks:
‘Why are you asking for all this information and what are you going to do with it?’
The information you provide is strictly confidential between myself as the financial planner and you and Janet as my clients. The information is only used for the purposes of my services to provide you with advice regarding your financial circumstance.
Assessor feedback:
Step 2: Analysing the data
Having collected the required data from your clients you advise them that you will contact them in two weeks to provide them with a detailed financial plan.
However, Ian is impatient and contacts you after a few days and asks:
‘How are you getting on? When are you going to tell us what we should do?
We would like to get moving on your recommendations ASAP.’
As what was mentioned in the interview, I will be ready to provide you with a full detailed plan in a few weeks. I understand that your financial circumstances are a very important matter between you and Janet and because of this I cant provide proper, valid recommendations until a full analysis is completed.
Assessor feedback:
Step 3: Research strategy and recommendations
As you are working on developing the recommendations for Ian and Janet you realise there are some facts you would like to clarify with them. List (3) separate questions you would ask the clients and explain why the question is important to ensure you give appropriate advice.
Note: You are providing scaled advice on superannuation contributions. Your questions should focus on the issues discussed in Task 1 — Section 1.
Answer here
Assessor feedback:
Step 4: Documentation and presentation of the SOA
As promised, you meet with Ian and Janet in two weeks and hand them the SOA prior to explaining your recommendations. Ian says:
‘I can’t see us reading all of this. It looks too big and complex for us.
Why can’t you just write down the main points and tell us what to do?’
Answer here
Assessor feedback:
Step 5: Implementation of recommendations
Having presented the SOA to your clients you go through the implementation of the recommendations.
You notice that your clients appear confused.
What questions would you ask your clients to check their understanding and satisfaction with the recommendations?
Answer here
Assessor feedback:
Step 6: Review and monitor the financial plan
The SOA includes a section on reviewing and monitoring the strategies they have agreed to put in place.
You discuss the ongoing services you can provide to your clients. Ian and Janet seemed surprised that they are being asked to agree to an ongoing service. Janet says:
‘Is this really necessary? Our situation is pretty simple and as long as we stick to your plan we should be fine when we retire. Isn’t that right?’
How would you respond to Janet’s question and statement?
Answer here
Assessor feedback:
Task 2: Superannuation benefit payments
The Mark and Heather Wallace case study —
Superannuation benefit payments
In this task you are asked to read their case study and fact finder, then:
• answer the five (5) questions they have about superannuation benefit payments
• answer Question 6 by documenting the strategy you would recommend to meet their needs and objectives
• complete a cash flow table showing their financial position should they take your advice.
Case study 2 — Mark and Heather Wallace
The first meeting
Mark and Heather arrive at your office for the meeting. After greeting and offering them a cup of tea you confirm that they received your package of documents and that they have completed them.
You then take them through the key elements of the FSG and explain your role and capacity in assisting them with their planning needs. You make sure that Mark and Heather are comfortable with that information before you proceed to the next step.
Collecting the data
During the meeting, you learn the following information about Mark and Heather through a process of thorough and polite questioning. They provide you with relevant documents to confirm their financial situation.
Current situation
Mark (age 62) and Heather (age 57) are married. They have two children, Aaron, age 28, and Ruth, age 26, both of whom are financially independent.
Mark and Heather own their own home, valued at $600,000, and their mortgage was paid out eight years ago.
Heather is employed part-time as an environmental lawyer earning $71,000 p.a. plus SG. She has some health issues, which are potentially serious but not terminal and decided part-time work was more manageable. Her out-of-pocket health expenses are on average $560 per month.
Heather needs assistance with travel to and from work and her reduced mobility means she cannot easily do shopping, cooking or other domestic duties. She has been depressed by her illness and Mark has been a ‘rock’ in supporting her.
Mark’s position as a national sales manager meant lots of interstate travel and he was unable to give Heather the support she needed. He has resigned from this role recently and started in a sales support role with a new company. The new role meant a drastic drop in income from $145,000 to $73,000 (plus SG).
Mark and Heather are passionate about protecting the environment. They have been supporting a group that is fencing and rehabilitating an area of bushland where a colony of brush-tailed bilbies live. The group is self-funded with no government support. Mark and Heather started with small donations but once they had paid off their mortgage eight years ago they increased their support. They are currently contributing $2000 a month to the cause. They are concerned that the change in their circumstances may mean they will have to stop or reduce this support.
Superannuation
Mark has $567,000 in his retail superannuation fund and Heather has $332,000 in her superannuation fund. Both of their benefits are fully preserved and both have taxed and untaxed components. Further details are in the fact find.
Both Mark’s and Heather’s employers will allow salary sacrificing to superannuation without impacting on any other employee benefits and will maintain their SG contribution based on their pre-salary sacrifice income.
Both Mark and Heather are invested in the balanced portfolio within their superannuation funds.
Mark and Heather are happy with their current superannuation funds and the underlying investments they are invested in. They do not wish to receive advice in regard to changing their funds or investment portfolios.
Insurance
Mark and Heather have their life insurance and TPD insurance owned by their superannuation funds. Further details are in the fact find.
Mark and Heather are conscious of the value of insurance. Their two cars are comprehensively insured, they have home building and contents insurance cover including legal liability and private health insurance cover. Further details are in the fact find.
Mark and Heather are happy with their current insurance arrangements, including the premiums they are paying, the sums insured, and the policy ownership structure. They have specifically requested that they do not require any advice on their insurance matters.
Investments
Mark and Heather also have a savings account with an average balance of $5000 that they use for emergencies. This ‘working account’, where their salary and wages are deposited, does not earn any interest.
Other information
Mark and Heather have a credit card with a limit of $30,000 that they use for all their general expenses and entertainment. However, they never spend up to their limit and their average monthly expenses are $7833 per month, which they repay within the interest-free period.
Mark and Heather go on regular holidays spending about $20,000 per year.
Other expenses include charitable donations and accountant’s expenses of $500 p.a. Further details are in the fact find.
Needs and objectives
Heather’s health and Mark’s reduced income are major concerns for them. They want their lifestyle to carry on ‘as normal’ as far as possible. They are hopeful that Heather’s treatment and medication will allow her to increase her working hours but this may be some time away. Mark admits he is enjoying the reduced responsibility of his new role and is pleased to be able to have the time and flexibility to support Heather.
They know they are over their preservation age and want to see if they can access their superannuation to relieve their financial pressures. They had planned to retire when Heather was 65 (in 8 years time). Their priorities are:
1. maintain their income at the same level before Mark changed jobs
2. maintain their superannuation balances (or even grow them over the next 8 years).
They are realists and recognise that Heather’s health may not improve. They want to:
• understand the implications for Heather’s superannuation benefit if she becomes totally and permanently disabled both now and in the future
• retain the flexibility of taking lump sum payments from superannuation to pay medical costs or make home modifications.
They would like a projection of the estimated value of their superannuation funds at the time Heather reaches age 65 (in eight years).
Like everyone they would like to reduce the income tax they pay.
Closing the interview
Before concluding your meeting, you review the information provided by Mark and Heather to check that it is complete and accurate and ask if they have any questions.
Mark and Heather are curious about receiving their superannuation benefits and the options that may be available and have a number of questions that came to mind during your meeting.
You advise Mark and Heather of what happens next and explain that with their agreement you will prepare a written report, based on the information they have just shared with you, which will include recommended strategies to assist them in achieving their financial goals.
Mark and Heather agree to proceed to the next stage of the financial planning process and you make an appointment to present the plan in a fortnight.
Fact finder — Mark and Heather Wallace
Important notice to customers
Your planner must act in your best interest when making any superannuation and retirement recommendations. Therefore, before making a recommendation, the planner must ask you about your investment objectives, financial situation and your particular needs.
The information requested in this form will be used strictly for that purpose.
Warning
The planner could make inappropriate recommendations or give inappropriate advice if you fail to fully and accurately complete this form.
Personal and employment details
Client 1 Client 2
Title Mr Mrs
Surname Wallace Wallace
Given & preferred names Mark Heather
Home address 20 Bannockburn Dr, Beaumont Hills, NSW 20 Bannockburn Dr, Beaumont Hills, NSW
Business address n.a. n.a.
Contact phone (02) 5544 7766 (02) 5544 7766
Date of birth 18 December 1953 12 June 1958
Sex ? Male Female Male ? Female
Smoker Yes ? No Yes ? No
Expected retirement age When Heather reaches age 65 Age 65
Employment details
Mark Wallace Heather Wallace
Occupation Sales representative Environmental lawyer
Employment status Self-employed ? Employee Self-employed ? Employee
Not employed Pensioner Not employed Pensioner
? Permanent Part-time Permanent ? Part-time
Casual Contractor Casual Contractor
Other Government Other Government
Business status Sole proprietor Partnership Sole proprietor Partnership
Private company Trust Private company Trust
Notes
Any other person to be contacted (e.g. accountant, banker, solicitor etc.)?
Heather is working part-time because of a medical condition.
Income and tax statements
Based on the information they provided, you completed a fact finder and then developed the two cash flow statements on the following pages to document the couple’s change in their financial situation.
Income and tax statement— Mark’s previous employment
Tax calculation Client 1 Client 2 Combined Comments
Income from employment
Salary or income from employment $145,000 $71,000 $216,000
Salary sacrifice
Salary after salary sacrifice $145,000 $71,000 $216,000
Rental income
Unfranked dividends
Franked dividends
Franking (imputation) credits
Interest
Other income (e.g. taxable benefits, trust income, investment income)
Capital gains 1 yr
Capital gains 1 yr
Tax-free component of capital gains
Assessable income $145,000 $74,000 $216,000
Deductible expenses $250 $250 $500 Accountant’s fees
Donations $610 $610 $1,220 $1200 p.a. to the National Breast Cancer Foundation
$20 bucket donation
Income protection insurance
Business overheads insurance
Other
Taxable income $144,140 $70,140 $214,280
Tax on taxable income $41,279 $14,343 $55,621
Non-refundable tax offsets (e.g. LITO/SAPTO)
Medicare levy $2,883 $1,403 $4,286
Medicare levy surcharge
Franking rebate
Refundable rebates and offsets
Total tax $44,162 $15,745 $59,907
Cash flow — Mark’s previous employment
Cash flow Mark Heather Combined Comment
Salary less any salary sacrificed amount $145,000 $71,000 $216,000
Non-taxable income nil nil
Rental income n.a. n.a.
Dividends received nil nil
Interest nil nil
Other income (e.g. taxable benefits, trust income, investment income) nil nil
Total income received before tax $145,000 $71,000 $216,000
Investment expenses nil nil
Expenses
Mortgage nil nil
School fees nil nil
Utilities n.a. n.a. Paid as part of the expenses through credit card
Personal insurance nil nil
Car insurance $1,600 $1,600 $3,200
Home building and contents insurance $750 $750 $1,500
Health insurance $2,520 $2,520 $5,040 $420 per month
Living expenses $47,000 $47,000 $94,000 $7833 per month through credit card
Holidays $10,000 $10,000 $20,000
House maintenance n.a. n.a. Paid as part of the expenses through credit card
Motor vehicle n.a. n.a. Paid as part of the expenses through credit card
Other
$610 $610 $1,220 Donations
$250 $250 $500 Accountant’s fees
$12,000 $12,000 $24,000 $2000 per month support to environmental group
$6,720 $6,720 $560 per month out-of-pocket medical expenses
Total expenses $74,730 $81,450 $156,180
Total income received before tax less total expenses $70,270 –$10,450 $59,820
Total tax payable from tax table above $44,162 $15,745 $59,907
Total net cash flow $26,108 –$26,195 -$87
Income and tax statement — Mark’s new employment
Tax calculation Mark Heather Combined Comments
Income from employment
Salary or Income from employment $73,000 $71,000 $144,000
Salary sacrifice
Salary after salary sacrifice $73,000 $71,000 $144,000
Rental income
Dividends
Franking (imputation) credits
Interest
Other income (e.g. taxable benefits, trust income, investment income)
Capital gains 1 yr
Capital gains 1 yr
Tax-free component of capital gains
Assessable income $73,000 $71,000 $144,000
Deductible expenses $250 $250 $500 Accountant’s fees
Donations $610 $610 $1,220 $1200 p.a. to the National Breast Cancer Foundation
$10 bucket donation
Income protection insurance
Business overheads insurance
Other
Taxable income $72,140 $70,140 $142,280
Tax on taxable income $14,993 $14,343 $29,335
Non-refundable tax offsets (e.g. LITO/SAPTO)
Medicare levy $1,443 $1,403 $2,846
Medicare levy surcharge
Franking rebate
Refundable rebates and offsets
Total tax $16,436 $15,745 $32,181
Cash flow — Mark’s new employment
Cash flow Mark Heather Combined Comment
Salary less any salary sacrificed amount $73,000 $71,000 $144,000
Non-taxable income nil nil
Rental income n.a. n.a.
Dividends received nil nil
Interest nil nil
Other income (e.g. taxable benefits, trust income, investment income) nil nil
Total income received before tax $73,000 $71,000 $144,000
Investment expenses nil nil
Expenses
Mortgage nil nil
School fees nil nil
Utilities n.a. n.a. Paid as part of the expenses through credit card
Personal insurance nil nil
Car insurance $1,600 $1,600 $3,200
Home building and contents insurance $750 $750 $1,500
Health insurance $2,520 $2,520 $5,040 $420 per month
Living expenses $47,000 $47,000 $94,000 $7833 per month through credit card
Holidays $10,000 $10,000 $20,000
House maintenance n.a. n.a. Paid as part of the expenses through credit card
Motor vehicle n.a. n.a. Paid as part of the expenses through credit card
Other
$610 $610 $1,220 Donations
$250 $250 $500 Accountant’s fees
$12,000 $12,000 $24,000 $2000 per month support to environmental group
$6,720 $6,720 $560 per month out-of-pocket medical expenses
Total expenses $74,730 $81,450 $156,180
Total income received before tax less total expenses -$1,730 –$10,450 –$12,180
Total tax payable from tax table above $16,435 $15,745 $32,181
Total net cash flow –$18,165 –$26,195 –$44,361
Current superannuation, insurances and investments
Superannuation
Member Mark Heather
Fund name EANWB Retail Super Fund EANWB Retail Super Fund
Date of joining fund 1 July 1992 (service date) 1 July 1992 (service date)
Type of fund ? Accumulation Defined benefit ? Accumulation Defined benefit
Pension Pensioner Pension Pensioner
Contribution (e.g. 5% of salary) SG By employer By yourself SG By employer By yourself
Current value of your superannuation fund $567,000 $332,000
Amount of death and disability cover $710,000 $520,000
Is there provision for you to top-up or salary sacrifice? ? Yes No ? Yes No
Superannuation taxation details
Mark Heather
Current value $567,000 $332,000
Tax-free component $175,000 $178,000
Taxable component:
Taxed element $392,000 $154,000
Untaxed element $0 $0
Preservation:
Preserved $567,000 $332,000
Unrestricted non-preserved $0 $0
Restricted non-preserved $0 $0
Previous years contributions:
Non-concessional contributions:
Year 1 $0 $0
Year 2 $0 $0
Year 3 $0 $0
Year 4 $0 $0
Concessional contributions:
Year 1 SG only SG only
Year 2 SG only SG only
Year 3 SG only SG only
Year 4 SG only SG only
Note: The fund rules of the EANWB Retail Super Fund will allow a member to be in accumulation and pension phase at the same time.
Life insurance details
Life insured Owner Policy type Company Policy number Death benefit Comments Annual premium
Mark EANWB Retail Super Fund Life EANWB 234u024 $710,000 Within superannuation $8,400
Mark EANWB Retail Super Fund TPD EANWB 234u024 $710,000 Within superannuation any occupation $18,000
Heather EANWB Retail Super Fund Life EANWB 45276 $520,000 Within superannuation $1,440
Heather EANWB Retail Super Fund TPD EANWB 45276 $520,000 Within superannuation any occupation $3,060
Nominated beneficiaries
Name Binding Non-binding
(Yes/No) Trustee discretion
(Yes/No)
Yes/No Amount
Mark — Beneficiary is Heather Yes 100% No No
Heather — Beneficiary is Mark Yes 100% No No
Are there any current flags or splits on a superannuation benefit of yours following a marriage breakdown? Yes/No N Details
Are you a beneficiary of any current flags or splits of a superannuation benefit following a marriage breakdown? Yes/No N Details
Investment details
Investment type Company Purchase date Units held/fixed rate Current value Owner
Savings account East Antipodean National Wealth Bank n.a. $5,000 Mark and Heather
Needs and objectives
Details Comments
Maintain previous net income level To maintain their net income levels at the level prior to Mark commencing his new role.
Maintain superannuation balances If possible, to try and maintain superannuation balances. However, willing to reduce superannuation balances to maintain previous net income level.
Retain flexibility of taking lump sums from superannuation
Implications on TPD If Heather becomes TPD due to her current illness, both now and in the future.
Proposed superannuation balances Estimate of Mark’s and Heather’s superannuation balances when Heather reaches age 65.
Acknowledgment
The information provided in this financial fact finder is complete and accurate to the best of my knowledge.
I understand that a policy purchased without the completion of a fact finder, or following a partial or inaccurate completion, may not be appropriate to my needs. I also understand that a policy purchased that differs from that recommended by the planner may not be appropriate to my needs. I acknowledge that my planner has provided me with the completed financial fact finder, signed by me.
Customer(s) signature(s)
Planner’s name
Planner’s signature
Date
Task 2 questions
Mark and Heather have a number of questions about accessing their superannuation and benefit payments. Respond to their questions basing your answer on their personal situation. You may be required to re-educate the clients where they are confused or misunderstand the superannuation rules.
Mark and Heather’s questions
Question 1
Heather asks:
‘When and how can we access our superannuation? Can we get it if we are still working?’
Explain the options that apply in their circumstances.
Answer here
Assessor feedback:
Question 2
Mark asks:
‘As I understand it, if we are able to withdraw our funds from superannuation we will be heavily taxed. Could you explain what the tax implications are for me if I took a lump sum from my superannuation? If Heather retired, what tax would she pay if she took a one-off lump sum payment?’
Answer here
Assessor feedback:
Question 3
Heather asks:
‘Ok, tell us more about these income stream options. How do they work?
What are the rules that apply to us? How much income will they pay us?’
Answer here
Assessor feedback:
Question 4
Mark follows on from the last question. He has noticed there are taxable and tax-free components on his and Heather’s superannuation statements. Mark asks:
‘Does this mean that if we want some money tax free we can take it from the tax-free component? That way we can defer paying tax. Is that the way it works?’
Answer here
Assessor feedback:
Question 5
Mark asks:
‘If we start an income stream part way through the year, what are the rules regarding the amount of minimum income we receive?’
Answer here
Assessor feedback:
Question 6: Your strategy recommendations
As part of an SOA, a financial planner must justify their strategies by showing how they meet their clients’ needs and objectives. In this case study Mark and Heather have the following needs and objectives:
• maintain their combined net income at $148,000
• maintain their superannuation balances (if possible)
• retain the flexibility of taking lump sums from superannuation
• obtain a projection of their superannuation balances when Heather reaches age 65
• understand the implications if Heather becomes TPD now or in the future
• reduce the income tax they pay.
Answer the following five (5) questions and explain how your recommendations will meet their needs and objectives.
Guidance
You will need to perform some calculations and modeling to achieve a justifiable recommendation for the clients. Your recommendations should include consideration of salary sacrificing by Mark and Heather, use of lump sums and/or pensions and adjusting their spending. Note: There is no one ‘right’ answer but whatever recommendations you make must meet their objectives and be justified.
For the projections of their superannuation balances when Heather reaches age 65 you should assume a reasonable rate of return of a balanced fund — probably between 6% and 8%. It is usually better to be conservative in preparing illustrations.
To support your recommendations you will need to provide a tax and cash flow statement illustrating your clients’ financial position if your strategies are adopted. A template for the cash flow statement follows the report fields.
(a) Use the space below to list Mark and Heather’s key goals and objectives and describe a strategy they could adopt to maintain their previous net income level.
Answer here
Assessor feedback:
(b) Describe how Mark and Heather can maintain their superannuation balances into the future. Show your workings to support your strategies.
Answer here
Assessor feedback:
(c) Explain to your clients how the recommendations will reduce their personal income tax.
Please show your workings to support your answer.
Answer here
Assessor feedback:
(d) Explain the implications for Heather if she was to receive a disability superannuation benefit either as a lump sum or as an income stream. Please show your workings to support your answer.
Answer here
Assessor feedback:
(e) Calculate their projected superannuation balances when Heather reaches age 65.
Please describe all assumptions and explain all workings.
Answer here
Assessor feedback:
Financial position after implementation of strategy
Income and tax statement, and cash flow after implementation of strategies
Note: The items listed in this template are indicative only and must be adapted to your clients’ personal circumstances. There may be other relevant income or expense items that are not included in this template. You should add, delete or substitute items where appropriate.
Accurately completed cash flows are essential in the financial planning process to support recommendations. They are key to demonstrating your competency.
Tax calculation Client 1 Client 2 Notes
Income from employment
Salary
Salary sacrifice (state % if applicable)
Salary after salary sacrifice
Other income
Bank account interest (state % return if applicable)
Interest from other investments (state % return if applicable)
Share dividends (state % return if applicable)
Imputation credits (state % return if applicable)
Other income liable for tax (e.g. rental income)
Assessable capital gains
Total assessable income
Deductable expenses (e.g. rental repairs)
Taxable income
Income tax on taxable income (state tax rates and year applied)
less tax offsets (e.g. LITO/SAPTO)
15% superannuation and annuity tax offset
plus Medicare levy
plus Medicare levy surcharge
less imputation credits
less refundable tax offsets
Net tax payable
Family cash flow
Client 1 Client 2 Combined Comment
Cash flow calculation:
Salary less any salary sacrificed amount
Other income (e.g. income from a superannuation income stream for a person, Family Tax Benefits etc.)
Interest income
Dividends received (excluding franking credits)
Other income
Total income received before tax
Investment expenses
Living expenses
Other expenses
Total expenses
Total income received before tax less expenses
Net tax payable from tax table above
Total net cash flow
Asset Owner Value Liabilities Net value Notes
Personal assets
Family home
Home contents
Car 1
Car 2
Other
Total
Superannuation
Client 1 superannuation
Client 2 superannuation
Total
Investment assets
Investment property
Savings account
Term deposit
Shares
Other
Total
Net worth
Liabilities
Loan Current debt Percentage deductible Interest only Repayment
Loan
Home loan
Investment property
Other
Total