Written Assignment

Financial Planning Fundamentals
(DFP1_AS_v4)

Student identification (student to complete)

Please complete the fields shaded grey.

Student number

10058842

Assignment result (assessor to complete)

Result — first submission (details for each activity are shown in the table below)

Not yet competent

Parts that must be resubmitted

2a, 2b, 2d

Result — resubmission (if applicable)

Result summary (assessor to complete)

First submission

Resubmission (if required)

Part 1: Instructions for completing and submitting this assignment
Part 2: Case study
Part 3: Assignment questions Question 1

Question 2

Question 3

Question 4

Question 5

Question 6

Question 7

Question 8

Question 9

Feedback (assessor to complete)

You have provided good discussions throughout your assignment. Your Centrelink calculations in question 2a are not correct, this has affected your spreadsheets in the following questions. I have provided further comments within.

Before you begin

Read everything in this document before you start your assignment for Financial Planning Fundamentals (DFP1_AS_v4).

About this document

This document is the Written Assignment — half of the overall Written and Oral Assignment.

This document includes the following parts:

• Part 1: Instructions for completing and submitting the assignment

• Part 2: Case study

• Part 3: Assignment questions (includes uploading an Excel spreadsheet for Question 2, in addition to uploading this completed template, i.e. upload 2 documents; this completed template and your completed Excel spreadsheet).

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 Financial Planning Fundamentals (DFP1v4) subject room.

Instructions for completing and submitting the assignment

Saving your work

Download this document to your desktop, type your answers in the spaces provided and save your work regularly.

• Use the template provided, as other formats will not be accepted for these assignments.

• Name your file as follows: Studentnumber_SubjectCode_Assignment_versionnumber_Submissionnumber
(e.g. 12345678_DFP1_AS_v4_Submission1).

• Include your student ID on the first page of the assignment.

Before you submit your work, please do a spell check and proofread your work to ensure that everything is clear and unambiguous.

Word count

The word count shown with each question is indicative only. You will not be penalised for exceeding the suggested word count. Please do not include additional information which is outside the scope of the question.

Additional research

You will be required to do additional research to answer the assignment questions.

Submitting the written assignment

Only Microsoft Office compatible written assignments submitted in the template file will be accepted for marking by Kaplan Professional Education. 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 written assignment must be completed before submitting it to Kaplan Professional Education. Incomplete written assignments will be returned to you unmarked.

The maximum file size is 20MB for the Written and Oral Assignment. Once you submit your written assignment for marking you will be unable to make any further changes to it.

You are able to submit your written assignment earlier than the deadline if you are confident you have completed all parts and have prepared a quality submission.

Please refer to the Assignment submission/resubmission instructions (pdf) in the Assessment section of KapLearn for details on how to submit your written assignment.

Your written assignment and oral assignment must be submitted together on or before your due date. Please check KapLearn for the due date.

The written assignment marking process

You have 12 weeks from the date of your enrolment in this subject to submit your completed assignment.

If you reach the end of your initial enrolment period and have been deemed ‘not yet demonstrated’ in one or more assessment items, then an additional four (4) weeks will be granted, provided you attempted all assessment tasks during the initial enrolment period.

Your assessor will mark your assignment and return it to you in the Financial Planning Fundamentals (DFP1v4) subject room in KapLearn under the ‘Assessment’ tab.

Make a reasonable attempt

You must demonstrate that you have made a reasonable attempt to answer all of the questions in your written assignment. Failure to do so will mean that your assignment will not be accepted for marking; therefore, you will not receive the benefit of feedback on your submission.

If you do not meet these requirements, you will be notified. You will then have until your submission deadline to submit your completed written and oral assignment.

How your written assignment is graded

Assignment tasks are used to determine your ‘competence’ in demonstrating the required knowledge and/or skills for each subject. As a result, you will be graded as either demonstrated or not yet demonstrated.

Your assessor will follow the below process when marking your written assignment:

• Assess your responses to each question, and sub-parts if applicable, and then determine whether you have demonstrated competence in each question.

• Determine if, on a holistic basis, your responses to the questions have demonstrated overall competence.

You must be deemed to be demonstrated in all assessment items in order to be awarded the units of competency in this subject, including:

all of the exam questions

the written and oral assignment.

Not yet demonstrated’ and resubmissions

Should sections of your assignment be marked as ‘not yet demonstrated’ you will be given an additional opportunity 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 demonstrated’.

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:

FNSFPL502 Conduct financial planning analysis and research
FNSFPL501 Comply with financial planning practice ethical and operational guidelines and regulations
FNSFPL506 Determine client’s financial requirements and expectations
FNSINC401 Apply principles of professional practice to work in the financial services industry
BSBITU402 Develop and use complex spreadsheets
FNSCUS505 Determine client requirements and expectations
FNSINC501 Conduct product research to support recommendations
FNSIAD501 Provide appropriate services, advices and products to clients
FNSCUS506 Record and implement client instructions

We are here to help

If you have any questions about this written 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.

Part 1: The case study

Joe and Natalie Olden

You met Joe Olden when he came into your office last week. He had been mowing the grass in the park over the road, saw your business sign and came for a chat to see if you could help him and his wife.

They live in a small rural community outside town and have been married for three years. Joe is 26 and is a horticulturalist with the local council. Natalie is 24 and a librarian. However, she is not working at present as she looks after their twins. Until the twins arrived, their focus had been on working hard and saving for a deposit to buy a house. They rent a nice home on the edge of town and enjoy the scenic views over the hills.

Their landlord has approached them saying she wants to sell the house and will give them first refusal to purchase it. Joe’s parents have offered to help them with a loan.

They want some help in making a decision and understanding how it will all work.

You give Joe your Financial Services Guide (FSG) and a fact-find form and you agree to meet next week.

First meeting

After introductions and pleasantries, you ask Joe if he has read the FSG and briefly go through the contents for Natalie. They are comfortable to have an initial consultation to see where it takes them.

They have completed the fact find and as you discuss the contents, you make additional notes on their file. The fact find looks as follows:

Joe and Natalie Olden fact find

Table 1 Personal details

Name

Joe Olden

Natalie Olden

Salutation

Mr. Olden

Mrs. Olden

Age

26

24

Marital status

Married

Married (We just celebrated our third anniversary)

Home address

Hillview Cottage Burgenfield

Health

Good

Good

Smoker

No

No

Occupation

Horticulturalist

Librarian

Employer

Burgenfield Rural Council

Burgenfield Library

Projected retirement age

Probably 67

Not thought about it

Dependants/family relationships

Name

Age/date of birth

Son Jason 2 (Both in good health and developing normally)
Daughter Jillian 2

Table 2 Professional relationships

Solicitor

None

Time span of relationship n.a.
Quality of relationship

Accountant

None

Time span of relationship n.a.
Quality of relationship

Table 3 Assets and investments

Assets and investments (personally owned)

Assets

Value

Ownership status

Other information

Purchase price

Everyday bank account $500

Joint

We try to keep at least this amount in the account. We’d like to have more cash on hand for the unexpected because with the twins something is always happening.
Joe’s ute $4,000

Joe

It’s 12 years old and still running well. It’s a great little workhorse. $15,000
Natalie’s sedan $12,000

Natalie

It’s only three years old and I love it. The four doors and hatchback make it great to take the kids out and for shopping. $18,000
Home contents $7,000

Joint

Includes gardening equipment that Joe uses for their garden and occasional gardening jobs he does.
Bonus saving account $22,500

Joint

We were saving quite well and enjoyed a carefree lifestyle until the twins came along, but for the last year we have often had to resist the temptation to dip into it. We get extra interest if we don’t make withdrawals.

Table 4 Liabilities

Debts

Value

Payment

Ownership status

Other information

Interest rate

Credit card $2,500

Minimum

Joint

We would prefer to pay it off each month but we spent a lot rearranging the house when the twins arrived.

22.5%

Car loan $5,400

$61p.w.

Natalie

We have two years until it’s paid out.

13.5%

HECS debt $12,000

None

Natalie

It is from Natalie’s librarian course.

CPI

Table 5 Superannuation

Fund

Value

Ownership

Other information

SunSuper

$16,300

Joe

From my job with the council. I’ve been with them since I left school and did my apprenticeship.
Council Super

$11,800

Natalie

From my job in the library since I finished university.

Table 6 Income p.a.

Income type per annum

Joe

Natalie

Notes

Salary $48,000 Super on top of this. I hope to get the supervisor’s job in a couple of years when he retires.
Salary

$5,000

I was on $47,000 before I took time off to have the kids. I’m not sure how long I’ll be away but I don’t want to lose the opportunity to work locally. This is my town and I love it.

I still do some work from home for the library. I hope to earn $5,000 a year but we’ll see.

Centrelink

About $19,000

About $730a fortnight.
Interest $394

$394

From $22,500 bonus saving account.
Total combined gross income $72,788

Table 7 Estimated annual expenditures

Expense per year

Joint

Notes

Accountant’s fees A friend does our tax online
Charitable donations None
Children’s pocket money n.a.
Council and water rates Included in rent
Discretionary: restaurants, gifts, holidays, etc. $1,000 We used to go out a lot and take short weekend breaks but we are more likely to go for a walk than to the pub nowadays
Debt repayment $3,765 Car loan ($3,165 p.a.) and minimum payment on the credit card ($600)
Electricity $1,000
Gas $600
Weekly shopping $30,000 With things for the kids we easily spend $550 each week
Health insurance We don’t have any
Holidays We now visit an aunt on the coast if we go anywhere
House insurance Landlord’s responsibility
House maintenance and repairs Landlord’s responsibility
Income protection Never thought about it
Medical bills/prescriptions $1,500 We are pretty healthy
Mobile phones and internet $1,500
Motor vehicle and fuel $10,000
Mortgage n.a.
Pay TV We don’t get much time to watch TV
Private school fees n/a
Rent $15,600 $300 p.w.
Total expenses $64,965

Table 8 Investment objectives and attitude to risk

Not applicable

Joe and Natalie did not fill out this part of the fact find. They said it did not apply to them or they did not understand the questions or possible answers.

Determining your investor risk profile

Points

This investor risk profile questionnaire has been designed to help you understand the type of investor you are, so that with the help of your adviser, you can choose the investments that best match your financial objectives.
Which of the following best describes your current stage of life?
Single with few financial commitments. You are keen to accumulate wealth for the future. Some funds must be kept available for enjoyment, such as cars, clothes, travel and entertainment.
A couple without children. You may be preparing for the future by establishing and furnishing a home. There are a lot of things you need to buy. You are probably better off financially now than you may be in the future.
Young family. This is the peak home purchasing stage. You have a mortgage and a very small amount of savings. Probably dissatisfied with your financial position and the amount of money saved.
Mature family. You are in your peak earning years and have the mortgage under control. Many partners also work and any children are growing up and have either left home or require less supervision. You are starting to think about retirement, although it may be many years away.
Preparing for retirement. You probably own your own home and have few financial commitments; however, you want to ensure that you can afford a comfortable retirement. Interested in travel, recreation and self-education.
Retired. Now that you are no longer working you must rely on existing funds and investments to maintain your lifestyle. You may be receiving the pension and are keen to enjoy life and maintain your health.
What return do you reasonably expect to achieve from your investments?
A return without losing any capital
3–7% p.a.
8–12% p.a.
13–15% p.a.
Over 15% p.a.

If you did not need your capital for more than ten (10) years, for how long would you be prepared to see your investment performing below your expectations before you cashed it in?

You would cash it in if there were any loss in value
Less than 1 year
Up to 3 years
Up to 5 years
Up to 7 years
Up to 10 years
How familiar are you with investment markets?
Very little understanding or interest
Not very familiar
Have had enough experience to understand the importance of diversification
Understand that markets may fluctuate and that different market sectors offer different income, growth and taxation characteristics
Experienced with all investment sectors and understand the various factors that may influence performance
If you can only receive greater tax efficiency from more volatile investments, which balance would you be most comfortable with?
Preferably guaranteed returns, before tax savings
Stable, reliable returns, minimal tax savings
Some variability in returns, some tax savings
Moderate variability in returns, reasonable tax savings
Unstable, but potentially higher returns, maximising tax savings
Six months after placing your investment you discover that your portfolio has decreased in value by 20%.What would be your reaction?

Not applicable

Horror. Security of capital is critical and you did not intend to take risks.
You would cut your losses and transfer your money into more secure investment sectors.
You would be concerned; however, you would wait to see if the investments improve.
This was a calculated risk and you would leave the investments in place, expecting performance to improve.
You would invest more funds to lower your average investment price, expecting future growth.

Which of the following best describes your purpose for investing?

You want to invest for longer than five years, probably to age 55–60. You are mainly investing for growth to accumulate long-term wealth.

Not applicable

You are not nearing retirement, have surplus funds to invest and are aiming to accumulate long-term wealth from a balanced fund.
You have a lump sum (e.g. an inheritance or a lump sum payment from your employer) and you are uncertain about what secure investment alternatives are available.
You are nearing retirement and you are investing to ensure that you have sufficient funds available to enjoy retirement.
You have some specific objectives within the next five years for which you want to save enough money.
You want a regular income and/or totally protect the value of your savings.
Investor profile total points

Investor risk profile summary

70–140 Conservative

Not applicable

You are a conservative investor. Risk must be very low and you are prepared to accept lower returns to protect capital. The negative effects of tax and inflation will not concern you, provided that your initial investment is protected.

140–210 Moderate
You are a cautious investor seeking better than basic returns; however, risk must be low. Typically, an older investor seeking to protect the wealth that you have accumulated, you may be prepared to consider less aggressive growth investments.
210–280 Balanced
You are a prudent investor who wants a balanced portfolio to work towards medium- to 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.
280–315 Growth
You are an assertive investor, probably earning sufficient income to invest most funds for capital growth. Prepared to accept higher volatility and moderate risks, your main concern is to accumulate assets over the medium to long term. You require a balanced portfolio, but more aggressive investment strategies may be included.
315–350 High growth
You are an aggressive investor prepared to compromise portfolio balance to pursue potentially greater long-term returns. Your investment choices are diverse but carry with them a higher level of risk. Security of capital is secondary to the potential for wealth accumulation.

Table 9 Estate planning

They have not bothered about wills because if one of them died everything would go to the other. They haven’t got around to doing anything now they have the kids.

Insurance and risk management

Policy

Life insured

Owner

Cover

Premium per annum

Notes

Death and TPD

Joe

SunSuper

$125,000 Death

$175,000 TPD

$3.92p.w.

Standard cover
Death and TPD

Natalie

Council Super

$87,000 Death

$2.00 p.w.

TPD cancelled as she is not working
Income protection
Home and contents

Private health insurance
Joe’s ute insurance
Natalie’s sedan insurance

Natalie

Fully comprehensive

$420 p.a.

Premium included in motor vehicle costs

You ask them about the offer from their landlord.

Question

Answer

Tell me about this offer from your landlord? We’ve always got on well with her. We pay our rent on time and she always responded promptly if we had any problems. She likes to come and collect the rent if she can so she can see our kids. So, we’re friends, really.

She says she’s selling up and moving to the coast and can’t manage a rental property from far away. She knows we were saving to buy a house and it would make life easy for her if we bought it and she didn’t have to pay real estate agent fees. Of course, it would make life easy for us too as we wouldn’t have to move.

How much is she asking? Well, she wants $280,000. It sound s like a bargain compared to the prices they pay in the cities nowadays but it’s only a two-bedroom weatherboard cottage; it suits us just fine though. We looked at the asking prices for other homes in the window of the real estate office and it seemed a fair price.
Have you asked about a mortgage? Yes, we spoke to the bank and they told us if we could make a 20% deposit they would fund the rest. So that means we would borrow $224,000 and we need a $56,000 deposit — a bit more than that to cover legal costs.
And you’ve had an offer from Joe’s parents? Yes, we told them we have saved $22,500 but they could see we were short about $40,000 so they said they’d lend us the money to help us out. It’s too big an opportunity to pass by.
But it’s a loan, not a gift? That’s right. They are in their mid-50s and plan to retire in 10 years and will want the money back by then. Joe has two brothers and neither of them is married yet so he’s the apple of their eye, having presented them with two grandkids at once. They haven’t said anything about paying interest but it’s sort of understood that once we get on top of the mortgage payments and I’m back at work we can pay them back in instalments.

Part 2: Assignment questions

Question 1a

The first four steps of the safe harbour are repeated below. They all form part of this stage in the financial planning process and you must address all four steps in this first question.

Step 1: Identify the objectives, financial situation and needs of the client that were made known through the client’s instructions.

Step 2: Identify the subject of the advice the client is looking for (whether explicitly or implicitly).

Step 3: Identify the objectives, financial situation and needs of the client that would reasonably be considered relevant to the advice sought on that subject (the client’s relevant circumstances).

Step 4: If it is reasonably clear that information relating to the client’s circumstances is incomplete or inaccurate, make reasonable enquiries to get complete and accurate information.

Required

(i) Briefly describe the clients’ financial situation, their objectives and needs as initially explained by them.

(ii) What do you believe the clients hope to gain from engaging with a financial planner?

(iii) Describe the importance of completing the fact find at this point in the financial planning process and the compliance requirements associated with completing the fact find.

(150 words)

Answer

(i) As per initial discussions with the Oldens, it is clear to me that they are not in the best of financial positions. Their earnings were enough just to fulfil their routine expenses and leave a small amount in savings. It was also revealed through the discussion that whilst the couple currently rent, an opportunity has presented itself to purchase this same property. Although they have been saving for this purpose, they have insufficient funds to entertain the ide of purchasing the house on their own. It is for this reason that Joe’s parents have offered to help them with a loan.

(ii) As per my understanding, the Oldens are seeking financial advice in order to purchase the house and repay the loan without overly interfering with their routine budget.

(iii) The fact find is an integral part of the financial planning process to gather as much information about the clients personal and financial situation as possible. It assists in determining factors such as, current cost of living, salaries, assets owed and any outstanding liabilities. This information is vital in assessing the clients projected income and expenses and supports in any recommendations made to the client to meet their financial goals and objectives. It is also key in assessing a client’s risk profile.

In terms of compliance requirements, any personal data and information that is collected must remain confidential under the firms privacy policy.

Clear and concise meeting notes must be taken to ensure no key pieces of information is missed.

No advice must be given until all relevant information is gathered and agreed upon by client.

Supply client with a Financial Services Guide to explain in further detail, who we are and what we do. This includes our fee structures and dispute resolution procedures.

 

Assessor feedback

Resubmission required?

Well covered and discussed

 

 

 

Question 1b

(i) What is the subject of the advice the clients are seeking? What advice have they asked for?

(ii) What additional advice do you think they need from what you know about their circumstances?

(100 words)

Answer

(i) The Oldens are seeking financial advice in relation to the purchasing of this house and repayment of the loan the couple is bound to take from Joe’s parents.

(ii) There is definitely an option to look into devising both a savings and debt management plan whilst also establishing a well thought through budget with future expenses factored in.

I would suggest to explore and review their insurance policies, Joe’s in particular as they do not have adequate income insurance in the event that something happened that would prevent him from being able to work.

Assessor feedback

Resubmission required?

good

Question 1c

Assume you have asked the clients more questions and have explained the areas where you think they need advice.

Read the fact find thoroughly and identify all the issues they are concerned about. Identify what you consider would be reasonable objectives for the clients. In your answer describe a minimum of six objectives. (200 words)

(150 words)

Answer

A thorough observation of the fact find identifies the following objectives that the clients should consider throughout this financial planning process:

The couple should consider their planned retirement ages so that adequate superannuation planning can be taken to meet their needs and objectives. In this particular case Natalie has not given any consideration to her desired retirement age so this is an area that would need more attention paid to.

The next objective should be to increase the amounts of cash deposited into their savings account. This will enable the couple to subsequently increase their income not only through added savings but through income generated from interest on the account.

The couple owns two cars; the one owned by Joe is 12 years old however is in good condition and stated to be functioning perfectly. The second vehicle owned by Natalie is only three years old. They have mentioned that the loan taken out on this car is to be paid off within the next two years. They should consider the possibility of perhaps selling the Sedan owned by Natalie, and reinvest the money received from this sale towards the deposit for the new house. This will also assist in reducing general costs on motor vehicle and fuel expenses.

The main objective of the clients is the purchasing of a house. It would be worth looking into the difference in costs between current rent and any future mortgage repayments to identify potential savings or added expenditures to their budget.

The couple is in good health however it would be prudent of them to look into health insurance options especially given the fees associated with this at their age would be reasonably low.

Natalie could explore the option of returning to work when ready and take the offer of Joe’s parents in assisting with the children where possible.

Well covered

Question 1d

This task requires you to identify what gaps there are in your understanding of the client’s situation. List five other clarifying questions you would ask them.

(150 words)

Answer

The Oldens do not appear to have given much thought to their financial situation prior to this recent opportunity that has arisen, which isn’t uncommon for individuals their age. Unfortunately, there are gaps and missing pieces of information in the uncompleted fact finder such as the couples risk profiling which we must know before proceeding further. Outside of the purchasing of this house, the couple are uncertain around what investments and strategies to put in place to ensure their future financial security.

It is clear that they have not considered the constructing of a will in the event one of them passed away.

As mentioned already, they have not considered their options around income protection and private health insurance to cover them in the event of an accident.

The following questions should be posed to the couple to find out more details:

1) Approximation of their retirement ages?

2) What is the estimated amount being spent on house insurance and maintenance and repairs?

3) What is the potential rate of interest on the mortgage that the couple is planning to attain from the bank for and also will they have to pay any interest on the load received from Joe’s parents? If so, how much?

4) Their willingness to explore health insurance cover options in the near future?

5) If/when Natalie will recommence her job as a librarian?

good

Question 2a

Natalie and Joe have given you an estimate of what they currently receive from Centrelink in family benefit payments. In this question you are required to undertake research to determine and validate the amounts Natalie currently receives from Centrelink,including rent assistance. You will need this information forQuestion 2b. You will need to apply this process again in determining the payments for Question 2d for their changed situation.

Resources that you can use to undertake the tasks include:

• Reread Topic 8 of the study guide on payments to support families.

• Refer to the latest Guide to Commonwealth Government Payments booklet available at <https://www.humanservices.gov.au>Organisations/About Us Publications and Resources ‘A guide to Australian Government payments’.

• The Human Services website at <https://www.humanservices.gov.au>for more information on family benefits.

There are three(3) parts to the question:

(i) You have agreed to meet Joe and Natalie in a week’s time. Listfive(5) research steps you will need to undertake,as well as their order, to prepare you for discussing their eligibility for Centrelink payments.

(ii) Identify five(5) key data items required to determine Natalie’s eligibility for Centrelink FTBA, FTBB and rent assistance payments.

(iii) Calculate theCentrelink benefits you estimate she will receive, showing in summary form how you arrived at the calculations.

Note:You are not required to calculate Energy Supplement payments. You should assume that the annual supplement paid to Natalie under FTBA is $737 and for FTBB is $338, andinclude these figures in the annual cash flow calculations.

Answer

(i) List of Five research Steps for examining the Eligibility for Centrelink payments:

Whether the children are in their care for of at least 35% of the time. If not, there are no Family Tax benefits (FTB) in relation to children Components.

Whether they are an “Australian Citizen”, If not then: Holder of permanent visa or New Zealand citizen or holder of special category visa or holder of any sub class visa allows for FTB.

Whether they have lodged their tax return and ensure they do not have any outstanding debts in relation to Income Tax or have at least filed their Income Tax return.

Whether they have received and met “Immunisation and Health Check-up” requirements. If not then the family rate will be reduced by up to $28.84 per fortnight per child.

Rent assistance is available if you pay private rent and take care of the children for what is stated as less than 35% of the time.

(ii) Five key items to determine Natalie’s eligibility for Centrelink FTBA, FTBB and rent assistance payments are as follows:

1) FTBA child: The child must in Natalie’s care at least 35% of the time.

2) FTBA Residence requirements: She should be Australian Citizen or fall under any of the other requirements as per the guidelines.

3) FTBB Child: A family must have a child below the age of 13 years.

4) FTBB Residence requirements: Eligibility ceases only in the case of a 6 week or more absence from Australia.

5) Generally to Qualify for Rent assistance: A person should be paying Social Security payments, ABSTUDY, of more than the base rate of the family tax benefit and minimum rent amount to a private landlord.

(iii) Summary: Showing the calculation of Centrelink benefits:

Particulars $ Amount (Annual) Remarks
Maximum FTB Part A “0 – 12 years” age $9709

[($5621-$766.50)*2]

Per Child $5621. They have two children. This includes Energy supplements of $766.50 per child.
Energy Supplement FTBA $737 Provided in the Question
Energy Supplement FTBB $338 Provided in the Question
Rent Assistance (Single) $15,642.84

($300*2*26.0714)

If Fortnightly rent is at least $377.72. Maximum Payment is allowed. The 26.0714 is the total number of fortnights in a year.
Rent Assistance (Couple) $15,642.84

($300*2*26.0714)

If Fortnightly rent is at least $455.28. Maximum Payment is allowed.

Assessor feedback:

Resubmission required?

You haven’t clearly calculated their entitlement. How much of each are they entitled to on a fortnightly/annual basis. You don’t appear to have calculated FTBB. You will find that they are entitled to close to the $19,000 that they have advised in the fact find interview.

Creating an Excel spreadsheet

Upload your Excel spreadsheet for Questions 2b, 2c and 2d, in addition to uploading this completed template, i.e. upload 2 documents; this completed template and your completed Excel spreadsheet.

Questions 2b, 2c and 2d require you to use spreadsheets in addressing specific tasks relating to Joe and Natalie’s situation.

You will be required to create an Excel workbook and include three worksheets. The first should be titled ‘Cash flow renting’, the second ‘Mortgage repayments’, and the third ‘Cash flow buying’. You must demonstrate that you can match the ‘Cash flow buying’ worksheets to the other two worksheets.

For assistance in the use of Excel, refer to the Excel tutorial resources found under the ‘Assignment’ tab in KapLearn.

Question 2b

(i) Before you start, describe in about 100 words how you would organise your personal work station to ensure an ergonomically sound working environment for completing this task.

For guidance, refer to the 2015 HSW Handbook, Workstation Ergonomic Guidelines, University of Adelaide,<https://www.adelaide.edu.au/hr/hsw/docs/haz-man-task-ergo-guide.pdf>,
(viewed 5 December 2018).

(ii) Create a worksheet to analyse the clients’ current position (‘Cash flow renting’) when they are renting the cottage. The worksheet should show tax and cash flow statements as well as a statement of net worth. You must set out the worksheet in a form and style that you can show to your clients (do not use abbreviations and present the data in a way the clients will be able to understand). Be consistent in the way you present the data (for instance, presentation of dollar amounts and percentages). (Reference can be made to the Kaplan resource ‘How to complete a cash flow table’ when completing this question as well as the case study in Topic 10.)

Following analysis of your worksheet, briefly describe the conclusions you have formed of their financial situation.

(iii) Using the cash flow data recorded in the worksheet, create a graph that clearly shows the clients’ overall income compared with their total expense. The style of graph you use is your choice, but it must be clearly labeled to show the clients, in simple language, their overall income and expense position.

 

Q2b

I find that through the use of a standing work station I am being more conscious and aware of my posture in particular. It definitely mitigates certain lazy tendencies that creep into your general seating postures throughout the day. Often you are so focused on the task in front of you that you do not realise those bad habits beginning to creep in. Over time, I appreciate that these less than ideal habits formed can have serious consequences on posture and general wellbeing.

The glare plays a big factor in certain offices and often can cause headaches as a result. It is important to ensure you have sufficient lighting in order to reduce the strain on your eyes, so you need to find a solution through repositioning your work station or pulling the blinds down to a certain degree.

good

Existing spreadsheet to be used.

Your Centrelink calculation is not correct. This has affected your cash flow outcome. Once you have the correct entitlement in question 2a, carry it forward into this spreadsheet.

Question 2c

Create a second worksheet (‘Mortgage repayments’).

(i) Calculate the costs of a 25-year mortgage if the clients borrow $224,000. You should determine illustrative interest rates from searching mortgage provider websites. Find a provider who offers a ‘honeymoon’ interest rate, (i.e. a lower interest rate for an initial introductory period) and calculate repayments using the honeymoon rate and, separately, when the loan reverts to the higher standard rate. Set out your assumptions and workings.

(ii) What is the impact on the repayments when reverting to the standard rate?

The impact on repayments is that Joe would have to pay more in the case of the Standard Interest rate scenario as opposed to the Honeymoon Interest rate option as shown in the Mortgage Repayments Spreadsheet.

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Question 2d

(i) Create a third worksheet (‘Cash flow buying’) showing a secondcash flow statement and net wealth statement if they go ahead and buy the house, using the mortgage calculations completed in Question 2c. Assume they cash out their bonus savings account to go towards the costs of buying the house. Consider every item in the statements.

Note: You are not required to calculate Energy Supplement payments. You should assume again that the annual supplement paid to Natalie under FTBA is $737 and for FTBB is$338 and include these figures in the annual cash flow calculations.

(ii) Briefly describe how their income will change as a result of buying the property, including in your answer the differences you have identified. Some costs are likely to increase and some may decrease. Some new cost items will apply. Consider Centrelink benefits and interest earned.

(iii) After analysing the differences, what advice could you give them to improve their financial situation?

(iv) Describe the impact on their budget if mortgage interest rates rose by 2% from the standard rate.

(100 words)

(i) This part has been solved in the excel worksheet.

(ii) If the couple do choose to purchase the house, this will impact their income and expenses structure. For instance, the interest that was earned from the balance in the savings account shall cease; Furthermore, the family tax benefits that are received by Natalie shall be increased; Rent expenses will no longer be a thing; The insurance, repair and maintenance expenses of the house would now be worn by the Oldens post purchase.

(iii) Where possible, they should seek help with the minding of their twins so that Natalie is able to return to the workforce. A tighter budget must be devised for the couple leading into the purchase of the property and again revised if/once they have acquired the property. Every little dollar will help their current financial situation.

(iv) The total interest under the standard rate amounts to $174,345 @5.14%. If this rate we to be increased by 2%, the total interest shall increase by ($224,000 * 2%) $4,480. Any rise in interest rates would be felt by the Oldens with their current level of stated income. I would almost suggest a further review of their situation if this were to arise. There would certainly be a need for adjustments in other areas of their financials as a result. It may also be the case that interest rates have risen in line with inflation and CPI which may also suggest that either/both Joe & Natalie may have received pay increases themselves which would need to be looked into.

Assessor feedback:

Resubmission required?

The position on purchasing the property has not been calculated in the attached spreadsheet. Please complete and resubmit. Note: you will find that they no longer receive rent assistance in this scenario.

Question 3

(i) Consider their debt management position if they go ahead and purchase the house. Briefly describe in what sequence they should pay off their debts, if they had the capacity. Explain your reasoning.

(ii) What strategies could be considered to reduce their current debts?

(200 words)

Answer

(i) If the couple does manage to purchase the house, it will be essential for them to take a mortgage loan out from the bank and to ensure monthly repayments of this loan are met first and foremost. There is also the loan from Joe’s parents that they should accept in order to reach the initial 20% deposit of the total purchase price. The reason for such borrowings is a result of the less than required amount of savings at hand which is not sufficient to purchase the house. The loan from Joe’s parents is unsecured as they are not asking for any collateral however the loans from bank are always secured and it is disbursed only on the basis of a mortgage. Thus, their approach should be to meet their monthly mortgage payments first, with any spare amounts left over, begin to pay the loan from Joe’s parents off.

(ii) The present level of debt the couple currently have includes the outstanding credit card bill, which is a result of monies spent in the rearranging of the house when the twins arrived. Outstanding amount is $2,500 with an interest rate of 22.5%. The other components of debt are the car loan to purchase Natalie’s Sedan and a HECS debt accrued for Natalie’s librarian course. The outstanding amounts and interest rates on these loans are $5,400 at the rate of 13.5% and $12,000 at the rate of CPI respectively. I would suggest the couple sell Natalie’s sedan to settle the car loan and credit card bill. This option is viable as Joe already owns a ute and would not leave them without a means of transport moving forward.

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Question 4a

Describe three risks that could detrimentally affect the client’s financial position.

Reread the fact find and think about what risks they face. You should consider all the risks to their lifestyle and not just the traditional ones that can be insured.

(200 words)

Answer

The chance of having a negative result is known as risk. If an activity leads to any type of loss, such activity shall be called risky. The major categories of risk are business risk, non-business risk, and financial risk. The financial risks are further divided into market risk, credit risk, liquidity risk, and operational risk.

In this case, financial risks are relevant as they affect the financial position of the Oldens. The three major risks that could detrimentally affect their financial position are mentioned below:

The income of the couple is only fulfilling routine expenses. They are unable to generate any savings through current income levels. With this, the lack of steady work and decent paying jobs due to economic risks could result in a concerning condition for the family.

The birth of twins has also affected the financial position of the couple as this has led to significant increases in their expenses and has meant that Natalie is unable to work.

The purchasing of a house is a significant financial obligation. As it stands, with their level of income and current savings, the added heavy burden of mortgage repayments may way heavily on the couple.

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Question 4b

Although you do not need to provide specific, tailored risk management and estate planning advice, you can identify issues for the clients to consider and provide strategic advice that will assist them.

(i) Briefly describe what risks Joe, Natalie and their family face if either or both of them were to die and what general options do you believe they should consider to mitigate these risks.

(ii) What other professionals should you refer them to who could assist in their estate planning needs?

(iii) Write a brief letter that you could provide to an in-house estate planning specialist, referring Joe and Natalie to them for help reviewing and advising them on their estate planning needs. Consider how you would introduce the clients, what relevant information you could provide, and how the clients prefer to be contacted.

(200 words)

Answer

If either Joe, Natalie or both were to pass away, the risks it would pose to their family are enormous. There would be many risks the family would need to face such as the loss of income; reduced standard of living; and perhaps even the loss of their property and assets. This is where retirement and estate planning considerations are of great importance. Estate planning refers to the management of an individual’s assets after his/her death. The term ‘estate’ refers to all that an individual owns.

In order to receive appropriate advice on retirement and estate planning, I would refer them to ‘retirement and estate planning specialists’

Letter to an in-house estate planning specialist

To,

The Estate Planning Specialist

Date: 11.11.2019

Subject: Letter for seeking advice regarding estate planning of Joe and Natalie Olden

Dear ….,

This is to inform you that I am referring Joe and Natalie Olden to you as they are seeking professional advice regarding their estate planning. The Oldens fall under the term ‘Young Family’ to describe their stage of life. They are yet to consider their options with respect to their health insurance, due to reasons stated as both currently being very healthy. They do however both have life insurance cover. Joe’s situation is such that he is working and has standard cover of $125,000 claimable in the event of death and $175,000 TPD; Natalie is not working and has only cover of $87,000 claimable in the event of her death. Both Joe and Natalie have mentioned that they are not interested in drawing up a will as they have given their consent that in case of either of their deaths, everything will automatically pass on to the other living partner. Could you please take a further look at the information they have provided and advise accordingly regarding their estate planning?

Thankyou

Kind Regards,

Ben Cavanough

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Question 5

(i) In Question 1c, you identified at least six (6) objectives for Joe and Natalie. For each objective, set out your recommendations to assist Joe and Natalie in achieving that objective. In your recommendations describe how your advice meets the clients’ goals, noting why it is in their best interests. Refer to ‘Step 3 Development of recommendations’ in Topic 10 for one way to present your answer. (500 words)

(ii) Describe an adviser’s ‘best interests’ obligations when researching and designing financial advice. Refer to Topic 4 and FPA Practice Standards. (100 words)

Answer

(i) The recommendations on the basis of the stated objectives have been explained below:

The first objective is for the couple to consider what they believe to be an appropriate and desired retirement age. For this purpose, it is essential they determine the approximate age of retirement so that a strategic retirement plan can be constructed, and the couple can begin to accumulate enough savings to secure their future.

The next objective is to increase their disposal income through simple interest accumulation. For this purpose, the couple is recommended that where possible, to increase the amount of savings in their bank account to accrue additional interest on their capital. This is obviously as opposed to perhaps them holding cash at hand. All disposable income should be put into an interest-bearing savings account moving forward. Every little dollar helps.

To reduce their general outgoing expenditures. For this purpose, they have the option to potentially sell Natalie’s sedan to generate immediate additional capital. As stated, the ute owned by Joe would be a sufficient means of transport for the time being. This will also assist in reducing costs incurred on motor vehicle and fuel expenses as well as producing funds that can be saved or invested elsewhere.

The next and main objective is to purchase a house. Thy have been presented with an opportunity by the current owner of their rental property to purchase this house. They have been offered a reasonable price on the house and are happy to explore their options with the view to move forward with the offer if possible. In order to do so, they require borrowing funds from the bank through the undertaking of a mortgage. Again, Joe’s parents have offered to lend them the difference in the deposit amount required to be put down. If the couple are serious about this, they would need to immediately begin to reduce any unnecessary expenses to assist with their savings. Natalie if possible, should return to work and have the kids looked after by their grandparents as they have offered, or hire a nanny. This will allow for a steadier inflow of cash to the family which will go a long way in the repaying of the loan.

Another objective is to look into health insurance cover. The Oldens should really seek insurance advice as it will save them dollars in any future medical expenses when and where required.

Sixth objective is to increase their income. To do so, as mentioned, Natalie should consider re-entering the workforce as soon as possible. The added financial obligations that a home loan brings will put pressure on them both, so this is definitely an option they should explore.

(ii) Rule 1 of the FPA’s Code of Ethics is a requirement to “Putting the Client First”, and was introduced by the FPA in 2009, before the Future of Financial Advice reforms. “Putting the Client First”, together with the rest of the FPA’s Code of Professional Practice has been shown to comply with the statutory “best interest duty” test introduced in the FoFA regulations. FPA members remain one step ahead of the curve, continuing to focus on delivering best in class financial advice to clients at a time when the wider industry is dealing with a rapidly shifting regulatory environment.

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Question 6a

Identify two issues that Joe and Natalie may wish to change in your recommendations. Refer to the negotiations that occurred in the advice process in Topic 10. Explain how you would deal with their objections or concerns, and how you would incorporate them into your recommendations.

(200 words)

Answer

The recommendations that have been outlined above are based on what the clients have stated and what I perceived their investment needs and objectives to be. An important part of the financial planning process is to identify the areas and level of advice the clients are seeking. In this case, there may be some recommendations that have been made to Joe and Natalie that they feel are not suitable or realistic to their situation and through this, may wish to alter the course of action we take. For instance, Natalie may be unwilling to part with her car for multiple reasons such as, her needing it for shopping and outings with the children. The other objection may be Natalie’s reluctance to return to the work force any time soon as she simply may not be ready to part with the children whilst they are still of such an age.

These recommendations made might be quite personal in nature and could very well be sensitive to the individual. It is my role to gauge their words and body language when discussing such topics. I would be very reassuring and certainly take the professional approach of simply reiterating the importance of every single dollar. Any additional funds would certainly go a long way to take a bit of pressure of the couple and reduce not only the financial burden of a mortgage but the mental burdening of it too. In terms of perhaps selling Natalie’s car, I would pose further questions around the timings, frequencies and usage of both their vehicles to highlight any opportunities that would allow for this solution. It may be an option for Natalie to explore slowly reintroducing herself back into the workforce on a part time basis. Again, I would create dialogue around these optionality’s.

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Question 6b

You have completed your presentation to Joe and Natalie and they have asked sensible questions, so you are confident they understand the outcome of your analysis and your recommendations. They continue talking to each other.

What if you overheard Joe say to Natalie, ‘Well, it would be easier to manage a mortgage if I took on part-time jobs for cash and if I borrow the Council’s slasher I could do some bigger jobs at weekends? But that means more time away from you and the kids. What do you think?’ You can assume Joe did not intend you to hear their conversation.

Respond to the following four questions which relate to ethical considerations and the effect this new information may have on the client’s financial future.

(i) What are the ethical and legal issues you face now that you have this extra information? What should you do to meet your professional responsibilities? Refer to Topics 2, 3 and 4 to help you consider your position.

(ii) What are the implications for Joe as far as the Income Tax Assessment Act1997 (Cth) is concerned? What can you say to him and what do you recommend he does?

(iii) What are the implications for Joe if he borrows Council equipment for private use?

(iv) What would be the implications for the family tax payments that Natalie receives? What can you say to them and what do you recommend they do?

(250 words)

Answer

(i) Principle 7 of FPA Code titled as “Confidentiality” says that the information of the client should be kept confidential and must not be disclosed without proper authorization. In other words, the responsibility of protection of the confidentiality of the information of the clients lies with the financial planner. In this case, any personal or financial information gathered about the Olden’s should not be misused and kept strictly private and confidential.

(ii) In Australia, as per provisions contained in ITAA 1997, the income of a salaried individual is subject to withholding by the employer if the salary income exceeds $18,200 per annum. Exceptions to this are; if the employee has chosen to earn additional money through part-time jobs then the new employer shall withhold taxes at a higher rate without considering the tax-free threshold limit. Also, in the tax return, the complete amount of salary from all the jobs shall be taken together for the purpose of calculating tax liability. In this case, Joe will be liable to pay extra tax if he chooses to earn additional cash through any secondary form of employment.

(iii) As per the general principle, the resources of the council are to be used only for the sole purposes of the council or in the interests of general public; however, such resources can also be used for personal purposes by the staff members in cases where such resources are made available to the staff as part and parcel of the employment. In this case, the equipment provided by the Council is a part of Joe’s employment meaning, he would be able to use such pieces of equipment for his private use.

(iv) The Australian government provides assistance for families with children; such assistance is known as the family tax benefit. The families who have two children cease receiving this benefit when the combined income of a family reaches a level of $104,317. In this case, Natalie is elgible and receives these benefits as their total family income is less than the said threshold. If their circumstances were to change and their income rises, such assistance will be not be able to be received.

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Question 7

Joe and Natalie agree to join your ongoing service plan. Identify four specific issues related to their financial circumstances that you will raise with them at a review meeting in 12 months.

(200 words)

Answer

Has your financial position changed significantly since our last meeting? Eg Natalie may have gone back to work. This then would mean a re-evaluation of their whole financial position. Natalie’s additional income would impact a number of areas of their financial planning. For example, changes to their repayments, debts, Centrelink benefits and allowing them to even look at the possibility of investing some of their surplus income.

I would enquire if they had managed to purchase the house. I would then look at how they are tracking with the repayments of the mortgage (or rent if they didn’t buy it). See if there can be any changes made to the amounts they are repaying.

I would ask if they had managed to address their Income Protection and Life Insurances.

Lastly, I would discuss their estate planning outcomes and if they have a Will in place. I would follow up on how proceedings went with the estate planning specialist I referred them to. There may be aspects of the newly created will (if they had one done up) that again, may need altering since. And I would closely examine how their retirement plans/needs/objectives are tracking to see if any further adjustments are required.

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Question 8

You are asked by your team to create and implement a Sustainability Protocol for your organisation’s work practices. Refer to section 3.5 and ‘Triple Bottom Reporting’ in Topic 3 for assistance.

(i) Describe two (2) sustainability practices that you could include in the Protocol and the benefit that each will contribute to the organization’s long-term sustainability. (100 words)

(ii) Draft a brief email to your colleagues informing them of the existence of the new Protocol and highlight how each of the principles described in Question 8(i) will be implemented. (100 words)

Answer

The framework which recommends the companies to focus on social and environmental concerns just as they do on profits is known as triple bottom line. As per this concept, the company must have three bottom lines, namely- profit, people, and the planet.

Through ethical investing. I would incorporate this into the protocol to give equal weight to both social and environmental factors as well as financial returns. This would be done through careful and specific stock selections that are included in any of the firm’s investment portfolios and to ensure that clients are aware of this process and feel they have control over their investments.

I would also introduce and use our influence to regularly engage with the management of these companies over ethical issues with the long-term goal of improving their ethical behavior.

(ii) Email to colleagues

Subject: Sustainability principles and protocols present within an organization.

Dear All,

This is to inform you all that our organization has adopted various sustainability principles that should be followed by all of us so that we can prosper in the long term and also we can comply with the requirements of the sustainability protocols.

It is important that we continue to educate our clients around the importance of teamwork in creating positive, sustainable change. It is this coming together of like-minded groups to address key issues, that allow for greater change and to positively impact the future of corporate behaviour and performances.

You will all be further informed in more detail around the new protocols that are soon to be put in place however as of today, you will notice under each of your email signatures a short introduction to our new ethical investment approach. This will obviously be viewable by clients also.

We are very excited about this next chapter within the company and truly feel that it is a step in the direction in making a difference to not only our clients, but the environment as a whole.

Thanking you.

Kind Regards,

Ben Cavanough

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Question 9

Your Sustainability Protocol has been received well; however, three months after its implementation, you notice that your colleagues are not following its principles as you intended. List and summarise four (4) team communication techniques you could use when making sure everybody understands and follows the sustainability principles. (150 words)

Answer

Following are the various team communication techniques that allow the team members to communicate effectively:

The team members should meet regularly. The time and agenda of the meeting must be made very clear to all the team members. Arrange separate meetings for any member who is unable to attend initial meeting.

The team leader should be inclusive, that is, he should not leave any team member unattended and he should answer all the queries raised by the members of the team.

The team leader should be clear, concise, and transparent while conveying any message of information amongst the team members.

As it is now a world of high technology so the team leader can also use various collaboration tools available online for the purpose of communicating among the team members.

Training seminars and gatherings can be arranged to further communicate the company’s new policies and procedures

Assessor feedback:

You have provided good discussions throughout your assignment. Your Centrelink calculations in question 2a are not correct, this has affected your spreadsheets in the following questions. I have provided further comments within.

Date assessed:

 

Does the student need to resubmit?

 

Questions that need to be resubmitted

2a, 2b, 2d

First submission

 

Resubmission

 

To pass this subject, you will need to be assessed as DEMONSTRATED for either your first submission or your resubmission.