Prepare a "Statement Of Advice" for a financial Manager

Case Study

Introduction

You are a financial adviser for “St George Financial Planning Services Pty Ltd” and the following information is an extract of data you gathered as part of the Financial Needs Analysis during the initial client meeting with Jim and Emily Henderson in July 2021. The information below is used to formulate an appropriate analysis of Jim and Emily’s personal insurance needs. The purpose of undertaking this analysis is to gain an understanding of the Henderson family and to recommend appropriate strategies, and risk management advice including superannuation, and insurance coverages including any potential claims.

You are expected to undertake insurance needs analysis, and research appropriate products (including costs, features, and claim processes) for the family. As part of the analysis, consider Life, Total and Permanent Disability (TPD), Trauma, and Income Protection insurance including any general insurance and private insurance products as relevant to their situation for this project.

First, in February 2023; you collected data, analyzed, and recommended appropriate insurance covers for the family.

The Clients

Jim is a 46-year-old construction manager who has been working for Nexus Infrastructure since 2006. His wife, Emily, is a 44-year-old works as an admin staff in Medicare since 2009. They have been married for twelve years, have two children, Isabella aged 8 and Jack aged 10. Both Jim and Emily are in good health so far. Jim is a heavy smoke and drinks alcohol almost every day that becomes a daily habit now a days. They would like to have another child, but Emily previously had serious complications and considered a high pregnancy risk (which needs consideration when selecting health insurance coverage for the family).

Jim’s annual taxable income is $262,000 excluding 12% superannuation and Emily’s income is $78,000 excluding 10.5% superannuation.Total household expense is approximately $105,000 including home loan repayment. They own two cars comprehensively insured. Jim drives a 2020’s Mazda 6 (still $14,000 loan to pay at a rate of 4.5%) and Emily drives a 2016 Subaru Tribeca (paid up in full). They live close to the city in a house valued at $1.15M with a mortgage of $650,000 (they pay a variable 4.5% interest rate). Home contents value is approximately $150,000. Both children attend public schools. On Jim’s income, they can comfortably afford living expenses, school fees and the mortgage and have accumulated $125,000 in savings. It is Henderson family’s desire to send both their children to private school from the year 2024 which will cost them additional $45,000 yearly for both.Jim has superannuation balance of $370,000 with Cbus industry fund (combined Life & TPD covers of $550,000 with income protection linked with super) and Emily has $195,000 in her Australian Super fund (combined Life & TPD covers of $250,000 linked with super with no income protection). Fund Investment: Growth Fund (60% growth assets, 40?fensive assets). Both are in the balanced portfolio option. Fund fees and charges including investment return information is not available at this stage which can be obtained from the respective fund’s product disclosure statement. They have no other debts such as credit card and have no private health insurance. They go on holidays almost every after two years and spend around $35,000 per holidays.

Goals & Objectives:

Following discussions with Jim and Emily, find their agreed goals and objectives as follows:

1. Ensure a net income of $125,000 per annum is available to maintain living expenses until retirement age i.e., 65 for both and $85,000 for post-retirement.
2. Maintain a cash reserve of $50,000.
3. They would like to know if investing somewhere else would be better than paying off the mortgage
4. They are interested to know the benefits of inside/outside super and appreciate any advice applicable for them such as salary sacrifice.
5. Ensure their income is replaced in the event of an accident or illness while employed, and both Jim and Emily intend to retire at age
6. Ensure they have adequate Life, Total Permanent Disability (TPD), and Trauma and income protection insurance in
7. Explore any other personal insurance covers that they may require such as private health
8. Explore any other general insurance covers that they may require such as home and contents
9. It is Jim and Emily’s desire that their children have the opportunity to go to university after attending high school. They estimate that schooling will last from age 13 to 25. To provide for this, they estimate that $150,000 should be set aside for both
10. Emily’s mother, Joanna is living with the family. She is 66 and receives lifetime annuity earnings of around $16,000 per year that covers her incidental Jim and Emily meet her other expenses, which amount to $350 per month.

Henderson's family also wanted to get advice on a few taxes related issues. You are not an accountant or authorise to provide taxation advice. You have a friend named Paul who does taxation for

individuals. As you are aware of Paul’s expertise, mentioned to the Henderson family that Paul would look after their taxation matter, and you would pass all the required details to him so that it saves everybody’s time to collect similar data again. Paul’s office is nearby just after the next road. You have set up an appointment with Paul for the Henderson family in the next week.

You will provide scaled advice to Jim and Emily considering the issues below:

• You need to ensure that you highlight the benefits and the risk of the scaled advice relevant to the
• client’s personal circumstances. You also need to demonstrate how your advice to the client meets the best interest duty with the financial services legislation and

• Analyse and address Jim and Emily’s goals, objectives, needs, and concerns and whether theycan and if so, then how to achieve their objectives. (You are strongly advised to provide them with options and alternatives where necessary and appropriate).

• They would like to pay off their debt as soon as

• They would like to save and invest to help them achieve their objectives

• Jim and Emily feel strongly about providing their children with good They would like to set aside fund to attend university for both children.

• Jim and Emily would like to ensure they have adequate general and personal insurance. For the personal insurance, you are required to provide a clear need analysis and make appropriate recommendations on the amount and type of covers required. You also need to provide insurance product recommendations and supply quotes of Insurance advice must consider the issue of inside/outside of superannuation. Need to explore health insurance.

• Projections should be made up to Jim & Emily’s life expectancy + 5

Risk Profiling - Jim and Emily’s attitude to risk: Jim and Emily have both indicated they would not mind taking some calculated investment risks to help them achieve their objectives.

Assessment criteria :

You provide limited advice as per licensee arrangement. Your scope of advice is risk management and superannuation including debt management. As part of your scaled advice to the clients, you need to address the following:

1. Asset allocation and
2. Cash flow and asset projections (include projections of cash flows for Jim and Emily, presenting both pre-tax and post-tax results).
3. Debt management
4. LifeInsurance, General Insurance, and Health Insurance Planning
5. Cashflow and net worth
6. Provide assumptions used and justifications (cost, risk, suitability, etc.) where
7. Use diagrams and charts to assist with your
8. Clear calculation of

What is expected from your SOA?

Deliver appropriate advice that address all the clients’ goals, objectives, needs, concerns, and special circumstances. The advice needs to meet best interest duty and demonstrate the client will be in a better position in following the advice and recommendation you have presented. You need to identify the risks of the advice and how they can be mitigated.

The SOA needs to be professionally presented and reader friendly, aiming for best practice and not for minimum standards. The statement of advice based entirely on your own work. The SOA need to be compliant with all the financial services regulation for the format, the advice itself and all appropriate and required disclosures. Providing a compliant statement of Advice (i.e., disclosure, meeting the best interest duty, regulatory etc.). The SOA must adhere ASIC RG175 requirements the “Clear, Concise and effective” requirement.

Current situation:

• Building and structuring the client current situation (including pre advice cash flow and net worth)
• Clearlyanalysing the fact in the case study
• Appropriately addressing ALL the client goals, objectives, needs, concerns and specialcircumstances
• Providing a client with strategy that addresses ALL the client goals, objectives and concernsand aims to meet the client goals
• Providingclient with options and solutions – providing alternative strategies
• Highlighting how the strategy is in the best interest of the client – i.e., meeting the bestinterest duty
• Highlighting the risk of the strategy (if any)
• Addressinghow the risks can be mitigated
• Providingpost advice cash flow and net worth & the requested projections going forward
• Providingspecific product recommendations to execute the strategy
• ObtainingAuthority from the client to proceed with the recommendation

Risk profile section – you are required to address the key issues and justify accordingly. You, therefore, needed to make clear reference to how you determine the client risk profile (Client risk tolerance, Time horizon, Goals and objective, Liquidity needs and investment experience, etc.)

Switching Advice: All switching advice (superannuation, investment, and insurance) need to be clearly justified.

Product Research: All product recommendations must be supported by appropriate product available in the market. You must show the research work in identifying, comparing, and selecting the product in the appendix section.

Projections: Clear cash flow and net worth projection to be provided - you need reference to your projection in the body of the SOA in relation to the specific goals (i.e., retirement funding, etc.) Cash flow projections and net worth projections to justify strategy and demonstrate if financial goals and objectives are met.

Presentation – needs to be professionally presented and your SOA document must flow nicely and need to be reader friendly

Disclosure & Compliance – Appropriate disclosure of fees and benefits and meeting the regulatory requirement of advice documentation

Technically accurate advice - It is critically important to provide accurate advice for the client to rely on. Again, always relate to the clients' specific circumstances throughout the SOA and ensure you are specific when explaining concepts, rules, regulations and legislative changes in terms of highlighting their impact on the clients specific and relevant.

Assessment Requirements: Part A:

1. Conduct a‘SWOT ANALYSIS’ of your clients’ situation and identify your clients’ goals and objectives (SMART goals). Set and prioritise into short, medium- and long-term goals.

2. Construct an ‘INSURANCE NEEDS ANALYSIS’ by using the prescribed software or your own calculator to calculate how much personal insurance your clients require, according to their goals Please show your workings in the Appendix only.
3. In preparing a Statement of Advice (SOA), make sure that you have incorporated the following:
   1. What if clients don’t have insurance?
   2. What insurance could clients have taken out?
   3. What if clients had these insurances?
   4. List what strategies you would advise your clients to write these in your Strategy Paper.Include your recommendations on all the available life insurance types.

As a guide, you should include the following in your answer when comparing and recommending personal insurance:

1. Type and amount of cover/s
2. Name of the product/s
3. Features, advantages and drawbacks of the product/s
4. Full disclosure of remuneration and fees
5. Causes of the product
6. Exclusions of the product
7. Explain how your recommendations meet your client’s goals and objectives and justify the appropriateness of each piece of advice.

5. Describe the purpose of the insurance selected, highlighting the circumstances where the benefit may be paid, and the risk of not holding this
6. In your analysis, choose appropriate policy structures for each cover in your analysis. In your answer, include the policy features that you would recommend for each type of cover and the basis for your recommendation, including (but not limited to):

1. Sum insured
2. Standalone or bundled (multiple policies or linked)
3. Level/stepped/hybrid
4. Guaranteed renewable, interim cover, cooling off period
5. WaitingPeriod
6. BenefitPeriod
7. Superannuation coverage
8. Insurance inside/outside superannuation
9. Replacement of product
10. Basic or comprehensive cover
11. Definitions
12. Clauses
13. Exclusions
14. OptionalExtras

7. Following completion of the above, write your answer in a report form (i.e. Scaled SOA template),as per Regulatory and Higher Education

Part B: Add to the appendix within the report

Insurance needs analysis

1. Insurance products research and features
2. Cashflow analysis/projections for the next 5 years
3. Any other important information that you think would be relevant or valid