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26 Nov
2019

STATEMENT OF ADVICE CASE STUDY | Good Grade Guarantee!

Statement of Advice Case Study
(Dennis and Donna Barker)

Scope
This case study is applicable to the Diploma of Financial Planning (FNS50615) Statement of Advice series of tasks.

Case Study
You are an authorised representative of a full-service licensed dealer group, Mentor Financial Planning Pty Ltd. Dennis and Donna Barker have come in to see you to ask for your assistance to plan out their next seven years and then help them settle into retirement.Donna (aged 53 – DOB 15/07/–) and Dennis (aged 52 – DOB 23/07/–) have been married for 29 years and live at Lot 3 Wattle Road, Hurstbridge, Victoria. Their only child, a daughter, Megan, is financially independent and has two children.Donna works full time as a business development manager for Best Marketing and has recently been promoted. She is paid a base salary of $95,000 p.a., and her employer pays a Superannuation Guarantee contribution of 9.5% on top of that. She has heard about salary sacrifice and is interested in how this might be used to help build funds for her retirement She wants to salary sacrifice as much as she can to help build funds for her retirement in 7 years’ time.Donna’s superannuation is currently in a balanced retail superannuation fund, MM Superannuation. Her current balance is $290,000 and earns on average 7% p.a. after fees and taxes. She also has $300,000 in term life and TPD insurance cover within her superannuation fund. Dennis works full time as a joiner making custom furniture for Newbold’s Pty Ltd. He earns a base salary of $45,000 p.a. His employer pays Superannuation Guarantee contribution of 9.5% on top of thatDennis has $138,000 in superannuation savings, held within the PP Superannuation Fund. The funds are invested in a capital stable portfolio with a very low allocation to growth assets. Returns on this fund are around 4% p.a. after fees and taxes.They would like you to review their insurances. Dennis has $150,000 term life and TPD with PP Super. They are living on a semi-rural property which has a house valued at around $750,000, and they have a mortgage of $110,000 in the form of a line of credit. The interest rate on this facility is 5.5% and they are currently making interest payment of $6,050 per year ($504.17 pm). Both are non-smokers and in excellent health. They do not have a current will or any powers of attorney, and Dennis would like you to assist them with setting these up. Donna would feel more comfortable seeing a female estate planner.Diploma Case Study, ContinuedTheir personal expenses are around $40,000 p.a. and they spend an additional $10,000 p.a. on holidays. (Total outgoings are therefore $56,050.00). They have private health cover, car and house and contents insurance. Donna intends to work for seven more years (until aged 60), once she retires they believe they will need $40,000 p.a (in today’s dollars) for their living expenses in retirement. However, Dennis intends to then start working part-time once Donna retires in 7 years’ time and will do this until age 65 and estimates that he will earn $25,000 p.a. and they intend to use this income to fund any holidays or other expenses as required. They would like to find a way to reduce their mortgage repayments, and still have this paid off by the time Donna retires. They also want to increase the amount of money in both of their superannuation funds. They have also stated that they want to ensure they have sufficient money for their grandchildren (now aged 6 and 4 years) to attend university. They estimate they will need to accumulate approximately $120,000 (in today’s dollars) over the next 12 years to pay for this.Aside from their superannuation funds, they also have $9,000 in a bank account earning 4% p.a., $15,000 in a term deposit earning 4% p.a. and $12,000 in a cash management account earning 5% p.a. However, they are not happy with the taxation implications of these accounts, as any interest earned seems to go in tax. Their everyday transaction account holds $3,000 but this has been set aside for emergencies and the clients do not want this changed. After completing a comprehensive risk profile analysis, you ascertain that they both have ‘balanced’ risk profiles.
Lifestyle Assets
Assets
Owner
Value ($)
Liabilities ($)
Net Asset Value ($)
Home
Joint
750,000
110,000
640,000
Cars
Joint
40,000
Nil
40,000
Contents
Joint
50,000*
Nil
50,000*
Total

840,000

730,000
Investment Assets
Assets
Owner
Value ($)
Return (%)
Liabilities ($)
Net Asset Value ($)
Bank Account
Joint
9,000
4
Nil
9,000
Term Deposit
Joint
15,000
4
Nil
15,000
Cash Management Account
Joint
12,000
5
Nil
12,000
Total

36,000

36,000

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