CASE STUDY:

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 hiswife.

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 nextweek.

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

Table1Personal 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

Table2Professional relationships

Solicitor

None

Time span of relationship

n.a.

Quality of relationship

Accountant

None

Time span of relationship

n.a.

Quality of relationship

Table3Assets 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'sa great little workhorse.

$15,000

Natalie's sedan

$12,000

Natalie

It's only three years old and I love it. Thefour 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.

Table4Liabilities

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

$61 p.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

Table5Superannuation

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.

Table6Income 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 $730 a fortnight.

Interest

$394

$394

From $22,500 bonus saving account.

Total combined grossincome

$72,788

Table7Estimated 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

Table9Estate planning

They have not bothered about wills because if one of them died everything would go to the other. Theyhaven'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

$3.92 p.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 sounds 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.

QUESTIONS:

(i) 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 sixobjectives.

(ii)This task requires you to identify what gaps there are in your understanding of the client's situation. Listfive other clarifying questions you would ask them.