Dave and Mel Hunter (both 40 years old) are married and have a 2 year old daughter Crystal. Dave is an engineer and entrepreneur in the solar power industry while Mel is the part-time marketing officer and administrator of their business. Dave and Mel draw a salary of $170,000 and $30,000 from the business, respectively. Their business is structured as a company and has a pre-tax gross profit of $260,000 a year after deducting operating expenses but before salaries and superannuation. The company retains its net profit for future growth.

Dave and Mel own their $1,500,000 four-bedroom home jointly. They bought it for $1,200,000 two years ago and the outstanding mortgage is $800,000. The loan has a re-draw facility and the variable interest rate is 2.2%. The mortgage repayment is $1,600 per fortnight and they are $30,000 ahead of the repayment schedule. The couple's living expenses are $3,000 per month and they have a $30,000 cash account earning 1% interest for emergencies. The family receive an annual distribution of $3,000 from Mel's late father's testamentary trust. Dave and Mel wish to have enough savings to send Crystal to the local excellent, but expensive, private school.

Dave manages the Hunter family self-managed superannuation fund, which has a balance of $200,000 on April 30, 2022. He invests their quarterly superannuation contributions equally between cash and five ASX stocks and pays the accountant $2,000 to maintain the regulatory compliance.

Dave and Mel have private-hospital insurance and house and contents insurance because the bank required it. They feel that life insurance is an unnecessary and costly expense.

Mel's friends recommended you as an ethical and skilled financial advisor. Mel feels that the family can do better financially and has persuaded Dave to provide you with the above information before your initial meeting with them for a comprehensive financial plan. However, Dave has reservations about seeking professional advice after reading media reports about the Royal Commission.

 

1) Describe Dave's apparent investment strategy.  Is it as appropriate?   What alternative portfolio construction process and asset allocation would you suggest? Justify your response.

 

2)Based on the information available, provide Dave and Mel with two recommendations that would improve their financial circumstances, explaining how and why in each case. 

 

3)  Evaluate the level of life cover they need to ensure they are adequately protected, including the type of insurance premium they should be considering, and why.

 

4) Discuss whether Dave and Mel should be maintaining their SMSF, commenting on the relevant benefits and risks of having an SMSF. Be specific and relate specifically to Dave and Mel's personal circumstances