REQUIRED: Using the information below, prepare a personal financial plan for your new clients, as discussed in class. Your financial plan for your clients should follow the format below: 1. Background Information, Clients Goals and Objectives - Provide a summary of the clients short-term and long-term goals. 2. Financial Management Review your clients current financial situation by preparing a current Cash Flow Statement and a current New Worth Statement for the clients. 3. Asset Management Review the clients current investment situation and provide answers to the clients questions. 4. Risk Management - Review the clients current risk management/insurance situation and provide answers to the clients questions. 5. Tax Planning Strategies - Review the clients tax situation and provide answers to the clients questions. 6. Retirement Planning Strategies - Review the clients current retirement plan and provide answers to the clients questions. THE SMITH CASE Background Information, Clients Goals & Objectives (5 Marks) You are an experienced personal financial planner working in Oshawa, Ontario. On November 15, 2022, you met with your new clients, Claire and David Smith. Claire and David have been married for 9 years and have a 7-year-old daughter named Maegan. Claire and David are both aged 40. Claire is pregnant and the Smiths are expecting their second child in 4 months. REQUIRED: Using the information below, describe five (5) of the clients goals and objectives. Divide their goals into short-term and long-term goals. Financial Management (10 Marks) The Smiths currently rent a small two-bedroom apartment for $2,000 per month. David works as a manager for an air conditioning manufacturer and earns $110,000 gross annual income ($82,350 after payroll deductions of CPP, EI & tax). Claire works as a writer/editor for a local newspaper and earns $35,000 gross annual income ($29,500 after payroll deductions of CPP, EI & tax). The Smiths financial information are presented below: The Smith Family Current list of Assets, Liabilities, Income & Expenses Asset/Liability October 31, 2022 Amount Rate of Return Banking Chequing Account $4,500 0% Joint Savings Account $160,000 1% Claires RRSP GICs $110,000 3% Davids RRSP - GICs $20,000 3% Davids car (3 years old) value $16,500 - Claires car (1 year old) value $33,500 - Davids current car loan (at an interest rate of 10%) $6,000 Claires car loan (at an interest rate of 13%) $23,000 VISA credit card balance at 21% interest $9,900 Expenditures in October 2022 Rent $2,000/month Non-discretionary living expenses (household expenses, food, clothing, etc.) $1,500/month Entertainment & restaurants $1,000/month Claires payment into her Employer Pension Plan $400/month Telephone, cable & internet $300 / month Car expenses for both cars (insurance, gas, etc.) $185/ month Claires car loan Payment $635 / month Davids car loan Payment $410 / month REQUIRED: Use the information above to prepare a current Net Worth Statement (as at October 31, 2022) and a current Cash Flow Statement (for the month of October 2022) for the Smiths. Your personal financial statements for the clients should be presented in the same format as discussed in class. Additional Questions Requiring a Response by the Smiths Advisor (Students) The Smiths have decided they need a new, larger car, as soon as possible, to transport their growing family. They would like to replace Davids small car with a family van. Their maximum price range before all applicable taxes and fees is $50,000. The Smiths are not sure if they should buy or lease the new car. They ask you to provide a list of the advantages (3) and disadvantages (3) of leasing a car. The Smiths would like to move into a large home within one year as their family is growing and in need of more space. They are not sure if they have enough money for a down payment. They are looking at houses that cost $500,000. They would also consider renting a house if they can not afford to purchase one at this time. Your clients have asked you to help them determine how much money they will need as a downpayment in order to obtain a conventional mortgage. Asset Management (8 Marks) Two months ago, Claire received a tax-free inheritance from her late father in the amount of $200,000. Claire and David used $40,000 of the inheritance to each contribute $20,000 to their own RRSPs. The Smiths do not make regular contributions to their RRSP accounts. In the past, the Smiths have made RRSP contributions only when they have extra money at the end of the year. The remaining balance of the inheritance, $160,000, was deposited by Claire into a joint savings account (joint with David) at the local bank because they were unsure how to invest their money. The interest rate on this savings account is 1% per year. The Smiths are expecting a minimum rate of return on their investments of 6%. However, they have indicated that they wish to also remain conservative investors. REQUIRED: a. Identify two changes that you would recommend for improving the overall rate of return on the clients investment portfolio. b. Describe the four categories of investment ratios used by investment advisors for analyzing a companys financial information for potential purchase. c. Explain to your clients two strategies that you will use to minimize investment risk in their portfolio. d. Claire and David wish to save for their childrens education fund for college or university. Provide them with advice regarding this objective. Risk Management (4 Marks) David and Claire have disability insurance and health care insurance through their employers but neither has any life insurance. With a second child on the way, the Smiths objective is to purchase sufficient life insurance. REQUIRED: a. Assuming that they need life insurance, briefly summarize for your clients, in your own words, two types of life insurance options to them. (2 Marks) b. Lets assume that the clients decide that they would like to purchase TERM Life Insurance. How would you estimate the amount ($) of life insurance that the Smiths needs? (Do not actually do a calculation. Just explain in theory how this would be calculated. (2 Marks) Income Tax Planning (4 Marks) REQUIRED: Using the information about your clients in this case, discuss two additional tax planning strategies that would help your clients to reduce their yearly tax liabilities. Retirement Planning (4 Marks) The clients retirement planning objective is to retire at age 65. REQUIRED: Answer the following questions for the client in your financial plan: a. What should the clients investment objective be for the RRSP account and why? (1 Mark) b. List and describe three likely sources of income for your clients when they retire. (3 Marks) Financial Plan Report to the client: Style & Format (5 Marks) This is a formal financial plan / business report, style and structure are important. The report should be: Comprehensive, well-organized, easy to read with a title page, contents page and appendix (if applicable). Created using MS WORD with your names included in the file name. Each student MUST submit a copy of the report (they can be the same copy) Arial / Calibri font size 11 and single spaced, maximum 5 pages (not including the title page and appendices). Include headers for each topic (Goals, Financial Situation, Life Insurance etc.). Include bullets and tables to help present your information in a simple and easy to understand format. Show all of your calculations. Reference resources, as required. Include the names and student numbers for all team members that contributed. Tips: Write your financial plan to the clients. Will your clients understand each section of your report? Have someone proof-read your report. Check your spelling and sentence structure. Even if you chose to split up the work, the report should look like it was written by one person and be consistent in format throughout.