Term 2 Standard Examination 2017

Fundamentals of Personal Financial Planning FINC11001

Part A: Short Answer Questions

Question A1: If a financial planner is to give appropriate advice, they require a broad and good knowledge of the economic environment and the flow on effect. Discuss.

Question A2: Why is ASIC, the financial services regulator, concerned that financial advisers Finished thorough risk tolerance analysis as a fundamental financial planning task while established financial planners insist it's not enough? Instead, financial planners argue that to meet their 'know the client' obligations, addressing a client's risk capacity is also critical. Discuss.

Question A3: What is a reverse mortgage? In which situation might a reverse mortgage be a suitable option for a person?

Question A4: What is a binding death nomination? What is the purpose of a binding death benefit nomination? What are the consequences and risks of having a non-binding death benefit nomination?

Question A5: Describe the difference in treatment of assets upon the death of a person between those that are jointly owned as compared to those held in a tenancy-in-common arrangement.

Question A6: What are the key estate planning matters that financial planners should identify when advising clients?

Part B: Financial Planning Skills

Question B1: [5 Marks] Mark is 29 and earns $100,000. His employer contributes 12% [SGC] of his salary to his nominated superannuation fund. The 12% SGC payment is based on his base salary after deductions, such as salary sacrifice. If Mark salary sacrifices $20,000 into superannuation a) do you envisage a problem for Mark if he makes this level of contribution and b) how much contributions tax will he pay?

Question B2: [5 Marks] Kim is 57 years old and has $500,000 in superannuation. Her superannuation comprises a tax free component of $150,000 and taxed superannuation money of $350,000. Kim has satisfied a condition of release from superannuation and would like to withdraw a $300,000 lump sum. How much lump sum tax would be payable?

Question B3: [10 Marks] Based on the information provided, Marie French, one of your financial planning clients has asked you to:

I. Make personal cash flow budget and balance sheet for the current financial year. Then ascertain her surplus / deficit cashflow position and net worth.

II. Explain if she were to make a pre-tax contribution [i.e. salary sacrifice] to superannuation rather than post-tax [as she does now] explain how would this change her overall cashflow?

Marie provides the following details: She is a 33 year-old employed florist. Her gross income is $55,000 for the current financial year. Her employer contributes 9.25% [SGC] of her gross income into a personal superannuation fund.

Her fortnightly expenditure (based on gross income) is as follows:

Details Percentage of Salary

Taxation Based on Marginal Tax Rates

Personal super contributions [i.e. post tax] 7%

Private Health Cover 3%

Other expenditures incurred by Marie for the current financial year include:

Details Amount

Household expenses $10,000

Mortgage loan repayments $12,000

Credit card repayments $8,000

Entertainment expenses $5,000

Marie's assets and liabilities are shown below:

Details Amount

House and personal effects $400,000

Superannuation $160,000

Car $10,000

Savings account $2,000

Mortgage loan $250,000

Credit card balance $10,000

Part C: Professional Financial Planning Advice

Part C has 2 case studies related to financial planning advice.

Case 1 is worth 15 marks. Case 2 is worth 5 marks.

Total Part C is 20 Marks

Case Study C1: [15 Marks] Toby is aged 42 and married to Melanie. He recently inherited $180,000 from his uncle's estate and is looking to invest in a diversified portfolio of managed funds. He wants to invest the funds outside of his superannuation account in order to provide access to some liquidity if required i.e. he is planning to use $60, 000 of the invested funds to build a swimming pool in around 4 years.

You have determined that he is a balanced investor and he is prepared to take on some investment risk with an expectation of a higher rate of return.

Other information:

Toby and Melanie salary: $120, 000 p.a. $52 000 p.a., respectively.

Disposable income: $10, 000 p.a. after all expenses.

Dependents: 2 children aged under 16

Debt: Minimal

Investments: $40, 000 held in their bank account

$55, 000 held in a term deposit.

Toby's superannuation $320, 000 and invested in a conservative option. [Note: Toby wants more certainty

with his retirement planning and therefore wishes to minimise the risk associated with his

superannuation monies.]

Give advice to Toby, based on the following discussion questions:

I. What are the advantages, disadvantages and benefits of Toby investing the inheritance into managed funds compared to making direct investments i.e. direct shares or property investment?

II. Given his risk profile and financial situation, how would you construct an appropriate asset allocation for Toby? Provide recommended proportions across the various asset classes.

III. How does this asset allocation for the managed funds differ from his a conservative superannuation fund profile?

Case Study C2: [5 Marks] Sally has a small amount of life insurance provided through her superannuation fund. She is thinking of applying for additional coverage but is worried about filling in an application form and/or having to attend a medical examination.

Six months ago Sally was diagnosed with hyper-tension and in response to this she gave up smoking. She is quite confident that her health has improved as a result although she has not been back to a doctor to confirm this.

Given her improved health, Sally's partner has suggested that she not mention the hyper-tension in any application. But Sally is unsure of the consequences of failing to declare her medical history correctly. Advise Sally.