Client outcomes
You are required to use the following case study to complete the assessment questions.
Please read it carefully and pay particular attention to the quantitative measures of the scenario.
Ida, who is 75, has recently been widowed following the death of her husband Eric, who was aged 77. Ida and Eric have three children, John (51), Philip (48), and Cheyenne (45). All three children are independent, with Philip and John having their own family. Cheyenne has had numerous relationship problems, has been married twice, and has three children from separate fathers.
Ida owned her home as joint tenants with her late husband and this is now in her own name. There is no outstanding mortgage nor other debts. She has recently received a $200,000 inheritance from her late mother’s estate.
Ida is fully retired and only worked for a few years before she married Eric.
Ida’s general living expenses are $3,000 per month (this does not include any of the specific expenses mentioned below).
Ida’s home and contents insurance premium is $749 per annum. Ida also has a ten-year-old Honda Civic. The comprehensive insurance premium for the car is $565 p.a. and she has compulsory third party insurance with a premium of $626 per annum. She also has health insurance with a premium of $1,152 p.a. She pays all these bills by cheque. Ida does not have any other insurance.
Ida goes on regular National Seniors coach trips that cost on average $675 per quarter. She is also planning an organised European Heritage tour. The total package, including airfares, etc. is $9,000.
Ida has a four-year term deposit
of $20,000, earning 2.5%, with the interest paid monthly. This term deposit is due to mature in six months. In addition, she has a cheque account, which rarely has a balance of over $1,000, that does not pay interest and she is charged $5 per month.
Ida has a superannuation fund with a balance of $79,000 made up of $36,000 tax free component and $43,000 taxable component (element taxed). She has continued to hold her superannuation benefit within the accumulation phase so she can use it to cover any excess costs and to use as an emergency fund. Her belief is that if it is used as an income stream she will lose access to the funds.
Eric’s superannuation benefit was in the pension phase, that he commenced just prior to attaining age 65 with a purchase price of $225,000. At the time of Eric’s death, the balance was $161,000 made up of $68,000 tax-free component and $93,000 taxable component (element taxed), he was receiving income payments of $9,660 per annum. Eric commenced this account based pension prior to 1 January 2015, and has continuously received aged pension since this date. Ida is the automatic reversionary beneficiary.
Issues and complications
Ida has been advised that she will have a reduction in her Age Pension entitlement, which she is unhappy about. She would like to have the same amount of Age Pension she had when Eric was still alive.
Further, Ida is confused concerning Eric’s superannuation benefit. She has been receiving conflicting information from various sources. Some say she can continue receiving Eric’s income stream, other say if she receives it as a lump sum she will be entitled to a greater amount than the current balance. In addition, she is concerned that if she receives Eric’s superannuation money she will have to pay tax on any benefits she receives. Everyone she speaks to tells her superannuation is taxed on the way in, taxed when it’s there, and taxed on the way out. She is also concerned that receiving the superannuation benefit will also lead to an even smaller amount of Age Pension.
Ida would like to use the $200,000 inheritance to assist in funding her lifestyle and ensuring she can stay at home for as long as possible but making sure it has minimal impact on her Age Pension and taxation. She is not overly concerned regarding access to it as she has her superannuation benefit to use if she needs money. In addition, she would like to pass an inheritance to her children.
Like Ida’s inheritance, she would like all her assets to go evenly to her children. However, she is concerned that any funds flowing to her daughter, Cheyenne, may be lost and end up going to her next partner. She would like to make sure that her grandchildren will eventually receive the benefits of her estate but allowing Cheyenne to use any income that may be generated from her portion of Ida’s estate. In addition, Ida would like her estate paid to her children in the most tax effective way and would like to see this detailed.
Ida wants to make sure that any advice she receives she can understand, is tax effective, and has a minimal impact on or enhances her Age Pension entitlements.
Question 1 The client’s position (10 marks)
Criteria-based marking guide for Question 1(a)–(b)
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Excellent |
Satisfactory |
Unsatisfactory |
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• all client outcomes shown in a clear and appropriate manner • clear evidence of understanding the technical complications that may arise in the advice process • accurate financial calculations and data used to explained sections A & B |
• client outcomes listed, but not defined against their current situation • some technical knowledge shown through the identification of complications • basic financial data used to explain sections A & B |
• no clear client outcomes or vague explanation • little or no evidence of understanding the technical complications that may arise in the advice process • no financial calculations and data used to explain sections A & B |
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(a) Outline the outcomes that are important to the client. (5 marks) This case study is concerned with Ida, who is a 75 year widowed women. Her husband has recently expired and she has three children. Eric, Ida’s father expired at the age of 77 years and her three children are John who is aged 51 years, Philip who is aged 48 years and Cheyenne who is aged 45 years. All the three children are impendent and out of them Philip and John have their own families. On the other hand, Cheyenne has a problem with making relationships and therefore have been married twice and currently have three children from her two husbands. Ida is a retired lady and she has been living alone in the house that was earlier named after her and her husband and after the death of her husband, she is the owner of the house. Ida being an old lady has the main concern of generating adequate amount of money that would be helpful in creating a healthy and sustainable life in the coming future. Ida wants to maintain a life and maintain her standard of living equivalent to the lifestyle that she had prior to retirement age. Ida has not undertaken several investments and purchase of insurance but has sufficient money with the help of which she would be able to make investments in order to increase her level of income. She has received a lump sum amount of $200,000 as an inheritance from the estate of her late mother. She would like to make an effective investment of this amount she has received in order to gain effective returns and thereby maintaining a lifestyle that is desired by Ida. She is even worried about the superannuation fund of her husband as she is worried whether she would be receiving the value that is available in the superannuation fund of her husband. She even wants to know in case she receives the superannuation amount of her husband how would be receive whether in lump sum or in monthly instalments. She has been advised that there are two ways in which she can receive her husband’s superannuation and therefore she requires a suggestions as to in which way she would like to receive the amount and which one of these strategies would be more tax effective for Ida. Ida is aged and therefore she may fall sick at a later stage of life and therefore it is important that she purchases a healthcare insurance in order to meet any expenses that are related to health. Ida has even found that after receiving the superannuation benefits it would even lead to smaller amount of Age Pensions and therefore she requires assistance as to the strategies that can be implemented with the help of which she would be able to increase her age pension amount. Ida wants to give out her inheritance to her children equally and therefore requires assistance as to in what manner her assets are distributed so that all of their children receive equal amount of asset. As Cheyenne does not have stable relationship Ida is worried that the asset that would be given to her would go to her next partner. Hence, Ida wants to make sure that her grandchildren receives the benefits and therefore requires advice over the same. These are the aspects with respect to which Ida requires assistance so that she would understand properly the advises that would be tax effective for her and would have the minimum impact in order to increase the Age Pension values. (b) What are the issues/complications you have identified that may hamper the client’s achieving their objectives? Provide financial data and calculations. (5 marks) There are several issues and complications that may hamper the financial and the non-financial goals of Ida. One of the essential issue that has been discovered for Ida has been the fact that Ida does not have sufficient amount of investments and savings in the bank account and her main source of income has been through superannuation fund. She does not have any other source of income as she is retired and is mainly dependent on the money she receives from the superannuation fund. Ida is satisfied about the fact that the money that is available in the superannuation fund would be able to meet any kind of unprecedented expenses but in case there exists is an emergency situation the amount that is available may not be sufficient to meet the expenses. It is seen that Ida is aged 75 years and therefore there can be scenarios that she may fall sick, which may lead to rise in the amount of expenses. The daily expenses of Ida is very less however on a regular basis, she goes for a National Senior coach trips and has even looked to go for an organized European Heritage trip. In order to meet these expenses she may require additional funds as well. The term deposit that Ida has would be maturing in the next six months and therefore if the money is not re-invested then it can hamper Ida as well. Even though Ida feels that she has sufficient amount of value in the superannuation fund, but reduction in the Age Pension can have an impact on their income and lifestyle. These are issues that can be faced by Ida.
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Suggested word limit: up to 600 words.
Question 2 Meeting client objectives (10 marks)
Criteria-based marking guide for Question 2
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Excellent |
Satisfactory |
Unsatisfactory |
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• clear set of solutions outlined to match client objectives • accurate use of financial calculations and data to explain solutions • correct identification of appropriate strategies/solutions |
• clear set of solutions outlined to match client objectives • basic technical workings shown to explain solutions |
• no clear solutions or vague explanation • only bullet points used • little or no technical workings shown |
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What are the possible solutions for achieving your client’s goals? There are several solutions that can be given to the client based on the goals and the aims of the students and therefore one should take extensive measures with the help of which Ida can satisfy their needs and goals. One of the essential goals of Ida is to maintain adequate level of income that would be effective in maintaining their normal lifestyle eve in the future. In order to do the same, Ida needs to purchase certain investments according to her notions and perspectives and thereby these investments would be able to provide returns that would could be used by Ida in order to meet her daily expenses and maintain her general living standards. There are numerous investment plans and products that are available in the market and the ideal product would be suggested to Ida based on her goals and objectives. Ida is an aged lady and therefore there are circumstances that she may fall sick that may increase her expenses. It is therefore essential that Ida purchases a healthcare insurances that would be effective enough in order to pay for the expenses that she may incur for treating her health. Ida has received an amount from inheritance of her mother’s estate and Ida want to make investments from that money in order to earn additional returns that would enhance her level of income. This money would be invested in such a manner so that Ida would receive the highest amount of returns by paying for the minimum amount of tax. An effective level of advice needs to be given to the client with respect to superannuation benefits she would receive as a beneficiary of Eric. In this circumstances, if Ida receives the money on the basis of the income stream of Eric, then Ida would receive better returns from the superannuation of Eric and the amount of tax that would be levied on this money would be lower and effective. Ida is even concerned that there might be a reduction in her age pension and therefore in order to balance the amount that has been lost in the age pension Ida needs to undertake additional investments. The investments can be undertaken by looking at the market and the amount of interest and the risk that is associated with it so that Ida can increase their level of returns and maintain their current lifestyle. Ida needs to take suggestions from her accountants and solicitors with the help of which she can have an idea of dividing her assets on an equal basis with the help of which all her children would receive her assets on an equal basis. Ida even wants to ensure that her grandchildren receives the benefits from her assets and therefore the part that would be given to Cheyenne would be distributed among her three children so that Cheyenne is unable to transfer the asset to her next partner. As Cheyenne’s children are dependent therefore indirectly Cheyenne would be able to handle the money until her children are matured. Ida with the help of her adviser can take measures with respect to which her investments would be allocated in an effective manner in various assets so that the extent of risk gets reduced and the extent of return is maintained. The investments should be assessed from time to time so that any kind of discrepancies like losses is observed from the investment can be mitigated. This is done due to the fact that in case one of the assets are not performing in effectively then it can be changed with another product that would provide better returns. These are the probable solutions in order to attain the goals of Ida. |
Suggested word limit: up to 600 words.
Question 3 Technical workings (25 marks)
Criteria-based marking guide for Question 3
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Excellent |
Satisfactory |
Unsatisfactory |
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• well-articulated and easy to follow advice process • accurate use of financial calculations and data • use of appropriate mix of both imitated conversation and explanatory writing |
• well-articulated and easy to follow advice process • Basic technical workings shown to explain solutions |
• no clear solutions or vague explanation • only bullet points used • little or no technical workings shown |
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Detail the way in which you would explain your proposed solution to your client. You must include all of the required technical workings/calculations for your proposed solution. This should be in your own words and presented in a manner as if the client was in an appointment with you. Note: This should detail to the client what the solutions are, how they are meeting their objectives and the way in which the solution will be implemented. Dear Ida, I would like to thank you for taking my assistance with respect to the financial advices that you require. You are retired and therefore require undertaking a meeting with you is essential in order to have an idea about your goals and desires. By understanding your desires and ants, it would be helpful for me in creating a financial structure that would be ideal for you and would provide you with the returns that is desirable to you. The construction of an effective financial and investment plan would be helpful in gaining proper savings and income from the investments that can be utilized in order to pay for the general expenses and the expenses that would be incurred in the coming time period. This meeting would be fruitful in generating knowledge and understanding of the actual and the future risks that may take place at any point of time in the future. The meeting would be helpful in creating knowledge and understanding of the steps and the actions that needs to be followed and the policies and strategies that is associated to tax savings and investment by taking assistance of which you would be able to have a safe, comfortable and secured in the coming time period. In the primary stage of the meeting it is vital to create knowledge on the areas and the topics that would be addressed in this meeting so that all the concerns and the issues can be met in an effective manner. It is seen that the key aim of Ida has been to create a retirement plan as she is aged 75 years and she lives alone in her house. She needs to preserve a minimal amount which she would feel is adequate in order to pay her general expenses during the current time period and even in the future. Ida has a feeling that amount in the superannuation fund is adequate in order to meet any kind of unprecedented events however, in order to maintain a surplus capital for any accidents and events it is essential for Ida to create additional cash from the further investments. The next aspect that would be taken into consideration is the tax effective characteristics of the investments that would be undertaken so that Ida can enhance her income by paying off the least amount of tax. A discussion regarding the superannuation needs to be undertaken so that an understanding can be attained with respect to whether the superannuation amount that is currently available to Ida would be adequate in meeting her future expenses. A discussion would be undertaken with respect to the kind of additional investments that would be undertaken by Ida with the help of the money she received from her mother so as to increase her income level. The kind of investment that is ideal for Ida would be understood after understanding her financial needs and her future requirements so that a precise financial plan can be constructed for her. A brochure of various financial companies that are offering various kinds of financial products would be provided to Ida so that she gain certain understanding of the various features of the products and thereby an understanding can be attained with respect to which she can select the investment product that would suitable to her. Thereafter, a list of questions is forwarded to Ida so that an idea can be attained with respect to the desires of the Ida and what is the kind of investment plan that is desired by her. This would be fundamental in creating a proper financial advice plan for Ida. Ida is provided with a financial guide with the help of which she would have knowledge about the companies, their brand image, services and products offered and the returns they are providing so an idea can be obtained with respect to which they can select their desired product. The questions that are asked to Ida in accordance to the capital investment that would be undertaken with the help of the money that is received from her late mother has been given as follows: Q1. What is the percentage of money that would be invested by Ida in the Australian and the International equities? Q2. Are you interested in selling a certain percentage of your share during the time of volatility in the market? Q3. Are you interested in taking additional risk in order to gain extra return on investment? Q4. Are you interested in diversifying the portfolio of your investment? Q5. Are you interested in increasing the amount of investment by bringing in additional money from any kind of resources? Q6. Are you looking to increase the investment in shares in order to meet the medical and other unexpected expenses? After providing the questions to Ida, she would be provides a dispute resolution process form of the organization in order to provide Ida with the idea about the level of efficiency with which the company is able to handle all the grievance related issues and thereafter is able to meet the satisfaction level of the customers. There are numerous factors related to Ida that requires assistance and one of the key factors has been creating a financial map so that Ida would be able to evaluate their financial condition and the risk taking capacity of the client can be even understood. The next steps is associated with understanding the extent of risk Ida wants to undertake and this is understood by asking several questions and thereafter rating the questions in accordance to the risk rating. Ida requires a contingency fund in addition to her superannuation fund in order to treat her sickness and pay for the medical expenses and therefore Ida would be given the provision. Ida would be given an assurance that her portfolio would be rebalanced from time to time so that expected returns can be attained. With respect to the current scenario, it is seen that Ida does not have adequate amount of investment and she is dependent on the superannuation fund and the term deposit that provides interest on the capital on a monthly basis. She entitled to the superannuation fund of her father who has recently expired and she is concerned about the fact whether she would maintain the income stratum with which her husband used to receive the amount from the fund or take the entire amount in one go. Ida has a life insurance and an insurance for her car but does not have a healthcare insurance. It is essential for her to purchase a healthcare insurance because of the fact that she is aged and there high chances of she getting sick at any point of time. In this scenario, she may have to incur additional expenses and therefore would be purchase of a health insurance would financially remunerate her and thereby maintain her income level at the desired level. Ida has received a lump sum amount from her mother which she like to invest and therefore an investment portfolio needs to be created for her. The portfolio would be created based on the risk taking capability of the client. It is seen that she is 75 years old and has crossed her age of retirement a long time back. She is not even interested to make use of the overall amount after it has been invested and therefore in order for her to receive extra income with the least amount of risk a balanced fund would be constructed for her so that the level of risk is low and the income level is high. The balanced fund is effective for Ida because of the fact that in case of losses from any product, the other products in the portfolio would be able to wipe off the risk. The overall amount that is invested requires to be diversified in an effective manner in order to spread out the level of risk throughout the portfolio. Most of the money of Ida would be invested in mutual funds and debt capitals like government bonds and securities as Ida is not in the view of receiving higher level of returns. The movement of the products in the portfolio will be monitored on a frequent basis and accordingly the products that are not performing in an effective manner can be replaced with some other product. The investments that will be made needs to be lucid and transparent so that activities of the products can be discovered and accordingly changes can be made in the portfolio as well. Prior to providing product recommendation to Ida, it is essential to undergo an extensive research and this is done after the completion of the assessment of the client background. Hence, it is the obligation of the planner to identify the shares that would be suitable for Ida. The products that are chosen will initially be assessed in order to discover the past trend of the products and the level of risk and return that the product has provided earlier. The products are even compared with similar products from other companies in order to have an understanding about the product that is offering the best value for Ida. Thereafter, the ideal products are recommended for Ida and is then added in their investment portfolio. The completion of these aspects would be effective enough in the development of the goals that are short and long term in nature. Short Term The short term goals involve purchasing a health insurance that would be helpful for her in meeting the expenses that she would incur due to sickness. The maintenance of the insurance would be helpful in financially remunerating Ida. Medium Term The medium term objective that is created for Ida is to create an investment portfolio with the help of the money Ida received from her mother that would comprise of the products that are suitable for Ida and would be able to provide an effective level of returns for the customers on a stable basis. This would explain that the money has been invested in an effective manner and would be able to provide precise returns. Long Term The long term goal of Ida is to create a certain amount of investment so that all the assets can be equally distributed among her children and the part of Cheyenne, her youngest daughter would be given to her children. Ida would be made cautious about the fees and the charges that would have to be paid for the consultation that is given to her. The charges would include the implementation fee, SOA planning fees and the ongoing service fees. The recommendation that can be given to Ida is that her superannuation fund needs to be assessed on a regular basis and accordingly income level can be increased. The superannuation value that would be received from the fund of her husband should be received in the income stream in which she has been receiving rather than receiving it as a lump sum so that the level of return remains high and the tax that needs to be paid remains at a lower level. Ida is even recommended to purchase a health insurance so that expenses related her health can be financed and the amount of return remains stable. Ida can take consultation from a solicitor so that the equivalent distribution of her assets can be done in a proper manner within the legal guidelines so that discrepancies can be avoided. The implementation of these aspects can be helpful in creating an effective financial plan for Ida for her future and thereby would be able to meet her desirable goals.
The investment that is suggested to Ida comprises of buying a Life Plan Investment Bond and purchasing Queensland Health Care Fund in order to safeguard risks related to health and attaining effective level of returns from the investment.
Ida is given the declaration that she would be receiving an ongoing service and therefore she can take help at any point of time. A meeting would be held after every 6 months in order to make her aware of how her investments are going and making changes in the portfolio as and when required. The commissions she is liable to pay have been given as follows:
These are the plans and strategies that would assist Ida in gaining her goals and strategies in an effective manner. |
Superannuation fund
Suggested word limit: up to 2000 words.
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