This document provides instructions for completing and submitting the assignment on Financial Planning Fundamentals. It includes a case study of Steve and Crystal Riley, their personal details, assets, liabilities, and income. The document also outlines the units of competency covered in the project.
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Financial Planning Fundamentals (DFP1_AS_v1A2) Student identification(student to complete) Please complete the fieldsshaded grey. Student number Project result(assessor to complete) Result — first submission (Details for each activity are shown in the table below) Parts that must be resubmitted: Result — resubmission (if applicable) Result summary(assessor to complete) First submissionResubmission (if required) Question 1Not yet demonstratedNot yet demonstrated Question 2Not yet demonstratedNot yet demonstrated Question 3Not yet demonstratedNot yet demonstrated Question 4Not yet demonstratedNot yet demonstrated Question 5Not yet demonstratedNot yet demonstrated Question 6Not yet demonstratedNot yet demonstrated Question 7Not yet demonstratedNot yet demonstrated Feedback(assessor to complete) [insert assessor feedback] DFP1_AS_v1A2
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Before you begin Read everything in this document before you start your projectfor FinancialPlanningFundamentals (DFP1v1). About this document This document includes the following parts: •Part 1:Instructions for completing and submitting this assignment •Part 2:Case study •Part 3:Projectquestions How to use the study plan We recommend that you use the study plan for this subject to help you manage your time to complete theprojectwithin your enrolment period. Your study plan is in the KapLearnFinancialPlanning Fundamentals (DFP1v1) subjectroom. Part 1: Instructions for completing and submitting this assignment Word count The word count shown with each question is indicative only. You will not be penalised for exceeding the suggested word count. Please do not include additional information which is outside the scope of the question. Additional research You will be required to complete additional research to answer the projectquestions. Saving your work Download this document to your desktop, type your answers in the spaces provided and save your workregularly. •Use the template provided, as other formats will not be accepted for this assignment. •Name your file as follows: Studentnumber_SubjectCode_Submissionnumber (e.g. 12345678_DFP1_Submission1). •Include your student ID on the first page of the assignment. Before you submit your work, please do a spell check and proofread your work to ensure that everything is clear and unambiguous. Page2of21
Submitting the assignment You must submit your completed projectin a compatible Microsoft Word document. You need to save and submit this entire document. Do not remove any sections of the document. Do not save your completed projectas a PDF. The projectmust becompletedbefore submitting it to Kaplan Professional. Incompleteassignments will be returned to you unmarked. The maximum file size is 5MB. Once you submit your projectfor marking you will be unable tomake any further changes to it. You are able to submit your projectearlier than the deadline if you are confident you have completed all parts and have prepared a quality submission. The projectmarking process You have 12 weeks from the date of your enrolment in this subject to submit your completedassignment. Shouldyour projectbe deemed ‘not yet competent’ you will be give an additional four (4) weeks to resubmit your assignment. Your assessor will mark your projectand return it to you in the Financial Planning Fundamentals (DFP1v1) subject room inKapLearn under the ‘Assessment’ tab. Make a reasonable attempt You must demonstrate that you have made a reasonable attempt to answer all of the questions in yourassignment. Failure to do so will mean that your projectwill not be accepted for marking; thereforeyou will not receive the benefit of feedback on your submission. If you do not meet these requirements, you will be notified. You will then have until your submissiondeadline to submit yourcompletedassignment. How your projectis graded Projecttasks are used to determine your ‘competence’ in demonstrating the required knowledge and/or skills for each subject. As a result, you will be graded as either competent or not yet competent. Your assessor will follow the below process when marking your assignment: •Assess your responses to each question, and sub-parts if applicable, and then determine whether you have demonstrated competence in each question. •Determine if, on a holistic basis, your responses to the questions have demonstrated overall competence. Page3of21
‘Not yet competent’ and resubmissions Should sections of your projectbe marked as ‘not yet competent’ you will be given an additional opportunity to amend your responses so that you can demonstrate your competency to the requiredlevel. You must address the assessor’s feedback in your amended responses. You only need amend those sections where the assessor has determined you are ‘not yet competent’. Make changes to your original submission.Use a different text colour for your resubmission. Yourassessor will be in a better position to gauge the quality and nature of your changes. Ensureyou leave your first assessor’s comments in your assignment, so your second assessor can see the instructions that were originally provided for you.Do not change any comments made by a Kaplanassessor. Units of competency This projectis your opportunity to demonstrate your competency against these units: FNSFPL502Conduct financial planning analysis and research FNSFPL501Comply with financial planning practice ethical and operational guidelines and regulations FNSFPL506Determine client financial requirements and expectations FNSINC401Apply principles of professional practice to work in the financial services industry BSBITU402Develop and use complex spreadsheets FNSASIC301Establish client relationship and analyse needs FNSASIC302Develop, present and negotiate client solutions FNSIAD301Provide general advice on financial products and services We are here to help If you have any questions about this projectyou can post your query at the ‘Ask your Tutor’ forum in your subject room. You can expect an answer within 24 hours of your posting from one of our technical advisers or student support staff. Page4of21
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Part 2: The case study Steve and Crystal Riley You met Steve Riley when he came into your office last week. He had been mowing the grass in the park over the road and saw your business sign and came for a chat to see if you could help him and his wife. He and Crystal live in a small rural community outside town and have been married for three years. Steve is aged 26 and is a horticulturalist with the local council. Crystal is aged 24 and a librarianhowever 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. Steve’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 Steve your Financial Services Guide (FSG) and a fact find form and you agree to meet next week. First meeting After introductions and pleasantries you ask Steve if he has read the FSG and briefly go through the contents for Crystal. 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: Steve and Crystal Riley Fact Find Table1Personal details NameSteve RileyCrystal Riley SalutationMr RileyMrs Riley Age2624 Marital statusMarriedMarried – we just celebrated our third anniversary Home addressHillview Cottage Burgenfield HealthGoodGood SmokerNoNo OccupationHorticulturalistLibrarian EmployerBurgenfield Rural CouncilBurgenfield Library Projected retirement ageProbably 67Not thought about it Dependents/family relationshipsNameAge/date of birth SonBobby26/6/2015 Both in good health and developing normally DaughterCeleste26/6/2015 Page5of21
Table2Professional relationships SolicitorNone Time span of relationshipN/A Quality of relationship AccountantNone Time span of relationshipN/A Quality of relationship Table3Assets and investments Assets and investments (personally owned) AssetsValueOwnership statusOther informationPurchase price Everyday bank account $500JointWe 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 Steve’s ute$4000SteveIt’s 12 years old and still running well. It’sa great little workhorse $15,000 Crystal’s sedan$12,000CrystalIt’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$7000JointIncludes gardening equipment that Steve uses for part- time gardening jobs Bonus saving account$22,500JointWe were saving quite well and enjoying 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 DebtsValuePaymentOwnership statusOther informationInterest rate Credit card$2500MinimumJointWe would prefer to pay it off each month but we spent a lot rearranging the house for the twins when they arrived 22.5% Car loan$5400$61pwCrystalThere are two years until it’s paid out13.5% HECS debt$12,000NoneCrystalFrom Crystal’s librarian courseCPI Table5Superannuation FundValueOwnershipOther information SunSuper$16,300SteveFrom my job with the Council. I’ve been with them since I left school and did my apprenticeship Council Super$11,800CrystalFrom my job in the library since I finished Uni Page6of21
Table6Income p.a. Income type per annumSteveCrystalNotes Salary$48,000Super on top of this. I hope to get the supervisor’s job in a couple of years when the current guy retires Salary$5000I 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 I’ll earn $5000 a year but we’ll see CentrelinkAbout $17,500About $675 a fortnight Interest$394$394From the home deposit saving fund Total combined grossincome $71,288 Table7Estimated annualexpenditures Expense per yearJointNotes Accountant’s feesA friend does our tax online Charitable donationsNone Children's pocket moneyN/A Council and water ratesIncluded in rent Discretionary: restaurants, gifts, holidays, etc. $1000We 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$3765Car loan and minimum payment on the credit card Electricity$1000 Gas$600 Weekly shopping$30,000What with things for the kids we easily spend $550 week Health insuranceWe don’t have any HolidaysWe now visit an aunt on the coast if we go anywhere House insuranceLandlord’s responsibility House maintenance and repairsLandlord’s responsibility Income protectionNever thought of it Medical bills/prescriptions$1500We are pretty healthy Mobile phones and internet$1500 Motor vehicle and fuel$10,000 MortgageN/A Pay TVDon’t get time for much TV Private school feesN/A Rent$15,600$300 pw Total expenses$64,965 Page7of21
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Not applicable Table8Investment objectives and attitude to risk They did not fill out this part of the fact find. They said it did not apply to them or they did not understand the question or possible answers. You did not push the issue as it is obvious that debt management and short-term saving are their priorities. Determining your investor risk profilePoints This investor risk profile questionnaire has been designed to help you understand the type of investor you are, sothatwith the help of your adviser, you can choose the investments that best match your financial objectives. Which of the following best describes your current stage of life? Single with few financial commitments. You are keen to accumulate wealth for the future. Some funds must be kept available for enjoyment, such as cars, clothes, travel and entertainment. A couple without children. You may be preparing for the future by establishing and furnishing ahome. There are a lot of things you need to buy. You are probably better off financially now than you may be in the future. Young family. This is the peak home purchasing stage. You have a mortgage and a very small amount of savings. Probably dissatisfied with your financial position and the amount of moneysaved. Mature family. You are in your peak earning years and have the mortgage under control. Manypartners also work and any children are growing up and have either left home or require less supervision. You are starting to think about retirement, although it may be many years away. Preparing for retirement. You probably own your own home and have few financial commitments; however, you want to ensure that you can afford a comfortable retirement. Interested in travel, recreation and self education. Retired. No longer working you must rely on existing funds and investments to maintain your lifestyle. You may be receiving the pension and are keen to enjoy life and maintain your health. What return do you reasonably expect to achieve from your investments? A return without losing any capital 3–7% p.a. 8–12% p.a. 13–15% p.a. Over 15% p.a. Page8of21
Not applicable If you did not need your capital for more than ten (10) years, for how long would you be prepared to see your investment performing below your expectations before you cashed itin? You would cash it in if there were any loss in value. Less than 1 year. Up to 3 years. Up to 5 years. Up to 7 years. Up to 10 years. How familiar are you with investment markets? Very little understanding or interest. Not very familiar. Have had enough experience to understand the importance of diversification. Understand that markets may fluctuate and that different market sectors offer different income, growth and taxation characteristics. Experienced with all investment sectors and understand the various factors that may influenceperformance. If you can only receive greater tax efficiency from more volatile investments, whichbalancewould you be most comfortable with? Preferably guaranteed returns, before tax savings. Stable, reliable returns, minimal tax savings. Some variability in returns, some tax savings. Moderate variability in returns, reasonable tax savings. Unstable, but potentially higher returns, maximising tax savings. Six months after placing your investment you discover that your portfolio has decreased in value by 20%, what would be your reaction? Horror. Security of capital is critical and you did not intend to take risks. You would cut your losses and transfer your money into more secure investment sectors. You would be concerned, howeverwould wait to see if the investments improve. This was a calculated risk and you would leave the investments in place, expecting performance to improve. You would invest more funds to lower your average investment price, expecting future growth. Page9of21
Not applicable Which of the following best describes your purpose for investing? You want to invest for longer than five years, probably to the age of 55–60. You are mainly investing for growth to accumulate long-term wealth. You are not nearing retirement, have surplus funds to invest and you are aiming to accumulate long- term wealth from a balanced fund. You have a lump sum (e.g. an inheritance or a lump sum payment from your employer) andyou are uncertain about what secure investment alternatives are available. You are nearing retirement and you are investing to ensure that you have sufficient funds available to enjoy retirement. You have some specific objectives within the next five years for which you want to save enough money. You want a regular income and/or totally protect the value of your savings. Investor profile total points Investor risk profile summary 70 –140Conservative You are a conservative investor. Risk must be very low and you are prepared to accept lower returns to protect capital. Thenegative effects of tax and inflation will not concern you, provided that your initial investment is protected. 140–210Moderate You are a cautious investor seeking better than basic returns, howeverrisk must be low. Typically an older investor seeking to protect the wealth that you have accumulated, you may be prepared to consider less aggressive growth investments. 210–280Balanced You are a prudent investor who wants a balanced portfolio to work towards medium- to long-term financial goals. Yourequire an investment strategy that will cope with the effects of tax and inflation. Calculated risks will be acceptable to you to achieve good returns. 280–315Growth You are an assertive investor, probably earning sufficient income to invest most funds for capital growth. Preparedtoaccept higher volatility and moderate risks, your main concern is to accumulate assets over the medium to long term. You require a balanced portfolio, but more aggressive investment strategies may be included. 315–350High growth You are an aggressive investor prepared to compromise portfolio balance to pursue potentially greater long-term returns. Yourinvestment choices are diverse, but carry with them a higher level of risk. Security of capital is secondary to the potential for wealth accumulation. Page10of21
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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 PolicyLife insuredOwnerCoverPremium per annum Notes Death and TPDSteveSunSuper$125,000 Death $175,000 TPD $3.92pwStandard cover Death and TPDCrystalCouncil Super$87,000 Death$2.00 pwTPD cancelled as she is not working Income protection Home and contents Private health insurance Steve’s ute insurance Crystal’s sedan insuranceCrystalFully comprehensive$420 paPremium included in motor vehicle costs You ask them about the offer from their landlord. QuestionAnswer 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. Sowe’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. Sounds a bargain compared to the prices they pay in the cities nowadays but it’s only a two bedroom weatherboard cottage and it suits us just fine. 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 $56,000 deposit — well a bit more than that to cover legal costs. And you’ve had an offer from Steve’s parents? Yes we told them we have saved $22,500 but they could see we were short about $40,000 and 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- fifties and plan to retire in 10 years and will want the money back by then. Steve 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. Page11of21
Part 3: Projectquestions Question 1a The first four steps of the safe harbour are repeated below. They all form part of this stage in the financial planning process and you need to address all four steps in this first question. •Step 1:Identify the objectives, financial situation and needs of the client that were made known through the client’s instructions. •Step 2:Identify the subject of the advice the client is looking for (whetherexplicitly or implicitly). •Step 3:Identify the objectives, financial situation and needs of the client that would reasonably be considered relevant to the advice sought on that subject (the client’s relevant circumstances). •Step 4:If it is reasonably clear that information relating to the client’s circumstances is incomplete or inaccurate, make reasonable enquiries togetcomplete and accurate information. Briefly describe the clients’ financial situation, their objectives and needs as initially explained by them? (100 words) Answer here Assessor feedback:Resubmission required? No Question 1b (i)What is the subject of the advice the clients are seeking? What advice have they asked for? (ii)What additional advice do you think they need from what you know about their circumstances? (100 words) Answer here Assessor feedback:Resubmission required? No Page12of21
Question 1c Assume you have asked more questions of the clients 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 between six (6) and ten(10) objectives. (150 words) Answer here Assessor feedback:Resubmission required? No Question 1d List five (5) other clarifying questions you would ask them.This task requires you to identify what gaps there are in your understanding of the client’s situation. (150 words) Answer here Assessor feedback:Resubmission required? No Page13of21
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Question 2a Determine how much Crystal will receive from Centrelink in family benefits, listing in your answer the type of benefit and calculatedamount. You will need this information forQuestion 2b. Tips:Reread Topic 8 on payments to support families. Refer to the latest Guide to Commonwealth Government Payments booklet available at<https://www.humanservices.gov.au>CorporatePublications and resources‘A guide to Australian Government payments’. Alternatively go to the Human Resources website at <https://www.humanservices.gov.au> and click on families. Identify at ‘Payment Finder’ which benefits are available for someone in Crystal’sposition and which she is eligible to receive. Use the ‘Calculate’ function to determine how much shewill get. (200 words) Crystal will be received FTB part A. There are some rules and regulations in terms of eligibility in respect to FTB part A. As per rules in order to obtain benefits under FTB part A one must have dependent child or full time secondary students whose age must be less than 20. Child must not receive any pension benefit like youth allowance. Apart from this, there are some conditions thatone have to fulfil to become eligible for receiving benefits under FTB part A. One must be able to meet child related expenses 35% times and meet an income test. As per rules one is eligible for benefit when dependent child is in age range of 0 to 15 or 16 to 19. In case if any student is doing secondary education then in that case it must pursue a course that is towards 12thclass or equal to it. There is provision of newborn upfront payment and supplement. There are some important criteria that one need to follow to get benefits of these supplements. If one fulfils these conditions then it can obtain benefits from relevant department. Assessor feedback:Resubmission required? No Page14of21
Question 2b Analyse their current position when they are renting the cottage. (i)Compile tax and cash flow statements and a statement of net worth. Note:Please review the Kaplan resource on how to complete cash flow tables. (ii)Describe the conclusions youhaveformed on the outcome of this analysis. (100 words) The net cash flow of Steve and Crystal is 6323 after considering all the expenses they have made. Net Worth have been calculated by considering assets and liabilities of the couple. The formula used is Total Assets – Liabilities = Net Worth Net worth shows that the couple have enough finances in order to go for some big investment in their house. Further, the net cash flow of the couple reveals that there is enough cash outflow which is required to be reduced by them. The Net cash flow of the couple is 6323. The taxable income is below 18200 which shows that 0% tax will be applied. Steve and Crystal do not have to pay any tax for the current year. Page15of21
Assessor feedback:Resubmission required? No Page16of21
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Question 2c Calculate the costs of a 25 year mortgage if they borrow $224,000. You should determine an illustrative interest rate from searching amongst mortgage providers. Whilst a honeymoon interest rate may give short-term benefits you should also illustrate repayments if rates were higher than today. Use an online mortgage calculator or develop your own using Excel. Set out your assumptions and workings. (150 words) Answer here Assessor feedback:Resubmission required? No Question 2d (i)Compile a cash flow statement if they go ahead and buy the house. Consider every item in the statement. How will their income change? Some costs in their budget (like rent) will not apply and be replaced by mortgage repayments. Some cost items are likely to increase and some may decrease. Somenew cost items will apply. In answering this question use your judgement to create a cash flow statement that you can show to Steve and Crystal to illustrate the possible outcome if they buy the house. Note:You may search for average council rates to use them in your answer. Only a reasonable assumption is required for this question, students are not assessed on their ability to assume a correct figure for council rates. (ii)Write some notes explaining the differences you have identified such as changes in Centrelinkbenefits. (100 words) (I)If Crystal and Steve go for buying a house the mortgage payment required to be made for every month is 1152. Therefore, the yearly payment for the same will be 13824. Rent amount will not be included in the cash flow statement and mortgage payment will be made by both of them every year. Revised Cash flow will be made as follows: Page17of21
Net cash Flow will increase from 6323 to 8099. The decision will prove to be profitable for Steve and Crystal. However, it will increase the liability of both of them. (II) The decision of taking a loan and buying a new house may bring various changes in the income and expenses of Steve and Crystal. There will be no major change in the Centrelink of Steve. There can be change in the benefits as it depends on the location of the house as these benefits are given to him as he carries more than one child. Further, there will be an increase in the liabilities of the couple and they also have to make payments of mortgage repayment every month with is amounting to 13824. (II) Assessor feedback:Resubmission required? No Page18of21
Question 3a (i)Consider their debt management position. If they had the capacity,in what sequence should they pay off the debts? Explain your reasoning. (ii)What strategies could they adopt to reduce their current debts? (200 words) Prepare a list of debt which are incurred by the company. Next step is to give priority to debt which is paid first. Then make an analysis from which source extra money is earned then it is paid to those debt who is marked at priority. After paying all this debt see how much saving is done. In this manner, a business can make payment and there is no failure in debt payment. Various methods are also suggested to reduce debts: They are as follow: Snowball method under this method there is a payment of small amount of debts then move towards the large one. Austerity Drive: In this business owner tries to avoid unnecessary expenditure saving money this term helps to make payment of other debts. Stack Method – under this method first pay to debt of large amount then move towards the payment of small debts as it reduces much of the burden. Aggregation of debts: Under this First owner combine all the debts which are taken at different interest then convert into single loan at low rate of interest it benefits owners as it is low cost of debt. This method helps business to grow without destroying the image. Assessor feedback:Resubmission required? No Question 4a Describe what risks there are to the client’s financial position. Reread the fact find and think about what risks they face. You should consider all the risks to their lifestyle not just the traditional ones that can be insured. (200 words) There are number of risks to the client’s financial position and one of them is market is fluctuating at sharp rate and share price is declining consistently. Sometimes shares’ pricegoes up and sometimes down. This reflects that there are some of the serious risks that investors are facing in their business. Time to time data related to economic indicators released which create serious tensions among investors. This is because if data reveal slight poor performance then investors become panic and due to this reason decline comes in the stock market. Similar trends are observed in case of other markets as it can be seen that huge decline comes in bond and other markets. All these things lead to decline in values of financial instruments. Thus, these unsystematic risks greatly affect the client financial position. Main aim of both individuals is to purchase house and they are prepared to make investment. In case same does not generated good return then in that case they may need to change their lifestyle. Assessor feedback:Resubmission required? No Page19of21
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Question 4b Although you do not need to provide specific, tailored risk management and estate planning advice, youcan identify issues for the clients to consider and provide strategic advice that will assist them. Briefly describe what risks Steve, Crystal and their family face if either or both of them die and what general recommendations do you believe they should consider to mitigate these risks. (200 words) There are various points that client should consider like issues before choosing debt as a source of finance. The amount that is needed to start a business for example: if he requires large amount of money then it is bank overdraft is not seen as a beneficial source as it has a fixes limit according to the financial position of an owner. Different types of expenditure and reason for raising money.For example, there is a need of installing a machine which requires large amount of money so it need to know by him.Time is an important factor in debt capital so it must analysed by the client to know for how much time it is required. There are two cases in which either Steve or Crystal die then in such case burden of not business but also the burden of paying debts lie on one person. In this situation, it might be possible that business is not running successfully and there is a huge chance of loss. But still there is a chance to get through this situation. In other case if both Steve and Crystal die then in such there is no chance to move out of this situation because their family do not have knowledge of business. Their family requires to understand the business try to improve business situation so they are able to make repayment of debt. Assessor feedback:Resubmission required? No Question 5 In Question 1c you identified between six (6) and ten (10) objectives for Steve and Crystal. For each objective, set out your recommendations to assist Steve and Crystal achieve that objective. Referto‘Step 3 Development of recommendations’ in Topic 10 for one way to present your answer. Youcan provide your recommendations as dot points. (500 words) Answer here Assessor feedback:Resubmission required? No Page20of21