Financial Advice for Andrew Ferrell - Statement of Advice

This document provides financial advice for Andrew Ferrell, including loans, superannuation, income, expenses, and personal insurance needs. It includes a review of existing arrangements and suggestions for changes. The advice complies with the law and acts in the best interests of Mr. Andrew and the Company.

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Dear <<insert name>>,
Discussion Paper – Statement of Advice
The financial advices to St George have been recorded in this document. This document is
known as a Statement of Advice (SOA) which has to be provided under the Corporations
Act 2001. The advice is regarding the loans, superannuation, income, expenses and
personal insurance needs of Mr. Andrew Ferrell. A review of the existing arrangements as
well as the significant suggestions for changes have been included. This financial advice
complies with the law and acts in the best interests of Mr. Andrew and the Company.
Reasons for this advice & its scope
Mr. Andrew aims at maintaining a net income of $60,000 every year. He also looks forward at
establishing and maintaining an annual cash reserve of $10,000 at the end of every financial year.
He has pending liabilities and obligations in the form of finance card of $10,000, car loan of
$17,000 and a credit card debt of $8,000. He wants to reduce his debts at the earliest of time.
According to Mr. Andrew, he has been spending more than needed, hence he wants his budget to
be reviewed. He also has some goals to be accomplished within the next five year, which are, buy
a home with his savings and change his car. Mr. Andrew also plans of maintaining an annual
holiday allowance of $3,000. He has been paying a lot of tax for his employer superannuation fund.
In order to minimise this expense, he wants to boost his contributions to the superannuation.
Finally, he targets at ensuring sufficient insurance of Life and Total Permanent Disability within his
present funds of superannuation.
Prepared on October 2018 and valid for 45 days. For educational use only. Page

What my advice does not cover
All the aspects of the company’s financial situation have not been included. We have not been able
to undertake a complete financial analysis covering your full personal and financial objectives as
we have not been given the following information:
It is recommended for Mr. Andrew to repay all his loans, including the car loan of $17,000 and the
finance card of $10,000 since they together cost him $1,200 per month. The insurance for the
comprehensive car and contents should be retained along with the insurance cover for the Life,
whereas the insurance for Total permanent disability (TPD) should be replaced. Mr. Andrew is also
recommended to save at least $1,000 as his personal savings each month. Since his per annum
income are adequate and significant enough, the usage of credit card should be reduced.
The strategies in this document are for discussion purposes only and are not intended for
you to act on without further advice.
Yours sincerely
Prepared on October 2018 and valid for 45 days. For educational use only. Page

Your personal and financial position
Personal
Name Andrew Ferrell
Gender Male
Nationality Australian
Date of Birth 30/03/1985
Marital Status Single
Primary Health cover Yes
Employer Wollongong Council
Work status Fulltime
Occupation Town Planner
Income $95,000 p.a.
Financial
Name Andrew Ferrell
Income $95,000 p.a.
Total Assets $71,000
Total Liabilities $35,000
Total interest payable per month $1,200
Dividends received $950
Annual expenses $53,900
Annual savings $41,100
Assets
Description Value
Home $40,000
Car $25,000
Savings Account $1,000
Share Portfolio $5,000
Total $71,000
Liabilities
Description Value
Car Loan $17,000
Finance Card $10,000
Credit card debt $8,000
Total $35,000
Insurances
Description Value
Contents $20,000
Comprehensive Car $20,000
Life and Total Permanent Disability $125,000
Prepared on October 2018 and valid for 45 days. For educational use only. Page

Risk profile
In the determination of the necessary risk profile for Mr. Andrew Ferrell, the outcomes of his
completed questionnaire of Risk Profile have been considered and the appropriate objectives,
attitudes to return and risk, the circumstances and the required timeframe has been discussed.
Additionally, it has been determined and Mr. Andrew has also agreed that the risk profile of Growth
is appropriate for him.
In an ongoing stream of income, there is only little or no need of Growth. The primary focus of
investment is on the achievement of growth of capital without having the need of accessing the
medium-term capital that is prepared for accepting the variations in the value of the capital for the
achievement of wealth accumulation for a longer period of time. The chances of getting a negative
return in such a portfolio in a particular fiscal year is approximately 18 per cent. The achievement
of returns has an occurrence probability of 95 per cent, where the returns could be anywhere from
10 per cent to 27 per cent in the first year after investment. At times, the return potential of falling
outside the desired range is accepted by the investors.
From the discussions held, it was analysed that Mr. Andrew Feller is a Growth Investor. This
implies that he expects his investments to grow in terms of value over a certain period of time, and
several risks would also be borne by him for such an accomplishment. It has been explained that
Mr. Andrew’s objective of doubling his money in the next 5 years would involve a great deal of risk
which he might not be comfortable with. As such, it has been analysed that an asset mix would be
appropriate for him, which would include 30% of the income assets and 70% of the growth assets.
The income assets might include particulars such as deposit products whereas the growth assets
might include items such as managed funds, etc. For every five that Mr. Andrew would invest in
such an asset mix, the chances of negative return is of one year.
Prepared on October 2018 and valid for 45 days. For educational use only. Page

Strategy discussion
Financial strategies considered
Budgeting, Debt Management.
Budgeting
Goals
Mr. Andrew wishes to minimise the amount of his expenditures in order to ensure the achievement
of his objectives. He wants his budget to be reviewed and set up a new budgeting plan which
would aim at reducing his expenditures and increase his net income.
Budgeting importance
Whether Mr. Andrew possesses less or more money, he would need to take charge of his money.
As such, he would feel less stressed about money and would inculcate the feeling of security and
control regarding the same. In order to spend one’s money or savings, a plan has to be created.
The process of creation of such a plan is called Budgeting (Brealey, Myers and Marcus, 2012). A
person is benefitted by such creation of a spending plan by being allowed to pre-determine if he
would have sufficient finance for his needs and wants (Libby and Lindsay, 2010.).
How it works
The current credit card debt of Mr. Andrew stands to be $8,000 whose usage should be minimised.
The debt for car loan repayments stand to be $17,000. It is recommended to decrease the luxury
consumptions. The electricity, water and gas consumption could be potentially decreased from
$1130 to $1000, by using these resources wisely and efficiently. The expenses for telephone,
mobile and internet should also be decreased by some margin, say, from $1250 to $1000. This can
be done by procuring some other plan or package which charges lesser amount of money. The
prices of petrol and maintenance are fluctuating, so it can be assumed that a marginal saving of
around $100 can be done on the same, which implies, the expenditure can be brought down from
$4500 to $4400. The expenses for food can be decreased by purchasing large amount of food or
ration in advance and storing them properly for later usage, which in turn will help in saving money
by protecting from future fluctuation in prices. The cost of food could be decreased from $5200 to
$4500. Grooming can either be avoided or the expenses can be cut down from $300 to $100. The
medical or dental check-ups can be done half-yearly, rather than frequently, whose expenses can
be pulled down from $1000 to $700. The expenses on entertainment and dinner can be decreased
by avoiding eating outside and cooking at home instead. The expenses can be decreased from
$2500 to $1500. The expenses for club memberships can be pulled down by avoiding going to the
club, the expenditure can be decreased from $1300 to $500. Finally, the holiday plans can be
postponed for later years can the same money can be saved for other objectives. This would save
$3000.
Advantages of this strategy
Such a budget allocation would help in understanding where the income of Mr. Andrew goes each
day. The daily expenditure tracking helps in understanding the daily habits in regards with the
income (Jagalla, Becker and Weber, 2011). The primary aim of such a budgeting plan is providing
a monetary framework for the process of decision making (King, Clarkson and Wallace, 2010).
Disadvantages of this strategy
Budget planning requires a lot of time and efforts. The initiative and potential innovation of an
individual is reduced down to lower levels due to inflexible budget structures, which makes it
impossible for money to be obtained for new ideas (Kogan, Greenstein and Horney, 2012).
Reasons for the Budget
The primary reasons for the preparation of such a budget plan it to provide clarification about the
expenditure of each financial year (Angelakis, Theriou and Floropoulos, 2010.). Expenditure
control helps in managing funds effectively. Finally, the aims and objectives of the future are made
easier and become more realistic.
Prepared on October 2018 and valid for 45 days. For educational use only. Page

Debt Management
Goals
Debt management would be primarily done for three purposes. In the short run, the credit card of
Mr. Andrew should be paid off ($8000) immediately or in the first financial year. Whereas, in the
medium-term, the loan of $10,000 for the finance card should be paid off before the time period of
1.5 years. Finally, in the long run, the car loan of $17,000 should be paid off before 4 years.
Importance
Debt management is a process of monitoring and the controlling the debts and obligations of an
individual or an organisation (Guo and Seaman, 2011). It is very important for paying off the
unnecessary debts which incur a high amount of interest (Guo, Spínola and Seaman, 2016). They
help in the development of a detailed analysis of the current situation, controlling the habits of
spending and achievement of the long-term objectives (Benito-Hernandez, Lopez-Cozar-Navarro
and Priede-Bergamini, 2014).
Outcomes
The surplus income of Mr. Andrew Ferrell would potentially increase by $7,080 which can help him
to allocate the same money in the procurement of other objectives.
Projected Cashflow
Cash Flow Analysis
Particulars Base Year
Income
Gross Salary $95000
Bank Interests $200
Dividends $950
Total Income $96150
Expenses
Rent $6000
Electricity/water/gas $1130
Prepared on October 2018 and valid for 45 days. For educational use only. Page

Telephone/Mobile/Internet $1250
Insurance - Home & Contents $800
Insurance – Car $1000
Private Health Insurance $1000
Petrol/Maintenance $4500
Car registration $1000
Food $5200
Grooming $300
Credit card $15000
Other loans $15120
Medical/Dental $1000
Entertainment/Dinners $2500
Clubs/Prof. Membership $1300
Holidays $3000
Total Expenses $53900
Surplus or Net Income $42250
Cash Reserve/Savings $1000
Credit Card $0
Share portfolio $5000
Total surplus allocated $6000
Prepared on October 2018 and valid for 45 days. For educational use only. Page

<<requirement: Projected Retirement Needs Analysis (Based until life expectancy ages) >>:
Future Recommendations
Budgeting
It is recommended to Mr. Andrew that he decrease his savings for vacations, expenses on
entertainment, grooming, etc. If the budget is followed properly, his expenses for the year could be
decreased from $53,900 to $45,000, i.e., a decrease of $8,900.
Debt Management
For the payment of the credit card, Mr. Andrew should take out money from his savings account,
and pay off the $1,000 for the credit card in order to decrease the debt as much as possible. The
debt of the finance card should be paid off within 1 year by paying a minimum of $833 every
month. Finally, the debt of car loan should be paid off within 3 years by paying $3000 every year.
Approved Product List of St George
The BT Active Balanced and Macquarie Cash Management Trust would use the strategy of
budgeting as it would help in keeping accounting of the expenditures made in investment on
shares, securities and properties.
The BankWest fixed term deposit would require the budgeting strategy as well as it would help in
analysing and predetermining the future returns from deposits.
ING Balanced, CFS FirstChoice, Colonial First Choice Superannuation and One Path Income
Protection would require the strategy of Superannuation in order to keep track of the regular
payments that are made for the future pension of the employee or for the protection of the
employee’s regular income.
Prepared on October 2018 and valid for 45 days. For educational use only. Page

Other important information
Forward illustrations
Any forward illustrations are intended as a guide only. They are purely estimates, not guaranteed,
and may vary with changing circumstances.
Tax
AMP Financial Planning is registered with the Tax Practitioners’ Board as a registered tax
(financial) adviser under the Tax Agent Services Act 2009 (“TASA”). However, AMP Financial
Planning is not a registered tax agent and the nature of the tax services that AMP Financial
Planning is authorised to provide is limited under TASA. As such, AMP Financial Planning only
provides tax services directly related to the nature of the financial planning advice provided to you.
The extent and detail of any tax service provided is restricted to those matters agreed in our
engagement and we have not considered any other tax matters. Where tax implications are
discussed they are incidental to our recommendations and only included to help you decide
whether to implement our advice by illustrating how it is likely to place you in a better position.
If you require tax services on matters that are unrelated to your financial planning needs, we
recommend that you consult a registered tax agent. While we have endeavoured to ensure that all
tax calculations are accurate and reliable, such amounts should be considered as estimates only.
Determining your exact tax liabilities or tax entitlements may require consideration of, or may be
influenced by, matters not known at the time our advice is provided (for example your taxable
income for the financial year or the timing of specific transactions).
Prepared on October 2018 and valid for 45 days. For educational use only. Page

The cost of my advice
During our initial meeting, we agreed that the cost of my advice for the preparation and
presentation of this strategy discussion paper would be $3,300 (including GST). This payment has
already been received.
How am I paid?
I am an employee of The Practice and receive a salary and/or bonus from AMP Financial Planning.
Other benefits
For further information regarding other benefits, associations and relationships, please refer to our
Financial Services Guide.
Prepared on October 2018 and valid for 45 days. For educational use only. Page

Reference List
Angelakis, G., Theriou, N. and Floropoulos, I., 2010. Adoption and benefits of management
accounting practices: Evidence from Greece and Finland. Advances in accounting, 26(1), pp.87-
96.
Benito-Hernandez, S., Lopez-Cozar-Navarro, C. and Priede-Bergamini, T., 2014. Factors
determining exportation and internationalization in family businesses: The importance of
debt. South African Journal of Business Management, 45(1), pp.13-25.
Brealey, R.A., Myers, S.C. and Marcus, A.J., 2012. Fundamentals of corporate finance. 4th ed.
London: McGraw-Hill/Irwin.
Guo, Y. and Seaman, C., 2011, May. A portfolio approach to technical debt management.
In Proceedings of the 2nd Workshop on Managing Technical Debt, 23(4), pp. 31-54.
Guo, Y., Spínola, R.O. and Seaman, C., 2016. Exploring the costs of technical debt management–
a case study. Empirical Software Engineering, 21(1), pp.159-182.
Jagalla, T., Becker, S.D. and Weber, J., 2011. A taxonomy of the perceived benefits of accrual
accounting and budgeting: evidence from German states. Financial Accountability &
Management, 27(2), pp.134-165.
King, R., Clarkson, P.M. and Wallace, S., 2010. Budgeting practices and performance in small
healthcare businesses. Management Accounting Research, 21(1), pp.40-55.
Kogan, R., Greenstein, R. and Horney, J., 2012. Biennial Budgeting: Do the Drawbacks Outweigh
the Advantages. Center on Budget and Policy Priorities, January, 20.
Libby, T. and Lindsay, R.M., 2010. Beyond budgeting or budgeting reconsidered? A survey of
North-American budgeting practice. Management accounting research, 21(1), pp.56-75.
Prepared on October 2018 and valid for 45 days. For educational use only. Page

Appendix
Cash Flow Analysis
Particulars Base Year
Income
Gross Salary $95000
Bank Interests $200
Dividends $950
Total Income $96150
Expenses
Rent $6000
Electricity/water/gas $1130
Telephone/Mobile/Internet $1250
Insurance - Home & Contents $800
Insurance – Car $1000
Private Health Insurance $1000
Petrol/Maintenance $4500
Car registration $1000
Food $5200
Grooming $300
Credit card $15000
Other loans $15120
Medical/Dental $1000
Entertainment/Dinners $2500
Clubs/Prof. Membership $1300
Holidays $3000
Total Expenses $53900
Surplus or Net Income $42250
Cash Reserve/Savings $1000
Credit Card $0
Share portfolio $5000
Total surplus allocated $6000
Life Insurance
Prepared on October 2018 and valid for 45 days. For educational use only. Page

Insurance needs calculator v1.0
Name (preferred name)
Gross Income
Hint: If recommending Life & TPD combined (same amount of cover) complete Life section only
L ife
Income Replacement
Gross Replacement Income Required ($ pa)
Real Rate of Return (% pa) 5.9 5.9
Term required (years)
Residual capital value 0 0 0
Capital costs (PV $)
Capital for estate ($)
Final expenses 53,900
Debts 35,000
Children
Bequests
Other 88,900 0
Total Cover Recommended 88,900 0
Less existing cover
Less realisable assets
Total New Cover Recommended $88,900 $0
T otal & P ermanent Disability (T P D)
Income Replacement
Gross Replacement Income Required ($ pa) 125,000
Real Rate of Return (% pa)
Term required (years)
Residual capital value 90,000 90,000 0
Capital Costs (PV $)
Debts
Children
Medical Costs
Home Improvements
Other 0 0
Total Cover Recommended 90,000 0
Less existing cover
Less realisable assets
Total New Cover Recommended $90,000 $0
Inc ome P rotec tion
Maximum cover available (pm) - 75% of Income 5,938 0
Maximum cover available (pa) - 75% of Income 71,250 0
Cover Required (pa)
Cost of living
Other Expenses 0 0
Cover required (pm) 0 0
Total Cover Recommended 0 0
Less existing cover (pm)
Total New Cover Recommended (pm) $0 $0
T rauma
Capital Costs (PV $)
Debts
Children
Medical Costs
Other 0
Total Cover Recommended 0 0
Less existing cover
Recommended cover $0 $0
In the event that Client 1 can't work
In the event of Client 1's TPD
Client
Partner
P artner
In the event that Partner can't work
In the event that Partner can't work
In the event of Partner's TPD
In the event of Partner's death
Client 1
95,000
In the event of Client 1's death
In the event that Client 1 can't work
Prepared on October 2018 and valid for 45 days. For educational use only. Page

Tax Calculation
General Tax Calculation Table
Assessable Income
Salary 95000
Bank Interest Received 200
Dividend Income Received 950
Add Franking Credits(30/70)
Other Income (i f a ppl i ca bl e)
Subtotal 96150
Less Allowable Deductions
Work Related Expenses 53900
Interest Expense on
Shares/Investments (i f a ppl i ca bl e)
Subtotal 53900
Taxable Income 42250
Gross Tax Payable 1 42250
Less Low income Tax Rebate
(2014/15) (i f a ppl i ca bl e)
Add Medicare Levy
Add Medicare Levy Surcharge (i f
appl i cabl e)
Add Temp Budget Repair Levy (i f
appl i cabl e)
Less Franking Credits (i f a ppl i ca bl e)
Net Tax Payable 42250
Item Client 1 $ Client 2 $
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