Financial Planning Fundamentals: Tips for Financial Planners

Financial Planning Fundamentals
A. From the first meeting with the client, all the required information which financial planners
need is not provided. A quick glance of the financial needs analysis fact sheet shows the absence
of information about the client’s state of health and lifestyle. Knowing the state of health paves
way for the estimation of the longevity of life. To estimate the life span is important because it
helps in calculating the amount of money the client will need to save and for how long. Although
most financial planners calculate longevity using various parameters that exclude health in
general and the medical history of a client, this factor should not be ignored.
B. Some people are not very comfortable to discuss matters concerning their health, Forbes
(2014). To collect the information the use of a questionnaire would be appropriate. The
questionnaire would ask the clients to indicate their weight and if they have a history of heart
disease, diabetes and to specify whether they drink or smoke.
C. The additional information collected from the client would be copied to Client File Note and
the questionnaire attached to it.
2. When dealing with a client there are matters which are a must for discussion, The Motley Fool
(2018). This is a financial planning meeting and money is at the center-stage. The financial
planner and the client will discuss:
 Habits of spending and saving. The advisor would like not only to know how much
you earn but also how you use what you receive and how much you can manage to save.
 Saving for an emergency. Your advisor will bring to your attention the importance
of saving for unforeseen situations. The importance of an emergency fund is given more
emphasis by other advisors than even saving for retirement.
 Education. Even if there is no child yet, they will be there one day. It is very helpful
to discuss the college education for the kids at this earliest opportunity and place it firmly
in the financial plan
 Retirement. Although it is not in the cards yet retirement should feature in the
discussions. Some people rate saving for retirement more highly than saving for college
with the argument that it is possible to get a loan to fund college education but not to pay
for your retirement.
 Insurance. Discussion life insurance would also feature. No financial advisor skips
this feature because of necessity. Discussions would focus on the value of the coverage.
· Risk. I would discuss the issue of risk so as to find out how the client handles risk.
People vary; some have very strong tolerance to risk while others have not. People with
little risk tolerance are advised not to invest in highly volatile businesses like the stock
market.

 Fees. The client and I would also discuss my fees as a Financial Planning Advisor. It
costs money to be advised to improve your capabilities to achieve your dream financial
goals.
3. Most of this client’s aims are noble and are strategically structured to ensure the achievement
of set goals. The goals have been prioritized based on the importance to the client, and they are
as follows: the budget to be subjected to a review with a view to cutting down expenditure, to
reduce debt, strategize how to save and keep a surplus of over $9,000, ensure an incoming cash
flow of over $55,000 per year, keep his holiday allowance and increase his contributions to the
retirement schemes. Other goals include getting adequate insurance policy coverage, a marriage
proposal to his fiancée, and make savings to enable the purchase of a home in a few years, and
buy a new car.
The client’s objectives and goals are classified as follows:
Goals to be achieved in the immediate future:
 Reduce expenditure
 Reduce debt
 Keep a surplus of over $9,000
 Increase contributions to retirement schemes
Goals to be achieved in the near future:
 Make a marriage proposal to his fiancée
 Ensure cash in low of more than $ 55,000 yearly
 Retain his rest days payments
Goals targeted for distant future achievement:
 Buy a car
 Make savings for purchasing a home
 Save for college education for kids
 Save for retirement
4. It would be my suggestion to my client to postpone his intended proposal to his girlfriend until
a later stage to give way for other goals which are urgent to be achieved. He should also suspend
his holidays and save $3,000. In addition, I would ask him to put on hold his plans to start saving
for a house deposit until such a time when his finances are streamlined.
5. Should Andrew fail to achieve his goals he faces some risks. One of his goals is to make a
marriage proposal to his fiancée in a few months. Should he fail to do so he would disappoint his
fiancée and probably lose her. He will also not be happy not to enjoy his $3,000 worth holiday.
6. The clients’ after-tax income:

Total Annual Income:95,000+200+150= 96,150.00
Tax: $ 20,997+2275,50+1923= 24,995.50
After tax income $ 71,154.50
7. (a) Cash Flow:
Total Earnings: $96,150.00
Less total expenses 55,000.00
Less Taxes 24,995.50
Surplus $16,144.50
Net worth:
Total Assets-total liabilities: $87,144.50
35,000.00
Net worth $ 52,144.50
(b) Net worth when the client sticks to the expenditure of $700 a month on credit cards
The effect of this would reduce expenditure on credit cards from $ 15,000 to $ 8,400 thus
increasing cash flow by $6,600 and the assets by the same amount. The new net worth will now
be $ 52,144,50+6,600= $58,744.50
8. The client currently has life insurance and TPD coverage of $125,000 within the
superannuation scheme. The premium is very cheap when obtained under superannuation but the
coverage is grossly insufficient. For the client to get adequate coverage he needs stand-alone life
insurance coverage of $640,000, TPD coverage of $380,000 and income protection costing
$2,200 per month.
9. After implementing the recommendations of reviewing the budget and reducing debt there will
be a surplus. The immediate application of the surplus is first to set aside over $9,000 as savings
and to increase his contributions to the retirement plan schemes. The surplus will also go towards
saving for house deposits and to other long term goals like saving for college fees and retirement.

10. I would advise my client to take advantage of the tax incentives which the government gives
people to contribute to their superannuation funds. The employer contributes 9.5% of your salary
and if you add your own contribution the amount available for investment at superannuation will
grow, Virgin Money (2019). You could also be lucky to fall into the bracket of those whom the
government contributes with you to the fund. The beauty of superannuation is its orientation. All
the money received is invested, and you have the liberty either to let the fund exercise their
discretion to invest for you or you can choose where it can be invested. I would advise my client
to exercise the latter option so that he may choose an investment destination with super returns.
Part B
STATEMENT OF ADVICE
30th September 2019
Mr. Andrew Ferrell
35/190 – 196 Jubilee Ave,
Carlton, NSW, 2217
We have attached Statement of Advice whose contents are pieces of our advice to help you attain
your goals.
The basis of the advice which we have given is the data and the information you shared with us
during the discussions which we had with you recently.
Should you need any clarification on any matter presented here please get in touch with us before
you take the next course of action.
The step we have taken is the first one in our journey towards assisting you to realize your
financial dreams. There will be a review of the recommended strategies to ensure relevance and
implementation.
Please feel free to contact our office in case you need help to clarify the matters stated in this
document.
Sincerely yours,
St George Financial Planning Pty Ltd
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