Financial Planning Statement of Advice

FINANCIAL PLANNING -
STATEMENT OF ADVICE

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................1
Compliance......................................................................................................................................1
Scope of advice...........................................................................................................................1
Goal and objectives clearly set out..............................................................................................2
Risk profile assessment and explanation.....................................................................................3
Benefits of advice........................................................................................................................4
Risk associated with advice........................................................................................................6
Suitability of advice for the investor...........................................................................................6
Recommendations............................................................................................................................7
Recommendation appropriate to goal and objectives.................................................................7
Discussion on superannuation.....................................................................................................8
Discussion on investment property.............................................................................................8
Financial projections...................................................................................................................9
Feedback from financial planner...................................................................................................14
SOA...........................................................................................................................................14
CONCLUSION..............................................................................................................................20
REFERENCES..............................................................................................................................................21
Table 1Percentage share in the investment avenues........................................................................4
Table 2Projected income statement.................................................................................................9
Table 3Expected return percentage...............................................................................................10
Table 4Annual income on investment...........................................................................................11
Table 5Return on investment.........................................................................................................11
Table 6Projected balance sheet......................................................................................................13

INTRODUCTION
Financial planning is the process of approximation of the capital which is required and determining its competition. The overall file is
based upon the case scenario in which Hamish and Harriet wants to invest the amount in appropriate place. Further, the current report
will describe the scope of advice, goals and objectives which are clearly set for Hamish and Harrirt using SMART tool. Moreover,
study will describe risk profile assessment and explanation and explain why given advice is best for client. Report also recommended
advice related to superannuation and investment on property by defining financial projections. Lastly, report will also prepare and
submit statement of advice and also provide statement of advice that meet all the legal requirements.
Compliance
Scope of advice
Hamish and Harriet intend to make investment in the financial instruments so that their financial needs can be fulfilled and
regular income can be obtained after retirement. Both investors are couple and are moderate risk investor. Thus, they can take medium
risk. Both intend to earn return more than average return but at low risk. Thus, by considering this factor entire investment planning
will be done. As part of scope of advice 60% investment will be made on risky assets and 40% investment will be made on the non-
risky assets (Duffy, 2018). In this regard varied instruments will be taken into account. As part of risky assets equity is taken into
account and along with-it investment will also be made on the exchange traded funds as well as mutual fund schemes that are 60%
equity and 20% debt oriented. On side of safe heaven investment total sum 20% investment will be made in the debt oriented mutual
fund schemes. Thus, it can be said that scope of advice is wide and investment will be made on the multiple securities and by doing so
risk will be minimized and profit will be maximized to the maximum possible extent.
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Goal and objectives clearly set out
On detail interview of Hamish and Harriet it is identified that after making investment in two to five years both wants to make use
of the investment or superannuation funds. Both investors understand the inflation factor which they need to account while preparing
to make investment and due to this reason, their main aim is to make investment on the financial instruments which lead to moderate
risk and good amount of return. Client main objective is to make diversified investment. Client main aim is to earn medium profit and
he do not intend to pull investment back just after facing loss. Client understand that it has to wait for profit for short time period even
he faces loss on investment. SMART objectives are prepared by the most of the business firms and two of its components are given
below. Measurable: It is very important to determine actions that will be taken to achieve target. In this stage financial planner have
to set some of benchmarks against which performance is measured and accordingly step is taken to handle the situation.
Investment will be mad in the equity, mutual funds, exchange traded funds, fixed deposits and superannuation funds. In order
to make objective measurable return on overall portfolio is determined and return on each individual security is also
ascertained. Return on overall portfolio is expected to be 10%. On other hand, return on mutual fund is expected to be 6%.
This is because it will include both debt and equity schemes. Debt schemes of mutual fund generate low return on the
investment amount and equity generate moderate to high return (Fuertes and Gimeno, 2017). However, on mutual fund
investor may earn profit and loss both. Thus, it is expected that return on mutual fund may lie somewhere to 5% to 6%.
Exchange traded funds are another option where investment will be made. ETF will be one which is based on the specific
sector or index and it equity based. Return of 7% is expected on ETF because stock market generates good amount of return
and in case market generate positive return then in that case 7% return may be earned on the equity investment. Investment
will also be made on the bank fixed deposits and property. In most of banks interest rate of 2% is paid by the banks which is
very low and due to this reason by considering investor risk behaviour small amount of investment will be made in the fixed
deposits.
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 Specific: Main aim of the overall investment is to generate specific percentage of the return for the investor which must be
nearby to 11%. So, that they can get sufficient amount as income post retirement every month from the investment. Investor is
moderate risk taker and due to this reason 40% investment will be made on debt and 60% in equity. By doing so to some
extent capital protection will be ensured which is also matter of concern for the investors. Investors already states that if loss is
observed on investment then in that case they can wait for profit. Thus, considering risk appetite of the investors 40:60 ratio is
followed as investment strategy. Further, in each category whether it is equity or debt multiple investments will be made in the
varied securities so that loss can be minimized and profit can be maximized. Time: Investment will be made for 7 years because after that both will retire and will need additional source of income.
According to allocation of investment up to 7 years like systematic investment plan (SIP) investment will be made in the
financial instruments. So that return can be maximized on the investment amount.
Risk profile assessment and explanation
In order to access player risk profile multiple factors, need to be considered. Level of risk that an individual can take depends on
the financial position of the investor. Hence, in order to determine appropriate risk level for individual it is inevitable to evaluate
assets of the investor. Some of the points that are taken into account to prepare risk profile of the investors are explained below. Residential property: Investors own residential property valued at $5,50,000 if loan is not considered. This indicate investor
financially are strong. Cash and bank deposits: Liquid cash is very low, valued at $14000. Thus, majority of cash is blocked on fixed assets and due
to availability of less cash investor can afford to take moderate risk. Managed fund: Managed fun valued at $85000 which is higher amount and indicate that investor already make investment in
varied securities. Superannuation client and partner: Investment amount is $270000 and $100000.
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All these things that asset value is very high and investor can afford to take medium risk because of less availability of cash.
Otherwise finally investors are very strong. Cumulative income of both on yearly basis is $170000. In two to five years investors are
planning to make use of the superannuation funds. Investors intend to take moderate risk by considering inflation factors. Apart from
this, as mentioned earlier investors already make heavy investment in the multiple securities and due to this reason, they understand
importance of diversification. This is the reason due to which investors are prepared to take moderate risk. They strongly believed that
diversification will minimize risk and required rate of return will be gained by following this strategy.
Investors prefer to make investment in property because its value increase consistently and is safe investment which reflect that
investors are risk conscious and freely would not prefer to take risk on investment.
Thus, on analysis of the overall risk profile of the investors it can be said that financially they are sound and intend to earn
good return at moderate risk.
Benefits of advice
As mentioned earlier that main aim of the investor is to earn good amount of return by taking moderate risk. It is to advisable to
the investors that they must make investment in diversified manner in specific proportion across varied financial instruments so that
loss faced on single security can be covered by the profit gained on other one. Investor also understand this concept. Benefit of this
idea will be that target return will be gained while minimizing risk in the investment.
Table 1Percentage share in the investment avenues
Investment avenues
Percentage
share
Equity 60%
Shares 20%
ETF 20%
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