Investment Policy Statement Workbook for M & S Ford

This workbook is designed for Michel & Susan Ford to create an investment policy statement. It includes sections on their current financial situation, financial objectives, constraints, proposed asset allocation, and portfolio monitoring and review. The workbook provides a comprehensive overview of their personal details, assets and liabilities, current cash flow, primary and secondary goals, five-year cash flow analysis, return objective, risk objective, and RBS Morgans risk profile questionnaire.

Investment Policy Statement
Workbook
[Michel & Susan Ford]
5 May 2019
Prepared by[Student]
Student No[sxxxxxxx]

Table of Contents
◉Current Financial Situation......................................................................................3
Personal details............................................................................................................................................. 3
Assets & Liabilities........................................................................................................................................ 3
Current Cash flow.......................................................................................................................................... 4
◉Financial Objectives................................................................................................ 5
Primary Goals................................................................................................................................................ 5
Secondary Goals........................................................................................................................................... 5
Five Year Cash Flow Analysis......................................................................................................................... 6
Return Objective........................................................................................................................................... 7
Risk Objective............................................................................................................................................... 7
RBS Morgans Risk Profile Questionnaire........................................................................................................ 9
◉Constraints........................................................................................................... 14
◉Proposed Asset Allocation.....................................................................................16
◉Portfolio Monitoring and Review............................................................................16
Action plan.................................................................................................................................................. 16
Staying ‘on target’...................................................................................................................................... 16
Authority to proceed............................................................................................... 17
Investment Policy Statement Workbook for M & S Ford 2

◉Current Financial Situation
Personal details
Your personal profile Michel Susan
Name Mr Michel Ford Mrs Susan Ford
Date of birth 01/04/1955 15/05/1955
Current age 64 64
Marital status Married Married
Residential address 200 Broadway AV, West Beach SA 5024, Australia
Telephone [phone] 264 523
Email address [e-mail]
Employment status Employed (Full time) Retired
Position Professional accountant Home Duties
Employer ABC Company Ltd N/A
Salary (Net of Tax) $75,000 N/A
Living Expenses $35,000 p.a.
Your health Michel Susan
Current health Good Good
Member private health fund? Yes (Hospitals and Extras) Yes (Hospitals)
Smoker? No No
Family History Considerations? Nil Nil
Assets & Liabilities
Financial Assets Owner Value ($)
NAB Bank Savings Account Michel $125,000
Westpac Bank Savings Account Joint $25,000
Sub Total $150,000
Non-Financial Assets Owner Value ($)
Residential Building Joint $1,000,000
Household Furniture and
Appliances
Joint $45,000
Motor Car Michel $30,000
Sub Total $1,075,000
Financial Assets – Super Owner Value ($)
Super Fund Michel $750,000
Sub Total $750,000
Investment Policy Statement Workbook for M & S Ford 3

Assets Total $1,975,000
Liabilities Owner Value ($)
Credit cards, home loans, HECS
debt, business debt Joint $0
Liabilities Total $0
Total Net Worth $1,975,000
Dependents Current Age D.O.B. Financially
Dependent
Jonny Ford 25 10/04/1994 No
Current Cash flow
Income Amount
Michel’s Salaries $75,000
Interest Income $3,000
Total Income $78,000
Expenses Amount
Daily Living Expenses $55,000
Total Expenses $55,000
Estimated Cash Surplus/Deficit $24,000
Investment Policy Statement Workbook for M & S Ford 4

◉Financial Objectives
Primary Goals
Description Amount Time Frame
Michel is going to retire in 10 months earnings
$75,000 after tax $75,000 10 months
Total $75,000
Secondary Goals
Description Amount Time Frame
Spend from saving of an amount of $55,000 for
kids wedding $55,000 Next 6 years
Holiday trip in every 4 years spending maximum
of amount $25,000 in each trip $50,000 Next 8 years
Leave $25,000 for precautionary purposes $25,000 Ongoing
Total $130,000
Notes:
The car will not be sold and you do not wish to sell your family residential house
property.
Investment Policy Statement Workbook for M & S Ford 5

Five Year Cash Flow Analysis
Current Year
0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
Income From Salary $ 75,000 $ 79,560 $ 81,151 $ 82,774 $ 84,430 $ 86,118
Interest Income $ 3,000
Net Available Income $ 78,000 $ 79,560 $ 81,151 $ 82,774 $ 84,430 $ 86,118
Daily Living Expenses $ 55,000 $ 57,750 $ 60,638 $ 63,669 $ 66,853 $ 70,195
Estimated
Surplus/Deficit
$ 23,000 $ 21,810 $ 20,514 $ 19,105 $ 17,577 $ 15,923
Investment Policy Statement Workbook for M & S Ford 6

Return Objective
Investable Assets Amount Percent of Net Worth
Allocated Pension (Mr Ford) $375,000 50%
Allocated Pension (Mrs Ford) $375,000 50%
Total $750,000 100%
Return Objective Amount After tax nominal rate of
return
Distribution in Year 2 $81,151 $81,151
Divided by investible assets $750,000 6.5%
Plus Expected Inflation 5% 11.5%
Risk Objective
Can the investor accommodate volatility and negative short-term returns given the
financial needs and goals provided?
Based on the discussion we had, Mr and Mrs Ford can assume certain level of
volatility and short term fluctuation in the returns but they do not wish to assume a
high level of risk and volatility in the return
Are the goals critical? A low margin for error can reduce the portfolio’s ability to
accommodate volatility and negative short-term returns.
Mr and Mrs Ford advised with $55,000, they can comfortably and fulfils some of
their expectations and intrastate travels
How large an investment shortfall can the portfolio bear?
As discussed with Mr and Mrs Ford, they can accept a drop of up to -12% in their
investment
How willing is the client to take risk?
Based on our discussion with Mr and Mrs Ford, they are willing to assume risk to
generate higher return and they can invest in the growth fund
Investment Policy Statement Workbook for M & S Ford 7

Behavioural Alpha Approach to Asset Allocation
Source: Pompian, M. 2012, Behavioural Finance and Investor Types, John Wiley and Sons; New Jersey.
STEP 1: IDENTIFY ACTIVE OR PASSIVE TRAITS
1. Have you risked your own capital in the creation of your wealth?
a) Yes
b) No.
2. Which is stronger: your tolerance for risk to build wealth or the desire to preserve wealth?
a) Tolerance for risk.
b) Preserve wealth.
3. Would you prefer to maintain control over your investments or prefer to delegate that
responsibility to someone else?
a) Maintain control.
b) Delegate.
4. Do you have faith in your abilities as an investor?
a) Yes.
b) No.
5. If you had to pick one of two portfolios, which would it be?
a) 80 percent stocks/20 percent bonds.
b) 40 percent stocks/ 60 percent bonds.
6. Is your wealth goal intended to continue your current lifestyle, or are you motivated to build
wealth at the expense of current lifestyle?
a) Build wealth.
b) Continue current lifestyle.
7. In your work and personal life, do you generally prefer to take initiative by seeking out what
needs to be done and then doing it, or do you prefer to take direction?
a) Take initiative.
b) Take direction.
8. Are you capital preservation oriented or are you willing to put your capital at risk to build
wealth?
a) Capital at risk.
b) Capital preservation oriented.
9. Do you believe in the concept of borrowing money to make money/operate a business or do you
prefer to limit the amount of debt you owe?
a) Borrow money.
b) Limit Debt.
RBS Morgans Risk Profile Questionnaire
Available at:https://www.morgans.com.au/private-clients/My-client-account/~/media/
8A2A5352D6DE413EA61AB2C6349C05C7.ashx
1. Which of the following best describes your current stage of life?
a) Single with few financial burdens. Ready to accumulate wealth for future short term and
long term goals. (5 points)
b) A couple without children. Preparing for the future by establishing a home. Expecting to
have or already have a high purchase rate of household and consumer items. (3 points)
Investment Policy Statement Workbook for M & S Ford 8

c) Young family with a home. You have a mortgage and childcare costs and maintain only
small cash balances. (1 point)
d) Mature family. You are in your peak earning years and your mortgage is under control.
You both work and you may or may not have children that are growing up or have left
home. You’re ready to start thinking about your retirement years. (5 points)
e) Preparing for retirement. You own your home and have few financial burdens; you want
to ensure you can afford a comfortable retirement. (3 points)
f) Retired. You rely on existing funds and investments to maintain your lifestyle in
retirement. You may already be receiving a Government pension and/or Superannuation
pension. (1 point)
2. How familiar are you with investment matters?
a) Not familiar at all with investments and feel uncomfortable with the complexity. (1 point)
b) Not very familiar when it comes to investments. (2 point)
c) Somewhat familiar. I don’t fully understand investments, including the share market. (3
points)
d) Fairly familiar. I understand the various factors which influence investment performance.
(5 points)
e) Very familiar. I use research and other investment information to make investment
decisions. I understand the various factors which influence investment performance. (7
points)
3. How long have you been investing, not counting your own home or bank type deposits?
a) 3 years or more. (5 points)
b) Up to 3 years. (2 points)
c) This is my/our first investment. (1 point)
4. How long would you invest the majority of your money before you think you would need access
to it?(Assuming you already have plans in place to meet short term cashflow and/or emergencies.)
a) In 2 years or less. (1 point)
b) Within 3 – 5 years. (3 points)
c) Within 6 – 10 years. (5 points)
d) Not for 10 + years. (7 points)
5. In some instances, tax savings can be obtained from investments but this means taking on
more risk. Which of the following statements best describes your goal for investing?
a) Preferably guaranteed returns, before tax savings. (1 point)
b) Stable, reliable returns, minimal tax savings. (3 points)
c) Some variability in returns, some tax savings. (5 points)
d) Moderate variability in returns, reasonable tax savings. (7 points)
e) Unstable but potentially higher returns, maximise tax savings (9 points)
6. Assume you had an initial investment portfolio worth $100,000. If, due to market conditions,
your portfolio fell to $85,000 within a short period, say a month, would you: (If your portfolio has
experienced a drop like this, choose the answer that corresponds to your actual behaviour.)
a) Sell all of the investments. You do not intend to take risks. (1 point)
Investment Policy Statement Workbook for M & S Ford 9

b) Sell a portion of your portfolio to cut your losses and reinvest into more secure
investment sectors. (3 points)
c) Hold the investment and sell nothing, expecting performance to improve. (5 points)
d) Invest more funds to lower your average investment price. (7 points)
7. If the value of your investments fell to $60,000 over the next 12 months, would you: (If your
portfolio has experienced a drop like this, choose the answer that corresponds to your actual
behaviour.)
a) Sell all of the remaining investment. (1 point)
b) Sell a portion of the remaining investment. (3 points)
c) Hold your investments and sell nothing, expecting conditions to improve. (5 points)
d) Invest more funds. You can tolerate short term losses in expectation of future growth (7
points)
8. The table below shows the highest one-year gain and highest one-year loss on four different
hypothetical investments of $100,000. Given the potential gain or loss in any one year, where
would you invest your money?
Investment Portfolio A B C D
Highest Gain $15,000 $20,500 $26,600 $31,300
Highest Loss -$2,400 -$6,400 -$11,000 -$14,600
a) Investment Portfolio A (1 point)
b) Investment Portfolio B (3 points)
c) Investment Portfolio C (5 points)
d) Investment Portfolio D (7 points)
9. Which one of the following statements describes your feelings towards choosing an investment?
a) I would prefer investments with little or no fluctuation in value and have a low degree of
risk associated with them. I am willing to accept the lower return associated with these
investments. (1 point)
b) I prefer to diversify with a mix of investments that have an emphasis on low risk. I am
happy to have a small proportion of the portfolio invested in assets that have a higher
degree of risk in order to achieve a slightly higher return. I am prepared to accept a
negative investment return of 1 in 10 years. (3 points)
c) I prefer to have a spread of investments in a balanced portfolio. I am happy to have a
negative return of 1 in 7 years. (5 points)
d) I prefer to diversify my investments with an emphasis on more investments that have
higher returns, but still having a small amount of low risk investments. I am happy to
accept a negative return of 1 in 5 years.(7 points)
e) I would select investments that have a higher degree of investment price fluctuation so
that I can earn higher long term returns. I am happy to accept a negative return of 1 in 3
years in order to achieve this goal. (9 points)
10. How secure is your current and future income from sources such as salary, pensions or other
investments?
a) Not secure. (1 point)
Investment Policy Statement Workbook for M & S Ford 1
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b) Somewhat secure. (3 points)
c) Fairly secure. (5 points)
d) Very secure. (7 points)
Add up the points you scored for each answer. Based on the total points, you can compare your score with
the range ofProfiles described below.26 - AFSL Licence 235410)
Questionnaire
Risk Profile Questionnaire
Indicative Investor Profile
Conservative
0 –18 points You are a conservative investor who does not wish to take any investment risk. Your priority
is to
Safeguard your investment capital. You are prepared to forego higher returns for peace of
mind.
Balanced
19 – 40 points You are a balanced investor with some understanding of investment market behaviour. You
prefer a balance between capital growth and capital security. You are prepared to accept
some short term risk in order to gain longer term capital growth.
Assertive (Growth)
41 – 52 points You are an assertive investor who understands the movement of investment markets. You are
mostinterested in maximising long term capital growth, although you do not wish to make
unbalancedinvestment decisions. You are happy to take calculated risks in order to maximise
long term capitalgrowth. Tax advantaged investments are a focus.
Aggressive
53 – 65 points You are an aggressive investor with a strong bias towards investments with high growth
potential. You are willing to accept higher performance fluctuations in return for potentially
higher long term capital growth. You also have a greater focus on tax advantaged
investments and/or leverage of your assets to further improve capital growth potential.
Very Aggressive
66 + points You are an experienced or sophisticated investor. Security of capital is secondary to the
pursuit ofhigh investment returns. Your portfolio will comprise almost solely of growth assets
and you are happy to accept the risks this involves.
Identify the Behavioural Investor Type:
General Type PASSIVE ACTIVE
Investment Policy Statement Workbook for M & S Ford 1
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Risk Tolerance
Investment Style Low
Conservative Moderate Growth
High
Aggressive
Bias Types Primarily emotional Primarily cognitive Primarily cognitive Primarily
emotional
BITs Passive Preserver
(PP)
Friendly Follower
(FF)
Independent
Individualist (II)
Active
Accumulator (AA)
Emotional Biases Endowment
Loss Aversion
Status Quo
Regret Aversion
Regret Aversion Overconfidence and
self-attribution
Overconfidence
Self-control
Cognitive Biases Mental accounting
Anchoring and
adjustment
Availability
Hindsight
Framing
Conservatism
Availability
Confirmation
Representativeness
Illusion of control
Investment Policy Statement Workbook for M & S Ford 1
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◉Constraints
Constraint Description
Liquidity
Transaction costs There is only buying and selling costs for investment and fees
expenses for various financial services taken.
Price volatility
As the funds will be investment in less risky funds and also
allocated within the present assets allocation of ford, there would
be not much variability in the prices of those investments
Ongoing expenses The present and ongoing managerial and advisory services will be
continuing and impact the future annual return.
Emergency reserves For emergency purpose, $25,000 has been allocated for various
precautionary proposes
The role of the primary residence
Mr and Mrs Ford do not want to sell their residential house property as they want to stay
there with their family. They wish to help their son and grandchild.
Time Horizon
Mr Ford want to continue his job till he is the age of 65, it means he need to continue his
job for next 10 months
Taxes
Income Tax Your current super attracts a income tax but there will be no tax on
allocated pensions as both of you are above 60 years age
Capital Gains Tax Not applicable
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Wealth Transfer Tax Not applicable
Property Tax Not applicable
Tax Deferral Not applicable
Tax Avoidance Not applicable
Tax Reduction
A strategy to withdraw from Mr Ford’s Super and again contributing
it into the super, the taxable component within the super fund can
be reduced substantially
Wealth Transfer
Taxes Not applicable
Legal and Regulatory Environment
Trusts Not applicable
Gifting Not applicable
Jurisdiction Not applicable
Unique Circumstances
Social security benefits needs to be considered for Mr and Mrs Ford if the assets fall below
the threshold limit. Capital needs to be preserved to result in a less withdrawals from
allocated pension fund.
◉Proposed Asset Allocation
Investment Policy Statement Workbook for M & S Ford 1
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Strategy Australian
Shares
International
Shares Property
Australian
Fixed
interest
International
Fixed
Interest
Cash
30% Growth 20% 10% 5% 30% 25% 10%
◉Portfolio Monitoring and Review
This Investment Policy Statement is an important document. Please read it carefully and note anything
you wish to discuss further. Should any of the details of the advice be incorrect please let us know
immediately.
Once you have read, understood and are comfortable with all aspects of your Investment Policy
Statement, you will need to undertake the following steps to proceed with the recommendations.
Action plan
 Provide authorisations as required.
 Complete forms as required.
 Liaise with your accountant/tax agent to ensure the appropriate tax advice is provided. Although
we are familiar with the tax legislation, we are not tax agents, so appropriate advice should be
sought from others.
 Meet with your solicitor if necessary. If you do not already have an estate lawyer; we will be
happy to refer you.
Please be aware that we will not be able to proceed with the proposed recommendations until the
Authority to Proceed has been returned to our office.
Should you decide to proceed, we’d be happy to help you complete any paperwork required. This paperwork
will help form the basis of any future record keeping and reporting.
Staying ‘on target’
Wealth plans that are not regularly reviewed become irrelevant to your changing needs and circumstances.
This is easy to understand when you consider all economic and regulatory changes that occur. Add to this the
multiple new investment choices and changes to existing products and fund managers, you’ll realise ongoing
care services and regular annual strategy reviews are fundamental to the ongoing success of this
Investment Policy Statement.
We recommend that we review your situation annually, or more often where necessary, to ensure your
Investment Policy Statement goals will continue to be met.
Notes on portfolio monitoring and review
It is to be mentioned while conducting the review on a regular basis in every 6 months
Investment Policy Statement Workbook for M & S Ford 1
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Authority to proceed
I,[Insert client details],
 Have considered and understood the implications of the Investment Policy
Statementprepared by [student name].
 Understand the financial recommendations in it are based on information I provided which
accurately summarises my current situation, investments and financial objectives.
 Understand that it is important to advise of any change in personal circumstances as this will
assist in ensuring I receive appropriate advice.
 Am aware that assumptions have been made in preparing these recommendations and
understand the basic investment strategy behind them. I understand that the projections are not
guaranteed and are aware of the financial risks involved with the recommendations. I also
understand the recommended products may have legislative restrictions on access to the funds.
 Understand the financial recommendations provided by my adviser are for my sole use and
should not be implemented if a period of 30 days has elapsed since the date of this Investment
Policy Statementwithout first confirming their continuing appropriateness.
 I hereby authorise GU Advisers to proceed with the implementation of my Investment Policy
Statement - and the detailed financial recommendations contained in it. I also agree to make
the necessary payments when required to give effect to these recommendations and for the
fees and services detailed herein.
 I have chosen to vary the recommendations made by my adviser. I understand that in making
this decision I risk making a financial commitment to product(s) that may not be appropriate to
my needs and objectives. I request the following variations and I hereby authorise GU Pty Ltd to
proceed with the implementation. I also agree to make the necessary payments when required
to give effect to these recommendations and for the fees and services detailed herein.
………………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………………
………………………………………………………………………………………………………………………………
 I have decided NOT to proceed with any of the recommendations in this report. I understand
that in making this decision my needs and objectives may not be achieved.
[Client 1] Date
Accepted for and on behalf of GU Wealth Advisers Limited by:
[Student] Date
Notes:
Investment Policy Statement Workbook for M & S Ford 1
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