Principles of Financial Planning
Assessment 2
Alison and Wayne Hobbins have arranged an initial consultation with a financial planner (Jayne Thomas) to advise them on personal insurance cover in the event of death or disability, considering their current personal circumstances and financial position. Jayne is an authorised representative of AFS licensee, Oracle Wealth Pty Ltd. Alison is 37 and Wayne is 39. They are married with one daughter, Iris, aged 6, and do not plan on having any further children. Their daughter is at a local public school and not expected to go to a private school in the future. Alison and Wayne are both in good health, are nonsmokers, have no family history of hereditary diseases or early death, and have a family private health insurance policy. Alison and Wayne have a current Will and Power of Attorney.
Alison works part-time (25 hours per week) as a dental assistant, earning $40,000 per annum before tax plus 10% in employer paid superannuation guarantee contributions. Wayne works full-time (40 hours per week) as a Marketing Manager, earning $90,000 per annum before tax plus 10% in employer paid superannuation guarantee contributions. They receive a Family Tax Benefit from the Government. Alison and Wayne are risk averse and have relatively healthy savings of $40,000, earning 0.5% interest per annum in the bank, not offsetting their mortgage.
Alison and Wayne jointly own a house valued at $600,000, with a $400,000 mortgage. Their mortgage is principal and interest, fixed for three years at 1.9% per annum, with an annual repayment of $20,000. They also own other assets valued at $20,000. Alison has $30,000 in a balanced industry superannuation fund. Wayne has $120,000 in a balanced industry superannuation fund. Most of the money that Alison and Wayne earn goes towards paying down their mortgage and covering living expenses (which are approximately $50,000 a year). Alison and Wayne do not have any major expenditures planned. Currently, they do not contribute additionally into their respective superannuation funds, but they do pay an additional $500 per month into their mortgage.
Alison holds life and total and permanent disability (TPD) insurance through TAL Pty Ltd, with cover to the amount of $100,000 and a $300 annual premium paid from cash. Wayne holds life and TPD insurance through TAL Pty Ltd, with cover to the amount of $150,000 and a $550 annual premium paid from cash. He also has additional income protection insurance through TAL Pty Ltd, with cover to the amount of $5,500 per month and a $1,350 annual premium paid from cash.
Alison and Wayne are seeking a review of their personal insurance needs to ensure that their family has adequate financial support in the event of death, disability, or illness. Alison and Wayne both recognise the importance of having comprehensive insurance cover, especially while Iris is young. They are also looking for guidance on how they could use any personal cash flow surplus to reduce their mortgage. Because of the value that they place on personal insurance, they are willing to spend up to $8,000 of their cash flow per year on insurance premiums. Alison and Wayne’s personal insurance needs are outlined in greater detail in Table 1, along with Jayne’s (and her firm’s) commissions paid by the provider (i.e., financial institution, insurance company, etc.) for any financial products recommended and subsequently purchased by the clients in Table 2. Note: the firm charges clients a one-off $1,750 fee for advice offered in a limited scope Statement of Advice, and commission percentages paid by the provider are the same for each financial product and split 50/50 between Jayne and the firm. Aside from the one-off fee for advice and financial product commissions received, there are no other relationships that may create a conflict of interest or potentially influence the advice/financial products offered.
Table 1: Alison and Wayne’s personal insurance needs
Type of cover Cover required for Alison Cover required for Wayne
Death To ensure that:
• the mortgage on their home
($400,000) is cleared in full;
• $20,000 will be available to assist with funeral expenses; and
• her family can financially maintain their current lifestyle To ensure that:
• the mortgage on their home is
cleared in full;
• $20,000 will be available to assist with funeral expenses; and
• his family can financially maintain their current lifestyle
TPD To ensure that:
• the mortgage on their home can be
cleared in full;
• $100,000 will be available to assist with any related medical expenses; and
• their family can financially maintain their current lifestyle To ensure that:
• the mortgage on their home can be
cleared in full;
• $100,000 will be available to assist with any related medical expenses; and
• their family can financially maintain their current lifestyle
Trauma To ensure that:
• $150,000 will be available to assist with any related medical expenses; and
• $50,000 will be available to cover two years’ worth of mortgage payments; and
• Wayne’s income is replaced for one year so he has the option to take some time away from work to support Alison and Iris. To ensure that:
• $150,000 will be available to assist with any related medical expenses; and
• $50,000 will be available to cover two years’ worth of mortgage
payments
Note: Alison’s income is not required to be replaced if she takes time away from work to support Wayne.
Income
Protection
Replacement of Alison’s income is not important to the family To ensure that as much of Wayne’s salary as possible is replaced if he is unable to work due to illness or injury
Table 2: Financial product commission structure (%)
Jayne’s Commissions Firm’s Commissions Total Commissions
First year - 33% First year - 33% First year - 66%
Following years - 11% Following years - 11% Following years - 22%
Based on your discussions with Alison and Wayne, the following goals have been established in terms of meeting their personal insurance cover needs:
1. To protect our family in the event of our death (joint) – to make sure that the mortgage is covered, our funerals are paid for and our current quality of life can be maintained
2. To provide income protection for Wayne if he is off work temporarily as our household’s livelihood depends on this
3. To protect our family if one of us were unable to work ever again
4. To seek protection from traumatic events, so that our family is well protected if something untoward were to happen to us in terms of our health (i.e., heart attack, cancer, stroke, etc).
Task
Assume you are the financial planner (Jayne Thomas) in this hypothetical scenario. Based on the information provided above, you are tasked with producing a written limited scope statement of advice in relation to the personal insurance required by the clients (Alison and Wayne).
Format, Structure & Submission
Using the template provided, Assessment 2 is to be submitted as a written limited scope statement of advice and should be no more than 2,000 words in length. Pre-populated sections in the template, title page, table of contents, references, reference list, and tables do not count towards the word limit. You may add additional tables and an appendix, where necessary, noting that they also do not count towards the limit. The limited scope statement of advice must include a reference list that includes all sources of information used. Both the reference list and in-text referencing should be consistent with the Harvard Referencing System (see the SCU library online for more details on this).
You will submit your assessment as a Word document via the Turnitin submission link. Do not include a SCU submission coversheet. You can resubmit your document as many times as you like prior to the submission deadline. You are therefore advised to examine your Turnitin Originality Report for this assessment to make sure your similarity score is low, with very little highlighted text aside from technical phrases and quoted passages that are appropriately referenced.
Marking Criteria and Performance Level Guides
This assessment will be marked using a rubric available via the Turnitin submission link. You are advised to read the rubric carefully so you know the criteria and performance levels upon which your work will be assessed. You can view/access the rubric at any time by entering the Turnitin submission link and clicking on the rubric icon.