Financial Planning

Case study background

James Macready

You work for the financial planning company Frontiers Pty Ltd, which is a licensed dealer in securities and a registered life insurance broker.

Your company specialises in investment advice and insurance advice but does not provide real estate evaluations and advice, income tax preparation, superannuation fund accounting or administration or legal document (such as Wills or trusts) preparation.

You have organised a meeting with a new client, James Macready, who is seeking some advice regarding his current investment strategy.

James has been actively investing in shares since he was young. He enjoys researching a company before deciding on making an investment into their shares. He has purchased shares that he considered good value at the time he bought them or for their high dividend yield. He has not
sold any shares in the last 12 months. In the past, he has used an online trading account to buy
and sell shares.

Detailed below are James’s current details, including his current share portfolio:

Personal information

Name James Macready
Salutation Mr
Date of birth 4 March 1978
Status Single
Home address 30/1 Ramu Close, Sylvania Waters
Health Good
Smoker No
Occupation Operations manager
Employer Macready Parking
Start date 1992
Retirement age 60
Dependants/family relationships Parents: Mable and Jock Macready

Professional relationships

Solicitor None
Duration of relationship  
Quality of relationship  


Accountant None: does online tax returns
Duration of relationship  
Quality of relationship  

Annual income details





Dividends (fully franked)



Salary is excluding superannuation guarantee (SG) contributions, which are currently paid at
9% per annum.

James is happy in his current role; he hopes to get promoted in the next couple of years but is not planning to leave the family owned business.

Annual expenditure



General living expenses


Accountant’s fees




Holidays (annually)


Income protection


Assets and investments

Principal residence


Apartment that he owns outright; bought with help from parents.
Motor vehicle


2011 Subaru Liberty that is unlikely to need replacing in the next 10 years.
Online cash account


Currently earning 4.0% per annum. These funds are able to be used for the
investment strategy.
Everyday bank account


Daily account varies up and down; no real interest earned.


Invested in the high-growth option (5% cash; 5% international fixed interest; 20% property; 40% Australian equities; 30% international equities). Eligible start date is 01/01/1997
Share portfolio


(Approximate.) Earns approximately 4.0% per annum in fully franked dividends

Current share portfolio

Number of shares


ASX code

Average purchase price
321 BHP Billiton Ltd BHP


2440 Boral Ltd BLD


305 Commonwealth Bank CBA


565 CSL Limited CSL


1100 Lend Lease Corp LLC


1220 National Australia Bank NAB


242 Rio Tinto Ltd RIO


2440 Iluka Resources Limited ILU


5010 Telstra Corp TLS


1220 Westfield Group WDC


Investment objectives and attitude

James considers himself to be very knowledgeable about market performance and how volatility affects investment performance. He has been comfortable investing in shares and does not consider them a risky investment.

James expects to generate returns well above inflation from his investments and does not need any additional income from the investments.

He is not interested in saving for a short-term goal, and instead wants to generate long-term, tax-effective wealth for his future. As such, he believes that he is well placed to ride out any volatility in the market and would never cash in an investment as long as the companies he invested in are solid.

James mentions to you that he particularly likes the tax credit he receives from his dividends.

Estate planning

James has a standard Will, which states that when he dies everything will go to his parents. He has nominated them as joint executors.

James’s Will was last reviewed three (3) years ago.

James has no power of attorney (POA) of any kind.

James has advised that he is satisfied in this area, as he has a Will in place. He has advised that he does not require specific information or assistance regarding his estate planning circumstances.

Insurance and risk management

James is happy to have a review of his cover but feels that it is adequate and he is unlikely to need anything more. He is confident that his employer’s life and total and permanent disablement (TPD) cover of $500,000 is adequate for him. He has a trauma policy for $200,000 and a level premium income protection policy. The income protection covers him for 75% of his salary plus superannuation up to age 65, with a 90-day waiting period.

He is also confident that his general insurances are the correct amounts required. James has private health insurance in place and takes the 30% rebate upfront. He has home and contents insurance and a comprehensive car insurance policy. On this basis, he has not provided any further details of his insurance situation.

Planning issues, goals and objectives

•    James is seeking to maximise his savings and is prepared to take an aggressive approach to achieve this. He has built up funds in a cash account that he would like to put to better use but is not sure if he should just buy more shares or do something different.

•    James would like a review of his current share portfolio as he is not sure that it is appropriately diversified. He thinks he may be underweight in resources, given the current mining boom.

•    James is interested in having some exposure to international equities outside his super but is not convinced that he should do this directly, and he would consider a managed investment.

–   James is particularly averse to borrowing. He has only ever borrowed for his residential property in the past. He has had a number of friends who geared heavily in the past and then had trouble servicing the loans after they lost their jobs. He has clearly stated he does not want to consider margin lending.

•    James wants to continue to take annual holidays at a cost of approximately $15,000 per year.

•    James cannot foresee any major expenses coming up in the next five (5) years or so and believes that his current expenses are realistic and unlikely to change. His general living expenses include a buffer for home maintenance and repairs.

•    James has not considered retirement as he thinks it is too far away, but he would like to have the option to retire as early as possible.

•    He is currently more interested in investments outside of super because he wants to retain control and have access to the funds if needed. He is confident that it is unlikely he would dip into his investments for at least seven (7) to 10 years unless something totally unexpected happened.

•    James is confident that the current asset allocation in his super is appropriate, and he is happy with his choice of fund. He does not wish to change funds because he has been happy with its relative performance and the good-value insurance. The fund has a wide range of investment options and James chose to invest in the high-growth option. He is not really interested in making additional contributions to superannuation at this stage.

As his financial adviser, your task is to prepare a Statement of Advice (SOA) that will include strategies to meet James’s goals.

Part 3: The assignment

Section 1: Establish relationship with client and identify client’s objectives, needs and financial situation

Part A

It is a legal requirement that you give your client a Financial Services Guide (FSG).

a . Outline the timing requirements for providing an FSG.

b.  Identify the two (2) ways that an FSG can be presented.

c.  Identify six (6) pieces of information that must be included in an FSG. (300 words)

Answer here

Assessor feedback:


Part B

Provide a series of questions that you could use to find out more about James’s share portfolio and his goals and attitudes relating to the portfolio. You must include at least one (1) open-ended, one (1) reflective and one (1) closed question. (400 words)

Answer here

Assessor feedback:


Part C

Before giving advice to a client, it is essential to gather all the relevant information. What techniques will you use to gather sufficient information about James to determine his needs and objectives?
How do you make certain that he has provided you with sufficient information to formulate advice? (200 words)

Answer here

Assessor feedback:


Part D

James has told you that he wants to maximise his savings. What are two (2) questions that you would ask James to help you to quantify this goal? Include responses from James that will assist you to formulate an appropriate strategy for him. (250 words)

Answer here

Assessor feedback:


Section 2: Analyse client objectives, needs, financial situation and risk profile to develop appropriate strategies and solutions

Part A

Complete the cash flow analysis for James based on the information in the case study. Identify any gaps in the data collection and include any assumptions that you have had to make as a consequence. (150 words)

Income, expenditure and net worth

Tax calculation

Client 1 Client 2


Income from employment
Salary Answer here   Answer here
Salary sacrifice Answer here   (state % if applicable)
Salary after salary sacrifice Answer here   Answer here
Other income
Bank account interest Answer here   (state % return if applicable)
Interest from other investments Answer here   (state % return if applicable)
Share dividends Answer here   (state % return if applicable
Imputation credits Answer here   (state % return if applicable
Other income liable for tax (e.g. rental income) Answer here   Answer here
Assessable capital gains Answer here   Answer here
Total assessable income Answer here   Answer here
Deductable expenses (e.g. rental repairs) Answer here   Answer here
Taxable income Answer here   Answer here
Income tax on taxable income Answer here   (state tax rates and year applied)
less tax offsets (e.g. LITO/SAPTO) Answer here   Answer here
plus Medicare levy Answer here   Answer here
plus Medicare levy surcharge Answer here   Answer here
less Imputation credits Answer here   Answer here
less refundable tax offsets Answer here   Answer here
Net tax payable Answer here   Answer here



Family cash flow

Client 1 Client 2


Cash flow calculation:

Salary less any salary sacrificed amount Answer here   Answer here
Non-taxable income
(e.g. income from a superannuation pension for a person aged over 60, Family tax benefits, etc)
Answer here   Answer here
Interest income Answer here   Answer here
Dividends received (excluding franking credits) Answer here   Answer here
Other income Answer here   Answer here
Total income received before tax Answer here   Answer here
Investment expenses Answer here   Answer here
Living expenses Answer here   Answer here
Other expenses Answer here   Answer here
Total expenses Answer here   Answer here
Total income received before tax less expenses Answer here   Answer here
Net tax payable from tax table above Answer here   Answer here
Total net cash flow Answer here   Answer here

Part B

Identify any issues that would need to be followed up with James regarding his share portfolio in order for you to be able to make recommendations. (250 words)

Answer here

Assessor feedback:


Part C

James completed the risk profile below at his meeting with you. Based on the information he has provided, determine what risk profile you believe James fits into and give reasons why you believe this is the correct profile for him. (200 words)

Answer here

Assessor feedback:


Risk profile

Investment attitude details

Please answer the following questions regarding your attitude to financial issues.
Are you concerned about the amount of tax that you are paying? Why? Yes/No
I do not wish to borrow for investment purposes.
How important is liquidity (i.e. funds available) to you? Why? Very/Moderately/Not
I do not need the funds now but would not want them locked up until retirement.
If you had funds available for investing, how would you choose to invest them? Why?
I want to invest in shares and international shares.
Are there certain sorts of investment that you wish to avoid? Which ones? Yes/No
I would listen to any recommendation and evaluate it.


Determining your investor risk profile

This investor risk profile questionnaire has been designed to help you understand the type of investor you are, so that with the help of your planner, you can choose the investments that best match your financial objectives.

Which of the following best describes your current stage of life?

Single with few financial commitments. You are keen to accumulate wealth for the future. Some funds must be kept available for enjoyment, such as cars, clothes, travel and entertainment.


A couple without children. You may be preparing for the future by establishing and furnishing a home. There are a lot of things you need to buy. You are probably better off financially now than you may be in the future.


Young family. This is the peak home purchasing stage. You have a mortgage and a very small amount of savings. Probably dissatisfied with your financial position and the amount of money saved.


Mature family. You are in your peak earning years and have got the mortgage under control. Many partners also work and any children are growing up and have either left home or require less supervision. You are starting to think about retirement, although it may be many years away.


Preparing for retirement. You probably own your own home and have few financial commitments, however, you want to ensure that you can afford a comfortable retirement. Interested in travel, recreation and self-education.


Retired. No longer working you must rely on existing funds and investments to maintain your lifestyle. You may be receiving the pension and are keen to enjoy life and maintain your health.


What return do you reasonably expect to achieve from your investments?

A return without losing any capital.


1–4% p.a.


5–7% p.a.


8–10% p.a.


Over 10% p.a.


If you did not need your capital for more than 10 years, for how long would you be prepared to see your investment performing below your expectations before you cashed it in?

You would cash it in if there were any loss in value


Less than 1 year


Up to 3 years


Up to 5 years


Up to 7 years


Up to 10 years


How familiar are you with investment markets?
Very little understanding or interest


Not very familiar.


Have had enough experience to understand the importance of diversification


Understand that markets may fluctuate and that different market sectors offer different income, growth and taxation characteristics


Experienced with all investment sectors and understand the various factors that may influence performance


If you can only get greater tax efficiency from more volatile investments, which balance would you be most
comfortable with?
Preferably guaranteed returns, before tax savings


Stable, reliable returns, minimal tax savings


Some variability in returns, some tax savings


Moderate variability in returns, reasonable tax savings


Unstable, but potentially higher returns, maximising tax savings


Six months after placing your investment you discover that your portfolio has decreased in value by 20%. What would be your reaction?

Horror. Security of capital is critical and you did not intend to take risks


You would cut your losses and transfer your money into more secure investment sectors


You would be concerned, but would wait to see if the investments improve


This was a calculated risk and you would leave the investments in place, expecting performance to improve


You would invest more funds to lower your average investment price, expecting future growth


Which of the following best describes your purpose for investing?

You want to invest for longer than five years, probably to the age of 55–60. You are mainly investing for growth to accumulate long-term wealth


You are not nearing retirement, have surplus funds to invest and you are aiming to accumulate
long-term wealth


You have a lump sum, e.g. an inheritance or an eligible termination payment from your employer, and you are uncertain about what secure investment alternatives are available


You are nearing retirement and you are investing to ensure that you have sufficient funds available to
enjoy retirement


You have some specific objectives within the next five years for which you want to save enough money


You want a regular income and/or totally protect the value of your savings


Investor profile total points




0–50                        Defensive
You are a conservative investor. Risk must be very low and you are prepared to accept lower returns to protect capital. The negative effects of tax and inflation will not concern you, provided that your initial investment is protected
51–130                    Moderate
You are a cautious investor seeking better than basic returns, but risk must be low. Typically an older investor seeking to protect the wealth that you have accumulated, you may be prepared to consider less aggressive growth investments
131–210                  Balanced
You are a prudent investor who wants a balanced portfolio to work towards medium to long-term financial goals. You require
an investment strategy that will cope with the effects of tax and inflation. Calculated risks will be acceptable to you to achieve
good returns
211–300                  Growth
You are an assertive investor, probably earning sufficient income to invest most funds for capital growth. Prepared to accept higher volatility and moderate risks, your main concern is to accumulate assets over the medium to long term. You require a balanced portfolio, but more aggressive investment strategies may be included
301–350                  High growth
You are an aggressive investor prepared to compromise portfolio balance to pursue potentially greater long-term returns.
Your investment choices are diverse, but carry with them a higher level of risk. Security of capital is secondary to the potential
for wealth accumulation

Part D

Assume that James will retain his share portfolio. Explain how you will achieve adequate diversification for James, in line with his risk profile, through the use of a managed fund or funds to complement this investment. Include diversification across asset classes, sectors, managers and countries. (500 words)

Answer here

Assessor feedback:


Part E

Develop appropriate strategies for James and provide a detailed explanation as to why you consider them to be appropriate. At this stage, you should not cover product recommendations or specific buy or sell recommendations. You should include any additional annual contributions to be made to his portfolio. (200 words)

Answer here

Assessor feedback:


Part F

Outline any stock purchases you will recommend to James and the buy and sell strategies for his current portfolio. Consider the sectors in which he is currently invested. Explain reasons for any recommendations. (200 words)

Answer here

Assessor feedback:


Part G

Provide a summary of the research that you have conducted to support one (1) share purchase recommendation you will make for James. (150 words)

Answer here

Assessor feedback:


Part H

You must now prepare an SOA based on your recommendations, which will be used to record this advice (including amendments, if any) for James.

Remember that the SOA must be of a standard that is compliant and would be suitable to
present to a client.

Important instructions

•    Use the SOA template provided.

•    SOA preparation software: The use of financial planning software and dealer templates to prepare your Statement of Advice is not permitted. Submissions that exhibit excessive reliance on SOA templates may be considered a case of plagiarism or collusion and may not be considered to be a reasonable attempt at the assessment.

•    Assumptions: You must list the assumptions used in your SOA in your assignment submission. These will generally include:

–   any assumptions you have made regarding missing background information on the client

–   any assumptions you have used to calculate future income from your recommended investments

–   any assumptions used for fees relating to the products you have recommended.

•    Strategy advice: You must provide basic strategy recommendations in the following areas:

–   superannuation

–   insurance

–   estate planning.

You must also provide full strategy recommendations in the following area:

–   personal investment.

Use the information on each of these areas given in the subject notes to provide reasons for each of the strategies recommended.

•    Product advice: Product recommendations for the insurance, superannuation and estate planning recommendations are not required. However, you should recommend an appropriate investment product to implement the advice you have provided. Please do not use the products from the case study SOA. You are required to source, or develop, your own fund details. It is not necessary to include Product Disclosure Statements in your assignment for any products you may recommend
in your SOA.

•    Cash flow projections: You must include detailed cash flow tables using Appendices 1 and 2 as templates showing James’s situation before and after your recommendations, respectively. These should be included as Appendices 1 and 2 to your SOA.

•    Recommendations: You should include cash flow projections for personal investment recommendations as Appendix 3 to your SOA. Use a Microsoft Excel spreadsheet to calculate your projections and complete the included template. Provide projections up to when James turns 55 years of age to show that your strategy will meet his early retirement goal.

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