Why is it so hard to find examples SoAs?

Its very hard to find examples Statements of Advice (SoA) on the internet. Why so? If examples SoAs were easy to find, a DIY investor could review the strategies of others, and craft their own game-plan.

Sure, ASIC has produced RG90 - Example Statement of Advice: Scaled advice for a new client, but that only covers insurance, and the key thing about direct ‘advice’ is that it almost always very specific to the client. Advice, like apparel, has to be appropriate, and this depends on who is wearing it for what occasion. A 20 year old in a night club is going to dress differently to a retiree on the golf course. Likewise a retiree doesn’t want to wear the risk that would suit a 20 year old.

Secrecy is another barrier. SoAs are a private instructions directly to a client. Obviously clients do not wants these published on the open internet.

So, SoAs are expensive, secret, and thus hard to find. What can we do?

I have decided to publish the SoAs I have prepared as part of my Masters of Financial Planning at Deakin University. These are slightly modified versions of the assignments I have submitted. None of these are commercial documents. The scenarios are entirely fictional.

There are differences between this work and IRL SoAs. Real SoAs are usually at least twice as long. Much of this is to comply with some form of legal risk, but doesn’t necessary add value to the client. Also, real SoAs will also relegate “about the client” section to the back of the SoA as an appendix. In my assignments they are up front as they establish the case we are are trying to solve.

DISCLAIMER: These have been provided for educational purposes only and are obviously NOT advice aimed at any person to you specifically. All situations are fabricated are not based on real clients.

Estate Planning, Elderly Client

The SoA following was submitted for MAA700 – Estates Planning and Risk Management Strategies.

Issues:

• Estate planning for elderly client

• Elder abuse risks

• Testamentary Trusts / Disability trusts

• Life interests in real estate

• Online execution of wills

• Powers of Attorney

Scenario:

On 2 March 2021, existing clients Jenny and Steven Smith (a married couple) meet with you in your office. They bring with them Steven's mother Betty, who while elderly (85 years old), still seems to have her faculties although she seems physically very frail. Betty lives at 5 Grace Avenue, Boronia 3155. Jenny and Steven inform you that Betty would like to discuss her estate planning issues with you. Although Betty has two other children Michael (aged 60) and Bill (aged 58), Jenny (aged 51) and Steven (aged 50) have always been very close to Steven's mother and to that end travel across Melbourne weekly to see her and make sure she is alright.

Betty has few assets but owns a home valued at $880,000 and a small bank account with $70,000 as well as a small car worth around $10,000. Steven's brother Bill lives at the back of Betty's house and has not worked for many years having had cancer some 10 years ago and has a range of medical issues. Bill receives a disability support pension but regularly asks his brothers and mother for money. He pays no rent and sees his mother once a day when he comes into her kitchen to make breakfast. A few years ago Bill was arrested for drunk driving and was recently sacked from his part time position with a charity for taking money. Steven and Michael are concerned about Bill’s behaviour and believe that he has been taking money from Betty for years. Further, they are worried as he refers to his mother’s house as ‘his’ house.

Michael is married with adult children and lives and works in the countryside about two hours from his mother's house and so sees her as much as he can usually every few weeks.

Betty had a Will prepared when her husband was alive, but he passed some 25 years prior and she has never had Powers Of Attorney and has never worked since she became married in the 1950s. In conversation with Betty, she informs you that she would like advice regarding her Will and estate and that she would like Jenny and Steven to make decisions regarding her welfare when she is unable to. She does stress that she would like to ensure Bill continues to live in her home after she passes as long as he is alive. She also notes that she believes the most important thing is for her children get an equal share of her estate.

As they were leaving Jenny and Steven express their concern that Bill has said that no matter what happens that he will contest his mother’s Will to get her entire estate because he thinks he deserves it as he has been living with Betty for several years.

Betty is concerned about Covid-19 and notes on leaving that she does not want to come into your office again but has heard from a friend that she can simply create an ‘electronic Will’ or give you the authority to sign a Will and other legal documents on her behalf

Estate Planning & Crypto, Younger Client

This scenario directly follows on from Betty Smith above.

Issues:

• Estate planning for middle aged client

• Protection of minors

• Crypto in estates

After the meeting with Betty, Jenny and Steven come to see you regarding their estate planning needs. Jenny was previously married and during that time had a Will leaving all her assets to directed to her ex-husband in the event of her death. Her ex-husband was also her sole attorney in her enduring financial/legal and medical POAs.

Jenny and Steven both made a Will together 7 years ago (they have been together for 8 years) leaving their estate to each other in the event of one of them passing. They have one son Jeff who is 6 years old.

They have a residence in Brighton worth $1,300,000 with no mortgage, two cars and superannuation worth$480,000 and $790,000 respectively in the same industry superannuation fund and a small bank account with a few thousand dollars in it. Life insurance is the minimum included level within their super funds and worth only a few thousand dollars. When they saw you previously you advised them to make additional contributions to superannuation which they have been doing as well as consolidate their credit card debt which they have also done. Further to the above assets, Jenny has recently invested $110,000 in bitcoin after receiving a small inheritance from her maiden aunt.

Issues:

• Personal Insurance needs analysis

• Superannuation

If you are looking for an insurance example you can simply look to the ASIC’ RG90 Example SoA. Nevertheless, here is the scenario:

Scenario

You are an authorised representative of PU Insurance Brokers Pty Ltd, the holder of an AFS licence. You are authorised to advise on general and life insurance products.

Noah and Ava Smith have come to you for some advice in relation to their personal insurance needs. They do not understand what the various types of personal insurances are not what they cover although they believe they need life insurance.

Noah is 48 (DOB 1/6/1973) and Ava is 42 (DOB 12/10/1978) have 2 children, one in year 6 (Olivia), and the other in year 8 (Oliver), at a local catholic school. They would like both children to continue their education in their school and complete their education in local co-educational catholic college. Noah would like to retire at 65 and Ava at 60.

Noah and Ava are both in excellent health and they have top private hospital and ancillary cover for the whole family. Ava is a smoker, while Noah is not.

Noah and Ava have $50,000 in the bank and they jointly own a house valued at $1,202,000 with a $501,600 mortgage. Noah has a small personal loan owing on van of $12,000 he sometimes uses for the business. They own a family car and have no other loans.

Noah operates a café in partnership with his best friend Jin. Noah’s income before tax is $87,000. When they established the café they created a SMSF with he and Jin both as sole members. Noah currently has $154,000 in the SMSF and is making minimum statutory contributions to the fund. Noah has no personal insurances.

Ava works in the health care sector as an administration officer in an aged care home and has automatic default Life, TPD and income protection cover with Industry superannuation fund, NGS Super. She earns $130,000 before tax per annum and currently has $245,000 in Superannuation. Ava knows that her membership to the fund provides automatic default personal insurance and that she has only the default level of cover. She tells you she is unsure of what specifically she is covered for, how much it costs and how it is paid for.

Most of the money they earn goes to paying the mortgage and covering living expenses and school fees, with about $25,000 of annual estimated surplus cash flow out of which they pay for holidays and treats for the family.

They tell you that if either of them die or become incapacitated the remaining spouse would need assistance from a nanny to look after the children due to their work commitments up to the age when the oldest turns 16 as their parents are quite old. Ava is an only child and has an elderly mother who has just moved into aged care and suffering dementia although she still has her house worth $2,000,000 in Brighton. Noah has an elderly father (90 years old) but he has no real assets apart from the unit he lives in (valued at approximately $700,000).

Noah and Ava tell you that they want to make some arrangements to protect themselves and their family if either of them should die or become seriously ill or disabled. They both understand the importance of having insurance cover, especially as they have young children. Because of the value that they place on insurance, they are willing to spend up to $20,000 of their personal cash flow per year for insurance premiums. In addition, Noah would like some general advice on succession planning for his business and how insurance could fund succession if either he or Jin become disabled or die. He is particularly concerned about the tax implications of funding business succession.

Other information:

• CPI rate is 2% pa.

• Noah’s life expectancy is estimated at age 83 while Ava’s is 85.

• If either were injured you can assume that their out of pocket medical expenses would amount to $30,000.

• You can also assume living expenses will decline 20 % if one partner dies.

• Noah has 1 week of outstanding annual leave with his employer and 10 days of sick leave which would cover him if he were unable to work during that period. Ava has 4 weeks annual leave outstanding and 5 days sick leave as well as a month of long service leave entitlement.

• They live at 69 Gotham Avenue, Kew VIC 3101.

Insurance & Business Succession Planning

Bob and Norma Rose are a married couple aged in their 50’s and have come to you for some financial advice around wealth succession and other risks that they face. While they are concerned about accumulating sufficient wealth for their retirement and living a relatively comfortable life, they would like to provide for their three children Steven (16), Bret (14) and Daisy (12) when they pass away. During your meeting with them they provide the following details.

The Rose family live in Boho South, Victoria . They have lived at this address for the last 12 years when they bought it cheaply after rural land prices fell because of the Black Saturday fires in 2009. They have added on to their house three times and love living there, being surrounded by a national park. They have had the existing level of insurance cover since they first built the house and have not reviewed it since.

The children attend a catholic co-educational p-12 college in a close by town about 30 minutes from their home.

You can assume that funeral and final medical expenses would be $30,000. Assume that if either Norma or Bob were seriously injured, out-of-pocket medical expenses would amount to $25,000. Bob and Norma do not have private medical insurance, nor have they considered or made any legal provision regarding medical treatment decisions.

Bob’s job as a truck driver means he is always on the road. He is overweight and is a smoker. His father passed away from a stroke at 53.

• Bob and Norma intend to retire at 65, at which time they expect to be able to live off the income

• derived from Bob selling his share of the transport business and their accumulated savings.

• Assume a CPI rate of 2.5 per cent p.a.

• Norma and Bob’s life expectancy is estimated at 85 years and 83 years, respectively.

• Bob works as a truck driver in a business he established 20 years ago with his mate Ken. They have agreed in the event that one of them were to leave the business the other would buy the business in its entirety and pay the other an amount equal to twice the cumulative annual profit before tax. Neither Bob or Ken at this stage know how they will fund any such payout other than by selling personal assets.

• Included in the contents list are several items of antique furniture items that were passed to Norma from her grandmother and have a current value of $47,000.

• The couple have a Houseboat which is moored at Echuca. They have mooring charges and maintenance charges which comprise the bulk of their holiday and entertainment expenses.

• Living expenses of approximately $800 per month per each child would end when they cease to be dependent, which can be assumed at age 24 for each child. You can assume that in case of one of the couple dying prematurely, the couple’s living expenses would fall by 20 per cent.

• Bob does not have life insurance or disability insurance at all and Norma is worried about what would happen to the family should Bob pass.

• Norma’s employer, the local butcher shop currently makes the minimum statutory contributions to her superannuation.

• Norma has default level insurance cover with her superannuation fund, REST.

• The couple has a Third-Party policies on their cars and marine insurance on the Houseboat.

• Norma’s mother lives nearby and is a fit 75-year-old and provides support to Norma in looking after the children.

Super & Retirement Income Planning

Scott and Helen have come to you for some advice about their superannuation. It is late February 2021.  Scott recently turned 42 years of age. He is an engineer and works as a project manager for a large construction company based in Adelaide. The Enterprise Bargaining Agreement (EBA) at his work mandates that his employer contributes 10% of his salary to superannuation. His salary package is $113,600 plus the 10% EBA superannuation.

 Scott has an accumulation style superannuation account with Perpetual. The account is a Perpetual Select Super Plan – Diversified Investment option. He recently found some correspondence from Perpetual which showed the nominal returns after fees and taxes of the fund as follows: His expected super balance at 30 June 2021 is $160,000. He has $100,000 of life and TPD insurance held within his super fund. Over the past few years Scott has salary sacrificed $5,000 each financial year into his fund. Scott plans to continue making these contributions in the future. He also wants to make sure that the value of these contributions is not eroded by inflation over time so he plans to increase the contribution each year to compensate for inflation. Scott wonders whether he is in the right fund and whether he has made the right investment and contribution decisions.

Helen is aged 41 and runs a fashion clothing shop as a sole trader. Helen’s net before tax is expected to be $52,000 for the 2020/21 financial year. Helen does not regularly pay any concessional contributions into her super fund and hasn’t actually contributed any concessional contributions for the past 6 years. However, she has been making an annual non-concessional contribution of $3,000 p.a. which she intends to increase in line with inflation.

Helen’s super fund is with the REST Industry Super Fund and invested in the Capital Stable Investment Option. Her super account balance at 30 June 2021 is expected to be $81,000. Helen also has $80,000 of life and TPD insurance held within her superannuation fund.

Average annualised nominal returns over 10 years were 5.37%.

The couple realise they need their superannuation accounts to grow as much as possible and are prepared to tolerate some risk. However, they are still concerned with the state of global markets and economies and therefore do not want to take on excessive risk.

 The couple’s financial details are as follows: Retirement seems a long way off, however the couple has decided that it is better to have a plan and to revise that plan when necessary rather than having no plan at all. When you ask them what amount of income they feel they would require in retirement, they feel that a “real” income of $60,000 p.a. would provide them with a comfortable living.

Assumptions:

• Rate of inflation is 2% p.a. Income and expenses can be assumed to increase by the CPI. Scott’s shares can be assumed to increase by 4% p.a. Donations are expected to remain unchanged for the next few years.

• All modelling would be done in financial years commencing 01/07/2021.

• Funds invested in retirement are expected to generate a positive return of 4.5% p.a. after fees have been deducted.

• The couple wish to retain a minimum $5,000 cash surplus at all times

• For ease of calculation, all superannuation contributions are made in June of each year and therefore do not attract earnings in the year in which they are made.

• Given recent growth, Scott would consider selling up to 50% of his shares in RIO if recommended

• The couple are open to a change in their superannuation funds if you deem it appropriate.

The couple’s goals consist of the following:

• Maximise wealth for retirement

• Maximise wealth within the superannuation environment

• Have a relatively simple and easy investment portfolio to manage

• Minimise taxation

• The couple wish to both retie when Scott reaches 62 years of age

• Put aside 25,000 for some home renovations to be undertaken during the 2021/22 financial year.

 Scott and Helen are seeking to build wealth within superannuation. They are happy for you to limit the scope of your advice to strategies that relate to their superannuation position.

Wealth Building

Overview: Younger single client with good PAYG income attempting to build wealth.

Client Scenario: MEETING – End of June 2021

Maurice Scott is 35 years old and wishes to build wealth between now and when he retires within his superannuation fund – retirement age for him is expected to be 65. He will require a real income of

$90,000 per annum in present value dollars from his superannuation fund when he retire as he wants to travel extensively. He wants an investment plan that is easy to manage while ensuring that his overall investments are well proportioned based on his risk profile and of a suitable quality. He also wants to minimise his tax liability as much as possible. Finally, he also wishes to reduce his level of debt as quickly as possible.

Maurice Scott advises that he has a reasonably good knowledge of financial markets and enjoys spending time managing his investments. However, he is still learning and is inexperienced. He is prepared to accept some volatility in order to chase a reasonable rate of return. However, he realises that his current investment allocation and plan is unlikely to provide him with an appropriate nest-egg in retirement. Maurice Scott has completed the following table to assist you in identifying him risk profile.

Maurice Scott bought a new house about two months ago in the south eastern suburbs of Melbourne. He settled on the property on 30th June 2021 and moved in on 1st July 2021. The house costed $ 1,150,000. He had to borrow $ 660,000. His mortgage broker arranged a rate of 2.64% fixed- rate loan of $400,000 for the first five years and a $260,000 variable rate loan for the balance which has a current interest rate of 2.86%. Both loans are 20-year loans. Repayments are fortnightly. He has estimated his home insurance, repairs, council rates to be $7,568 for the first year.

 Maurice also owns a small unit in Caulfield that he lived in up until 2 years ago, it costed him $365,000 back in 2016 and is now valued at $540,000. He has a loan on the property of $292,000 which is an interest-only loan with an interest rate of 3.19% fixed for the next 5 years. The rental return from the property is $415 per week and this covers both the interest on the loan and the other “cash” costs associated with the property like insurance, council and water rates, etc. so he views it as a no-cost investment. He does however generate a tax loss on the investment due to depreciation allowances of$4,000 per year which generates some tax savings for him.

He works as a Sales Manager for a transport logistics company. His salary package is $ 175,200 and this includes the standard superannuation guarantee contribution. In the last five years his salary has gone up by about 3% per annum and he think this rate of increase is likely to continue for the foreseeable future.

He has about $ 146,500 in superannuation. The amount is invested in the TWU Super Balanced (My Super) option with a non-binding death benefit nomination in place. The fund is expected to generate a net return of 4.5% p.a. (net of fees and taxes) for the foreseeable future. It is noted that superannuation earnings should be calculated based on the opening superannuation account balance.

Maurice Scott inherited 500 ASX: CSL shares back in 2010 when his grandfather passed away. Back then the CSL shares were valued at $28 per share. He sold 100 of the CSL shares at $270.00 each on 1 July 2020 to free up some cash which he ultimately used to assist with the purchase of the house. He also inherited 1,000 ASX: Wesfarmers shares valued at $21.60 each in 2010 which he retains.

Maurice Scott has a car worth about $ 60,000. He has $ 55,000 in a bank term deposit which was left to him by his deceased grandfather and which pays 0.35% interest and a bank transaction account which has $ 38,160 and which pays zero percent interest.

Maurice Scott does not have health insurance. He asserts that he is young and healthy and does not need health cover.

The following is a list of Maurice Scott known living expenses for 2020/21:

Rent (prior to moving into new house) $32,100; electricity, gas and water $4,576; car running costs/petrol/maintenance $9,080 and for registration and insurance $2,080; food groceries $7,439 and alcohol $1,620; chemist/medical/dental/optical $1,815; travel $8,350; entertainment/dining out $6,462; miscellaneous $4,512.

Maurice Scott has a Bendigo Bank Platinum Awards Credit Card with about $ 21,000 owing. He never pays it off – with the interest, him payments and new purchases each month the balance owing stays fairly constant, nevertheless the balance increases each year by about the rate of inflation.

It is assumed that the inflation rate is 1.4% per annum and that the current tax rates and levels of dividend income remain unchanged for the next five years. Expenses will rise by inflation, unless there are contracts in place, which will affect these payments.

Pension planning

Scenario: Jen and James have come to you for some advice about their superannuation and upcoming retirement. Jen is aged 59 (Born 13 March 1962) and James is turning 65 in June (Born 29 April 1956). They have 2 adult children – Jessica is 28 and married and living independently whereas Jim is aged 25 and still living at home and unlikely to move out in the near future. The couple’s address is 25 Jones Street, Jacana Vic.

Jen has just retired and has $210,000 sitting in her super fund. She thought she would wait until James retires before transferring her super into an account-based pension. Her income for the year to date of retirement was $48,000 plus the standard SG contribution. Jen did not salary sacrifice anything. Jen wants to ensure that her funds in retirement are relatively safe and secure. Jen feels that she is a conservative investor and that she would probably prefer a low-risk investment strategy.  She has no interest in finances.

Jen is in good health and a non-smoker. She has private health insurance with Bupa. Jen has a current Will in place with James being her Enduring Power of Attorney. There is no testamentary trust provisions in place.

James: James is employed as a sales representative with a major pub chain. He currently earns $135,000 p.a. plus the standard SG rate. He is planning to retire at the end of June 2022.

James has an accumulation superannuation account with a retail super fund amounting to $570,000. James has been making an annual non-concessional contribution of $7,000 p.a. for the past 5 years. James feels that he is a growth investor and is prepared to take on risk to maximise returns. However, he doesn’t have the time or inclination to take an active interest in his investments.

James’s health is not great, he is a smoker and is spending a significant amount of money each month on medicines. He has private health insurance with Bupa. James has a current Will in place but has no Power of Attorney nor any provisions for a testamentary trust.

Both: The couple live a comfortable lifestyle. When speaking to the couple about what sort of living expenses they think they would need once James retires, they believe they could get away with $70,000 p.a. in todays dollars from their accumulated super.

The couple are not particularly good with managing money and have a reasonably large amount of money sitting in cash as they’re not sure what to do with it.