Business Investment Bond Income and Assets

Question: Discuss about the Business Investment Bond for Income and Assets. Answer: Discussion Paper Statement of Advice (SOA) Reasons for this advice Dylan and Angela are planning to retire soon. Therefore, they need advice for organizing their income and assets. The discussion focuses on efficiently managing the superannuation funds. The advice will be helpful to compensate their mortgage amount quickly without affecting the cash flow, to protect them financially in order to deal with unpredicted traumatic incidents and to bring out the best possible way to save and manage the budget as well as their savings in the bank account. What is included in our advice The advice will include suggestions on organizing Dylans and Angelas superannuation, as they are planning to for their retirements. In order to ensure efficient financial management, greater emphasize will be given to the generic products, such as income protection, managed funds and insurance bonds, in the advice. On the other hand, Dylan and Angela will be encouraged to retrain from applying for investment products or insurance products. Instead, they will be advised to focus on the generic products, which can protect them from potential investment risk. It is very important to act responsibly and in a transparent manner when advising the clients, as it is apparent that they lack adequate understanding regarding the management of their personal finances. In this regard, applicable laws, statutes, risks involved and the benefits obtainable will be clearly communicated to them in a comparative manner. Clients personal and financial position Dylan and Angela are married with a son. They have mortgaged a home for $500,000. Dylans income is $115,000 per annum with Super Guarantee (SG) and Angelas earning amounts to $65,000 per annum with SG. They are planning to retire and are seeking advice to manage Dylans superannuation. They expect to save at least $200,000 per annum and desire to compensate the mortgage sooner. They wish to attain financial protection for any unforeseen event such as death. Net worth calculation work sheet: Assets Liabilities Cash $180,000 Current Debts (115,000+ 65,000) Mortgages: Home $500,000 Total assets $180, 000 Total liabilities $500,000 Total assets-Total liabilities = Net Wroth = ($320,000) Risk Profile The risk profile can be considered as the mechanism, which enables a better analysis of the degree of risk. It guides in implementing appropriate decision-making process regarding the investments, which would be suitable for the clients. In addition to this, the risk profiling tools help in reducing the errors and thereby, enhance the quality of the advices offered to the clients (Moore, 2012). However, the risk profile also have some drawbacks, since it does not include any kind of important information related with the clients investment and other investment alternatives. Therefore, inappropriate questions by the advisors are likely to produce unsuitable advices for the clients (Norman, 2014). In this regard, asset allocation can be referred as developing and implementing the plans related to the investment strategy by maintaining a balance between the proportion of the assets and the risks. The asset allocation strategies can be effective only when the assets are categorized into different sections consisting of bonds, cash balances and stocks. This will enable the clients to follow the most favourable returns for the risks identified (MFS Investment Management, 2016). Diversifying the assets will also benefit the clients to apply different methods of investments. Accordingly, restoring of the assets is also essential to improve the allocation (Polyak, 2016). Strategy discussion Financial strategies considered The clients will need to focus on wealth accumulation, through which they will need to increase the assets considering internal and external superannuation. An efficient management of debts will help the clients to adopt the most appropriate plan to repay loans sooner. The adaptation of the generic products by the clients would also help them manage the risks better, in order to protect the assets (RSM, 2016). Financial strategy The objectives of the clients are to combine their superannuation income accounts with one of the existing funds. To compensate the remaining housing mortgage in a less possible time, savings for the unpredicted traumatic events can also be taken into consideration. The strategy will also focus on reducing the investment risks by saving the retirement fund. How it works The clients can ensure the overall effectiveness of the financial strategies, by including the superannuation. The superannuation consolidation will enable the client to reduce the saving costs by paying only a single set of fee and reducing manual effort or paperwork. The clients can increase their fund by making savings from their salary, which will also allow them taxation benefits. In addition, the clients are advised to apply the generic products rather than any investment or insurance products. The below presented table provides a clearer understanding of the requirement. Generic products How does it works Manage funds It will be helpful for the clients to expand their investment in different assets. Managing funds in this case will enable them to set investment strategies on a regular basis, which can be further invested for capital growth (Franzen, 2010). Insurance bonds In case of insurance bonds, the clients will receive interests on a regular basis. Therefore, they can easily attain the income from the savings (Australian Unity, 2016). Income protection Considering the situation of the clients, long-term income protection insurance schemes can be helpful to cover their financial requirements. The clients can fix a certain period comparing with the anticipated time of mortgage repayment to invest in income protection schemes (Marx Nelson, 2012). Benefits of this strategy The strategy would be beneficial in preparing for the future needs and establishing financial protection, which may be useful for the traumatic events. The accumulation of wealth will enable the clients to take appropriate decisions, by controlling their current expenses in order to increase their savings required in future. By diversifying the investment into different categories of assets, the clients will be able to reduce instability in the investment. Outcomes There are two kinds of phases witnessed post retirement, which include the accumulation phase and the pension phase. In case of the accumulation phase, the clients will require to make an extra effort in order to save for the future. In this stage, greater emphasis will be levied on wealth accumulation, as the clients require reducing the current spending for the future. In addition, the incentives received from the government would be helpful for making investments. The person holding the superannuation for more than a year will enable the clients to minimize the marginal tax rate (Hewish, 2016). Risks you need to consider The risk may affect the quality of the advice offered to the clients. There are number of risks, which can be identified on the basis of the financial strategies advised to the clients. For instance, falling annuity rates may lower the rate of income. If the market in unstable and investment is high, it may also cause risks for the clients. Therefore, if the clients focus on saving their retirement funds, it may help to reduce the investment risks further (AXA, 2015). References Australian Unity, 2016. Investment bond, viewed 5 September 2016, https://www.australianunityinvestments.com.au/our-products/investment-bonds AXA, 2015, What are your pre-retirement investment options?, Retirement, pp 6-16. Franzen, D. (2010), Managing Investment Risk in Defined Benefit Pension Funds, OECD Publishing, Vol 38, pp.1-60. Grant Thornton Australia Limited, 2015. Superannuation consolidation, viewed 5 September 2016, https://www.grantthornton.com.au/client-alerts/2015/superannuation-consolidation/ Hewish, J. Pre-Retirement Retirement Strategies. UGC, viewed 5 September 2016, https://ugc.net.au/pre-retirement-retirement-strategies-part-1/ Marx, I Nelson, K 2012, Minimum Income Protection in Flux, Palgrave Macmillan, USA. MFS Investment Management., 2016. Asset Allocation Strategies. Education Planning, viewed 5 September 2016, https://www.mfs.com/wps/portal/mfs/us-investor/education-and-planning/asset-allocation/!ut/p/a1/04_Sj9CPykssy0xPLMnMz0vMAfGjzOL9A40C_c09jAzcjYOdDYxcTPyNTUONDUN8TPULsh0VAabBl04!/ Moore, E., 2012. Warning over adviser risk profile mismatch. Investments. viewed 5 September 2016, https://www.ft.com/cms/s/0/87ca7ddc-42f0-11e2-a3d2-00144feabdc0.html#axzz4JMeYHiiG Norman, T., 2014. How do advisers sort the good risk-profiling tools from the bad? News, viewed 5 September 2016, https://www.moneymarketing.co.uk/how-do-advisers-sort-the-good-risk-profiling-tools-from-the-bad/ Polyak, I., 2016. Finding the right asset allocation is what counts. Portfolio perspective, viewed 5 September 2016, https://www.cnbc.com/2016/05/24/finding-the-right-asset-allocation-is-what-counts.html RSM, 2016. Retirement planning. Business Advisory, viewed 5 September 2016, https://www.rsm.global/australia/service/wealth-management/retirement-planning