File Note – Statement of Advice

Client's name:LiamSem

Date of contact:17 August 2016

Re:Initial Appointment

FSG and adviser profile

Liam was handed Financial Services Guide (FSG) version 4 010716and my Adviser Profile at the interview on 17 August 2016. The FSGwas explained to him.

Scope of advice

Full statement of advice (SOA). Specifically, the SOA will provide advice on the achievement of wealth creation and lifestyle goals, personal insurances (that is life, total & permanent disability (TPD), income protection (IP), trauma and private health insurance), superannuation (including salary sacrifice and/or after tax contributions) and taxation planning where relevant.

The SOA excludes any budgeting and cash flow analysis, as well as any advice on debt repayment, social security and estate planning. Client to be advised on the risks of not receiving advice in these areas.

Current situation

  • Outline Liam’s current situation – this should be fact based, e.g. his income, assets / liabilities etc, plus any other facts that are relevant to your advice (especially those that you will refer to later) – think about the interview transcript and the questions asked to gather the facts - this information should be summarised here.
  • Do not include his goals in this section – these would be included in the objectives section below.
  • Please note, while in practice, this would be more summarised and a fact find usually attached, for the purposes of this assessment item, please include all relevant information.

Potential issues / special consideration

  • Outline any potential issues or special considerations that you would like to mention e.g. anything unusual or issues that may not be relevant to your current advice, but could be an issue in the future etc.

Objectives

  • Clearly state allof Liam’s goals / objectives, including non-financial objectives (such as ‘play more golf’).
  • Donot include yourgoals or objectives or what you will recommend to the client. This section simply covers what the client’sgoals are.
  • Best practice is to be as specific as possible, e.g. where possible include timeframes, priorities and $ amounts.

Risk profile

  • State the risk profile you arrived at in the interview and any details arising from your discussion about risk.
  • Best practice is to include how you determined your client’s risk profile (e.g. did they just tell you or did you complete a questionnaire with them etc), what it means (in terms of timeframes, asset allocation etc) and what the client thought about this.

Wealth creation recommendations – outside superannuation

Before completing this section, I strongly suggest you watch the video’s below if you have not already done so:

  • Getting started: how to complete Part A:
  • Investment choices:

For each part of the wealth creation / lifestyle recommendation sections below, you need to outline your recommended strategy(s) which should be linked to the client’s objectives and the advantages and disadvantages of each strategy, i.e. why the strategy is appropriate to the client and any potential costs / downsides.

You also need to include details of any alternative strategies considered and why these were not recommended. An example format is given for objective 1 below.

  1. Objective [change the title to the client’s objective you are advising on]
  • Outline your recommended strategy to achieve this goal, i.e. what should Liamdo?This may be multiple steps, if so; a separate bullet point should be used for each step.
  • Make sure you are specific about the type of investment (i.e. not he should invest in x or y – which one? Or both?), how much should he invest? Should the investment have any particular features?Please be as specific as possible without actually recommending a particular product. Your advantages / disadvantages below should then be directly relevant to your recommendations (not just generic advantages / disadvantages).
  • Overall, your recommendationsmustbe clear on where his savings (both current and any monthly surplus) arebeing directed to achieve his specific goals.
  • Where Liam has a specific $ goal he is wanting to achieve, make sure your recommendations do actually allow Liam to achieve this goal.
  • For his house deposit goal, please complete a Future Value (FV) calculation(s) (as covered in Topic 2), or use an online calculator to back up your recommendations. Show any workings / calculators usedin Appendix 1 below. Before completing this, I suggest you refer to the video, ‘FV calculations’:
  • Make sure you do actually provide recommendations on how Liam can achieve his goals - leaving it up to the para-planner (the person who will receive your file note) or saying we will discuss this further with Liam isnotacceptable.
  • The reasons for your recommendations should form part of your advantages below. This section is simply what Liam should do to achieve his first objective.

Advantages of strategy

  • This is where you need to include the reasons why you have recommended the strategy above.
  • As per above, please ensure you provide specific advantages for Liam, not just generic advantages that may apply to any client.

Disadvantages of strategy

  • There are always disadvantages with any recommended strategy. For your recommended strategy(s) what are the disadvantages – again, be specific rather than general. For example, rather than stating ‘taxation implications’ you would need to explain what taxation implications and how this is a disadvantage.
  • If there are severe disadvantages with your recommended strategy that cannot be overcome you should consider changing your strategy – particularly if your strategy means he cannot achieve his goals.

Alternatives considered

  • You need to consider all ‘reasonable’ alternatives and why these where not recommended.
  • If you are recommending a defensive investment option you should include other defensive investment options and why these were not recommended. Likewise with any growth investment recommendations.
  • Remember an alternative is always ‘do nothing’ (i.e. leave as it) – if you are not recommending this, why not?

Repeat this process for all of Liam’s wealth creation / lifestyle goals (including his superannuation goals below).

Lifestyle recommendations

  1. Objective [change the title to the client’s objective you are advising on]
  • Recommended strategy (as per above)

Advantages of strategy

  • As per above

Disadvantages of strategy

  • As per above

Alternatives considered

  • As per above

Wealth creation recommendations – superannuation

  • What is Liam’s superannuationobjective(s)?
  • Recommended strategy to achieve this objective i.e. what should Liamdo?
  • Should he consolidate his superannuation funds? Why / why not?
  • Remember you don’t know anything about the two superannuation funds he holds so you can’t recommend one of these above the other. You are also not required to recommend a specific product, so consider instead what investment option his superannuation should be in (and why) and any particular features his superannuation fund should have.
  • As part of your recommendations you must discuss salary sacrifice – if you are recommending this, make sure you recommend either a monthly $ amount or % of Liam’s salary and discuss the advantages (why) and disadvantages with your recommendation below.
  • If you are not recommending salary sacrifice, your reasons for this must be included in the ‘alternatives considered’ section below to show you have thought of this and did not recommend it because of …

Advantages of strategy

  • As per above (e.g. if you are recommending consolidating the two funds what are the advantages / disadvantages of this etcetc)

Disadvantages of strategy

  • As per above

Alternatives considered

  • As per above

Wealth protection (insurance) - recommendations

Note 1: all insurance recommendations should be based on Liam’s goals and objectives – i.e. could he still achieve these should an accident / illness / injury occur?

Note 2: in this course you are not required to price insurance. In reality, any insurance recommendations outside of superannuation will have an impact on Liam’s cash flow, though for the purposes of this assessment item you do not need to consider how Liam would fund this (i.e. feel free to use his entire monthly surplus for any wealth creation / lifestyle goals).

Note 3: if you are recommending Liamnot take out a particular insurance cover, you must explain why.

  1. Life insurance
  • Advise whether you recommend Liam take out life insurance cover or not
  • If recommending Liam obtain life insurance, please advise whether this should be inside / outside superannuation and why
  • Provide any advantages / disadvantages with your recommendation
  1. Total and permanent disability (TPD) insurance
  • Advise whether you recommend Liam take out TPD cover or not
  • If recommending Liam obtain TPD insurance, please advise whether this should be:
  • own occupation or any occupation TPD and why; and
  • inside / outside superannuation and why
  • Provide any advantages / disadvantages with your recommendation
  1. Income protection (IP) insurance
  • Advise whether you recommend Liam take out IP cover or not
  • If recommending Liam obtain IP insurance, please advise:
  • What level of cover he should obtain (e.g. what % of his income);
  • What his waiting period and benefit period should be;
  • Whether this should be an agreed value or indemnity policy; and
  • Whether this should be held inside / outside superannuation.
  • For each of the above points, please ensure you explain your reasons why.
  • Provide any advantages / disadvantages with your recommendations
  1. Trauma insurance
  • Advise whether you recommend Liam take out trauma cover or not
  • A reminder trauma insurance must be held outside of superannuation
  • Provide any advantages / disadvantages with your recommendation
  1. Other insurance
  • Does Liam require advice on any other insurance products, such as private health insurance? Why / why not?

Other

  • Insert any other objectives / issues that you have not previously dealt with.
  • If you have previously covered everything, you wouldn’t be expected to have anything for this section – so just delete.

Appendix 1 – Future value (FV) calculations

Include in this section any FV workings and/or a screenshot of any online calculators you have used, which prove Liam can meet his goal(s) based on your recommendations.

A reminder that this section is required. Students who do not complete this section will have their marks for the wealth creation (outside superannuation) section reduced.

Please refer to the FV calculations video which explains this section further: