Financial Plan Craig Mattern - 7 April, 2011

 
Financial Plan Craig Mattern - 7 April, 2011
Financial Plan
                     Craig Mattern

                              7 April, 2011

                            Statement of Advice
Prepared by: Jenny Norman, Authorised Representative of AXA Financial Planning
Financial Plan Craig Mattern - 7 April, 2011
7 April, 2011

Craig Mattern
Unit 1, 10 Donal Place
Bentleigh VIC 3204

Dear Craig

It was a pleasure to meet with you on 24/03/2011 to explore ways that I can assist you in planning your
financial affairs.
Please find enclosed the Financial Plan we have prepared for you, setting out my recommendations to
help you achieve your financial goals. Brochures for each recommended product are also attached.
The Financial Plan is split into two parts, and must be read as a whole document:

•   Our advice: Summarises your current situation, your goals, how we recommend you meet your
    goals, the benefits of our initial and ongoing advice and a summary of costs.

•   Detailed section: Includes all the information you need to gain a thorough understanding of our
    advice. This section includes detailed investment and insurance recommendations, supporting
    calculations, fact sheets, implementation steps and forms, and advice agreements.
I will contact you in the coming week to discuss the financial plan with you and answer any questions you
may have.

I look forward to working closely with you in the coming years.

Yours sincerely

Jenny Norman CFP Dip FP
Authorised Representative of AXA Financial Planning

                                                                                 Statement of Advice / Page 2
Financial Plan Craig Mattern - 7 April, 2011
About you                                      Page 4

Our advice                                     Page 6

 Your goals                                    Page 6
 Will you meet these goals                     Page 6
 Our advice                                    Page 7
 Keeping you on track                          Page 10
 What does this advice cost?                   Page 11
 Other things to consider                      Page 11
 What happens next?                            Page 12

Investment recommendations                     Page 14

Insurance recommendations                      Page 19

Supporting calculations                        Page 23

Key contacts                                   Page 27

Ongoing service provided                       Page 28

Advice Fees                                    Page 31

What else you need to know                     Page 33

Fact sheets

 Borrowing to invest                           Page 34
 Selecting your investments                    Page 43

Implementation schedule                        Page 50

Agreement to implement initial advice          Page 51

Ongoing advice agreement                       Page 53

                                        Statement of Advice / Page 3
The information you have provided us forms the basis of our advice. It is important that you let us know
as soon as possible if our records are incorrect.

Personal details
 Personal details
 Full name                                                                 Craig Mattern
 Date of birth                                                              24/02/1963
 Age last birthday                                                           48 years
 Marital status                                                              Divorced
 Health                                                                       Good
 Smoker                                                                         No
                                                                      Unit 1, 10 Donal Place
 Principal place of residence
                                                                       Bentleigh VIC 3204
 Home owner                                                                     No

Dependents
 Children                                    DOB                     Age                 Support until age

 Travis                                   13/08/1994                 15                          18

 David                                    13/12/2000                  9                          18

Employment details
 Employment details
 Occupation                                                                      Operations manager
 Employer name                                                                       Basketball VIC
 Employment status                                                                       Full time
 Income                                                                                  $65,000
 Expected retirement age                                                                    65

Current net worth
 Lifestyle assets                                                                                Market value
 Home contents                                                                                        $30,000
 Car – Camry                                                                                          $12,000
 Total                                                                                                $42,000

                                                                                  Statement of Advice / Page 4
Ongoing          Reinvest
    Financial assets                                                                             Estimated value
                                                           investment         income
    NAB Cash account                                                             Yes                         $5,000
    Generations Investment Portfolio - Growth            $200 per month          No                       $19,700
    Generations Personal Super Plan - High Growth                                No                       $21,548
    Total                                                                                                 $46,248

    Net worth (includes lifestyle assets)                                                                 $88,248

Personal risk insurance

Insurance type            Owner             Insured   Provider/ Insurer   Sum insured         Annual premium

Death                  Generations           Craig          AXA              $733,690             $1,049.00

TPD                    Generations           Craig          AXA              $733,690        Bundled with Death

Trauma                     Craig             Craig         Zurich            $150,000               $92.00

IP                         Craig             Craig         Zurich             $3,750              $1,769.00

You have also advised us that:

•     You have advised us that you have no exclusions or loadings for your insurance cover.

•     You didn’t want to disclose details of your general insurance cover.

•     You do not have any health insurance.

                                                                                        Statement of Advice / Page 5
One of the most important steps of the financial planning process is mapping out a long term strategy that
will help you achieve your goals. We are therefore pleased to present our advice below, which
summarises your situation and details the recommended strategy we believe will be most suitable for you.

                               Your goals
                               During our meeting we undertook a fact-finding process to help define
                               your goals and objectives.
                               Scope of advice
                               Our advice will focus on solutions that address the goals and issues that
                               are important to you.

 Goals to be addressed         •    Building wealth over the long term. You are prepared to borrow
                                   money to boost your investing potential. You would like us to
                                   determine if this strategy is appropriate for you and recommend
                                   some investment options.

                               •   Making sure you have enough personal insurance to cover your
                                   income needs.

                               •   Set aside $5,000 in a bank account so you can access it quickly in
                                   case of emergency.

                               •   $30,000 each year to meet your current living expenses.

 Areas not addressed           We have agreed to not address the following areas:

                               •   How to fund your income needs in retirement.

                               Will you meet these goals?
                               Assuming that you continue as you are, we have determined that you will
                               meet only some of your goals.

 You will meet your            •   You will continue to meet your income needs but you will not be
 income needs                      maximising your investments which means you will have limited
                                   savings available for retirement.

 You need to review            •    You don’t have enough income protection cover. This means that if
 your insurance cover              you have an accident or become seriously ill and can’t work, you
                                   won’t have enough income to meet your everyday expenses and
                                   your other goals will be put at risk.

                                                                                  Statement of Advice / Page 6
Our advice
                        Outlined below is our recommended strategy and why it is suitable
                        for you.

                        We considered alternative strategies and products when we prepared our
                        recommendations. If you wish to receive a copy of these alternatives,
                        please contact us.

Keep $5,000 in cash     •   Keep $5,000 in your NAB savings account to act as a cash buffer. A
                            cash buffer will give you peace of mind that you have money to draw
                            on if an emergency or extraordinary bill arises.

Keep your               •   Keep your Generations investment portfolio managed fund to
Generations                 continue to build wealth outside of super. Whilst you don’t anticipate
Investment portfolio        that you will need this money, you are comfortable knowing that you
                            will have access to it.

Borrow $20,000 from     •   Borrow $20,000 to invest using your Generations Investment
Colonial First Choice       Portfolio as security for the loan. This is known as margin lending.
to invest
                        •   We recommend you use Colonial First Choice Margin Lending. This
                            is a simple and cost effective loan.

                        •   By using borrowed funds to invest, you have a better opportunity to
                            increase your non superannuation savings as you will have money
                            invested.

                        •   The recommended loan is an interest only loan, therefore based on
                            an interest rate of 9.49% p.a. the repayments will be $1,898 a year.
                            You will be able to claim your total interest costs as a tax deduction
                            in your tax return.

                        •   Please note that the interest rate is variable, so your repayments
                            may increase or decrease throughout the year. Our calculations
                            suggest you will be able to afford an increase of at least 2.0% p.a. on
                            top of the current interest rate.

                        •   A margin call occurs when your portfolio drops below the level of
                            security required to fund the loan. Based on your initial investment of
                            $59,700, your portfolio will need to fall below $20,000 for you to
                            receive a margin call. As part of our ongoing service, we will manage
                            any risks of a margin call. Please refer to the ‘Borrowing to Invest’
                            fact sheet for information on margin calls.

                        •   We anticipate your investment loan will be repaid in at retirement. At
                            this time, we will look at ways to repay your loan and consider ways
                            to reduce any capital gains tax that you may incur.

                        •   We strongly recommend that you seek advice from your accountant
                            before implementing a gearing strategy.

                                                                           Statement of Advice / Page 7
Important information   •   Borrowing to invest can accelerate your investment returns. It also
about borrowing to          works in the opposite way by magnifying any losses.
invest
                        •   Regardless of how your investment performs, you will always need to
                            meet the interest costs, and ultimately repay the loan.

                        •   When borrowing to invest, you need to make more money from the
                            investments than you pay in borrowing costs.

                        •   We have calculated that over the long term, as your investments
                            grow, the returns will outweigh the costs. Please refer to the
                            supporting calculations section for our detailed analysis.

Important information   •   When and if you need to withdraw money from your investment, any
about withdrawals           investment gains (on this amount) will be taxed (capital gains tax).
from your portfolio         We will manage the tax consequences at this time.

Invest $20,000 into     •   Use the $20,000 from the margin loan to invest in your existing
Generations managed         Generations managed fund
fund
                        •   Continue to invest the $200 per month for the foreseeable future.

                        •   This is an easy and disciplined way to save as the money comes
                            automatically out of your bank account. The aim of investing over a
                            period of time, rather than in one lump sum, is to smooth out some of
                            the effects of short-term volatility by buying investments at various
                            prices.

                        •   Your investments will be managed by investment professionals with
                            proven experience. A managed fund allows you to invest in a range
                            of investments assets, such as Australian and international property
                            as well as shares, fixed interest and cash. This allows you to spread
                            your savings over a number of different asset classes.

                        •   Your savings will increase by $2,400 each year, totalling
                            approximately $68,800 in 5 years (or $48,800 if we deduct the
                            outstanding loan).

                        •   The income from the managed fund will be reinvested on your behalf,
                            adding more to your savings. It will still be included in your tax.

Important information   When you need to withdraw money from your investment, any investment
about selling your      gains will be taxed (capital gains tax). We will manage the tax
investment              consequences at that time.

Your investment         You have financial goals you wish to achieve over the short and long
strategy                term. We have developed investment strategies designed to match
                        these timeframes, which are listed below.
                        For more detail, refer to the ‘Investment’ section of this financial plan.

                                                                             Statement of Advice / Page 8
Short term for cash       Cash only allocation
reserve
                          Your short term investments will be invested entirely in cash investments.
                          This means you will have access to this money immediately if or when
                          you need it.

 Long term for wealth     85% Growth allocation
 creation
                          Your long term investments will be spread across shares, property, fixed
                          interest and cash. The asset allocation will focus on growth investments,
                          with 85% of your money allocated to shares and property. We expect
                          your portfolio to move in value both up and down over the short term, in
                          order to achieve stronger returns over the medium to long term.

 Long term for super      99% Growth allocation
 savings
                          Your long term investments focus entirely on growth style investments,
                          with a 99% of your money allocated to Australian shares and
                          international shares. This portfolio aims to achieve strong long term
                          capital growth. We expect your portfolio to move in value both up and
                          downwards in the short term, in order to achieve stronger returns over
                          the long term.

 Apply for income         •   We recommend that you apply for $4,430 per month of salary
 protection via super         continuance insurance through your Generations super fund.

 Cancel your Income       •    You no longer need this insurance because it will be replaced with
 protection cover with         insurance held via your superannuation account.
 Zurich

 Keep your Life, TPD      We recommend that you keep your existing life, TPD and trauma cover
 and Trauma cover         as you are comfortable that they provide you with sufficient cover.

                          •    We have found this product still suits your situation and offers
                               competitive premiums.

 The benefits of the      •   The insurance cover will allow you to continue to receive an income
 recommended                  of $53,160 until age 65 if something happens to you.
 insurance strategy
                          •   The recommended insurance will allow you to cover the cost of your
                              loan, and provide for your children so you don’t have to sell your
                              geared investments to meet expenses, should something happen to
                              you

                          •   The insurance held in super will not impact your cash flow.

 Detailed insurance       •   You can view the calculations and details of the recommended
 calculations & product

                                                                             Statement of Advice / Page 9
recommendations               insurance products in the ‘Insurance’ section of this financial plan.

                          Keeping you on track
                          It takes more than a financial plan and a single meeting to meet your
                          goals.

                          Your current situation, goals and strategy need to be reviewed regularly
                          to keep you on track, because it’s difficult to predict if and when things
                          may change.
                          It is equally as hard to predict the effect these changes will have on your
                          goals and our advice.
                          Apart from unexpected changes, there are particular areas of our advice
                          that will need to be continually maintained.

Monitoring your           •   If the value of your investments drop below $20,000, Colonial
margin loan portfolio         FirstChoice will need you to invest more money or pay back part of
                              the loan. This is called a margin call.

                          •   Should this happen, and you can’t meet the margin call, the lender
                              could sell your investments, at their discretion, to pay back the loan.
                              This is why it’s important to monitor your margin lending portfolio on
                              a regular basis.

Interest rates and your   •   Interest rate increases will change your repayments, increasing your
repayments                    everyday expenses.

                          •   We have calculated that if interest rates increase by 2 per cent you
                              will still have a cash surplus of $600 a year, but this will need to be
                              reviewed regularly as your expenses and income change.

Your investments          •   When investing there is a chance that the returns won’t meet your
                              needs or that your savings reduce in value just when you plan to
                              withdraw them.

                          •   How much your savings go up and down over the short to medium
                              term depends on which asset class (such as shares, property, fixed
                              interest) your savings are invested in. Different asset classes
                              perform well at different times. To make sure that your investments
                              are still suitable, you will need to review your portfolio on a regular
                              basis.

                          •   We invest your money in assets that match the timeframe of when
                              you need the money. The reference section of this plan explains
                              how we recommend you invest your money.

                                                                             Statement of Advice / Page 10
Appropriate insurance      •   Over time as your net wealth increases we can investigate
and sum insured                opportunities to decrease your insurance cover and reduce your
                               premium costs.

                           •   Alternatively, changes to your income, your expenses, your spousal
                               relationships, number of dependants or increased borrowings, may
                               require you to increase your insurance cover.

Ongoing service            •   Please refer to ‘Ongoing Services Provided’ in the detailed section to
                               see what ongoing services we will provide as part of our agreement.

Keep in touch              •   Don’t feel like you need to wait for a specific review to contact us.

                           •   You should contact our office if there is anything that you think may
                               impact your financial plan.

                           Other things to consider
                           In addition to our advice above, there are other areas that may need
                           your attention.

Confirm your tax           •   We strongly recommend you speak to your accountant to confirm the
position                       impact our advice will have on your tax position.

                           •   You will need to consult your accountant before implementing our
                               recommendations.

Meet with a solicitor to   •   We recommend you meet with a solicitor to discuss your estate
review your Wills and          planning needs, in particular:
other estate planning
matters                        •   Your Wills

                               •   Establishing an Enduring Power of Attorney

                           •   A solicitor can make sure that your wishes can be carried out if you
                               are unable to look after your own affairs or die.

                           What does this advice cost?
                           Financial planning costs can be separated into advice fees and
                           product costs.

                           •   The advice fees are payable by you to research, prepare, implement
                               and maintain this financial plan.

                           •   You pay product costs from your investment balance and insurance
                               premiums to the provider to manage and administer your
                               investments and insurance.

                                                                              Statement of Advice / Page 11
Advice fees          This section summarises the advice fees you pay to us.
                     More information about the advice fees and commission we receive is
                     located in “Advice Fees”.

                     Initial advice fees
                     •   There are no initial advice fees to research, prepare or implement our
                         advice.

                     Ongoing advice fees
                     •   Our ongoing advice will cost $2,500 p.a.

                     •   You have requested this amount be deducted in monthly instalments
                         from your investment.

Your product costs   Each product we have recommended charges you a fee or a
                     premium to professionally manage your investment.
                     These products form an important part of your financial plan – they make
                     sure that the strategy we have recommended can be implemented.

                     Craig
                     •   NAB savings account costs $0 each year, and is based on 0.00% of
                         the investment balance.

                     •   Generations Investment Portfolio costs $560 each year, and is based
                         on 1.41% of the investment balance.

                     •   Generations Personal Super costs $325 each year, and is based on
                         1.51% of the investment balance.
                     The fees above will be deducted from your investment in monthly
                     instalments and will vary according to the investment balance.

Your insurance       •   Craig, your annual insurance premiums are:
premiums
                         •   $92.00 for your Trauma insurance through Zurich Wealth
                             Protection Plus - Basic Trauma.

                         •   $1,584.96 for your Salary Continuance insurance through
                             Generations Personal Super Plan

                         •   $1,049.00 for your Death & TPD insurance through AXA
                             Generations Death Cover.

                     What happens next?
                     We recommend you take this Financial Plan with you today and read it in
                     full to make sure you fully understand our advice.
                     We will contact you in a week to see if you have any questions, and to
                     arrange another appointment.
                     The Implementation Schedule on page 50 explains the steps we need to
                     take to implement your Financial Plan.

                                                                      Statement of Advice / Page 12
Before you agree to implement your Financial Plan or agree to receive
any of our Ongoing Advice Services, you should make sure that you
have:

•   Read and understood both parts of your Financial Plan: ‘Our Advice’
    and the detailed sections.

•   Understood the risks associated with the strategies and investments
    we have recommended.

•   Asked us any questions you have about your Financial Plan and our
    advice.

•   Read and understood the Product Disclosure Statements (PDSs)
    about each of the financial products we have recommended.

•   Read and understood the Agreement to Implement Advice.

•   Read and understood the Ongoing Advice Agreement.

•   Completed and signed any forms and agreements.

                                                Statement of Advice / Page 13
Which investments are best for me?
Matching your                 During our meeting we discussed investments and explained how we
investments to your           select investments that are
needs
                              •   appropriate to your goals,

                              •   investment timeframe,

                              •   attitude to investment risk, and

                              •   the strategies we recommend.

Timeframes                    We have designed investment strategies to match the timeframes of the
                              goals you want to achieve.
                              Matching investment strategies to each of your goals ensures your
                              overall blend of assets is appropriate.

Short term investment strategy
We have based your short term investment strategy on your desire to have some cash available as a
cash reserve.

Recommended investment strategy
Cash                          Your short term investments will be invested entirely in cash
                              investments. This means you will have access to this money
                              immediately if or when you need it.

Recommended short term investments
                                                                                   Regular
                                                                                                 Reinvest
Investment                                Owner        Final balance          Investments /
                                                                                                  income
                                                                          withdrawals ($) pa

NAB savings account                        Craig               $5,000                     Nil          Yes
Total                                                          $5,000

                                                                              Statement of Advice / Page 14
Long-term investment strategy
We have based your long term investment strategy on your goal to build funds for retirement.

Recommended investment strategy
 Gearing portfolio -           Your long term investments will be spread across shares, property, fixed
 85% Growth                    interest and cash. The asset allocation will focus on growth investments,
                               with 85% of your money allocated shares and property. Your portfolio is
                               likely to move in value both up and down over the short term, however
                               we expect it to achieve stronger returns over the medium to long term.
                               You do not know how long you will hold this investment for or if you may
                               need to draw on it in the future. You are not prepared to take on quite as
                               much investment risk as you are with your retirement savings.

 Retirement savings -          Your long term investments focus entirely on growth style investments,
 99% Growth                    with 99% of your money allocated to Australian shares and international
                               shares. This portfolio aims to achieve strong long term capital growth.
                               Your portfolio is likely to move in value both up and downwards in the
                               short term, however we expect it to achieve stronger returns over the
                               long term.
                               As you are 17 years from retirement, this will give your superannuation
                               plenty of time to ride out any negative returns that this type of allocation
                               may experience.

Recommended investments
 Generations                   We recommend you use Generations, as it is a cost effective investment
                               option that allows you to invest in a broad range of underlying
                               investments.
                               Generations is managed by AXA Australia. AXA Australia is a member
                               of the Global AXA Group, one of the largest financial services groups in
                               the world. The world wide group has 65 million superannuation,
                               investment and insurance customers. They invest A$1.6 trillion dollars
                               on behalf these clients.
                               Generations will send you regular reports on your investments as well as
                               giving you 24-hour/7 days-per-week access to your account information
                               via the internet.
                               Additionally, you already have an investment account established with
                               Generations.
                               We have provided you with a Generations brochure (Product Disclosure
                               Statement) that has more information on this investment.

                                                                                  Statement of Advice / Page 15
Underlying investments
 Multi manager                   As the name suggests, multi manager diversified funds invest across the
 diversified fund                range of asset classes drawing on the expertise of specialist investment
                                 managers in each asset class. Extensive research, both locally and
                                 globally, is carried out by ipac.
                                 ipac have been selected for their scale, expertise and experience in
                                 managing diversified multi manager investments.
                                 They will ensure appropriate investment managers are selected for each
                                 of the asset classes. These managers are then blended to construct a
                                 portfolio that is suitable for the investment objectives of the fund.
                                 The various managers are then subject to a rigorous monitoring and
                                 review process to ensure the managers are continuing to work with the
                                 agreed strategy. The managers may be changed or the allocated
                                 amount of the portfolio varied at any time without prior notice.

Recommended long term investments
                                                                                           Regular
                                                                                                     Reinvest
Investment                                            Owner     Final balance         Investments /
                                                                                                      income
                                                                                  withdrawals ($) pa

Generations Investment Portfolio – Growth               Craig        $59,700                     $2,400          Yes
Generations Personal Super – High Growth                Craig        $21,548                         $0           NA
Total                                                                $61,248                     $2,400

Your long term asset allocation
                                        Gearing strategy - 85% Growth
Asset class                      Target asset allocation (%)     Recommended allocation (%)            Difference

Cash                                        2.0%                                1.0%                      -1.0%
Australian Fixed Interest                   8.0%                                6.0%                      -2.0%
Overseas Fixed Interest                     5.0%                                7.0%                      2.0%
Australian Equities                         43.0%                           38.0%                         -5.0%
Overseas Equities                           32.0%                           36.0%                         4.0%
Property                                    10.0%                               7.0%                      -3.0%
Other                                       0.0%                                5.0%                      5.0%
Total                                       100.0%                          100.0%                        0.0%

                                                                                       Statement of Advice / Page 16
Superannuation savings - 99% Growth
Asset class                     Target asset allocation (%)     Recommended allocation (%)          Difference

Cash                                       1.0%                              1.0%                      0.0%
Australian Fixed Interest                  0.0%                              0.0%                      0.0%
Overseas Fixed Interest                    0.0%                              0.0%                      0.0%
Australian Equities                       45.0%                             43.0%                      -2.0%
Overseas Equities                         49.0%                             47.0%                      -2.0%
Property                                   5.0%                              4.0%                      -1.0%
Other                                      0.0%                              5.0%                      5.0%
Total                                     100.0%                           100.0%                      0.0%

Your long term investment portfolio asset allocation closely reflects your target asset allocation.

                                                                                    Statement of Advice / Page 17
Important information              We have allocated a portion of your money to shares and property which
 about growth assets                are growth assets.
                                    By allocating money to growth assets, you take on more investment risk
                                    than if you were to invest into cash or fixed interest investments. This
                                    increases the chance that your money will earn more over the long term,
                                    but it also means that there is a greater chance your investment could go
                                    down in value.
                                    If you need to withdraw money from your investments in a year when your
                                    investments have gone down in value, it could significantly impact your
                                    goals.

Summary of our investment recommendations

Investment                                             Owner           Start balance        Change (+/-)       Final balance

NAB savings account                                     Craig                  $5,000                   $0            $5,000
Generations Investment Portfolio – Growth               Craig                $19,700             $20,000             $39,700
Generations Personal Super – High growth                Craig                $21,548                    $0           $21,548
Total                                                                        $46,248             $20,000             $66,248

The change of ($20,000) in the above table represents the amount borrowed from Colonial First Choice.

                                                                                                 Statement of Advice / Page 18
During our meetings we discussed the importance of securing your future. To achieve this you need to
be able to meet your financial commitments both now and in the future.
The most important asset you have to help you achieve this security is your ability to earn money. If you
were unable to work and generate income, not only would your financial goals be unachievable, your
ability to meet everyday costs could be in jeopardy.
The best way to ensure you can be financially secure if something happens is with insurance.

                             The cover you need
                             To work out the insurance cover you need we examined your current and
                             future financial commitments and the amount of money you would need to
                             fund them. We also discussed the priority you place on insuring your
                             future. Our insurance recommendations have been based on these
                             discussions.

Income protection            Income protection insurance protects you financially if you are unable to
insurance                    work due to illness or injury. It provides regular payments to help you
                             meet your normal living expenses.
In case you can’t work

 How much cover you          •   We recommend you insure 75% of your gross income. This is the
 need                            maximum level of cover you are allowed by most insurers.

                             •   This level of cover will allow you to meet your regular living costs in the
                                 event of a claim.

                             •   We recommend you also add ‘super contributions protection’ to your
                                 cover. This means you will receive a further 9% of your salary, paid to
                                 your super fund, in the event of a claim.

Your waiting period          •   The ‘waiting period’ is the amount of time you have to wait, after you
                                 are unable to work, until you can lodge a claim to receive income
                                 payments.

                             •   We recommend that you select a waiting period of 30 days.

                             •   This is the shortest waiting period available, and will ensure you will
                                 receive a regular income in the event of a claim, as soon as possible.

Your benefit period          •   The amount of time you receive income protection payments for is
                                 called the ‘benefit period.

                             •   Craig, we recommend you select a benefit period to age 65.

                             •   This is the maximum benefit period available, and will provide
                                 protection until your expected retirement age.

                                                                                  Statement of Advice / Page 19
The structure of your   •   We recommend that you apply for $4,430 per month of cover inside of
income protection           super with a 30 day wait and a 2 year benefit period.
cover
                        •   The insurance we have recommended through your superannuation
                            fund is a low cost policy. This is because the premiums are offered at
                            wholesale rates.

                        •   You should be aware that this insurance is not as comprehensive as
                            income protection policies offered outside of super.

                        •   This policy meets your needs because it will provide you with a higher
                            level of cover without impacting on your cash flow.

Tax implications of     •   Any benefits paid will be taxed at your marginal tax rate, even if you
your income                 are aged over 60 at the time of receipt.
protection insurance
                        •   Income protection premiums are tax deductible to you personally, or to
                            your superannuation fund, depending on where the cover is held.

Indemnity policy        •   You have advised that you are in stable employment and your income
                            is secure and constant. You have also advised that you would like to
                            minimise the cost of your insurance protection insurance. As a result,
                            we recommend you apply for an indemnity policy.

                        •   An indemnity policy means, when you make a claim, you will need to
                            provide evidence of your income over the 24 months immediately
                            preceding your claim.

                        •   If your income at claim time is less than when you applied for the
                            policy, you can only claim on the lower amount.

Important information   •   Income protection insurance provides cover if you are unable to work
about income                due to illness or injury. It does not provide a payment if you are made
protection insurance        redundant or lose your job.

                        Recommended products
                        The core benefits of insurance policies are similar (e.g. life insurance
                        providing a payment upon death). But the secondary benefits, which can
                        provide extra protection and comfort, can be complex and vary greatly.
                        We have reviewed policies from a range of market leading insurance
                        providers, and selected insurance products based on your individual
                        needs and personal situation. Our recommendations are summarised in
                        the following pages.
                        Please be aware that the premiums quoted below are subject to
                        underwriting and may change.

                                                                           Statement of Advice / Page 20
Craig Mattern                 Death                    TPD            Trauma                   IP

Policy Owner                Generations             Generations    Craig Mattern          Generations
Amount of cover              $733,690                $733,690        $150,000                $4,430
Insurer                        AXA                     AXA            Zurich                  AXA
Waiting period                                                                              30 days
Benefit period                                                                             To age 65
Premium each year                         $1,049                        $92                  $1,584

Stepped                                   Stepped                    Stepped                Stepped

 Replace your           •     We recommend you replace your existing insurance with the
 existing insurance           recommended policy because:

                        •     The new insurance will cost you less and provide you with more cover.

                        •     A comparison of the costs of your existing insurance and our
                              recommendation is provided below.

 Don’t cancel your      •     We will make sure the new insurance is in place before we cancel your
 existing cover until         existing cover.
 your new cover is
 accepted               •     If the insurance company does not accept your application (for
                              reasons we can not foresee), this will ensure you are not left without
                              cover.

 Benefits of the        •     The products we recommend have been selected to meet your
 recommended policy           insurance needs in the following manner:

                              We have recommended AXA Generations for your income protection
                              insurance because it allows you to return to work for up to 5 days
                              during the waiting period, without affecting the timing of your claim.
 Stepped (increasing)   •     We recommend you apply for stepped premiums.
 premiums
                        •     This type of premium provides initial cost savings, when compared to a
                              level premium, but the cost of your insurance will increase each year
                              with your age.

                        •     The premiums will be cheaper for you now, which allows you to use
                              your surplus cash flow to build up your non super investments.

 Super ownership        •     We recommend your salary continuance insurance be owned by the
                              trustee of your Generations super fund.

                        •     As your insurance benefits will be owned by your super fund you will
                              need to meet a ‘condition of release’, such as permanent ill health, to
                              have your insurance benefits paid to you.

                        •     Please refer to the section above, ‘The cover you need’, for other
                              benefits and implications of having your insurance owned by your

                                                                               Statement of Advice / Page 21
super fund.

 Taxation                  •   Capital gains tax may apply if ownership is transferred.
 implications

 Please seek               •   We strongly recommend you discuss this with your tax adviser and
 professional tax and          legal representative before proceeding with the advice.
 legal advice
                           •   It is important that you seek legal advice from a specialist legal firm to
                               establish an appropriate buy / sell agreement.

                           •   We are happy to refer you to an appropriate professional in this area if
                               needed.

Replacing your insurance: Product comparison
The table below compares your existing insurance against the insurance we have recommended.

Income protection                        Existing Insurance                Recommended Insurance

Insurer                                         Zurich                          AXA Generations
Level of cover                                  $3,750                               $4,430
Waiting period                                 30 days                               30 days
Benefit period                                To age 65                             To age 65
Annualised premium                              $1,769                               $1,383
Policy fee                                                                             $57
Stamp duty                                                                            $144
Total annual cost                               $1,769                               $1,584

                                                                                Statement of Advice / Page 22
Our assumptions
The following tables show your current tax and cashflow position. The projections were prepared using
the following assumptions.

    General assumptions:
                                                                                                   st
    Start date for projections:                                                                   1 July 2011
    Inflation rate (per annum):                                                                            2.5%
    Centrelink payments (indexation)                                                                       2.5%

                                                                                     Reinvest
                                                                                                        Franking
    Investment                              Amount     Income (%)    Growth (%)       income
                                                                                                             (%)
                                                                                         (Y/N)
    Superannuation                           $21,548             -         6.8%               -                -
    Bank account                              $5,000         0.0%            0%            Yes                 -
    Managed fund                             $39,700         2.8%          3.8%            Yes              80%

                                                                        Interest      Tax            Monthly
    Loans                                   Amount       Owner
                                                                            rate   deductible      repayment
    Margin loan                              $20,000         Craig        9.49%          100%              $158

Please be aware that:

•      Income and growth rates used are considered reasonable, but are only estimates and can’t be
       guaranteed. They are provided as a guide only.

•      We have used the information you provided us for our projections, which is detailed in the ‘About You’
       section. Please check the information is correct and let us know if there are any errors or missing
       information.

•      While we have carefully considered the tax consequences of our recommendations, we ask that you
       confirm your exact annual tax liability with your accountant.

•      As your circumstances and the legislation surrounding superannuation, taxation, and Centrelink is
       constantly changing, it is important to regularly review your financial plan to make sure the
       recommended strategy continues to be suitable.

•       We have assumed you will receive employer super guarantee contributions of 9 per cent of your
       salary while you are employed.

                                                                                   Statement of Advice / Page 23
Income & tax position
The table below shows your likely income and tax over the next five years.

    Projection year                         Year 1         Year 2        Year 3         Year 4          Year 5
    Income received                        $65,000        $66,625       $68,291        $69,998         $71,748
    Salary                                 $65,000        $66,625       $68,291        $69,998         $71,748
    Income reinvested                       $1,145         $1,317        $1,497         $1,685          $1,883
    Regular savings plan                    $1,145         $1,317        $1,497         $1,685          $1,883
    Total gross income                     $66,145        $67,942       $69,787        $71,682         $73,631
    Franking credits                            $265           $305          $346           $390            $436
    Deductible interest                     $1,898         $1,898        $1,898         $1,898          $1,898
    Taxable income                         $64,512        $66,349       $68,236        $70,174         $72,168
    Tax payable before rebates and
                                           $12,904        $13,455       $14,021        $14,602         $15,201
    credits
    Less Tax offsets and credits           00             00            00             00              00
    Imputation credits                          $265           $305          $346           $390            $436
    Tax offset - Low income                     $120            $46            $0             $0              $0
    Total tax offsets and credits               $385           $351          $346           $390            $436
    Tax payable after tax offsets and
                                           $12,519        $13,104       $13,674        $14,212         $14,765
    credits
    Add Medicare levy                           $968           $995      $1,024         $1,053          $1,083
    Net tax / (refund due)                 $13,487        $14,099       $14,698        $15,265         $15,847
    Tax attributable to income             $13,487        $14,099       $14,698        $15,265         $15,847

Please be aware:

•      The tax calculations in year one do not take into account any salary paid up to leaving employment /
       employer termination payments expected to be received upon retirement / the withdrawal from
       superannuation / the withdrawal and re-contribution from your superannuation / nor the tax
       consequences of these payments. This may result in some income tax being payable on your
       account based pension income in your first year of retirement.

•       Tax offsets can only be used to reduce your income tax liability to zero. You cannot receive a refund
       for unused tax offsets. Tax offsets (except Pensioner and Low income aged persons tax offsets) are
       not transferable between partners.

                                                                                    Statement of Advice / Page 24
Disposable income
The table below shows how much disposable income we estimate you will have over the next five years.

 Income position                                 Year 1            Year 2            Year 3            Year 4            Year 5

 Income received                               $65,000           $66,625           $68,291           $69,998           $71,748
 Total income                                  $65,000           $66,625           $68,291           $69,998           $71,748
 Less income tax                               $13,487           $14,099           $14,698           $15,265           $15,847
 Less regular loan repayments                   $1,898             $1,898            $1,898            $1,898            $1,898
 Less planned additions to
 investments                                    $2,400             $2,400            $2,400            $2,400            $2,400
 Less surplus assumed to be
 allocated to investments *                     $1,043             $3,302            $3,185            $3,113            $3,037
 Net income                                    $46,172           $47,326           $48,509           $49,722           $50,965
 Less budgeted expenditure                     $46,172           $47,326           $48,509           $49,722           $50,965
 Surplus income                                      $0                $0                 $0                $0                $0

* We have assumed that you will direct all of your suruplus income to your Generations investment. We have estimated that you will
have a surplus ranging from $1,000 to $3,300.

                                                                                                  Statement of Advice / Page 25
Can you afford an interest rate rise of 2% in a year?
The table below shows how much disposable income we estimate you will have, if interest rates were to
increase by 2% per annum.
Our calculations below demonstrate that you will be able to afford this increase.

                                                                                        If interest rates rise by
                                                                    Recommended
 Sources of income and expenses                                                                               2%
                                                                             ($)
                                                                                                               ($)
 Gross salary                                                            $65,000                         $65,000
 Total income                                                            $65,000                         $65,000
 Income before tax                                                       $65,000                         $65,000
 Net tax/(refund due)                                                    $13,487                         $13,345
 After tax income                                                        $51,513                         $51,655
 Amount remaining                                                        $51,513                         $51,655
 Less cost of living                                                     $46,172                         $46,172
 Disposable income surplus/(deficit)                                       $5,341                         $5,483
 Less regular loan repayments                                              $1,898                         $2,298
 Additions to regular savings plan                                         $2,400                         $2,400
 Surplus/(deficit)                                                         $1,043                           $785
 Additions to Generations Investment portfolio                                $991                             $0
 Net cash surplus/(deficit)                                                    $52                          $785

Total assets
The following table aims to show the estimated value of your investments over the next five years.

 All investments                                 Year 1    Year 2         Year 3         Year 4           Year 5
 Investments                                 00           00             00             00               00
 Bank account                                    $5,000    $5,000        $5,000          $5,000           $5,000
 Regular savings plan                       $45,843       $52,249       $58,962         $66,045          $73,521
 Rollover fund                              $26,404       $31,714       $37,513         $43,837          $50,725
 Less liabilities                            00           00             00             00               00
 Less investment loans                      $20,000       $20,000       $20,000         $20,000          $20,000
 Total investments                          $57,247       $68,963       $81,475         $94,883        $109,246
 Present day value of total
                                            $55,850       $65,640       $75,658         $85,959          $96,557
 investments

                                                                                     Statement of Advice / Page 26
Your adviser          Jenny Norman
                      Authorised representative (No:123 456) of AXA Financial Planning
                      10 Smith Street
                      Leongatha VIC 3953
                      Phone: 03 5322 2222
                      Fax: 03 5333 1111
                      Email: jenny.norman@sfp.com.au
                      Web: www.stablefp.com.au

Who your adviser is
licensed through

                      AXA Financial Planning Limited

                      ABN 21 005 799 977
                      Australian Financial Services Licensee, License No: 234663

                      Andrew Mayne                      For questions about your statement
                      Paraplanner                       of advice when I am out of the office
                      andrew@fo.com.au

                      Claudia Frank                     To assist you with questions about
                      Administrator                     paperwork, statements and any
                                                        other general queries.
                      claudia@fo.com.au

                                                                    Statement of Advice / Page 27
We provide a range of ongoing advice services because you need more than a single financial plan to
ensure you keep on track to meet your goals. Our service offer ensures your financial plan keeps up to
date with your changing needs.

Information and communication
We will contact you each year to reassess your personal and financial situation. This includes:

•     re-establishing your goals and confirming your income, expenses, assets and liabilities, and

•     considering changes in legislation and assessing whether new products on the market can better suit
      your needs.
Financial Planning legislation is regularly reviewed and updated by government. These changes can
create opportunities to help you to reach your personal and financial objectives. We ensure you take
advantage of available strategies maximising your potential to meet your goals.
    When you should          You don’t need to wait for us to contact you if you have ongoing questions
    contact us               about your financial plan. You should also contact our team immediately if
                             you experience changes to any of the following:

                             •   Your goals and objectives

                             •   The timeframe to achieve your goals

                             •   Dependant family members

                             •   Your family home

                             •   Income and expenses

                             •   Assets and liabilities

                             •   Savings and emergency funding

Strategy Management
Throughout the year and during our regular meetings, your financial plan will be monitored in line with the
recommended strategy management services. Some areas of our advice need to be continually
monitored to ensure you progress towards your goals.
From time to time it will be necessary to alter your financial plan based on changes in your circumstances
and legislation.

Borrowing to invest
Borrowing money to invest increases the risks associated with investing. We continually monitor this
strategy to minimise your risk, and ensure you are on track to achieve the goals you set out with.

                                                                                  Statement of Advice / Page 28
Ensuring the strategy      We continue to assess:
 remains appropriate
                            •   your level of debt,

                            •   your repayments,

                            •   your affordability if interest rates rise,

                            •   tax deductibility of ongoing costs, and

                            •   when and how the strategy will be finalised.

 Margin calls               If notice of a margin call is announced, we will take all reasonable steps to
                            contact you immediately. The margin call must be satisfied quickly and we
                            will discuss your options and recommend a suitable solution to meet the
                            lender’s requirements.

Insurance
 Your need for insurance changes as you move through different stages of your life. The amount and
types of insurance you require will be influenced by changes to your personal and financial situation.
 Appropriate types and      •    Over time as your net wealth increases we can investigate
 sum insured                    opportunities to decrease your insurance cover and provide you with
                                cost savings.

                            •   Alternatively, changes to your income, the change in cost of living, your
                                spousal relationships, number of dependants or increased borrowings,
                                may require you to increase your insurance cover.

 Re-assess loadings         •   We investigate opportunities with your insurance provider to have any
 and exclusions                 premium loadings or policy exclusions reassessed by taking into
                                account decisions you have made to improve your health or change
                                your employment conditions or occupation.

                            •   This can result in substantial premium savings or more comprehensive
                                insurance cover.

 Premiums                   •   We analyse research provided by to ensure your insurance policy
                                continues to represent value for money. Insurance providers regularly
                                change their offer creating opportunities to save money on your
                                premium or access more comprehensive cover.

 Structure                  •   Changes to your situation can create opportunities for you to structure
                                your insurance so that premiums are more cost effective, or more tax
                                effective when proceeds are paid to you or your beneficiaries.

Investment Review
Over time, market fluctuations, contributions and withdrawals from your investment cause the asset
allocation of your fund to change. The asset allocation plays a key role in determining the return
achieved by your investment and is critical to minimising investment risk in your portfolio.

                                                                                 Statement of Advice / Page 29
Asset allocation   •   We re-align your investments with the recommended investment
                       strategy for your short and long term goals.

                   •   Over time, we may recommend you change investment strategies to
                       suit your goals and timeframes.

Fund managers      •   We analyse research provided by to ensure the fund managers we
                       have recommended remain appropriate.

Minimise costs     •   Wherever possible, costs associated with making changes to your
                       investment will be minimised. In particular, we seek to offset capital
                       gains so that you are not paying more tax than is necessary.

                                                                        Statement of Advice / Page 30
-

As discussed in our Financial Services Guide, we receive initial and ongoing fees for our advice.

    Initial advice
There is no fee for the initial advice we are providing you.

Ongoing advice
The strategy outlined in this plan should be reviewed on a regular basis so that it continues to meet your
needs.
Our service offer is outlined in the previous section and will make sure the advice we provide remains
appropriate for you in the future.

    Ongoing Advice Provided                Fee Based on                 Payment method                             Advice fee

    Outlined in ongoing advice             Ongoing advice
                                                                        Investment deduction                        $2,500p.a.
    agreement                              agreement

    Ongoing advice fee payable by you (each year)                                                                  $2,500 p.a.

Insurance commission
If your application for insurance is accepted by the insurance company, we will receive upfront and
ongoing payments known as commission. This is only payable once your policy is completed.
We choose to be remunerated by way of a commission because it is a more cost effective way for you to
pay for our insurance advice. We do not rebate insurance commission because the savings the insurer
would pass on to you, in the form of a premium reduction would be lower than the commission rebated.
The amount we receive as commission will vary according to your annual premiums and is payable for
the life of the policy or until you cancel your insurance.
Based upon the insurance we have recommended for you, we will receive the following commissions:

                                                                                         Upfront                Ongoing
                                                                      Premium           (once-off)             (each year)
Insurance Product
                                                                       ($ pa)
                                                                                            $          %            $          %

AXA Generations Death Cover                                               $1,049          $0           $0      $209      20.00%
Zurich Wealth Protection Plus - Basic Trauma                                 $92          $0           $0        $10     11.55%
AXA Generations – Salary continuance                                      $1,584      $1,960 123.75%           $183      11.55%
Total                                                                     $2,725          $1,960                  $402

Please note: The above premium amounts include stamp duty and policy fees which are not usually included when calculating initial
or ongoing commissions.

Premium increases on indexed sums insured will be subject to the upfront commissions as noted above.

Margin loan commission
•     We will receive an ongoing commission on your margin loan balance of 0.06%. This is factored into
      the interest rate.

                                                                                                   Statement of Advice / Page 31
How our advice fees are collected and distributed
AXA Financial Planning collects our fees (inc. GST) and retains 3% to support our business. This
includes investment and strategy research, continuing education, compliance consulting and business
coaching, allowing us provide you with the highest quality service and advice. The remaining 97% of our
fees are distributed in accordance with our Financial Services Guide.

Other benefits we may receive
We may be offered or receive the following non-commission benefits at no extra cost to you.

•   Value Participation Scheme: AXA pays us up to 0.25% of total funds under management in AXA
    wealth management products and up to 3% of total premiums on some AXA insurance products. For
    example:
    If our clients have invested $11million of funds into Summit we will receive $500.
    If our clients pay a combined annual premium of $150,000 for insurance with AXA, we may receive
    $350.

•   Technology and Education: provides us with ‘points’ when our business revenue exceeds $50,000.
    One point is received per $1.25 (incl GST) over $50,000. Points are only redeemed for office
    equipment and staff training to ensure you receive up to date information and advice.
    For example, if our business receives net earnings of $100,000, we will receive 40,000 points
    ($50,000 qualifying earnings divided by $1.25). The points are multiplied by 0.008 cents to produce a
    benefit worth $325.

•   Top 25 business award: For operating a top 25 business, based on revenue and the retention of the
    Certified Quality Advice Practice’ status, AXA Financial Planning covers our cost of attending the
    national conference and financial planning software (total value of approximately $15,000).

                                                                                 Statement of Advice / Page 32
In this plan, we have included specific information to help you understand our recommendations and how
you will benefit from them. This page provides important information about things that you should know.

Can I change my mind?
Yes. If you are not happy with our advice, you do not have to accept the recommendations.
If you proceed with our advice and change your mind about a product we have selected, you may be able
to get your money back. Insurance products and managed funds generally have a 14 day cooling off
period. You should refer to the product disclosure statement for further details.

What happens if the information I provided wasn’t accurate?
If the information you gave us was incomplete or inaccurate, the advice may not be appropriate for you.
Please let us know if any of the information does not reflect your current situation.

Do I need to contact a registered tax agent or Centrelink?
Yes. Any tax and Centrelink references in this plan are estimates only. You should obtain advice from a
registered tax agent or accountant regarding the taxation implications and confirm the estimates of your
entitlements with Centrelink directly.

How does my adviser select the recommended products?
 AXA Financial Planning maintain an approved product list developed using research from external
research houses. From this list we select products to suit your situation. The approved product list is
continually reviewed and can be supplied to you on request.
We can provide advice on products from a wide range of financial product providers, some of which are
part of the global AXA group and are affiliated with AXA Financial Planning. A full list of our relationships
and associations are detailed in our FSG.

Are my investment returns guaranteed?
No. We have chosen strategies and products to suit your goals, but we cannot guarantee that the
products will perform in a particular way. Unfavourable market conditions can reduce the value of your
investments and the investment returns generated.

Does my advice have a time limit?
Yes. Our advice is current for 30 days from the date of this plan. After that time you should not act on any
of the recommendations without contacting us.

Will my personal information be provided to anyone else?
We will not provide information about you to anyone else without your written permission, unless the law
says that we must.
We may appoint another adviser to manage your affairs. Of course, we will notify you when this happens.
Your new adviser would have access to your personal information unless you instruct us otherwise.

Is my adviser responsible for advice provided by referrals?
No. Where we provide a referral, we do not endorse, recommend, nor are we responsible, for the
products or services that you purchase from them.

                                                                                   Statement of Advice / Page 33
We are often told that debt is bad, so most of us try to clear it as quickly as we can. We are also told to
avoid taking on new debt where possible. While this is certainly true in some cases, debt can also be a
powerful tool for creating wealth. When done sensibly, there are many times where borrowing may be
appropriate, including purchasing a house and borrowing for investment.
Borrowing to fund your investments is called ‘gearing’. Traditionally, gearing has been more commonly
associated with property investment, however over the years gearing to invest in shares has become
more widespread. Many people now use gearing as part of their overall investment strategy to help build
their wealth.

Why should I gear?
Depending on your circumstances, gearing can provide a number of benefits.

                                           The benefits of gearing
    Accelerate your investment        •   Borrowing allows you to invest more money than using only your
    returns                               own funds. It gives you greater potential to build your wealth
                                          because you have more money in the investment market.

    Keep all of the profits           •   After you cover the borrowing costs and tax, 100 per cent of the
                                          growth and the income you earn on the invested money are
                                          yours to keep.

    Tax advantages                    •   When you borrow to invest in income-producing investments,
                                          the interest on your loan is treated as an expense for tax
                                          purposes. This means that you can claim the interest as a tax
                                          deduction.

                                      •   The higher your marginal tax rate, the greater the benefits of any
                                          tax deductions you receive.

Who should gear?
Borrowing to invest is not a suitable strategy for everyone. It is best suited to people who are comfortable
taking extra risk with their investments and those who can cope with potentially large fluctuations, both up
and down, in the value of their investments.
Gearing is best suited to people who:

•     Have a high level of comfort when it comes to investing.

•     Have high disposable income.

•     Are prepared to hold their investments for at least seven to nine years.

•     Can afford the interest repayments without relying on the investment.

•     Have funds, other than the borrowed money, that can be accessed at short notice should the need
      arise.

What effect do investment returns have on a gearing strategy?
Borrowing to invest can accelerate your investment returns. It also works in the opposite way by
magnifying any losses. The following examples show you how gearing works:

                                                                                   Statement of Advice / Page 34
Investor 1               Investor 2                   Investor 3

    Own funds                                 $100,000                  $50,000                       $10,000

    Amount borrowed                                  $0                 $50,000                       $90,000

    Total investment                          $100,000                 $100,000                      $100,000
    Market rises 10%
    Value of portfolio                        $110,000                 $110,000                      $110,000

    Loan outstanding                                 $0                 $50,000                       $90,000

    Investor’s equity                         $110,000                  $60,000                       $20,000

    Gain in investor’s equity                     10%                      20%                          100%
    Market falls 10%
    Value of portfolio                         $90,000                  $90,000                       $90,000

    Loan outstanding                                 $0                 $50,000                       $90,000

    Investor’s equity                          $90,000                  $40,000                             $0

    Loss in investor’s equity                     -10%                     -20%                        -100%
    Market falls 20%
    Value of portfolio                         $80,000                  $80,000                       $80,000

    Loan outstanding                                 $0                 $50,000                       $90,000

    Investor’s equity                          $80,000                  $30,000                      -$10,000

    Loss in investor’s equity                     -20%                     -40%                        -200%

Here, gearing has given Investor 3 a significantly greater return than that earned by Investor 1. This
sounds great, but as you can see when the markets fall, gearing has multiplied the losses experienced by
Investor 3. Worse still, if the investment falls by $20,000 or 20%, they lose not only their original $10,000
but a further $10,000. The extra $20,000 is money they owe and still have to repay.
This example highlights that while sensible borrowing can be an effective wealth creation strategy,
gearing can derail your investment plans when the levels of borrowing are high and markets drop.
Remember, regardless of what the market does and how your investment performs, you always have to
pay the interest!

How do I gear?
There are broadly three different ways you can borrow to invest:

•     Using your home as collateral to borrow money, known as ‘home equity’ lending;

•     Contributing a portion of your own money, with the amount being matched by a lender, allowing you
      to invest a greater invested sum, known as ‘margin lending’; and

•     Investing money with a Fund Manager that uses your money (and its other assets) to borrow. These
      funds are known as ‘geared share funds’.
Each of these methods will be discussed in detail.

                                                                                   Statement of Advice / Page 35
Home equity lending
What is a home equity loan?     •   It involves borrowing against the equity in property you already
                                    own (e.g. your home) using current mortgage rates.

How much can I borrow?          •   The amount you can borrow is limited by:

                                •   The value of your property, and

                                •   The amount of any existing loans you have against your home.

                                •   The equity you have in your property is calculated by subtracting
                                    the debt from the value of the home.

                                •   Typically, a bank will allow you to borrow, in total, up to 90% of
                                    the value of your property.

Benefits of home equity         •   The simplest and perhaps the most cost effective way to gear.

                                •   Home loans commonly attract the lowest rates of interest.

                                •   The only costs are the ongoing interest and any initial fees to set
                                    up the loan.

                                •   Very little restriction on what you can invest in.

                                •   No requirement to contribute other funds to the investment.

                                •   The lending institution will generally only require the regular
                                    payment of interest to fulfil your obligations.

Disadvantages                   •   If the investments fall in value, your home could be at risk if you
                                    cannot otherwise repay the loan.

                                •   Paperwork (and some Government and legal costs) may apply
                                    to the loan.

Tax benefits and implications   •   The interest and any costs associated with the loan are tax
                                    deductible where the funds are borrowed to purchase income-
                                    producing investments.

                                •   In order to claim a tax deduction for the interest payments, your
                                    loan statements must be able to distinguish between existing
                                    money you owe on your home and the money you borrow to
                                    invest.

                                                                               Statement of Advice / Page 36
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