Financial Plan Craig Mattern - 7 April, 2011
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Financial Plan
Craig Mattern
7 April, 2011
Statement of Advice
Prepared by: Jenny Norman, Authorised Representative of AXA Financial Planning
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
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 3The 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 4Ongoing 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 5One 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 6Our 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 7Important 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 8Short 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 9recommendations 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 10Appropriate 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 11Advice 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 12Before 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 13Which 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 14Long-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$1.6 trillion dollars
on behalf these clients.
Generations will send you regular reports on your investments as well as
giving you 24-hour/7 days-per-week access to your account information
via the internet.
Additionally, you already have an investment account established with
Generations.
We have provided you with a Generations brochure (Product Disclosure
Statement) that has more information on this investment.
Statement of Advice / Page 15Underlying investments
Multi manager As the name suggests, multi manager diversified funds invest across the
diversified fund range of asset classes drawing on the expertise of specialist investment
managers in each asset class. Extensive research, both locally and
globally, is carried out by ipac.
ipac have been selected for their scale, expertise and experience in
managing diversified multi manager investments.
They will ensure appropriate investment managers are selected for each
of the asset classes. These managers are then blended to construct a
portfolio that is suitable for the investment objectives of the fund.
The various managers are then subject to a rigorous monitoring and
review process to ensure the managers are continuing to work with the
agreed strategy. The managers may be changed or the allocated
amount of the portfolio varied at any time without prior notice.
Recommended long term investments
Regular
Reinvest
Investment Owner Final balance Investments /
income
withdrawals ($) 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 16Superannuation 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 17Important 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 18During 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 19The 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 20Craig 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 21super 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 22Our 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 23Income & 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 24Disposable 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 $3,300.
Statement of Advice / Page 25Can you afford an interest rate rise of 2% in a year?
The table below shows how much disposable income we estimate you will have, if interest rates were to
increase by 2% per annum.
Our calculations below demonstrate that you will be able to afford this increase.
If interest rates rise by
Recommended
Sources of income and expenses 2%
($)
($)
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 26Your 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 27We 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 28Ensuring 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 29Asset 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 31How 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 32In 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 33We 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 34Investor 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 35Home 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 36You can also read
