TFIN304 Personal Financial Planning: Report on Interview Transcript

Adviser

Client

Hi Rodger, welcome to our financial planning firm. Did you have any trouble finding us?

No trouble at all thanks.

Can I offer you a tea or coffee?

A coffee would be great thanks.

[Adviser organises this]

Can I ask, in a nutshell – how can I help?

Basically there’s a few reasons why I wanted to see a financial planner, firstly, I have a young son, so I want to make sure he is financially protected if anything was to happen to me. A workmate was recently talking about insurance cover he’d taken out and it made me realise that I need to get this sorted too.  

I also want to buy a house for us, so I need some advice on saving for a deposit too.

Finally, to put in place some sort of investment for my son for high school and hopefully university.  

That all sounds great, thanks for coming to see us today. What’s your son’s name and how old is she?

His name’s Isaac and he’s recently turned 8. He’s really into her sport and gaming.

Sounds like fun! From what you’ve said so far, I’m confident we can help you achieve… [state the client’s goal(s)].

Great.

Before, we go any further, have you ever seen a financial planner before?

No, one of my workmates recommended I come and see a financial planner, as I know I need to get my insurances sorted as well as getting investment advice.

Ok great, we’ll look at this in more detail shortly. What we’ll do today, is I’ll firstly explain how we work, ask a few more questions, and then get an understanding of your current situation. How does that sound?

Sounds great.

[Adviser goes through the Financial Services Guide (FSG), explaining:

• key points, including the company, authorisation; services; fees and the complaints process

• how the financial advice process will work, including the various stages, ongoing reviews etc

[Client signs acknowledgement that they have received FSG]

Before I make any recommendations, I need to understand more about your goals and objectives and then we’ll consider your current financial situation.

Every financial plan is unique to each client. Having you achieve your goals is as important to us as it is to you.

Sounds great – based on what I’ve heard I’m keen to proceed.

Adviser

Client

To do this, if you can answer the questions as openly and accurately as possible – we can better understand your needs and concerns. Any details you don’t know – we’ll itemise them for follow up.

If you have any questions – don’t hesitate to ask – let me give you my card – for future reference. How does that sit with you?

Before we look more closely at your goals and objectives – let me find out more about you personally.

[USING FACT FIND: collect details re client’s background, goals and objectives and current financial situation] How old are you?

What is your current marital status? Do you have any dependents other than Isaac?

For completeness, Isaac’s mother…?

Age 30

Single

No, just Isaac, aged 5

Isaac’s mother passed away giving birth to Isaac unfortunately.

Ok thanks for that, there are a few more personal details we need to get:

Are you an Australian citizen?

What is your current address?

Do you own or rent this property?

What is your best contact number?

Email address?

Yes, Australian citizen

46 Cliffhanger St, Cliffhanger

Rent

Phone: 0444 444 444

Email: [email protected]*

What do you do for work? And can you tell me what you earn per year?

I’m employed as junior project manager, working for a large energy company, earning around $125,000 per year plus super.

Thanks for that. You mentioned that making sure Isaac is financially protected if anything was to happen to you is concerning you, can you tell me more about this?

Basically, I want to make sure that if I passed away, or became seriously ill or injured, he would be financially taken care of and there wouldn’t be the added stress about paying for his schooling or expenses. I just want to sure he would be financially set up if something did happen to me.

That all sounds reasonable, we can definitely look into this. We’ll discuss how much insurance you may need shortly when we do what’s called an insurance needs analysis.

Now, you also mentioned that you would like to buy a house and put in place a plan for education funding in place too. Can you tell me more these concerns?

In terms of buying a house, I’d love to be able to be able to do this, it would be nice to have some more space, particularly as Isabelle gets older. I’d also prefer to be paying off my own mortgage rather than somebody else’s.

I also want to make sure I have sufficient education funds to send Isaac to an independent high school and go to university if this is what he wants. I’d like to be able to fund high school (6 years) at $5,000 per year and say $20,000 towards university, as a one off.

That’s definitely a common problem and something we can help with.

I want to make sure I have a 20% deposit so I avoid the lenders mortgage insurance, so I’m probably looking at being able to afford what I want in around 4-5 years’ time.  

Adviser

Client

Before we get into this, let’s look at these concerns in a little more detail now.

In terms of buying your own home, have you considered how much you will need for a deposit and when you want to purchase this?

In terms of a deposit, I would like to buy in the same area we’re in now, as Isaac has a lot of friends here and the schools are great. I’ve looked into what I would like and it is quite an expensive area, plus given house prices are increasing, I’d say I’ll probably be looking at a house around $700,000 in

4-5 years’ time, so I’d be looking at a deposit of around $140,000 plus another say $5,000 for legal fees, insurance, building and pest inspections etc. So my overall goal is to have $145,000 saved up within 4-5 years.

What I didn’t mention before, was that I also really want to take Isaac on a cruise next year, as it’s his grandfather’s 70th birthday and a number of relatives are arranging this and going to be there.

That sounds great! A cruise is a special event. How much are you expecting this to cost?

I’m budgeting on around $10,000.

Ok great. Looking at your superannuation now, you mentioned earlier sorting this out and making sure that you’re in the right fund is important to you. Though I was wondering whether you’d given any specific thought to your retirement at all?

At this stage, I’m not interested in discussing superannuation or contributing extra than what my employer pays on my behalf.  

No problem. In terms of retirement planning, it is an important consideration, even for someone young, like yourself. Though I understand you do have strong goals outside of superannuation, so we’ll look at reviewing your superannuation in the future.

Sounds good.

Let’s determine the priorities for each of your goals now.

Using a scale of low / medium / high, what priority would you say getting appropriate insurance cover in place was?

Definitely high priority, it’s something I know I need to get sorted.

What about buying your own home?

It’s a medium-high priority, it’s something I really want to do, though I know I need to get everything else sorted first.

What about the cruise?

High priority. It’s higher than buying my own home at this stage as my grandparents are getting older and we very rarely get to see all our relatives in the one place.

That makes sense. Just to confirm, would you be happy delaying the purchase of your own home if it meant that you and Isaac can go on the cruise?

Yes that’s correct, though I’d prefer not to delay much longer than 5 years unless I really had too.

Sure. What about education funding for Isaac?

This is medium priority.

That all sounds reasonable. Now that I have a good idea of what you want to do, let’s talk about your cash flow and budgeting now.

I’ve actually done a lot of work on my budgeting recently, so I’m ok with that side of things, it’s more the investment advice I’m concerned about.

Ok, that’s fine. Can you tell me how much are you saving each month then?

I’m saving around $1,200 each month.  

Adviser

Client

[Rodger produces bank statements with ABC Bank which show regular savings of approximately $1,200 per month over the last 6 months].

Great, thanks for that. Now that I have a good understanding of your needs and objectives the next task is to look more closely at your risk preferences. To do this we will conduct a risk profile questionnaire. It will take a little time but it’s very important – it’s all about making sure you can sleep at night.  

With any investment there is risk.

Understanding how much risk you are comfortable with and prepared to take is an important part of any financial plan.

Here is a copy of the risk profile questionnaire. Before we go through it please tell me what is your understanding of risk in terms of investment?

[Rodger gives his understanding of risk.]

Great, let’s go through it together. The questions are designed to determine how to match your risk preferences with recommended investment strategies. When we’ve finished the questions, we’ll discuss your scores and whether or not you are comfortable with the outcome.

[Rodger answers the questionnaire].

[Advisor gives a detailed explanation of how risk and return works, how each investor could be categorised into one of at five different risk profiles etc. For example;]

Your attitude to investment risk is a crucial factor in determining an appropriate investment strategy to meet your goals. Investing is considered risky because there is uncertainty about the investment and how it will perform over the short and long-term. Different types of investments experience different levels of volatility. Negative returns can happen at any time, so during periods of poor performance, remaining invested for the recommended minimum investment term will provide an opportunity for your portfolio to recover.

Rodger, you are a ‘growth’ investor. A growth’s investor’s primary objective is to achieve capital appreciation. The portfolio will usually contain around 20% in defensive assets such as cash and fixed interest with the remaining 80% is allocated to growth investments such as shares and property to provide capital growth. A growth investor is prepared to accept high volatility in the short to medium term to provide the opportunity to achieve the capital growth desired in the longer term.

The minimum suggested timeframe for a growth investor is 5 to 6 years. The likelihood of negative returns for a growth investor is 1 year in every 4 years.  

Do you agree with this description?

Yes, that sounds about right. I’m fairly comfortable with risk.

In some cases it may be appropriate to use a different risk profile approach to your assets or

That sounds good to me. I don’t have any investment preferences, as long as I don’t have to manage the

Adviser

Client

strategies. For example, to meet your education funding objectives, we may recommend that a specific risk profile be applied to your this investment due to your timeframe, which may be different to other savings you have available.

investments myself. With Isabelle, I don’t really have the time to do this. Otherwise, I’m happy to go with what you recommend.

[Assume that as part of the discussions on risk / investment preferences, Rodger confirms that he is comfortable with shares as an investment class, provided he doesn’t have to manage these.]

Great. Now let’s talk more about your employment and income.

We collect details of your current employment as this information can affect your eligibility for certain insurances as well as the cost of your insurance premiums.

What are your employment arrangements?

I am employed on a permanent and full-time basis.

As I mentioned earlier, I’m employed as a junior project manager and my salary is $125,000 per year [before tax], and my employer pays the 9.5% superannuation guarantee on top of this as well.

Thanks for that. Is your salary your only source of income?

Yes, that’s correct. I do get a little bit of interest income but not a lot.

Great. Now I see from the bank statement you gave me earlier that you currently have $62,000 in a high interest savings account earning 2.0% interest. Do you have any other savings / bank accounts?

No this is my only savings account (a variable savings account). I do want to leave a minimum of $10,000 in this account as an emergency fund, though I’m happy to use the rest to achieve my goals previously mentioned.

Of course, it’s important to have access to some cash in case you were to need it urgently.

In terms of your cash flow, you said earlier that you now have a monthly surplus of $1,100, is this all available for investment / achieving your goals?

Yes, that’s correct. The $1,100 surplus is after all my expenses, credit card repayments etc.

Great. Other than your bank account do you have any other assets apart from superannaution?

A car that’s worth around $20,000 as well as some home contents worth around $30,000.

Great. Let’s look at your personal liabilities now. This section captures information about your personal liabilities so that we can consider the impact of these when providing advice to you.  

Do you have any personal labilities, such as personal or car loans, or credit card debts?

I do have a credit card, I have around $2,000 owing on it at the moment, though I pay everything off in full each month so I don’t pay any interest.

Ok great, just to confirm, you don’t currently owe any money on your car do you?

No that’s correct. I actually paid for this in cash several years ago now, my parents always encouraged me to pay for my cars in cash rather than use finance.

Sounds good! Let’s move on to insurance. What insurance cover do you currently have in place?

I’ve got comprehensive car insurance with NRMA and that’s it. I’ve also been considering getting private health insurance that includes Isa too, though I’ve heard quite a few ads about the price increasing recently, so I’m not sure. I have no insurance in my superannuation fund.

Is there a particular reason you’ve been considering private health insurance?

Well you never really know what’s going to happen or when you will need hospital cover. Children’s health care is quite expensive too… I can see Isaac costing me a lot of money in dentist bills!

Adviser

Client

Yes that’s always is a concern! We can look into this for you as well.

Great.

Do you have any particular health concerns that you are worried about or any family history that I should know about?

No, overall, both Isaac and I are pretty healthy.

However, there is a family history of prostate cancer on my dad’s side of the family. So I make sure I get tested regularly for this.

Ok great, sounds like you have it under control. Now, to help me understand how much insurance you need we need to talk about your requirements and do what is called an Insurance Needs Analysis. So let’s outline your key insurance requirements.

[Advisor goes through Insurance Needs Analysis with Rodger].

Ok sounds good.

[As part of this process, Rodger reiterates his concern of making sure that Isaac’s financially protected should he pass away, or become ill or injured and can’t work for a period of time.

Also, assume that as part of these discussions, Rodger advises that he has approximately 30 days of sick leave and 30 days of annual leave owing to him.

Before we finish up today, I want to ask what estate planning measures you have in place at current? This is an area often overlooked. Do you have a will and power of attorney in place? Or any other estate planning measures?

No – I haven’t really given much consideration to this. Are these things important?  

Yes, they definitely should be, particularly having a son.

Ok then, if you can please give me guidance that would be appreciated.

Ok, thanks for all of the information you have provided today. Now I have asked all the standard questions – and feel I have a strong understanding of your situation.

But I have just one last question …

Is there a question – related to your financial situation – that I haven’t asked – or one that you hoped I wouldn’t ask?

No – I think we’ve covered everything. I’m happy to proceed with the advice.

Great – so my job is to go away and analyse the information you have given me and prepare my recommendations based on this. In doing so, we may have further questions or may require further information from you. In either case, we will be in touch.

Once we have all of the required information, we will prepare your Statement of Advice. This will go through 2 compliance checks and will be ready in approximately 2 – 3 weeks’ time.

So, can we diarise the next appointment?

How would you like to pay for the Statement of Advice?

[Set the date, pay the deposit]

Thanks for that, until our next meeting here’s a little reading material – a couple of good news stories about people just like you – working effectively to create and protect their wealth.