Reference no: EM13364327
William (41) & Joan (36) Morris were recommended to you by an existing client who is very happy with the service and advice she has been receiving. They have 2 children, Emma (8) and Joey (6). William also has a son (Matt, 19) from a previous relationship, with whom he has little contact other than on special occasions, and the odd catch-up.
Six months ago Joan received a $400,000 inheritance from her late great uncle. Since receiving the windfall, Joan and William have been at a loss about what to do with the funds. They certainly agree that these funds should be invested wisely in order to secure their future, and provide for their children while they are at home.
William is an Aerospace Engineer, contracting to BAE Systems for the past 4 years. As a self-employed contractor, he expects to have turned over $320,000 by the end of this financial year. William currently makes the minimum 9% mandatory contribution into his super, which is accumulating into a default portfolio that had been established by his last employer. The last statement indicated a super account balance of $285,000.
Joan, a qualified Events Manager, has been on home duties for the last 8 years, and is unlikely to ever return to full-time employment. She may seek part-time work in 4 to 5 years' time, when Emma is in high school. She has a minimal super balance of approximately $23,000, and has no clue as to how it is invested.
Their financial position is as follows:
|
Assets
|
$ Value
|
Liabilities
|
$ Value
|
|
Principal residence
|
$1,800,000
|
Mortgage
|
$1,100,000
|
|
Home contents
|
$ 230,000
|
Line of Credit
|
$ 300,000
|
|
Cars (x2)
|
$ 130,000
|
Car/Personalloan
|
$ 70,000
|
|
William's super
|
$ 285,000
|
Credit cards
|
$ 35,000
|
|
Joan's super
|
23,000
|
|
|
|
Share portfolio
|
$ 28,000
|
|
|
|
Cash (in offset account)
|
$ 192,000
|
|
|
|
Total assets:
|
$2,688,000
|
Total liabilities:
|
$1,505,000
|
|
|
|
NET WORTH:
|
$1,183,000
|
They have significant expenses, with both kids attending elite private schools costing $25,000 plus per annum for each child. They go on annual trips overseas, during which they spend quite lavishly. In addition to these costs, their mortgage repayments, and ordinary living costs, they often dine at fine restaurants, and spend on luxury items, leaving them with little-to-no cash surplus. Apart from what they had managed to save in the mortgage offset account previously, they have not been putting any cash aside for the past 3 years.
William and Joan's Wills were last updated 6 years ago, shortly after Joey's birth. They have each other as reciprocal beneficiaries, with all their assets passing to the children in the event they are both deceased. There is no mention of Matt in William's Will. They have no Powers of Attorney (PGA) of any kind, or guardianship arrangements for their children.
William and Joan have private health insurance for the family. William has Term Life and TPD cover in his superannuation fund of $300,000. He also has Income Protection insurance through super that has not been reviewed since he was last a company employee on a $110,000 salary. Joan has no personal insurances as they have never felt the need for it, and at this time they are not requesting specific wealth protection advice.
You have discussed investments with each of them and they appear to have widely divergent risk tolerances. William is a Growth investor, bordering on the aggressive. He has been trading stocks since his early 20s, encouraged by his father who had started an account for him with $2,000 as a 21st birthday gift. William currently trades infrequently, especially after having suffered significant losses in the early days of the GFC. Joan has no experience whatsoever, other than witnessing the frustration of her husband over losing trades in recent years. She is a very risk averse and would be considered a very Conservative investor.
As for their concerns relating to investment, they both agree on the importance of having easy access to capita/,low volatility of investment returns (although William maintains he has the knowledge to resume active trading as the market shows signs of growth), capitakirowth and regular income from investments to ensure a comfortable retirement.
You are preparing a full financial review for the couple, and considering what financial strategy opportunities are available for them.
Their objectives are:
Joan has recently inherited $400,000 from her great uncle.
William and Joan would like to maximise their income eaming capacity.
They are seeking a long-term tax effective investment plan which will provide for their future income needs and their children's education.
They would like to help both children attain top-quality schooling, and university education.
They would like to continue to have their annual family holidays.
They would like to retire on approximately $250,000 per annum (in today's dollars)
QUESTIONS:
A- Outline the important personal and financial issues to discuss with William and Joan, prior to making any recommendations (i.e. other matters they should consider).
B- Discuss any concerns YOU may have with any of their objectives (i.e. how realistic or otherwise those may be). Start by listing 5 strengths and 5 weaknesses in their current situation, towards fulfilling their goals and objectives.
C- What are your recommendations for William and Joan, to achieve their goals? Provide reasons for your recommendations?