Sample simple SOA SMSF Investment strategy and retirement matters drafted by Terry McMaster

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1 Notes and instructions (remove before use) Sample simple SOA SMSF Investment strategy and retirement matters drafted by Terry McMaster This is a sample simple SOA dealing with a change in the composition of a client s superannuation benefits, based on a client SOA we reviewed earlier this week, with some interesting tweaks. The first tweak relates to the client s decision, at age 61, to let their life insurance cover lapse. The second tweak relates to some non-product suggestions as to how to make their retirement prospects better: ideas like share a car, cut back on take away, work a bit more each week and work past age 60 may sounds a bit austere and Fagan like, but they beat an impecunious life on the old age pension. Page 1

2 LIMITED SCOPE STATEMENT OF ADVICE ON INVESTMENT OF SUPERANNUATION MONIES AND CERTAIN RETIREMENT RELATED MATTERS PREPARED FOR: MR JOHN GREEN AND MRS PAM GREEN 10 GREEN ROAD BLUE PARK NSW DATE PREPARED: 14 FEBRUARY 2013 ADVISER: TERRY MCMASTER Authorised Representative No TULIP ST, CHELTENHAM, VIC 3192 TEL: (03) AUTHORISED REPRESENTATIVE OF: DOVER FINANCIAL ADVISERS PTY LTD AFS LICENSE NO TULIP ST, CHELTENHAM, VIC 3192 Page 2

3 Scope of this statement of advice SOA and summary of advice This SOA confirms the advice provided at our meeting regarding the investment composition of your superannuation benefits and some reflections on your overall retirement strategy. This SOA contains the information you need to decide whether to rely on our advice. This is a limited purpose SOA and only covers the advice provided at our meeting and no other matter. Financial services guide FSG A FSG setting out the services we offer, our fees and the complaint process has been provided to you previously and another copy can be accessed here: McMasters' Financial Services Guide. Your financial profile Your financial profile is as follows: Your net assets Home $650,000 Superannuation SMSF $126,000 Superannuation First State Super $101,815 Investment property Black Avenue $470,000 Debt Investment loan ($440,815) Debt Personal loan ($130,000) Net Assets $777,000 Other relevant matters Age John 61 and Pam 60 Health Marital status Dependants Good Married One dependant university student son Income John $26,000 Pam $64,000 Occupation John self employed and Pam Admin Officer Your risk profile We discussed the relationship between risk and return and in summary, and largely based on your age and your current intention to retire in no more than five years time, its seems wisest to avoid unnecessary risk and instead plot a conservative course with at least 30% of your investment assets in low risk cash deposits and similar investments, no more than 20% in international shares and the balance in a spread of blue chip Australian shares and properties, via diversified managed funds. This gives an appropriate balance: your capital is well partly protected against falling market but you can expect some capital gains over say the next 10 to 20 years. Summary of recommended strategy We recommend you: (i) close your SMSF and roll the balance into Australian Super, thus simplifying your lives and reducing your accounting fees; Page 3

4 (ii) starting superannuation pensions at age 60, and reinvesting the tax free pension income to the fund as a non-concessional contribution; (iii) roll your First State Super accounts into Australian Super; (iv) select the Stable Australian Super investment strategy (100%); (v) sell the investment property and use the sale proceeds to pay of the investment loan; (vi) appreciate that you are currently under-funded for retirement and that new strategies are needed. These new strategies could include: (a) increasing Pamela s employer paid concessional contributions to $25,000 each year, transferring 85% of them to John under the superannuation spouse transfer rules and then having John withdraw these benefits tax free at age 65 and use them to pay off all or part of the personal loan of $130,000; (b) increasing John s working hours, and hence his income, and dedicating the increased income to debt reduction; (c) examining your household budget and identifying potential savings, such as switching to just one car, reducing take away food and encouraging your son to get a part time job while he completes his university degree. The cash saved should be used to reduce debt; and (d) re-considering age 65 as a retirement age and instead retire at age 70. This will significantly change the economics of your retirement by: increasing your stock of capital, particularly superannuation, at retirement age, deferring the start of the draw down of your superannuation by five years, and reducing, by five, the number of years you have to be self sufficient in your old age; and (vii) at age 65, i.e. five years off your planned retirement, consider whether you should gift any wealth to related persons, possibly including an uncontrolled family trust, or spend money on improving the value of your home, with a view to maximising your age pension entitlements at age 70. Risk insurances, and your decision to cancel INSURANCE TYPE UNDERWRITER / POLICY NAME INSURED BENEFIT AMOUNT ANNUAL PREMIUM LIFE & TPD ONE PATH VIA SMSF SUPER JOHN LIFE & TPD: $318,579 $9,356 ONE PATH LIFE & TPD: LIFE & TPD $4,567 VIA SMSF SUPER PAM $318,579 LIFE & TPD FIRST STATE SUPER LIFE & TPD: $23,610 $180 Due to your age the premiums are very high, and represent a sizeable proportion of your total living costs. You are in good health and have recently completed your annual detailed health check ups. Each of your parents is still alive. You have been looking at this matter closely and in summary you think it is probable, but not certain, that you will live beyond age 65 and your premiums will be wasted. You asked us about this in our meeting and in summary we are reluctant to recommend that you cancel these policies but must agree that yes, it is probable, but not certain, that you will live well beyond age 65 and that the premiums will be wasted. We believe your decision to cancel the insurance is rational but is obviously not free of risk and you could die prematurely. Let me know as soon a possible if you have second thoughts about your decision. Australian Super has a small amount of low cost life insurance. But nowhere near this sort of cover. Page 4

5 Corporations Act switching disclosure rules The Corporations Act requires additional information be disclosed if we recommend one financial product be replaced in full or part by another financial product, such as our recommendation that you dispose of your SMSF and First State Super benefits and acquire Australian Super benefits. Accordingly we advise that: 1) SMSF and First State Super was considered and their characteristics compared to Australian Super; 2) a number of other products were considered, including retail funds and industry funds, and we concluded the Australian Super was more appropriate to you than these other products; 3) there are no costs other than those set out below under the heading Commissions and other costs ; 4) no significant potential benefits will be lost other than the insurance benefits as discussed above; and 5) there are no other significant adverse consequences. Best interests duty and the appropriateness of our advice I/we believe this advice is in your best interests and appropriate to your circumstances, in that: i. it is fit for its purpose and is likely to satisfy your relevant circumstances and financial objectives; and ii. is likely to put you in a better position, according to the standard of a reasonable advice provider. If for any reason your are concerned that this advice is not in your best interests or is not appropriate to your circumstances and financial objectives you should not act on this advice and you should inform me/us of your concerns in writing immediately. Why is Australian Super appropriate to you? Australian Super is appropriate to you because it: 1) is expected to produce better future returns, net of costs, than the alternatives; 2) allows you to control your investments and elect to be invested in Stable ; 3) is very large and stable and is ranked well by industry experts; and 4) is cost effective, reducing total fees, thereby increasing retirement dollars. Your wills and estate planning Your estate planning position is summarised here: ENTITY DOCUMENT DATED / TYPE EXECUTORS / NAME OF POA Pam YES PAM & Will in place Richard Hunter John YES JOHN Powers of Attorney NO NO In summary, we believe fresh wills are in order and we will arrange these for you through Dover s legal team. Powers of attorney will also be prepared for you by Dover s legal team. Page 5

6 Why is our advice appropriate to you? Why is our advice in your best interests? Our advice to select Australian Super s stable investment option is appropriate because it is consistent with our moderate conservative assessment of your risk profile and your own risk return preferences. Selling the investment property improves cash flow although you will miss out on any future property market price rises but understand that this is the trade off for the lower risk. As you noted, it also means you will miss out on any future property market falls. The tax benefits on the extra concessional contributions are estimated to be about $4,000 a year, plus Medicare Levy. These are significant tax benefits and help lower the risk connected to investing via super, by creating an automatic tax driven extra return. Deferring your ultimate retirement makes sense for the reasons stated above. It helps that you both enjoy your work and are able to take advantage of this option. Deferring retirement means you will have more super and it will not have to last as long (because you will be older and your remaining life will be shorter). The cancellation of risk insurances is your decision, not our advice. You understand the risk of dying prematurely. In the circumstances you think the premium saved justifies the extra risk. We believe our advice is on your best interests and that a reasonable advice provider would believe you are likely to be in a better long term financial position if you follow our advice, having regard to your stated risk preferences and your desire to be debt free as soon as possible. Time frame and other thoughts We believe ten years is a sensible time frame to measure the net results of this strategy. Rough forecasting suggests your superannuation will grow to more than $500,000 in today s dollars over ten years, subject to certain assumptions about growth and interest rates. Obviously it all depends on future growth rates and we cannot guarantee this amount. This strategy has low risk, and the overall strategy largely depends on you changing some of your behaviours and maintaining your fitness for work for an extra five years. Obviously health management plays a role here. The idea is a steady pace wins the race and you should have appropriate time off and time out each year to maintain your freshness and readiness for work. Product disclosure statements You have been provided with a PDS for Australian Super and you can access a further copy here: Australian Super PDS. This document also explains the general class of superannuation financial products. We have considered alternative superannuation funds and believe Australian Super is appropriate for you, particularly because of its size and stability. It is well run, commission free and relatively low cost. It is an appropriate vehicle for your superannuation benefits. Commissions and other costs There is a once off fee for attending the meeting and preparing this SOA of $2,500. There are no commissions or similar payments. Page 6

7 Australian Super will charge the following fees each year: AUSTRALIAN SUPER BALANCE ADMIN. FEE PROTECTION FEE MER AMOUNT PAM $140,035 $ % 0.38% $680 JOHN $87,781 $ % 0.38 % $456 TOTAL $227,816 $1,136 Capacity in which advice is provided Dover Financial Advisers Pty Ltd ( Dover ) ABN is the holder of an Australian Financial Services License AFSL Dover is located at 71 Tulip Street, Cheltenham, Victoria, Terry McMaster is an authorised representative and majority beneficial owner of Dover. Financial product advice is provided by Terry in his capacity as an authorised representative of Dover Financial Advisers Pty Ltd and not in any other capacity. Terry McMaster is authorised to provide advice on financial planning, superannuation, managed investments, securities, self-managed superannuation funds, and personal risk insurance. The Corporations Act disclosure requirements: incorporation by reference The Corporations Act and good practice principles require us to disclose a number of matters that may impact your decision to act on our advice and your understanding of our advice. Paragraph 163 of ASIC s Regulatory Guide 175 (RG ) allows us to incorporate these matters into this SOA by reference, in this case through this hyper text link: Additional materials incorporated into this SOA. We recommend you read this content. A copy of this information was provided to you at our meeting as part of our FSG and an additional copy is available on request. The next step You should read this SOA carefully and contact us if anything is not clear or requires further explanation. There is no problem with another meeting: just let us know. If you are satisfied with our advice and wish to proceed, please sign the client declaration and return it to us and we will implement our advice for you. Page 7

8 Client declaration I have received a Financial Services Guide, all documents incorporated into this SOA by reference and copies of all PDSs referred to in this SOA. I have read this SOA and I understand its content and accept its recommendations. I understand that comments on future performances are only a guide and no guarantee is given regarding future investment performance. I authorise my Adviser and Licensee to provide my personal details to the financial product providers. Signature Name of client Date Adviser declaration I declare that this Statement of Advice is an accurate and complete record of my advice. I declare that I only provided advice on products for which I am authorised to advise on and that these products are appropriate to my client. Signature Name of Advisor Date Page 8