Develop two (2) strategies for Simon, one involving only forward exchange contracts, another involving foreign exchange options, taking into account that Simon has agreed, if necessary, to spend up to
The case study
Background
A telephone call has just been transferred to you from reception. The caller is Simon Barker, single and aged 32, whom you have never met. In your conversation with Simon, he gives you the following information.
Simon moved to Australia three years ago to take on a role as an environmental scientist with a large Australian mining company. He has recently been offered a senior management role with the firm, which he has accepted. Simon is now seeking permanent residency in Australia. He is currently considered an Australian resident for tax purposes only.
He owns an investment property in London which he intends to sell at some stage in the next 12 months. Simon is currently earning an excellent yield on his property and has good tenants with a year remaining on their lease. As he does not want to sell the property untenanted, Simon is keen to have the transaction finalised within 12 months.
When he sells it, Simon wants to repatriate the funds to Australia and invest them in an income- earning portfolio of Australian shares, an investment property or both.
A real estate agent in London has informed him that the property will easily fetch GBP550,000 upon sale. Once the mortgage of GBP300,000 has been discharged, he wishes to repatriate the balance (after costs and taxes) to Australia. He would then have no other debt, assets or investments remaining in the UK.
Simon is seeking your advice on how best to manage the potential exposure to foreign exchange rate movements, given his intention to sell his property in the UK and repatriate the funds to Australia.
The fact finder has been completed with Simon, however he has limited the scope of advice (subject matter of the advice) to just the foreign exposure strategy in relation to the sale of his property in the UK. He has provided risk profile information and cash flow, as well as asset and liability information but he did not provide a full superannuation statement, nor did he wish to have a review of his insurances. Simon is happy to have a full financial plan completed at a later date once he has sold his investment in the UK and brought the money out to Australia.
Fact finder and risk profile — Simon Barker
Important notice to customers
Your planner must act in your best interest and provide appropriate advice when making an investment or insurance recommendation.
Before making a recommendation, the planner needs to ask you about your investment objectives, financial situation and your particular needs.
The information requested in this form will be used strictly for that purpose.
Warning
The planner could make inappropriate recommendations or give inappropriate advice if you fail to fully and accurately complete this form.
Personal and employment details
| Personal details | ||||||||
| | Client 1 | Client 2 | ||||||
| Title | Simon | |||||||
| Surname | Barker | |||||||
| Given & preferred names | ||||||||
| Home address | 207/21 Hickson Road, Walsh Bay NSW 2000 | |||||||
| Business address | ||||||||
| Contact phone | 0432250789 | |||||||
| Date of birth | Age 32 | |||||||
| Sex | Male | Female | Male | Female | ||||
| Smoker | Yes | No | Yes | No | ||||
| Expected retirement age | 65 | |||||||
| Dependants (children or other) | ||||
| Name | Date of birth | Sex | School | Occupation |
| N/A | ||||
| Employment details | |||||||||
| Occupation | Environmental scientist | ||||||||
| Employment status | Self-employed | Employee | Self-employed | Employee | |||||
| Not employed | Pensioner | Not employed | Pensioner | ||||||
| Permanent | Part-time | Permanent | Part-time | ||||||
| Casual | Contractor | Casual | Contractor | ||||||
| Other | Government | Other | Government | ||||||
| Business status | Sole proprietor | Partnership | Sole proprietor | Partnership | |||||
| Private company | Trust | Private company | Trust | ||||||
| Notes | |||||||||
| Any other person to be contacted? e.g. accountant, banker, solicitor, etc. | |||||||||
Income, tax and cash flow
| Tax calculation | Client 1 | Client 2 | Combined | Comments |
| Income from employment | ||||
| Salary | $150,000 | |||
| Salary sacrifice | $0 | |||
| Salary after salary sacrifice | $150,000 | |||
| Rental income | $0 | Income from UK investment is kept in the UK and not included. | ||
| Unfranked dividends | $0 | |||
| Franked dividends | $0 | |||
| Franking (imputation) credits | $0 | |||
| Interest | $1,250 | $50k in online saver | ||
| Other income (e.g. taxable benefits, trust income, investment income) | $0 | |||
| Capital gains < 1 yr | $0 | |||
| Capital gains > 1 yr | $0 | |||
| Tax-free component of capital gains | $0 | |||
| Assessable income | $151,250 | |||
| Deductible expenses | $0 | |||
| Donations | $0 | |||
| Other | $0 | |||
| Taxable income | $151,250 | |||
| Tax on taxable income | $43,910 | |||
| Non-refundable tax offsets (e.g. LITO/SAPTO) | $0 | |||
| Medicare levy | $3,025 | |||
| Medicare levy surcharge | $0 | Has health insurance | ||
| Franking rebate | $0 | |||
| Refundable rebates and offsets | $0 | |||
| Total tax | $46,935 | |||
| Cash flow | Client 1 | Client 2 | Combined | Comment |
| Salary less any salary sacrificed amount | $150,000 | |||
| Non-taxable income | $0 | |||
| Rental income | $0 | |||
| Unfranked dividends received | $0 | |||
| Franked dividends received | $0 | |||
| Interest | $1,250 | |||
| Other income (e.g. taxable benefits, trust income, investment income, social security benefits, etc.) | $0 | |||
| Total income received before tax | $151,250 | |||
| Investment expenses | $0 | |||
| Mortgage | $0 | |||
| School fees | $0 | |||
| Utilities | $2,500 | |||
| Personal insurance | $0 | |||
| Car insurance | $1,200 | |||
| Home contents Insurance | $2,000 | |||
| Health insurance | $1,500 | |||
| Living expenses | $34,750 | |||
| Holidays | $15,000 | |||
| House maintenance | $2,000 | |||
| Motor vehicle | $1,200 | |||
| Other: Rent on apartment in Walsh Bay | $26,000 | His share of rent. | ||
| Total expenses | $86,150 | |||
| Total income received before tax less total expenses | $65,100 | |||
| Total tax payable from tax table above | $46,935 | |||
| Total net cash flow | $18,166 | |||
Assets and liabilities
| Asset | Owner | Value | Liabilities | Net value | Notes |
| Personal assets | |||||
| Family home | Simon | $0 | $0 | $0 | Rents |
| Home contents | Simon | $50,000 | $0 | $50,000 | |
| Car | Simon | $30,000 | $0 | $30,000 | No loan |
| Total | $80,000 | $0 | $80,000 | ||
| Superannuation | |||||
| Employer superannuation | Simon | $49,875 | $0 | $49,875 | Balanced Fund |
| Total | $49,875 | $0 | $49,875 | ||
| Investment assets | |||||
| Investment property | Simon | £550,000 | £300,000 | £250,000 | UK property |
| Savings account | Simon | $50,000 | $0 | $50,000 |
|
| Term deposit | Simon | $0 | $0 | $0 |
|
| Shares | Simon | $0 | $0 | $0 |
|
| Total Australian investment assets | $50,000 | $0 | $50,000 |
| |
| Net worth | $179,875 | $0 | $179,875 | + UK assets of £250000 | |
| Liabilities | ||||
| Loan | Current debt | Percentage tax deductible | Interest only | Repayment |
| Home loan | |
No Liabilities | | |
| Investment property | | | | |
| Investment loan | | | | |
| Personal loan | | | | |
| Other | | | | |
| Total | $0 | | | |
Needs and objectives
| Details | Comments |
| Simon wants advice on how best to manage the potential exposure to foreign exchange rate movements, given his intention to sell his property in the UK and repatriate the funds to Australia. As he does not want to sell the property untenanted, Simon is keen to have the transaction finalised within 12 months. | He owns an investment property in London which he intends to sell at some stage in the next 12 months. He is earning an excellent yield on his property and has good tenants with a year remaining on their lease. Income is kept in UK bank account. |
| Simon does not wish to discuss any other financial planning needs at the moment. This is his only concern. He is happy to meet again and have a more comprehensive plan once he has sold the house in the UK. | No other Assets in UK. |
| Other |
Estate planning
| Do you have a will? | Yes | No | ||
| When was it last updated: | 01/ 01/2013 | |||
| Do you have powers of attorney? | Yes | No | ||
Current superannuation, rollovers, insurances and investments
| Superannuation | |||||||||
| Member | Simon | ||||||||
| Fund name | ABC Super | ||||||||
| Date of joining fund | 1/12/2011 | ||||||||
| Type of fund | Accumulation | Defined benefit | Accumulation | Defined benefit | |||||
| Pension | Pensioner | Pension | Pensioner | ||||||
| Contribution | By employer | By yourself | By employer | By yourself | |||||
| Current value of your superannuation fund | $49,875 | ||||||||
| Amount of death and | $181,685 | ||||||||
| Is there provision for you to top up or salary sacrifice? | Yes | No | Yes | No | |||||
| Superannuation taxation details | ||
| Current value | ||
| Tax-free component | ||
| Taxable component: Details not provided as they are not relevant to the client’s required area of advice. | ||
| Taxed element | ||
| Untaxed element | ||
| Preservation: | ||
| Preserved | ||
| Unrestricted non-preserved | ||
| Restricted non-preserved | ||
| Contributions: | ||
| Non-concessional contributions: | ||
| Year 1 | ||
| Year 2 | ||
| Year 3 | ||
| Year 4 | ||
| Concessional contributions: | ||
| Year 1 | SG only | |
| Year 2 | SG only | |
| Year 3 | SG only | |
| Year 4 | SG only | |
| Nominated beneficiaries | ||||||
| Name | Binding | Non-binding (Yes/No) | Trustee discretion (Yes/No) | |||
| Yes/No | Amount | |||||
| No beneficiaries nominated | Yes | |||||
| Is there any current flags or splits on a superannuation benefit of yours following a marriage breakdown? | Yes/No | Details | ||||
| Are you a beneficiary of any current flags or splits of a superannuation benefit following a marriage breakdown? | Yes/No | Details | ||||
| Life insurance details | |||||||
| Life insured | Owner | Policy type | Company | Policy number | Death benefit | Comments | Annual premium |
| Simon | ABC Super | Life | ABC Super | Not provided | $181,685 | Not provided | |
| Disability insurance details | |||||||
| Life insured | Owner | Policy type | Company | Policy number | Benefit | Comments | Annual premium |
| Simon | ABC Super | TPD | ABC Super | Not provided | $181,685 | Not provided | |
| Income protection insurance details | ||||||||
| Life insured | Owner | Policy type | Company | Policy number | Benefit amount | Waiting period | Benefit payment period | Annual premium |
| Simon | ABC Super | Agreed Value | ABC Super | Not provided | $9,375 | 30 days | 2 years | Not provided |
| General insurance details | |||||||
| Item covered | Owner | Policy type | Company | Combined policy number | Cover amount | Other benefit | Total annual premium |
| Contents | Simon | Not provided | ABC Insurance | Not provided | $50,000 | NA | $2,000 |
| Car | Simon | Indemnity | ABC Insurance | Not provided | $30,000 | NA | $1,200 |
| Investment details | |||||
| Investment type | Company | Purchase date | Units held/fixed rate | Current value | Owner |
| Cash Online Savings | Online Savings Bank | NA | 2.5% per annum interest | $50,000 | Simon |
| Investment Property in UK | NA: 3-bedroom semi-detached house. Southborough Lane, Bromley | 1/7/2001 | NA | £550,000 | Simon |
Note: An insurance needs analysis is not required for this assignment. These risk needs tables have been included to provide a realistic example of the fact-finder process. Furthermore an analysis of his superannuation and retirement planning is not required either.
