FPC008 Investment Advice - Assignment 2: Case Study Report

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Case study

Your client Xiao Ning (aged 40) comes to you for investment advice. He has just inherited $500,000 in cash and approached you for investment advice.

He has indicated that he does not want to invest further in his superannuation.

When asked about his investment goals, he stated that his main goal is to maximise returns on this particular investment activity over the long term. Xiao informs you that he does not need to access the funds in the short term.

He has done some research and read up about diversification (e.g. not putting all your eggs in the one basket). However, he is concerned that by diversifying too much, he might miss the opportunity of being with the top performing investments. For this reason, he has asked that he would only like to invest his recently received inheritance into three (3) different investment products only.

You discuss with him different available investment options (i.e. managed funds, direct shares, ETFs, and so forth). He mentioned that he is open to any investment options that you might recommend, and he will be guided by you as to which product is more appropriate. He will also seek your guidance on whether to use a diversified or sector specific fund, seeking guidance from you as to what is best to maximise returns.

You discussed volatility, and he would like to see volatility managed, if possible, but not to an extent that it becomes a drag on investment performance.

Xiao is married with two children. He is an executive earning $200,000 p.a. His risk profile for this $500,000 investment is growth to high growth.

Scope of the required advice

Xiao is only seeking investment advice for the $500,000 cash inheritance he has received.

Risk profile

As mentioned above, Xiao sees himself as a growth to high growth investor.

When you showed him the target asset allocation for the above profiles, he asked to regroup the target allocation as tabled below.

Xiao said that if you felt the outlook for global shares was more favourable than Australian shares,

he would be happy to exclude Australian shares and increase exposure to global shares, or vice versa. He also said that if one or two other countries had a more favourable outlook, he would be open to the idea of being heavily concentrated to those other countries.

The idea of the table below is to allow you wider flexibility in providing a more targeted asset allocation in the portfolio.

Growth to high growth

Asset class % holding
Australian and International equities 70–100%
Property and Alternatives 0–30%
Cash & Fixed interest 0–15%

 Investment considerations:

  • Maximise investment return over the longer
  • Have consideration to market volatility and would like to reduce volatility if it does not have too much impact on longer-term investment returns.
  • He would like to invest in only three (3) investments products but would like to see comparisons against five (5) investments products and why the three investments selected are better suited to his long-term
  • He would like your opinion on whether the investments should be active or passive as he has read a lot of good reports about passive investments, but not sure if this helps maximise returns.
  • He has also heard of socially responsible or environmentally-friendly funds, and would like them considered, but not at the cost of sacrificing returns.

Appendix

Refer to the Appendix for a list of authorised products to consider for Assignment 2.

Assignment background

This assignment is based on the above case study.

You are to analyse the quantitative and qualitative information provided about Xiao Ning’s situation and prepare a report of recommendations. The key component of the assignment is to demonstrate an understanding of the client situation and link the recommendations to the client goals and objectives considering any personal preferences and addressing any biases the client may have.

Refer to the Appendix for a list of the approved products you can use for the assignments. You only need to select FIVE (5) products for analysis and recommend THREE (3) of the five products analysed.

Note: You may recommend bank term deposits or at-call accounts outside of the APL. This assignment covers Topics 3 to 7 and accounts for 35% of the student’s final grade. Read the following instructions to students carefully before commencing the assignment.

Please note, this is report is not a Statement of Advice, but rather, a comparative report on the possible investments the client might consider. The layout of the report and recommendation you are to provide to the client should be in the following format:

Section heading Section description
1.Executive summary(5 marks)Maximum 200 words This is a short summary of your report. It should briefly summarise theclient’s investment objectives, your thought process and recommendations.
2.Introduction(8 marks)Maximum 250 words This section should provide clarity on what the client report is about.
3.Product comparison(30 marks) 

Maximum 850 words

This section compares five (5) different investments. It should cover product asset allocation, investment styles, fees on each investment (excluding establishment fees), performance, etc. This section should provide clarity on how your research relates to the client’s objectives.
4.Product selection(30 marks)Maximum 500 words This section should discuss the three (3) products being recommended tothe client. The discussion should be clear, logical and should justify how theseproducts meet the client’s investment objectives and considerations.
5.Conclusion(7 marks)Maximum 200 words This section should be the final selling statement of the arguments presented.

Total word limit:  2,000 words (+/–10%)

Marks:                        80 marks for client report + 5 marks for presentation. Total = 85 marks

Reference:             

Topic 3: Asset classes and investment markets

Topic 4: Investment vehicles, platforms and direct investments Topic 5: Portfolio construction techniques

Topic 6: Fund manager styles and strategies Topic 7: Fund manager selection

Note: You must utilise a consistent referencing style in this report. For referencing instructions, refer to your Assignment details section.

Assignment task: Investment analysis report

Prepare a report analysing five investment products and recommending three of the five products analysed of recommendations for Xiao.

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