FPC008 Investment Advice

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Case study

Daniel and Carol Blacksmith have come to see you to help organise their financial affairs. Daniel is aged 40 and Carol is aged 55.

Daniel is working as a sales consultant for a beverage company earning $145,000 p.a. (plus SG) and Carol is a senior consultant for a food manufacturing company earning $190,000 p.a. (plus SG).

They have no dependent children.

They both have superannuation with the XYZ Superannuation Fund. The platform fee in this fund is

0.3% p.a. In addition, there are fund manager fees, which can vary depending on the funds chosen within their superannuation.

Daniel has $280,000 in his superannuation across the following funds:

UBS Cash Fund $40,000
iShares Australian Bond Index Fund $40,000
Antares Income Fund $40,000
T.Rowe Dynamic Global Bond Fund $40,000
Premium Asia Income Fund $40,000
iShares Australian Equity Index Fund $20,000
iShares Australian Listed Property Index Fund $20,000
iShares Hedged International Equity Index Fund $20,000
AMP Capital Core Infrastructure Fund – Class A $20,000

Carol has $660,000 in her superannuation, invested as follows:

La Trobe Aust Credit Fund – 12-month term account $80,000
Macquarie Australian Fixed Interest Fund $52,000
K2 Asian Absolute Return Fund $30,000
APN AREIT Fund $30,000
APN Asian REIT Fund $30,000
Perpetual W/S Industrial Share Fund $100,000
First Sentier Wholesale Geared Share Fund $100,000
Fidelity Global Equities Fund $70,000
T. Rowe Price Global Equity Fund $70,000
Fidelity China Fund $68,000
Magellan Infrastructure Fund (Unhedged) $30,000

They have selected their own investments within their superannuation funds and the investments selected were mainly chosen because, at varying stages, friends had recommended the funds. They figured if they were recommended by friends, they would be good funds to hold.

The mortgage for their home is with the Commonwealth Bank of Australia (CBA) and they have $520,000 outstanding. Interest is currently 4.7% p.a. The repayments are $3,500 per month.

They also have a joint CBA Complete Access bank account with a balance of $50,000. In addition, they have a further $100,000 in a CBA mortgage offset account.

Their other combined living expenses are $120,000 p.a. This amount does not include mortgage repayments.

You explained to them risk profiles and asset allocation and in doing a risk profile assessment found that they had distinct different risk profiles.

Your assessment of Daniel is that of a ‘Growth’ investor with a recommended asset allocation of:

Cash 5%
Fixed interest 15%
Australian property 4%
Global property 4%
Australian shares 30%
International shares 30%
Other 12%

Your assessment of Carol is that of a ‘Moderate’ investor with a recommended asset allocation of:

Cash 10%
Fixed interest 50%
Australian property 2%
Global property 2%
Australian shares 15%
International shares 15%
Other 6%

They have heard about diversified funds and wonder if they should invest in diversified funds in their super.

Carol has concerns about the environment and wants to know if there are investments that support sustainable companies, both within Australia and globally. She really has not done much research and is seeking your guidance in terms of what is out there.

She has also noticed some significant falls in her superannuation and is concerned about that. One of Carol’s particular concerns is the big fall in the First Sentier Wholesale Geared Share Fund and would like to sell that fund for performing badly.

Daniel on the other hand has been doing a significant amount of research and is being concerned that the investments in his superannuation may not be the best for him. He has heard about improved investment opportunities in emerging markets and would like exposure to these markets in his superannuation to help maximise his investments returns.

However, he has been concerned about the performance in the Premium Asia Income Fund and wonders if he should sell out of that investment at the very least.

He is also thinking about setting up a share portfolio outside of superannuation and would like recommendations on starting an investment portfolio of $20,000. He would like to put some of his surplus savings towards this investment portfolio to increase his exposure to shares.

They are also wondering if they should be making additional contributions.

Carol would like to retire once she reaches age 60 and Daniel would like to continue working until he reaches age 70.

They would like advice on:

  • reviewing the investments in their superannuation
  • considering the amount of additional superannuation contributions they should make and where the additional contributions should be invested. They understand there are tax benefits for making additional superannuation contributions and they would like to take advantage of these benefits to help build savings for retirement
  • setting up a $20,000 share portfolio for Daniel and which stocks to buy. He would like to have an investment portfolio outside of the superannuation system, which is not subject to preservation rules. However, this investment will be long term and he wants growth investments to help maximise returns on these investments. They also want you to advise if they should take $20,000 from their Commonwealth Bank Account or mortgage offset account for this initial investment
  • recommending what regular savings can be made to Daniel’s share portfolio and where the additional regular savings are invested. He would like to maximise the growth of his share portfolio and he believes that adding regular investments will help to grow the portfolio. He feels that they should have sufficient cashflow surplus they could save and add to the share portfolio
  • purchasing a new car in five years for $50,000. They want to know how that should be funded and where the funds should be invested prior to the purchase of the car.

Note: Use the investments listed in Appendix 1 for your research and recommendations, and treat those investments as your ‘Authorised Product List’. In addition, you can consider that shares in the ASX200 are also part of your approved and authorised products. Lastly, you may recommend bank term deposits or at-call accounts outside of the APL.

Assignment background

This assignment is based on the above case study.

You are to analyse the quantitative and qualitative information provided about Daniel and Carol Blacksmith’s situation and prepare an investment report and recommendation.

Read the following instructions to students carefully before commencing the assignment.

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

Client report structure

The layout of the report and recommendation you are to provide to the client is to be in the following format:

1.    Executive summary (5 marks, 200 words)

This section provides a summary of the client’s situation, investment considerations and recommendations provided.

2.    Introduction (15 marks, 250 words)

This section should provide clarity on what the investment strategy paper is about. The introduction should cover:

  • scope and limits of the strategies presented
  • the client’s investment objectives, preferences and timelines
  • commentary on the clients’ risk profile and allocations
  • investment surplus / cash flow

3.    Investment considerations and recommendations (60 marks, 1,750 words)

This section covers product research, product selections and investment strategy recommendations. The discussion should cover product asset allocation, investment styles, fees on each investment (excluding establishment fees), performance, volatility, and other relevant information.

The discussion should clearly connect and justify the strategies and recommendations provided to the client’s situation (e.g. needs, goals, risk profile and timelines).

4.    Conclusion (15 marks, 300 words)

This section should emphasise the benefits of the recommendations made and how they relate and are relevant to the client’s objectives. This section should serve as the closing statements of the arguments presented in the investment considerations and recommendations.

5.    References

6. Appendices.

Assignment task: Investment strategy report and recommendations 

Prepare the investment report and recommendation for Daniel and Carol, which includes investment recommendations for both their XYZ super funds, the share portfolio for Daniel, and additional super contributions.

Important notes to students:

  • Daniel and Carol’s portfolio of assets within the XYZ Super fund should be aligned to their identified risk profile.
  • You should construct a share portfolio for Daniel as requested by him.
  • You should address Daniel’s request to sell the Premium Asia Income Fund and Carol’s request to sell the First Sentier Wholesale Geared Share Fund.
  • You should consider Daniel’s request to consider emerging markets and Carol’s request to consider sustainable Australian Companies.
  • Use real investment products and assume for the purposes of this assignment that the APL in Appendix 1 can be used for both the superannuation and non-superannuation investments.
  • You are expected to demonstrate that you have conducted appropriate analysis and research of the existing funds in the XYZ Super portfolio, as well as the funds that are being recommended for inclusion in both the superannuation and non-superannuation parts of the portfolio.

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