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Statement of Advice

Prepared for

Mr. Walter Gannon

Prepared by

Tracy Burton

Authorised Representative Number: 15326


128 Cemex St.,Turramurra NSW 2074
02 9440 5555
Authorised representative of

Burton Financial Planning Group


ABN: 65 001 232 232

Australian Financial Services Licensee


License No. 16029

Head Office: Level 26, 1 Carlyle St.,

MELBOURNE VIC 3000

12 February 2010

You are entitled to receive a Statement of Advice (‘SOA’) whenever we provide you with
any personal financial advice. Personal advice is advice that takes into account your goals,
objectives, financial situation and needs.

This SOA is a report of the personalised financial advice provided to you and includes
information on the basis on which this advice is given, information about fees and
commissions and any connective information which might influence the advice.

If this advice includes a recommendation to you to acquire a particular financial product


(other than securities) or an offer to issue or arrange the issue of a financial product to you,
we will also provide you with a Product Disclosure Statement containing highly detailed
supportive information about the particular product to help you make well informed
decisions about the product.

Be aware that the advice contained in the following SOA is valid for a period of 30 days
only. If the plan is not implemented within this time, it will no longer be current and will need
to be reviewed for accuracy.

February 2010 Page 1


Statement of Advice
Table of Contents

Executive Summary ………………………………………………………………………………………....3

Summary of our recommendations………………………………………………………………………..3

Summary of expected outcomes if you implement our advice…………………………………….…...3

Risks in our advice………………………………………………………………………………………..…4

Summary of our fees and commissions……………………………………………………………….…..4

Your next step……………………………………………………………………………………………..…4

Important information about you………………………………………………………………………..…5

Your reasons for seeking us………………………………………………………………………………..5

What you would like to achieve………………………………………………………………………….…5

Your personal and financial information………………………………………………………….……...6

Personal information………………………………………………………………………………………...6

Your existing insurance……………………………………………………………………………………..6

Your existing estate planning……………………………………………………………………………....6

Financial Information……………………………………………………………………………………..….7

Current income and expense details……………………………………………………………………....7

Your risk profile…………………………………………………………………………………………….....8

Strategy recommendations…………………………………………………………………………………9

Recommended action – after one year…………………………………………………………………...9

Reasons for recommendation – first year………………………………………………………………..10

Things you should consider………………………………………………………………………………..11

Investment product recommendations……………………………………………………………….…12

Recommended asset allocation…………………………………………………………………………..13

Disclosure of commissions, fees and benefits…………………………………………………….…..14

Ongoing services…………………………………………………………………………………………....15

Authority to Proceed…………………………………………………………………………………….….16

SOA Appendix 1 Cash flow projections after one year – No implementation of strategy……..18

SOA Appendix 2 Cash flow projections after one year – After implementation strategy………21

SOA Appendix 3 – Cash flow projections……………………………………………………………….24

February 2010 Page 2


Executive summary

Summary of our recommendations

For the short term - up to one year

I recommend that:

• You pay off your personal debt including the car loan and mortgage of $242000.
• You open a high yielding savings account and place $15000 within as an emergency
fund.
• You set up Family Tax Benefit B.
• You see a solicitor to update your Will.

For the medium term - one to five years

• Invest $40000 in a balanced managed fund, and then be accessed in 4 years when
Chloe begins her high school studies.
• Invest $50000 in a growth managed fund for the build up of retirement wealth.

For the long term - ten years+

• Invest $80000 in a growth investment bond which can be accessed in 10 years


when Chloe begins her university studies.
• Maintain current super arrangements and review in 12 months time.
• Maintain general and personal insurance and private health cover.
• Maintain existing share portfolio of $40000.

Summary of expected outcomes if you implement our advice


If you decide to follow through with the recommendations of this report, we estimate that
your daughters’ education funds should grow over time and meet the financial needs to pay
for their high school and university studies.

Your personal debts being paid off and setting up your high savings account will generate
further savings. This will allow you to enjoy the lifestyle you require with minimum worry.

The growth managed funds and your existing share portfolio will grow over time while still
being accessible. This will help you achieve your retirement goals.

You will have effective insurance and health cover in the unlikely events of death, sickness
or injury.

Your updated Will can protect your family in the case of unlikely events.

February 2010 Page 3


Risks in our advice

As has been discussed, all investment options do carry some risk. You are to be aware
that your managed investments may not increase as quickly as you expect, or the value
may not change or go down.

Non disclosure of personal information

Under RG 175.109, we are required to give you warnings on the accuracy of advice, due to
not being able to obtain all information required, regarding your personal circumstance, e.g.
(Superannuation, Insurance cover).

Our advise may be limited if we do not have all relevant information required. It is up to you
to assess how appropriate our recommendations are in your circumstances.

Summary of fees and commissions

The fee required for our advice and the preparation of making this Statement of Advice is
$2600 including GST. Burton Financial Planning Pty Ltd is entitled to receive $1600 and I
will receive the balance.

There are no ongoing commission costs for investment recommendations. Where


necessary, the costs will be rebated. You may be charged fees for purchasing and
investing in some products we recommend.

Further details on the fees, commissions and benefits relevant to our advice can be found
in the Disclosure of commissions, fees and benefits section.

Your next steps

In order to decide whether to take our advice you should:


• Read the Statement of Advice fully to understand our advice
• Feel free to ask any questions you have as a result of reading the Statement of
Advice.

To proceed with your advice, please complete the ‘Authority to Proceed’ at the end of the
statement and return it to us.

February 2010 Page 4


Important information about you
This section shows information about you we have used to prepare advice:

• Why you are seeking advice


• What you would like to achieve
• Personal and financial information

Please inform us if you feel any of this information is incorrect or incomplete.

Your reasons for seeking advice

Walter - we agreed that we would provide advice on:


• Investments
• Taxation
• Estate Planning

Walter - you mentioned you did not want any advice on:
• Insurance
• Superannuation

What you would like to achieve

After our discussion, we understood your main objectives and needs as follows:

• You would like Patricia’s Super invested in best possible way, producing as much
income as possible with minimum worry;
• You want Patricia’s Super to pay for your daughters’ future high school & university
studies of $115000;
• You wish to maintain family lifestyle whilst working part-time till Larissa is 13.
• You expect to retire at 65 with $40000pa.

As mentioned previously, because some of your information regarding your circumstances,


needs and objectives is limited, you will have to consider if our advice is appropriate before
acting upon it.

February 2010 Page 5


Your personal and financial information
Written below is a summary of your personal and financial details you have provided.

Personal Information

Personal Details

First name Walter


Surname Gannon
Date of Birth ?/? /1974?
Current Age 36
Martial Status Single
Health Status -
Smoker Status -
Employment Status Part-time
Employer name -
Occupation Manufacturing
Annual Salary $42000

Children & Dependent details

Name Date of birth Sex School Occupation


Larissa Gannon ?/? /2004? F Primary Student
Chloe Gannon ?/? /2002? F Primary Student

Your existing insurance

Walter - you have $300000 Life and TPD cover under your superannuation fund and your
family has private health insurance.

Your existing estate planning

You have advised us that your Will requires updating, and need to see a solicitor.

February 2010 Page 6


Financial information
Current income and expense details

Income and expenses

Walter Total
Assessable income $44014 $44014
Income after tax $37604 $37604
Yearly expenses $52636 $52636
Estimated surplus/deficit -$15032

Walter- based upon the income and expenses schedule above, you have a deficit -
$15032 income available if after 1 year this implementation is not followed.

Please refer to your Cash Flow Statement in Appendix 1.

Assets and Liabilities

Value Liabilities Net Value


Total personal assets $980500 $233296 $747204
Total investment assets $153780 $0 $153780
Net Worth $900984

Please refer to Assets and Liabilities in Appendix 1 for more details.

Incomplete and/or inaccurate information warning

Be advised, that for any reason, information on which our advice is based upon, is either
inaccurate or not complete, then it may be necessary to consider its appropriateness in
respect to your particular circumstances, needs and objectives.

February 2010 Page 7


Your risk profile
All choices of investment have a certain element of risk. Generally, however, investments
that have high rates of return involve high levels of risk, and more conservative investments
bear lower returns.

From our discussions, and from the answers of your risk profile questionnaire, we believe
that you are a Balanced investor.

You are a cautious investor who wants a balanced portfolio that can work towards medium
and long-term financial goals. You require an investment strategy that will cope with the
effects of tax and inflation. Calculated risks will be acceptable to you to achieve good
returns. An appropriate asset mix for you would be:

• 40% in defensive assets for example: cash, fixed interest, and


• 60% in growth assets such as Australian equities, international equities, property.

The target asset allocation for your risk profile is seen below:

Target asset allocation- balanced growth

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Strategy Recommendations
The aim of this section is to tell you:
• what our advice is;
• reasons for our recommendations;
• things to consider and risks of our advice.

Read this section and ask if you have any queries.

Recommended actions - after one year

I recommend that you:

• Repay all personal debt including the car loan and mortgage of $242000, this will
reduce your interest expense, resulting in future savings over time and a greater income
level.
• With $15000, set up a high yielding savings account for use as an emergency fund,
where further income earned can be saved here.
• Set up a balanced managed fund of $40000 for secondary school expenses. This
will provide greater returns then a bank account.
• Organise a growth managed fund of $50000 to help fund retirement and necessary
expense.
• Set up a growth investment bond of $80000 that can be used in 10 years for
University expenses. This will provide returns as well as tax advantages.
• Set up your entitlement Family Tax Benefit B with Centerlink.
• Update you Will.

Product recommendations

Note that we can only recommend products that have received approval by Burton
Financial Planning Pty Ltd.

February 2010 Page 9


Reasons for recommendations- first year

Personal investment

As can be seen in the Cash Flow Statement in Appendix 1, you currently have a deficit of
funds which is largely due to the mortgage and car loan. The faster these are paid off, the
sooner you will have access to greater funds at your disposal. This is due to the fact you
will not be paying interest on your debts. Setting up the high yield savings account will help
you have added security as an emergency fund in reserve.

Managed funds

Managed funds will give you diverse investment over different types of assets which will
help create wealth. Your fund managers have the advantage of much expertise and
resources as well as good administration procedures for regular reports. This has
contributed to reason why Colonial First State is one of the largest in Australia.

The recommendation to place $40000 in a balanced managed fund is for your daughters’
high school expenses. This fund will provide a balanced level of risk and will likely provide
greater growth of funds then keeping it in a bank account.

Having $50000 in growth managed fund is for your personal investment. These funds have
the potential for greater growth then the balanced managed funds. This should help you
achieve your retirement goals and any other necessary expense.

By using managed fund shares and keeping your existing shares, you allow yourself long
term capital growth as well as interest income Also, shares by their nature, can easily be
sold on the stock exchange and provide you with funds on short notice.

Growth Investment Bond

The growth investment bond of $80000 is for the purpose of funding your daughters’
university expenses whilst generating growth from its interest payments. The growth
investment bond will keep its yearly earnings and pay its 30% tax on its own, so you won’t
have to be taxed on anything unless you withdraw within the 10 year period, for which it
will be listed as an earning in your assessable income. Otherwise you do not have to
declare anything on your income statement even when it is matured in10 years time. This
method is a popular instrument used to save for children’s education whilst minimising risk
and benefiting from tax advantages.

Gearing

Gearing is another method investors uses. It is the practice of borrowing funds to


purchases investments that produce assessable income, e.g. shares or property. Although
there is possibility of gaining returns from an investment, exposure to risk also increases.
The risk of gearing can occur when an investment does not perform well, interest rates may
change and affect the value of the investment and interest on the borrowing must still be
paid in the process. I would not recommend gearing at this time.

Family Tax Benefit

February 2010 Page 10


Family Tax Benefit is an exempt tax benefit which Australian citizens have the right to use.
Family Tax Benefit B gives benefits for single parent families. Depending on the age of your
youngest child, you should be entitled for $2675.45/year.

Please check the Cash Flow and Assets and Liabilities Statements in SOA Appendix 2, for
your financial position after recommendations.

Things you should consider


Paying off your mortgage

Please be aware there may be discharge or legal fees associated with paying the mortgage
off early. You will have to discuss this with your mortgage provider. This may also be the
case with the car loan.

Family Tax Benefit B

You need to be aware that you should discuss this with a Centerlink representative, as I
have limited knowledge in this advice.

Taxation issues

Taxation is fairly complex and beyond my limited taxation advice. I recommend that you
see a taxation advisor/accountant on any taxation advice you may require.

February 2010 Page 11


Investment product recommendations
Colonial First State investments: was established in 1988 and manages $90 billion worth
of investments globally. Colonial First State also has one of the largest investment teams;
it also has wide range of investments and fund managers and can bring highly diversified
portfolios. Lastly, Colonial First State is a leader in providing value for money.

Cooling off period

You have 14 days from the time your investment is confirmed to change your mind on any
products. If you wish to return a product and get a refund you must notify us within 14 days
after confirmation. Please note that if you return a product within the cooling off period you
may get back less than you originally paid for. This can be due to market fluctuations, taxes
and administrative costs.

February 2010 Page 12


Recommended Asset Allocation
Your managed funds assets are invested across different classes. The table below shows
a comparison of your balanced managed fund allocation and your growth managed fund
allocation.

Comments on proposed asset allocation vs. your risk profile

As we discussed, your likely risk profile is a balanced investor. Your investment for your
children’s high school education is a balanced managed fund, however your personal
investment is a growth managed fund. This bears more risk then a balanced managed
fund; however, it is set to a higher growth to help you generate extra income for future
expense and retirement more quickly.

Asset allocation after implementation of recommendations

Assets Allocation Balanced Growth


Managed Fund Managed Fund
($40000) ($50000)
Defensive assets
Australian Cash 10% 10%
Australian Fixed interest 20% 5%
International fixed interest 10% 5%
Total for defensive assets 40% 20%
Growth assets
Australian equities 30% 35%
Australian property 10% 30%
International equities 20% 15%
Total for growth assets 60% 80%
Grand Total 100% 100%

This chart indicates how your assets have been allocated for your managed funds.

Notice the balanced fund bears 40% defensive assets and 60% for growth assets, whilst
your growth fund is set to 20% defensive and 80% growth. Defensive assets are asset
classes such as fixed interest and cash, whilst growth asset classes are equities and
property.

Defensive assets are less risky but generate less return compared to growth assets, which
bear greater risk but potential for much greater returns.

February 2010 Page 13


Disclosure of fees, commissions and/or benefits
How are we paid?

The total fee for our advice is $2600 (including GST). $1600 will be received by Burton
Financial Planning Pty Ltd and I will receive the balance. Please make this payment within
14 days of receiving this Statement of Advice.

Neither Burton Financial Planning Pty Ltd nor I will receive any commissions earned, and
where necessary will be rebated. You may be charged for buying and investing in products
that have been recommended in this statement.

The product providers usually charge fees, such as the management fee at 1.2%. As an
example if you invest $40000, you will pay $480.

Other Benefits

Burton Financial Planning Pty Ltd and I may sometimes receive other benefits in addition to
our fees. With benefits exceeding $300, they are recorded on alternative forms of
remuneration. A copy of this Register can be publicly made available if requested.

February 2010 Page 14


Ongoing services

This Statement of Advice is a snapshot of your current circumstances, needs and


objectives. Over time, finance changes. The Australian government passes new laws that
can affect tax and superannuation rules, which may also apply to your investments. Also
with time, new products will be introduced. These changes may bring benefit to you when
taken advantage of.

Changes such as these must be assessed in an ongoing manner, and related to your
particular situation. This will ensure you have the best resources to meet your goals and
objectives.

The ongoing review is to:

Keep us updated on your circumstances, both personal and financial;


Revise your risk profile;
Keep you updated on the economy and any investment and legislative changes that can
impact your current strategy;
Keep you updated on your investment portfolio performance;
When necessary, recommend changes to your investment or insurance strategy.

February 2010 Page 15


Implementation
Walter- for you to proceed with this recommendation, you need to complete the following:

• Read, sign and return the Authority to Proceed attached;


• Organise an appointment with me and bring any completed application forms.

February 2010 Page 16


Authority to Proceed
Firstly, before signing this document please check that I have:

Given the Burton Financial Planning Pty Ltd’s Financial Services Guide;
Confirmed that the personal information I have collected is correct;
Discussed your goals and objectives;
Confirmed that you are happy with your risk profile;
Discussed any risks in the recommendations;
Discussed fees that need to be paid.

Secondly, confirm that:

You have kept a copy of the SOA and have had the opportunity to read, consider and
understand the document, supporting material and have asked questions.
The SOA dated 17 February 2010 accurately summarises your current situation,
investments, insurances and financial goals. You understand that any inaccurate or
incomplete information provided to us, may bring risk to meeting your needs appropriately.
You have understood the Disclosure of commissions, fees and benefits’ section of SOA.
You understand that recommended investments may rise and fall with the market, and
cannot guarantee future performance.
You understand that this statement is solely for yourself; Burton Financial Planning Pty Ltd
does not accept liability to others who rely on any of the information in this SOA.
You hereby request Tracy Burton to provide services in the ‘Ongoing Services’.

Consent to ongoing contact

We consent to being contacted by our Advisor on an ongoing basis, in line with the ongoing
service review within this recommendation.

Our preferred hours of contact between_____and_____.

Signed__________________ Date __/__/___


Client Name
Signed__________________ Date __/__/___
Financial Advisor

February 2010 Page 17


SOA Appendix 1 Cash flow projections after one year
- No implementation of strategy
Income and expenses

Walter Notes

Taxable income

Salary $42000

Salary sacrifice $0 (state % if applicable)

Salary after salary sacrifice $42000

Rental income $0

Assume Walter mentioned 3% return on his


Unfranked dividends $1200 existing portfolio

Franked dividends $514 $1200/.70x.30

Franking (imputation) credits $0

Interest $300 $5000@6%=$300(fixed term deposit interest)

Other income, e.g. taxable benefits $0

Capital gains <1yr $0

Capital gains >1yr $0

Tax-free component of capital gains $0

Assessable income $44014

Deductible expenses $0

Rental expenses, repairs etc. $0

Taxable income $44014

Tax on taxable income 2009/10 $7054 $4350+30%>$35000

Medicare levy 2007/08 $660 $44014 x 1.5%

Medicare levy surcharge N/A

Franking rebate -$514 Tax Refund

Tax offsets (e.g. LITO/SATO)2009/10 -$790 LITO= $1350-[4%x($44014-$30000)]

Other rebates and offsets $0

Total tax $6410

Income after tax $37604 =assessable income – total tax

Notes

These figures are based on our assumption that you have received your dividend of 3%.
These figures are based on our assumption that you have received your fixed interest deposit of 6%.

February 2010 Page 18


Family cash flow

Walter

Income after tax (as calculated above) $37604

Investment expenses

Living expenses

Living Expenses $27400

Holiday $1500

Home mortgage $17256

Car Loan $6480

Total expenses $52636

Net cash flow -$15032

February 2010 Page 19


Assets and liabilities
Asset Owner Value Liabilities Net value Notes

Personal assets

Home Walter $520000 $202744 $317256 Mortgage applied

Savings Walter $428500 $15032 $413468 $12000, Patricia’s


Account Contribution & Car
($410000), Fixed term
deposit+ interest ($5300),
portfolio dividends ($1200)-
($15032) deficit

Walter’s Car Walter $32000 $15520 $16480 Car Loan applied

Total $980500 $233296 $747204

Investment assets

Shares Portfolio Walter $40000 $40000

Employer Super Walter $113780 $113780 Not Requiring Advice


($42000 @ 9%=$3780)

Total $153780 $153780

Net worth $900984

Liabilities

Loan Current debt Percentage Interest only Repayment


deductible

Home Loan Mortgage $202744 0% No -($1438x12=$17256)

Car Loan $15520 0% No -($540x12=$6480)

Total $218264

February 2010 Page 20


February 2010 Page 21
SOA Appendix 2 Cash flow projections after one year
- After implementation of strategy
Income and Expenses

Walter Notes

Taxable income

Salary $42000

Salary sacrifice $0 (state % if applicable)

Salary after salary sacrifice $42000

Rental income $0

Unfranked dividends $0

Assume Walter mentioned 3% return on


Franked dividends $1200 his existing portfolio

Franking (imputation) credits $514 $1200/.70x.30

$5000@6%=$300(fixed term deposit


interest prior to its investment elsewhere)
$40000@8%=$3200(balanced mgt.fund)
$50000@8.5%=$4250(growth mgt.fund)
Excluded: (Investment bond- no income tax
Interest $7750 liability): $80000@4.5%=$3600)

Other income, e.g. taxable benefits $0

Capital gains <1yr $0

Capital gains >1yr $0

Tax-free component of capital gains $0

Assessable income $51464

Deductible expenses $0

Rental expenses, repairs etc. $0

Taxable income $51464

Tax on taxable income 2009/10 $9289 $4350+30%>$35000

Medicare levy 2007/08 772 $51464 x 1.5%

Medicare levy surcharge N/A

Franking rebate -$514 Tax Refund

Tax offsets (e.g. LITO/SATO) LITO= $1350-[4%x($51464-$30000)]


2009/10 -$492

Other rebates and offsets $0

Total tax $9055

Income after tax $42409 =assessable income – total tax

Inclusion Family Tax Benefit B $45084 $2675.45+Income after tax

Family cash flow

Walter

Income after tax (as calculated above) $45084

Investment expenses

Interest payments $0
February 2010 Page 22
Rental expenses $0
SOA Appendix 3 Cash flow projections
Projected returns for Walter’s growth managed investment fund

Opening Balance $50000


Final Balance after year 1= $54250

Assumptions:
Growth fund net return after fees= 8.5%
Management Fee 1.2%
Contribution Fee 0.5%

Projected returns for Walter’s balanced managed investment fund

Opening Balance $40000


Final balance reinvested in 4 years time= $54419

Assumptions:
Balanced fund net return after fees=8.0%
Management fees 1.2%
Contribution fee 0.5%

Projected returns for Walter’s growth investment bond

Opening Balance $80000


Final Balance reinvested in 10 years time=$124237

Assumptions
Growth investment bond net return after fees=4.5%
Management fees 1.2%
Contribution fee 0.5%

The table below shows a year by year estimate of your recommended investment portfolio. In
addition, the table shows your growth managed fund being reinvested for illustrative purposes.
Please refer to the assumptions as all illustrations are based on these assumptions. These
illustrations are indicative only and are not guarantee of a future performance.

Investment Year 1 Year 2 Year 3 Year 4 Year 10

Growth Fund $54250 $58861 $63864 $69292

Balanced Fund $43200 $46656 $50388 $54419

Growth Investment Bond $83600 $87362 $91293 $95401 $124237

Net Assets $181050 $192879 $205545 $219112 $124237

February 2010 Page 23