Real financial planning client situations explained

These studies are based on real-life client situations where advice has been provided by financial planners who are members of the Financial Planning Association.

1. Life Stage: Wealth Accumulation / Young Family

Nico and Tamara (35) - WA

Nico and Tamara live in a mortgaged townhouse with two young children. Nico owns and runs two cafes and Tamara works part-time as a business consultant. While the couple have significant assets they were heavily in debt and were experiencing cash flow problems.

With a poor understanding of their financial state and mounting tax payments weighing on their shoulders, they were increasingly stressed and began to think about selling one of their cafes.

At this point, they turned to a financial planner for advice. The planner advised the couple to begin by separating business and personal cash flows. They were encouraged to pay themselves a wage and make regular PAYG tax payments to eliminate unexpected tax bills. Their financial planner established that the business was actually in good shape and producing a cash flow that could be used to build a good financial future for the family. Personal insurance plans were taken out and wills were made to protect the children in the event of unforeseen circumstances. By taking these steps, Nico and Tamara soon achieved their short and medium term goals.

Within 12 months they had bought a larger home and travelled overseas; they were thinking about building a beach house and buying a boat.

2. Life Stage: Mid Life / Low Income

Maria (52) – VIC

A divorce settlement has given Maria full ownership of the family home, though with a $90,000 mortgage. She lives with her 14 and 16 year old children and has not worked in 16 years. Her application to refinance the home loan had been refused based on credit card debts of $1,000, overdue school fees of $13,000, and outstanding family loans of $15,000.

Maria approached a financial planner to help her find a way forward. With his advice, she was able to access some of her superannuation to pay outstanding and future school fees, set up a three year payment plan with the bank to pay off the personal loans, and refinance the family home on a short-term interest-only basis, with a plan to pay out the loan from super on retirement. Her planner uncovered a small school scholarship fund set-up for the children that Maria didn't know existed, effectively covering half of the outstanding school fees. Additional Centrelink child support payments were identified and Maria took advantage of Centrelink training to help her to secure a part time job.

In three years Maria was debt-free and had paid off her mortgage, her children were able to remain in private schooling, and the family took their first holiday in five years.

3. Life Stage: Pre Retirement

Peter (59) and Penny (57) – NSW/ACT

A deteriorating illness had forced Peter, who was married with two independent children, to leave work in 2003 on the grounds of being totally and permanently disabled.

For three years Peter had made time-consuming monthly applications to his insurer for payments under his income protection policy. He was then invited by his insurer to take a lump sum payment, foregoing future benefits. Peter and Penny decided to seek advice from a financial planner. The planner negotiated an additional $46,000 on top of the lump sum payment offered by the insurer. After a detailed analysis, their financial planner recommended a tax and super plan that split the couple's income stream to minimise tax, creating an immediate saving of $14,700 and annual savings in subsequent years.

Peter and Penny benefited from an income stream of $6,000 per year over and above their retirement goal in addition to the lump sum payment, giving them complete confidence in being able to fund their retirement. Their financial plan allowed them to keep significant cash reserves and have access to tax free lump sums to cover any future medical expenses.

4. Life Stage: Retirement Planning and Management

David and Gloria (60) – NSW/ACT

David and Gloria were in poor financial shape for their impending retirement in five years. They had a major concentration of highly geared assets, including property and some shares and a very low superannuation account balance.

At best, David and Gloria had 10 years to continue working and boost their savings. With the benefit of financial advice they decided to sell all their geared residential property. Their financial planner also recommended investment in high growth assets, such as quality Australian shares and listed property trusts. Superannuation contributions were maximised by taking advantage of the 2006/2007 financial year 'double' deductible contribution opportunity through salary sacrifice, on the advice of their financial planner. Contributions were made for both David and Gloria to build up equal account balances. David and Gloria wanted to make provision for their three children without compromising their standard of living. They were advised to put their super assets into a plan which allowed them to retire later, at 70 years, offering them a window of 10 years for disciplined investment while also providing an income stream. New wills were prepared.

The couple now live comfortably, generating an income of $90,000 per year from their pension and family trust funds, exceeding their expressed goal for retirement income by $10,000.

The Financial Planning Association of Australia (FPA) is the peak professional body for Australia's financial planners, representing approximately 12,000 individuals and businesses.