Assignment 1
is a comprehensive case analysis based on the Alves Family Scenario.
When your assignment is complete, you will have prepared a comprehensive financial plan for this family, similar to Griffin Family (Financial Plan)
Your submission should be 12 to 13 pages long, including calculations.
General Instructions
Prepare your assignment in a word processing file
1. Gather and organize relevant qualitative and quantitative information. Outline the cost and timing of all goals. Make sure financial statements are as complete and accurate as possible (e.g., loan payments, balances). Refer to Planning Steps for details.
2. Analyze the information, including financial statement ratio analysis. Comment on tax planning, cash and debt management, risk management and insurance, investment management, retirement planning, and estate planning issues. Refer to Planning Steps for details.
3. Align financial resources and goals. Work out a budget (for at least 5 years) that includes the cost and timing of the Alves family’s goals. Make adjustments to net worth when required. Refer Planning Steps to for details.
4. Make overall recommendations to the Alves family that will help them achieve their goals and improve their financial situation. Refer to Planning Steps for details.
5. Address the Alves family’s misconceptions and answer any lingering questions they may have about their financial plan.
6. Round all final amounts up to the next dollar.
7. State any reasonable assumptions that you make.
Planning Steps in Detail
Step 1: Gather and organize relevant information
Both qualitative and quantitative information is provided in the Alves Family Scenario and supporting exhibits. Some information will be ready to use; other information will have to be organized and summarized.
Before you can formulate a plan, you must determine the financial resources that are available to help activate the plan and achieve the goals. The balance sheet and income statement help assess financial resources. While gathering financial information, always assess its accuracy and completeness.
Step 2: Analyze the information
Evaluate the financial information contained in the balance sheet and income statement by using the ratios and techniques identified. Assess all relevant financial information, and identify issues that could be better managed. Consider issues related to tax planning, debt and cash management, risk management, investment management, retirement planning, and estate planning.
Consider the following key strategies as you analyze the Alves Family Scenario.
Tax
Make maximum use of credits and deductions.
Split income without invoking attribution rules.
Defer income by making maximum use of RRSPs.
Subject to risk tolerances, select investments that have tax-favoured returns.
Debt and Cash Management
Minimize service charges.
Do not keep an excessive amount invested in low-return savings accounts.
Choose the type of credit card that offers the desired features at the lowest cost.
Use cheaper debt to pay off credit card balances.
Substitute deductible debt for non-deductible debt.
Use strategies to reduce the interest cost of loans.
Risk Management
Identify potential risks and the economic loss that could result.
Identify the frequency and severity of potential risks.
Consider strategies for managing the significant risks.
Assess existing insurance contracts (limits, exclusions, and deductibles).
Identify any inadequacies in existing life, medical, disability, property, and liability insurance coverage.
Suggest the type and amount of any needed additional coverage.
Investments
Establish individual risk tolerances.
Assess the risks to which the current portfolio is exposed (interest rate, inflation, business, financial, liquidity, market, political, exchange rate, call).
Assess the suitability of investments in light of risk tolerance.
Establish investment objectives.
Assess the portfolio’s current asset allocation and suggest a more appropriate allocation.
Suggest ways to better diversify the investment portfolio.
Suggest types of investments that would better meet personal needs and objectives, and provide a better risk-return payoff.
Retirement
Identify the sources and amounts of retirement income (government, employer, sheltered, and non-sheltered investments).
Suggest appropriate strategies for deregistering RRSPs.
Identify retirement living expenses.
Calculate any retirement income shortfall.
Develop a strategy to cover any shortfall.
Suggest possible strategies for generating more income in retirement.
Estate
Determine if a valid and up-to-date will exists.
Determine if appropriate guardians, powers of attorney, and executors are named.
Determine if beneficiaries are named in RRSPs and insurance policies.
Consider the appropriateness of trusts to care for special needs.
Suggest suitable types of trusts that could be used.
Assess whether holding property jointly or in common is appropriate.
Develop strategies to minimize probate fees.
Step 3: Align financial resources and goals
Create a budget to support and accompany your plan. Forecast expected income, expenses, and surplus cash. Insert the costs of goals into the budget in the proper time frame. If the goals throw the budget out of balance, adjustments must be made. Recall the suggestions for adjusting goals.
Remember that if you fund goals from cash or investments, you must adjust net worth. When cash or an investment is liquidated to purchase an asset (e.g., a new car) there will be no change in net worth; if the finances are expensed for something like a vacation, then net worth will be reduced.
Step 4: Make recommendations
Bring together all identified problems, opportunities for improvement, and a proposed budget in the form of a recommended strategy. The resulting plan will outline what can be done to achieve the Alves family’s goals, as well as better manage tax, investment, cash, debt, insurance, retirement, and estate issues.
