Faculty of Commerce and Economics School of Banking and Finance
FINS2643 WEALTH MANAGEMENT Course Outline Session 2, 2005
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CONTENTS Page 1. Course Staff
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2. Teaching Time and Location
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3. Course Aims and Outcomes
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3.1 Aims
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3.2 Student learning outcomes
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3.3 Relationship of this course to other course offerings and
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assumed knowledge 3.4 Professional accreditation 4. Student Responsibilities and Conduct
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4.1 Workload expectations
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4.2 Attendance
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4.3 General conduct and behaviour
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4.4 Keeping informed
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5. Assessments
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5.1 Assessments
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5.2 Assignment and submission
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5.3 Failure to attend an examination
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5.4 Special consideration and supplementary examination
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5.5 Use of electronic calculators during class examinations
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6. Academic Honesty and Plagiarism
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7. Resources for Students
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7.1 Lecture notes and announcements
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7.2 Texts
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7.3 Other resources
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8. Continual Course Improvement 9. Course Schedule
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9.1 Lecture schedule
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9.2 Tutorial program
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10. About the Instructors
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11. Assignment Details
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COURSE OUTLINE CONTENT DETAILS 1.
Course Staff
Course Coordinator Dr. Kingsley Fong
[email protected]
QUAD 3023A
Monday 16:00-18:00
Other Staffs Associate Professor David Gallagher
[email protected] QUAD 3031B
Tuesday 13:00-15:00
Tutor-in-charge Mr Vyas Balasubramanian
[email protected] 14:00-15:00 Other tutor Mr Peter Gardner
[email protected]
QUAD 3054
QUAD 3054 Tuesday
Thursday 14:00-15:00
Students with questions about course administration or content are encouraged to: • Check the WebCT site • Email the class tutor • Contact the instructor after class • Contact the tutor during consultation hours • Email the instructor • Contact the instructor during consultation hours
2.
Teaching Time and Location
The course consists of a two-hour lecture and a one-hour tutorial per week. There are two streams of lectures Stream 1 Tuesdays 15:00 to 17:00 CLB6 Stream 2 Thursday 11:00 to 13:00 OMB112 Students must attend the class and tutorial at the time and location of their official UNSW registration. Attendance and participation in tutorials during the session are important components of the course.
3.
Course Aims and Outcomes
3.1
Aims
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This course examines the investment and financial issues arising from the personal financial management activities of retail clients (private individuals). The course commences with an introduction of the financial planning industry and then explores the most important components in wealth management – setting financial plans, taxation planning, investment planning and strategies (including managed funds), risk management and insurance, superannuation, tax planning, leveraged investments, estate planning and social security. In addition, the course also evaluates the decision-making processes of institutional superannuation fund trustees, given their role as stewards of member assets. 3.2
Student learning outcomes
Upon completion of this course you will be able to • understand the key elements and operation of the wealth management industry • understand the key components of a personal wealth management plan • provide an assessment of an individual’s need for various components of a wealth management plan • understand the effect of taxation, superannuation and other regulations on a wealth management plan • understand, select, and structure wealth across applicable financial products and wealth management instruments to better achieve individual’s planning objectives • be conscious of the on-going review process 3.3
Relationship of this course to other course offerings and assumed knowledge
This course focuses on understanding the needs, the applicable regulations, and the financial products available for developing personal wealth management plans. As such, it differentiates and complements other finance courses. Understanding of financial concepts such as stocks, bonds, risk, return, diversification etc, is important but they concepts will only be reviewed briefly. 3.4
Professional accreditation
This course is useful for professional financial planner and marketers of financial products. FINS2643 is an accredited course under the Australian Securities and Investments Commission (ASIC) Policy Statement 146 Licensing: Training of financial product advisers (PS 146).
4.
Student Responsibilities and Conduct
4.1
Workload expectations
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It is expected that students will spend at least ten hours per week studying this course. This time should comprise of reading, research, working on exercises and problems, performing computer tasks and attending classes. In periods where you need to complete tutorial questions or prepare for examinations, the workload may be greater. Over commitment has been a cause of failure for many students. Students should take the required workload into account when planning how to balance study with employment and other activities. 4.2
Attendance
Your regular and punctual attendance at lectures and seminars is expected in this course. University regulations indicate that if students attend less than eighty per cent of scheduled classes they may be refused final assessments. 4.3
General conduct and behavior
You are expected to conduct yourself with consideration and respect for the needs of your fellow students and teaching staff. Conduct which unduly disrupts or interferes with a class, such as ringing or talking on mobile phones, is not acceptable and students may be asked to leave the class. More information on student conduct is available at: www.my.unsw.edu.au 4.4
Keeping informed
You should take note of all announcements made in lectures, tutorials or on the course web site. Most information that you need for this course is available online through WebCT, and you are expected to be fully aware of resources and information on the class WebCT site throughout the term. From time to time, the University will send important announcements to your university email address without providing you with a paper copy. You will be deemed to have received this information.
5.
Assessments
5.1
Assessments
To pass this course, you must: • achieve a composite mark of at least 50 and • make a satisfactory attempt at all assessment tasks The assessment tasks and their weighting in your composite mark is as follows: Assessment task
%
Mid-session exam Assignment
35 20 5
Final exam Tutorial participation
35 10
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5.2
Assignment and submission
The assignment will be due during the normal lecture time on 20 October 2005. Students will be required to undertake the assignment in groups of two. 5.3
Failure to attend an examination
Students should notify employers of the requirement to attend examinations. If you miss any of the class tests (for any reason - employment, sickness, timetable clashes etc.), then in exceptional circumstances you may be permitted to sit the missed section at a future date when the school offers supplementary examinations. You should talk with the lecturer about this beforehand if you are in doubt. If you are enrolled in class, you are expected to take scheduled examinations. Failure to attend does not automatically lead to re-assessment. 5.4
Special consideration and supplementary examination
All students need to be aware of special consideration rules and supplementary assessment. If you are unable to meet a required deadline through illness or misadventure there are some forms of relief that may be available to you. There are not administered through the instructor. Rather you will need to contact the school and university. For more information please refer to the School of Banking and Finance website www.finance.unsw.edu.au following links to “Current Students” and then to the section on “Program Information”. An application for special consideration does not guarantee an offer of supplementary examination and/or a pass in the subject. The Assessment Review Committee will decide on whether a supplementary examination is to be granted. If a student is granted a supplementary examination but does not attend the supplementary examination, he/she will not be granted further assessment except in exceptional circumstances. Students are advised that if they are intend to travel overseas at the end of this session, they should consider taking out travel insurance which allows supplementary examinations as valid circumstances for cancelling travel. 5.5
Use of electronic calculators during class examinations
Students may use their own electronic/scientific calculator for examination purposes. It is to have functionality not significantly different in sophistication to a CASIO-FX80, which is the standard adopted by UNSW. Note that financial calculators, hand-held computers, Apple Newtons, personal information managers or devices with a full alpha-numeric keypad or with character recognition are strictly prohibited. Failure to follow this requirement and use of an unprescribed aid during an examination is a serious offence
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and will be regarded as academic misconduct. If you are unsure about the calculator you use please come and discuss this with the lecturer prior to the day of the examination.
6.
Academic Honesty and Plagiarism
The University regards plagiarism as a form of academic misconduct, and has very strict rules regarding plagiarism. For full information regarding policies, penalties and information to help you avoid plagiarism see: http://www.lc.unsw.edu.au/plagiarism/index.html Plagiarism is the presentation of the thoughts or work of another as one’s own.* Examples include: •
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direct duplication of the thoughts or work of another, including by copying work, or knowingly permitting it to be copied. This includes copying material, ideas or concepts from a book, article, report or other written document (whether published or unpublished), composition, artwork, design, drawing, circuitry, computer program or software, web site, Internet, other electronic resource, or another person’s assignment without appropriate acknowledgement; paraphrasing another person’s work with very minor changes keeping the meaning, form and/or progression of ideas of the original; piecing together sections of the work of others into a new whole; presenting an assessment item as independent work when it has been produced in whole or part in collusion with other people, for example, another student or a tutor; and, claiming credit for a proportion a work contributed to a group assessment item that is greater than that actually contributed.†
Submitting an assessment item that has already been submitted for academic credit elsewhere may also be considered plagiarism. The inclusion of the thoughts or work of another with attribution appropriate to the academic discipline does not amount to plagiarism. Students are reminded of their Rights and Responsibilities in respect of plagiarism, as set out in the University Undergraduate and Postgraduate Handbooks, and are encouraged to seek advice from academic staff whenever necessary to ensure they avoid plagiarism in all its forms. The Learning Centre website is the central University online resource for staff and student information on plagiarism and academic honesty. It can be located at: www.lc.unsw.edu.au/plagiarism
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The Learning Centre also provides substantial educational written materials, workshops, and tutorials to aid students, for example, in: • • •
correct referencing practices; paraphrasing, summarising, essay writing, and time management; appropriate use of, and attribution for, a range of materials including text, images, formulae and concepts.
Individual assistance is available on request from The Learning Centre. Students are also reminded that careful time management is an important part of study and one of the identified causes of plagiarism is poor time management. Students should allow sufficient time for research, drafting, and the proper referencing of sources in preparing all assessment items. * Based on that proposed to the University of Newcastle by the St James Ethics Centre.
Used with kind permission
from the University of Newcastle † Adapted with kind permission from the University of Melbourne.
7.
Resources for Students
7.1
Lecture notes and announcements
You will be able to obtain the latest course announcements and course materials via WebCT. Log-in page at www.webct.unsw.edu.au. 7.2
Texts
Prescribed text:
Beal and McKeown (2003), Personal Finance, 2nd edition, John Wiley and Sons [BM, hereafter].
Recommended text:
Australian Master Financial Planning Guide, 7th edition, CCH [AMFPG, hereafter].
7.3
Other resources
Education development unit Additional learning support, tailored to the needs of FCE students, is available from the Education Development Unit (EDU) in the Faculty. The EDU offers a range of services for FCE students including: Academic skills workshops run throughout the session; Printed and on-line study skills resources e.g. referencing guide, report writing and exam preparation; A drop-in resource centre containing books and audio visual material that can be borrowed; A limited consultation service for students with individual or small group learning needs.
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More information about the EDU services including on-line resources, workshop details and consultation request forms are available from the EDU website. Contacts and location: EDU Web: http://education.fce.unsw.edu.au EDU Location: Room 2039, Level 2 Quadrangle Building EDU services are free and confidential and are available to students of the Faculty of Commerce and Economics. UNSW support In addition to the EDU services, the UNSW Learning Centre provides academic skills support services for students. The Learning Centre is located on Level 2 of the Library and can be contacted by Phone: 9385 3890 or through their website: http://www.lc.unsw.edu.au/. Students experiencing problems of an academic or personal nature are encouraged to contact the Counselling Service at UNSW. This service is free and confidential and run by professional counsellors. The Counselling Service is located on Level 2, Quadrangle East Wing, and can be contacted on 9385 5418. Equity and diversity: those students who have a disability that requires some adjustment in their teaching or learning environment are encouraged to discuss their study needs with the course convener prior to, or at the commencement of, their course, or with the Equity Officer (Disability) in the Equity and Diversity Unit (9385 4734 or www.equity.unsw.edu.au/disabil.html). Issues to be discussed may include access to materials, signers or notetakers, the provision of services and additional exam and assessment arrangements. Early notification is essential to enable any necessary adjustments to be made. Information on designing courses and course outlines that take into account the needs of students with disabilities can be found at: www.secretariat.unsw.edu.au/acboardcom/minutes/coe/disabilityguideli nes.pdf
8. Continual Course Improvement Each session feedback is sought from students and other stakeholders about the courses offered in the School and continual improvements are made based on this feedback. UNSW’s Courses and Teaching Evaluation and Improvement (CATEI) Process (http://www.lut.unsw.edu.au/ref4-51_catei_process.cfm) is one of the ways in which student evaluative feedback is gathered. Significant changes to courses and programs within the School are communicated to subsequent cohorts of students.
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9.
Course Schedule
9.1
Lecture schedule
Week
Instructor
Topic 1. Introduction 2. Overview of Financial Planning Industry 3. Ethics and Compliance Issues 1. Financial Planning Skills 2. Construction of Financial Plans Taxation Planning Investments I Investments II Home Ownership Risk Management, Insurance & Credit Management Mid Session Examination Leveraged Investments Mid Session Recess Superannuation Self Managed Super and Family Breakdown Social Security and Retirement Income Planning
1
DG
2
DG
3 4 5 6
DG KF KF KF
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KF
8 9 10
KF KF KF
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KF
12
KF
13
KF
Estate Planning
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KF -
Review Final Examination
Reference
BM 1, 2
BM 2, 3, 15 BM 4 BM 5, 6 BM 6, 7 BM 8 BM 9, 10 BM 11 BM 12 AMFPG BM 13 BM 14
* This lecture outline is subject to change without prior notice. Students will be able to download the lecture slides from the School of Banking and Finance’s website prior the relevant lecture, at the discretion of the lecturer. 9.2
Tutorial program
Tutorials are an important extension of lectures, and will provide students with practical skills and the ability to apply theory to real-world problems. Tutorials will primarily cover materials from the previous week’s lecture. Students are expected to have attempted the problems prior to the tutorial class. The instructor will be surveying each student’s work prior to the tutorial commencing. Attendance at tutorials is compulsory.
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The structure of tutorials will involve a selection of problems (listed below) from the course textbook by Diana Beal and Warren McKeown (Personal Finance, 2nd Edition).
Week 1 Week 2
Week 3
Week 4
Week 5
Week 6
Week 7
NO TUTORIALS Chapter 1: Professional Application Questions 1.1, 1.2, 1.3, 1.4 Chapter 1: Professional Application Exercises 1.2, 1.3 Chapter 1: Case Study Questions 1, 2, 3, 4 Chapter 2: Professional Application Questions 2.1, 2.5, 2.6 Chapter 2: Professional Application Exercises 2.1, 2.2, 2.3, 2.4, 2.5, 2.6 Chapter 3: Professional Application Questions 3.2, 3.3, 3.4 Chapter 3: Professional Application Exercises 3.1, 3.2, 3.3, 3.4, 3.5 Chapter 15: Professional Application Questions 15.1, 15.2, 15.4, 15.7, 15.8, 15.10 Chapter 4: Professional Application Questions 4.1, 4.2, 4.3, 4.6 Chapter 4: Professional Application Exercises 4.1, 4.3 Chapter 5: Case Study Questions 1, 2, 3, 4, 5, 6 Chapter 6: Professional Application Questions 6.1, 6.3, 6.4, 6.5 Chapter 6: Professional Application Exercises 6.1, 6.2, 6.3, 6.4, 6.5 Chapter 7: Professional Application Questions 7.1, 7.2, 7.3
Week 9
Week 9
Week 10 Week 11
Week 12 Week 13
Week 14
Chapter 8: Professional Application Questions 8.1 – 8.5 Chapter 8: Professional Application Exercises 8.1 – 8.2 Chapter 8: Case Study Questions 1-5 Chapter 9: Professional Application Questions 9.1, 9.3, 9.4 Chapter 9: Professional Application Exercises 9.1, 9.3, 9.5 Chapter 10: Case Study Questions 1-12 (Consumer Lending) Chapter 11: Professional Application Questions 11.2 – 11.5, 11.9 Chapter 11: Professional Application Exercises 11.1 – 11.4 Chapter 12: Professional Application Questions 12.1 – 12.5 Chapter 12: Professional Application Exercises 12.4 Chapter 12: Case Study Questions 12.1 – 12.5 To be downloaded from WebCT Chapter 13: Professional Application Questions 13.1 – 13.5 Chapter 13: Professional Application Exercises 13.1, 13.4, 13.7, 13.8 Chapter 13: Case Study Questions 13.1 – 13.5 Chapter 14: Professional Application Questions 14.2 – 14.6 Chapter 14: Professional Application Exercises 14.1, 14.2, 14.4, 14.5 Chapter 14: Case Study Questions (Estate Planning)
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10.
About the Instructors
Kingsley Y. Fong Kingsley Y. Fong is a senior lecturer in the School of Banking and Finance at The University of New South Wales and a CFA charter holder. Dr. Fong’s research interests and expertise encompasses market microstructure, investment management and trading strategies. He presented his research in various conferences in America, Europe, Asia and Australia. Dr. Fong has published articles in the Journal of Empirical Finance, Pacific Basin Finance Journal, Journal of International Financial Markets, Institution and Money, Journal of Alternative Investments and Advances in Pacific Basin Financial Markets. He referred for Journal of Empirical Finance, Australian Journal of Management, Journal of Multinational Financial Management, and Journal of International Financial Markets, Institutions and Money. Dr Fong graduated with a Ph.D. in finance from the School of Business at The University of Sydney in 2002. David R. Gallagher David R. Gallagher is an Associate Professor of Finance in the School of Banking and Finance at The University of New South Wales and Director of the Finance (Hons) Co-op Program. He is also an Associate Editor of the Australian Journal of Management. Dr Gallagher’s research interests and expertise are primarily in the area of investment management, and he is one of the leading Australian researchers in the field. He has published articles in both academic and industry journals, and he maintains an intensive research agenda. He is also an active participant within the profession, speaking at industry conferences and seminars. The high quality of his research has also been recognised by the Securities Institute of Australia, being a recipient of the 2000 and 2003 JASSA Prize, and witnessed through research grants awarded by the Australian Research Council. Dr Gallagher has also undertaken extensive research and consulting on behalf of a number of leading financial services organisations and Government. Dr Gallagher graduated with a Ph.D. in finance from the School of Business at The University of Sydney in 2002.
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Assignment Details DUE: Friday, 21 October 2005 (QUAD Level 1 labeled assignment box)
IMPORTANT INSTRUCTIONS TO STUDENTS: 1. The assignment must be undertaken in groups of 2 students – no more than 2 and no less than 2! 2. COMMENCE THIS ASSIGNMENT IMMEDIATELY. 3. Marks will be deducted if the word length of the assignment is excessive (only provide information which appropriately answers the questions asked, type in 12 point fonts at 1.5 line spacing). 4. Title page must include the course title, students comprising the group, each student’s signature, student’s ID number, the tutor’s name and your tutorial time, and the percentage contribution of each student in completing the assignment. (The latter will help determine whether students are bearing an adequate load of the assignment responsibility.) 5. The assignment must be well presented, typed using a word processing package, on one side of the paper only. Page numbers must also be printed. Marks will be deducted for poor presentation quality. 6. Use Sub-headings and/or sections to highlight/structure the main points in your assignment. This will make it easier for you when completing the assignment and help to maximise your marks through ease of reading/marking. 7. All assignments must include a reference section. All sourced material, including direct quotations must be appropriately acknowledged. Websites should also be referenced where material is incorporated (in any form) in your assignment. Plagiarism will not be tolerated!! 8. Marks may be deducted for late submissions of assignments after the due date. This will account for 10 % per day. Assignment Question: A married couple has come to you seeking your professional help in constructing a financial plan. Their personal financial details are listed below: • • •
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Simon and Simone have two grown-up children (who do not live at home) and live in Sydney. Simon and Simone’s ages are 60 and 55, respectively. Their risk profile is low, meaning they prefer to invest in defensive assets, although they are happy to also have some exposure to growth assets. Both Simon and Simone are fully employed, earning $150,000 p.a. and $65,000 p.a. (before tax, respectively). Both receive superannuation contributions in addition these stated remuneration details at the rate of 9% p.a. of gross salary. The assets (and income) of the couple are all jointly held/received and include the following: o house valued at $1,000,000
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•
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o 2 cars (worth in total $120,000), one car is brand new and one is 13 years old o $120,000 invested in a cash management trust o $7,500 in a transactional bank account, for everyday living needs, which pays interest equal to 4.5% p.a. (interested credited monthly). o $185,000 invested in 2 managed funds offered by two different investment institutions – the first fund has 10% invested a balanced (multi-sector) fund (whose asset mix is 30% Australian shares, 20% international shares, 15% listed property, 20% Australian fixed interest, 15% cash), and the other has remaining assets invested in another balanced fund with asset allocation as follows: 45% Australian shares, 25% international shares, 5% listed property, 10% Australian fixed interest, 5% international fixed interest, 10% cash) . o The couple own direct shares currently worth $173,000 which were acquired from initial public offers or demutualisations – Woolworths (20%), Telstra (13%), Commonwealth Bank (47%), NRMA (Insurance Australia Group) (10%, AMP (10%). Assume these companies all pay dividends that are fully franked (i.e. 100% imputed credit). (Visit the websites of these companies and obtain the dividend per share (DPS) information from their most recent annual report. Alternatively, visit the Australian Financial Review’s Market Wrap section to locate the DPS.) Value the shares as at Friday 26th August. o Superannuation assets equal to $325,000 ($175,000 for Simon and $150,000 for Simone) o Term deposit for 6 months, which matures in 3 months equal to $17,000, and pays interest at 7% p.a. o Both the House and Contents are fully insured. Contents are worth $157,000 to replace (if stolen or lost due to damage). No insurance cover exists for the cars, life insurance, health insurance, or income protection insurance. The liabilities of the couple are as follows: o $300,000 mortgage (interest is paid at the variable rate of 10.5% p.a.) o $20,000 credit card liability (17% p.a. interest rate) o $30,000 personal loan (used for the new car) (rate is 12% p.a.). o $5,600 overdraft facility (i.e. a short-term debt) (15% p.a. interest rate) The estimated expenses of the couple amount to: o $3200 per week o Plans for a ‘round the world’ trip over 2 months which is estimated to cost them $A40,000 which needs to be provisioned in their savings plan.
A) Using tables (which are clearly marked) provide the following review (maximum of 7 pages):
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• • •
a current budget (i.e. income and expenses) statement – use assumptions if necessary but outline any of the assumptions); an aggregated asset/liability statement showing the financial position and net worth of the client. Using the current tax scales (available from the Australian Tax Office’s website), calculate the income tax payable by both Simon and Simone (show all workings – including the tax paid at each scale by both Simon and Simone) for the last financial year. Assume (for simplicity) they have no allowable deductions or tax offsets. However, the dividend imputation issue needs to be included in your answer. Also include the Medicare levy as part of their tax assessments. What are the tax implications for couples who have no health insurance cover?
Note: Students are encouraged to use Microsoft Excel to perform the computational functions and to help avoid errors in arithmetic. B) Show the asset allocation of Simon and Simone’s total assets, decomposed into the areas of Australian shares, international shares, listed property, direct property, Australian fixed interest, international fixed interest and cash. You should also highlight which assets are directly held, and those assets which are indirect. To what extent might Simone and Simon need to re-balance their asset allocation through time? Why might this be the case? (1 page maximum) C) Provide a brief discussion of the issues arising from their financial situation, including current strengths and weaknesses (problems). You should also discuss their superannuation and insurance arrangements and whether or not these are satisfactory. (3 pages maximum) D) Given the high level of tax paid by the couple, discuss possible options available to them to legally minimise their tax. In your assessment, identify the benefits/constraints of these strategies. (2 pages maximum)
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