Comprehensive Financial Plan_PaperClients_CaseStudy_F2023 (1)

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Feb 20, 2024

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FINANCIAL PLANNING CASE STUDY F2023 Worth: 40% of final mark (20% presentation, 20% written report) Start Date: Wednesday October 11th, 2023 Report Due date: December 1 st at 11:59pm in FOL Late penalty: 20% per day Presentations: To be held in class Week 14 Statement on Academic Offences: Your work must be original and cheating will not be tolerated. Fanshawe College is committed to Academic Integrity. Academic offences are taken seriously and students are directed to read the appropriate policy, specifically, the definition of what constitutes an offence, at the following site: https://www.fanshawec.ca/about- fanshawe/corporate- information/policies/academic-and-research Instructions: 1. Working in a group of maximum 4 people, analyze the case below and create a written comprehensive financial plan and presentation. 2. Your analysis of this case should be typewritten and professional in appearance. Your goal is to take the client through the necessary steps in order to have them consider purchasing and implementing your recommendations. Use the tools that were provided in your core class to provide analysis and recommendations. 3. Your report should be written to your prospective clients in a clear and concise manner. You must use appropriate terminology for your client. Make sure you address your analysis to the clients, NOT to your professor. The clients should be able to understand what your exact recommendations are for amounts and types of products, and how their needs lead logically to this recommendation. 4. Spelling, grammar and appearance are important. Up to 10% will be deducted for work that contains errors, or is not clear, logical, and easy to understand. 5. Presentation is max 25 minutes, followed by max 5 minutes Questions and Answers. 1

Additional instructions and grading rubrics will be provided at a later date. The Case: Michael Carter and Alyssa Carter As at 31 January 2023 Personal Information Michael R. Carter and Alyssa T. Carter are 39 years old and 41 years old respectively and currently live in London, Ontario. They met through a mutual friend Tony and married in 2016. Michael divorced his first wife Ava after 3 years of marriage. Michael is paying $500 per month in spousal support payments that will finish in December 2028. Michael and Alyssa currently have an 6 year old boy named Greg and a 4 year old girl, Kaley. For years they had trouble conceiving their second child and feel that Kaley will be their last child. Employment Michael: After graduating from Fanshawe College in 2007, Michael went on to work at 4 Solutions Display Corp. as an Industrial Designer. His role primarily involved designing Point-of-Purchase (POP) displays for major retailers in Canada. In November 2015, after several years with 4 Solutions, Michael was let go due to a corporate restructuring. His annual salary at the time was $75,000. Forced to find employment in short order, Michael worked for a number of design firms on a temporary basis until he started his own business, BRM Design in January 2017. BRM Design focuses on producing POP designs for a select number of retailers that can be manufactured on time and on budget. He prides himself on his efficiency. The last two years have been very challenging for Michael but he has managed to generate positive cash flow every quarter. He works from his home office and has no plans to hire staff unless he absolutely has to. Michael’s goal is to establish long-term design contracts with the firms he has been working with to make his business sustainable. In 2023, Michael expects to generate $98,000 of self-employment income after expenses, an 8% increase over 2022 (30% over 2021). Over the long-term, Michael would be happy if his net income grows with inflation. Although he loves what he does, he would really like to retire early by age 60 so that he can golf, travel and enjoy the finer things in life. Alyssa: Alyssa completed a Bachelor of Science in Nursing program at George Brown College and is currently employed as a nurse at University Hospital. As a nurse, she earns $76,000 per year with a pension and benefits. Alyssa anticipates retiring at the same time as Michael so they can enjoy retirement together. Major Assets and Liabilities Michael and Alyssa purchased their semi-detached home jointly in London, Ontario for $450,000 in 2018 with a $50,000 down payment. They believe they could sell it for $850,000 today if they had to. They received a mortgage for $400,000 with a 25 year amortization, on a 5 year term at a 4.5% interest rate. They currently have 1 year left on their mortgage and are thinking about the possibility of refinancing at an interest rate of 3.25%. 2

Michael and Alyssa have various investment accounts (TFSAs, RRSPs and Non-Registered) as listed below. Every year at Christmas time, Michael’s Dad gives them $2,400 as a gift and they have been using this to contribute to their TFSAs on an annual basis, and they plan to continue this. They consider themselves to be medium-risk investors, although they have told you they never completed a risk tolerance questionnaire. They don’t have a great understanding of how financial markets work nor the time to figure it out. They have never completed an investment or retirement plan in the past and have made their investment decisions by listening to their friend Percy, a self- described investment guru, who gives them “hot” stock tips. They expect to make 8% per year on their investments and feel they are saving enough to meet their retirement goals. Alyssa has a 6%, $20,000 car loan outstanding with BMO Bank of Montreal. The loan has 4 years remaining and she is making monthly payments. As listed below, Michael and Alyssa each have a car and they are both in reasonably good shape at the moment. However, Michael will likely need to replace his car in 3 years. He is thinking of purchasing a Tesla Model X at that time. Education Savings As soon as Greg was born, Michael and Alyssa opened a RESP as joint subscribers and began saving $225 per month based on the advice of a bank branch employee. They did the same when their second child was born. The plan is currently worth $31,201.58 and is invested 100% in the BMO Dividend Fund. The plan was initially opened as a Family Plan. Although it is early, they envision both of their kids attending a university in Canada, earning a four year university degree. They expect their children to attend university in another city. If possible, they would like to fully cover their children’s education costs. Health Michael and Alyssa have enjoyed relatively good health of late. However, 10 years ago Michael had a non-cancerous cyst removed from his leg and this past year Alyssa underwent surgery to treat her keratoconus. Michael and Alyssa are both non-smokers. Financial Security Michael and Alyssa recognize the importance of risk management and would like to ensure their family is financially secure in the event of death, disability or an emergency. When Michael was let go from 4 Solutions in 2015 he opted to convert his group life insurance coverage to an individual life policy with the same carrier, Sun Life. The policy is a whole-life and has a face value of $75,000. The beneficiary on the plan is his ex-wife. Michael also had a defined contribution pension plan with 4 Solutions. When he was let go, he transferred the value to a LIRA. Michael has not purchased any other insurance products and does not believe he needs to so long as he is covered under Alyssa’s work plan. University Hospital’s Group Benefits Plan provides Michael, Alyssa and children with extended health care and dental care through Great-West Life. The premiums for extended health care and dental care are paid for by the hospital. The plan also covers Alyssa for short-term disability (100% of salary) and long-term disability (60% of salary after 3 months). Alyssa pays the premium of $67.10 for long-term any occupation disability coverage. Alyssa has $50,000 of life insurance coverage on her and she has opted for supplementary life insurance of $50,000 on her life. Michael and Alyssa have no other life insurance policies. 3

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Michael and Alyssa would like to leave everything to each other in the event of death and then their children in equal shares. They want to ensure their kids are provided for in terms of education and living expenses and that the surviving spouse can take a year off work to grieve. Michael created a will in 2011 and it has not been updated, but Alyssa has not. In the event of both of their deaths, Michael’s sister Beverly has verbally agreed to care for their children. Pension Plans Alyssa is a member of her employer’s mandatory defined contribution pension plan. She contributes 4% of her earnings and her employer matches. The plan is invested with a balanced mandate comprised of 60% equities and 40% fixed income. Michael is listed as beneficiary on the plan. Given Alyssa’s pension, their current and projected savings and the benefits they will receive from the government, Michael and Alyssa would like to have an income of 65,000 a year after tax in today’s dollars. Inheritances Michael’s dad is 72. He plans to leave one third of his estate to Michael which is currently worth around $90,000. Michael and Alyssa would like to pass on a sizable estate to their children, and are wondering if there is a way to minimize estate taxes or maximize estate values for their children. Alyssa’s parents divorced when she was young and she does not anticipate any sizable inheritance upon their death. Future Plans: The next few years promise to be an exciting time for Michael and Alyssa. Once they establish themselves in their respective careers they hope to purchase a larger home to raise their family in. They would like to buy a resale detached house close to one of the best primary schools in the city. They expect to pay $950,000 for a 3 bedroom, 2000 square foot home. They are unsure if they qualify for the Home Buyer’s Plan. Michael has also been heavily involved the Make-a-Wish Foundation. He is thinking of donating $50,000 to charity at his death. He is wondering the best way to do this and is unsure of the benefits, if any, this will provide his estate. Expenses & Cash Flow (note: this is not complete and you should make and state assumptions where appropriate.) Michael’s sister Beverly runs a home day care and charges Michael and Alyssa only $250 per month to care for Kaley. She previously did the same for Greg. 4

Michael and Alyssa believe they spend less and save more than the average family. However, they have not kept accurate records and have only collected the following list of personal expenses and savings plan contributions. They are unsure if this is a full accounting of expenses. In the future, they plan to join a gym for the family and go on an annual family vacation to the Caribbean for one week to de-stress. Michael and Alyssa Expenses Babysitting $50.00 Groceries and pharmacy $1,050.00 Fast food / restaurants $50.00 Property taxes $500.00 Spousal Support $500.00 Utilities $325.00 Car insurance $185.00 Gas for cars $300.00 Clothing $100.00 Daycare $250.00 Entertainment $250.00 Phone, internet, cable $175.00 Home insurance $80.00 Life insurance - Michael $40.00 Group Supplementary Life insurance $7.50 Group long-term disability $67.10 Savings: TFSA for Alyssa $200.00 TFSA for Michael $200.00 RESP (Family Plan) $450.00 RRSP for Alyssa $200.00 RRSP for Michael $450.00 Pension Plan $253.33 5

Other Assets and Debts Michael Alyssa CARS 2010 Pontiac Grand Prix No loan, paid in full 2019 Ford Escape BANK ACCOUNTS $4,514 LIFE INSURANCE $5,987.54 Cash value None HOME FURNISHINGS $50,000 DEBTS $3,400 BMO Air Miles MasterCard Credit Limit $25,000, 19.9% interest rate Car Loan (Alyssa) - $20,000 Investment Details CURRENT INVESTMENTS WITH BMO BANK OF MONTREAL RESP (FAMILY PLAN) $31,201.58 Invested in BMO Dividend Fund CURRENT INVESTMENTS WITH SCOTIA iTRADE Michael Alyssa NON-REGISTERED INVESTMENTS $7,500.01 Invested 100% in Canadian Tire common stock TFSAs $8,356.36 Lululemon stock 20% Royal Bank stock 40% Suncor Energy stock 20% Rogers common stock 20% $7,750.67 Lululemon stock 30% Royal Bank stock 40% Rogers common stock 30% RRSPs $23,801.82 Manulife Monthly High Income Fund 10% RBC Canadian Equity 60% Manulife Bond Fund 30% $12,107.11 BMO Dividend Fund 30% Scotia Canadian Equity Fund 40% BMO Canadian Small Cap Equity Fund 30% LIRA $21,672.99 Manulife Monthly High Income Fund PENSIONS None $91,970.87 Managed by pension fund manager in a balanced mandate (60% equities, 40% bonds) 6

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