DFMB2_OR_VolGuide_v3

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Kaplan Business School *

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DFMB2

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Finance

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Jan 9, 2024

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Document classification: Confidential Page 1 of 16 DFMB2_OR_VolGuide_v3 © Kaplan Education Pty Ltd. All rights reserved. Oral Assignment Volunteer Guide Diploma of Finance and Mortgage Broking Management (DFMB2_OR_VolGuide_v3) Thank you for participating in the role play to assist a student enrolled in Kaplan’s FNS50322 Diploma of Finance and Mortgage Broking Management . The purpose of the role play is to assess the student communicating orally with a customer. In the role play, your role will be the customer. To best support the student to demonstrate their knowledge and skills, it’s important that the interaction/s you undertake with them are realistic. So while it’s important that you follow the instructions in this guide, please do not script or read your responses — rather, allow the interaction to flow naturally. The student will make an audio recording of the role play to submit with their Oral Assignment. Role play 1 Case study 1: Ray Murdoch and Steve Brown — Commercial Equipment Finance (10 minutes) The role of the student The student will play the role of a mortgage broker. They are to assume you have come into their office for this meeting. This is the initial meeting with the client. The purpose of the meeting is to understand the client’s needs and objectives and to obtain verification documents. The assessment criteria the student will be assessed on includes the following: • Identification of goals, objectives and complex broking needs of client and how the implementation will take place. • Developed rapport with clients. • Presented broking options to the clients based on financial circumstances, financial literacy, special need. • Negotiated effectively. • Compared features, fees, charges and risks for credit options. • Completed and maintained necessary documentation. • Obtained written agreement to proceed. • Interpreted and complied with legislative requirements.

Document classification: Confidential Page 2 of 16 The role of the volunteer You will play the role of Ray Murdoch or Steve Brown. The case study for Ray Murdoch and Steve Brown is located at the end of this document for your reference. However, you do not have to read the case study in detail, you will be able to participate in this role play based on the following instructions: The role play works best if the student does not know the details before the role play, so the questions they ask you are ‘unrehearsed’. Your responsibility is to support the student and participate to the best of your ability, so the student is able to demonstrate their skills and knowledge in a realistic situation. You have come into the office to meet with the broker for your initial meeting. Respond to the student’s welcome and introduction . Keep this very brief. The student is to explain and provide you with a disclosure document. Pretend to accept this when provided. The student will explain some formalities such as: • explaining why they need to ask questions and seek clarification • explaining privacy requirements and how information will be stored • briefly outlining the dispute resolution process. You should respond in acknowledgment to the above points where appropriate. The student needs to identify your: • current goals and objectives • requirements • situation • level of financial understanding • special needs. The student will ask you clarifying questions. For example, they may ask you: ‘you mentioned you want an asset lease for a term of seven years. You should respond to their questions to allow the conversation to keep moving. Respond appropriately depending on what you are asked. They will use questioning techniques to gain this information from you. Be forthcoming with your responses. Example responses from the case study are as follows: Needs and objectives include: • finance to assist with the purchase of a sophisticated machine to manufacture metal pallets. The machine uses the technical platform system, CNC • the machine has an expected commercial lifespan of at least 15 years • the purchase price is $800,000 inclusive of GST • you would like to know if there would be penalties if you made extra repayments or pay out the loan early. Requirements: • You require a finance lease over seven (7) years, if possible. Situation: • You have been in business for five (5) years. • The new machine will allow you to take on new contracts. • The increase in production will require you to employ two (2) additional staff members.

Document classification: Confidential Page 3 of 16 Level of financial understanding: • Ray has an MBA and understands financial management. The student will explain further information and ask you some additional questions. The bold text indicates where you should respond. The student will: • advise you that they will be remunerated by charging a brokerage fee — you acknowledge when appropriate • ask questions to confirm that you understand the lender fees and brokerage fees and that you are willing to accept them • discuss the difference between a lease and chattel mortgage and provide their opinion on which product may be the best option for you — acknowledge this when appropriate • explain why the alternate option is not in your best interest — thank them for explaining this. • advise you that you should seek advice from your accountant regarding the best product option that suits your taxation strategy — respond to the advice you have received • discuss what security will be required for the loan that they have recommended • explain to you the next steps in the application process • advise you how they will provide a written recommendation (via email etc.) • ask questions to confirm that you understand the discussion respond to their question • gain permission to proceed to the next step — provide your response for the broker to proceed with your application. The student will mention that they require a copy of your financial statements for the last two (2) years — you advise how you will provide this information . The student will present you with finance options and clarify your understanding and acceptance of their recommendation. They will discuss the necessary documentation and request written agreement to proceed. The interview will end.

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Document classification: Confidential Page 4 of 16 Role play 2 Case study 2: Bill Smith and John Jones — Commercial Premises Finance (10 minutes) The role of the student The student will play the role of the mortgage broker. The student has presented the clients with a report outlining their recommendation to assist the clients with their commercial property purchase. The following information sets the scene for this role play (for the student): Bill has called the broker to ask some questions regarding the product options and fees that were outlined in the recommendation report. The main objectives of this meeting are to: • clarify the two (2) product options that were recommended • guide the client through both credit options and discuss the impact of each option • provide an explanation (as per Bill’s request) of who will be paying the brokerage fee (the client or the lender) and what the broker’s association/relationship with the lender is • explain how the lender fees are separate from the brokerage fees • use questioning techniques to clarify that the client understands • confirm that you have the client’s permission to proceed. The assessment criteria the student will be assessed on includes the following: • respond to queries from the client • guide client through credit options and discuss the impact on each option • explain fees and commissions • clarify client’s understanding • confirm permission to proceed.

Document classification: Confidential Page 5 of 16 The role of the volunteer You are to play the role of the client, Bill Smith. You have called the office of the broker to ask some clarifying questions about the recommendation report that was sent to you recently. After a brief introduction and rapport building, you will ask the student some questions. Examples of the types of questions you can ask are: • Clarification of the two product options recommended and an overview of these products • Who pays for the brokerage fee and what relationship is there between broker and lender • What the lender fees and broker fees are and are they the same. You may be asked by the student if you understand their explanations. You should respond with accordingly. The student will ask you for your permission to proceed with the application. You should respond positively to go ahead. The role play works best if the student does not know the details before the role play, so the questions they ask are ‘unrehearsed’. Your responsibility is to support the student and participate to the best of your ability, so the student is able to demonstrate their skills and knowledge in a realistic situation.

Document classification: Confidential Page 6 of 16 Role play 3 Case study 3: Rahn and Deepa Singh — Property Development Finance (5 minutes) The role of the student The student will play the role of the mortgage broker. The student will be required to: • make a proactive call to Rahn and Deepa Singh • debrief the application and settlement process with them by asking questions, listening and responding appropriately to their experience • answer their questions and respond to their concerns • explain the post-broking service that will be provided to the client (e.g. ability to refer them to other specialists, conduct an annual review to check the client is still getting competitive rates/fees). The assessment criteria the student will be assessed on includes the following: • maintain rapport with the client • debrief with client post implementation and address queries and concerns • demonstrate communication skills, questioning techniques and listening skills • respond to client questions and concerns • define post-broking services to be provided and communicate this to the clients. The role of the volunteer You are to play the role of either Rahn or Deepa Singh. Following settlement, and keeping in line with good customer service practice, the student is going to call you to discuss your experience and address any questions or concerns you may have. The student will ask questions about your experience. You are to respond in a positive manner, for example: • That everything happens on time • The solicitor advised that everything happened on time and with no problems. The student will explain the post-broking service that they will/can provide to you as the client. Ask at least one (1) question about this service, which could relate to: • Be advised if any deals or specials become available • If there are any fees for ongoing service. You have one (1) concern that you need to ask the student, this could relate to your concerns that if you have further queries about your loan that you will have to deal with someone that they don’t know, can you just come directly to them. The student will respond to your questions, thank you for your time and end the call.

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Document classification: Confidential Page 7 of 16 Case study 1: Ray Murdoch and Steve Brown — Commercial Equipment Finance Background You have just met with Raymond Murdoch and Steven Brown, referred to you by another commercial client. Ray and Steve jointly own a successful and growing business that manufactures metal pallets. They trade under the name Pallets-R-Us Pty Ltd. The pallets are manufactured using material that is lightweight and durable. There has also been a very structured approach to the research and development for the engineering and design of the pallets. The pallets are used in all industry sectors. Part of the process involves powder coating the finished product, which is currently outsourced to a local well-established contractor. It is critical that Ray and Steven’s product meets market needs. They need to maintain sustainable production, quality control and reduced operating costs if they are to meet their forecast sales and cost of sales. They have a well-established client base that provides them with repeat ‘business-to-business’ dealings. They have been trading for five (5) years and have a solid business plan with written supply contracts with three major business clients and several smaller business clients. Ray and Steven now require finance to assist them with the purchase of a sophisticated machine that uses the technical platform system CNC. This machine can be programmed to rapidly fabricate multiple components. The machine has an expected commercial lifespan of at least 15 years with the operating software to be updated every three years for the first 12 years. The software and upgrades are included in the purchase price of $800,000 inclusive of GST. The clients have sufficient funds to cover the $20,000 installation costs of the machine. They have not yet spoken to their accountant; however, they think that maybe they want an asset lease to finance the machine. They have asked if it is possible to have the asset lease facility be repaid over seven (7) years. The clients have also asked about the ability to make extra payments, or pay out the loan early and whether any penalties would apply. They have asked what fees are involved, including any fees that would need to be paid to the broker. As their broker, you can also recommend other products, such as chattel mortgage, provided you are able to identify a benefit to the client and clearly identify which components of your recommendation form part of the credit assistance you are providing, and which components should be subject to qualified advice. Their business employs five (5) people. The new machine will enable them to take on new contracts with an expected increase in business through the automation of production. They have forecast that they will need to recruit an additional two (2) staff members in the next 3–6 months to meet sales/production demands. Ray has been in the metal fabrication field all his working life. He has an MBA and understands financial management. He also has solid engineering skills and developed the majority of the design works for the business. He is divorced and has no dependants. Steve is married and his wife Kate is a school teacher. Steve worked with Ray at ‘Protech’ as a foreman. His skills are in production and managing project/ workflow. He has high level technical skills and can complete works to specification at a high standard. Steve and Ray have provided the last two (2) years financial statements for the trading business.

Document classification: Confidential Page 8 of 16 Applicant information Client Raymond Murdoch Steven Brown Current address: Unit 43, 25 High St Northville, <Your State> and has lived there for six years 23 Desmond Lane Northville, <Your State> and has lived there with Kate for seven years. They own property jointly. Home phone: 9521 2121 9452 1212 Status Ray is divorced no dependent age children Steve is married with no dependants Age/date of birth 45 years 12/9/19XX 42 years 12/12/19XX Employment Self-employed business owner Self-employed business owner Income $100,000 per annum $100,000 per annum Property value $750,000 $900,000 Owned jointly with wife Kate Cash at bank $12,500 $9,600 Contents $100,000 $85,000 Superannuation $250,000 Steve $350,000, Kate $150,000 Personal insurances within superannuation • Death: $250,000 • Total and permanent disability: $125,000 • Income protection: Nil Steve: • Death: $300,000 • Total and permanent disability: $250,000 • Income protection: Nil Kate: • Death: $100,000 • Total and permanent disability: $125,000 • Income protection: Nil Wills No No Motor vehicle $40,000 $55,000 Home loan $250,000 repayments $1,454 per month @ interest rate of 2.55% P & I, 18 years remaining $350,000 repayments $2,015 per month @ interest rate of 2.45%, P & I, 22 years remaining Credit card $25,000 limit with current balance of $15,000, monthly payment calculated @ 3% of limit $10,000 limit with current balance of $3,000, monthly payment calculated @ 3% of limit Car loan $0 $15,000 repayment $746 p.m., remaining term 4 years Monthly living expenses $3,700 $4,150

Document classification: Confidential Page 9 of 16 The business Year 20X0 Year 20X1 Business turnover $2,800,000 $3,200,000 Net profit after tax (NPAT) $205,000 $226,000 Earnings before interest, tax, depreciation & amortisation (EBITDA) $310,000 $340,000 Financials cover last 2 full financials years and can provide additional years if required. Overdraft limit current interest rate 5.5% $100,000 Forklift loan — remaining term 18 months at $682 per month Balance $12,280 Car loan 1— remaining term 36 months at $738 per month Balance $26,600 Car loan 1 — remaining term 36 months at $711 per month Balance $25,600 Business insurances • Plant and equipment insurance — $400,000 • No other insurances stated Salary ($88,000) and director’s fees ($12,000) to Raymond Murdoch ( Note: Salary is sufficient to cover personal liabilities) $100,000 $100,000 Salary ($92,000) and director’s fees ($8,000) to Steven Brown ( Note: Salary is sufficient to cover personal liabilities) $100,000 $100,000 ACN: 123 123 123 ABN: 64 123 123 123 Business name: Pallets-R-Us Pty Ltd Business address: 1 Industrial Court, Hillside 2120 Shareholders Raymond Murdoch – 50% Steven Brown – 50% Accountant David Hill of David Hill Accountancy. Key balance sheet items Cash $125,000 Trade Debtors $220,000 Trade Creditors $100,000 Notes The business currently meets all creditor payments at 30-day terms. Debtor collection has been solid. They invoice an upfront payment of 50% of the sale price, which assists in funding their production. They have orders of $1 million over the next three (3) months and have made an increase in their gross profit margin. The orders are from several clients, so their debtors will be well spread. Ray and Steve are prepared to sign personal guarantees and are willing to allow the lender to take a charge of business assets. They do not wish to provide a mortgage over their own properties.

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Document classification: Confidential Page 10 of 16 Case study 2: Bill Smith and John Jones — Commercial Premises Finance Background You are meeting with prospective clients, Bill Smith and John Jones. They have been referred to you by their accounting firm, Buckland Accountants. The prospective clients need assistance with the acquisition of an owner-occupied premises to replace their current business premises, which they own but is becoming too small for their growing business. True Blue Pty Ltd trades as True Blue Real Estate and was purchased as an existing real estate business three years ago. Bill Smith and John Jones are the directors. The shareholders of True Blue Pty Ltd are Bill Smith, John Jones and a private investor, Amanda Williams. Amanda does not work in the business and has no involvement in its day-to-day operation. As part of their business agreement, an annual payment of $45,000 is paid to Amanda. Bill, John and Amanda each hold an equal one-third share in the company. Bill and John have both been in real estate for approximately 12 years, focusing on residential sales and leasing. They have gained their work experience in the local area. A wealth of knowledge of the area, coupled with an ever-expanding client base, has resulted in sustained and solid growth for the business. Details of the property to be sold • The sale price of the current office premises is $680,000. • They sold the property themselves, therefore there is no real estate agent commission. • The current office settlement will occur 120 days after the purchase settlement. • The term loan secured against the property is in the names of Bill and John, as co-borrowers. • Monthly repayments of $2,600 applies to the current variable rate loan and the outstanding balance is $525,000. • The surplus funds from the sale settlement belong to Bill and John. They intend to use these funds for their own personal investments. Details of the property to be purchased • Purchase price of the property is $950,000. The purchase price is inclusive of GST. • A deposit of $95,000 has been paid and is being held in the trust account of the settlement agent/solicitor. • Solicitors fees are estimated at $5,000. • A further cash contribution of $235,000 is available from the general working account of the business. • After receiving advice from their accountant and solicitor, the clients advise that the property purchase and loan are to be in the name of a new entity — True Blue Investments Pty Ltd as trustees for the Smith Jones Williams Unit Trust. There are a total of 99 units in the trust and the unit holdings mirror the shareholding of the trading entity, True Blue Pty Ltd. • The property is situated at 100 Smith St, Yourtown, with contracts exchanged at today’s date and an anticipated settlement date in 90 days. The property is in good condition and is well located in the same street as the property to be sold. It is anticipated that the premises will meet the needs of the business for the next 10–15 years. Lenders have indicated that maximum LVR of 70% would apply.

Document classification: Confidential Page 11 of 16 Summary of initial client fact find Bill and John have provided the last two years financial statements for the trading business. True Blue Real Estate’s financial accounts Year 20X0 Year 20X1 Business Turnover $1,400,000 $1,750,000 Net profit after tax (NPAT) $92,000 $169,000 Earnings before interest, tax, depreciation & amortisation (EBITDA) $152,000 $220,000 Annual payment to private investor (fixed flat amount) $45,000 $45,000 Annual income from rent roll $250,000 $280,000 Annual rental payments 54,000 $54,000 Applicant information — Bill Smith Personal details Address 26 Nowry Road, Yourtown 1234 Age 54 years Phone 0419 901 234 Financial details Gross income $70,640 Owner-occupied property valued at (property owned in Bill’s name solely) Business premises valued at (jointly owned with business partner) $550,000 $680,000 Outstanding debt on owner-occupied property Outstanding debt on business premises (Joint debt with business partner) $210,000 Repayments: $1,128 per month P & I Interest rate: 2.55% p.a. Remaining term: 20 years $525,000 Repayments: $2,600 per month P & I Interest rate: 2.8% p.a. Remaining term: 15 years Credit card with limit $15,000 Current balance: $5,000 Superannuation $250,000 Personal insurances within superannuation • Death: $250,000 • Total and permanent disability: $250,000 • Income protection: $5,700 per month

Document classification: Confidential Page 12 of 16 Applicant information — John Jones Personal details Address 14 Mary Street, Yourtown 1234 Age 48 years Phone 0146 234 577 Financial details Gross income $70,640 Owner-occupied property valued at (property owned in John’s name solely) Business premises valued at (jointly owned with business partner) $750,000 $680,000 Outstanding debt on owner-occupied property Outstanding debt on business premises (Joint debt with business partner) $300,000 Repayments: $1,736 per month P & I Interest rate: 2.50% p.a. Remaining term: 18 years $525,000 Repayments: $2,600 per month P & I Interest rate: 2.8% p.a. Remaining term: 15 years Credit card with limit $5,000 Current balance: $1,000 cleared monthly Superannuation $200,000 Personal insurances within superannuation • Death: $180,000 • Total and permanent disability: $180,000 • Income protection: $5,700 per month Investor information — Amanda Williams Personal details Address 55 Main Road, Yourtown 1234 Age 42 years Phone 0477 983 621

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Document classification: Confidential Page 13 of 16 Business information Additional business details Cash in business account $400,000 Business debts The company has no debts ACN 123 123 123 ABN 64 123 123 123 Business/trading name True Blue Pty Ltd trading as True Blue Real Estate Current business address 80 Smith Street, Yourtown 1234 Business telephone number 9741 1236 Directors • Bill Smith • John Jones Shareholders • Bill Smith 33 units • John Jones 33 units • Amanda Williams 33 units Borrowers’ information Trust name Smith Jones Williams Unit Trust ABN: 24 576 576 570 Established 1/1/202X Trustee True Blue Investments Pty Ltd ACN: 576 576 570 Established 1/1/202X Trustee directors • Bill Smith • John Jones Trust unit holders • Bill Smith 33% • John Jones 33% • Amanda Williams 33% Other information Applicants’ solicitor Moffat and Co (contact is Maree Moffat) 16 Taylor Street, Yourtown, 1234 Phone 7890 5678 Applicants’ accountant and registered office Buckland Accountants (contact is Simon Williams) 28 Mary Street, Yourtown, 1234 Phone 2982 0987 Applicants’ banker Westcoal Building Society, Yourtown, 1234 Broker remuneration Upfront 0.66% of loan amount and trail of 0.165% which includes GST Notes: • Clients would prefer a P & I loan at a variable rate, repayable over 15 years, however, they are willing to accept your recommendations. • Both of the working directors believe they have appropriate death, income and disability insurance in place. • There are no insurances in place if any of the shareholders or beneficiaries pass away. • Assume an LVR of 70% for any loan product you are recommending.

Document classification: Confidential Page 14 of 16 Case study 3: Rahn and Deepa Singh — Property Development Finance Background Rahn and Deepa Singh have been clients of yours since 2005 when you assisted them with a home loan from ABC Bank to purchase their current owner-occupied home. They have recently paid off their loan from an inheritance from Deepa’s family. Their accountant has recommended that they consider undertaking an investment property development in their own personal names as this could assist with reducing tax through negative gearing. While they wish to explore this option, they do not currently have a financial planner and have said that they have been considering whether they need one to help them with wealth creation strategies, as they want to retire within the next 10–15 years. They also wish to look at ways to protect their current assets and income. Property development opportunity Rahn advises that they have taken the advice of their accountant and have located a run-down property on a large block of land in a nearby suburb. They would like to purchase the property with the aim of constructing three units on separate titles. On completion, two of the units will be rented out while the third will be sold to reduce debt and provide funds for another similar project. The two properties they wish to retain are long term investments which they hope to leave to their two children. Their solicitor has confirmed with council that given the size of the block they should be able to sub-divide and each unit will have a separate title. The property is a corner block, and a local real estate agent has stated that the rental returns would be slightly higher than suburb averages, as the area is made up of much older homes. Capital growth could also be above average as the suburb is ideally placed for medium density development with schools and shops nearby. Transport infrastructure is lacking, however, rail links to the area are planned for completion during the next four (4) years. They have also been speaking to council and there appears to be no restriction for a subdivision and they have indicated they will approve the project.

Document classification: Confidential Page 15 of 16 Details of the property Purchase price of property is $600,000. They have obtained a builder’s tender for a total of $750,000 for the construction of the three (3) units. Cost includes all driveways, fencing and landscaping. They have also completed research and estimate the following project costs, namely: • demolition and site clearance costs – $40,000 (clearance within two (2) months of purchase) • subdivision costs of approximately $30,000 • deposits calculated at 25% of purchase price and construction costs (LVR 75%) of approximately $405,000 • lender fees and government charges of approximately $15,000 • solicitor’s costs $10,000. The builder has indicated that completion date is in seven (7) months after the clearance of the site. The clients are willing to increase the mortgage on the family home in order to fund the project costs and control these payments. However, they would also like to keep debt over the family home to a minimum. They have mentioned that they would not like to link the family home to the security offered to support the property development loans through cross-collateralisation. The real estate agent has estimated that, on the completion, valuation of each property would be $750,000 and rentals should be around $550 per week per unit. Below is a summary of initial client fact find. Rahn and Deepa have provided the last two (2) years personal tax returns and last two (2) payslips as proof of income. Applicant information Name Rahn Singh Deepa Singh Address 26 Nowry Road, Yourtown 1234 (since 2005) Age 42 years 39 years Phone 0409 988 111 0146 234 577 Status Married with 2 children (Saira 13 & Ajun 16) Financial details Gross income $86,000 $65,000 Net income $65,860 $52,130 Occupation Truck driver Store manager Employer Interstate Trucking Pty Ltd Cloths Mart Time of employment 21 years 11 years Contact numbers 7900 5478 7890 9876

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Document classification: Confidential Page 16 of 16 Assets Owner-occupied property valued $900,000 Property owned in joint names as ‘joint tenants’ No debt Cash at Bank $250,000 Superannuation $350,000 $200,000 Personal insurances within superannuation • Death: $250,000 • Total and permanent disability: $250,000 • Income protection: Nil • Death: $250,000 • Total and permanent disability: $250,000 • Income protection: Nil Contents $150,000 Motor vehicles $35,000 $20,000 Liabilities Credit card Limit $10,000 Outstanding debt: $5,000 Limit $5,000 Outstanding debt: $1,000 Monthly general living expenses $4,200 Other Information New property ownership Accountant has advised the property is to be purchased in joint names as ‘joint tenants’ Wills Clients do not have Wills and this is a concern to them as they would like to leave one unit to each of their children when they pass. They would also like each of the properties to be debt free when this happens. Credit history Each have good credit history with credit scores over 900 Solicitor/conveyancer Peter Parker, of Parker Partners — Solicitors Financial planner Clients do not have a financial planner Accountant David Crisp of Yourtown Accounting Subdivision Council approval for subdivision and approval of plans expected within 30 days of settlement Demolition To be completed 30 days after approval from council Builder Home builders Builders are licenced and construction to be funded as follows: • 10% deposit (signing of contract on approval from council) • Stage 1: 10% slab (60 days after signing of contract) • Stage 2: 20% frame (30 days after slab payment) • Stage 3: 20% lockup (30 days after frame payment) • Stage 4: 20% fit out (30 days after lockup payment) • Stage 5: 20% completion (includes fencing, driveways and landscaping 60 days after fit-out payment) Credit card debts Assume the minimum monthly repayment is to be calculated at 3% of credit card limit Interest during construction period Clients would prefer to pay the interest on the loan during construction period Residual debt Clients have advised that once the unit is sold they will use the sale proceeds and their savings to clear their home equity loan against the family home Broker remuneration Calculate upfront commission at 0.66% of loan amount and trail at 0.165% which includes GST END OF ORAL ASSIGNMENT VOLUNTEER GUIDE