Final Case Assignment

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School

George Brown College Canada *

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ACCT3009

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Finance

Date

Jan 9, 2024

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docx

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Uploaded by DoctorKangarooMaster2389

Final Case Assignment Olga & Michael Dobiski BFPL 4101 Advanced Financial Planning Khanh Nguyen (101219261) 1

Table of contents Client Profile Cover Letter Client’s Goals, Needs, & Priorities Financial Management Income Tax Planning Risk Management Asset Management Retirement Planning Estate Planning Overall Impact of Financial Plan 2

Client Profile Personal information Name Olga Dobiski Michael Dobiski Age 53 56 Married Status Married Married Employer Private School Healthco Ltd Occupation Teacher Chief Financial Officer Dependents Name Jessica Dobisk Maya Dobisk Age 24 22 Assumptions When creating a financial planning report, assumptions about inflation and other economic variables are crucial for making accurate predictions and developing a comprehensive plan. It’s important to consider the historical trends in inflation rates and how they may change over time due to various economic factors. Other economic variables, such as interest rates, GDP growth, and unemployment rates, are also important to consider when making financial plans. It’s important to consider various scenarios and potential outcomes, including best-case and worst-case scenarios, to help develop a comprehensive plan that can adapt to different economic conditions. Documenting these assumptions in a financial planning report is crucial to ensure transparency and accountability. It provides a clear understanding of underlying 3

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assumptions and how they may impact the overall plan. It also helps in tracking progress and adjusting the plan as needed based on changes in economic conditions . Cover Letter April 14, 2023 Dear Mr. and Mrs. DObiski, Thank you for allowing us to help you plan a better-financed future. We are delighted to offer you professional advice and assistance throughout your financial planning journey. Our goal is to help you attain a clear understanding of your financial position, realize your financial potential, and come up with reliable strategies to help you achieve your financial goals. We assure you that all the information that you have provided to our team will be kept confidential. No third party can have access to your personal information without your written consent in place. Based on the information we have gathered; we are proposing a list of services as follows:  Listing goals, needs and priorities  Developing strategies for financial management  Developing strategies for tax and retirement planning  Develop strategies for risk, asset, and estate planning  Provide current and future cash flow chart  Provide a statement of financial positions and overall impact of the financial plan Here are some highlights which help guide you through this relatively lengthy report. We successfully identify and prioritize the goals and strategies tailored to your financial 4

position. We proposed to help you two to reassess your investment strategy to ensure it aligns with the retirement goals, explore tax-efficient strategies to maximize your retirement savings and minimize the tax liabilities, and consider estate planning to ensure the assets are distributed according to your wishes. Please provide us with all of the relevant documentation and information to help us build a suitable plan. Our financial planning components will be listed and categorized; you may refer to the table of contents to find the information of all relevant sections. Each category we include will come with detailed recommendations and relevant strategies suitable to your situation. As a courtesy, the initial consultation is free of charge, and we appreciate you coming to us to start to step one of your financial journeys. I will charge a standard flat fee of 1.5% based on your assets under management. We will currently calculate the service fee as if you are staying with us for future services. The future service will be calculated based on the number of future assets under management. Thank you for choosing and trusting us Yours sincerely, Khanh Nguyen ACB Financial Ltd. Client’s Goals, Needs, & Priorities Olga and Michael DObiski's goals are retirement planning and financial stability, with a focus on supporting their children's education and maintaining their current lifestyle. They are willing to take moderate risks in their investment strategy but want to avoid 5

excessive volatility. They also want to balance their individual salary expectations with their family priorities and minimize their estate taxes. To achieve their goal, Olga and Michael need to reassess their investment strategy to ensure it aligns with their retirement goals, explore tax-efficient strategies to maximize their retirement savings and minimize their tax liabilities, and consider estate planning to ensure their assets are distributed according to their wishes. Financial Statements Olga and Michael DObiski's Statement of Net Worth Saturday, December 31, 2022 Olga Michael Joint Total Assets Chequing and savings account $8,000 $8,000 Personal assets $45,000 $45,000 TFSA $18,800 $19,500 $38,300 RRSP $269,856 $809,000 $1,078,856 Non $48,200 $48,200 6

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registered account DCPP $40,000 $40,000 House $1,750,000 $1,750,000 Total Assets $1,891,200 Liability Mortgage $158,414 $158,414 Net Worth $1,732,786 Olga and Michael DObiski's Cash Flow Statement Saturday, December 31, 2022 2022 2023 2024 - 2027 Cash inflow Micheal $166,566 $99,940 $99,940 Olga $71,196 $71,196 $71,196 Total cash inflow $237,762 $171,136 $171,136 Cash outflow Property Tax 6,936 6,936 6,936 Utilities 12,900 12,900 12,900 7

House Insurance 3,196 3,196 3,196 Mortgage 55,250 55,250 55,250 Car Lease 7,200 7,200 7,200 Car Maintenance 1,800 1,800 1,800 Gas 8,400 8,400 8,400 Car Insurance 4,620 4,620 4,620 Groceries 15,000 15,000 15,000 Fast Food and Restaurants 3,380 3,380 3,380 Personal Grooming 2,000 2,000 2,000 Clothing 10,200 10,200 10,200 Charitable Donations 1,500 1,500 1,500 Entertainment 3,600 3,600 3,600 Decorating 3,000 3,000 3,000 Toby's costs 2,000 2,000 2,000 Jess's accommodation 7,800 7,800 Jess's Tuition 13,000 13,000 Maya's Tuition 9,000 9,000 Unknown Spending 6,000 6,000 6,000 Family outing 2,000 2,000 2,000 Adult trips 6,000 6,000 6,000 Christmas and 5,000 5,000 5,000 8

Birthdays Cell phone 3,600 3,600 3,600 Golf Trips 4,000 4,000 4,000 Golf dues, food and drink 21,000 21,000 21,000 Netflix 216 216 216 RRSP 20,600 20,600 20,600 House Maintenance 4,500 4,500 4,500 Repair 3,320 3,320 3,320 Cell and Internet 3,000 3,000 3,000 Cleaning assistance 2,880 2,880 2,880 Total Cash Outflow $252,898 $252,898 $223,078 Net surplus/(Deficit) ($15,136) ($81,762) ($51,942) Financial Management Michael and Olga should create a budget to determine their current cash flow and identify opportunities to increase their savings and reduce their expenses. They may also want to consider a plan to pay off any outstanding debts. Although Michael has received shares in his company, Healthco Ltd., it is important for him to diversify his investment portfolio. He should consider investing in other stocks, mutual funds, or 9

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exchange-traded funds (ETFs) to reduce the risk of having all his investments tied to one company. Although Olga and Michael have been diligent in paying down their debt, it is important to continue to pay down any outstanding debt, such as their mortgage or credit card debt. This will help reduce their overall financial stress and allow them to save more for retirement. For the years leading up to retirement, Michael's plan to work for the next five years and cut back on employment to roughly 60% of earnings produced enormously negative net cash flows. This indicates that their annual costs would not be covered by the inflow received during these years. The couple will not be able to retire using this strategy since they will have no money in their savings or checking accounts and may even have to use their emergency fund during this time. Both of them should assess their spending and make appropriate cuts when required. A glaring example in the case of the pair is the unreported expenditure, or unknown spending, which totals around $6,000 each year. The couple needs a plan for keeping track of their spending, cutting back on some items to reduce their negative net cash flow, and, most crucially, keeping some money in their savings or checking account. Since the couple views their bank accounts and other investments as emergency reserves, freeing up cash should be a priority. It is crucial for the pair to lower their RRSP contributions by $12,000 for the following five years before retirement, as suggested for the couple to free up cash in the years by cutting certain costs. This is a financially viable strategy to approach retirement since it won't end in a balance of zero in their savings or checking accounts, even if there may be less negative net cash. They won't take funds from other investment accounts set up for emergencies as a result of this. 10

Income Tax Planning Olga and Michael can reduce their taxable income by maximizing their RRSP contributions. They should consider contributing the maximum amount allowed each year, which is 18% of their previous year's income up to a maximum amount set by the government. Olga and Michael should consider income splitting to reduce their overall tax liability. They can do this by transferring income from the higher-income earner to the lower-income earner, such as investing in a spousal RRSP or contributing to a Tax- Free Savings Account (TFSA) for the lower-income earner. Olga and Michael average tax rate is 42% and marginal tax rate is 53.5% for both of them. Risk Management With family there comes responsibility, risk management can ensure your loved ones are taken care of financially in the case of unexpected events. I have taken a closer look at the profile, and you are currently under-insured. Life insurance Michael and Olga both have group life insurance through their employers, but you guys also have a separate term life insurance policy that they pay for separately. You guys 11

may want to consider whether this additional policy is necessary, given the coverage they already have. In terms of the amount of coverage, you should evaluate whether the coverage they have is sufficient to meet their needs. For example, if Michael were to pass away, would 60% of his salary be enough to support Olga and any dependents they may have? Similarly, if Olga were to pass away, would 40% of her salary be enough to meet their needs? If you two decide you need additional coverage, you guys may want to consider a permanent life insurance policy that will not expire at age 65. Permanent life insurance provides coverage for the duration of the insured's life as long as premiums are paid. It is generally more expensive than term life insurance but may provide benefits beyond just death benefits, such as cash value accumulation and tax advantages. It may be more suitable for you two who have long-term financial goals, such as estate planning. Disability insurance Michael has disability insurance through work, but Olga does not. Olga should consider whether she needs additional coverage, either through her employer or by purchasing a separate policy. She may want to consider a policy that provides coverage beyond age 65, as disabilities can happen at any age. Michael and Olga may want to consider planning for long-term care, such as assisted living or nursing home care, as they age. You guys should review your health insurance policies to see what coverage you have for long-term care and consider purchasing a separate long-term care insurance policy if necessary. You two may also want to consider setting up a trust to hold assets specifically for long-term care expenses. 12

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Asset Management To determine your risk tolerance, we must first understand how much risk you are willing to take and which categories of risk concern you the most. Your risk tolerance (the degree of uncertainty you are ready to accept in exchange for possibly bigger benefits) is governed by several factors, including your investment goals and experience, the amount of time you have to spend, your other financial resources, and your "fear factor." Based on an analysis of your risk tolerance, investment objectives and time horizon, the investor profile for both Olga and Michael has been determined to be balanced, or moderate risk. Based on the moderate risk tolerance, Olga and Michael's investment portfolio seems to be mostly aligned with their risk profile. However, it's important to note that their investments are heavily concentrated in equity ETFs, which can be volatile and risky. It may be beneficial for them to consider diversifying their portfolio with other asset classes such as fixed income or alternative investments to mitigate risk. Additionally, Olga is paying high investment management fees of 1.25%, which may be impacting their returns negatively. It may be worth considering alternative investment managers or a self-directed approach to lower fees and potentially improve returns. Whether or not to use leverage strategies is a decision that should be made on a case- by-case basis and is dependent on a client's risk tolerance, investment objectives, time horizon, and overall financial situation. For Jim and Elaine, as moderate-risk investors with a balanced asset allocation, the use of leverage strategies may not be suitable or necessary. Leveraged strategies involve Olga and Michae borrowing money to invest, 13

which can increase the potential for higher returns, but also increases a risk and potential losses. The pros and cons of a balanced asset allocation for Olga and Michael's are: Pros: - Diversification: A balanced asset allocation can provide exposure to a mix of asset classes, which can help to reduce overall risk and increase diversification. - Growth potential: Investing in a diverse portfolio of asset types, including stocks, can give the opportunity for better long-term returns and growth. - Moderate risk: A balanced allocation is designed to provide moderate risk, which can help to reduce the potential for large losses while still providing some potential for growth. Cons: - High-reward investments: A balanced allocation may not provide high-reward investments, which may limit potential returns. - Lower potential returns: A balanced allocation may have greater growth potential than a low-risk portfolio, but it may not provide as high returns as a more aggressive portfolio. - Market volatility: Even with a well-balanced allocation, market volatility can cause fluctuations in portfolio values It's important to keep in mind that the pros and cons of a balanced allocation may vary depending on an individual's risk tolerance, investing goals, and time horizon. Based on your moderate risk tolerance and investing objectives, a balanced allocation will be appropriate for both of you. 14

Retirement Planning CPP 313,954 OAS 156,977 TOTAL 470,932 18,900 payments annually for 5 years at a DCPP NR 5%: Current value of Micheal's 'DCPP 40,000 FV of the current amount 51,051 FV of the additional contributions 104,434 Total FV of Mchael's DCPP in 5 years 155,486 DBPP 15

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PV of Olga's DBPP for 30 years at 5%: Average annual earnings 108,000 Number of working years before retirement 20 Annual Pensionable entitlement 43,200 Estimated years of Pensionable entitlement 30 Indexed Inflation 0 Present value of Olga's DBPP at Retirement day 878,432 RRSP FV of RRSP for 5 years at 7%: Current value of the couple's RRSP 1,010,856 16

FV of the current amount 1,417,778 FV of the additional contributions 49,456 Total FV of RRSP to the couple in 5 years 1,467,234 Total that you will have: 2,972,084 After tax sources Predicted value on retirement day: What is future value of their TFSA? 122,726. RETIREMENT PLANNING CALCUTIONS Spending amount before tax 89,455 Adjustment of the income amount for inflation 2% 98,765.55 Adjustment for taxes at 30% 17

141,093 Needed amount on retirement day Amount needed to fund annuity: 2,869,009.8 Also considering Michael's Locked RRSP in 5 years FV at 7% = $95,373.5 Michael's Non-registered investment (Shares from the previous employer at 10%) FV in 5 years = $77,626.6 Michael's Appreciated shares in 5 years at 20% = $39,813 The couple 150,000 received from downsizing which falls on retirement year (5 years) = $212,813.2 + 150,000 = $ 362,813.2 Therefore, the total amount received on retirement day = $ 362,813.2 + 2,972,084 = $ 3,334,897 Since this amount is more than the amount needed for retirement, therefore the couple has enough money for their retirement projections. Estate Planning 18

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Since their wills and power of attorney have not been updated in a while, it is important for Olga and Michael to review and update them to ensure that their wishes are accurately reflected. They may want to consider changes such as appointing new guardians for their children (if necessary), and updating their beneficiaries and distribution of assets. Since both of their children will be graduating soon, Olga and Michael may want to consider setting up a trust for them. This can help protect the assets they leave for their children from potential creditors or divorce settlements. They may also want to consider appointing a trustee to manage the trust until their children reach a certain age or milestone. Olga and Michael want to leave $5,000 to each of their godchildren. They may want to consider setting up a trust or gifting the money directly to their godchildren to minimize taxes and fees payable upon their death. Olga and Michael need to minimize taxes and fees payable upon their death. This may involve strategies such as setting up a living trust, gifting assets during their lifetime, and naming beneficiaries for their retirement accounts. Overall Impact of Financial Plan After going through the entire plan, we are happy to say the plan is feasible with numbers presented to you being affordable and aligning with our charts and calculations. Financial planning involves different interconnected aspects of life. We have included: · Goals, needs and priorities 19

· Financial management, financial positions chart · Income tax and retirement planning · Risk, asset, and estate planning · Current and future cash flow chart We again recommend this plan to help you reduce your debts, increase your savings, meeting your financial goals and relieve you from financial struggles. We provide constructive feedback on your current financial situation paired with solutions explained in detail with support of numbers and charts. With that being said all of the recommendations provided aim towards more savings and reduced debts with affordable actions. The report is divided into a number of titled sections to help you find information easily, you can go through the report at once or on several occasions based on your personal preference. We try using simple terms and provide step-by-step explanations making sure the report is easy to understand for both amateurs and professionals. We cross-reference all calculations and charts in the appendix to help this report flow better. The look of this report is simple and professional, you won’t be carried away by the numbers and charts as they are organized in the appendix. The actional proposals and recommendations of each section are carefully calculated and thoughtfully considered before included in formal writing. We maintain a high standard of our service as we are creating a plan for our own. The answer is yes to our proposed plans if we are the client in this case. All information provided is strategic to fit your needs and goals and adhering to CFP standard guidelines. We again thank you for your business and we hope you will enjoy this report. Cheers to a better financed future. 20