Last Updated on 24, August 2014
This is a case study for a young lady who was 27 years old. She was single and a salaried staff. Like many at her age, she stayed with her parents but had the intention to get married. She and her boyfriend applied for Build-To-Order (BTO) flat. She engaged me for comprehensive financial planning service. For her case, the relevant items to look at are: credit management, marriage budgeting, insurance, retirement planning, tax planning and estate planning.
Credit management:
By looking at her income level, her fiancé's income level and the desire to pay off their loan within 20 years, a comfortable loan amount was $500,000. This was after computing the various interest rates scenarios.
Marriage budgeting:
I found that in the next few years, she and her fiancé need to set aside $84,556 in lumpsum for their wedding banquet, honeymoon, downpayment for the BTO flat, renovation and pregnancy and delivery. Due to this large amount that was required to be set aside, I discouraged her from investing in lump sum.
Insurance:
I found she was underinsured for death, critical illness and disability income of amount $320,000, $100,000 and $2100 respectively. Moreover, she completely did not have any coverage for medical insurance. Many years ago, she opted out of Medishield like most young people who did not know what it was.
Retirement planning:
In terms of retirement planning, she was required to save $1,400 every month until she reaches 55 years old. Currently she did not have any disciplined saving plan.
Tax Planning:
I managed to help her reduce her income tax to $164. Previously income tax was $704.
Estate Planning:
I found that writing a Will was not urgent for her. However, having a Lasting Power of Attorney was critically important.
Therefore, the following were my recommendations. I have also provided a comparison to what would be likely be recommended by a typical financial adviser who claims to provide free advice:
| My recommendations | Common recommendations by “free” advisers | |
| Credit management | Do not exceed $500,000 in loan over 20 years. | No advice because no commission to earn. |
| Marriage budgeting | Need to set aside at least $84,556 in fixed deposit for marriage prepartion. | Recommends to invest this amount otherwise no commission to earn. |
| Insurance | Recommended a whole life policy of sum assured $320,000 death benefit and $100,000 in critical illness. Coverage is for life. The annual premium was $2,667 for 25 years.I also recommended disability income insurance of premium $1,037.30.Finally recommended a shield plan of $253 annual premium. | Recommends an ILP of $100 per month of sum assured $100,000 for death, TPD and CI. Sum assured has nothing to do with the client’s shortfall due to no fact finding and easy to close. The ILP will lapse when old due to the high insurance charges.No advice given for disability income and medical insurance because commissions are too low and too troublesome to submit for underwriting. |
| Retirement planning | Recommended her to save $1,400 per month in unit trust at 0% sales charge with no lock-in and no 'surrender' penalty. | Recommends $1,400 per month in ILP with a lock-in of 25 years with super high penalty if stop early. |
| Tax Planning | Help her reduce tax by $540. | No advice because no commission to earn. |
| Estate Planning | Help arrange for Lasting Power of Attorney (LPA). Cost $120 (certificate issuer) + $50 (MCYS). | No advice because no commission to earn. |
| Initial cost | Financial planning fee ( 12 hours x 200 = $2,400 ) + LPA = $2570. | $0. |
My fee for the above was based on 12 hours at a rate of $200 per hour (in 2011’s rate). This would be $2,400. Many young people think that this is a large amount. But I want you to take a look at the kind of products normally recommended by 'free adviser':
- No assistance in calculating the largest purchase a person was going to make - the first and likely the last property.
- No assistance in calculating the most important event a person was going to participate - the wedding and starting out a family.
- The free advice causes the client to be lock-in to buy a 'retirement policy' of $1,400 per month.
- No advice given on how to save on taxes.
- No advice provided on the Lasting Power of Attorney (LPA).
If you are interested to know more about comprehensive financial planning, feel free to contact us at this link HERE.
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