INVESTMENT PLAN: PARTS 1 AND ll – FINANCE 344
Create a mutual fund investment plan for Roger MacMillan based on his cash flow surplus and available
investments (Cash.flow Analvsis and Financial Profile prot,ided).
This plan should be typed and include a cover page. engagement lefter (assume you are mutual fund
licensed and prepare a letter that explains the services you will be providing and how you will get paid for
your services (fees and/or commissions), an introduction (providing a brief overview of what the
investment plan will entail). analysis and recommendations section (address each objective in the order
below by analyzing what the client wants to achieve followed by specific mutual fund recommendations
within the context of his financial profile), conclusion (this will summarize the investment plan and prepare
the client for the next step of implementation).
Make sure that your analysis and recommendations are consistent with Robert’s objectives and investor
profiie based on the “Know your client” suitabilit”v requirements.
f4rt l: Wealth accumulation ase 30 to 69
Investment Growth Objectives:
i. Robert recently sold a rental properly and he received S50,000 net after taxes and real
estate commission. He wants to invest the proceeds ir a safe, liquid account with the goal
of generating sorne interest income until he decides what to do with the funds.
Recommend a specific mutual fund for this objective and explain why the fund is
suitable. (3 marks)
ii. He wants to invest $500 per month into his RRSP. He hopes to defer withdrawing on
these funds until his age 7 0 . If he earns 7o/o annual compound returns in this plan what
will the future value be at his age 70? Recommend a specific mutual fund(s) for this
ob-iective and explain the reasons for your recommendation. (3 marks)
iii. Robert also wants to set up a non-registered account for an “around the worid” holiday in
five years time. He wants to have $30,000 saved for this adventure and he expects to earn
annual compound refurns of 5ak per year on this investment. What is the monthly amount
he neecis to set aside in order to achieve this goal? Also reconrmend a specific mutual
fund for this objective and explain the reasons for this recommendation. (3 marks)
ir,. He would also like to take advantage of a tax fiee savings account (TFSA) and he wants
to know how to invest on a monthly basis to maximize the annual amount? What tlpe of
mutual fund will provide the greatest tax savings? Recommend a specific fund and
explain the reasons for your recommendation. ( 3 marks)
v. Robert may want to take advantage of the lifelong learninu pian at some point to go back
to school for a graduate degJee. What is the maximum amount he can withdraw from his
RRSP with this plan and hou, do these funds get repaid? (3 marks)
Part II: Retirement and income generation age 70 to death
Retirement income obj ectives:
i. If Robefi retires al age 70, how much will he have saved for retirement inside both his
RRSP and RPP? Assume he stops working al age 65 but continues to add to his RRSP until
his age 69 through funds generated fiom part time work as a consultant. His monthly
contribution at this time will decline from $500 to $250 per month. ( 8 marks)
ii. How much gross income could Robert expect from his RRSP and RPP if he starts taking an
income at his age 70 and bases the withdrawal on a fixed period to his age 100? Assume
that the funds are conservativeiy invested to eam 5Yo arnual compound refurns and the
withdrawals will deplete his funds to zero at age 100. What would be an appropriate asset
mix for this retirement portfolio and why? ( 4 marks)
Hoq, much total gross annual retirement income would Robert receive at his age 70 if you
include his RRSP and pension income based on the fixed period u,ithdrawal indicated
above and inciude his OAS (assume maximum at age 65) and CPP which he defers to age
70? You can assume he would have been eligible for the maximum amount of CPP at age
65. ( 4 marks)
If Robert dies at age 85 what will be the vaiue of his RRSP and pension plan assuming a
fixed period withdrawal that started at his age 70? How much tax will his estate (designated
beneficiary) need to pay on these lump sum amounts assuming a tax rate of 45Yr? He also
invested in a non-registered account that has a deferred capital gain of$150,000 at his age
85. How much tax will be owed on this amount using the same tax rate above? (4 marks).
Be sure to include in your analysis and recommendations the following:
1. The specific mutual funds you are recommending (name and type of fund) and reasons to support
the recommendation. Also include print out of these funds as an”aDDendix” at the back of the
investment plan. You can print the “fund facts” for the funds you are recommending.
2. How you plan to use these funds to satisfu the ciients objectives (lump sum or monthly purchases,
withdrawal schedule, etc).
3. Expected rates ofreturn on these funds.
4. A summary of main types of risk the ciient will be exposed to using these funds. This must not be
copied from the fund prospectus and must be in your own words.
5. What it will cost the client to invest in these mutual funds both directly and indirectly. These costs
will be based on your fee and/or commission and also the MER of the fund. Be specific and
provide a redemption schedule if selling funds on a DSC basis. The planner client engagement
ie6er should reference these costs as they apply to mutual fund investments.
6. Clearly state any assumptions you have with respect to expected rates of return, the client’s
income, RRSP contribution iimits, etc.
ADDITIONAL INFORMATION :
lge: Robert is currently 30 years old
Income: $80,000 gross; $55,000 net after taxes
RiskTolerance: He is cunently a 6 on the 1-10 lowto high risk scale and he considers himself a medium
risk investor. Your assessment of his risk shows that he can tolerate a maximum decline of 20%o n any
given year and his primary investment objective is income and growth’
Occupation: Robert is a computer analyst at a large softw’are company’
Inveitment Knowledge: Low as he has never taken an investment course or done much investing.
Regisrered pension Flan: Robert belongs to a defined contribution pension plan where his employer
5% of his gross income and Robert contributes 5% through monthly payroll deductions.
Assume that this combined contribution amount remains the same until Robert stops working at his age 65.
Engagement Letter (clearly stating the fees you will be charging)
Analysis and recommendations reiating to the case objectives
Overall format and presentation of the plan
ANNUAL CASH FLOW ANALYSIS REPORT
4,583 4,583 4,583
Net employmeni income (after tax and pension)
Total Source Deciuctions
TOTAL NET INCOME
Maintenance & lmprovements
Iotal She/fer Cosfs
Self-lmprovement / Hobbies
Travel & Vacations
Financial Planning Fees
FLOW SURPLUS 1 ,4184 1 ,4181 1,41
4, 4, 4,
C C 0
4.583 4,583 4,583
1,1 1,1 1,1
45C 45C 45C
3,1tt 3,165 3,1 65
NET WORTH STATEMENT
September 30th, 2015
SHORT-TERM & INVESTMENT ASSETS AND LIABILITIES
ROYAL SAVINGS ACCOUNT (INCLUDES REAL ESTATE FUNDS
RRSP’,S (REDEEMABLE GIC .75%)
Totat Short-Term & lnvestmenf Assefs and Liabilities: $65,ooo
LONG.TERM ASSEIS AND LIABILITIES
ART, ANTIQUES, JEWELLERY
Total Long-Term Assefs & Liabilities:
TOTAL ASSEIS AND LIABILITIES $150,000 $25,000
NET WORTH $125,000