Short Answer Question 5
Pleased with the way you handled his complaint, Bob recommends you to his 45-year-old son, Basil. Basil Butler is a management consultant who is living and working with his wife Daisy in Manhattan. Basil sends you an email, explaining that his 41-year-old wife is expecting triplets in six months time. They plan to return to Melbourne next month and take up residence in their old warehouse apartment in Fitzroy. They need urgent help because their neighbour is planning to sell her adjoining apartment, which they wish to secure. Daisy loves her old place and dreams of extending their living space by acquiring and renovating the neighbours apartment. She envisions demolishing part of the shared wall to join the two apartments into one large, liveable space for a family of five.
Basils firm is relocating him to the Collins Street office. Daisy, however, is a contractor who has successfully completed a series of projects for Basils firm. She has been self-employed for 10 years and does not intend to work for the next five years. Basil earns $200,000 p.a. and Daisy earns $130,000. They owe $280,000 on the Fitzroy apartment, but they own a beach house in Portsea outright. The beach house is valued at $650,000. With a penchant for luxury cars, they also have $60,000 to repay on their BMW and $10,000 on the vintage MG. They have put the majority of Daisys earnings into her superannuation fund, which has now accrued $400,000. Basil is unsure how much is in his superannuation fund. Sadly, they invested the bulk of Basils earnings in a share portfolio which crashed with the global financial crisis. The portfolio dividends only paid $5,000 last financial year. Together, they have $127,000 in a savings account and $50,000 invested in a long-term deposit. The reserve price on the neighbours property is $510,000, however, she is prepared to sell it for $495,500 if she does not need to engage a real estate agent and if they will commit to a 30 day settlement. She has given Basil and Daisy the option of a private sale and two weeks in which to make her an offer. As she is divorcing, she is not prepared to extend the time to allow Basil and Daisy to secure finance in Melbourne in person.
Basil and Daisy are too busy packing up their Manhattan loft to search for finance options. They want you to find a suitable loan with attractive terms and arrange all the necessary paperwork. Timing is their utmost concern.
(a) Respond to Basils email by taking the following steps:
i. Analyse Basil and Daisys financial position based on the extent of their disclosures. Use a financial calculator or relevant software systems to help calculate their personal and financial situation. Note good calculators can be found online e.g.
https://mozo.com.au/home-loans or http://www.loansense.com.au/calculator/loan-payment.html
As per their disclosure they currently owe $350,000 ( $280,000 for their home+ $70,000 for their cars) and they have $400,000 in their superannuation fun so they will be able to pay this debt by using this fund
ii. Outline the relevant processes for proper execution of loan documentation and determine whether you will be able to implement the necessary actions within the neighbours timeframe. Also note whether there is any need for specialist advice or involvement from other main sectors of the financial services industry in this case.
iii. Describe how you will submit the documentation to the appropriate lender in an appropriate manner to protect client confidentiality.
iv. Research products and additional industry information, then apply your industry knowledge to the current situation. Synthesise this information into a clear and concise format (e.g. short report or proposal) so that Basil and Daisy can make an informed decision.
v. Write an email to Basil and Daisy to establish and confirm their priorities:
· Establishing their risk tolerance and determining their investment goals and expectations.
· Ask for any additional information you require to complete your analysis in accordance with your firms credit policy.
· Provide Basil and Daisy with an overview of the three best products you believe are most suited to their needs. Be sure to discuss the strengths, weaknesses, benefits and risks, fees and charges attached to each product.
(b) Write a confirmation email to Basil outlining the following:
· Basic requirements of the loan, including the amount, term and interest rate.
· Disclose whether you have a strategic and commercial relationship to the recommended product.
· Outline which documents you have attached as per compliance requirements.
· Describe the appropriate timing of events in the loan approval process. Check your writing for accuracy and readability.
i. Download and complete the loan documentation (this is found in your IIT elearning platform supporting documents) Basil and Daisy require in a way that accurately reflects their financial situation, personal information and complies with lender requirements and guidelines.
ii. Copy and paste the Loan Application into sheet 2. Name sheet 1 Loan application and sheet 2 Client records. Create a client record in an appropriate format which will be accessible to other appropriate advisers. You wont need all of the loan application you copied so cut the redundant details out and dont forget to change the heading from Loan Application to the Client Record. Hint: in chapter 5 short answer question 5d you are required to copy and paste the client record you just created and update it with the case study details in chapter 5. You might find it efficient to do this while you are dealing with this question.
iii. Describe how you are going to prevent fraud and verify Basils and Daisys identity/signature and their other undertakings when you are not able to meet them person.
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Short Answer Question 5
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