You have a friend called Amy who you have known well for many years. She is 32 years old, single for now (although she is in a steady long-term relationship) and lives on her own in a 2-bedroom flat in the Grassmarket in the centre of Edinburgh. She currently earns £36,000 per year (gross) working as a consultant and lobbyist for one of the large media companies based in Edinburgh. She has been in her current position for only two years although she did start her career with the same company as soon as she left university ten years ago when she graduated with a 2nd class Honours Degree in Media Studies.
She recently inherited £180,000 when her wealthy grandmother died and she has come to you for advice on how best to invest this money. She does not wish to talk to a Financial Adviser and is happy to listen to your suggestions as she trusts you as a close friend. Based on your advice she is then happy to invest the money herself using the technology, particularly through online services and apps that are widely available today.
Amy would like some general guidance and does not need you to select specific products and services (e.g. specific bank accounts, individual companies, funds etc.). She would rather have an understanding of the main issues she needs to address, and then make her own choices based on the general recommendations you provide for her.
She has provided you with the following background information:
·Her twin sister also received £180,000 on her grandmother’s death while her father (her grandmother’s son) received her grandparents’ family home (her grandfather had died many years ago).
·She wishes to use part of the money to help pay off the outstanding mortgage on her flat. The flat cost her £150,000 ten years ago and as she took out a 20-year mortgage she thinks that she has around £75,000 still to pay back.
· She has no need to use the rest of the money at the moment as she lives quite comfortably off her salary. She currently pays £750 per month on her mortgage.
· Amy saves around £200 per month on average and currently has £6,000 in her current account and £2,000 in her easy-access savings account. She also has 10,000 shares in Sage Group plc that she was gifted from her father when she graduated ten years ago. At that time the shares were valued at £2.52 each although she is not sure if they are worth much today. These are the only financial products she owns other than a credit card whose balance she pays off in full every month
· She is unsure if she will be entitled to much of a State Pension as she has only been working full-time for the last ten years. She does currently contribute to her employer’s pension scheme (10.2% of gross salary) which is a one-eightieths scheme with a one-off tax-free lump sum equal to three times her company pension at her normal retirement age of 65.
In addition, she has outlined some of the areas that she wishes you to discuss with her:
· She would like to invest the remainder of the money (after the mortgage has been paid off) in a mix of different financial products; some relatively safe, others more adventurous and she definitely intends to invest some of the money directly into more UK company shares
· She has heard about Investment Trusts and Unit Trusts (and something called OEICs) but she doesn’t know how they work or how they are different from each other but she is keen to include them in her portfolio. She has also read about ‘tracker funds’ and is convinced that these should form a significant part of her portfolio
· She doesn’t necessarily want to invest the whole amount in one go (in case she is unlucky with her timing and stock markets fall soon after). She has heard of something called ‘Pound Cost Averaging’ (PCA) and wonders if the above Trusts and ‘tracker funds’ would be suitable for ‘drip-feeding’ money into appropriate investment products
· She is keen to avoid paying unnecessary tax and therefore wants to know about suitable tax-free products. She also thinks that pensions are quite tax-efficient but doesn’t really know how these work. In addition, she does know that her employer has an AVC facility and wonders what this is and whether she should invest in it
· She hopes that any income, interest and dividends from her investments can be pulled together and added to the £200 per month she currently saves from her salary and then use
this money to invest in additional financial products in the future
In particular, she is keen to know the best way to access these financial products herself. She wants to know the following key information
· What types of products do you recommend she invests in, particularly:
· What proportion of her money should she invest in each type of product?
· How much should she invest in each individual product?
· When should she invest in these products?
· How does she use Information Technology to investigate your recommended products in more detail?
· How does she contact relevant financial institutions to apply for the products she has chosen?
· How will she be able to monitor her portfolio of savings and investments in the future (and why does she need to do this in any case?)
· What are the costs (annual, management, dealing costs, tax etc.) on the products you have recommended that she invest in?
Requirements
· Discuss Amy’s current financial position and her current financial needs. Include information on income, capital, tax and pensions. Also discuss her future financial ambitions and her likely future financial needs.
· Identify a suitable financial plan that will take account of her current financial position and her future financial ambitions. This should be based on a discussion and description of all of the above information and any other relevant information you consider appropriate for Amy’s current position and future ambitions.
Remember that she does not want you to identify individual products (such as savings accounts from named financial institution, individual companies to buy shares in, particular Investment or Unit Trust companies etc.) but she does want you to identify types of products.
It is also important to Amy that she can then access the products and services herself, rather than rely on Financial Advisers, brokers, dealers etc. and then manage them herself in the future.
Assessment
This assessment will be marked based on your written submission (in the form of a report to be handed to Amy later).
The written Report is to be 2,500 words (+/- 10%) not including the Reference List and Appendices. Marks will be awarded for appropriate research and correct citations and references where required. Use the APA 6th Referencing System throughout.
