Organl Policy & Strategy

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Luck Companies: Igniting Human Potential

 

INTRODUCTION

 

This case is about a family-owned corporation from the perspective of its latest CEO, Charles Luck, IV. It provides an overview of the strategic management processes instituted under his direction, emphasizing the formulation and implementation of value-based leadership initiatives he used to ignite the potential of his workforce and to impact the lives of Luck Companies’ various stakeholder groups.

 

The case opens with an introduction to Mr. Charles Luck, IV, the conditions in the construction aggregate industry, and the status of his 800-employee company in early 2015. It provides an industry overview and in-depth history and shaping of the four strategic business units that comprise Luck Companies. Charles Luck, IV’s tenure is presented with a heavy focus on the evolution of his value-based leadership system. Following the Value Journey from the inception of the company’s values and initial vision, the key steps to achieve the vision, and the prescribed outcomes, the case progresses through three phases of Luck Companies’ long term planning process, the development of a strategic leadership team, and an unprecedented workforce reduction based on core ideology rather than seniority. As Luck Companies executes the final five-year strategy to achieve Vision 2020, it strives to deepen the company’s impact on lives locally and globally and to achieve the most aspirational expansion goals in the company’s history.

 

The case is ideal for demonstrating corporate-level strategy on a small scale, multidivisional organizational structures, and strategic leadership concepts. The following prompts are suggested to guide a review and discussion of these principles.

 

· Characterize the type and level of diversification strategy employed by Luck Companies. Discuss the commonalities and differences of the company’s various divisions.

· Compare the different forms of the multidivisional structure for corporate-level strategies. Explain which form is most suited to meet the needs of Luck Companies.

· Evaluate Charles Luck’s ability to fulfill the strategic leadership responsibilities required of his position. Provide clear examples to support your assessment. Critique his handling of the unexpected events that occurred during the second phase of the company’s Value Journey.

· Describe Luck’s current five-year growth strategy and objectives. What tools and resources are in place to help the company to achieve its aggressive goals? What are the likely challenges the company will face in executing this strategy?

 

 

 

 

 

ANALYSIS

 

· Characterize the type and level of diversification strategy employed by Luck Companies. Discuss the commonalities and differences of the company’s various divisions.

 

Luck Companies operates four separate strategic business units (SBU’s), each distinctly different in nature and managed under distinctly different brand identities.

 

Luck Stone – Luck Companies’ largest business unit operates fifteen crushed stone plants, four distribution yards, and one sand/gravel operation. Located in Virginia and North Carolina (or the mid-Atlantic region of the United States), Luck Stone competes in a highly-fragmented industry. Success in the aggregate industry is directly correlated with the growth and economic stability of the construction industry (both private and public segments); and the ability to acquire desirable locations is a vital competitive advantage. Luck Stone is the most profitable division within the corporation, contributing 80% of total enterprise net sales. It uses a differentiation strategy based on superior customer service and logistical excellence in an industry which sees more cost-leadership strategies amongst major competitors. Luck Stone has long been known as an industry leader in technology and innovation, using in-house engineering resources to build automated production systems and other value-added processes.

 

Luck Stone Center – Considered a unique enterprise when the company opened its first retail showroom for architectural stone, the division now manages six Architectural Stone Centers, and the builder model is slated for expansion into all target markets. Luck Stone Center also uses a differentiation strategy, sourcing stone internationally and introducing new product offerings through product innovations. Facing increased levels of competition from other contractor stone yards and big-box retailers, the company continues to pursue innovation opportunities to further differentiate and to sustain profitability. In 2007, it rebranded to an up-scale, design-oriented business aimed at attracting affluent homeowners with savvy offerings. As success in this retail sector is 82% correlated with new housing starts, the housing crisis in 2008 significantly impacted Luck Stone Center sales. As the industry recovers, the company has again rebranded, refocusing on middle- to higher-end consumers and adding manufactured products into its product mix.

 

Luck Development Partners – This division was formed to realize the development and revenue potential of Luck Companies’ land holdings. The real estate development industry is highly dependent on property locations and proximity to population hubs. Because of its relationship with the Luck Stone division, Luck Development Partners operates in the same mid-Atlantic region. The division uses innovative real estate practices to expand potential for long-range sustainable land use, and it strives to create unique settings which incorporate and highlight natural, historical, and environmental elements into its project designs.

 

HAR-TRU – Luck Companies entered the tennis court surfacing and accessories business by acquiring the industry’s two largest domestic companies, the HAR-TRU brand name, and the manufacturing assets of the original surface material provider associated with some of the finest tennis courts in the world. Now holding an 85-90% market share for U.S. clay tennis courts, the division’s primary competition comes from builders of non-traditional clay substitutes. The smallest of Luck Companies’ divisions, HAR-TRU contributes just 6% of total enterprise net sales. In 2013, the company acquired and integrated Century Sports, adding tennis court equipment to its offerings and enabling HAR-TRU to promote “turn-key” tennis court installations.

 

The company initially established a diversified portfolio to lessen the impact of the cyclical and mature construction industry. Luck Companies’ corporate-level strategy is a dominant-business diversification strategy, because 80% of its total revenues are generated in a single SBU. As history illustrates, dependence on the health of the construction industry remains a powerful determinant of financial performance. Even with a low level of diversification, the corporate strategy offers opportunities for value creation and for sharing knowledge and resources across divisions — especially regarding the transference of core leadership competencies.

 

· Compare the different forms of the multidivisional structure for corporate-level strategies. Explain which form is most suited to meet the needs of Luck Companies.

 

Product diversification increases the information processing, coordination, and control complexities of the firm, as it enters new lines of business. Effective management therefore requires an organizational structure that supports the implementation of distinct SBU strategies and enables corporate leaders to oversee various divisions. A multidivisional structure (M-form) for corporate-level strategies can be devised in three possible ways, including:

 

· Cooperative Form – facilitates interdivisional cooperation and the sharing of SBU competencies through horizontal integration to develop economies of scope

· SBU Form – is appropriate when few linkages exist between one business unit and another

· Competitive Form – does not promote the sharing of common corporate strengths or utilize integrating devices, but enables independent operations which actually compete for corporate resources and capital allocations

 

The most suitable structure for Luck Companies is the SBU Form of the multidivisional structure, using a moderate level of integration mechanisms, a mixture of strategic and financial controls, and compensation linkages to both corporate and divisional performance goals.

 

· Evaluate Charles Luck’s ability to fulfill the strategic leadership responsibilities required of his position. Provide clear examples to support your assessment. Critique his handling of the unexpected events that occurred during the second phase of the company’s Value Journey.

 

Strategic leadership is the ability to anticipate, envision, maintain flexibility, and empower others to create strategic change as necessary. The capacities to cope with change, attract human capital, manage intellectual capital, and foster internal innovation are crucial leadership skills in today’s complex business environments. Effective strategic leadership responsibilities or actions entail:

 

· Determining strategic direction

· Managing the firm’s resource portfolio

· exploiting and maintaining core competencies

· developing human and social capital

· Sustaining an effective organizational culture

· Emphasizing ethical practices

· Establishing balanced organizational controls

 

Evidence suggests that Charles Luck’s performance in each of these categories has been strong.

 

Luck began his leadership journey by accumulating extensive experience in all levels of the business, building managerial skills and important relationships along the way. He developed a solid understanding of the importance of having sound and innovative business strategies and the role that values and culture play in executing them.

And as he grew the business, he adopted several new management practices.

 

Luck shared the company’s financial results with the entire organization for the first time, teaching and enabling field employees to produce in terms of growth and profits. He instituted a decentralized management structure to move decision making closer to the customer. Associate duties and responsibilities were changed to help them navigate the growing complexity of sales opportunities. He established the company’s first five-year strategy, using a planning process to enable each division to meet the unique needs of its marketplace and tying specific strategies, brands, and business plans for each division into a coherent whole. To respond to the needs of the rapidly growing business, Luck developed an entirely new management team. And he realigned the firm’s infrastructure to drive future growth.

 

Under his guidance, the firm set new profit and volume records every year from 1995 to 2006, tripling sales, associates, and profitability. But with record sales and rapid growth, the company soon began to “lose its way”. Decisions were no longer aligning with the firm’s traditional values. With the “We Care” people- and integrity-oriented culture at threat and the executive leadership group not working together effectively, Luck developed a value-based leadership philosophy that would dramatically transform the company. It was based upon integrity, commitment, leadership, and creativity; and, it defined behaviors to ensure that actions were taken to support a stronger values-driven culture. Significant steps were taken to embed the new vision throughout the company, to establish accountability, to ignite the potential of associates, and to make the vision operational. Additional actions to institutionalize the value-based leadership system included:

 

· Performance evaluations built around values and behaviors

· Director of Values and dedicated associates appointed

· $1-2 million per year in resources injected to support the program

· Personnel changed to keep employees aligned with the vision

 

Actions were driven by senior leaders, and the company began to see behaviors shift in alignment with company values after about 3 years.

 

Luck was focused on positively impacting the lives of the company’s customers, associates, suppliers, and community. Intending to drive best-in-class financial performance and organization-wide values alignment, the following additions were made to the organizational structure.

 

· Chief Growth Officer – through which each business unit would report directly – added to drive differentiated growth and financial results across the entire organization

· Chief Leadership Officer – responsible for overall strategic and tactical support to gain, develop, and retain high performing talent – accountable for bringing the leadership model to life

· Chief Family Officer – to develop the leadership skills and competency levels of family members for succession planning and job fulfillment purposes – and to handle family investment and estate planning business

 

While Charles ranks high across the spectrum of responsibilities for strategic leaders, he may have lacked in preparedness for unexpected events. Despite Luck’s phenomenal visionary leadership of the company, several unexpected events (of a somewhat serious nature) occurred which presented obstacles in the achievement of organizational objectives during the company’s second phase of its Value Journey.

 

First, the U.S. economy fell into a deep recession. Eroding demand hit all aspects of the stone industry. At the time, there was no relief in sight. Luck Companies’ financials “fell to pieces”, and revenue could no longer support the size of the company’s workforce. After taking expense reduction steps, putting a freeze on hiring, delaying equipment purchases, and cutting non-essential spending, he still had to reduce the workforce by over 10%, for the first time in the company’s history (although he used core values, not seniority, to determine the dismissals). Ultimately, the firm was not diversified enough to weather the economic storm that hit the stone industry.

 

Second, the company decided to fire its aggregate division president. Although he had an excellent record of performance, it was determined that this member of the top management team was not aligned with the organization’s values. Details of this assessment are not provided in the case, but the action demonstrates the firm’s commitment to upholding strategic controls to be equally important to the achievement of financial performance targets.

 

Finally, at the height of these events, Charles fell seriously ill. His temporary absence put a hold on the final leadership initiative steps, but he returned even more determined to achieve his lofty mission (albeit with a shorter timeframe, fewer associates and resources, and in markets experiencing a recession). By 2011, he had instituted behavioral alignment within his leadership model. He had both heightened the purpose of his mission and shortened the time span by 5 years. In addition, he established a Core Ideology and Beliefs statement and a Values-Based Leadership Value Proposition to guide the company in moving forward.

 

Evidence supports that Luck and his management team were effective in their response to unanticipated challenges which confronted the company during the second phase of its Value Journey. It was due to the strength of its value-driven leadership capabilities and Charles Luck’s strategic leadership abilities that the company was able to regain traction and to overcome the unfortunate events of that period.

 

STRATEGY

 

· Describe Luck’s current five-year growth strategy and objectives. What tools and resources are in place to help the company to achieve its aggressive goals? What are the likely challenges the company will face in executing this strategy?

 

Luck Companies’ current five-year strategic objectives are four-pronged and aimed at securing healthy financial performance, optimized leadership, business excellence, and $450 million in sales by 2020. Some of the strengths the company will be able to draw from include:

 

· a value-driven culture to drive outcomes and performance

· an engaged workforce, aligned with the values and needs of the organization

· the Inner Will organization and resources in place to pursue value-based leadership initiatives within and beyond the borders of the firm

· excess capacity and resources to support expansion

· organizational structure and leadership to support growth (this includes a Chief Growth Officer and Corporate Development Team)

· strong financial position to fund growth initiatives

· untapped potential from investments made in equipment, processes, and human resources

 

To support and pursue Vision 2020, each business unit has a defined set of goals and a strategic plan formulated with the company’s high-level objectives in mind. As the case states, the organization is “poised for tremendous growth over the next five years”.

 

Most likely, the company’s greatest challenge will be in its ability to realize $450 million in revenue by 2020. Luck plans to increase sales by $210 million in the next five years primarily through the Luck Stone division. In other words, the sales of aggregate must increase dramatically. One new source of income, engineered soils, is an exciting and innovative product, made more promising by the friendly regulatory environment and the opportunity to use existing resources that currently burden valuable real estate. However, it is an emerging market that has not yet established a reliable pattern of sales and is unlikely to contribute a large share of the sales growth being pursued. Luck Stone can also generate new income by utilizing excess operational capacity; but even at maximum aggregate production levels, internal growth has limitations. It follows that a large share of Luck Companies’ projected growth will need to come from planned horizontal acquisitions of select regional small- to medium-sized family-owned businesses competing in the aggregate industry.

 

Here, it is valuable to run some hypothetical numbers to assess if the company’s five-year growth objective is realistic. As the case does not provide all of the statistics needed, some assumptions are required for this analysis. Assume:

 

· 25% excess capacity exists in Luck Stone’s operations

· the other three Luck Companies divisions can fully double their sales through internal measures

· the sales of potential acquired firms are in the range of $30-$50 million

 

Using these suppositions, the table below presents a possible breakdown of sources of growth for Luck Companies.

 

Projected Sales (in millions)    
Target Sales   450
Current Sales Luck Stone (80%) 192  
Current Sales Other Divisions (20%) 48  
Current Sales – Total   240
Sales Growth Target   210
Potential Sources of Growth:    
Luck Stones Excess Capacity (estimated 25%) 48  
Internal Growth at Other Divisions (estimated double) 48  
Acquisitions (balance to target) 114  
    210
Average Acquisition Sales (estimated $30 to $50 million) 40  
Required Number of Acquisitions   3

 

In the company’s favor, Luck Stone has recent acquisition experience in its 2013 purchase of Century Sports. In addition, the company has laid the groundwork for an aggressive acquisition strategy by extensively reviewing and networking with 600 independent aggregate producers from Virginia to Texas. Because it targets firms with similar characteristics (culture, values, human resources, etc.), the company can also anticipate ease of integration and higher performance.

 

While the outlook for Luck Companies is very positive, there are many concerns that can be raised about its strategic approach. These include:

 

· The company has limited alliance management experience.

· The Century Sports purchase was not a horizontal acquisition.

· The mechanics of integrating two companies following an acquisition can be quite difficult.

· The market for aggregate in Virginia has not yet returned to the lofty levels of 2006, and the strategy is heavily dependent on growth in its aggregate division.

· It is uncertain that all acquisition costs can be internally funded, and the company’s record of managing debt is uncertain.

· The time it takes to do due diligence once a target is selected can delay the purchase and integration of new firms.

· Management resources to oversee the acquisition and integration process can be extensive.

· Disruption to operations of an acquired firm can occur during the acquisition and integration processes, which may impact the company’s ability to maximize performance.

· It is uncertain that current operations can deliver expected levels of growth through expanded offerings and breadth.

· The company’s varied history of managed growth, rapid growth, and then retrenchment may not parlay into such an aggressive growth strategy.

· Vision 2020 introduces significant change to the company, which can in itself be disruptive and interfere with ongoing performance.

· Unforeseen complications often reduce expected synergies and the achievement of integration objectives in acquisitions.

 

To overcome some of the potential difficulties associated with an acquisition strategy and to increase its likelihood of success, Luck Companies should seek complementary assets, markets, and products in its acquisition targets, seek to merge with firms that have low to moderate debt positions, sustain its internal emphasis on innovation and research development, and remain adaptable as changes in the company progress. Luck Companies is a high performance organization. And in the final assessment, its lowveHowve

eadership team, structure, and strategies are solidly in place to drive the firm forward toward Vision 2020.

 

 

8

Luck

Taxation

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40 Roland had a taxable estate of $4.5 million when he died this year.  Calculate the amount of estate tax due (if any) under the following alternatives.

a.     Roland’s prior taxable gifts consist of a taxable gift of $1 million in 2005.

b.    Roland’s prior taxable gifts consist of a taxable gift of $1.5 million in 2005.

c.     Roland’s prior taxable gifts consist of a taxable gift of $2 million made in 2007 (within three years of his death).

 

 

41

Raquel transferred $100,000 of stock to a trust, with income to be paid to her nephew for 18 years and the remainder to her nephew’s children (or their estates).  Raquel named a bank as independent trustee but retained the power to determine how much income, if any, will be paid in any particular year.  Is this transfer a complete gift?  Explain.

 

42

This year Gerry’s friend, Dewey, was disabled.  Gerry paid $15,000 to Dewey’s doctor for medical expenses and paid $12,500 to StateUniversity for college tuition for Dewey’s son.  Has Gerry made taxable gifts, and if so, in what amounts?

 

 

 

43.     [LO 3]  This year Dan and Mike purchased realty for $180,000 and took title as equal tenants in common.  However, Mike was able to provide only $40,000 of the purchase price and Dan paid the remaining $140,000.  Has Dan made a complete gift to Mike, and if so, in what amount?

44.     [LO 3]  Last year Nate opened a savings account with a deposit of $15,000.  The account was in the name of Nate and Derrick, joint tenancy with the right of survivorship.  Derrick did not contribute to the account, but this year he withdrew $5,000.  Has Nate made a complete gift, and if so, what is the amount of the taxable gift and when was the gift made?

45.     [LO 3]  Barry transfers $1,000,000 to an irrevocable trust with income to Robin for her life and the remainder to Maurice (or his estate).  Calculate the value of the life estate and remainder if Robin’s age and the prevailing interest rate result in a Table S discount factor for the remainder of 0.27.

46.     [LO 3]  This year Jim created an irrevocable trust to provide for Ted, his 32-year-old nephew, and Ted’s family.  Jim transferred $70,000 to the trust and named a bank as the trustee.  The trust was directed to pay income to Ted until he reaches age 35, and at that time the trust is to be terminated and the corpus is to be distributed to Ted’s two children (or their estates).  Determine the amount, if any, of the current gift and the taxable gift.  If necessary, you may assume the relevant interest rate is 6 percent and Jim is unmarried.

47.       [LO 3]  This year Colleen transferred $100,000 to an irrevocable trust that pays equal shares of income annually to three cousins (or their estates) for the next eight years.  At that time, the trust is terminated and the corpus of the trust reverts to Colleen.  Determine the amount, if any, of the current gifts and the taxable gifts.  If necessary, you may assume the relevant interest rate is 6 percent and Colleen is unmarried.  What is your answer if Colleen is married and she elects to gift-split with her spouse?

48.     [LO 3]  Sly wants to make annual gifts of cash to each of his four children and six grandchildren.  How much can Sly transfer to his children in 2010 if he makes the maximum gifts eligible for the annual exclusion, assuming he is single?

49.     [LO 3]  Jack and Liz live in a community property state and their vacation home is community property.  This year they transferred the vacation home to an irrevocable trust that provides their son Tom a life estate in the home and the remainder to their daughter

Laura.  Under the terms of the trust, Tom has the right to use the vacation home for the duration of his life, and Laura will automatically own the property after Tom’s death.  At the time of the gift the home was valued at $500,000, Tom was 35 years old, and the §7520 rate was 5.4 percent.  What is the amount, if any, of the taxable gifts?  Would your answer be different if the home were not community property and Jack and Liz elected to gift-split?

50.     [LO 3]  David placed $80,000 in trust with income to Steve for his life and the remainder to Lil (or her estate).  At the time of the gift, given the prevailing interest rate, Steve’s life estate was valued at $65,000 and the remainder at $15,000.  What is the amount, if any, of David’s taxable gifts?

51.     [LO 3]  Stephen transferred $15,000 to an irrevocable trust for Graham.  The trustee has the discretion to distribute income or corpus for Graham’s benefit but is required to distribute all assets to Graham (or his estate) not later than Graham’s 21st birthday.  What is the amount, if any, of the taxable gift?

52.     [LO 3]  For the holidays, Marty gave a watch worth $25,000 to Emily and jewelry worth $40,000 to Natalie.  Has Marty made any taxable gifts in 2010 and, if so, in what amounts?  Does it matter if Marty is married to Wendy and they live in a community property state?

53.     [LO 3]  This year Jeff earned $850,000 and used it to purchase land in joint tenancy with a right of survivorship with Mary.  Has Jeff made a taxable gift to Mary and, if so, in what amount?  What is your answer if Jeff and Mary are married?

          In a common law state, Jeff has made a gift to Mary of $425,000.  However, if the couple is married, the entire transfer will be offset by an annual exclusion and a marital deduction, so there is no taxable gift. 

54.     [LO 3]  In 2010 Laura transfers $500,000 into trust with the income to be paid annually to her spouse, William, for life (a life estate) and the remainder to Jenny.  Calculate the amount of the taxable gifts from the transfers.

55.     [LO 3]  Red transferred $5,000,000 of cash to StateUniversity for a new sports complex.  Calculate the amount of the taxable gift.

56.     [LO 3]  Casey gave $500,000 of stock to both Stephanie and Linda in 2005, 2006, and 2007.  Calculate the amount of gift tax due and the marginal gift tax rate on the next $1 of taxable transfers under the following conditions.

a.     In 2005 the annual exclusion was $11,000.  Casey was not married and has never made any other gifts.

b.    In 2006 the annual exclusion was $12,000.  Casey was not married and the 2005 gift was the only other gift he has made.

c.     In 2007 the annual exclusion was $12,000.  Casey was married prior to the date of the gift.  He and his spouse Helen live in a common law state and have elected to gift-split.  Helen has never made a taxable gift, and Casey’s only other taxable gifts were the gifts in 2005 and 2006.

57.     [LO 4] {Planning}  Jones is seriously ill and has $2,000,000 of property that he wants to leave to his four children.  He is considering making a current gift of the property (rather than leaving the property to pass through his will).  Assuming any taxable transfer will be subject to the highest transfer tax rate, determine how much gift tax Jones will owe if he makes the transfers now.  How much estate tax will Jones save if he dies after three years, during which time the property appreciates to $2,200,000?

58      [LO 4]  In 2010 Angelina gave a parcel of realty to Julie valued at $210,000 (Angelina purchased the property five years ago for $88,000).  Compute the amount of the taxable gift on the transfer, if any.  Suppose several years later Julie sold the property for $215,000.  What is the amount of her gain or loss, if any, on the sale?

59.     [LO 4] {Research}  Several years ago Doug invested $21,000 in stock.  In 2010 he gave his daughter Tina the stock on a day it was valued at $20,000.  She promptly sold it for $19,500.  Determine the amount of the taxable gift, if any, and calculate the amount of taxable income or gain, if any, for Tina.  Assume Doug is not married and does not support Tina, who is 28.

          60.          [LO 4]  Roberta is considering making annual gifts of $13,000 of stock each to each of her four children.  She expects to live another five years and to leave a taxable estate worth approximately $1,000,000.  She requests you justify the gifts by estimating her estate tax savings from making the gifts.

61.     [LO 4]  Harold and Maude are married and live in a common law state.  Neither have made any taxable gifts and Maude owns (holds title) all their property.  She dies with a taxable estate of $10 million and leaves it all to Harold. He dies several years later, leaving the entire $10 million to their three children.  Calculate how much estate tax would have been saved if Maude had used a bypass provision in her will to direct $4 million to her children and the remaining $6 million to Harold.  Ignore all credits in this problem except for the unified credit.

 

Comprehensive Problems

 

62.     {Planning}  Suppose Vince dies this year with a gross estate of $15 million and no adjusted prior gifts.  Calculate the amount of estate tax due (if any) under the following alternative conditions.

a.     Vince leaves his entire estate to his spouse, Millie.

b.    Vince leaves $10 million to Millie and the remainder to charity.

c.     Vince leaves $10 million to Millie and the remainder to his son, Paul.

d.    Vince leaves $10 million to Millie and the remainder to a trust whose trustee is required to pay income to Millie for her life and the remainder to Paul.

63.     Hank possessed a life insurance policy worth $50,000 that will pay his two children a total of $400,000 upon his death.  In 2006 Hank transferred the policy and all incidents of ownership to an irrevocable trust that pays income annually to his two children for 15 years and then distributes the corpus to the children in equal shares.

a.     Calculate the amount of gift tax due (if any) on the 2006 gift, given Hank has made only one prior taxable gift of $1.5 million in 2005.
b.  Estimate the amount of estate tax due if Hank were to die more than three years after transferring the insurance policy.  At the time of his death, Hank estimates he will have a probate estate of $10 million to be divided in equal shares between his two children.

c.     Estimate the amount of estate tax due if Hank were to die within three years of transferring the insurance policy.  At the time of his death, Hank estimates he will have a probate estate of $10 million to be divided in equal shares between his two children.

64.     Jack made his first taxable gift of $1,000,000 in 1997, at which time the unified credit was $192,800.  Jack made no further gifts until 2005, at which time he gave $250,000 each to his three children and an additional $100,000 to StateUniversity (a charity).  The annual exclusion in 2005 was $11,000.  Recently Jack has been in poor health and would like you to estimate his estate tax should he die this year.  He estimates his taxable estate (after deductions) will be worth $5.4 million at his death.  Assume Jack is single and has paid the proper amounts of tax in past years.

65.     Montgomery has decided to engage in wealth planning and has listed the value of his assets below.  The life insurance has a cash surrender value of $120,000 and the proceeds are payable to Montgomery’s estate.  The trust is an irrevocable trust created by Montgomery’s brother 10 years ago and contains assets currently valued at $800,000.  The income from the trust is payable to Montgomery’s faithful butler, Walen, for his life, and the remainder is payable to Montgomery or his estate.  Walen is currently 37 years old and the §7520 interest rate is currently 5.4 percent.  Montgomery is unmarried and plans to leave all his assets to his surviving relatives.

Gen. Robert E. Lee’s Boyhood Home is for Sale

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Gen. Robert E. Lee’s Boyhood Home is for Sale

The historic Virginia home that Confederate Gen. Robert E. Lee grew up in hit the market (in April 2018) for $8.5 million. (Trapasso, C.)

Robert E. Lee’s father Henry rented the home in 1812, according to The Washington Post. The family lived there for over 80 years, including Robert E. Lee from age five to when he went to West Point in 1825. He again visited five years after the Civil War ended, The Post reported. (Leayman, E.)

The home’s other claim to fame is that President George Washington also dined and lodged there before the Lee family moved in. (Trapasso, C.)

Built in 1795, the brick house was listed on the National Register of Historic Places in 1986. (Trapasso, C.)

The home had been used as a residence until 1966. The Stonewall Jackson Memorial Foundation purchased the home and opened it to the public. Unable to make ends meet, the foundation sold the home in 2000 to Mark and Ann Kington for $2.5 million. (Trapasso, C.)

The boyhood home of Robert E. Lee in Alexandria was listed on the market with a significant price drop. Previously priced at $8.5 million, the six bedroom is available for $6.2 million (March 2019). (Leayman, E.)

 

References

Leayman, E. (2019, March 26). Robert E. Lee Boyhood Home Listed for Reduced Price. Retrieved April 2, 2019, from https://patch.com/virginia/oldtownalexandria/robert-e-lee-boyhood-homes-listed-reduced-price

Trapasso, C. (2018, April 3). Own Some Civil War-Era History: Gen. Robert E. Lee’s Boyhood Home is for Sale. Retrieved April 2, 2019, from https://www.realtor.com/news/unique-homes/general-robert-e-lees-boyhood-home-sale/

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In your initial response to the topic you have to answer  all  questions.

1. Calculate the annual compound growth rate of the house price since the house was sold to Mark and Ann Kington (since 2000) until the house was listed for sale at a reduced price in 2019. (Round the number of years to the whole number).  Please show your work.

2. Assume that the growth rate you calculated in question #1 remains the same for the next 30 years. Calculate the price of the house in 30 years after it was listed at a reduced price in 2019.  Please show your work.

3. Assume that the growth rate you calculated in question #1 remains the same since Robert E. Lee’s father Henry rented the home in 1812. Calculate the price of the house in 1812. (Round the number of years to the whole number).  Please show your work.

4. Assume the growth rate that you calculated in #1 prevailed since 1795. Calculate the price of the house in 1795. (TIP: To get the answer correctly you need to use the price of the house in your calculations in dollars with all zeros).   Please show your work.

5. You were using the time value of money concept to answer question #4. Think about the time line for that problem. What is the time point 0 in that problem?  Please explain your answer.

6. In April 2018, the listed price of the house was $8.5 million. Calculate the annual compound growth rate of the house price since the house was sold to Mark and Ann Kington (since 2000) until the house was listed for sale in 2018. Compare with your answer to the question #1.

7. Using the growth rate from question #6, calculate the price of the house in 1812. (Round the number of years to the whole number).  Please show your work.  Compare with your answer to the question #3.

8. Reflection – the students also should include a paragraph in the initial response in their own words reflecting on specifically what they learned from the assignment and how they think they could apply what they learned in the workplace.

 

Practice Exercise 1. a. If you deposit $1,000 in a savings bank account that earns 3%, compounded annually, how much money will you have at the end of 10 years?

Solution: $1,343.90 (math solution)

This is a future-value problem that can be solved using three approaches, the mathematical formula, the financial calculator, or the financial tables.

Detailed solution:

Formulas

1. Math                           FVn= PV(1+ i)n

2. Financial calculator    (Same as math solution)

3. Financial tables          FVn= PV(FVIFi,n)

where:

FVn  = Future value at year n = unknown PV    = Present-value amount = $1,000 i        = Interest rate = 3% or (0.03) n       = Number of years = 10

Alternative solution methods:

1. Math                FV10 = $1,000(1 + .03)10                                 FV10 = $1,000(1.03)10                                 FV10 = $1,000(1.3439)10                                 FV10 = $1,343.90

2. Financial calculator    FV10 = $1,000(1 + .03)10

Setup     N =10 I/Y             = 3 PV             = –1,000 PMT          = 0 CPT Used to compute FV solution FV             = $1,343.92

3. Financial tables     FVn  = PV(FVIF i,n)                             FV10 = $1,000(FVIF3,1)                             FV10 = $1,000(1.344)  (compound-value tables)                             FV10 = $1,344.00

Note the subtle differences in the solutions provided by the various approaches. These are normal and caused by rounding differences because of various methods of carrying different significant digits. Each answer is 100% correct for the method us

b. What is the present value to you of an investment that yields $10,000 five years from today, if your personal discount rate is 5%?

Solution: $7,835.15 (math solution)

This is a present-value problem that can be solved using three approaches, the mathematical formula, the financial calculator, or the financial tables.

Detailed solution:

Formulas

1. Math                           PV = FVn= [1/(1+ i)n]

2. Financial calculator    (Same as math solution)

3. Financial tables          PV = FVn(PVIFi,n)

where:

PV    = Present-value amount   = unknown FVn  = Future value at year n   = $10,000 i        = Discount rate               = 5% or (0.05) n       = Number of years          = 5

Alternative solution methods:

1. Math                PV = $10,000[1/(1 + .05)5]                                 PV = $10,000[1/(1.05)5]                                 PV = $10,000[1/1(1.2763)]                                 PV = $7,835.15

2. Financial calculator    FV10 = $1,000(1 + .05)5]

Setup   N       = 5             I/Y     = 5             FV     = 10,000             PMT  = 0             CPT     Used to compute PV solution             PV     = $7,835.26

3. Financial tables     PV = FVn(PVIF i,n)                             PV = $10,000(FVIF5,5)                             PV = $10,000(0.784)  (Present-value tables)                             PV = $7,840.00

Note the subtle differences in the solutions provided by the various approaches. These are normal and caused by rounding differences because of various methods of carrying different significant digits. Each answer is 100% correct for the method used.

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Financial Services Legislation & Compliance Assessment

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In order for your assessment to be marked you must complete and upload all tasks and this cover sheet via the AAMC Training Group portal. Your assessment tasks must be uploaded in an electronic format i.e. Word, Excel, PDF or Scan. A maximum of five (5) attachments (maximum 20MB each) can be uploaded for this assessment. Please see the step-by-step instructions in your Member Area on how to upload assessments.

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AAMC transparent AAMC transparent Financial Services Legislation & Compliance

 

 

 

tree A2 © AAMC Training Group Assessment V3.3

tree Assessment V3.3 © AAMC Training Group A3

☐ Task 1 – Case study questions ☐ Task 2 – Workplace project ☐ Task 3 – Short answers/Activity ☐ Task 4 – Workplace project ☐ Task 5 – Activity ☐ Task 6 – Workplace project ☐ Task 7 – Research ☐ Task 8 – Research ☐ Task 9 – Short answers

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FINANCIAL SERVICES LEGISLATION & COMPLIANCE ASSESSMENT

CREDIT TRANSFER

You may be able to claim credit transfer for a unit/s of competency that you have previously completed with AAMC Training or another RTO. If you have been awarded a record of result or statement of attainment for any of the units detailed below then please go to the Credit Transfer tab in your Learning Centre and follow the prompts.

This assessment relates to the following units of competency:

· FNSINC401 Apply principles of professional practice to work in the financial services industry

· FNSFMK505 Comply with legislation and industry codes of practice

Please refer to AAMC Training’s full Recognition Policy for further details.

 

PLEASE READ THESE IMPORTANT INSTRUCTIONS BEFORE COMMENCING YOUR ASSESSMENT:

Please note articles and resources used in questions below are for the purpose of training only and may be outdated but still acceptable to meet the requirements of the tasks.

In addition to fully reading and understanding the contents of the learner guide, you have been provided an FMB Assessment Toolkit. We urge you to fully read and understand both of these resources prior to commencing the following questions and case studies as they will assist you in successfully achieving an understanding of this module and thus a satisfactory result. Most of the tasks are related to the FMB Assessment Toolkit. You will also need to access some of the forms and templates in the Useful Resources section of your Members Area.

· Your answers to each of the tasks are to be typed into this document and uploaded.

· No assessment word count has been specified for some of the questions, although you are expected to provide good quality answers to each of the questions.

· At the time of going to print the web links in this document were current. If you find a broken link please research yourself and advise AAMC Training of the issue.

· Although some general discussion between students covering the assessment is allowed your responses to each of the questions must be an individual effort.

· PLEASE NOTE: AAMC Training only wants to see your own work. Please do not upload parts of the learning guide or instructions on how to complete. When this extra information is uploaded it presents unnecessary work for the assessors and in turn delays our assessment responses.

 

Task 1 – Case Study

As part of managing your professional development and maintaining currency, you read many industry articles. You received this following article from Industry Media and decided it might be a good one for yourself and the other finance brokers (authorised credit representatives) of DNZ, in order to understand the industry better.

The historic low interest rate of 1.5% which remained the same after nearly two years, is expected to increase “at some point,” according to Philip Lowe, Governor of the Reserve Bank of Australia (RBA). Economist Warwick McKibbin concurred stating that this has been shown by the local economic and political climate. The increase is predicted even in global standards as an effect of the rise of climate change policies, digital disruption, and the overall changing global economy.

Due to low inflation, lack of growth in wages, and job insecurity – the present interest rate has failed to catch up with the global interest rates. These in turn mean that household spending is not enough to push the economy forward.

While the RBA is able to influence most interest rates in the economy, and in turn manipulate the demand for borrowing, the banks are assumed to pass the cost on to borrowers. The banks endeavour to shoulder the costs of borrowing funds within their business before passing it on to borrowers via loan repayments.

As the RBA and banks determine the cash rate and interest rates, they do not solely govern the behaviour of the financial services industry.

While this is so, there is the call to prepare for the rate hikes. It is best for borrowers to sort out their finances ahead of time and be mindful of the industry’s climate, so that they are aware of interest rate movements. If it is possible, park spare cash in an offset account or use it for paying down the loan.

News Article Resources used to obtain the above information can be found at the following websites:

· https://www.afr.com/news/economy/monetary-policy/prepare-australians-for-rate-hikes-now-mckibbin-tells-rba-20180622-h11qcy

· http://www.abc.net.au/news/2018-07-03/very-high-chance-of-an-interest-rate-rise-next-month/9935456

· https://www.realestate.com.au/advice/how-to-survive-an-interest-rate-hike/

 

Case Study questions:

1. You have asked the finance brokers (ACR’s) in the DNZ business to consider the article above which will also help them to better explain to their clients and referrers about external impacts that may affect borrowing. Referring to the article above and the AAMC Training learner guide, identify a minimum of three external forces that could influence the move in interest rates and that also dictate the economic and political climate in relation to the financial services industry.

 

2. What are the two financial services sectors that are involved in influencing interest rate movements and how do they interrelate?

 

 

Task 2 – Workplace Project

1. Paul has asked you to write a staff memo to update everyone on the recent changes and impact of the Australian Financial Complaints Authority (AFCA) on organisational policy, guidelines and procedures.

Using the template below and considering the key points, write the office memo in less than 500 of your own words*.

Refer to the AFCA website https://www.afca.org.au/members to locate relevant information found under Members.

*MUST BE IN YOUR OWN WORDS

Dear colleagues,
ABOUT AFCA

*Who are AFCA and what are the benefits of AFCA membership?
 
LETTING YOUR CUSTOMERS KNOW

*What are the key points that you have to consider in communicating information about AFCA?
 
*What does the AFCA Code Compliance and monitoring team support and administer? (Found under Codes of Practice)
 

 

2. Paul Williams has asked you to update the DNZ Credit Guide with the correct wording about AFCA. What information should be available to consumers on both the website and in the credit guide? Reference: “Letting your customers know about AFCA”.

 

 

Task 3 – Short Answers/Activity

Read the following article and answer the relevant questions.

Positive credit reporting is now mandatory in Australia – but what does that actually mean?

The Government announced on 2 November 2017 that it would legislate for a mandatory comprehensive credit reporting regime. As of 1 July 2018, recording positive credit information on credit histories was made mandatory for all credit providers. This is intended to allow lenders to better assess risk using a fuller picture on potential borrowers’ credit history and could be beneficial for people who have the means to take on a loan but may have had a few blemishes in the past, such as one or two missed payments.

What is Negative Credit Reporting?

Negative credit reporting is the system Australia operated under until March 2014, which was based around only making a note of negative credit events. Lenders based their assessments of a potential borrower applicant solely on whether the applicant had any negative reports on their credit history, such as missed repayments or defaults.

Banks, credit unions and other lenders could access information concerning a potential customer’s credit applications – but not whether the application was approved or not. The credit report also included details of any overdue debts, defaults, bankruptcy, or court judgements.

What is Comprehensive (Positive) Credit Reporting (CCR)?

Positive credit reporting is Australia’s new credit reporting system aimed at making it easier for lenders to form comprehensive and balanced assessments of applicants’ credit histories. The credit report includes information about current accounts held, what accounts have been opened and closed, the date default notices were paid and whether repayments were met.

While some may raise concerns over the increased amount of personal financial information being given to banks, the comprehensive credit reporting system is largely seen as a positive step for consumers and lenders, encouraging responsible lending practices and enabling consumers to build a more comprehensive and positive credit report that could help them get a better deal from their chosen lender.

What does it mean for finance brokers?

With financial institutions providing a more complete picture of borrower behaviour, it becomes a very effective tool for brokers to have a lot of the initial discovery in a fraction of the time. More information means greater efficiency, which in turn can only be a good thing for loan book growth and client satisfaction.

Perhaps the most immediate and profound change will be around loan approval, largely because the broker and lenders are both working with similar data sets.

With positive reporting, the broker can work with the client to identify reparable financial behaviours that will ultimately improve their creditworthiness — in time securing the loan or negotiating a better rate.

Not only can the relationship be maintained, but it can build the kind of trust that creates a lifelong client relationship.

Whilst there are many positives for finance broker under the new regime, there are some procedural changes that should be implemented including training for finance brokers (Credit representatives) and more comprehensive information for clients. Finance brokers will be required to make their clients more aware of the benefits and repercussions of their credit report through discussion and possible other information brochures/key fact sheets.

For those clients with an adverse credit history, the business will need to adopt a system where the brokers can implement a longer term strategy to guide the client to adopt better credit practices in improving their chances for a loan and the possibility of a better interest rate. By signing a privacy form, clients should have the ability to request the finance broker, as agent, to obtain their credit report before commencing to application with the lender.

Referenced from: https://www.canstar.com.au/credit-score/what-is-positive-credit-reporting/ and https://www.equifax.com.au/personal/articles/what-are-benefits-comprehensive-credit-reporting-consumers

Task 3 Questions:

Paul has asked you to review the above article and consider the ongoing changes to comprehensive credit reporting which is highly important information for staff and customers. He has also asked you to ensure staff knowledge across the article in relation to operational procedures and processes accurately reflect these changes. He has mentioned that linking to the Equifax website and other industry related information is a good way to remain up-to-date with ongoing changes. Also, there are many ways to let clients know more about CCR and changes – see sample: https://www.inovayt.com.au/what-you-need-to-know-about-the-new-credit-reporting-laws-before-applying-for-a-home-loan/

1. What are the procedural implications of CCR on your organisation’s operations?

 

2. How might you stay up to date with changes in CCR or any other regulations?

 

3. What would be a good method and time frame for updating finance brokers (your staff) and clients regarding these changes? You may wish to place your answer in a table similar to the one below.

Who How By when
     
     

 

 

 

Task 4 – Workplace project

Due to increased workloads, Paul has hired new broker, Shona, on a subcontract basis and she will undergo 24 months of mentoring. Shona was formerly a loan processor in her previous role and already holds an FNS40815 Certificate IV in Finance and Mortgage Broking qualification.

1. As an initial measure to implement a successful monitoring of the authorisation process, discuss with Shona the procedures a responsible manager has to undergo to authorise her as an Authorised Credit Representative (ACR) with ASIC. This process forms part of the agency agreement required under ASIC between Licensee’s and their authorised representatives. Using the table below, complete the process of authorisation

https://asic.gov.au/for-finance-professionals/credit-licensees/credit-representatives/

a. Undertake background checks on that representative.

b. Ensure that they are adequately trained to engage in credit activities.

c. Ensure that they have current external dispute resolution (EDR) scheme membership before the authorisation is given.

d. Provide written consent to the appointment.

e. Ensure they have adequate systems and procedures in place to monitor and supervise their representatives (see Monitoring and Supervising representatives ).

PROCESS IMPLICATION
Background checks  
Training requirements  
Membership to an EDR scheme  
Written consent  
Monitoring and supervising  

 

2. Shona has asked you the difference between registering under an ABN versus an ACN. In your own words describe what they are and how they differ. Information may be found on Wikipedia, www.business.gov.au or similar resource.

 

3. Shona would also like some advice from you regarding when she should register for GST. Explain the process for registering for GST, including who needs to register and when. Information may be found at www.ato.gov.au or www.business.gov.au

 

Task 5 – Activity

As the Responsible Manager you role is to determine and plan work to be completed by the finance brokers and team. As part your discussion with Paul, you have both decided that the Finance Brokers (ACR’s) need to undertake some further training to increase personal skills, make a more cohesive team and ensure service improvement. The training will contribute towards their professional development hours required for association membership and to meet ASIC requirements. This training should take place as soon as possible and needs to be completed within the next three months. To kick off the training (and lead by example) you have decided to commence with planning some training for yourself.

1. Identify three personal competency goals you would like to achieve in your role that would enhance your organisation’s image. Explain how you can go about developing the skills needed to achieve your goals and your ideal timeframe for completion. You may wish to use the responsible manager profile in the FMB Assessment Toolkit or choose your own goals.

Performance Objective Required Skills Current Skills Time frame to complete
Example: Become a leader in my business Learn leadership skills No leadership experience First 12 months
       
       
       

 

2. Referring to ASIC RG206, what are the minimum continuing professional standards for responsible managers? Include in your answer:

· the required number of hours

· how often your professional development should be completed, and

· what these activities should consist of.

https://download.asic.gov.au/media/4112044/rg206-published-15-december-2016.pdf

 

3. Based on the “Credit Representative Profiles” in the FMB Assessment Toolkit, and using the table below, complete a training needs analysis for each individual.

Individual Performance Objective Required Skills Current Skills
Shona      
Ron      
Rashana      
Lena      

 

4. Using the “AAMC Training Course List” from the FMB Assessment Toolkit, determine which training will need to be completed by each ACR, whether it will be individually completed or as part of a team, and where the training will take place.

 

Individual Course Method of study Time frame to complete Resources Required Offsite or in office
           
           
           
           
           

 

 

5. How could you ensure that your contribution serves as a role model to others and in turn, enhance the organisation’s image? Refer to Module1, Section 6.

 

6. Briefly explain how you would actively encourage individuals to participate in, take responsibility for and effectively communicate in team activities. Refer to Module 1, Section 5 of the learner guide.

 

7. Shona is having issues learning the company’s CRM system and has a loan ready to submit. Referring to the FMB Assessment Toolkit, answer the following questions:

a. What learning should Shona complete in order to adapt to the system and when can she complete this?

 

b. Which team members should be able to also provide support to Shona regarding the software?

 

8. Paul has asked you to provide some feedback to the team regarding the training outcomes. The team performed the tasks well and you would like to make sure you value and show encouragement towards their performance. How would recognise and reward individual and team efforts?

 

9. Paul has advised that the company are now using AAMC Training’s LMS to record CPD hours. Using the AAMC Training CPD area (this is an option in your AAMC member area under Professional Development Record CPD/CE) or by creating your own PD Statement (based on the AAMC Training example below) record a minimum of 20 hours of professional development activities that you may complete as a finance broker. Refer to the professional development section of the FMB Assessment Toolkit (under company professional development activities or AAMC Training courses). You may also choose some of your own activities.

 

 

Task 6 – Workplace Project

1. Paul would also like the team to attend a “First Home Buyer” event in hope to gain some new business. Your role is to determine what tasks would be allocated to whom within the business to get set up and have enough people on your stand throughout the day. The following answers are ‘free thinking’ questions and thus the learner guide or assessment may not contain the answers.

Not everyone needs to be involved but, you would like to ensure all the brokers get the opportunity to attend the event. Consider the variables and write down the tasks/ requirements into the planning table below in order of priority. Your task should be based on looking at the skills of all staff in the office (as detailed in the FMB Assessment Toolkit).

The event is happening at the Melbourne Convention Centre in two months’ time and you have been advised that any items for the stand must arrive two days beforehand.

· Organise for marketing materials, prizes and banners for stand

· Setting up the stand

· Packing up the stand after the event

· Maximum of two staff to attend the event (at any one time) and be on the stand per session 9am to 12pm & 1pm to 5pm. You should consider having different personality types to ensure that sales are being made consistently.

· Organise the courier to pick up the marketing materials for delivery to the venue

Task Action Who To be completed by
       
       
       
       
       

 

2. All of your team members did really well in achieving some good interest at the event. To prove that you value their efforts and to offer encouragement for future tasks, you have decided to provide rewards. Explain ways in which you could reward individual and team efforts.

 

3. You really want your team to get as many new prospects from the event as possible. What is a process or idea you may be able to use to encourage the team to participate?

 

 

Task 7 – Research

1. As part your own professional development, serving as a positive role model and teaching others, you have decided to review the MFAA Code of Practice. This will ensure a thorough understanding and future training standards. Explain the general standards of the code.

 

2. As part of maintaining and ensuring compliance, you have decided to check and categorise all statutory records accordingly. Under each of the headings below, list at least three types of registers that you believe fit the relevant category. Refer to the FMB Assessment Toolkit and/or Module 1, Section 8 of the learner guide to assist with your answer.

Recording Registers Records and Certificates Policies and procedures
     
     
     
     

 

3. You are auditing one of the teams’ Product Disclosure Proposals and need to discuss it with them before they hand it to the client. You’ve noticed (ongoing) commission is shown as an annual figure instead of monthly. The loan was for $320,000.

 

Fees and commissions
Fees payable to us for the provision of broking service We do not charge any fees for our service. We get paid commission from the lender. [OR – remove as appropriate]

Our service fee is $      (including GST) or      % of the finance amount, for arranging finance on your behalf. The fee is payable on approval of your loan/s. [You cannot charge a fee before you provide credit assistance]
Fees payable to third parties There are no fees or charges paid by us to third parties. [OR – remove as appropriate]

Total fees and charges paid by us to third parties are $      (including GST). The fees and charges are paid to       for arranging     . [for example ‘paid to XYZ Company for arranging valuation’]

The fee is payable when required by the third party.
Estimate of commission to be received by us. This commission is payable to us for assisting you to obtain finance. .65% of the amount of the principal finance amount shortly after the finance is provided. We estimate this to be $2,080.

.15% per annum of your outstanding loan amount owing payable monthly. We estimate the largest monthly payment to be $480.

These amounts are inclusive of GST.
Commission will be paid by: The commission will be paid by the lender documented above to the licensee. The licensee will then pay some or all of the commission to the credit representative.
Other benefits From time to time we receive benefits in the form of conferences and training sessions provided by the licensee, financiers, or others. The value of these benefits cannot be ascertained.
Estimate of total fees and charges payable to the financier in relation to applying for the finance.

These fees are payable by you.

 Application/Establishment fees $500
  Valuation fees $350
  Legal/Documentation/Settlement fees $800
  Lenders mortgage insurance premium $
  Other $
  Total $
  These figures are estimates only and the final figures will be shown in your credit contract or lease. Some or all of these fees may be paid from the finance proceeds.

These fees are payable only once.

We are not aware of any other fees or charges payable to anyone else in relation to the application for finance, but the financier may impose some additional requirements.

[IF ANY FEES ARE DEFINITELY TO BE PAID FROM THE CREDIT OBTAINED, SPECIFY A REASONABLE ESTIMATE OF THE AMOUNT OF CREDIT LEFT AFTER PAYING THOSE AMOUNTS AND ANY FEES TO THE BROKER.]
Referral fee The credit representative has paid or will pay a referral fee of $      to       for referring you to us.

In addition, we receive referrals from a broad range of sources. For example, we may pay fees to call centre companies, real estate agents, accountants, or lawyers for referring you to us. These referral fees are generally small amounts and accord with usual business practice. These are not fees payable by you.

 

 

Using the table below correct the commission amounts.

Estimate of commission to be received by us. This commission is payable to us for assisting you to obtain finance. .65% of the amount of the principal finance amount shortly after the finance is provided. We estimate this to be $

.15% per annum of your outstanding loan amount owing payable monthly. We estimate the largest monthly payment to be $

These amounts are inclusive of GST.

 

Task 8 – Research

The “ 2017 Sustainability Report ” of the National Australia Bank details the bank’s strategies on Corporate Responsibility and its performance over the said year. It contains the organisation’s own version of sustainability principles how they have responded to environmental, social, governance and economic responsibility.

1. Access the above link to the 2017 Sustainability Report, specifically the table found on pages 9-12. Choose one material theme from each of the three major criteria for measuring profitability – social, environmental, and economic.

Social Economic Environmental
     

2. In your own words, using the table below complete each of the areas:

a) The impact/s on the different participants in the financial services industry. (Stakeholder view and relevance to NAB)

b) The practices, strategies, and policies that are incorporated in that material theme. (How we’re responding)

c) The outcomes have been reported from the incorporation of those material themes. (Performance)

Three major criteria for measuring profitability NAB’s version of SUSTAINABILITY PRINCIPLES

(Material Theme)

 Impact on industry

(Stakeholder View and Relevance to NAB)

 NAB’s Activities

(How We’re Responding)

 

 NAB’s Corporate Sustainability Outcomes

(Performance)
Economic        
Environmental        
Social        

 

3. You and chosen members of your team have been tasked to create your own corporate sustainability framework, incorporating and supporting triple bottom line principals. Highlight at least one goal, under each of these headings that you would like to achieve for the business.

Astute Ability Finance Group’s Corporate Responsibility approach found in this website: http://astuteability.com.au/corporate-responsibility/ is an example that you may use as a reference.

Areas of the business Sustainability goal
Your customers  
Your staff  
The community  
The environment  

4. Based on your goals, highlight the potential economic outcome/s on your business and the greater community.

Sustainability goal Economic outcome/s
   
   
   
   

 

 

 

Task 9 – Short Answers

1. List at least three of the main sectors of the financial services industry that may impact your role as a finance broker.

 

2. In your own words, briefly explain the memorandum of understanding between ASIC and APRA.

Refer to ASIC link to assist you with the answer: https://asic.gov.au/about-asic/what-we-do/our-role/other-regulators-and-organisations/the-apra-asic-relationship/

 

SCENARIO – RESPONSIBLE LENDING CONDUCT OBLIGATIONS

Paul Janes has a tiling business and has earnt $90,000 for the most recent financial year. His wife Melanie works at Coles Supermarket on a part time basis and she has been promised the position of Store Manager, likely to earn $20,000 more than what she is currently earning. The couple are in their mid 40’s and have a son living at home. They have a current home loan of $250,000. They are seeking a personal loan from you for an overseas trip of $50,000. The couple have approximately three credit cards.

3. What are two or more qualifying questions you should ask the clients in the above scenario to clarify their financial situation?

 

4. Why is it important to make reasonable enquiries about a client?

 

5. Why is it important to take steps to verify a customer’s information?

 

SCENARIO – Anti-money laundering & counter terrorism financing

Sam Knight contacted you about obtaining a car loan and, as part of providing documents, he sent you uncertified copy of his driver’s licence.

6. What are your obligations under AML/CTF legislation in reference to Sam’s identification? (Refer to section Module 1, Section 2 of your Learner Guide – Money laundering and terrorism financing.) Explain the requirements of the customer identification and verification process.

 

7. Sam has also provided his tax assessment notice as evidence of his income for the loan application. As you have another Sam Knight (Samantha) on your books, you are wondering whether you could perhaps file each of the “Sam’s” by their tax file number for easy identification in the future. Referring to the use and disclosure of tax file number information found under Module one, Section 2 of the learner guide, provide an explanation as to whether this is acceptable practice.

 

SCENARIO 3 – HARDSHIP PROVISIONS

Maddison and Andrew (clients of yours) entered into a consumer loan with ABank. They have just been advised that Maddison is very unwell and has had several months off work. Her employer recently advised that they could no longer hold her job. As a result the couple have been struggling to meet their mortgage repayments and have fallen into default many times. They have provided a hardship application to the lender. Refer to the hardship provisions under responsible lending conduct obligation in Module 1, Section 2 of the learner guide.

8. Explain what the lender must do within 21 days of receiving the hardship application.