Tiêu đề LM6 Case Study in Risk Management Private Wealth IFT Notes.pdf ✅

LM6 Case Study in Risk Management: Private Wealth 2024 Level III Notes © IFT. All rights reserved 1 LM6 Case Study in Risk Management Private Wealth 1. Introduction and Case Background ......................................................................................... 3 Background of Eurolandia ....................................................................................................... 3 The Schmitt Family in Their Early Career Stage .................................................................... 5 2. Identification and Analysis of Risk Exposures: Early Career Stage ...................................... 5 3. Risk Management Recommendations: Early Career Stage .................................................... 8 4. Risk Management Considerations Associated With Home Purchase ................................. 10 Review of Risk Management Arrangements Following the House Purchase.................... 10 5. Identification and Analysis of Risk Exposures: Career Development Stage....................... 12 Case Facts: The Schmitts Are 45............................................................................................ 12 Financial Objectives in the Career Development Stage....................................................... 13 Identification and Evaluation of Risks in the Career Development Stage ......................... 14 6. Risk Management Recommendations: Career Development Stage .................................... 16 7. Identification and Analysis of Risk Exposures: Peak Accumulation Stage ......................... 20 Review of Objectives, Risks, and Methods of Addressing Them......................................... 21 8. Assessment of and Recommendations Concerning Risk to Retirement Lifestyle and Bequest Goals: Peak Accumulation Stage.................................................................................. 25 9. Retirement Objectives, Assets, And Drawdown Plan........................................................... 28 Key Issues and Objectives ...................................................................................................... 29 Analysis of Retirement Assets and Drawdown Plan............................................................ 29 10. Income and Investment Portfolio Recommendations: Retirement Stage ........................ 31 Investment Portfolio Analysis and Recommendations ....................................................... 32 The Adviser’s Recommendations for Investment Portfolio in Retirement ....................... 33 Summary ...................................................................................................................................... 34 This document should be read in conjunction with the corresponding reading in the 2024 Level III CFA® Program curriculum. Some of the graphs, charts, tables, examples, and figures are copyright 2023, CFA Institute. Reproduced and republished with permission from CFA Institute. All rights reserved.
LM6 Case Study in Risk Management: Private Wealth 2024 Level III Notes © IFT. All rights reserved 2 Required disclaimer: CFA Institute does not endorse, promote, or warrant the accuracy or quality of the products or services offered by IFT. CFA Institute, CFA®, and Chartered Financial Analyst® are trademarks owned by CFA Institute. Version 1.0
LM6 Case Study in Risk Management: Private Wealth 2024 Level III Notes © IFT. All rights reserved 3 1. Introduction and Case Background This reading presents a case study that shows how risk management methods change as circumstances change for individuals and families. The case is based on a married couple, the Schmitts, living in a hypothetical country in the Eurozone. The case spans several decades and follows the couple through their different life stages – from their early career phase to retirement. The case is divided into six sections. Section 1.1 provides background information about the hypothetical country in which the couple resides. Sections 1 - 4 cover the couple’s early career phase, risk management analysis, and recommendations. Sections 5 and 6 cover the couple’s career development phase when they are 45. Sections 7 - 10 cover the couple’s peak accumulation phase at 55. Finally, Section 11 examines their lives at age 64, when they are about to retire. Note: Read or watch the IFT videos related to the Level III readings “Risk Management for Individuals” and “Overview of Private Wealth Management,” before you study this case. Important facts from the case are presented here. For an in-depth study, please refer to the curriculum reading. Background of Eurolandia Eurolandia is a hypothetical country in the Eurozone. The country has a stable economy, which is growing at a slow but steady pace. The inflation rate is 1%. The risk-free rate is 3%. The state pension and social security benefits are expected to increase by 1% annually in real terms. Government defined benefit (DB) pension plan • All residents who are employed are enrolled in a mandatory government pension plan. • A retirement income is provided for those who have been enrolled for most of their working lives (minimum is 35 years). • Non-government employees can expect to receive a pension of €13,500 per year from the government. • Government employees can expect to receive benefits, which are the higher of €20,000 per year or 55% of their final salary. • These amounts are expected to increase by 2% per year in nominal terms. • The pension ends when the retiree dies, and the surviving family members are not entitled to further payments. Health system • Basic health insurance is compulsory for all Eurolandia residents. • The contributions to the scheme are deducted from salary. • The health insurance covers a majority of health care expenses.
LM6 Case Study in Risk Management: Private Wealth 2024 Level III Notes © IFT. All rights reserved 4 • Small co-payments for a particular service have to be made while seeking treatment. Unemployment insurance • Unemployment insurance is compulsory. • The premiums are paid in the form of social security contributions. • Unemployment benefits exist (€800 per month) but are capped at a low amount, far below what a successful professional would earn. • People in long-term unemployment receive means-tested income support of up to €12,000 per year. (Means testing involves assessment of the person’s financial resources to determine the need for state benefit support.) Disability insurance • Social security contributions also fund disability insurance. • This program provides income if someone is unable to work because of serious illness or disability. • The disability insurance amount is capped at €18,000 per year for non-government employees and €21,600 per year for government employees. Education • Education is provided and funded by the government. • Education is almost free to the residents of the European Economic Area. • Government funding also extends to master’s-level degrees. Social security contributions and tax rates • Employees pay 9% social security contributions on gross salaries that exceed €15,000 per year. • The contribution is capped at €10,000 per family per year. • Unemployment and disability benefits are not subject to income tax. • There are tax incentives for voluntary contributions to government-regulated defined contribution and private pension savings plans. o The government adds 25% to a member’s contribution. For every €100 a member contributes to the scheme, the government adds €25, making the total contributed amount equal to €125. o There is no tax on investment returns within regulated pension savings plans. • The retirement age is 65. • Tax-free lump sum withdrawals from private pension savings plans up to 25% are allowed from age 55. • Realized net capital gains on investments outside regulated pension schemes are taxed at 30% on amounts exceeding €25,000 per person per year. Exhibit 1 lists the marginal income tax rates for individuals.