ANSWER

a)

potential financial risks to a loan guarantor -

You might be restricted for your future loan prospects

Generally, when you act as a guarantor, you are responsible for making the repayments if the borrower fails to do so. By bearing the guarantor’s responsibilities, your eligibility for new loans automatically gets reduced. What’s more, you may face the situation where your own loan gets declined, because the bank may have calculated that you can’t afford the repayments on both loans if you are required to do so.

You risk bad credit history

Your credit report will display the fact that you are acting as the guarantor for a loan. In fact, the borrowing banks will already have had access to your credit report when you applied to become a loan guarantor. In the event where the borrower defaults, this will then be reflected in your credit report and the bank may come knocking at your door to recover the outstanding amount.

You are legally tied to the loan, regardless of circumstance

Just as none of us can predict our own future, it is even harder to know what is in store for others. It’s not a nice thought, but unfortunate event do happen. Friends, colleagues, even family members, for whatever reason, can have a major fall out and no longer wish to be associated with each other. Some of the more common problems are divorces, business failure and trust issues.

b)

Scaled advice is when a client seeks financial advice on a particular issue or specific circumstances (e.g. whether setting up a SMSF is appropriate). Scaled Advice a particular sort of advice which concerns a specific area of an investors needs or about a limited range of issues.

ADVANTAGES

The advantage of scaled advice is that the advice is tailored to needs of the client and so will be easier to understand and cost less than a full statement of advice.

An advantage of scaled advice is that is cheaper than a full statement of advice.

DISADVANTAGES

The risk to the client is that the scaled advice may not address the client's personal circumstances as it only looks at one aspect without considering all factors. For example a SMSF may be found to be suitable for a client although a more pressing issue is that the client is heavily in debt which is not considered.

c)

Disclaimers allow for both the financial planner and the client to be on the same page when it comes to the service being delivered and the advice provided. They assist the client by having proof of what service and advice is to be provided. If the financial planner does not meet the agreement, the client has the disclaimer to use as evidence. For a financial planner, a disclaimer can assist them in a similar way. If the client is unhappy with the outcome, the financial planner can refer them back to the disclaimer; it becomes a safety net for them.

d)

effective interest rate = (1+8%/12)¹²

= 8.30%