FINA2209 Financial Planning
WEEK 1
What is Financial Planning?
Financial planning is a process whereby a client’s financial position is analysed and a set of strategies / recommendations put in place through a financial plan (Statement of Advice) that will assist the client in meeting their goals and objectives.
• Financial planning is very much a people-oriented business helping people achieve their financial goals
• Most people are financially illiterate and a major part of the financial planners role is education
Every Client has different
Needs
Objectives
Requirements
Financial circumstances
Family circumstances
Motivational factors
Perceptions of financial planning and financial planners
Common Questions
How do I support myself in retirement?
What happens if I was to die, become disabled or sick and unable to support myself and my family?
What’s the best way to invest my funds?
How can I minimise tax?
What’s the best means to create long-term wealth?
What arrangements can be put in place to look after my family upon death?
What social security arrangements am I eligible for?
How do I manage debt?
What’s the best way to save for and buy a home?
Need for financial planners Australia’s population is ageing
People are living longer People are retiring earlier
Government encouraging retirees to self fund
There is an increasing trend to shift the onus of retirement funding from the Government to the individual.
Shift away from providing the full age pension to retirees Superannuation
Mandatory SG contributions (9.5% - increasing to 12% over the next decade)
Tax concessions for personal contributions
Lump sum withdrawals or pensions received from super after the age of 60 are tax free Age pension
Stricter eligibility requirements Complexity of Legislation
• Superannuation Industry Supervision Act 1993
• Income Tax Assessment Acts 1936 & 1997
• Trustee Law (State Based)
• Common Law (Non Statutory)
Complexity and choice of investment products
• Retirement Income
• Stream Products
• Gearing Products
• Derivatives Economic Environment
Advisors and clients do not operate in isolation to the economy and the market
Advisors need to be aware of the impact of the economic environment both micro and macro — eg interest rates, inflation, exchange rates, unemployment, global tensions, etc.
For example:
• Is it a good time now to move cash into shares?
• If buying into international shares, should this be hedged or unhedged from currency movements?
• If investing into term deposits, is it better to go short-term or long-term?
• What will interest rates do in the future and how will this affect my investments
Need to appreciate that the economic environment is cyclical in nature Business Cycle
Recession
high unemployment — low economic growth Recovery
unemployment begins to fall and economic growth begins to rise Boom
expansion — high employment and economic growth, increase in inflationary conditions Contraction
economic growth starts to slow, level of unemployment begins to rise, falling retail sales
Regulatory Environment
Australian Securities and Investment Commission (ASIC) Principle regulator of the Financial Services Industry.
Banning of advisors, Audit programs, Licensing regime for AFSL Responsible for Consumer Protection
Australian Prudential Regulation Authority (APRA)
Principle regulator of the Superannuation and Insurance Industries.
Responsible for: Compliance with SIS Legislation; Regulation of professional superannuation trustees
Australian Taxation Office (ATO)
Responsible for administering tax legislation
Responsible for administering self managed superannuation funds
The Financial Planning Association of Australia
• This is the peak organisation for financial planners – Not all planners are members
– Issues the “Certified Financial Planner” (CFP) designation
• Works to enhance the professionalism of the industry and the image of planners in the eyes of the industry
– From July 2013, all new practitioner members of the FPA will need an approved degree.
• To protect the interests of clients, a number of codes have been established
– Code of Ethics, Practice Standards, Rules of Professional Conduct
Fiduciary Duty
A fiduciary relationship between a professional and a client is recognised in common law and, if broken, has legal consequences for the professional involved:
• act in the best interests of the client
Therefore, if a financial advisor gives advice to a client, the client should be able to reasonably rely upon that advice
Dealer Groups and Authorised Representatives
• Licensees (aka Dealer Groups) authorise advisers (aka authorised representatives) to provide financial services on behalf of the licensees.
• Dealer groups (financial institutions, banks or insurance companies) hold an Authorised Financial Services License (AFSL)
From the Royal Commission: Under the current system financial advisers are allowed to shift from one licensee to another when conduct issues are raised.
Commissioner Kenneth Hayne asks “Should advisers be individually licensed?”
ASIC – Policy Statements
ASIC has issued a number of policy statements outlining how certain provisions of the Corporations Act 2001 are to be applied to the financial planning discipline.
THREE OF THE MORE IMPORTANT POLICY STATEMENTS
– [RG 168] - Disclosure: Product Disclosure Statements (and other disclosure obligations) – [RG 175] - Licensing: Financial product advisers – Conduct and disclosure
– [RG 146] – Licensing: Training of financial product advisers
Financial Product Advice
See RG 175: Licensing: Financial product advisers – Conduct and Disclosure.
• Certain obligations are imposed on providing entities to ensure that clients receive professional and reliable advice about financial products.
