digital finance advice in Australia

Question 1

what are the significant advancements that have occurred in financial planning software?

Answer 1

Financial planning enables advisers to demonstrate their value to their clients.

Customer Relationship Management is the business hub of the practice or business.

Clients are now looking for personalisation to access information they want to see. More relevant real-time data is helping investors make better decisions.

Question 2

what are the differences between goals based and traditional financial planning?

Answer 2

goals based: clients are profiled on financial and behavioural factors, clients goals and prioritising goals. Performance is measured against progress towards goals; this promotes a longer-term, proactive view. Risk is measured by assessing risk capacity for each goal and considers the potential ‘fail to reach goal.’ assets are allocated based on asset class portfolio for each goal.

traditional: clients are profiled on financial factors and single risk tolerance. performance is measured relative to market benchmarks. this promotes a short-term view, reacting to the market and chasing gains. risk is measured using a risk tolerance for the whole portfolio. assets are allocated based on a single portfolio

Question 3

what are the benefits of data integration

Answer 3

The new frontier for aggregators is enabling an adviser to see assets held beyond their licensee and control.

Advisers today have access to the broad view of the client’s net worth, including cash flow and expense details frequently under-reported by clients, which permits them to give clients more accurate and holistic advice.

Question 4

what are the advantages of interactive software with regards to a financial plan

Answer 4

The financial plan is built immediately and can be sent to the client as a document, or as an interactive link that can be modified anytime, anywhere via the internet, allowing the investor the utmost in convenience and flexibility.

Question 5

Digital advice can comprise

Answer 5

general or personal advice, and range from advice that is narrow in scope (e.g. advice about portfolio construction) to a comprehensive financial plan.

Question 6

what is the major drawback to digital communication

Answer 6

there is no ‘natural person’ directly involved in providing the advice

Question 7

A digital advice licensee should have sufficient technological resources to:

Answer 7

maintain client records and data integrity
protect confidential and other information
meet current and anticipated future operational needs, including in relation to system capacity
comply with all obligations under the law
adequate business continuity,
backup and disaster recovery plans for any systems that support the delivery of digital advice to clients

Question 8

Which of the following has helped financial advice to innovate most?

Answer 8

Client data integration.

Question 9

Goal-based financial planning is more client-centric as advice performance is measured by progress towards a client’s goals rather than market performance. True or False?

Answer 9

true

Question 10

Robo-advice can provide the following nature of advice:

Answer 10

all the advice a traditional adviser can provide. given that the coimpany has, or is an authorised representitive of an AFS licensee

Question 11

Recent government initiatives aimed at transforming the financial advice industry are called the Future of Financial Advice (FoFA). These initiatives include:

Answer 11

The introduction of the best interest duty so that advisers must act in the best interest of their clients when providing personal advice to retail clients.
A prospective ban on conflicted remuneration structures, including commissions and volume payments.
A prospective ban on up-front and trailing commissions and like payments for both individual and group risk insurance within superannuation from 1 July 2013.
A ban on soft-dollar benefits (monetary and non-monetary) received by financial planning firms, where a benefit is $300 or more (per benefit).
A prospective requirement for advisers to get retail clients to opt-in (or renew) their advice agreement every two years from 1 July 2012.

Question 12

what is best interest duty

Answer 12

Acting in the best interest of the client
Satisfying the ‘safe harbour’ to show the adviser has met the best interest duty Providing appropriate personal advice
Prioritising the interests of the client

Question 13

This best interest assessment would depend on the circumstances and include the following factors:

Answer 13

The position the client would have been in if they did not follow the advice.
The facts at the time the advice is provided that the financial adviser had, or should have had, if they followed their obligations
The subject matter of the advice sought by the client.
The client’s objective, financial situation and needs.
Where relevant, product features that the client particularly values, provided the client understands the cost of, and is prepared to pay for, those features.
If the client follows the advice, they receive a benefit that is more than trivial.

Question 14

Under FoFA, advisers (and licensees) are required to request clients’ opt-in, or renew, their ongoing advice agreements every two years if the clients pay an _____

Answer 14

ongoing fee

Question 15

The best interests duty is based on the notion of:

Answer 15

reasonableness

Question 16

to meet best interests of the client, advisers need to:

Answer 16

Provide the client with advice that is not product-specific (which may include advice for the client to do nothing).
Advise the client to dispose of a financial product.
Advise the client to make an increased investment without acquiring new financial products.

Question 17

The provider is expected to exercise professional judgement to determine whether this requires going beyond the provider’s approved _______________

Answer 17

product list

Question 18

Examples of conflicted remuneration include:

Answer 18

Commissions, whether upfront or trailing, fixed or variable, paid by a product issuer to a licensed dealer group, whether the payment is made directly or through some other arrangement.
Volume-based payments from a platform operator to a licensed dealer group.
Volume-based payments from a licensed dealer group to an authorised representative or other representative.
Volume-based bonuses and other payments, such as a commission or one-off payment, to a financial adviser, which is calculated by reference to the number or value of financial products acquired by clients following the advice of the financial adviser.

Question 19

what are the consequences of breach of FoFa

Answer 19

AFS licensee - Civil penalty or administrative sanctions (e.g. an AFS licence suspension or cancellation).

Authorised representative - Civil penalty, except where:

the AFS licensee provides the authorised representative with information about the nature of the benefit to be accepted by the authorised representative
at the time the authorised representative accepts the benefit, it is not aware that the benefit is conflicted remuneration because the representative is acting in reliance on that information.

Question 20

Examples of conflicted remuneration include:

Answer 20

A monetary or non-monetary benefit is non-conflicted remuneration if it is given by a retail client in relation to financial product advice given by the AFS licensee or representative to the client.
Fees given by a retail client to the product issuer and passed on to the dealer group. The client has specified the fee and authorised the product issuer to collect the fee from the client on behalf of the dealer group.
Salary given to an AFS licensee or representative that gives financial product advice to retail clients is generally non-conflicted remuneration.

Question 21

describe asset based fees

Answer 21

Some asset-based fees paid by retail clients will not be conflicted remuneration if benefits given by the client by an authorisation.

This means advisers can charges one-off and on-going fees for advice from investment and superannuation products if authorised by a client.

Question 22

describe personal insurance commissions

Answer 22

A monetary benefit is not conflicted remuneration if it is given in relation to advice on a life risk insurance product.

Financial product advice is not conflicted remuneration if the benefit relates to a basic banking product and general insurance product or a combination of these financial products.

Question 23

Under FoFA, advisers are required to request clients renew their ongoing advice agreements:

Answer 23

every two years if the clients pay an ongoing fee