lecture 1

Question 1

 What can a financial planner help a client with?

Answer 1

o Building Wealth
 Investing
 Debt management, expense management

o Using wealth in retirement
 Retirement planning

o	Protecting wealth
	Asset protection
•	Person = an asset
•	E.g. life insurance, trauma insurance (medical catastrophe), total and permanent disability, Income protection
	Estate planning

Question 2

 What is financial planning?

Answer 2

o Process whereby client’s financial position is analysed

o Set of strategies / recommendation put in place through a financial plan

o People-orientated business
 Helping people achieve their financial goals

o Most people are financially illiterate
 FP is an educating role

o Satisfying the needs of clients
 Every client has needs, objectives, requirements,
financial circumstances, family circumstances, motivational factors,

Question 3

 Need for financial planning

Answer 3

o Ageing population

o Government encouraging retirees to self-fund
 Shifting away from pensions

o Superannuation
 Mandatory SG contributions
 Tax concessions for personal contributions

o Age pensions
 Stricter eligibility requirements

o Complexity of legislation
 Many different laws e.g. superannuation industry supervision act, trustee law, common law

o Complexity and choice of investment products
 Retirement income stream products
 Gearing products
 Derivatives

Question 4

 The future of financial Advice

Answer 4

o FOFA
o Represents a comprehensive government response into financial products and services

o Set up in the wake of financial collapses and scandals

o New elements
 Requirement for advisers to get clients to renew their advice agreement every 2 years
 A ban on any form of payment relating to volume or sales targets
 Ban on soft dollar benefits, where a benefit is 300 or more

Question 5

 Key FOFA Components and obligations

Answer 5

o Components
 Best interests duty
 Conflicted remuneration
 Fee disclosure statements and opt-in notices

o	Obligations to
	Act in the best interest of the client
	Provide appropriate advice
	Give an incomplete advice warning
	Give priority to client’s interests

Question 6

 Have a reasonable basis for advice

Answer 6

o Client-centric not product-centric
o Know client rule
o Know your product rule

Question 7

 The provision of advice to clients is not an easy matter

Answer 7

o Each client is different

o Needs of a client change over time

o Assessing the risk profile of the client

o What type of investment is appropriate for the client
 Term deposits, managed funds, property, direct shares, international shares, bonds

o Impact of economic variables

o Changes in government legislation

Question 8

 Economic Environment

Answer 8

o Advisors and clients do not operate in isolation to the economy and the market
o Advisors need to be aware of the impact of the economic environment both micro and macro

Question 9

 The regulatory environment

Answer 9

o Financial planners work within an environment that Includes
 Strict regulations
• ASIC, APRA, ATO, ACCC
 A strong financial association
 Client / advisor fiduciary relationship
 Professional associations and training required

Question 10

o ASIC

Answer 10

 Australian securities and investment commission
 Principle regulator of the financial services industry
 Responsible for consumer protection

Question 11

o APRA

Answer 11

 Australian prudential Regulation Authority
 Principle regulator of the superannuation and insurance industries
 Responsible for: Compliance with SIS Legislation, Regulation of professional superannuation trustees

Question 12

o ATO

Answer 12

 Australian Taxation Office
 Responsible for administering tax legislation
 Responsible for administering self-managed superannuation funds

Question 13

o FPA

Answer 13

 Financial Planning Association of Australia
 Peak organisation for financial planners
 Works to enhance the professionalism of the industry and the image of planners in the eyes of the industry
 Codes have been established to protect interests of clients

Question 14

 Common Law

Answer 14

o Based on precedent – the decisions of previous judges over time

o A fiduciary relationship between a professional and a client is recognized in common law
 Act in the best interests of the client

o The concept of the fiduciary obligation owed by a financial planner to a client is to be enshrined into statutory law

Question 15

 Licensing requirements – AFSL

Answer 15

o Any person wanting to provide financial product advice or deal in a financial product is required to hold an Australian Financial Services License

o Exemptions from holding a license include
 Authorized representatives
 Real estate agents
 Providers of health insurance

Question 16

 ASIC – Policy statements

Answer 16

o Issued many policy statements outlining how certain provisions of the Corporations Act 2001 are to be applied to the financial planning discipline

Question 17

 Financial Services Guide

Answer 17

o Purpose is to ensure that clients are given sufficient information to enable them to decide whether to obtain financial services

o Must be given to client at the earliest practical opportunity before a financial service is provided
o Includes
 Name and contact details
 Kind of service offered
 Basis of remuneration including fees and commission received

Question 18

 Statement of Advice

Answer 18

o Providing entity must provide a retail client with a SOA (personal advice)

o Provided to the client at the same time or as soon as practicable after, the advice is provided

 Must be before the provider arranges for anything connected with the advice
o Clear and concise
o Identify all conflicts of interest that may affect the advice