Topic 1 : The fianncial planning process Flashcards
personal financial planning
implies that a person intends to achieve something in a financial sense
The main reasons for the growing importance of personal financial planning include:
the increasing proportion of people in older age groups, including those who are about to retire
the increase in longevity
expected restrictions to reduce access to the age pension
the introduction of compulsory superannuation
a greater range of superannuation fund investment choices
proposed changes to taxation on savings accounts and other government budget announcements.
In summary, the major reason for the increased importance of personal financial planning is the transfer of risk for providing for one’s old age from the government (age pensions) and employers (defined benefit superannuation schemes) to individuals.
The business cycle may generally be viewed in four stages:
- boom or expansion: the phase of the business cycle when employment and economic growth are high; an increase in inflation becomes a concern
- contraction: the phase when the economic growth rate starts to slow, sales begin to fall, and the level of unemployment starts to rise
- recession: the phase when high unemployment is recorded and economic growth slows and may even be negative
- recovery: the phase when unemployment begins to fall and economic growth starts to rise.
Fiscal policy
Fiscal policy is concerned with managing the economy through the use of government-controlled taxation and spending policies. To stimulate the economy, governments may reduce taxation and allow more spending power to remain in the hands of consumers.
Corporations Act 2001
The main area of the Corporations Act affecting financial planners is the provision of financial products or financial advice to the public.
Statutory complaints resolution schemes
Financial advisory service providers are governed by various structures which regulate complaints and potential disputes with clients.
They are as follows.
- Internal complaints-handling mechanisms for superannuation funds.
- The Superannuation Complaints Tribunal. An external Superannuation Complaints Tribunal handles unresolved disputes in superannuation funds, other than excluded funds.
- The Financial Ombudsman Service (FOS). This service operates as an external dispute-handling body for complaints by clients against advice and service provided by financial planners, life insurance advisers, managed investment schemes and stockbrokers
The role of ASIC
It is the role of ASIC to ensure practitioners comply with legal requirements governing the financial planning industry. ASIC does not draft legislation — this is Treasury’s role. ASIC’s role is to implement the legislation.
SOA
An SOA is the means by which a financial planner’s advice and recommendations are communicated to a client in a clear, concise and effective manner.
documents that are required to be provided by a planner prior to the purchase of a financial product or provision of a financial service by a retail client. The three main documents are:
financial services guide — who the financial planner is and what financial services are able to be provided
statement of advice — a statement setting out the advice and recommendations provided by the planner
product disclosure statement — details on the financial product that is being acquired by the client.
financial services guide
retail clients are given sufficient information to enable them to decide whether or not to obtain financial services from the financial planner.
The FSG is required to provide information to a client concerning:
- who is providing the service
- what financial services are being offered
- who the service provider is acting for
- details of how the planner is remunerated
- details of any potential conflicts of interest.
Statement of advice (SOA
able to make an informed decision about whether to act on the advice given and whether to acquire a financial product.
An SOA must include various information including:
- the name of the party providing the advice
- a statement setting out the advice
- the reasoning or basis that led to that advice
- the remuneration and other benefits received by the provider of the advice
- all conflicts of interest that may affect the advice.
There are two main types of advice statements
comprehensive advice statement and a scaled advice statement which is more limited in scope.
Product disclosure statement (PDS)
A PDS is prepared by the financial product issuer and must contain sufficient information to enable a retail client to be able to make an informed decision about whether to purchase a financial product (Pt 7.9 of the Act).
Briefly, a PDS includes information such as:
- fees payable in respect of a financial product
- risks of the financial product
- benefits of the financial product
- significant characteristics of the financial product.
The best interest duty mean that a planner has 4 separate duties:
- a duty to act in the client’s best interests
- a duty to provide advice that is appropriate
- a duty to provide an advice warning
- a duty to prioritise the client’s interests in the event of a conflict.
- A duty to act in the client’s best interests
ASIC interprets it to mean advice provided that would leave the client in a better position. The standards used to assess whether a client would be left in a better position are based on what a reasonable advice provider would believe if the client followed the advice.
