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principles of financial planning > EXAM > Flashcards

EXAM Flashcards

1
Q

list the key regulators within the financial services industry

A

the RBA
the australian competition and consumer commission (ACCC)
Australian prudential regulation authority (APRA)
the australian securities and investment commission (ASIC)

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2
Q

how can the RBA influence the financial services industry

A

by setting the cash rate to meet an inflaiton target
working to make a strong finanial system
monetary policy that affects other markets

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3
Q

how does the ACCC regulate the financial services industry

A
  • promotes competition in the financial sector
  • regulates national infrastructure services
  • has the primary responsibility to ensure that individuals and businesses comply with
    Australian competition, fair trading and consumer protection laws
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4
Q

what act does the ACCC particularly force?

A

the competition and consumer act 2010

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5
Q

what reform derives the RBAs powers?

A

the reserve bank act 1959

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6
Q

what are APRAs powers in regulating financial institutions?

A

authorisation or licensing powers
supervvision and monitoring powers
Powers to act in circumstances of financial difficulties to protect depositors, policyholders and super fund members, including powers relating to taking control of entities and/or winding up insolvent entities

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7
Q

how does ASIC reguulate the financial services industry

A
  • Investigate situations where a breach of its legislation may have occurred
    • Prosecute in criminal court
    • Bring a civil action
    • Apply for civil penalty order, accept and enforce an undertaking to comply with the
      law
    • Takeovers panel
    • Disqualify people from managing corporations or dealing in financial services
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8
Q

list the people who participate in issuing financial advice

A
  • Financial advisors
    • Accountants
    • Solicitors
    • Insurance companies
    • Banking institutions
    • Stockbrokers
    • Real estate agents
      Mortgage brokers
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9
Q

what are the categories of financial advice

A

personal product advice
personal strategic advice
scaled advice
general advice

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10
Q

what is scaled advice

A

advice limited to one particular financial topic, at the request of the client

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11
Q

what risk does scaled advice pose to clients and advisors

A
  • The risk to the adviser is inadequate advice could cause the client economic loss
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12
Q

how do advisors safeguard from providing scaled advice, of which a client can seek legal remedy for economic loss

A
  • The best practice in this regard is to offer comprehensive advice and if required, limit the advice as requested by the client
    • It is important to keep documentation of such requests from the client. This is usually a standard process and part of numerous declarations made by the client throughout the process
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13
Q

what are the business models for licensees

A
  1. Institutionally owned licensees
    2. Medium to large licensees
    Small boutique licensees
    Fee for service models
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14
Q

what are the characteristics of an institutionally owned licensee

A
  • This form of licensee is controlled by a large fund manager, insurance provider or bank.
    • The approved product list for this type of licensee may be limited
      There may be an implied preference for the financial advisers to recommend some of the same products or funds by which they are affiliated
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15
Q

what are the characteristics of a Medium to large licensee

A
  • Medium to large adviser groups are generally a franchise type of operation, whereby authorised representatives can choose to trade under their own brand name or alternatively the licensee group’s name
    • The approved product list may also be restricted. There are a few reasons for this. It could be because the group is still owned by a bank or large fund manager. Or it could be because it is impossible to research every possible investment opportunity. Often it is a combination
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16
Q

what are the characteristics of an institutionally owned licensee

A
  • Small boutique advisory firms pride themselves on their independent status
    • Own and operate their own AFSL
    • Independent, as far as ASIC is concerned has a particular meaning, and is not always the case that a small boutique advisory firm will be considered independent
    • No restricted access to product lists
    • Conduct their own research
    • Time consuming and costly to do your own research
    • Clients value the breadth and flexibility of investment opportunities available
17
Q

what are the characteristics of a Fee for service model

A
  • Charge their customers fees for the following advice and services:
    • The first meeting
    • Statement of advice
    • Implementing financial advice
    • Ongoing financial advice
    • Advice review implementation
18
Q

what 4 documents make up the best interest duty ?

A
  • Best interests duty s961B (safe harbour steps)
    • The appropriate advice requirement in S961G
    • Give a warning for advice based on incomplete or inaccurate information in s961H
      The conflicts priority rule in s961G
19
Q

what is ongoing advice

A

Ongoing advice is a service to the client, of which they have full access to their advisor should they experience a change in circumstances, goals or legislation, and/or any questions general questions or clarity needed from the advisor. An ongoing advice plan allows clients to email or phone call their advisor without any additional fees. It also grants the client access to advisor newsletters, annual reviews, portfolio updates, investment performance updates and new advisor recommendations.

20
Q

when is ongoing advice recommended

A

Ongoing advice is recommended for most clients, depending on their timeframe and portfolio asset allocation. Most clients will experience changes in the economic environment, superannuation and taxation legislation, goals and personal circumstances. Therefore, ongoing advice should be beneficial to most clients seeking financial advice. It may not be relevant to individuals seeking scaled advice on a specific area of advice, such as estate planning. Additionally, it may not be relevant to a client who has switched to a defensive asset allocation to preserve their assets.

21
Q

what are the fee structures for advice?

A

percentage based
fixed fees
commissions

22
Q

explain the fixed cost fee structure

A

Fixed fees are fees charged at a set monetary value. They can be one off in nature or ongoing. One-off fees are generally charged for a specific step in the advice process
investment management fees can be a one off payment or ongoing. Ongoing fees include a fee for ongoing advice

23
Q

explain percentage-based fee structure

A

. An asset-based fee structure requires the client to pay the advisor a percentage of your assets based on the total value of your portfolio. This fee is paid to the advisor through a monetary value or deducted from your investment portfolio

The second percentage based fee is an investment management fee. Like the asset based fee it is paid to advisor either as a monetary payment or deducted from your investment portfolio. However, it is paid as an additional performance based on how well your investments perform in comparison to an agreed upon benchmar

24
Q

what are commissions

A

Commissions are generated to approved financial products, of which the advisor has an affiliation. These are paid to the advisor as a percentage of what you pay for the product that the advisor recommends.

25
Q

what are the key economic indicators

A

real GDP
The unemployment rate
Inflation rate
Interest rate
Stock Market
exchange rate

26
Q

Financial planners have the potential for a conflicting ethical relationship between themselves, their licensee and their clients. what best describes this conflict?

A

They owe a duty of care to their clients, but at the same time have contractual obligations to their licensee.

27
Q

what are the 2 regulatory guides for the provision of financial planning services

A

RG 175 Licensing: Financial product advisers - conduct and disclosure
RG 244 Giving information, general advice and scaled advice

28
Q

ASIC’s aim is to protect markets and consumers from manipulation, deception and unfair practices and, more generally, to promote confident participation in the financial system by investors and consumers. In addition, ASIC:

A

develops policy and guidance about the laws that it administers

licenses and monitors compliance by participants in the financial system

provides comprehensive and accurate information on corporate activity

monitors and assesses compliance with the Code of Banking Practice

supervises industry-based alternative dispute resolution schemes such as the Financial Ombudsman Service (FOS)

helps with market integrity and a fair, orderly and transparent market

implements provisions of the Financial Services Reform Act (FSRA) 2001 (Cwlth)

is also responsible for implantation and monitoring of the provisions associated with the Future of Financial Advice (FOFA) reforms.

29
Q

what factors drive the need for financial advice

A

government policy

an increase in the compulsory superannuation guarantee

an ageing population

privatisation of australian companies and floating of shares

ever-changing and increasingly complex government rules around tax, social secutiry and superannuation

thee fallout from the GFC

30
Q

what Social factors have also impacted on the demand for financial planners to assist with accomplishing goal aspirations

A

longer life expectancy
lower preferred retirement age
longer child-care responsibilities
increased participation in tertiary education
more single-parent families
larger homes

31
Q

what is a consideration if a client is seeking help to find out how long a given level of superannuation asset will last at retirement to provide the required level of income?

A

Client’s risk appetite needs to be reviewed.

32
Q

what advice is needed for early accumulators

A

savings, irrespective of income

33
Q

what advice is needed for rapid accumulators

A

Strategies to help pay off your home loan sooner.
Tax-effectively building long-term wealth outside super.
Managing debt and cash flow through budgeting.
Ensuring clients and their family are protected with the right type and amount of insurance cover.
What investments might be best for clients.
Consolidating super and helping clients better manage their investments.

34
Q

what advice is needed for retirees

A

Income stream for superannuation and/or age pension.
Gifting.
Long-term care.
Management of ongoing retirement income and capital needs.
Estate planning considerations to make sure assets go to the right people and in the most tax-effective way.
Centrelink benefits that clients may be entitled to.

35
Q

what advice is needed for conservation age ? (pre-retirement)

A

Becoming debt-free as clients approach their retirement years.
Accumulating wealth tax-effectively to meet future retirement income needs.
Estate planning so that clients’ assets go to the right people and in the most tax-effective way.
Ensuring clients and their family are protected with the right type and amount of insurance cover.
Consolidation of super ahead of accessing it in retirement.

36
Q

What are the steps in the advice process

A
  1. Initial engagement
  2. Information gathering
  3. Advice formulation and documentation.
  4. Advice preparation and acceptance
  5. Implementation
  6. Ongoing reviews

principles of financial planning (8 decks)

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