EXAM Flashcards
(36 cards)
list the key regulators within the financial services industry
the RBA
the australian competition and consumer commission (ACCC)
Australian prudential regulation authority (APRA)
the australian securities and investment commission (ASIC)
how can the RBA influence the financial services industry
by setting the cash rate to meet an inflaiton target
working to make a strong finanial system
monetary policy that affects other markets
how does the ACCC regulate the financial services industry
- 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
what act does the ACCC particularly force?
the competition and consumer act 2010
what reform derives the RBAs powers?
the reserve bank act 1959
what are APRAs powers in regulating financial institutions?
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
how does ASIC reguulate the financial services industry
- 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
list the people who participate in issuing financial advice
- Financial advisors
- Accountants
- Solicitors
- Insurance companies
- Banking institutions
- Stockbrokers
- Real estate agents
Mortgage brokers
what are the categories of financial advice
personal product advice
personal strategic advice
scaled advice
general advice
what is scaled advice
advice limited to one particular financial topic, at the request of the client
what risk does scaled advice pose to clients and advisors
- The risk to the adviser is inadequate advice could cause the client economic loss
how do advisors safeguard from providing scaled advice, of which a client can seek legal remedy for economic loss
- 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
what are the business models for licensees
- Institutionally owned licensees
2. Medium to large licensees
Small boutique licensees
Fee for service models
what are the characteristics of an institutionally owned licensee
- 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
- The approved product list for this type of licensee may be limited
what are the characteristics of a Medium to large licensee
- 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
what are the characteristics of an institutionally owned licensee
- 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
what are the characteristics of a Fee for service model
- 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
what 4 documents make up the best interest duty ?
- 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
what is ongoing advice
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.
when is ongoing advice recommended
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.
what are the fee structures for advice?
percentage based
fixed fees
commissions
explain the fixed cost fee structure
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
explain percentage-based fee structure
. 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
what are commissions
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.
