Week 1 Flashcards

Question

Legislative risk

Answer 1

Governments can make changes to current laws and regulations | Change in the rules may have either a favourable or unfavourable effect on investor’s previous decision

Answer 2

If an investor borrows money to invest, loan must be repaid, even if the investment falls in value

Answer 3

APRA RBA ACCC ASIC ATO

Answer 4

``` Acts of parliament (Corporations Amendment (Financial Advice) Regulation 2015 - modified best interest duty for advice). Common law Statutory complaints resolution scheme Industry reform mechanisms Powers of ASIC ```

Answer 5

Objectives are to: Promote confident and informed decision making by consumers of financial products and services Reduce systematic risk and provide fair and effective clearing and settling facilities Various licensing regimes including Australian Financial Services Licence (AFSL)

Answer 6

Licensing regime in the financial products and financial services advice industry which defines the capacity in which a person can provide advice Authorised representatives: Principals must hold an Australian financial services licence (AFSL) issued by ASIC Principals must keep a register of their authorised representatives

Answer 7

Financial services Financial products Financial markets Clearing and settling facilities Administered by ASIC

Answer 8

Point of sale disclosure Ongoing disclosure and periodic reporting Advertising requirements Obligation to provide confirmation of transactions

Answer 9

Financial Services Guide Statement of Advice Act in the best interest of the Client– Corporation Act section 961 B. Product Disclosure Statement

Answer 10

Contains all the contact details of the adviser and the company they represent, the types of products that the adviser can advise on, any details of remuneration, trailing commission, other benefits and third party relationships, details of the internal and external complaints resolution schemes an authorisation statement from the principals of the firm Must be clearly labelled Must be provided at the outset of dealings with a retail client, unless The client already has an FSG The product is a market-traded derivative

Answer 11

Contains the advice, the basis on which it was given, information about the fees, commissions or association that might affect the advice, any warning if the advice is based on incomplete information details of one product replacing another Must be provided as soon as practicable and before any further financial service is carried out i.e. must be given before a client commits to any strategy or signs up for any investment or risk management product

Answer 12

identify the objectives, financial situation and needs of the client investigation into the financial products that might achieve those of the objectives based all judgements in advising the client on the client's relevant circumstances;

Answer 13

Prepared by the product issuer and is similar to a prospectus Contains full details of the financial services product being offered the risks associated with the product fees and charges taxation implications any other information that may influence the client’s decision

Answer 14

: Implications for advisers/Clients/Industry ``` Best Interest Duty (interest of clients) Opt in/ Opt Out Fee Disclosure Ban On Conflicted Remuneration Ban on Soft Dollar Benefits (extra bonus) Scale Advice (limited) ```

Answer 15

Having set financial goals, need to determine how they’ll be achieved - (ie budgeting) Balance sheet (assets and liabilities) Cash budget (income and expenditure) Income includes salary, wages, interest, profits, bonuses, fees charged, dividends, distributions, social security pensions or allowances, other earnings Expenditure includes food, clothing, gas, electricity, rent, interest on loans, rates, entertainment, holidays, education, pay television, telephones, other expenses Savings = income – expenditure

Answer 16

NET WORTH/TOTAL ASSETS = 68.28% This means that the Smiths’ family assets would need to fall by 68.28% for their ownership of their assets to fall to zero.

Answer 17

Those that can be converted easily to cash and bought with the intention to convert to cash. E.g. Cash and short term investments. Shares, Funds and Superannuation are not liquid assets

Answer 18

Debt that should be repaid within 1 year. E.g. Credit cards and short term loans. Mortgages and large loans are not current debts

Answer 19

LIQUID ASSETS/CURRENT DEBT = 4.76% * Annual debt repayment plus credit card debt This shows the percentage of liquid assets to cover current. Multiply by 12 to show how many months of debt could be funded if income ceased and liquid assets were needed to meet current debt obligations. .0476*12= .5712 or half a month.

Answer 20

SAVINGS/NET INCOME Savings expressed as percentage of total income. It is likely that the savings ratio will be low for a young couple with small children and also for an elderly couple.

Answer 21

ANNUAL DEBT COMMITMENTS/12 MONTHS DIVIDED BY ABBUAL NET INCOME/12 MONTHS This ratio can be used to indicate the effect of a particular course of action

Answer 22

Important to remember that many key players in the market place can affect the outcomes of a financial plan ``` the economy -domestic and international -business cycles political system social environment ``` Cannot establish a financial plan and investment strategy in isolation

Answer 23

BOOM OR EXPANSION CONTRACTION RECESSION/TROUGH RECOVERY

Answer 24

Employment and economic growth are high | Increase in inflation is cause for concern

Answer 25

Economic growth starts to slow Sales begin to fall Unemployment starts to rise

Answer 26

High unemployment | Low (and possibly negative) economic growth

Answer 27

Unemployment begins to fall | Economic growth starts to rise

Answer 28

``` market cycles risks accompanying high returns benefits of diversification underlying portfolio of investment products scams need to review investments ```

Week 1 Flashcards

(53 cards)