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FINA2209 - Financial Planning > Week 2 - Financial planning processes and Procedures > Flashcards

Week 2 - Financial planning processes and Procedures Flashcards

1
Q

When is financial advice officially given?

A

When information is given with the intention to influence a person into making a decision
- A recommendation
- Statement of opinion
- Report of opinion/recommendation

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2
Q

What is the definition of personal advice?

A

When an advisor has considered one or more objectives, finances or needs of a person; or
A reasonable person may have expected an advisor to have considered any of the above factors

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3
Q

What is the definition of general advice?

A

When an advisor did not consider any objectives, finances or needs of a person; or
A reasonable person would not have expected the advisor to have considered any of the above factors

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4
Q

What must an advisor do when general advice is given?

A
  1. Warn that the advice is not based on knowledge, objectives or circumstances
  2. Suggest that a PDS should be considered before acting
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5
Q

When is personal advice given?

A

Personal advice is given when:
- advisor explicitly offered advice
- AN existing financial relationship exists
- Client requests personal advice
- Advisor requests details from client
- Personal circumstances are referenced in a recommendation
- Advisor had received or already possessed client info

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6
Q

What are the six steps of financial planning?

A
  1. Gather information
  2. Establish goals
  3. Analyse Data (ID strengths/weak)
  4. Develop statement of advice (SOA)
  5. Implement actions
  6. Review and revise
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7
Q

What three steps of financial planning happens in the initial meeting?

A
  1. Gather information
  2. Establish goals
  3. Analyse Data (ID strengths/weak)
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8
Q

What two steps of financial planning happens in the follow-up meeting?

A
  1. Develop statement of advice (SOA)
  2. Implement actions
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9
Q

What step of financial planning are ongoing?

A
  1. Review and revise
    - normally annually
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10
Q

What is the purpose of step 1 of the financial planning process?

A

Gather information:
To understand the client’s financials and circumstances through questionnaires/meetings

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11
Q

What is the purpose of step 2 of the financial planning process?

A

Establish goals:
to tailor advise to client

  • unrealistic goals should be stated as unrealistic
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12
Q

What is the purpose of step 3 of the financial planning process?

A

Analyse Data (ID strengths/weak)

  • Analyse financial statements & circumstances
  • build risk profiles
  • Analyse current strategy
  • Build projections/ratios
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13
Q

What are the different types of assets?

A
  1. Monetary assets
  2. Use/lifestyle assets
  3. Investment assets

*assets valued at current prices

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14
Q

What are the three parts of a CF statement for a client?

A
  1. Inflows
  2. Outflows
  3. Surplus
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15
Q

What are the two types of expenses?

A
  1. fixed expenses
  2. Variable expenses
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16
Q

What are the five important financial ratios?

A
  1. Net worth/solvency ratio
  2. Liquidity ratio
  3. Basic liquidity ratio
  4. Savings ratio
  5. Service debt ratio
17
Q

How do you calculate the net worth/ solvency ratio?

A

( NW / Total assets ) x 100

18
Q

How do you calculate the liquidity ratio?

A

( liquid assets / total current liabilities )*100

19
Q

How do you calculate the basic liquidity ratio?

A

(liquid assets / monthly expenses) * 100

20
Q

How do you calculate the savings ratio?

A

(surplus / disposable income )*100

21
Q

How do you calculate the service debt ratio?

A

(total debt / Disposable income) * 100

22
Q

What actions are done before implementing a budget?

A
  1. Set goals:
    - Long-term
    - Medium-term
    - Short term
  2. Plan cashflows (cashflow calander)
23
Q

What action is taken during a budget?

A

Control Spending
- Track spending
- Justify exceptions

Use:
subordinate budgets + envelope method

24
Q

What action is taken after a budget?

A

Evaluate results

25
Q

What are the factors of a clients risk profile?

A
  1. Term of investment
  2. Investing experience
  3. investing knowledge
  4. Objective
  5. Total wealth
26
Q

What is a SOA?

When can an SOA be replace by a ROA

A

SOA: statement of advice
It is the primary document outline the advice to the client
must include enough information for client to make an informed decision

Can be replace by a ROA:
When a SOA has previously been provided and the clients circumstances have not changed significantly

FINA2209 - Financial Planning (10 decks)

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