Activities of the Financial Planner - Term Paper Example

Financial Planning and Client Financial Fitness Assessment Method in Australia Introduction Financial planning, the acquisition of funds to finance planned activities by the Financial Planner, is the practice of determining present and future financial goals. In Australia, it has risen dramatically over the last decade. (“Financial Planning for Australian Expatriates”, 2007). A Financial Planner is always set and has capabilities to help others in dealing with various financial issues. Planners’ tasks are plentiful, but foremost include investment planning, appropriate advice on cash flow, estate planning, business planning, risk management and insurance planning, retirement planning, and many other issues relating to Finance1 together with an estimate of the probable outcomes of the recommended strategy. This assigned study describes the relevance of financial planning for clients as useful tools of financial services guide & skills requirement, Client Financial Fitness Assessment and its use as a useful strategy. The role of three companies, like Colonial First State Investments Limited and Professional Investment Services Pty Ltd related to provide financial planning services has been sorted out in the assigned study. Historical background and its development The of Financial planning in Australia begun in the years 80s, as during those years there were no Financial Planners as they were not existing then. This occurred due to the fact that as there was no prerequisites for the clients within the Marketplace to enable them get efficient financial advice. It was only network of insurance that existed during that period under review. The Financial Planning Association of Australia (FPA) is the peak professional body for Australia’s financial planners, representing approximately 12,000 individuals and businesses (The Financial Planning Association of Australia (FPA). However, (Cowen, Blair, Taylor, 2006, p 4) reveals that “In the early 1980s, a leading Australian financial planning industry stalwart Gwen Fletcher visited the United States intent on pursuing discussions with the U.S. industry association, the International Association for Financial Planning (IAFP). These discussions related to the creation of either a new industry body for Australia or the establishment of an affiliated chapter of the IAFP. At a later meeting of dealers conducted by the Department of Corporate Affairs (the then-regulatory body issuing licenses to dealers of securities), the affiliation model was proposed but rejected. However, a new industry body consisting of an elite group of independent advisors was formed, the Association of Independent Professional Advisors (AIPA). It is important to note that this group excluded all banks and insurance companies from membership”. Additionally, following the International Conference of IAFP held in Australia in the years 1982 and 1984 respectively, Australian IAFP was officially launched. (Cowen, Blair, Taylor, 2006, p 4) states that after the launching, “The IAFP in Australia was to be an open forum for individuals, dealers and fund managers alike. Following U.S. IAFP requirements, the newly formed Australian association sought and was granted a license for the CFP designation and subsequently established the Diploma of Financial Planning (DFP) course. This necessitated strong collaboration between the United States and Australian bodies with the College of Financial Planning in the United States providing much of the DFP educational materials and resources. The US IAFP oversaw and closely monitored the development of educational standards to ensure that the Australian DFP met the educational requirements for the CFP designation. This involved an ongoing process of quality assurance by the U.S. body”. It is estimated that there are about 5,500 financial planning practices in Australia and in the next five to 10 years, 50 per cent of those will change hands. (“Is the price right?”, 2006). Legal Basis of Financial Planning In respect to this, the Joint Committee in the Australian Parliament “discusses potential conflicts of interest in commission-based remuneration models. It also notes issues associated with paying ongoing trailing commissions, the use of approved product lists and 'tied' adviser relationships. Remedies to improve the quality of superannuation advice are then examined including suggestions to ban commissions and shelf fees, improve disclosure of conflicts of interest, mandate a higher standard of advice and facilitate the provision of fee-for-service advice. Finally, the committee discusses the important role of education and financial literacy to equip current and future superannuation fund members with the capacity to navigate the new superannuation environment”. (Remuneration Model of Financial Advice) In Australia, the financial planning services are initially delinated by law by the granting of licence to deal in securities or advise on investments. Licences are issued under the stringent criteria by the Australian Securities and Investments Commission (ASIC), which has evolved these regulations vigourously over the years. Financial planning is now a highly regulated industry in Australia especially where financial advice to the public is involved. Practitioners who offer advice that could influence a client's decision to purchase a financial product must meet minimum training requirements and be licensed by the ASIC. The meaning of 'licenced' refers to Australian Financial Services Licence (AFSL) holders and representatives or authorised representatives of licence holders. Broadly, most people embarking in financial planning will start as an authorised representative of a licence holder. (“Financial planner” (2007). Becoming a financial planner involves two main steps: (“Financial planner” (2007). 1. Meet the training requirements of Policy Statement 146; 2. Select a licence holder with whom to be affiliated. The licence holder is the authorised representative, and will be ultimately responsible for the advice given by the planner. The licence holder therefore must make sure the representatives meet all compliance and training prerequisites. As of November 2005, there were approximately 4,300 licence holders registered with ASIC and over 42,500 authorised representatives in Australia (“Financial planner” (2007). Additionally, “The standard imposed by the Corporations Act 2001 (Corporations Act) is for there to be a reasonable basis for advice. In meeting this standard, section 945A stipulates that the entity providing advice must comply with the suitability rule, which is comprised of the following three criteria: i. knowing the client's personal circumstances; ii. knowing the product or subject matter the advice is given on; and iii. Ensuring that the advice is appropriate to the client”. (Remuneration Model of Financial Advice) Statement of Advice “Statement of Advice (previously known a Financial Plan) - the next step is to for us to prepare a Statement of advice (SoA) based on the personal information you have provided and your attitude to risk and volatility. The SoA summarizes your current situation, investments and financial objectives, and then gives you a step by step strategy on how you can achieve your goals” (Financial Plan). Meanwhile, the advice process to achieve this objective efficiently are; listening to understand clients needs, understanding his risk profile, placing investment, statement of advice, and ongoing review and service. In Australia, Financial Planners has their different kinds of Investment strategies advice offer to the clients. Some of these process include; Active Investment Management Service, Online Investment Account, Investment Consultancy Service, and Discount Investment Placement Service. Scope of the Financial Planning in Australia Financial planning should cover all areas of the client’s financial needs and should result in the achievement of each of the client’s goals (“Financial planner” (2007). All the fundamental areas of financial planning such as tax, superannuation, estate planning, social security and insurance are shown in the market of Australia by and large. The Roles of Financial Planning in case of Superannuation Superannuation plays a central role in the Government’s retirement income policy. The Superannuation Guarantee arrangements, combined with voluntary superannuation and other private savings, are a necessary, prudent investment in Australia’s future. (Hon Rod Kemp 24 March 1998). The most significant reform of Australia’s superannuation rules for decades has been bought signifying with implications for individuals, employers, superannuation funds and the funds management and financial planning industry by the Government of Australia (Superannuation Fact Sheet, 2006)., Colonial First State Investments Limited offers a range of managed investment, superannuation and retirement products. Most of the superannuation products offer life insurance benefits. Indeed, by contributing to the funding of future retirement income, superannuation contributions supported by taxation concessions are the key component in containing the future budgetary cost of the Age Pension in the face of our ageing population. In this respect, the Retirement Income Modeling Unit (RIM) has projected that expenditure on Age and Service Pensions will rise from 3.2 per cent of GDP in 1994-95 to 4.7 per cent in 2050, taking into account the reduction in pension outlays resulting from superannuation savings undertaken under the compulsory SG arrangements. In the absence of the SG, pension outlays are projected to increase by a further 0.3 per cent of GDP by 2050.” The Roles of Financial Planning in case of Insurance There are four categories of Insurance in Australian Financial Market, these include; non-life, life, mortgage and health. According to Australian Banker’s Association “figures show the finance and insurance category makes up around 40% of market capitalization on the Australian Stock Exchange and the industry’s education provider, the Australian and New Zealand Institute of Insurance and Finance, says net premium revenue for 2004-5 topped AU$25 billion with the sector holding “life statutory fund assets of AU$207.7 billion at December 2004, an increase of 9.7% over the previous 12 months.” (Insurance) Source: http://www.phiac.gov.au/publications/ar_previous/excel/1997t8to18.xls Its roles cannot be over emphasized, as insurance deals with human resource, finance and technology, while other roles of Insurance are (Insurance).: 1) Underwriting: This is the job most typically associated with the insurance industry. Underwriters assess the risk to insurers of providing insurance. 2) Broking: Brokers sell insurance to clients. 3) Actuarial roles: Actuaries analyze the financial consequences of risks the insurance company is taking and ask questions such as whether the company has enough reserves to cover future payouts. Source: The Institute of Actuaries of Australia The figure shows that the number of qualified actuaries in Australia is around 1000. Of these, about 35% work in life insurance and about 33% in superannuation. 4) Risk assessment: Risk managers work with the insurers’ clients to help make payouts less likely (Insurance). The Roles of Financial Planning in case of Estate Planning Moreover, one of the aspects of the financial planning also deals with estate planning. Many financial companies in Australia provide this service to its clients. Professional Investment Services Pty Ltd provides the financial planning services. The company operates through over 980 branches Australia wide (Professional Investment Services, 2007). Estate planning is the deliberate planning for the future management of the clients’ assets if they become unable to manage them for themselves. It includes retirement planning with involving making some crucial and sometimes difficult decisions and it can reduce worry for clients’ spouse and beneficiaries. The Management of Financial Planning Process The management of the financial planning process follows Asset allocation strategies including shares, property, bonds and cash; Tax strategies including income tax and capital gains tax considerations; Superannuation strategies including contribution and withdrawal advice; Risk management strategies including insurance and estate planning considerations and Social Security strategies. The following six steps are delivered by the Financial Planning Association of Australia for the management of the financial planning process: Step one – Gathering the data Step two – Identifying your goals Step three – Identifying financial issues Step four – Preparing your financial plan (called a Statement of Advice)  Step five – Implementing the recommendations based on your financial plan Step six – Reviewing your plan Taxation of Australian Financial Market The impact of taxation in recommending clients strategies in Australian Financial Market is also one of the key focuses on those aspects. (Morrison Carr) one of the excellence Financial Planning Industry in Australia states how this take place. “We will gain a complete understanding of your business and taxation needs before recommending any taxation strategies. When we do, they will be appropriate, practical tax planning strategies. Well-planned, cost-effective taxation strategies ensure that additional funds are available to contribute to building your financial security.” (Morrison Carr) Conclusion The financial planning includes investment planning, appropriate advice on cash flow, estate planning, business planning, risk management and insurance planning, retirement planning, credit and debt planning and management, savings, asset allocation, modern estate planning, life after divorce, planning after the death of a spouse, stocks, preferred stocks and fixed income investments, investment products. The parameters of financial planning will continue to evolve as the need for strong credentials and experience becomes crucial. In Australia the financial planning process is developed since 1980 and still dramatically developing. For the implementation of the financial planning, every company has a Financial service guide (FSG). Under the guidance of it, the company can be administered. All the leading point of any service is contained into FSG. All financial planning can be implemented by the planners. In the case of financial planning, they have remarkable contributions in Australia. The service planners can not cover all the areas of financial planning issues. Someone covers the area of taxation, someone the area of superannuation and someone the area of insurance. The financial planning is recognized by the law. References “Financial planner” (2007). Encyclopadia of Wikipadia, 30 August 2007, available at, http://en.wikipedia.org/wiki/Financial_planner) “Financial Planning for Australian Expatriates”, (2007). Exfin International Pty Ltd. Available at http://www.exfin.com/financial-planning.php) “Is the price right?” (2006). Money Management. Com, Reed Business Information, 28 September 2006, http://www.moneymanagement.com.au/Articles/Is-the-price-right_0c043de9.html) Cowen, Blair, Taylor, 2006, ‘Personal Financial Planning Education in Australian University,’ ‘Financial Service Review’, page 4, http://www.rmi.gsu.edu/FSR/abstracts/Vol_15/zux00106000043.pdf Financial Plan, http://www.concentricgroup.com.au/financialplan.html Hon Rod Kemp 24 March 1998, “Speech to the Financial Planning Association of Australia, http://assistant.treasurer.gov.au/old/assistant2000/speeches/1998/006.asp Insurance, E-Financial Career, http://news.students.efinancialcareers.com.au/SECTOR_PROFILE_ITEM/newsItemId-9304 Morrison Carr, “Financial Services, “Accounting and Taxation, http://www.morrisoncarr.com/accounting-taxation.html Parliament of Australia Joint Committee, Remuneration Model of Financial Advice, http://www.aph.gov.au/Senate/committee/corporations_ctte/superannuation/report/c07.htm Professional Investment Services (2007) “Financial Planning”, Professional Investment Services Pty Ltd, http://www.profinvest.com.au/services_planning.php Superannuation Fact Sheet, 19 December 2006, available at http://int.sitestat.com/ernst-and-young/australia/s?Tax___Superannuation_Fact_Sheet___1206&ns_type=pdf&ns_url=[http://www.ey.com/global/Assets.nsf/Australia/Tax_-_Superannuation_Fact_Sheet_-_1206/$file/Tax_Super_Fact_Sheet_1206.pdf]) The Financial Planning Association of Australia (FPA) official web page, FPA 2005, http://www.fpa.asn.au/FPA_Content.aspx?Doc_id=1026) The Financial Planning Process, http://www.nab.com.au/Personal_Finance/0,,9293,00.html Top of Form Health Insurance in Australia Publisher: IBISWorld Publication Date: 31-MAR-06 Pages: 42 Format: PDF Price: $535.00     Bottom of Form Investment strategies- relate to 3 companies strategy about financial planning and its concept of risk management, The role of the Superannuation of those companies will be described as well as insurance and estate planning of those companies also will be discussed. Barnett Lilley & Associates Pty Ltd, http://www.blapl.com.au/service_guide.htm Taxation issues will be included. At last the assignment will finished by the concluding remarks. Read More