Financial Planning and Analysis of a Company - Report Example

FINANCIAL PLANNING AND ANALYSIS REPORT: ALPACASAN CASE STUDY By Student’s Name Course Name University’s Name+ City Due Date Table of Contents Executive Summary……………………………………………………………..3 A. Introduction……………………………………………………………..4 B. Analysis of the Report…………………………………………………..4 Conclusion and Recommendations……………………………………………12 References…………………………………………………………………….13 Executive Summary The focus of this paper is to try and evaluate the ethical concerns the company faces in respect to the investment services it offers to its customers. Notably, there are adequate assumptions that can be made from the case study to portray the lack of ethics within the operations of the firm. For instance, the paper has successfully portrayed that Alpacasan has conducted business without the need to gain go ahead from the clients. The company has also breached numerous principles of ethics hence lowering their confidence and trust level within the industry. Financial Planning and Analysis Report: Alpacasan Case Study A. Introduction Corporate governance requires organizations and firms, conducting financial planning, to fully comply with the law. Ethics is at the centre in observing the statutory legislations and moral values in offering financial services. Any unethical conduct will be catastrophic within a firm. The evidence given in the Alpacasan report points out quite a number of ethical risks associated with the firm’s services offered to their clients. All of these have already impacted the service quality on financial advisory given to the clientele base. Analysis of the Report Inadequate Explanation of Risk In this case study, professional diligence, due care and skill were breached in offering financial advice. From the report, it is can be deduced that the financial planning advisers have not adequately conducted research on important aspects of the product that they recommend to their clients (Smith, 2008). This aspect is inclusive of the product features and their immediate characteristics. Notwithstanding, inadequate research caused improper understanding of the investment product and therefore, a matching inability to offer a product that fairly reflects the requirements of the client, his objectives and surrounding circumstances. Poor Disclosure of Remuneration This refers to a professional breach of objectivity; in this case, Alpacasan did not disclose all the material information in regard to commissions and fees earned. This also constitutes a breach of the principle of fairness (Smith, 2008). It is very unfair for financial advisory firms to withhold pertinent information that is deemed necessary in enabling clients come up with an all round and informed choice from the available options. Lack of Financial Product Information In this case study, the misleading conduct that was identified manifested itself in many different forms, from misrepresentation of the risk of loss inherent in an investment option to positively advocating for a product to possessing some features that it actually did not pertain. This depicts ethical issues involving low-leveled display of both competence and diligence (Smith, 2008). In this situation, Alpacasan did not act in the best interest of the clients. It failed to offer all the required advisory services to its clients in order to make the best investment choices. Also, it should be noted that the information that clients missed was the most important. The firm did not, in any way possible, try to provide supporting analysis tools, which was needed to back up the advice offered to the client. Misleading Statements This was a breach of integrity and professionalism. It is noted that Alpacasan generates most of its revenue from recommendations made through magic investment products that is offered to clients (Smith, 2008). Motivated by revenue collection, they offer advisory services that are detrimental to their clients. In that sense, they end up making substantial amount of losses. Thus, the Alpacasan’s employees failed to do thorough research and come up with beneficial financial advice to its clients. Unresolved Complaint A single unhappy client is capable of shattering a good day for all other employees or even capable of driving all other clients away. The Alpacasan clients’ expectations failed to be made, when they sought to be answered why, they were further let down. There were numerous complaints which were not addressed promptly by the establishment. Thus, this lead to multiple breaches of both integrity and objectivity issues. Whatever the cause of the customer complaints, the future of Alpacasan relies on the satisfaction of its clients. The firm should have striven to keep its clients happy. Therefore, there was a need to always listen to customer’s complaint and also seek to address their queries in a timely manner. This, in turn, will retain the current clients and at the same time attract potential ones. Strategy Implementation It is noted that some clients have not been convinced in the manner for which collection and management of funds is conducted. This is a further indication of lack of a thorough research on the financial product. Ostensibly, the firm should use transparent and inclusive strategies. Little or No Contact It should be assumed that clients of Alcapasan have not yet received any form of information for the past 12 months. This has continued to happen regardless of the assumption that dire communication in any organization is deemed to be fundamental in achieving client confidence and trust. Communications enhances professionalism within an organization. This is due to the assumption that proper and regular information ensures efficiency and smooth running of the business in an organization. Thus, the lack of communication by the firm depicts a breach in both due diligence and integrity. Statement of Alpacasan’s Current Revenues and Profitability Revenue from Trailing Commissions on Retail Managed Funds It is assumed that revenue from commission on retail managed funds has averaged a 25 basis points. A basis point is a unit, which is used in finance, to measure any percentage change in a financial instrument; 100 basis points are equivalent to 1 percent change. Therefore, revenue collected from commission on retail managed funds can be calculated as follows. Group A Group B Group C Average number of clients 100 250 400 Average funds under each client $ 1,200,000 $350,000 $100,000 Total amount under all client 100 *$1,200,000 250 * $350,000 400*$100,000 =$120,000,000 =$87,500,000 =$40,000,000 Converting Basis Points into Percentage Points 100 basis points = 1 % 25 basis points =? = (25 * 1)/ 100 =0.25% Group A Group B Group C Revenue collected 0.25% *$120,000,000 0.25% * $87,500,000 0.25%* $40,000,000$ = $ 30,000,000 = $21,875,000 =$10,000,000 Total revenue from trailing commissions on retail managed funds = $ 30,000,000 + $ 21,875,000 + $ 10,000,000 = $ 61,875,000 Income from Wholesale Managed Funds Assumedly, the revenue derived from wholesale managed funds averages 5 basis points. Converting Basis Points into Percentage Points 100 basis points = 1 % 5 basis points =? (5 *1)/ 100 =0.05% A B C Total amount under clients $120,000,000 $87,500,000 $40,000,000 Investment in wholesale funds 70%* $120,000,000 10%* $87,500,000 5%*40,000,000 =$84,000,000 =$8,750,000 =$2,000,000 Revenue collected 0.05% *$84,000,000 0.05%* $8,750,000 0.05%*$ 2,000,000 =$42, 000 =$ 4,375 =$1000 Total revenue from investment in wholesale funds $42,000 + $4,375 + $ 1000 =$88,375 Revenue from Brokerage Rebates on Investment A B C Total amount under clients $120,000,000 $87,500, 000 $4,000,000 Conversion of basis points into percentage 100 basis points = 1 % = (10* 1)/ 100 10 basis points =? =0.1 % A B C Revenue collected 0.1% *$120,000,000 0.1%*$87,500,000 0.1%*$4,000,000 =$120,000 =$87,500 =$4,000 Total revenue collected $120,000+$87,500+$4,000= $ 211,500 Income from volume commission on margin loans A B C Total under clients $120,000,000 $ 87,500,000 $ 4,000,000 Total revenue 0.05%*$120,000,000 0.05%*$87,500,000 0.05%*$4,000,000 =$60,000 =$ 43,750 =$ 2,000,000 Income from Preparation of Statement of Advice A B C Total revenue $ 2,500 $1,200 $ 800 =$4,500 Income generated from direct equities. A B C Total amount per client 100* $1,200,000 250*$350,000 400*$100,000 $120,000,000 $87,500,000 $40,000,000 Amount invested in direct equities$36,000,000 $13,125,000 $12,000,000 Total=$ 61,125,000 *50% =$30,562,500 Total income for the firm from all the sources $61,875,000+$88,375+$ 4,500+$30,526,200 =$92,530,375. Effects of Future of Financial Reforms The main aim of FOFA is to address conflicting interests that are prevalent in the financial planning firms. These means that the financial advisory service offers will be bound to have the best interests of the clients at heart. Conflicted remuneration ban will ensure a good and unbiased advice to clients. The implementation of these reforms will impact greatly on the services offered. The number of advisers is however, not anticipated to fall. The ban on conflicted revenue will reduce the revenue of the firm. This means its profitability will go down as compared to revenue collected before the reforms. Alpacasan should have its IT system restructured in order to be in tandem with the requirements. Costs associated with transition will therefore, be inevitable. For a proper transition, prior training and sensitization is necessary. Efficiency and Innovation in Financial Planning Financial efficiency calls for a hands on way of approach towards business approach and its development. Financial efficiency gives any firm a leading edge in planning and executing business strategies, adjusting to prevailing market conditions, garnering more clients and expanding the business .efficiency and innovation in financial planning will call for an overall review of the business and developing a business strategy, reviewing products and services offered by the firm and employing business intelligence. Alpacasan needs to find an innovative mechanism that will strategically position it in the current changing market. Use of Financial Calculators One way of being efficient and innovative is by making use of financial calculators. A budget planner is one of the financial calculators that will help Alpacasan and their clients to be able to determine where their cash is being driven to, determine whether an individual is spending more than his income, be able to calculate their money online and conduct saving facilities for them as well. Credit card calculator will help them in determining the repayment duration whenever making minimum repayments, the manner in which money can be saved by repaying credit in a short duration of time and the extra amount that is needed to repay credit within a period of 2 years Super calculators will help Alpacasan to determine how much super an individual will be entitled to on retirement and the effect of fees on the final pay out. Planner will be key in determining the amount of income that an individual is likely to earn from super and the pension age after retirement. It will also help determine how the investment choices, contributions and age of retirement will affect retirement income to be received from super. Finally, it will help in coming up with the actions that can be taken to increase benefits at retirement and super. Risk Profiling Risk profile is the evaluation of the willingness of an individual or organization to take risk. It also evaluates the threats that an organization is exposed to. Risk profiling can be used by Alpacasan to determine the risk level that it can assume. This will determine whether willingness of the firm or its risk aversion is able to affect its strategy in overall decision making processes. The firm will be able to establish what threats and risks that it is exposed to. This will include the likely outcome of negative consequences and the probable cost effect. Financial Planners This will be key in helping the firm plan for retirement of their immediate clients, management of risk and investment planning. In retirement for its clients, Alcapasan will help its clients to save more. This will enable their clients make better and informed choices in areas of investment. Tick it on Demand This software is used in risk study analysis and management by enterprises. Alpacasan will benefit from compliance management offered by acquiring a Tic kit On Demand tool. Besides, it offers visual assessment of risk, use of screen, drag and finally dropping custom reports this will mitigate risks since it will show on priority basis those tasks that need to be addressed. This will ensure that clients are served and are awarded priority prospects to those with more demanding needs. Conclusion and Recommendations As it can be seen from the discussion above, it is fair to assume that Alpacasan is an enterprise that conducts its business activities without any principle of ethics. The company is only focused on selfish gains and in the due course breaching principles of competence and objectivity. Thus, as a key recommendation strategy, the company should embark on acquiring professionalism in the course of conducting business matters. This, in turn, will increase both trust and confidence level of the enterprise by existing customers. Reference List Smith, J. 2008. Ethics and financial advice: The final frontier. Print Source Read More