Financial planning - Assignment Example

Business report Name: Course: Tutor: Date: TABLE OF CONTENTS Page Title page 1 Table of content 2 Executive summary 3 Reports Based on a Forensic Investigation of Past Complaints 4 Assessment of the Impact of Impending Reforms on The Future of a Business 7 Financial Retirement Plans 9 Risk Profiling 12 References 13 Appendices 14 Executive summary This is a report for Jim’s business pointing our law noncompliance issues that rest within the business. It points out poor planning and inadequate financial advice. It analyses high risks levels within the business and look out for possible solution to the existing problems. The report is based on fact and figures gathered from the conversation between Jim and the business adviser on various occasions the met for a meal or a cup of tea. The business is in a pathetic condition in terms of risk, it doesn’t have a risks management system. The outgoing financial officer has gone ahead to ignoring customer complaints which is a good road map to managing risk. The law is at Jim’s neck. He has to remedy the situation before the laws get him; this will be done upon implementation. This will be done by first constituting a complaints resolution system in place that will effectively and efficiently solve the conflicts facing the business Critical examination of the business reveals that the business is generating very low turnover on capital invested. FOFA new requirements will not condone such businesses in the state and Jims business is at the cross road, it is threatened. There is a proposal of how Jim should reengineer his business to increase productivity, profitability and the turnover of the business. Lastly there is a cross examination of the some companies offering the same service in the industry. They include Financial Retirement Calculator, Managing Loan Calculator and lastly managed fund. This helps us examine critically the trends in the industry and a short conclusion of recommendations on the direction of the business. QUESTIOIN 1 1. REPORTS BASED ON A FORENSIC INVESTIGATION OF PAST COMPLAINTS This is the analysis outlining the implications for Jim’s general obligations under his Australian Financial Services License (“AFSL”). Table 1: Complaints filed over the past 2 years No Customer complain category Number of clients 1. Inadequate explanation of Risks. 17 2. Poor disclosure of Remuneration. 14 3. Lack of Financial Product Information. 11 4. Misleading Statements. 29 5. Borrowing offshore 1 6. Strategy Implementation. 13 Complaints offer businesses an opportunity to correct immediate problems. Sometimes they render advisory services in product improve to suit the market options and to adopt marketing practices, upgrading services, or modifying promotional material and product information. To provide excellent services and products there is a need to assess the information obtained from customer complaints to know the customers' requirements, opinions, and viewpoints hence use it to more effectively manage customer interactions, adapt products and services, and modify or better control a specific process and to reach an effective solution for the complaining customer and improve processes and products/services to prevent the same grievance from arising with future customers. Aronoff, and John, (1992). According to Australian Security & Investment Commission, Regulatory Guide, (October, 2007), a firm should have a proper systems that can manage their risks. This is also found in section 912(1) (h) of the State Corporation Law. In assessing a firm risk management, management should be able to identify all the risks an organization faces and putting measures in place to curb the risks upon occurrence. A firm’s risk management system requires the organization to keenly scrutinize those risks that jeopardize their integrity in the market and how the consumers are affected. Put in place control measures to guard against the risks and fully implement the measures making sure they are effective. From the above findings, (table 1) there are numerous implications for the achievement of quality service to each and every consumer. This coupled with absence of a good framework in place to ensure that Jims’ business meets the legal obligation to identify all the risk facing the business and in particular those threaten the market and consumer security. Australian Security & Investment Commission, Regulatory Guide, (October, 2007), RG 104.67 permits everyone delegating duty to make a choice of the person to act on his or her behalf. One should choose a responsible individual to act on his behalf who meets the necessary qualification in terms of education, skills and experience. The RG 104 gives the person delegating duty the mandate to supervise the person who has been asked to represent. The people representing should include all the employees, managers, directors and sometimes accountants or the people dealing with finance. For the case of Jim, he is answerable to the court of law for the mess the former financial adviser caused to consumers because the business belongs to him. He had the responsibility to employ a person whose skills and expertise were not questionable, let alone the integrity. The law asked him to closely supervise his employees to make sure that they deliver as per the expectation. The law if tampered with doesn’t know or understand any other person or the employees, it will go for Jim. Next time he should closely monitor the individual working or making transactions on his behalf to ensure that they deliver to their expectation because he is legally responsible for any non compliance to the laws in place, Australian Security & Investment Commission, Regulatory Guide 104.67, (October, 2007. The same document RG 105 provides that the management of a business should be done by someone who is directly responsible for any action undertake in the business. The requirements for management have been provided in section nine of the document. 2. Basic Steps for Effective Complaint Management 1. Designate a Location to Receive Complaints. Consumers need to know a visible and accessible place where and how to file complaints. Develop a System for Record-keeping should be prepared for recording, categorizing and filing complaints records. All complaints must be submitted in writing to ensure that we have the correct details and that the procedure is managed efficiently and effectively. 2. Process and Record Complaints, this involves capturing, categorize it for resolution and record-keeping, Assign the complaint to one person for handling and finally, forward the complaint to another level of authority, if appropriate. 3. Acknowledge complaint: personalize the response, talk to the customer, if possible, by phone or in person, use letters when necessary, but avoid impersonal form letters, take extra time, if needed, to help consumers with special needs, such as language barriers. Written acknowledgement of our receipt of your complaint will be sent to you within three working days. 4. Investigate and analyze complaint and try as much as possible to practice fairness by understanding both sides, storing the records of the complaints well for all meetings, conversations and findings. One should try to evaluate all complaints equitably. Responsible parties should respond complaint immediately investigation is completed we have completed. 5. Resolve the problem in a manner persistent with Company Policy: Forward the complaint to the appropriate level of authority for resolution, Keep the consumer informed through progress reports, Notify the consumer promptly of a proposed settlement. All written complaints received will be reviewed and dealt with independently by the Complaints Officer in a professional and proficient manner. 6. Follow-Up: Find out if the consumer is satisfied with the resolution. Was it carried out, Refer the complaint to a third-party dispute-resolution mechanism, if necessary; Cooperate with the third-party. If a complaint is not resolved to your satisfaction, you are entitled to contact the relevant officer to adjudicate the matter. 7. Prepare and File a Report on the Disposition of the Complaint, and Periodically Analyze and Summarize Complaints: Circulate complaint statistics and action proposals to appropriate departments, Develop an action plan for complaint prevention, Make sure the consumer viewpoint is given appropriate consideration in company decision making. FSG (2010) Financial advisers and compliance officers, when recruited, should be exposed to ethics education and inducted into the ethical climate and culture of the AFS Licensee to reduce the additional risk that decision making will be unaligned to others within the organization FORD, (2009). Maintain a long-term relationship with clients that are open, trustworthy and transparent.  Encourage them to address their complaints, queries and concerns to the Complaints Officer. Formalized complaints procedure to ensure issues are resolved timorously and to client’s satisfaction. The following procedure has to be followed in all complaints resolution process. Fig. 1 QUESTION 2 ASSESSMENT OF THE IMPACT OF IMPENDING REFORMS ON THE FUTURE OF A BUSINESS 1. Jim’s current revenues will be arrived at by working out his total current assets which will allow us find revenue and lastly finding the turnover on assets. This is the amount of money that is manageable in his business now multiplied by the percentage turn over in the business less the current commissions Current assets =  = $37,000,000 Expected revenue when FOFA Average income per year is = (1/100* 85/100)37000000 = $297500 Commissions levied =  = $125000 Statement preparation (min) = $800 Current revenues will be = 297500 – (125000+800) = $171700 This is =  = 0.3434% turnover on invested capital In comparison with the insurance standards laid down by FOFA, Jim’s business in not running at sufficient revenue due to poor advisory services and therefore legible to terminate his business and compensate his clients if the situation is not improved before the time comes. 2. Upon the reign of the new FOFA rules the business has two options to take one the drastic options below. It should take a qualified business adviser who meets the requirements laid down by Business Advisory services and remedy itself from the mess it is already in, reorganize its investment plan, and lastly look for better revenue generating investments to improve its performance or compensate its shareholders and close down! The first thing Jim has to evaluate is employee’s skill. Empirically testing their competencies is important and it would be wiser to retain employees who perform well and develop their skill rather than suck the existing employees and employ new ones. No alternative has to be done rather than evaluate the existing employees. This will ensure that talents are retained in the company else they will move out looking for greener pastures. Developing an employee from within the organization may save time and expense of looking for manpower outside the organization. (Arnoff, 1992) 3. Business strategy To begin with I advise Jim to work toward improving the reputation and image. He must articulate the organization’s vision, principles, values and core business ethics and conduct. Jim should ensured all the structures and cultures in the organization are up to date for its success. The leadership, culture and structures of the organization are well developed so as to avoid complexities in future, Haines, (2004). I recommend that Jim focus on improving the marketing strategies so as to remain relevant in the market. I also recommend that the business should expand its operations rather than stick only in offering retirement benefits. There must be strategies that focus on specific regions and markets due to difference in market requirements and expectations, Haines, (2004). Considering the 200 clients currently being served, Jim should aim at increasing the number to above 500. He should however aim at the young people’s market where he will be saving money for a long time which will give him sufficient time to invest and earn enough profit that will benefit him eventually. The amount he raised as a result of increasing his clients should be utilized 90% in profit generating business. Graph projecting an increase of clients to 500. A table interpreting the Graph This will have the effect of increasing revenue from the initial 171700 to a projection of 150% giving him a total of 250% total of the revenue earned before. This can in no doubt remedy the situation at hand. The assumption made from the above table is that the rates of profit generation variables are kept constant. The other assumption is that the clients’ contribution will not change and the last assumption is that upon implementation of the strategic plan, more members will be willing to solicit for services from Jim’s business. Another large area to consider would be production costs, which will vary depending on the product or service that is provided by the company. In terms of materials, more research can be put into finding cheaper suppliers. With services that are incorporated with production, the same can be applied in terms of finding suppliers who can provide a similar service for a cheaper price. Any plans to invest in new machinery may have to be postponed to save costs and if the current machinery is still able to do necessary work. One more area of cost cutting would be the actual location of the business. If it is possible, a company could look to relocate in order to save costs from renting. This may be particularly relevant if the business is downsizing and no longer needs as much space as before. If the company owns the building, an alternative would be to rent out space that is no longer needed to other companies in the area. QUESTION 3 FINANCIAL RETIREMENT PLANS There are several financial plans and scheme that can help during retirement. There three major plans which we will look. The first is Managed Funds which is a scheme that allows individual clients to save their retirements benefits giving them the opportunity to decide on how the money can be invested. The second is Marginal loan calculator is a device that generates generic nature only and is intended for use by clients as a guide. Williams,(2005) It does not concider financial situation or needs of the client. The last is the retirement savings calculator which can help analyse client retirement plan which can help client know if they are moving to the right direction. The tool helps individuals plan for their savings so that they don’t run out of money before their life expectancy tim is over. Managed Funds is a friendlier kind of retirement investment plan that helps save your retirement benefits. Here clients simply open bank account with the plans of their choice and start saving. Client is allowed to control the investment for their savings, that is, one can buy and sell funds to accelerate the interest rates earned by the saved cash. This process is controlled from the saving and interest scheme but it enable one to earn a higher interest rates for the saved cash. When investment level rises clients are allowed to sell units to minimise tax on savings. This is how it works Fig 3 This plan manages client’s funds at very low management fee. In most cases no entry or exit fee is levied. Depending on firms, brokerage fee is charged for every investment plan which is below 1%. Customer access funds do not attract high interest rates. Saving planner hold the funds on behalf of the clients. This secure for clients on research and investment. The calculator show results based on the past performance of managed funds added to clients savings. Margin Loan Calculator test the effect of marginal loan and regular gearing when invetment is increased; losses are not left out in this case, they are increased as well. According to Margin Loan Calculator, initial deposit is the first amount invested, regular deposit is the amount added to investment on monthly basis, period is the time of investment, initial deposit is the first amount invested, annual growth is the yearly expectation on investment, while annual income is the the average yearly income When a brokearage firm gives a client a loan to add on the amount held by the individual to purchase stock, this is called margin account. If a client pays for part of the purchase price, the rest is paid or by the brokeareage firm on its behalf. The purchased stock is theloan coleteral. The formula for culaculating the margin is as shown in the next page. M = 100 x (V-L)/V, Where, M = Margin, L = Loan of the broker V = Value of stock in the market In investment, stock can be purchase in two ways, one is paying for the stock with your own money at the point of transaction and the othe way is paying for the stock using the money from the marginal account if you have any. The Federal Reserve Board has set 50% as the lowest starting margin for purchasing stock in your own accout. Upon purchase of the stock in a case where one is using using margin account 25% is the maintainance margin according to New York Stock Exchange. The broker will have to issue a marginal call if your account is widrawn below the minimum set margin by the firm offering the service, this will call for additional money payable to you broker else the firm sells the remaining stock. The reason why most investors purchase stocks on margin, is because the will get additional purchasing power. To cut the long story short, this calculator perform several tasks in predicting margin trading. Retirement Savings Calculator actually calculates the amount of money that an individual should save annually to accumulate enough money to use after retiring from job. It gives suggestion on how you can meet the amount if you cannot raise the expected amount. The suggestions normally given include delaying your retiring time or decreasing your spending during the period. The calculate normally takes in the period between starting to save till the time of retire, your investment risk tolerance, client year income, amount already saved in retirement benefits scheme, yearly savings, expected income upon retiring and lastly your annual spending upon retirement. This tool will take in all this and estimate the amount you will need to upon your retirement. This will save the individual in question the risk of running out of money upon retirement. Your retirement portfolio will be estimated on balancing and checking the amount you will have saved during your retirement year and the total spending you will require upon your retirement. QUESTION 4 RISK PROFILING The risk your business is involved in financially actually gives a foundation of this document. It is based on knowledge and information about your business financial risk after you a thorough examination of the business financial status in our personal communication. It is difficult to give specific figures on the extent you have been subjected to finance risks though the financial risk status of the business show that the business in high risk, Aronoff, and John, (1992). I recommend the use of FinaMetrica Risk Profiling System and; it is not expensive has a user friendly interface which is in simple language. It uses psychology to make decision on financial issues for individuals and financial advice. It is an internationally recognized system from Australia which was launched by the Australian government in 1998. FinaMetrica is an accurate reliable and valid system which offers fine services that could not be attained in the past FinaMetrica is a scientific system which uses the standards laid down for its industry. It provides itives out questions and one feeds it with answers necessary during obtaining the results. Before giving the results, the system give the client all the information it has taken in inform of a report for the client to correct all errors he or she might have made during the session he or she was feed the information into the system. The client is give the feedback of the financial risk based on the information he or she has fed into the system. The rating is compared to the rest of the clients who have used the system and rate the client into the following categories; low risk, average risk and high risk. This system follows the following process, it give the client the opportunity to answer as many questions as possible. The questions are in plain language and understandable. The feedback from the system is generated automatically. It is inform of a written report which is understandable that is summarized in plain English. References Aronoff, C. E., and John, L. W. (1992) Family Business Succession: The Final Test of Greatness. Business Owner Resources George and Jane, (2011) Margin Lending and Installment Gearing; (pdf version) Wilsman, D (2005) Pension Benefit Calculator (pdf) FORD, (2009) Ford Motor Company/2009 Annual Report. [Internet] Available from: < http://www.annualreports.com/HostedData/AnnualReports/PDFArchive/f2009.pdf> [Accessed 3 April 2011]. FSG (2010) Financial Services Guide. [Internet] (Available from http://www.nab.com.au/wps/wcm/connect/nab/nab/home/personal_finance/15/18> (accessed on 4 April 2010) Burkhart, P. L. and Reuss, S. (1993). Successful Strategic Planning: A Guide for Nonprofit Agencies and Organizations. Newbury Park: Sage Publications. Haines, G. S. (2004). ABCs of strategic management: an executive briefing and plan-to-plan day on strategic management in the 21st century. Oxford: Oxford University Press. FinaMetrica Pty , (2011), Risk Profiling Psychometric Standards for Risk Tolerance Testing [Internet]. Accessed from on Appendices Tables Table 1; p. 1 Figures Fig 1; p. 6 Fig 2; p. 9 Read More