Management
FINS2643
Lecture Wealth 1 Week 2: Course Overview
Tutor: Jessica Yang
Email: [e-mail]
Consultation time: TBA
Alternate tutorials:
Monday 11am-12pm Quad G054
Monday 1pm-2pm Quad G054
Monday 2pm-3pm Quad G022
Tuesday 10am-11am Quad G052
Thursday 2pm-3pm Quad G054
Assessment:
Task
Active participation (no marks for just attendance)
Consistent good work (2 random spot HW checks)
Class news presentation max 3 people per group
Wealth Mgt folder (2 checks)
WEEK 8: Content from Lecture Weeks 1-6
WEEK 12: Content from Lecture Weeks 8-12
Midsession Exam
Week 7 no lecture or tutorials
Content on Lectures 1-5, tutorials 2-6
Final exam: Content on Lectures 6, 8-12
Due
Tutorials
Tutorials
Tutorials
Weeks 8
& 12
%
5%
2.5% x 2 = 5%
5%
5% x 2 = 10%
Sept 2
30%
TBA
45%
News Presentation will be assessed on:
1. Demonstration of understanding of significant news ARTICLE/relevant issues
2. Discussion of the impacts of issues on the retail investor
3. Ability to provide relevant advice as a financial planner
4. Manner of presentation
5. Identification of Issues/analysis in ONE page summary
What is this Course about?
Personal & professional financial planning and management
o Consumption vs Savings (lunch, car, iphone, holiday, savings account,
super contributions)
o Financing (HECS/outright, credit cards, cash, parents)
o Investment (term deposit, internet savings accounts, stocks, managed
funds, houses)
o Asset Protection (life insurance, car insurance, home & contents)
o Retirement & Estate Planning (super, pensions, wills, trusts)
Lecture Week 1 Summary
1
The business cycle
1. Recovery expansion period
a. unemployment decreasing, interest rate declining, economic growth,
upward movement.
2. Boom peak period
a. low unemployment, high inflation, high interest rates. High economic
growth, normally buoyant property market.
3. Contraction downswing
a. unemployment rates begin to increase, interest rates rise.
4. Recession trough or depression
a. high unemployment, low interest rates, low inflation. Negative
economic growth for more than two successive periods.
Depending on where in the cycle we are will affect the types of investments to be
recommended. Additionally, the adviser needs to be aware of the effect of the business
cycle on an individuals circumstances, such as high interest rates, therefore lower
disposable income; instability in employment, hence possible redundancy; higher cost
of living etc.
Financial Planning (FP) Process:
1. Data Gathering & Risk assessment
2. Goals & Objectives/Analysis
3. Strategy & Problems
4. Preparation of SOA
5. Implementation
6. Review & monitoring
FP Industry & Regulation
History
FPA, CPA, ICAA
Regulation: ASIC; APRA; ATO; ACCC
Licensing & Training
Licensing FINS2643 + FINS3637 = Tier 1
LEARN ASIC RG 146: Licensing training of financial product advisers
o Knowledge requirements: generic, specialist
o Skill requirements
Tutorial Week 2 Homework
Chapter 1
2
Question 3: Define the term financial planning and discuss how it differs from
other disciplines, such as accounting and law.
Financial planning holistic process whereby a clients total position (financial and
non-fin) is examined and a plan is put in place to assist in meeting the clients ultimate
goals and objectives
- Financial advisors give advice in relation to: risk/return, market volatility, portfolio
construction, diversification, ongoing management
- All-encompassing approach to an individuals wealth creation, clear plan of realistic
and achievable goals
Question 7: Who are the major players in the financial planning environment
and what roles do they play?
Regulators & government give the general public a sense of confidence in the
profession, introduce licensing and prudential regimes
Client decides types of goods and services purchased
Financial advisor assesses clients and goals risk profile in order to create a plan
Question 9: Discuss the role of the professional bodies in shaping the financial
planning industry.
Roles establishing jurisdiction, educational qualifications, levels of competence &
knowledge, image of the profession, professional unity through code of conduct and
ethics, self regulation
Financial Planning Association FPA - ASIPA (major dealers and principals e.g.
AMP ING) & IAFP (individuals)
Other CPA, ICAA, APRA (prudential regulation), ASIC, Reserve bank, ACCC,
ATO
Question 10: Discuss 3 recent global changes that have impacted on Australian
financial markets:
1. Volatility in global markets;
2. Sub-prime issues in the United States;
3. Global financial meltdown;
4. Global credit crisis: Recent US credit crisis, PIIGS
Chapter 2
Question 6: Create a data-gathering instrument. Discuss the importance of the
design process and comment on the use of such an instrument in the
information- collection process.
3
Data gathering:
- Specific questions to address and understand circumstances:
- Technical (age, s ex, martial status, dependents, financial information)
- P sychological (risk profile response to certain events)
- Marketing market s egmentation & clientele
- Quantitative (financial situation, a s s ets liabilities budgets)
- Q ualitative (goals, decision making/learning style, attitude to risk, relationships,
p sychological and social needs)
Used to e stablish present & anticipated future goals, fin & non-financial goals,
p sych capabilities
Example s P ersonal details, Family, Employment, Income & Expenditure,
:
Investments & Assets, Super, Insurance s, Objectives, Investment
Attitude s/Expectations, Estate Planning; Privacy laws, Client Acknowledgement
Question 8: Discuss the risk-profiling models that are available to the adviser.
How are such models useful in determining a clients risk tolerance?
- Investor profile questionnaire time horizons, risk tolerance, experience
- Craftmans model experience of planning and verbally establish goals, tolerance
and experience
- Myers Briggs identifies basic preference of individual and uses them to predict
reactions and behaviour (16 outcomes)
- DISC system work attitudes, personal beliefs and attitudes certain behaviour in
prescribed circumstance
- Moneymax 13 feelings and attitudes towards money
- Proquest Maslows hierarchy of needs
Question 9: The use of risk-profiling instruments has long been a contentious
issue among many practitioners. Provide a balanced argument based on a review
of the literature relating to the usefulness of these instruments.
Benefits
- better client relationships
- informed discussion to resolve
mismatches e.g. between clients
o bjective and psychological needs
- valid, reliable, accurate and
c omplete
- improves productivity
- educate clients and improve
u nderstanding of attitude to risk
Compromis e
- quality of advice,
o pportunity to give sound
a dvice
- need to create clients risk,
n ot accept the views they
h ave at the outset
- risk is more of an issue of
s tock s election than a s s et
allocation
Cas e Study 2.1: refer to s olution s on Blackboard
Cas e Study: 2.2
Weekly Income
(after tax)
Weekly expenses includes rent
Weekly surplus
4
$1,250
($545)
$705
Debit for Managed Fund
Net Weekly surplus
Yearly surplus
Pay Off Loan and interest
Net Yearly surplus
Purchase car
Balance savings after 1 year
Balance savings after 2 years
Total available in bank account:
Total available in managed fund at
year end:
($38)
$667
$34,684
($5250)
$29,434
($8,000)
$21,434
$21,434 + $34,684 =
$56,118
2,000
8,800
Conclusions
1 Sufficient to buy car for $8,000 without selling part of managed fund
2
3
5
Savings after 2 years approximate $56,118. Sufficient to pay for down
payment of 10% of unit of $450,000 and miscellaneous fees.
Insufficient to pay for holiday trip to UK expected cost of $20,000