FINANCIAL PLANNING

FINANCIAL PLANNING - Lecture 1 Introduction. The Financial...

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1 Lecture 1 – Introduction. The Financial Planning Environment. BM Ch 1, 2; TJHM Ch 1; Day et al Ch1 2 • “an ongoing service assisting individuals to identify and achieve their financial goals and satisfy their needs, within the restraints of their risk tolerance” • Financial planning (FP) is an all-embracing field, integrating a number of professional disciplines to achieve a financial plan designed to meet the needs of a client: • accounting, economics, investment analysis, insurance, superannuation, retirement planning, social security, taxation, legal and financial advice Financial Planning - Definition 3 • Increasing demands for services over the last decade • Rapidly expanding industry • Greater emphasis on retirement planning and wealth creation by federal government • Deregulation of the financial system • New investment opportunities • Increased legislative complexity (legislative risk) • Ageing population, declining birth rate • Low domestic savings • Restricted access to the Age Pension • Compulsory superannuation; choice of fund; SMSFs Pressure for Financial Planning Advice
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4 • Unscrupulous financial planners • Investment company failures (Westpoint, Fincorp, Australian Capital Reserve, Opus Prime) • Until recently, the FPA did not require, even as an objective, that members act in the best interests of their clients • Most financial planners work for companies owned by financial institutions such as banks, AMP etc FPs are paid by commissions, which only apply when the FP recommends an investment product of the owner institution) Issues to Think About 5 ASIC “shadow survey” – see http://www.fido.asic.gov.au/fido/fido.nsf/byid/95B1F8080602AA9 4CA257148000D0375?opendocument The survey assessed 306 examples of advice given to real consumers between June and December 2005 (Roy Morgan Research recruited consumers to the survey) “Of the advice by AFSL representatives where ASIC judged the advice to clearly lack a reasonable basis, 85% of consumers were still satisfied with the advice” 16% of advice was not reasonable given the client’s needs (as required by law) and a further 3% was probably not reasonable Where consumers were advised to switch funds, a third of this advice lacked credible reasons and risked leaving the customer worse off The switch would have resulted in higher fees in 62% of cases Issues to Think About continued 6 • Increased regulation to protect consumers • Changes to superannuation (e.g., rollovers, choice of fund, Superannuation Guarantee (SG) scheme, tax concessions, super staff allowed to be advisers, etc.) • Changes to taxation (e.g., CGT, dividend imputation) • Greater emphasis on personal provision for retirement Response from Government?
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7 • Financial planning is important because it helps the
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This note was uploaded on 12/06/2011 for the course ECON 101 taught by Professor Shen during the Three '11 term at Monash.

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FINANCIAL PLANNING - Lecture 1 Introduction. The Financial...

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