Unit02 Statement of Advice

Unit02 Statement of Advice - 12/6/2011 Learning Outcomes...

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12/6/2011 1 Unit 2 Constructing a Financial Plan Chapter 3, 4 and 19 Learning Outcomes • Explain the financial planning process • Explain the role, prepare and interpret household financial statements • Discuss the financial planning focus through a person’s life cycle • Specify the structure, content and requirements for each component of a statement of advice 2 The Six-Step Financial Planning Process 1. Collect and assess the financial data of the client. 2. Determine the objectives and goals of the client. 3. Identify any financial problems that may exist. 4. Prepare a written plan which contains alternatives and recommendations. 5. Implement the agreed written plan. 6. Review the plan. http://www.goodadvice.com.au/default.asp?action=artic 3 Step 1 - Collect Client Data • Every person is unique • It is both a legal requirement and common sense for the financial advisor to be aware of the client’s specific circumstances. • Usually a combination of chats, interview and questionnaire instrument would be used 4 Quantitative data • Financial data – income and expenditure statement – personal balance sheet • Personal information as to age and investment time horizons • Financial objectives – Timing and level of future income required 5 Qualitative data • Life goals and objectives • Issues and concerns • Preconceptions as to the client’s needs in retirement • Points of clarification and verification 6
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12/6/2011 2 Assessed Data • Risk Tolerance Assessment • Financial Literacy Assessment 7 Steps 2 and 3: Determine the Client’s Objectives and Goals and Identify Any Financial Issues • The financial advisor has to work with the client to determine the goals both for the – Short Term usually < 12 months – Medium Term usually 1–5 years – Long Term usually > 5 years The financial advisor must work with the client to determine the trade-offs and prioritise the goals 8 Lifecycle Each life stage presents differing issues and problems. 1. savings versus consumption phase 2. early family formation 3. wealth accumulation phase 4. approaching retirement 5. post-retirement 9 Budgeting and Saving • No saving, no sure wealth! • Estimating income • Estimating expenditure ASIC budget planner for starters • Preparation of a cash budget • Comparison of actual to budget 10 Savings Tips • If one is doing a budget – Plan for fun – Allow for lifecycle differences • Stick to the budget or Pay Yourself First! – Utilize direct deposits and automatic transfers. – Remind yourself the goals in saving and investing 11 Fine-tuning Resources and Goals • Saving more and spending less – saving smarter and more tax effectively • Working longer – postponing planned early retirement • Accepting a lower income in retirement • Accepting a higher level of investment risk seeking higher levels of return 12
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12/6/2011 3 Assessing Financial Position • Use of financial ratios in reviewing
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Unit02 Statement of Advice - 12/6/2011 Learning Outcomes...

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