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Whatisthiscourseabout?
SubjectMatter SkillBuilding Awareness of the ethics and the economic Awarenessoftheethicsandtheeconomic functionsoftheprofession

Unit1.0CourseOverview
KingsleyFong k.fong@unsw.edu.au

SubjectMatter,Perspectivesand Approach
Personalfinancialplanningandmanagement Professionfinancialplanningandadvisory
FinancialAdvisors Fi FinancialPlanners i l Pl

Financialdecisionsthatpeoplemake
Consumptionvs Savings

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Letsgotoopera! Buythatcar,iphone,holiday Illput$100perweekintoalongtermsavingaccount. Illadd6%tomysuperannuation? HECSorpayingoutright? Paybycreditcardsorfromloan? Cash,marginaccount,CFD,orhomeloan? HowdoIpaythemoff?

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RegulatoryGuideline146Tier1Compliant
B.Com (Finance)/M.Com (Finance)/M.FinPlan FINS2643/5510 FINS3637/5537

Financing

FinancialPlanning
Investment
ShouldIinvestmysavingsintermdeposit? WhichstockshouldIaddtomyportfolio?Isitthe righttimetobuy? How do I know if this managed fund is suitable for HowdoIknowifthismanagedfundissuitablefor me?

Financialplanningisaboutmakingpersonal financialdecisionstoensurethatwehave moneytodowhatwewanttodoinlife!

AssetProtection
ShouldIbuylifeinsurance?Carinsurance?How much? Howwouldfamilybreakdownaffectmyfinanceand wealth?
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Soundssimple?
Itsnotrocketscience. Itrequires
Commonsense E Emotionalandtechnicalskills i l d h i l kill Knowledgeandinformation Organizationskillsandexecutioneffort

CourseLevelLearningOutcomes
Understandingthewealthmanagementand financialplanningindustry Setandassessfinancialgoals C Createbudgetandsavingplanstoaccumulate b d d i l l wealth Discussandassessriskprofiles Recommendappropriateassetallocationand longterminvestmentstrategies
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Understandthevaluationandselection criteriaofmajorinvestmentproductssuch asmanagedfunds andfinancialsecurities Evaluatetheinvestmentvalueandselect financeforresidentialproperties finance for residential properties DiscusstheAustraliantaxationsystemand suggesttaxeffectivewaystobuildwealth Createandassesstheeffectivenessof retirementstrategiessuchaspublicand selfmanagedsuperannuationfunds
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Selectappropriateinsuranceproducts Considerthefinancialconsequencesof familyrelationshipandinstruments availabletoreduceuncertainty Evaluate and arrange financial affairs to Evaluateandarrangefinancialaffairsto betteraccesssocialsecuritybenefits Arrangeforthecreationofinstrumentsto distributeestateandnonestateassets Constructafinancialplan
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ThisCourseIsNOTAbout
Advancedorsophisticatedfinancetheory Getrichquickmethods Shorttermtradingstrategiessuchasarbitrage ordaytrading d di Stockpickingskills

Materials
Taylor,S.,R.Juchau,andB.Houterman,2010, FinancialPlanninginAustralia,4th ed.,LexisNexis Butterworths. Reference
StandardofPracticeHandbook(10 Edition),CFA Institute AustralianMasterFinancialPlanningGuide201011, CCH. Clitheroe,P.,2009,MakingMoney:TheKeysto FinancialSuccess,NewandUpdated,Penguin.
th

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Assessments
Task Due Tutorials Participation Consistentprep Mediareadingpresentation Media reading presentation Financialplanningportfolio MidTermExam Apr3 FinalExam TBA % 25

Unit11 FinancialPlanningandthe Profession

Tayloret.al.Chapter1and2 ASICRG146

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Topass,atleast50%inEVERYcomponent.
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LearningOutcomes: YouShouldBeAbleTo
Discusswhyindividualsmaywantafinancial planner Listthesixstepsoffinancialplanning Discuss the historical development and Discussthehistoricaldevelopmentand currentstructureofthefinancialplanning industryinAustralia Discusstheregulatoryframeworkforfinancial planner Discusshowtochooseafinancialplanner
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Yourfriend,Jack(anITprofession) askyou,aM.Com Financegraduate forstocktips. Whatwouldyousay? Howwouldafinancialadvisor response?

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Peopleincreasinglyneedtolookafter theirlongtermfinance
Housesarealsogettinglessaffordable Peoplehavemorewealthtomangeand p protect Retirementfundingresponsibility Complexityintaxation,superannuation, socialsecuritiesandassetprotectionlaws andregulation.
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Howcanafinancialplannerhelp?
Uptodate,relevantandreliableinformation
Taxandotherregulations,e.g.superannuation Financialandinsuranceproducts

Technical expertise Technicalexpertise

Conceptualunderstanding Analysingfinancialmarketinformation

Specializationoflabourandcapital Morerational(lessemotional)behaviour
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ConsidertheBusinessCycle
Economicenvironmentiscyclicinnature Plannermustbeawareoftheimpactofthe economicenvironmentoninvestmentmarket andclientpsychology and client psychology

BusinessandMarketCycle
Businesscycleisaboutthepastandpresent, marketcycleisaboutthefuture Investorsriskaversionislikelytobehigher aftersignificantmarketdownturn after significant market downturn Growthprospectsandassetvaluationratios alsofluctuateoverthebusinesscycle Impactonassetallocationandsecurity selectionstrategies
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DataforEconomicConditions
Interestrate Inflation Unemployment Economicactivity Andothers

TheMedia/AttentionEffect
Whatdonewschannelandpopularpress reportastheeconomygothroughtheboom bustcycle? Whats the incentives of these news media? What stheincentivesofthesenewsmedia? Howmightindividualinvestorbehaveifthey justfocusonthepress?

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OtherCommonBehavioralBiases
Individualsarepotentiallysusceptibletomany decisionmakingbiases
Focusonattentiongrabbingassets Lowpropensitytosave p p y Overconfidence(resultedinexcessivetrading) Dispositioneffect(rideonlossesandcutprofit)

Afinancialadvisormightbeabletoreducethe impactofthesebiasesonthefinancialhealth ofclients

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Unit12TheFinancialPlanning Process

Givemeaplanwithno objective. j

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WhatisFinancialPlanning?
Financialplanningisaprocesswhereby
apersonstotalposition,bothfinancialandnon financial,isexaminedand a set of actions or a plan is put in place which asetofactionsoraplanisputinplacewhich, onceimplemented,willassistinmeetingthe personsultimategoalsandobjectives

WriteDownYourGoalsandDesires

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SomeInspirations
Owningyourownhomeinacertainpartoftown Startingacompany Beingdebtfree Drivingaparticulartypeofcar Taking luxury holidays Takingluxuryholidays Havingalargeinvestmentportfolio Havetimeforyourselfandhobbies Hangingoutwithfriends Lookingafteryourparents Lowcarbonliving
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TheFinancialPlanningProcess
1.DataGathering 2.GoalsandObjectives/Analysis 3.StrategyFormulation 4.PreparationofStatementofAdvice(SOA) 4.Preparation of Statement of Advice (SOA) 5.Implementationoftheplan 6.Reviewandmonitor

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DataGathering
Datacollectionisacriticalfirststep
ASICRG175:Knowtheclientrule Insuranceandriskmanagementissues Investments Superannuationandretirement Social security Socialsecurity Estateplanning Riskprofileassessment

Informationcollectedusingstandard instrumentincludes: instrument includes

Quantitativeandqualitativedata Personaldetails Currentsituation Financialposition
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Riskprofileandassessmenttools
Riskprofileinstruments
http://www.riskprofiling.com/Downloads/PR_RT.p df http://www theage com au/articles/2004/09/03/ http://www.theage.com.au/articles/2004/09/03/ 1093939146407.html?from=storylhs

ClientAdvisorRelationship
Developmentoftrust Fiduciaryduty Advisorisexpectedtoassistclient
toidentifygoals inmakinginformeddecisionsregardingmoney andassets tochooseproductsthatsuitneedsand circumstances
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Nosubstituteforcuesfromtalkingandface tofaceinteractions.
http://www.fpanet.org/practicemanagement/opti mism
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Theserequirementstolookaftertheclients interestareembodiedbythesuitability(or reasonablebasisofadvice)ruleinPartDofASIC RG175

1. theprovidingentitymustmakereasonableinquiries h idi i k bl i ii abouttheclientsrelevantpersonalcircumstances; 2. theprovidingentitymustconsiderandinvestigate thesubjectmatteroftheadviceasisreasonablein allthecircumstances;and 3. theadvicemustbeappropriatefortheclient.
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Unit13TheFinancialPlanning Industry y

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FinancialPlanningIndustry
Clientandadvisors Financialproductsprovidersanddealers Professionalassocandeducators Thefinancialplanningenvironmentworks withinRegulatoryenvironment
ASIC,APRA,ATO,ACCC

FinancialPlanningAssociations
ProfessionaccountingbodiessuchastheCPA andICAAhavepersonalfinancialplanning specialization. The Financial Planning Association (FPA) was TheFinancialPlanningAssociation(FPA)was formedin1992.
CertifiedFinancialPlanner(notlegallymandatory) CodeofEthics

ASICisthekeydirectregulatorofthefinancial advisoryindustry
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FinancialPlanningAustralia CodeofEthics
Integrity Objectivity Competence Fairness Diligent Professionalism Confidentiality Compliance
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TheWealthManagementIndustry ValueChain

Supportedbylotsofsupportingandenabling Monitor Money servicesandproductseg.legal,tax,audit, partners ipac equity consulting,practicemanagementcoaches, marketing,successionplanning,ITetc

Source:Peeyush Gupta
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Tynan

ABriefHistory
Thebirthofthewealthmanagementindustry inAustraliaisaroundthetimeofKeatings deregulatoryreformsintheearly1980s The two key drivers were Thetwokeydriverswere
financialderegulation,and increasingtaxcomplexity,super,andincluding interactionswithsocialsecuritysystems

Seniorlifewriters,entrepreneursandbanks getintothefinancialplanningspace

Attheproductend,manynewdomesticand overseasentrantssetup. Platforms(mastertrusts,wraps,SMAs,IMAs) g y emergedintheearly1990sandbecame strategicallyimportant. Boutiquefundmanagerscameofageinthe 2000s. Consolidationfollowed,bothamongstlife insurersandthebanks.

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Asampleofthebusinessdynamicsasa practicemovesthroughdevelopmentstages toamorecorporatisedbusiness

ManagementStage
100,000 90,000 80,000
Revenue per month ($) h

TherightstrategyandbusinessmodelinAdvicecan significantlyincreaseshareholdervalue.
Driversofvalue:illustrativeonly Ongoingcoachlowers redemptions.
Establishnewsourceofincome throughongoingadvicefee
50 100bps

CorporatisedStage
Upfronts Trails Ongoing advice fees

Fromhigherexposureto growthassetsinthe implementationof advice

Lowerby50%

510bps

70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 Months

Leverageadviserstime throughsystematic workprocesses

Valuedriveris oftentothe manufacturer whosehasthe mostproducts soldtothisclient base

+20%50%

Source:ipac
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Value from Principal dependent Model

+ Adviser productivity

+ Ongoing advice income Source: ipac

+ Lower redemptions

+ Better margin mix

Increased enterprise value from corporatised model

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CrisisandRegulation Unit14RegulationsinFinancial Planning g

Throughoutthepast30years,therehavebeen recurrentepisodesof
productfailures
debentures, mortgageandpropertytrusts, agribusinessschemes

Advicefailures(e.g.StormFinancial).

Regulatoryreformhasoccurredepisodically.
FinancialServicesReformact(2001)focuson disclosure Threeenquiries,Ripoll,CooperandHenry,havethe potentialtotransformtheindustryagain.
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HotTopicsandRegulatoryChanges
TheCooperReview
Superannuationfundstructureandfee Lowcostnofrillproducttobemadeavailable

TheBasicRegulations
ASICRG175Licensing:Financialproduct advisersConductanddisclosure ASICRG146Licensing:Trainingoffinancial productadvisers product advisers

BowenReview
Fiduciaryresponsibilityoffinancialadvisors Abanonconflictedremunerationstructures suchascommissionorvolumebasedpayment %feeonassetundermanagementonlyforun gearedproducts

SeeChap3p7582
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RG175Licensing:Financialproduct advisersConductanddisclosure
Specifiestherequirementsinproviding financialadvicesuchas
Theprovisionoffinancialserviceguide The suitability rule Thesuitabilityrule Statementofadvice
Generaladvice Personaladvice Warningsunderdifferentsituations.

FinancialServicesGuide
Thelawrequiresfinancialadvisorstoprovide theirclientswiththeFinancialServicesGuide assoonaspracticableandbeforeofferingany advice RG175specifiesthattheFSGshouldinclude
IdentityofDealer/Licenseeandauthorisedrepresentative status Servicesavailable Feedisclosure DisputeResolutionProcesses

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RG146Licensing: Trainingoffinancialproductadvisers
Onlylicenseesortheirauthorized representativemaylegallyofferadviceon financialproducts RG 146 Tier 1 accreditation is the minimum RG146Tier1accreditationistheminimum educationalrequirementinordertooffer personalfinancialadviceprofessionally
Sch.ofBankingandFinanceisaregistered FinancemajorwithFins5510+Fins5537=>Tier1
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ScopeofASICRG146
Knowledgerequirements
Genericknowledge Specialist knowledge Specialistknowledge

Skillrequirements

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SpecialistKnowledge

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Financialplanning Securities Derivatives Managedinvestments Superannuation Insurance Foreignexchange Depositproductsandnoncashpayment products

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HowtoChooseaFinancialPlanner?
Nosureway,getareferralandask:
Howlonghaveyoubeengivingadvice? Whatareyourqualifications? Doyouownpartofyouradvisoryfirm? y p y y Whattypeofclientdoyouspecializein? Whatresourcesdoesyourcompanyhaveinterms ofinvestmentresearch? Doyougiveindependentadvice?Writtenadvice? Howdoyoucharge?Ongoingservice?
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Scams andNearScams
HavinglicenseandFPAmembershiphelpsto screenoutsomebadadvisorsbutdoesnot guaranteegoodadvice
Google for Googlefor
HenryKaye,Westpoint,EstateMortgage StormFinancials

GetRichQuickscheme(forthepromoters)

ASICsmaintainapageofScams
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SomeFinancialPlanAssignmentIdeas
Consider
Loggingyourincomeandexpensesforamonthin ordertobuildabudget
ASIC has a planner to help you ASIChasaplannertohelpyou

Getacopyofaclientquestionnaireandfillitin
Googleorcopytheonefromthetextbookp.3747

Riskprofiling
Googleforriskprofiling/attitudequestionnaireand assessyourself
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