Reference no: EM132325801

Financial Planning Assignment -

Aims of this assessment - This assessment covers the foundations of the financial planning process. It requires completion of a client risk profile, with a target asset allocation being assigned based on the data extracted. General advice is contrasted to personal advice, with skill related assessments ensuring formal procedures are followed in the advice process. These include the provision of a Financial Service Guide (FSG), a client questionnaire being completed, as well as a risk profile, and first appointment file note being completed. Australian Privacy Principle obligations are explored in a client specific scenario. Managing potential client complaints is addressed, as is the Australian Financial Complaints Authority (AFCA), including how complaints are managed by AFCA. The need to understand a client situation is fully explored. This includes identifying financial and non-financial goals including allocating appropriate time frames to them. Completion of a comprehensive budget is addressed. Based on this completed budget, advice strategies that promote a cash surplus, including strategies to manage cash deficits (if applicable) are explored. Scaled advice and the best interests duty is a focus. The documentary areas of financial advice are covered including the differences between a comprehensive Statement of Advice (SOA), a Scaled Advice document, and execution-only instructions. The Australian economy is addressed, including how it influences investment markets within different cycles. Monetary policy and fiscal policy, among other key economic policy areas is addressed.

Assessment Activity 1 - Simulation Exercise: Risk Profile

The following exercise will highlight how it is possible to have the same fact pattern but potentially different client risk profiles, and hence investment recommendations. For this assessment activity to be most useful, you need to find a family member, colleague or friend to agree to answer the risk profile questionnaire below in this 'mock' client scenario.

Download the "RBS Morgans Risk Profile Questionnaire" from the Learning Management System.

Required:

1. Complete the risk profile questionnaire that you have downloaded from the LMS. Note: there is no need for both a 'client' and 'partner' unless desired. One 'client' is sufficient. The questionnaire will allow you to tick the boxes and enter the required data.

2. Add up the total points and match the total points to the indicative investor risk profile at the end of the questionnaire. What indicative investor profile describes your client?

3. Based on the completed risk profile and total points determined from questions 1 and 2, use the table below as a guide to determine what percentage of income (cash and fixed interest) and growth (shares and property) you would recommend. Note, do not provide a range, rather you are required to choose a specific percentage for your recommendation. There is no 'right' answer in this exercise, however there can be a wrong answer if your recommended allocation of income assets or growth assets lies outside of the range indicated in the table below.

	Conservative	Moderately Conservative	Balanced	Assertive	Aggressive
Growth  assets in portfolio	0% - 25%	10% - 30%	50% - 70%	60% - 85%	75% - 100%
Income assets in portfolio	75% - 100%	70% - 90%	30% - 50%	15% - 40%	0% - 25%

4. What would your recommendation be if your client attained a score of 40 points?

5. Explain the reason why you chose the percentages as indicated in question 4.

Assessment Activity 2 - Simulation Exercise: Regulations & Legislation

Background - At a weekend barbeque, you are introduced to a group of people you don't know (by your friend who is the host) as "one of the best financial adviser's going around". Being ever so humble, you tell your friend that you are as fallible as the next adviser. Later in the afternoon, one of the guests, Mitch, corners you whilst you are eyeing off the dessert. He tells you that he is really unhappy with his adviser, and looking around for a different adviser. He then proceeds to 'test' you by asking your opinion on certain listed bank shares that he owns. He has indicated he is unhappy because he has lost a significant amount of money recently on these shares.

Mitch asks you if he should take his money out of the share market and invest into the property market.

(a) Provide a response to Mitch which shows that you understand the nature of 'general advice'.

(b) Provide a response to Mitch which shows that you understand the nature of 'personal advice'.

(c) What type of advice does s949A of the Corporations Act pertain to?

(d) Throughout your conversation with Mitch, if he perceives your response as being 'personal advice', which he then acts on, what are the potential consequences?

(e) What steps would you take and what record could you keep, to confirm that your statements are general in nature.

(f) If Mitch comes to your office for advice, what is the first document you would need to give him under s941B of the Corporations Act, and when should you provide this document?

Assessment Activity 3 - Case Study: Ethics, Regulations & Legislation

Background Scenario 1 - Jack and Jill are both colleagues at Pack and Send Products Corporation, a medium size company to which you provide corporate superannuation advice. You have run a successful seminar for employees of Pack and Send about the benefits of salary sacrificing part of their income into superannuation. Both Jack and Jill expressed interest in seeking advice on personal financial planning matters with your office, and you have already successfully seen Jill. You are in the process of completing a Statement of Advice (SOA) for Jill and will be presenting the SOA to her and her husband later in the month.

One month later, Jack comes to see you at your office, and tells you Jill has told him how satisfied and relieved she is that she sought your advice. Jack tells you that he is very good friends with Jill and they have worked together for 10 years. After going through your FSG and explaining the different levels of service you can provide, you start to gather information via the client questionnaire from Jack, including his current financial situation, goals and objectives.

Required:

(a) When you ask Jack how much salary he earns, he says, "It's the same as Jill's salary isn't it?" Under Australian Privacy Principles (APP 1, 3, 5 and 6) what obligation do you have when dealing with this question?

(b) Explain your obligation to Jill when addressing Jack's question in part (a). Answer it as though you are speaking to Jack. For example, "Jack, you must understand that...."

Background Scenario 2 - After presenting Jill's SOA later in the month, she signs the authority to proceed for you to transfer an investment she currently has in a conservative managed fund that has not been performing well. She is very impressed with your recommendation to invest this money in a high performing balanced growth fund incorporating 70% shares and 30% cash and fixed interest.

You send a redemption form to her existing fund manager, and are told they will send your office a cheque made out to the recommended new fund manager as per Jill's instructions. It will take approximately 1 week. You however, are leaving on a 4 week holiday in only 5 days' time and you haven't made arrangements for your mail to be attended to while you are away. Your paraplanner does not open the mail addressed to you, and you find the redemption details sitting in your office 4 weeks later unopened with the cheque inside. To make matters worse, the share market has performed exceptionally well over the previous 4 weeks, rising 8.5 per cent in the month.

(c) After Jill finds out, she comes to your office and screams, "...you are damn hopeless!" In order to remain professional in your response, how might you deal with her verbal outburst? Provide your response to Jill as though you are speaking to her. For example, "Jill, I can understand......."

(Note: this is a 'soft skills' question so you need to show that you are able to respond to a client in an appropriate manner)

(d) If Jill provides a formal complaint to your office about your lack of diligence, what obligations do you have to deal with the complaint and what steps could you take to resolve the complaint internally?

Background Scenario 3 - The Australian Financial Complaints Authority (AFCA) is an approved external dispute resolution scheme approved by ASIC. AFCA replaced the Financial Ombudsman Service, effective from 1st November 2018.

AFCA is now the body responsible for resolving disputes relating to financial services.

Go to Australian Financial Complaints Authority website to find the answers to the following questions.

Required

(e) In respect of Investments and financial advice complaints, AFCA consider a range of products. List the 5 products which AFCA will consider.

(f) As Jill's financial adviser, you are charging a flat fee of $2,500 for an SOA and additional advice fees of $100 per hour, as required. You provided Jill with an FSG which outlined your fees, and they were also stipulated in the recent SOA provided to Jill.

Jill's husband Bill believes that you are charging too much for this service.

Can Jill lodge a complaint with AFCA regarding the fees that you are asking her to pay? Explain your answer.

(g) AFCA can consider various types of investments and financial advice complaints. On what grounds could Jill (from Scenario 2), lodge a complaint about the way that her share investment was handled?

(h) What is the maximum monthly amount AFCA can award consumers for a direct financial loss in respect of an Income Stream Insurance claim?

(i) What is the maximum amount AFCA can award consumers per claim for an indirect financial loss?

(j) Explain why AFCA would likely view Jill's loss (from scenario 2), as an indirect loss?

Assessment Activity 4 - Simulation Exercise & Written Questions: Budget Excel Spreadsheet

Background - Achieving financial goals requires discipline. The best financial plan (written by you) is only as good as the commitment of those clients for whom it has been written. A common challenge for clients wishing to commence a regular savings plan earmarked for anything from a deposit on a first home, a renovation, children's education or family holiday is effective money control (i.e. Budgeting).

Budgeting is a very effective tool you can use with your clients. It allows both you and the client to identify where their money is going, and what adjustments may need to be made to achieve a financial goal.

Below is a question that requires you to first complete your own budget. Have you heard of the plumber with a leaky tap? Well, if you haven't filled out a budget for yourself, it is difficult to understand with any real sincerity the challenges your clients face in doing the same. Committing to a plan and achieving it is something that can be personally satisfying and your clients will likely extend their gratitude.

Task One - simulation exercise

Required

• For this simulation exercise, you are required to download a budget planner from the ASIC website.
• Please select the excel version of the budget planner (this option is located at the 3rd dot point at the top of the Budget Planner screen page).
• You are required to use the ASIC budget planner to complete either your own, a family member, a friend or a colleague's budget or you can use fictional figures.
• Ideally your client (even if it is you) will use a combination of financial statements, bills and receipts to track financial expenditure. If this information cannot be accessed easily, just allow for an estimate.
• Enter amounts for all the tabs (where relevant) - Income, Financial commitments, Home/utilities, Education/health, Shopping/transport, Entertainment/eating out.
• Select the Results tab and save your budget summary to your desktop. When you have completed all the assessment activities in this assignment, you can submit a copy of the budget summary along with this assignment for grading. (The instructions for submitting your assignment are on page 1 of your assignment.)

Task Two - written knowledge questions

Answer the following questions and type your answers in the spaces provided:

a) Which area of your spending breakdown was the largest?

b) Which area of your spending breakdown was the smallest?

c) What was the main reason or reasons for the cash surplus or the cash shortfall?

d) Provide 3 recommendations to rectify a deficit, or to save even more funds if a surplus exists?            

e) When completing a budget, funds are often withdrawn in cash. Both the party completing the budget (...and the adviser) often find it difficult to track expenditure when this is the case, because there is no reference point such as a financial statement. A financial statement is useful because it indicates the place of purchase and exact amount paid.

Recommend one way of achieving a more accurate budget going forward if cash expenditure is not being tracked properly?

Task Three - written skills questions

How would you communicate the following budget issues to a client who may be seeking your advice?

Note: provide your answer as though you are speaking to the client For example. "Jack, have you ever considered the possibility that....."

a) Your client Daisy tells you she is confident she can save $1,000 per month into an investment she is interested in. She wants you to advise and implement this investment, on her behalf. However she hasn't been able to achieve this savings target to date.

What might you say to Daisy about the benefits of committing to a budget, given the background knowledge you have about her, and the advice she is seeking from you?

b) Your client Brenton is considering renovating a kitchen and bathroom and consequently taking on a significantly larger mortgage from $350,000 to $450,000. Brenton earns a very good income ($120,000 per annum plus super). However, Brenton seeks your advice, unsure whether he will be able to manage financially with this higher debt burden. Brenton asks you what your financial recommendation is when he comes to see you - "can I afford it" and "will it affect my long term financial plan" he asks you?

Importantly, he has not attended the meeting with completed budget details despite the fact you sent him out a budget template via email in an excel format prior to the meeting. At the meeting, you quiz him about his budget, but he provides you with vague answers about his family expenditure.

As an adviser, list 3 risks you or Brenton might face if you advise Brenton to take on more debt, in the absence of an accurate budget picture?

Assessment Activity 5 - Case Study: Goal Setting

Question 1 - The phrase 'financial freedom' means different things to different people. Why is this notion not the same for all people?

Question 2 - Background Scenario

Your clients Bronte and James are a couple in their mid-thirties. They have two children aged 5 years and 7 years. At your initial meeting with Bronte and James you were able to determine their risk profile and also some of their financial goals and objectives. The goals and objectives they raised included:

• Ability to pay for private school fees when their children were in high school
• Mortgage on their home to be fully paid when they retire at age 60
• Requirement to have net income in retirement of $70,000 p.a.
• Desire to take the children to Disneyland in the U.S.A. in 5 years' time.
• Renovation of their kitchen in the next 18 months at a cost of $15,000
• Desire to address their estate planning needs
• Consideration of income protection, TPD and trauma insurance for both Bronte and James

Identify which of the goals and objectives would be considered short-term, medium-term and long-term goals/objectives.

Question 3 - Explain why you categorised the "Desire to address the estate planning needs" as you have in question 2.

Assessment Activity 6 - Simulation Exercise: Client administration

Background Scenario - A married couple, Jessica and John come to see you for a first appointment. They have not seen a financial adviser before. You have spent about 10 minutes building rapport with these new clients. You wish move to the point where you would like to discuss their financial planning requirements.

Question 1 - Explain the key information contained in the FSG that you are required to convey to Jessica and John prior to entering into any financial planning discussions?

Question 2 - The meeting with Jessica and John progresses well, and you complete the client questionnaire and client risk profile with them, which provides the following information to you;

Jessica is age 31 and earns a gross salary of $80,000 and John is age 36 earning a gross salary of $75,000. They have a 4 year old boy (Ethan) and Jessica is pregnant with their second child due in 3 months. Income from other sources totals $6,500 p.a. The couple are planning to purchase a house in the next two years, and have located two suburbs they like. They have a budget of $500,000 for their first home, and are actively searching and inspecting homes in their suburbs of interest.

Their assets and liabilities are listed below -

ASSETS	$	LIABILITIES	$
Savings Account	88,000	Credit card	6,500
Term deposit due in 6 months	32,000	Car loans	15,000
Contents/Personal effects	50,000
Cars	26,000
Superannuation - John	22,000
Superannuation -Jessica	27,000

Their monthly commitments are:

Rent	$1,800
Credit cards	$150
Car loans	$300

They estimate their current rate of total household expenses to be $2,000 per month (excluding the monthly commitments stated above)

IMPORTANT: Jessica and John only want advice for the following;

They feel they could be doing more with their money in their bank account and term deposit prior to buying a house to maximise how much they will have when they eventually do buy.

You give the advice they sought with respect to their investment options. Tragically 5 months later, John is involved in a freak skiing accident and becomes a quadriplegic. He had no insurance. Jessica's brother (a lawyer) suggests you as a financial adviser had an obligation to advise Jessica and John about taking out appropriate insurance including income protection and total and permanent disability insurance.

Required -

a. Explain what scaled advice is.

b. What key principle under ASIC Regulatory Guide 175 must you adhere to when providing scaled advice?

Question 3 - Assume John's skiing accident does not occur. Jessica and John complete the risk profile, and their score categorises them as "aggressive". Jessica has read about a managed fund called the Grand High Performance Equities Fund. She brings in the PDS to the first appointment to seek your opinion. It has produced returns of 15% in the previous 12 months, substantially better than Jessica and John's cash investments. You explain to them that investing in shares requires a time frame longer than 1-2 years, and that the Grand High Performance Equities Fund won't meet their needs given their requirement to access their money to use as a house deposit in the near term.

Being ever so cynical, assume Jessica and John turn out to be the litigious type of people, open to pursuing any legal action if they smell an opportunity. Let's assume the Grand High Performance Equities Fund continued to produce stellar returns for the next 2 years, leaving Jessica and John upset they missed out on the high returns, having followed your advice and invested in much more conservative alternatives.

Required - Explain how the following compliance documents together should provide a strong legal basis to defend any legal claim against you for negligent or poor advice.

a. Statement of Advice

b. Authority to Proceed

c. First appointment File Note

Question 4 - a. If Jessica and John were intent on investing in the Grand High Performance Equities Fund, despite your misgivings that the investment time frame (1-2 years) is grossly inadequate, how would an 'execution only' document allow you to facilitate the transaction for them into the Grand High Performance Equities Fund without being liable for the advice?

b. Explain the limitations you have in using this document as a substitute for a Statement of Advice?

Assessment Activity 7 - Short Answer Questions: Australian Economy

Question 1 - Explain the relationship between the Reserve Bank of Australia (RBA) and the Australian government in regard to monetary policy.

Question 2 - What precisely does the RBA do when implementing monetary expansion?

Question 3 - What is the RBA trying to achieve after implementing monetary expansion in regard to; (1) demand and (2) inflation?

Demand:

Inflation:

Question 4 - There are two different ways a government can implement fiscal expansion. What are the two methods?

Question 5 - What impact will fiscal expansion have on 'demand'?

Question 6 - When interest rates are increased by the RBA, the Australian dollar ($AUD) often appreciates (assuming all other factors remain constant). If the $AUD did appreciate, explain the effect on Australian based businesses that are:

(i) Importers:

(ii) Exporters:

Attachment:- Assignment File.rar