
HI6006 Competitive Strategy Editing Service
Delivery in day(s): 4
1. (A) Quantitative data provides the information of client’s financial position. On the basis of quantitative data financial advisor can make the financial projections and construct income and expenditure table and budget for the client. The purpose is to get details from the client such as income and its sources, expenses, tax implication, value of assets, debts, insurance cover etc.
Qualitative data provides the information about the client’s priorities. Client’s behavior and social aspects helps the financial advisor to make the suitable recommendations. Knowing clients social background, thinking process, objectives and risk aversion is always helpful for the financial advisor for the decision makingassignment help (Custers, 2004).
(B) In Quantitative data information need to be collected is–
1. Income and its sources
2. Expenses and future estimates
3. Superannuation Savings
4. Value of Assets and Debts
In Qualitative data information need to be collected is –
1. Client’s Objective
2. Client’s risk profile
3. Social background of client
4. Investment type with which client is comfortable
(C) Case study lacks some important quantitative information regarding client –
1. Expense Requirement –Client’s future expense requirement is not provided, which is necessary to determine the retirement plan that will be best for the client.
2. Taxation Information –Nothing is provided about the taxes applicable on the client without which income statement can’t be completed.
3. Insurance Cover –Complete information regarding insurance cover and client’s expectation regarding the insurance cover is not provided which is useful for calculation of the future expenses.
4. Cash and Bank Balance –Opening balances of cash and bank is not provided and client’s requirement about the bank balances at the time of retirement is not provided which is necessary for the financial planning.
5. Client’s expectation about the portfolio is not provided which is useful to know the money required by the client in future for investment (Elmer, 2004).
(D)All the necessary information should be collected from the client and if client refuses to provide any part of the information than it is the duty of the advisor to make client understand the need of the information, why they are attempting to collect the information and what will be the use of the information. The financial advisor must warn the client if all the necessary information is not provided than financial advice may be inappropriate for the client (Smyth et al, 1996).
(E) Know your client rule –When a recommendation on a security is made the recommendation must be appropriate to the client’s investment objective, financial situation and particular needs.
Financial advisor’s first step is to collect data and in that process data about client’s objectives, background, expectations, asset base, debts payable, insurance cover required, risk aversion and needs are collected so this automatically helps in following the obligation to follow know your client rule.
Know your product rule –When a recommendation is made about a security, an advisor must have considered and researched the product and made the recommendation on that basis.
While preparing for the advice financial advisor have to understand different products that can be offered to client. While collecting the information about the client, financial advisor comes to know the different requirement of the client on the basis of objectives and financial background of the client and then he can research about the products that can best suits the client’s requirement this will automatically fulfills the obligation to follow the Know your product rule (Geradts & Sommer, 2008).
Closed Question:
(a) Are you sure this is best portfolio for you?
(b) Do you want to get better out of your investment?
Open Question:
(a) As I listening to you, I came to know that we can plan something better for you, can we go ahead?
(b) I think this plan is not working for your financial objectives, Please take another look on your investments.
1. Active Listening Components –
2. Risk Profiling is the level of risk an individual wants to take. It is the limit up to which an individual wants to tolerate the risk. Risk profiling is not the exact science; various tools are used to analyze the risk, compare the outcome and uses the different tools to get the desired result.
Risk profiling is very important part of thefinancial planning process. It is mandatory for the advisers to get views of the client about the risk and their willingness to take the risk. In the audits conducted by the ASIC, advisers are questioned how did you assess the risk of the client and the attitude of the client towards risk. Risk profiling is also important for the financial advisors to have their own risk profiling because every client is different on the prospective of risk. Risk profiling categorizes clients according to their risk tolerance for different investments. There is a variety of categories used, for example, conservative, balanced and aggressive. The categories reflect clients with a very low risk tolerance with little acceptance of risk to a very high risk tolerance with a willingness to accept the possibility of some financial loss for much larger returns (Kephart & Chess, 2003).
3.After getting the information from the Mary, her financial needs and objective are determined. As from the case study Mary’s objective is to get a good amount after the retirement for her cost of living and meet her debts at time. Mary is investing in the shares as well as she has the property in her name and she is not willing to take the risk. After that suitable product match with this profile would be found. It should be considered that product should be close to the risk profile of the client as many products with the similar characteristics are available but the best match should only be selected (Leopold & Meints, 2008). It is important to review the advice given to the Mary as at the time of retirement her risk tolerance can change so it is advisable to give her advice at regular interval.
4.Client risk profiling is the method of establishing the level of risk client is willing to tolerate. Risk profiling depends on the client’s attitude towards the risk. The higher the level of risk associated with an investment, the lower the likelihood of the desired outcome being achieved. On the other hand, the longer the time of investments, the greater the likelihood of a favorable outcome. Assessment of a client’s risk profile is not an exact science (Lyon, 2003). A range of different tools are used by financial advisers. Some involve a detailed set of questions, while others use a very limited set of questions. While some provide a numerical value representing the client’s risk profile, others provide a descriptive summary of the personalities involved.
Risk profiling is to categorize client according to their risk tolerance for different investments. There is a variety of categories used, for example, conservative, balanced and aggressive. The categories reflect clients with very low risk tolerance Risk profiling categories clients according to their risk tolerance for different investments. There is a variety of categories used, for example, conservative, balanced and aggressive. The categories reflect clients with a very low risk tolerance with little acceptance of risk to a very high risk tolerance with a willingness to accept the possibility of some financial loss for much larger returns (Nabeth, 2008).
ASSET CLASS | CURRENT ASSET ALLOCATION % | Moderately conservative (defensive) Benchmark %
|
Cash | 11.8% | 10% |
Fixed Interest | .000% | 38% |
Australian Equities | 12.82% | 24% |
International Equities | 4.27% | 19% |
Properties | 71.04% | 9 % |
It is assumed that Term Deposits are non-recurring in nature.
As per my opinion, Mary is a Balanced Investor. The reasons are explained as:
She has invested in some risk securities, but it may not be feasible to reach her goals (Solove, 2004).
Short Term objectives for Mary are –
Particulars | Value |
|
|
Planet Super Fund | 200000 |
Retail Super Fund | 190000 |
Australian Shares | 120000 |
Asian Equity | 40000 |
Term Deposits | 15000 |
Others | 10000 |
House | 760000 |
Toyota Car | 10000 |
Cash | 133200 |
Capital loss | 1000 |
Loan | (50000) |
Mortgage | (130000) |
Capital Gain | (10500) |
Net Worth: $ 1288700.00
CASH FLOW STATEMENT | Mary |
Salary and bonus | 210000.00 |
Interest income | 1850.00 |
Un franked dividends | 1008.00 |
Franked dividends | 20792.00 |
Franking credits (FrCr) | |
Rental income | 0 |
Trust distribution | 6000.00 |
Capital gains (CG) <1yr |
|
Capital gains (CG) >1yr |
|
Tax-free component of CG | 0 |
Assessable income |
|
Deductible interest expense Rental expenses, repairs etc. | 0 |
Other personal deductible expenses | 21800.00 0 |
Taxable income |
|
Tax |
|
Franking rebate | 0 |
LITO |
|
Other rebates | 0 |
Total tax before FrCr |
|
Total tax after FrCr |
|
Medicare |
|
Medicare levy surcharge | 0 |
Received income after taxes and Medicare |
|
Deductible expenses | 0 |
Family outgoings | 0 |
Credit card and loan repayments Insurance premiums (non deductible) | 29000.00 |
Living expenses | 30000.00 |
Holiday | 0 |
Other | 0 |
Net saving capacity |
|
Solvency Ratio:
A measure of a person’s ability to service debts, expressed as a percentage.
Solvency Ratio: Net Worth/Total Assets
= 928200/1290700
91.71 %
Liquidity Ratio:
A class of financial metrics that is used to determine a person’s ability to pay off its short-terms debts obligations
Quick Assets/Current Liabilities
= 133200/29000
4.59%
Debt Servicing:
The debt service coverage ratio is a financial ratio that measures the person's ability to pay their debts.
= Total Debt Liability for the year/EBIT
Savings Ratio:
The average propensity to save (APS), also known as the savings ratio, is an economics term that refers to the proportion of income which is saved, usually expressed for household savings as a percentage of total household disposable income.
(1) Financial advisers are service providers who assist the client in achieving their financial objectives and financial needs. Financial advisers analyze the client’, collect quantitative and qualitative information by interview and form filing, which helps the advisers to understand the client’s objectives and find a suitable plan for the client, develop strategies and match them with existing strategies with developed strategies and modify the strategies as required.
(b) Financial advisers provide advices to the clients about the investment strategies and risk management. Financial advisers are remunerated by the client for their services provided to the clients. Financial advisers can be paid in number ways:
(C) In Australia financial adviser are regulated by the Australian security and investment commission (ASIC). Advisers who offer to advice that could influence the decision of the client must meet minimum training requirements and get licensed by the ASIC.
ASIC is responsible for the development of the financial adviser’s growth in the country. Every License holder is to follow the compliance of the ASIC. To become a license holder ASIC provides training about the financial products to the individual. ASIC starts run and manage different investment schemes. ASIC provides scheme for the superannuation and other various retirement benefits.
2. The government’s Future of Financial Advice (FOFA) reforms are a response to the inquiry undertaken by the Parliamentary Joint Committee on Corporations and Financial Services (the Ripoll inquiry).
Explain the objectives of the FOFA reforms and discuss whether you believe they will achieve their objectives. Discuss what the advantages and disadvantages will be to the various stakeholders in the industry.
The Future of Financial Advice (FoFA) reforms were introduced to improve the quality of advice consumers receive and increase access to more affordable kinds of financial advice. The reforms do this in a number of ways.
The reforms are also the Government's response to the Parliamentary Joint Committee on Corporations and Financial Services' Inquiry into financial products and services in Australia.
The reforms will be voluntary from 1 July 2012 and will become mandatory from 1 July 2013. This gives industry time to adapt whilst minimizing transition costs. The Government welcomes the significant efforts of industry, including the Financial Services Council and the Financial Planning Association to remove commissions and improve professional standards. These reforms clearly support their efforts.
The Ripoll inquiry tabled its recommendations on financial products and services into parliament in November 2009. From this review the government released its proposed FOFA reforms. These reforms were introduced into parliament in late 2011 and were passed by parliament in 2012. Commencement dates for the reforms are 1 July 2013, however, advice businesses can elect to be regulated under the new regime from 1 July 2012. The key reforms are as follows:
Objectives of this reform are:
The Success of the Experiment Depends on Extent and Quality of Implementation
Australia is almost certainly the first country in the world to ban commissions on financial products, and to legislate for clients to ‘opt in’ to client contracts each other year.
Now in the Australian financial services laboratory we have a bundle of legal inventions which together should improve the quality of financial advice. There is much more work to do – e.g. in training and competence, in enforcement and in encouraging professionalization – but the FOFA Bill makes a good start. Getting clarity about whose interests should come first in advice giving, demonstrates a marriage of the practical and the ethical that should always be found in any successful experiment (Steinbock, 2005).
My view point:
It is a good reform in the field of financials Advices. It will be proved a Land mark step in the field of financial advisory services, If it is successfully implemented. Although there are so many hurdles in implementation, a strong determined and planned mindset can make it possible.
It helps greatly that some of the worst conflicts will go with the ban on commissions. Australia is facing so many difficulties in implementing Fofa That is why time for implementation is extended by Australian Government. According to my view point, The Fofa reforms will be implemented successfully within the extended time
Advantages and Disadvantages will be to the various stakeholders in the industry.
Benefits of reforms:
Disadvantages:
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Elmer, G. (2004). Profiling Machines. Mapping the Personal Information Economy. MIT Press
Fayyad, U.M.; Piatetsky-Shapiro, G.; Smyth, P. (1996). "From Data Mining to Knowledge Discovery in Databases management". AI Magazine 17 (3): 37–54.
Geradts, Zeno; Sommer, Peter (2008). "D6.7c: Forensic Profiling". FIDIS Deliverables 6 (7c).
Harcourt, B. E. (2006). Against Prediction. Profiling, Policing, and Punishing in an Actuarial Age. The University of Chicago Press, Chicago and London
Hildebrandt, Mireille; Gutwirth, Serge (2008). Profiling the European Citizen. Cross Disciplinary Perspectives. Springer, Dordrecht. doi:10.1007/978-1-4020-6914-7. ISBN 978-1-4020-6913-0