FIN111 Lecture Notes - Lecture 11: Estate Planning, Income Statement, Risk Management
• Future and present values of multiple cash flows
• Valuing level cash flows: annuities and perpetuities
• Comparing rates: the effect of compounding periods
• Loan amortisation (ordinary annuity)
Introduction:
• To successfully manage finances, a person needs to have a personal financial plan
• The plan should include clients goals and objectives, put forward strategies and
recommendations and describe how goals will be achieved.
• Comprehensive analysis of all disciplines needs to be considered in a typical financial plan
Statement of advice:
• The purpose of an SOA is to communication advice and recommendations concerning the
financial affairs of a client.
• The statement of advice (SOA) must contain sufficient information to enable people to make an
informed decision about whether
• The advice is appropriate
• They should act on it
• An SOA is required under s.946A of the corporations act.
• Suitability rule - having a reasonable basis for the advice.
• The planner must be able to show:
• They made reasonable enquiries re the clients personal circumstances.
• They must consider and investigate the subject matter of the advice and
• The advice must be appropriate for the client.
• These elements require the planner to undertake an appropriate and reasonable level of
investigation into both the clients situation (know your client) and into suitable financial
products (know your product) to ensure that the advice provided is fit and appropriate to meet
the needs and requirements of the client.
• Information presented must be tailored to the clients level of financial literacy.
• A financial planner must provide the client with a statement of advice (SOA) at the same time
as, or as soon as practicable after, the advice is provided.
• SOA must disclose sufficient information to enable a person to make an informed decision
about whether the advice is appropriate to their situation and whether they should act upon the
advice.
Record of advice:
When is a statement of advice not required?
• When providing personal advice to clients having a small amount of funds to invest (<$15,000)
• Where the advice does not involve the purchase of a financial product and where the entity
providing he advice does not receive any remuneration.
• When providing further advise to a client.
In such cases, the financial advisor can provide an alternative advice document to the client known as
a record of advice.
Types of financial plans:
There are three types of financial plans (written advice) that financial planners are expected to
provide.
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• Pursuant to s.945B clients must be provided with a warning if advice is based on incomplete
information.
• Care should be taken to ensure that all strategies and discussions contained in the body of the
SOA are specific to the clients circumstances.
• Should be prepared with the clients level of financial sophistication in mind.
Introductory meeting- purpose:
• To establish the relationship between the planner and the client
• To provide the planner with an opportunity to learn about the client, their circumstances and
needs and to determine what the client is hoping to accomplish from the relationship.
• To provide the client with an opportunity to learn about the planner and the services they offer
and whether the planner is likely to be able to satisfy the clients requirements.
6 steps of the financial planning process:
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