The Financial Planning Profession

Week 1: The Financial Planning Profession

* Introduction

o Develop plan to meet client's life goals

o Ongoing review-changing environment, client needs

o Formal qualification and ongoing accreditation

* Why do clients need financial planning?

o Budgeting-manage income, expenses

o CF management-e.g. loan repayment

o Savings planning-expenditure and wealth creation

o Asset acquisition-home and investments, gearing

o Investment planning-asset allocation, timing

o Tax planning-tax strategies to maximise wealth, minimise tax

o Wealth protection-insurance and structures

o Capital protection-risk v return, longevity

o Complexity of fin. markets and products

o Legislative changes-tax and super law changes

o Financial independence in retirement

* Why don't people undertake financial planning?

o Lack knowledge: don't know about FP or their financial position can be improved

o Insufficient resources: Asset or income too low for FP to be useful

o Too complex: Procrastination and intrusive

o Avoid unpleasant topics: e.g. death, disability

o Can't afford: consider it costly

o No tangible value: can't see value of the advice

* FP Profession

o FPA, FINSIA, ANZIIF

o Heavily regulated for financial advice providers

o Minimum training requirements and licensed by ASIC

o Licensing: AFSL holders (licensee) or authorised reps of license holders

o Steps to become FP:

 Bachelor degree in accounting, finance, economics.

 ASIC RG 146 training and other on the job training (6m to 2yrs) if they want to provide financial product advice

 Select a license holder (employer). Ultimate responsibility for advice given and ensure reps meet compliance and training requirements

 CFP Program gives FPs credibility and certification with FPA (FP of Australia)

 If providing specialised or securities advice, should complete competency training in various products/strategies.

 FP undertake CPD (continuing professional development)

o Required skills/knowledge

 People skills (interview, trust)

 Information gathering, analysing

 Consider alternative strategies and preparing financial plans

 Business planning and business acumen

 Negotiation skills

 Mentoring, coaching and teaching skills when giving advice

 Knowledge of global economy, trends, investments and strategies

 Compliance and management skills

o Where do FP work?

 Big4 banks and wealth management firms (retail, business, private banking levels)

 Boutiques, brokerage firms, accounting, credit-counselling firms

 Own practice or in partnership with accountants/mortgage brokers

o Recent FP Industry News

 Storm Financials placed into VA and ceased trading in 2009.

 FOFA (Future of Financial Advice) Legislation

* Ban upfront commissions on new investments and super and volume based payments

* Client must agree to ongoing advice fees

* FP must have client's best interest in mind

* Financial Planning Practice Planning Activities

o Select a practice structure

o Prepare business plan

 SWOT

 Statement of how the FP aims to perform

 Continuously referred to and reviewed

 Goals and objectives

 Audience of the business plan include investors, lenders, key executives

o Find mentor

o Create advisory board (outsource)

o Back office team

o IT system

o Marketing plan

* Business Plan Structure

o Executive summary

 Written last, outline of entire business plan

 Describe the business, activities and management

 Business opportunities and reason to go into the market

 Overview of market research, analysis and critical risks

 Summary of marketing plan

 Summary of financial and operational plans

 Financing required to start business, what type and for what purpose

o Introduction

 Business description

 Industry description and current conditions

 Opportunities

o Market research and analysis

 Is there a market for your service or product

 Is the market growing

 Market