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Financial Planning
Financial Planning
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This assignment does not require references, and all you need to do is focusing on answering the questions using your own words and understandings. Do not use bullet point, and all your answers should show as paragraph. Financial PlanningAssignment
This is not an academic report of the usual kind, so do not quote others, or use footnotes, or include references or a bibliography. Just focus on answering the questions using your own words and understandings. Do not use the bullet point, you need show your answer as the paragraph.
Questions:
(i) licensing 200 words (ii) disclosure, and 200 words (iii) compliance. 200 words (3 x 3 =9 marks)
(4 marks)
(4 marks)
(4 marks)
(4 marks)
(10 marks)
(5 marks)
Note: This assignment does not require any references but you need to read the textbook and understand the knowledge and answer above questions using your own words and understanding.
Prescribed text(s) and readings:
McKeown, W., Kerry, M., & Olynyk, M. (2014). Financial planning (2nd ed.). Milton: John Wiley & Sons (referred to as MKO).
Recommended text(s) and readings:
Banister, P. M. et al. (2015). Australian financial planning handbook 2015/16 or later. Pyrmont: Thomson.
CCH. (2015). Australian master financial planning guide 2015/16 (18th ed.) or later. North Ryde: CCH Australia Ltd.
Taylor, S., & Juchau, R. (2015). Financial planning in Australia (6th ed.) or later. Chatswood: LexisNexis Butterworths.
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REGULATORY GUIDE 90 Example Statement of Advice: Scaled advice for a new client August 2013 About this guide This guide is for Australian financial services (AFS) licensees, authorised representatives, and advice providers who give information and advice to retail clients. It explains how and why we have developed an example Statement of Advice (SOA). The example SOA was developed in consultation with stakeholders, and we acknowledge their valuable contribution throughout the process. REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client About ASIC regulatory documents In administering legislation ASIC issues the following types of regulatory documents. Consultation papers: seek feedback from stakeholders on matters ASIC is considering, such as proposed relief or proposed regulatory guidance. Regulatory guides: give guidance to regulated entities by: explaining when and how ASIC will exercise specific powers under legislation (primarily the Corporations Act) explaining how ASIC interprets the law describing the principles underlying ASIC’s approach giving practical guidance (e.g. describing the steps of a process such as applying for a licence or giving practical examples of how regulated entities may decide to meet their obligations). Information sheets: provide concise guidance on a specific process or compliance issue or an overview of detailed guidance. Reports: describe ASIC compliance or relief activity or the results of a research project. Document history This guide was issued in August 2013 and is based on legislation and regulations as at the date of issue. The guide was revised to include technical updates. Previous versions: Superseded guide Example Statement of Advice (SOA) for a limited financial advice scenario for a new client, issued August 2005, rebranded as Regulatory Guide 90 on 5 July 2007. Disclaimer This guide does not constitute legal advice. We encourage you to seek your own professional advice to find out how the Corporations Act and other applicable laws apply to you, as it is your responsibility to determine your obligations. Examples in this guide are purely for illustration; they are not exhaustive and are not intended to impose or imply particular rules or requirements. © Australian Securities and Investments Commission August 2013 Page 2 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client Contents A Overview…………………………………………………………………………………….4 Scope of this guide ……………………………………………………………………….4 Aims of the example SOA………………………………………………………………4 Sections of the example SOA…………………………………………………………5 Financial advice scenario ………………………………………………………………6 Example SOA ………………………………………………………………………………6 B Aims of the example SOA……………………………………………………………9 Legislative requirements………………………………………………………………..9 Purpose of an SOA……………………………………………………………………..10 Other communications with a client……………………………………………….12 C Sections of example SOA ………………………………………………………….14 Front cover…………………………………………………………………………………14 Summary of my advice ………………………………………………………………..14 Section 1: Important information about you…………………………………….15 Section 2: My advice to you………………………………………………………….15 Section 3: What else you need to know …………………………………………16 Authority to proceed…………………………………………………………………….18 What’s not included in the example SOA ……………………………………….18 Design and layout ……………………………………………………………………….20 Commissions ……………………………………………………………………………..20 Key terms ………………………………………………………………………………………..22 Related information………………………………………………………………………….25 Appendix 1: Financial advice scenario ……………………………………………..26 Appendix 2: Example SOA ……………………………………………………………….27 © Australian Securities and Investments Commission August 2013 Page 3 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client A Overview Key points The example Statement of Advice (SOA) in Appendix 2 is the focus of this guide. The guide explains and highlights the various parts of the example SOA. The example SOA is based on a hypothetical limited financial advice scenario that does not require a full financial plan. It illustrates a clear, concise and effective SOA in 20 pages or less. Our aim was to develop a worked example of good disclosure practice for a particular financial advice scenario that satisfies a basic level of disclosure and complies with the law. It is not meant to illustrate the giving of suitable or best advice. The example SOA should not be construed as showing what ASIC considers to be best advice. It is purely intended to show how an adviser could produce a complying SOA that is not a lengthy or complex document. Scope of this guide RG 90.1 The example SOA in Appendix 2 is the focus of this guide. The guide briefly runs through the aims of the example SOA, then explains and highlights the various parts of the example SOA, explaining what these sections should contain and why. RG 90.2 We designed the example SOA based on what we think is good disclosure practice (not best disclosure practice) for an SOA dealing with a comparable financial advice scenario. The example SOA is not intended to be used as a template, so it is very unlikely that an adviser could use it without significant modification. RG 90.3 We suggest that advisers consider the style, content and layout of the example SOA in light of the particular SOA they are producing. We recognise that the style, content, layout and length of an SOA will vary depending on various matters, including the complexity of the advice. RG 90.4 You may reproduce all or any part of this guide, in hard copy and/or in electronic format without asking for further permission from ASIC. Aims of the example SOA RG 90.5 The purpose of an SOA is to communicate to the client important and relevant information about the advice. Section B details the legislative © Australian Securities and Investments Commission August 2013 Page 4 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client requirements that apply to SOAs, and what we think needs to be included in an SOA to enable a client to be able to make an informed decision about whether to act on the advice. The example SOA and this guide are underpinned by our existing policy guidance on the SOA requirements, including the requirement for clear, concise and effective disclosure. RG 90.6 We have developed and designed the example SOA as a communication tool that sets out and explains the advice. It has not been designed for use as: (a) a compliance tool; (b) a mechanism to protect the providing entity against liability; (c) a complete record of all information which you would expect to find in the client file (i.e. the information kept about the advice provided to the client in order); or (d) a place to include additional information not required by law (e.g. educational material). RG 90.7 The example SOA is premised on the assumption that the adviser is maintaining information on a client file. This client file is assumed to show that the adviser meets the best interests obligation and related obligations in Pt 7.7A of the Corporations Act. RG 90.8 Clients and their advisers will have discussed a broad range of matters over the course of their relationship, which will help provide the background to the advice that is eventually provided. This information does not necessarily need to be included in the SOA, but can be provided to the client in other ways: see RG 90.36. Sections of the example SOA RG 90.9 Section C explains what information we have included in the example SOA and why. Table 1 summarises the sections included in the SOA. Table 1: Sections of the example SOA Front cover Sets out basic information the client needs to know before they read the contents of the SOA, including the name of the providing entity and their contact details, what the SOA is about, and why the client should read it. Summary of my advice Highlights the important information of the example SOA and indicates where more detail can be obtained. Section 1: Important information about you Summarises details from the client’s personal and financial profile that are relevant to the advice being provided and the basis of the advice. Section 2: My advice to you Clearly and concisely sets out what the advice is and the basis for the advice. © Australian Securities and Investments Commission August 2013 Page 5 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client Section 3: What else you need to know Addresses the conflicts of interest of the adviser and the licensee, as well as some of the other key questions the clients might have about the advice. Authority to proceed Generally, standard industry practice is to include some kind of document giving the adviser an ‘authority’ to proceed according to the advice. We have included this along with a checklist of important things the clients should make sure have been done before acting on the advice. RG 90.10 The last part of Section C details what is not included in the example SOA and why. The sections we have not included are: (a) a table of contents; (b) disclaimers and warnings; (c) product information; (d) financial services provided; and (e) additional information not material to the advice or the basis of the advice. Financial advice scenario RG 90.11 We have designed the example SOA based on a hypothetical and limited financial advice scenario (i.e. one that does not require a full financial plan) developed in consultation with stakeholders. This scenario is set out in Appendix 1. RG 90.12 It deals with personal advice about investing in managed funds and basic deposit products and personal insurance, given to a new client (i.e. not in an ongoing advisory relationship). The advice we developed is one of a number of possible outcomes. RG 90.13 While we have tried to ensure that the financial advice scenario is as realistic as possible, we recognise that there might be disagreement with some aspects (e.g. the fact that the scenario does not deal with general insurance). Our aim in releasing the example SOA is to illustrate clear, concise and effective disclosure and not to illustrate the giving of suitable or best advice. Example SOA RG 90.14 We have released the example SOA to illustrate a clear, concise and effective SOA in 20 pages or less: see Appendix 2. Our aim was to develop a worked example of good disclosure practice (but not necessarily best practice) for a particular financial advice scenario that satisfies a basic level of disclosure and complies with the law. © Australian Securities and Investments Commission August 2013 Page 6 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client RG 90.15 We will continue to monitor developments in SOA disclosure (e.g. any issues that might affect SOA disclosure arising from the implementation of the Future of Financial Advice (FOFA) reforms and ongoing feedback from stakeholders) to adapt and improve the example SOA over time. RG 90.16 For further example SOAs, see the appendix to Regulatory Guide 244 Giving information, general advice and scaled advice (RG 244). These examples are designed to illustrate the differences between factual information, general advice and scaled advice. They are intended to be helpful illustrations of our high-level guidance in RG 244. They are not intended to be scripts that advisers follow. For brevity, some factors are only touched on briefly whereas in a real advice situation, it is likely that the issue would be dealt with in more detail. RG 90.17 The advice in the example SOA should not be construed as ASIC giving what we consider best advice. The example SOA is purely intended to show how an adviser could produce a complying SOA that is not a lengthy or complex document. It is important to remember this purpose when considering the example SOA. RG 90.18 We consider that the example SOA demonstrates that advisers can produce clear, concise and effective SOAs without incurring unrealistic or uncommercial costs. In addition to information specific to the clients, the example SOA contains substantial generic information that would be included in every SOA produced by the adviser, including those recommending: (a) personal insurance produced by the adviser; and (b) investment in managed funds produced by the adviser. RG 90.19 In our example, our adviser only receives commissions from the issuers of the income protection insurance, because this is excluded from the conflicted remuneration provisions: reg 7.7A.12A of the Corporations Regulations 2001. While the ban on conflicted remuneration and other banned remuneration in Divs 4 and 5 of Pt 7.7A of the Corporations Act bans many benefits that an adviser can receive, some commissions are still allowable where they are excluded from the conflicted remuneration provisions. If an adviser does receive allowable commissions, you will need to provide details of this in the SOA: s947(2)(d). Note: For further guidance on complying with the conflicted remuneration and other banned remuneration provisions, see Regulatory Guide 246 Conflicted remuneration (RG 246). RG 90.20 Our general approach to compliance with the SOA requirements is set out in Section D of Regulatory Guide 175 Licensing: Financial product advisers— Conduct and disclosure (RG 175). We will continue to assess SOAs against the existing law and our existing policy. The example SOA is an illustrative © Australian Securities and Investments Commission August 2013 Page 7 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client aid. We encourage industry to consider it in preparing clear, concise and effective disclosure. We do not intend to assess any SOAs against the example SOA in a compliance review. © Australian Securities and Investments Commission August 2013 Page 8 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client B Aims of the example SOA Key points The example SOA is intended to help advisers comply with the SOA requirements in Pt 7.7 of the Corporations Act. This section sets out the relevant legislative requirements and also provides a brief overview of how the best interests duty impacts on the content of SOAs: RG 90.21–RG 90.24 As well as providing clear, concise and effective disclosure, we believe SOAs should communicate to the client important and relevant information about the advice, so that they can make an informed decision about whether to act on the advice. This should include clearly, concisely and effectively summarising the advice and the reasoning that led to the advice: RG 90.27. Over the course of the relationship between a client and their adviser, they are likely to consider and discuss a broad range of matters that help provide the background to the advice that is provided. While these may provide a context and background for the advice, the SOA may not need to include information about all of them in detail or even at all: RG 90.33– RG 90.36 Legislative requirements RG 90.21 We consider that the example SOA will help advisers comply with the SOA requirements in Pt 7.7. RG 90.22 Under s947B, 947C and 947D, an SOA must contain: (a) a statement setting out the advice (s947B(2)(a) and 947C(2)(a)); (b) information about the basis on which the advice is or was given (s947B(2)(b) and 947C(2)(b)); (c) a statement setting out the name and contact details of the providing entity and, where relevant, the authorising licensee (s947B(2)(c) and 947C(2)(c)–(d)); (d) information about remuneration, commission and other benefits capable of influencing the providing entity in providing the advice (s947B(2)(d) and 947C(2)(e)); (e) where the personal advice is based on incomplete or inaccurate information, a statement setting out the warning required by s961H (s947B(2)(f)) and 947C(2)(g)); (f) where the personal advice recommends the replacement of one financial product with another financial product, the additional information required by s947D; and © Australian Securities and Investments Commission August 2013 Page 9 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client (g) any other statements or information required by the regulations (s947B(2)(g) and 947C(2)(h)). RG 90.23 These requirements are subject to two general limitations, as set out in Table 2. Table 2: General limitations on requirements Level of detail The level of detail for each matter is generally what a person would reasonably require for the purpose of making a decision about whether to act on the advice as a retail client: s947B(3) and 947C(3). Clear, concise and effective The statements and information in an SOA must be worded and presented in a clear, concise and effective manner: s947B(6) and 947C(6). Note: For guidance on clear, concise and effective disclosure, see RG 175.186–RG 175.190. RG 90.24 Part 7.7A contains a series of obligations that financial advisers must follow in providing advice, which are designed to reduce conflicts of interest and ensure the adviser gives priority to their client’s interests. This includes a best interests obligation for financial advisers, which requires them to act in the best interests of their clients and to place their clients’ interests ahead of their own when providing personal advice to retail clients: s961B(1) and 961J(1). RG 90.25 The adviser is deemed to have satisfied this duty if they can prove they have taken the steps set out in s961B(2). One way for an adviser to prove they have satisfied this duty is to ensure the client file reflects that the adviser has taken these steps. However, this is not the only way an adviser may demonstrate they have acted in the best interests of a client. Note: See Section E of RG 175 for more guidance on our expectations for complying with the best interests duty and related obligations. Purpose of an SOA RG 90.26 The purpose of an SOA is to communicate to the client important and relevant information about the advice, so that they can make an informed decision about whether to act on the advice. The example SOA and this guide are underpinned by our existing policy guidance on the SOA requirements, including the requirement for clear, concise and effective disclosure. Note: See Section D of RG 175 and the Good Disclosure Principles in Section C of Regulatory Guide 168 Disclosure: Product Disclosure Statements (and other disclosure obligations) (RG 168). © Australian Securities and Investments Commission August 2013 Page 10 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client RG 90.27 As outlined in RG 175, we consider that an SOA should clearly, concisely and effectively summarise for the benefit of the client: (a) the advice; and (b) the reasoning that led to the advice, including: (i) a concise summary of the client’s relevant circumstances, as ascertained after making the inquiries required by s961B; (ii) the scope of the advice; (iii) the subject matter of the advice that has been sought by the client; (iv) a generic description of the range of financial products, classes of financial product or strategies considered and investigated for the purposes of s961B; (v) a concise statement of how the provider has acted in their client’s best interests. We consider that it is good practice to set out the basis on which a reasonable advice provider would believe that the advice is likely to leave the client in a better position if the client follows the advice; and (vi) a concise statement of the reasons why the advice and recommendations were considered appropriate, including in light of the alternative options considered, and the advantages and disadvantages for the client if the client follows the advice. Note: In RG 175.143, we say that the SOA is a document that helps a retail client understand and decide whether to rely on personal advice. For further guidance on preparing and providing an SOA, see Section D of RG 175. RG 90.28 Consistent with this purpose, we have developed and designed the example SOA as a communication tool that sets out and explains the advice. It has not been designed for use as: (a) a compliance tool; (b) a mechanism to protect the providing entity against liability; (c) a complete record of all information which you would expect to find in the client file (i.e. the information kept about the advice provided to the client in order); or (d) the place to include additional information not required by law (e.g. educational material). Note 1: For guidance on preparing and providing suitable personal advice, see Section B of RG 175 and Sections D–F of RG 244. Note 2: For guidance on including additional information in an SOA and the clear, concise and effective disclosure requirement, see RG 175.157–RG 175.200. RG 90.29 We impose a licence condition requiring AFS licensees to keep (or cause to be kept) a copy of every SOA and Financial Services Guide (FSG) provided © Australian Securities and Investments Commission August 2013 Page 11 REGULATORY GUIDE 90: Example Statement of Advice: Scaled advice for a new client by the licensee or by any authorised representative of the licensee to a retail client. The copies must be kept for at least seven years from the date that the SOA or FSG is provided to the client. Note: We have provided guidance on the record-keeping obligations in Section D of RG 175. We released Consultation Paper 214 Updated record-keeping obligations for AFS licensees (CP 214) on 31 July 2013. RG 90.30 The information we require to be kept under the record-keeping obligation will help to demonstrate that the adviser has satisfied the best interests duty and related obligations. RG 90.31 We have developed the example SOA on the basis that the adviser in our financial advice scenario is maintaining information on a client file. We have assumed that this information shows that our adviser meets the best interests obligation and related obligations. RG 90.32 We have not included in the example SOA all of the information we would usually expect to find in the client file. For example, the example SOA does not include information about the alternative products and strategies considered but rejected by the adviser in
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