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Course Overview

Paul Karehnke

Financial Planning
Financial planning is about making personal
financial decisions to ensure that we have
money to do what we want to do in life!

Sounds simple?
Its not rocket science.
It requires
Common sense
Emotional awareness
Communication and empathy
Up-to-date knowledge of the regulations, theories
and markets
Clear economic reasoning
Organization skills and execution effort

Financial decisions that people make
Consumption versus Savings
Buy that car, iphone, holiday
Ill put $100 per week into a long term saving account.
Ill add 6% to my superannuation?
HECS or paying outright?
Pay by credit cards or from loan?
Cash, margin account, CFD, or home loan?
How do I pay them off? Are the expenses tax

Should I invest my savings in term deposit?
Which stock should I add to my portfolio? Is it the right
time to buy?
How do I know if this managed fund is suitable for me?
Asset Protection
Should I buy life insurance? Car insurance? How much?
How would family breakdown affect my finance and
What will happen to my wealth if I die?

Retirement decisions
When will I retire? Can I afford an retire at 45?
Will I have enough money? What will I be doing in
retirement? How much money do I need?
What are other funding method and how much
age pension will I get?
How should I invest the money upon retirement?
How do age pension interact with my assets and

What is this course about?
Accumulating financial planning knowledge.
Understanding peoples real financial goals and
Applying knowledge to deploy resources to achieve the
best financial outcome.
Oral and written communication skills.
A deeper understanding of the industrial organization
of the wealth management industry.
Managing your time well.

Personal financial planning and management
Profession financial planning and advisory
Financial Advisors
Financial Planners

Course Level Learning Outcomes
Understanding the wealth management and
financial planning industry
Set and assess financial goals
Create budget and saving plans to accumulate
Discuss and assess risk profiles
Discuss the Australian taxation system and
suggest tax effective ways to build wealth
Recommend appropriate asset allocation
and long term investment strategies
Understand the valuation and selection
criteria of major investment products such
as managed funds and financial securities
Evaluate the investment value and select
finance for residential properties
Create and assess the effectiveness of
retirement strategies such as public and
self managed superannuation funds
Evaluate and arrange financial affairs to
better access social security benefits
Select appropriate insurance products
Consider the financial consequences of
family relationship and instruments
available to reduce uncertainty
Arrange for the creation of instruments to
distribute estate and non-estate assets
Construct a financial plan

This Course Is NOT About
Advanced or sophisticated finance theory
Get rich quick methods
Short term trading strategies such as arbitrage
or day trading
Stock picking skills

Taylor, S., 2017, Financial Planning
in Australia 2017 Essentials Edition,
2nd ed., LexisNexis Butterworths.
Standard of Practice Handbook (10 th

Edition), CFA Institute

Australian Master Financial Planning
Guide 2016-17, CCH.
Clitheroe, P., 2009, Making Money:
The Keys to Financial Success, New
and Updated, Penguin.

Tasks %
Tutorial Participation 30
Active participation 5%
Weekly blog (Reflection and Financial Plan)
Research 7.5%
Logic and writing 7.5% PLG3a
Individual oral presentation
Research 5%
Oral communication 5% PLG3b
Mid-term Exam Week 6 @ lecture time 25
Final Exam 45

Unit 1
Role of Financial Planners and the
Financial Planning Process
Taylor Chapters 1-3
ASIC RG146 & RG175

Learning Outcomes:
You Should Be Able To
Discuss the need for financial planning service
Discuss the relevance of economic conditions and
behavioral biases to financial planning
List the six steps of financial planning
Discuss the historical development and current
structure of the financial planning industry in
Discuss the regulatory framework and ethical
issues of the financial planning industry

Your friend, Jack (an IT profession)
ask you, a B.Com Finance graduate
for stock tips.

What would you say?

How would a financial advisor

Unit 1.1 Financial Planning,
Economic Conditions, and
Behavioral Biases

The Need for Financial Planning
Ageing population lead to a shift of retirement
funding responsibility to individuals.
Homes in Australian and many capital cities in
Asia are not very affordable hence
prospective home owners need to save up.
People need to save and do have more wealth
to manage and protect.
Complexity in taxation, superannuation, social
securities and asset protection laws and

How can a financial planner help?
Up-to-date, relevant and reliable information
Tax and other regulations, e.g. superannuation
Financial and insurance products
Technical expertise to
interpret information
create appropriate strategies
coach individuals be to more rational (less
emotional) in making financial decisions
Specialization of labour and capital
Consider the Business Cycle
Economic environment is cyclical in nature
Planner must be aware of the impact of the
economic environment on investment market
and client psychology

Data for Economic Conditions
Interest rate
Economic activity
And others

and the Market Cycle
Business cycles are about the past and present
A recession is typically defined as 2 consecutive
quarters of GDP decline, i.e. always need data
Market cycles are about the future and changes
in investor expectations and risk tolerance
This is expressed in the buys and sells in the market.
Risk capital of individuals and institutions is in short
supply after major downturn.
Aggregate risk aversion is likely to be higher after
significant market downturn.

The GFC is a prime example
downturn of the U.S. housing market and bursting of credit bubble
significantly reduced aggregate risk bearing capacity and increased
funding needs -> sellers dominated markets of risky assets and
prices undershoot the fundamentals
The opposite happens in boom phase of a market cycle
Fundamentals improves, investor confidence increases, leverage
increases, asset price increases, real investment activity increases
Growth prospects and asset valuation ratios also fluctuate
over market cycles.
These cyclical behaviours have implications for asset
allocation and security selection strategies.

Common Behavioral Biases
Individuals are potentially susceptible to many
other biases in making investment decisions
Propensity to save (choose suboptimal levels)
Limited attention (focus on attention grabbing assets)
Overconfidence (results in excessive trading)
Disposition effect (ride on losses and cut profit)
A financial advisor might be able to reduce the
impact of these biases on the financial health of

Also the Media/Attention Effect
How do news channel and popular press report
as the economy go through the boom-bust cycle?
How might individual investor behave if they just
focus on the press?
All the News Thats Fit to Reprint: Do Investors
React to Stale Information? Tetlock, Paul C.,
2011, Review of Financial Studies24, 1481-1512.
In general it is important to think about whether
individuals biases aggregate to the market level
and affecting prices.
Source: http://www.rba.gov.au/chart-pack/household-sector.html 27
More information at http://www.abs.gov.au/AUSSTATS/abs@.nsf/Lookup/5202.0Main+Features12007?OpenDocument
Unit 1.2 The Financial Planning

Give me a plan with no

Financial Planning Standards Boards
Financial planning is the process of
developing strategies to assist clients in
managing their financial affairs to meet life
goals, which involves reviewing all relevant
aspects of a clients situation across a large
breadth of financial planning activities,
including inter-relationships among often
conflicting objectives.

Write Down Your Goals and Desires

Some Inspirations
Owning your own home in a certain part of town
Starting a company
Being debt free
Driving a particular type of car
Taking luxury holidays
Having a large investment portfolio
Have time for your self and hobbies
Hanging out with friends
Looking after your parents
Low carbon living

The Financial Planning Process
1. Collect and assess the financial data of the client.
2. Determine the objectives and goals of the client.
3. Identify any financial problems that may exist.
4. Prepare a written plan which contains
alternatives and recommendations.
5. Implement the agreed written plan.
6. Review of the plan.

This process is embodied in the FPAs Code of

Professional Practice.
Risk Profile and Assessment Tools
Part of the data collection process.
Portfolio picker (i.e., a questionnaire which
directly leads to "prefabricated" investment
portfolios) has been heavily criticised, see
Good risk profiling should consider
Risk tolerance (psychological attribute)
Risk capacity (financial attribute)
No substitute for cues from talking and face-to-
face interactions.
Unit 1.3 The Wealth Management
and Financial Planning Industry

The Wealth Management Industry
Value Chain

Supported by lots of supporting and enablingMonitor Money
services and products eg. legal, tax, audit,
ipac equity partners
consulting, practice management coaches,
marketing, succession planning, IT etc

Source: Peeyush Gupta

A Brief History
The birth of the wealth management industry
in Australia is around the time of Keatings
deregulatory reforms in the early 1980s
The two key drivers were
financial de-regulation
increasing tax complexity, super, and including
interactions with social security systems
Senior life writers, entrepreneurs and banks
get into the financial planning space
At the product end, many new domestic and
overseas entrants setup.
Platforms (master trusts, wraps, SMAs, IMAs)
emerged in the early 1990s and became
strategically important for product distribution
Boutique fund managers came of age in the
Consolidation followed, both amongst life
insurers and the banks.
Crises and Controversies
Product failures
mortgage and property trusts
agri-business schemes
Advice failures (e.g. Storm Financial).
Recurrent crises triggered regulatory and
industry bodys responses.

Financial Planning Industry
Client and advisors
Financial products providers and dealers
Professional assoc and educators
The financial planning environment works
within Regulatory environment
ASIC is the key direct regulator of the financial
advisory industry
ClientAdvisor Relationship
Development of trust
Fiduciary duty (Best interest duty under FOFA)
Advisor is expected to assist client
to identify goals
in making informed decisions regarding money
and assets
to choose products that suit needs and

Part E of ASIC RG 175 requires advisors to
Act in the best interests of their clients
Safe harbour RG175.248
Provide appropriate advice
Warn clients if advice is based on incomplete or
inaccurate information
Prioritise the clients interests

Financial Planning Associations
Profession accounting bodies such as the CPA and ICAA
have personal financial planning specialization.
CFA Institute includes private wealth management and
investment counselling in the body of knowledge.
The Financial Planning Association (FPA) is the only
professional organization that is dedicated to financial
Part of the global network of FPAs
Certified Financial Planner (not legally mandatory) is a
global brand
Code of Ethics

One definition:
The expectations of a society or culture as to how people should
act towards each other.
Compliance is about meeting minimum regulatory
Ethics and professional standard is about how to deliver
the best outcome.
An ethical framework is supported by and reflective of
community values.

Financial Planning Australia
Code of Ethics
1. Client First
2. Integrity
3. Objectivity
4. Fairness
5. Professionalism
6. Competence
7. Confidentiality
8. Diligence

Unit 1-4 Regulations in Financial

Financial planners is a loose legal term and represent a
diverse group of practitioners
The FPA attempted to restrict the term but the bill that passed
the house of representative was rejected at the senate.
Direct regulations on financial planning are derived from
Chapter 7 of the Corporations Act in relationship of
financial product advisors.
ASIC provides a number of Regulatory Guidelines
Other regulations that financial planners need to know
relates to
common law
regulations on financial products, superannuation, insurance

Financial Products
The Corporations Act s763, 765
They include
A security (e.g. shares or bond issued by a company)
An interest in a registered scheme
A derivative
A contract of insurance
A superannuation interest
A deposit-taking facility
A debenture or government bond
Foreign exchange contract
Financial planning
But exclude health insurance, funeral bond and reinsurance

Regulations: Licensing
Financial products dealers and advisers are
required to be licensed
Corporations Act Part 7.6 Division 5
Detail implementation is based on ASICs
Regulatory Guidelines (RG) which are updated
from time to time
ASIC RG 146 Licensing: Training of financial
product advisers

RG 146
Training of Financial Product Advisers
Only licensees or their authorized
representatives may legally offer advice on
financial products.
RG 146 Tier 1 accreditation is the minimum
educational requirement in order to offer
personal financial advice professionally.
Approved training courses are listed in the
ASIC Training Register.

Tier 1
All financial products except those listed under Tier 2
Tier 2
General insurance products except for personal
sickness and accident
Consumer credit insurance
Basic deposit products
Non-cash payment products
First Home Saver Account deposit accounts by a bank,
building society or credit union.

Scope of ASIC RG 146
Knowledge requirements
Generic knowledge
Specialist knowledge
Skill requirements

Specialist Knowledge
Financial planning
Managed investments
Foreign exchange
Deposit products and non-cash payment
Approved Training Courses @ UNSW
ASIC Regulatory Guideline 146 Compliant
B.Com (Finance)+FINS2643+FINS3637
M.Com (Finance)+FINS5510+FINS5537
Print a copy of the University of NSWs courses to
keep with your transcript
Note the School does not issue a separate certificate
or provide any mapping to external curriculum.
The ASIC Training Register has been
under review since 24 September 2012
Until ASIC has implemented a mechanism to replace the ASIC
Training Register, it will not take any action against an AFS
licensee for breach of the licence conditions, provided that
the licensee is satisfied that each individual who provides
financial product advice has satisfied one of the following:
completed training courses before 25 September 2012, which were listed on
the ASIC Training Register, at an appropriate level that are relevant to their
functions and tasks
been individually assessed as competent before 25 September 2012 by an
assessor listed on the ASIC Training Register
completed training courses that an authorised assessor has approved as
meeting the relevant training standards in RG 146, or
been individually assessed as competent by an authorised assessor (as defined
in RG 146).

Current Developments
The Corporations Amendment (Professional Standards of
Financial Advisers) Bill 2016 was passed in February 2017.
It amends the Corporations Act 2001 to raise the education, training
and ethical standards of financial advisers.
It requires providers of personal advice to retail clients on complex
financial products:
to hold an approved degree qualification,
undertake a professional year meeting the requirements to be set out,
pass an approved exam,
undertake continuous professional development to be set out.
However: The exact implementation is not known yet, and the
changes are scheduled to take effect in January 2019. Further
information can be found here:
Regulatory Reforms Since 2001
Financial Services Reform Act (2001)
Forms parts of Chapter 7 of the Corporations Act
A single licensing regime and a single set of
regulations for financial product advice, sales and
The Ripoll Inquiry
Result in the Future of Financial Advice Bill 2012
The Cooper Review
Superannuation fund structure and fee
Low cost no frill product to be made available
Successive changes to taxation on
RG175 Conduct and Disclosure
Specifies the requirements in providing
financial advice such as
The provision of financial service guide (FSG)
Statement of advice (SOA)
General advice
Personal advice
Warnings under different situations.
Product disclosure statement (PDS)
The suitability rule
Financial Services Guide (FSG)
The law requires financial advisors to provide
their clients with the FSG as soon as
practicable and before offering any advice
RG175 specifies that the FSG should include
Identity of Dealer/Licensee and authorised representative
Services available
Fee disclosure
Dispute Resolution Processes

Remuneration Practices
that Reduce the Conflict of Interest
Traditionally the commission based remuneration
structure generate an incentives for planners to sell
high risk (high fee) products and encourage switches
between products, sometimes to the clients
Require Disclosure in dollar (RG 175.177)

Future of Financial Advice
(FoFA Bill 2012)
From 1 July 2013
Best interests duty
No commission payment to advisers on investment
and superannuation products
Asset based fee structure (e.g. 1% p.a. of the value of AUM,
Asset Under Management) is still possible under FoFA
The CPAs new standard goes further to rule out AUM fee
Ongoing service can be charged only if client affirm
the annual fee statement at every 2 years.
This opt-in obligation was subsequently removed in July
2014. 61