Introduction
• A vast amount of DATA is available to your clients, but an adviser
need to use their judgement, skill & experience to utilize this data and
transform it into useful INFORMATION!
• Building a trusting relationship depends on a continuous process of
conscientious work and communication skills.
• The financial planning process could be categorized into six steps.
• Comprehensive data-gathering is crucial.
• Investment strategies will depend on a variety of factors, including,
but not limited to the client’s tolerance for investment risk.
TAFE Meadowbank - Diploma of Financial Planning 2012
Information Explosion
• A vast amount of data is available to clients
o Internet / Websites
o Email
o Newspapers, TV news and magazines
• The information may not be reliable – i.e.
o Currency – Is it current?
o Quality – Does it have depth and rigour?
o Bias – Is there a another agenda – i.e. is something being
promoted?
o Relevance – How relevant is to the client’s actual situation?
• The adviser’s expertise will be required
o Filter
o Interpret
o Educate
o Utilize
TAFE Meadowbank - Diploma of Financial Planning 2012
The adviser’s expertise will be required
An adviser’s expertise is required for many reasons, including:
• To document a snapshot of current situation
• To help sets goals for future wealth creation and wealth protection
• To ensure tax efficiency
• To sort through the data overload & convert this data into utilizable
information
• To provide technical expertise
• To develop a plan & strategies that the client can implement to
achieve their goals.
TAFE Meadowbank - Diploma of Financial Planning 2012
The Client–Adviser Relationship is Crucial
• A climate of trust must develop from the outset.
• Advising requires a variety of skills, including
• communication
• analytical
• technical
• attention to the big picture (i.e. goals) but also able to focus on the micro issues
(implementing and analysis of data)
• Advisers must have a reasonable basis for their recommendations (KNOW YOUR
CLIENT AND KNOW YOUR PRODUCT; Sec 945A & B FSRA).
• An adviser’s duty requires that all recommendations are appropriate to the investment
objectives, risk profile, financial position and all the needs and circumstances of client
•It is therefore important to note that there is no requirement for the advice to be “best”,
it is merely required to be “appropriate”
TAFE Meadowbank - Diploma of Financial Planning 2012
The Client–Adviser
Relationship is Crucial
• Advisers have a fiduciary duty to be objective, to act in the best interest
of client and to be honest, ethical, efficient and fair.
• Advisers assist clients to:
—identify goals
— making informed decisions about their financial affairs
— protect their incomes and assets and to use them to best
advantage
— recommend wealth creation and wealth protection strategies and
products that are appropriate to the client’s needs and
circumstances.
TAFE Meadowbank - Diploma of Financial Planning 2012
The Financial Planning Process
• A financial plan is called a Statement of Advice or SOA.
• It is a comprehensive and legal document which illustrates:
— where a client is now (present position)
— where they want to go (goals and objectives)
— how they will get there (recommendations, strategies &
implementation)
• A financial plan considers an array of information, including but not
limited to:
— relevant timeframes relating to goals
— an analysis of client tolerance for risk
__ Alternative strategies
TAFE Meadowbank - Diploma of Financial Planning 2012
The Financial Planning Process
• Planning must be collaborative
— The Client & adviser must together determine whether and how
an individual can meet stated life and/or financial goals
— The client position, the recommendations, implementation &
fees must be discussed, negotiated and agreed
— The client bears a large responsibility in relation to the ultimate
success of the plan; hence proper management of financial
resources and financial discipline is essential
TAFE Meadowbank - Diploma of Financial Planning 2012
The Financial Planning Process
• Recommendations must have a “reasonable basis”
— For “holistic” advice, the total client position must be evaluated –
— Account must be taken of a host of issues, including but not
limited to: the socio-economic environment, legal issues, client
personality and financial status as well as any immediate concerns
— Both financial and non-financial issues that will impact on overall
outcomes should be considered if client goals and objectives are to
be fulfilled
TAFE Meadowbank - Diploma of Financial Planning 2012
Financial Planning Process
A holistic financial planning process involves six steps
• Step 1 — Gather data. The collection and assessment of
relevant financial and personal data– including the client’s
ability to tolerate financial risk
• Step 2 — Analyse the data and determine the objectives
and goals of the client
• Step 3 — Identify financial problems
TAFE Meadowbank - Diploma of Financial Planning 2012
Financial Planning Process
• Step 4 — Prepare the Statement of
Advice (SOA); a written plan containing
options and recommendations
• Step 5 — Make recommendations and
implement the plan
• Step 6 — Monitor and periodically
review the plan
TAFE Meadowbank - Diploma of Financial Planning 2012
Step 1. Data Gathering
• Adviser must give a Financial Services Guide, FSG (also known as a
Financial Services and Credit Guide or FSCG) to a person as soon as
practicable once it is clear they may become a client. This is a very important
requirement!!
• FSG should include
— Identity of AFSL holder and authorised representative status
— Services available
---- Version Number of the FSG
— Associations and any conflicts of interest
— Fee disclosure
— Dispute resolution processes, including contact details of the
Financial Ombudsman service
---- Details of Privacy legislation
TAFE Meadowbank - Diploma of Financial Planning 2012
Step 1. Data Gathering
Data collection is the critical first step
You would require a compliant Financial Fact Finder to complete the
data – a Fact Finder can range from 5 to 15 pages, depending on the
background of the client/entity and the advice that is being proposed
or considered! It could also include a budget planner as a appendix
or a separate attachment
— Quantitative data
Income and expenditure, assets and liabilities
— Qualitative data
Goals, Feelings, hopes, career
prospects,
ambitions, relationships, attitudes to risk, medical and personal
issues
TAFE Meadowbank - Diploma of Financial Planning 2012
Step 1. Data Gathering
Data collection instruments are
many and varied, but the information
collected will include:
— Personal detail
— Current situation
— Financial position
— Goals and objectives
— Risk tolerance
— Insurance and risk management
issues
— Investments
— Superannuation and retirement
— Social security
— Estate planning
TAFE Meadowbank - Diploma of Financial Planning 2012
Step 2. Analysis and Strategy
Formulation
Need to determine:
• Current cash flow
— Surplus (savings capacity or income minus expenditure)
— Deficit (debt or asset sales)
• Net worth — Statement of assets and liabilities (or assets minus liabilities)
• Goals
— What assumptions about the future are realistic?
— What goals are achievable?
The client(s) need to sign off on the fact fidner.
It is best practice for the adviser to also sign off and provide the client
with a copy of this document.
Remember the Data gathering and fact finding stages are extremely
important because the form the foundation of the other ensuing stages!
TAFE Meadowbank - Diploma of Financial Planning 2012
Step 2. Analysis and Strategy Formulation
Establish risk tolerance
• Review investment risk profile – this is an important process that
the client needs to complete (it is highly recommended that the
adviser be present to guide the client through this questionnaire)
in order to ascertain their investment risk profile.
•The risk profile questionnaire determines the clients attidute to
investment risk by asking questions related to time frame,
investment experience and what if type questions (i.e. what would
you do if your investment decreased by 20%, etc)
• If there is more than one client (i.e. husband and wife), then both
parties need to complete and sign off on their own risk profile
document. It is best practice for the adviser to also sign off and
provide the client with a copy eg
Refer to www.myrisktolerance.com/yourriskprofile
Categorise the client’s as a risk profile type
• Relate risk profile to asset allocation
• Consider principles of behavioural finance
TAFE Meadowbank - Diploma of Financial Planning 2012
Step 3. Identify problems
Problems may include:
• Inadequate insurance
• Inadequate retirement saving
• Spending exceeding income
• Excessive high interest and nondeductible debt, such as credit card debt
• Poor financial administration and record
keeping
• Tax inefficient ownership of assets
• Structures that do not maximise social
security entitlements
TAFE Meadowbank - Diploma of Financial Planning 2012
Step 4. Written SOA
Test scenarios and document conclusions
and recommendations regarding
• Insurance and estate planning
• Adequacy of retirement savings
program
• Asset allocation (consistent with risk
profile)
• Investment vehicles
• Investment products
The Statement of Advice is a
comprehensive document with explicit
recommendations to meet client goals.
TAFE Meadowbank - Diploma of Financial Planning 2012
Step 5. Implementation
• Critically important phase
• Cements future relationship with client
• Implementation schedule designed and
documented
• Client service agreement signed
• Summary of client-adviser agreement —
confirms actions as specified in written
SOA
TAFE Meadowbank - Diploma of Financial Planning 2012
Step 6. Monitor and Review
•Necessary to ensure currency and appropriateness of plan for client needs
• Completes the planning process
• Frequency of review depends on many factors — eg how often, size of
portfolio, market changes and/or changes in personal circumstances (death,
disability, sickness, divorce, marriage, birth of children, change of employment
etc)
• Generally annual reviews are recommended – an adviser must provide the
client with at least an annual letter or other form of contact, informing them
that it is time for their annual review – in other instances (such as the
changes in personal circumstances listed above), the adviser that was
provided in the SOA may no longer be relevant and therefore the adviser
should pro-actively initiative a review
• It should now be obvious that this Six Step process is not linear but could be
circular – i.e. a review could lead to additional data gathering (which could
lead to a new fact find and FSG, investment risk profile and a new SOA etc)
• The cost for the review needs to be clearly iterated by the adviser, prior to
the review.
• It is best practice for all costs to be quoted inclusive of GST
TAFE Meadowbank - Diploma of Financial Planning 2012
Summary
• A vast amount of information is available to clients, but an adviser’s
judgement and experience are required.
• Building a trusting relationship depends on conscientious work,
excellent communication and professional skills on the part of the
adviser.
• The financial planning process has six steps, but these could loop back
– i.e. step 6 could go back to step 1 or step 2 etc.
• Comprehensive data-gathering is crucial.
• Investment strategies will depend on the client’s tolerance for risk,
investment time frame and other factors.
•Remember the saying:
You don’t get a second chance to make a first impression!!
TAFE Meadowbank - Diploma of Financial Planning 2012