FPC001B Economic and Legal Context for Financial Planning
1. Explore the role of intermediaries’ financial markets.
2. Explain the impact of current issues and key economic and financial indicators on the Australian and global financial markets.
3. Analyse the impact of government and monetary policy on the Australian financial markets.
4. Examine some of the major issues currently facing the financial planning industry in Australia.
5. Explore the main sources of law and the regulatory structure of financial services law in Australia.
6. Explain the various obligations imposed on participants by financial services legislation.
Case Study: Purchasing a property and investing
Jane has now decided that she wishes to invest part of her inheritance and has come back to you for further advice. Her visit was especially motivated by a recent plunge of the Australian dollar by over 20% against the United States dollar* and she was wondering if her objectives might need to change as a result of the current economic environment.
Furthermore, being a lawyer, she wants to know what legal protections are in place that could be relied on to ensure she receives the most appropriate advice from you.
On a somewhat unrelated note, Jane is also concerned about the financial wellbeing of her parents, Jill and Marcus Kurmond. They are both 62 years old and have recently had a discussion with Jane about their possible retirement aspirations. Jane suggested they get some advice from you as well, so that they may put some strategies in place enabling them to achieve their retirement goals. With their consent, she has collected the following information for you ahead of a meeting they have scheduled with you:
• Marcus is a construction worker and project manager, and his income before tax is $150,000 per annum. Jill works as an administrative assistant and earns $50,000 p.a. before tax.
• Marcus has a superannuation balance of $350,000 invested in a high growth fund. Jill’s superannuation balance is $120,000 and is currently invested in a growth fund.
• They own their home, purchased 20 years ago and currently worth $750,000. They have no dependants, no debt and have $150,000 cash in the bank.
• They would like to retire in four years’ time and will need $60,000 p.a. for living costs.
Question 1 | Economic impacts on strategy
Discuss how a rise in US interest rates might affect Jane’s three (3) objectives, as stated in the Analysis Task. Identify and explain two (2) potential impacts on each of her objectives.
Question 2 | Regulatory framework
Identify four (4) obligations placed on financial services providers under the current legislative and regulatory framework aimed at ensuring that consumers, like Jane, are protected and receive appropriate financial advice.
Discuss the legislative and/or regulatory source of these obligations and how the obligations are intended to protect consumers. Students may include legislative and regulatory framework obligations which are legislated but not yet implemented.
Question 3 | Market impacts on strategy
Define ‘sequencing risk’ in relation to retirement planning and describe how market conditions over the accumulation phase of saving for retirement can affect retirement outcomes. How might this risk affect the retirement goals of Jane’s parents? Include in your answer the following:
• definition of sequencing risk, with examples
• ways to mitigate against sequencing risk
• brief analysis of Marcus and Jill’s financial situation
• implications of market impacts on Marcus and Jill’s desired retirement age and funding requirements.
Question 4 | Legislative issues in retirement planning
Given the potential for government policy changes to both the superannuation and social security systems, discuss the possible impacts of such changes on Jill and Marcus’s planning for retirement. Please provide discussion on the following points in your answer:
1. Select and detail two (2) recent and significant changes since 1 January 2015 to the superannuation system.
2. Discuss the potential range of future changes to superannuation.
3. Discuss how these potential future changes might affect Jill and Marcus’s retirement planning.
Social security system:
1. Select and detail two (2) recent and significant changes since 1 January 2015 to the social security system.
2. Discuss the potential range of future changes to social security.
3. Discuss how potential future changes might affect Jill and Marcus’s retirement planning.
There is one (1) question that examines your knowledge in this section. Answer all questions.
Question 1 Regulatory requirements
Bettina and Gordon are both senior traders at a major stockbroking firm, Avalanche Stockbroking. Bettina has worked in Australian equities for 10 years and Gordon has 15 years’ experience in international equities. Bettina has a commerce degree, whereas Gordon demonstrated an aptitude for finance at a young age and was first employed by Avalanche in a junior position after high school. Bettina and Gordon have maintained their skills in their specific areas through internal and external seminars as well as training throughout their careers.
Bettina and Gordon decide to leave Avalanche in July 2018 and set up their own boutique asset management business, Winsome Financial (Winsome), providing full service broking of Australian and international equities.
Note: Winsome will not be seeking a licence to act as stockbroker in its own name.
The business will initially target superannuation funds and ‘sophisticated’ high net worth individuals as its clients. It will manage the funds of these clients in both discrete mandates and a pooled fund for each type of equity (Australian and international). They engage you as a consultant to their business while they transition from Avalanche.
Note to students: Provide appropriate legislative references in your answer and assume no waivers have been granted in respect of the training and competency requirements. Ensure that each part of your answer is clearly labelled and do not merge parts of your answer.
Explain the following to Bettina and Gordon:
(a) What authorisations is Winsome likely to need in its Australian Financial Services Licence (AFSL) and why? (5 marks)
(b) (i) What training and competencies will Winsome need to demonstrate collectively in order to obtain an AFSL? (5 marks)
(ii) Is Winsome likely to have the expertise and experience required to obtain an AFSL? If you do not have sufficient information to advise them, what additional information do you need to make a decision? (4 marks)
(c) Assuming Winsome decides to expand their market to include retail clients before 31 December 2018, what will Winsome be required to do? (5 marks)