Overview of Financial

Title Title Title

Planning in Australia
Sub-title

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Overview

• What is financial planning?

• Evolution of the financial planning
industry
• The economic environment
• Participants in the financial planning
industry

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What is financial planning?
What is financial planning?

https://vimeo.com/104697874

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What is financial planning?

A holistic process whereby a client’s total

position, both financial & non-financial, is
examined & a set of actions or a plan is put
in place which, once implemented, will
assist in meeting the client’s ultimate goals &
objectives.

Taylor, 2017 pg. 4

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Financial Planning Standards Board (FPSB)
definition
FPSB defines financial planning as a “process of
developing strategies to help people manage their
financial affairs to meet life goals.” In creating
their recommendations & plans, financial planners
may review all relevant aspects of a client’s
situation across a breadth of financial planning
activities, including inter-relationships among
often conflicting objectives.

https://www.fpsb.org/about-financial-planning/

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Strategic areas of financial planning
Reasonable basis

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Life stages

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 Life stages
Age/category Details

Young adult • Consumption versus commitment.

(18 - 24) • Studying, maybe working part-time or first full-time job,
first loans.
• Having a good time is important.
• Long-term saving not a priority.
• Maybe in a relationship, saving and security for the future
becoming important.

Young family • This age group covers a wide range.

(25 - 45) • First home mortgage.
• Young family with possibly one member of the couple not
working.
• Debt levels high.
• May have cash flow issues.
• Security is of major importance along with home and
children’s welfare.
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 Life stages
Age/category Details

Financial • Disposable income increasing as children leave home.

independence
(45-64) • Mortgage reduced significantly or repaid.
• Asset accumulation becoming a focus.
• Planning retirement and/or actively preparing for
retirement.
• Need to ensure adequate post-retirement income.
• Debt levels reduced or non-existent.
• Health considerations important.
Retiree • May have finished working full-time or working part-time.
(65+) • Looking for financial security, more focus on holidays,
assisting children financially.

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Why don’t people plan?

• Perceived insufficient assets or income

• Assume their financial position is sound
• Too difficult and time consuming
• Fear of unpleasant events
• Financial planning advice is expensive

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Problems of not planning

• Insufficient protection/ risk management

• Not enough money
• Paying higher than necessary taxation
• Unplanned estate planning
consequences
• Not reaching financial goals

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What value does a financial adviser add in an
age of information explosion?

• A vast amount of information is available to

clients via the internet
• The information may not be reliable:
– currency
– quality
– bias
– relevance.
• The adviser’s expertise will be required to:
– filter
– interpret
– educate.

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What does a financial planner do?

• Follow the financial planning steps with their

clients
• Lead generation to prospective clients -
marketing campaigns, establish ‘centres of
influence’ & referral networks, run seminars &
workshops; seek referrals
• Determine the types of clients they will source &
how they will run their practice e.g. retirees or
small business owners
• Manage their office & relationships with their
licensee & other suppliers
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Steps in the financial planning process

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What is a financial plan (SoA)?
• Statement of Advice (SoA)
• A financial plan
documents:
– where a client is now
– where they want to go
– how they will get there.
• A financial plan considers:
– relevant timeframes relating
to goals
– an analysis of client
tolerance for risk.

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Evolution of the financial
planning industry
Evolution of the Australian FP
industry
• Up until 20-25 years ago the financial planning industry was
relatively disjointed. Advice was provided in isolation e.g.
accountant, bank manager, insurance agents
• Insurance advisers have morphed into the financial advisers
• The Financial Planning Association (FPA) was formed in the 1990s
(amalgamation of two associations)
• Changes in the economic environment led to a change in the
adviser role in the 1980s & 1990s
• The emphasis has moved to more professional, holistic advice
• Advice depends on external factors (economic environment &
business cycle) – micro & macro variables including: interest
rates, inflation, unemployment, global tensions, terrorism &
overseas economies.

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Drivers of the financial planning industry

• Floating of the Australian Dollar - 1983

• Compulsory superannuation contributions (1992) &
other superannuation provisions
• Property trusts collapses & freezes 1990s
• Stock market crashes – Australia 1987, Japan 1994, US
bond markets 1994
• Global financial crisis 2007/08 (originating from US sub
prime loans)
• Economic factors such as government shifts in policies,
interest rates etc.
• Demographic factors
• Government privatisations e.g. Telstra

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Financial services regulatory reforms

• Financial services regulatory reforms - Rippoll &

Cooper inquires 2009; Henry Tax Review 2010; FOFA
2011
• Murray Inquiry & PJC – increase standards of
professionalism
• 2016 – accountants required to be licensed like financial
planners due to removal of exemption
• TASA (Tax Agent Services Act)- financial planners to be
registered by 2017
• Financial Adviser Standards & Ethics Authority (FASEA)
• Banking Royal Commission (2018)

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The economic environment
Why is understanding the economy
important?
• What is happening with other economic
indicators during each phase?
For example, are interest rates rising or falling? How does the
Federal Government attempt to stabilise the business cycle?
Where should I invest my money?
• How each phase can impact on your
customers‘ investment and purchasing
decisions?
Your customers will make assessments about the general health
of the economy according to the phase within the business cycle.
This assessment may influence their financial decisions.

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Impact of economic environment

• Many factors impact on client advice & driven

the demand for advice:
– Interest rates
– Inflation
– Unemployment
– Savings record of Australians is poor
– Issues re self-funding of retirement
– Availability of credit
– Ageing population & declining birth rates
– Government initiatives for investment
– Changes in government policy.

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The economic cycle

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The economic cycle
• The economic
environment is cyclical
in nature
• The business cycle
moves from recession
to growth recovery to
peak to contraction
then back to recession

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Economic indicator-Inflation

CPI is 1.8%
Sept 2017

http://www.rba.gov.au/inflation/measures-cpi.html

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Economic indicator-Exchange rates

AUD/USD
24 Nov 2017

https://www.rba.gov.au/statistics/frequency/exchange-rates.html

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Economic indicator-GDP
growth

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https://www.rba.gov.au/chart-pack/au-gdp-growth.html
Economic indicator-interest rates

1.5%
Nov 2017

http://www.rba.gov.au/statistics/cash-rate/

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Economic clock

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Participants in the financial
planning industry
Participants in the industry

• Regulators — ASIC, APRA, ATO, ACCC

• AFSL holders
• Financial advisers
• Professional associations
• Product providers
• Educators
• Clients/ investors

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Recap & Next Week