Financial Planning in Australia - TAFE NSW



Financial Planning in Australia 2015 Essentials EditionNote to reader: These quizzes were designed for the Financial Planning in Australia – Advice and Wealth Management 6th edition; you may select appropriate questions for students from these formative multiple choice questions. Chapter 4: Constructing a Statement of Advice Total number of questions: 10Total number of questions: 101. All retail financial planning advice must be:a. The best advice possibleb. Standardised and compliantc. Appropriate, goal based and personal d. Based on the best performing investmentsFeedback a: Incorrect. Advisers are not under an obligation to provide the best advice possible; rather they are obliged to provide advice which is appropriate to the client’s personal needs and resources. Feedback b: Incorrect. Advice must be compliant but it must definitely NOT be standardised. The adviser must provide advice which is appropriate to the client’s personal needs and resources. Feedback c: Correct. Advisers are not under an obligation to provide the best advice possible; rather they are obliged to provide advice which is appropriate to the client’s personal needs and resources and in the best interest of the client. (Answer page reference: pg. 145).Feedback d: Incorrect. Advice must be appropriate to the client’s personal needs and these needs may not necessarily fit with the “best performing” investment products. 2. It is important to have ability to build an SOA from scratch despite availability of plan-writing software because:a. The software may fail to show clear links between different parts of the SOAb. The software may not include all current compliance requirementsc. Some software may not produce personalised justification of the adviced. All of the aboveFeedback a: Incorrect. While this is a reason for having ability to write an SOA from scratch, there are other options which also apply.Feedback b: Incorrect. While this is a reason for having ability to write an SOA from scratch, there are other options which also apply.Feedback c: Incorrect. While this is a reason for having ability to write an SOA from scratch, there are other options which also apply.Feedback d: Correct. While every effort is made to ensure plan-writing software is correct, there may be internal errors or it may exclude compliance requirements. But most importantly, it may not be personalised to the extent required to provide the client with a full understanding of what they are being asked to do and the likely outcomes and interrelationships.(Answer page reference: pg. 147).3. It is important to conduct diligent research on the information the client provides because:a. There is a need for systematic approach to analyse the informationb. There is a need to consider underlying theories and technical knowledge relevant to the informationc. There is a need for reflective, considered judgment based on the information*d. All of the aboveFeedback a: Incorrect. While this is a reason for conducting research on information supplied by the client, there are other options which also apply.Feedback b: Incorrect. While this is a reason for conducting research on information supplied by the client, there are other options which also apply.Feedback c: Incorrect. While this is a reason for conducting research on information supplied by the client, there are other options which also apply.Feedback d: Correct. The importance of diligent research is because of needs for systematic approach to analyse client’s information, to consider underlying theories, and to make professional judgment on the information for the SOA. (Answer page reference: pg. 149).4. Which of the following is Step 4 of the financial planning process?a. Collect and assess the financial data of the clientb. Establish an ongoing pattern of financial plan reviewc. Prepare a written plan which meets the ‘know your client’ and ‘know your product’ rulesd. Determine, test and prioritise client goals and objectivesFeedback a: Incorrect. This is Step 1.Feedback b: Incorrect. This is Step 6.Feedback c: Correct. Step 4 of the planning process is to “prepare a written plan that contains clearly defined recommendations consistent with the predetermined strategy, the client’s financial resources and their ability to sustain risk, including matching specific products and services to meet the client’s needs, thus including the ‘rule’ for financial advisers to ‘know their product’”. (Answer page reference: pg. 150 and 155).Feedback d: Incorrect. This is Step 2.5. Why is a cover letter so important?a. It is a ASIC requirement to have oneb. It sets out the compliance requirements of a Statement of Advice *c. It invites the client to read the SOA and its validity period before its acceptance d. Clients can keep it handy to reference adviser’s contact detailsFeedback a: Incorrect. ASIC does not require a cover letter.Feedback b: Incorrect. The cover letter does not generally contain any of the compliance inclusions of the Statement of Advice and nor should it contain them.Feedback c: Correct. The purpose of the cover letter is to invite clients to read their Statement of Advice and know its validity period before acceptance. (Answer page reference: pg. 154).Feedback d: Incorrect. Yes, the cover letter can be used to store adviser contact details, but that is not why it is important.6. Which of the following is Step 3 of the financial planning process?a. Identify financial problems which may exist, agree on trade-offs and assumptions, then develop strategyb. Collect and assess the financial data of the clientc. Obtain client’s informed consent and implement agreed actionsd. Determine, test and prioritise client goals and objectivesFeedback a: Correct. Step 3 of the planning process is to: “Identify any financial problems that may exist and work through the trade-offs with the client so that an agreed plan of action can be established; agree assumptions. Develop strategies to be presented in the SOA.” (Answer page reference: pg. 150 and 152).Feedback b: Incorrect. This is Step 1.Feedback c: Incorrect. This is Step 5.Feedback d: Incorrect. This is Step 2.7. Why is it important to ensure that the client undertakes a valid risk tolerance assessment?a. It is a requirement of APRA and the FPA*b. The client needs to understand the amount of investment risk they are prepared and willing to take, especially if they need to take on more risk to meet their goalsc. Most financial advisers need the results to enter into their financial planning softwared. The adviser must be able to charge high-risk clients higher fees for investment adviceFeedback a: Incorrect. APRA does not regulate financial advice (ASIC does). Feedback b: Correct. Both the adviser and the client must understand the client’s appetite for investment risk first to establish what a ‘comfortable’ asset allocation would be and then, where necessary, look at taking on additional risk (carefully structured and monitored) in order to have a better chance of meeting long-term savings goals. In addition, “the best interests” duty employees determination of a client’s risk profile. (Answer page reference: pg. 158).Feedback c: Incorrect. While advisers may need the information as an input for financial planning software this is not why completing a risk tolerance assessment is important.Feedback d: Incorrect. Just because a client has a higher risk tolerance, does not mean they should be charged higher fees.8 The purpose of the Executive Summary is to: a. Introduce the content of the SOAb. Provide a simple statement of personalised details, goals, recommendations and outcomesc. Encourage the client to continue the process*d. All of the aboveFeedback a: Incorrect. While this is a purpose of the Executive Summary, there are other options which also apply.Feedback b: Incorrect. While this is a purpose of the Executive Summary, there are other options which also apply.Feedback c: Incorrect. While this is a purpose of the Executive Summary, there are other options which also apply.Feedback d: Correct. The Executive Summary can be a very powerful tool as it introduces the content of the SOA, provides a simple statement of goals and outcomes, and will encourage the client to continue on with the SOA. This is especially important in longer SOAs and it will assure the client that the work is worth the effort. (Answer page reference: pg. 154 and 155).9. Recent Australian investment history suggests that an investment scheme marketed primarily for its taxation benefits is:a. Likely to prove fruitful in the long run because of ongoing tax advantages b. Likely to succeed as an investment in the long run because it has strong legal supportc. Always a good investment strategy in the long run because it has rational for an investment d. Unlikely to succeed as an investment in the long run Feedback a: Incorrect; Taxation advantages are likely to vanish because of changes in taxation laws to keep pace with the economy and government policy.Feedback b: Incorrect; the tax law supporting the scheme is subject to change and is not likely to serve as the basis of the scheme in the long run.Feedback c: Incorrect; the case is exactly the opposite. Such schemes are not a good investment strategy in the long run because of volatile nature of its base. Feedback d: Correct. Taxation laws are subject to constant change and improvements in accordance with the performance of various sectors in the economy. It is likely that at some point in time, the ATO would look much more closely at the investment scheme and consider its position and capacity for revenue generation. The taxation benefit at that point will vanish to eliminate the sole volatile basis of the investment i.e. tax benefit (Answer page reference: pg. 167).10. Clear fee disclosures are important because:a. It is a requirement of ASIC and FPAb. It helps to build a relationship of trustc. It helps to avoid issues later ond. All of the above.Feedback a: Incorrect. While this is a reason that fee disclosures are important, there are other options which also apply.Feedback b: Incorrect. While this is a reason that fee disclosures are important, there are other options which also apply.Feedback c: Incorrect. While this is a reason that fee disclosures are important, there are other options which also apply.Feedback d: Correct. While many financial advisers may think that fee disclosure is a negative in the client relationship, good fee disclosure married with personalised advice will help build the trust relationship and will avoid issues later on should a complaint arise. The fee disclosure is a legal requirement. (Answer page reference: Pg. 171). ................
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