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Discuss the Relevance and Importance of the Following as They Apply to a Financial Adviser

Essay by   •  March 26, 2016  •  Essay  •  1,827 Words (8 Pages)  •  1,023 Views

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1.        Discuss the relevance and importance of the following as they apply to a financial adviser:

(i)        licensing    

(ii)        disclosure, and

(iii) compliance.

  1. Licensing

A financial adviser is an ‘authorised representative’ that is authorised by a licence to speak on their behalf in giving financial advice to clients. In Australia, a company providing financial services must obtain a licence from ASIC, the single licensing authority that determines the requirements for licensing, issues AFSLs and maintains a register of licensees and representatives. According to the requirement of ASIC and RG 146, the financial adviser must be adequately trained and even need to complete a Certified Financial Planner (CFP) course to get a professional certification. Relevant work experience is required as well. As a result, financial adviser’s professional ability on both theoretical knowledges and financial skills is guaranteed.

  1. Disclosure

Based on the increasing demand of higher level of integrity, honesty and transparency in financial planning service, relevant information and documents must be disclosed to clients to ensure that clients are advised in a proper way and are aware of relevant important aspects and implications of financial advice.

The Corporations Act requires licensees and their representatives to provide financial services guide (FSG), Statement of Advice (SOA) and Product Disclosure Statement (PDS). RG 182 requires the disclosure of fees and commissions generated by providing financial planning advise.

  1. Compliance

Compliance is a set of regulations and behaviour rules that financial service companies and AFSL holders must meet. Financial advisers must comply with both ethical and legal rules, such as Code of Ethics and a Code of Professional Conduct, Corporations Act and Privacy Act. This because clients usually have limited knowledge and experience in financial market and relevant laws, they rely on adviser’s guidance to achieve financial security and life goals. Therefore, financial advisers and their license holding employer have the obligation to comply with regulations and rules in respect of training of authorised representatives, disclosure, conduct financial plan, etc.

2.        What is the purpose of a code of ethics?

Financial planner is a kind of trustee which is known as a trusted person. Therefore, financial planners are often placed in a status of trust and confidence. Mastering professional financial planning knowledge and skills is not enough to be a qualified personal financial planner. An important area reflecting the professional level of a financial planner is professional ethics.

The purpose of a code of ethics is to regulate financial planners’ ethical behaviour, improve financial planners’ ethical standards, and maintain financial planners’ professional image. Code of ethics is one of the fundamental guarantee for financial planner industry survival and development.

3.        What documents should a financial planner have ready for a client at the final presentation stage of the financial plan?

Three documents should be prepared: Financial Services Guide (FSG), Statement of Advice (SOA) and Product Disclosure Statement (PDS).

The FSG is a document that must be given to a client in relation to the provision of financial services. A FSG is required to include information about: who will provide the services; what kind of services will be offered; the remuneration model of service provider; details of commissions; details of potential associations or relationships that might influence a service provider in providing the service. Based on these information, the client can make an informed decision about whether to acquire financial services. The FSG clears the responsibility of licensee and financial planner, increasing the level of transparency, which is helpful for reducing potential disputes between contracting parties.

When providing advice to a client, the financial planner is required to provide the SOA at the same time or as soon as practicable after the advice is provided. The SOA aims to present advices and recommendations according to the financial affairs of a client. Sufficient information must be contained to enable a client to make an informed decision about whether the advice is appropriate and worth to act on it, including the client’s personal circumstances, objectives, risk profile, particular financial needs, and any benefits (such as fees, commissions and soft dollar arrangements) obtained that might reasonably be expected to influence the entity providing the advice. All the recommendations and strategies contained in SOA are specific to the client’s circumstances.

The PDS is the document prepared by the financial product supplier. It sets out details about the fees of a financial product, the benefits and risks of the financial product, the characteristics of financial product, etc. A PDS is required to be provided to a client at or before the time a recommendation is made to buy a financial product.

4.        Part of a financial planner’s role is educational. Explain why this role has become more important in recent years.

There are several reasons. Firstly, the explosion of information has led the financial and investment information to be collected more easily. But it is still hard to filter the most useful information for clients due to the lack of professional skills. Therefore, most clients cannot express their objectives accurately and make poor decisions, which reduces their ability to achieve goals. Secondly, the emergence of the large amounts of new investment vehicles and institutions complexes the financial environment, and clients have limited relevant knowledge. Thirdly, financial illiteracy causes difficulty for clients to understand basic financial planning issues such as superannuation, budgeting, and taxation.

Therefore, financial planners should educate their clients to understand the financial environment and recognise their current situation. Financial planners should help clients to make appropriate objectives and invest as professionals.

5.        A client’s goals are likely to change over the years. How can the client and financial planners ensure the goals are achieved?

The goals can always be achieved through regular reviews of the client’s circumstances and the health of the investments. Any macroscopic (eg, legislative rules changes) or microscopic changes in the environment will have an impact on the client’s personal or family situation, resulting in changes to their goals and objective. Thus, financial planner must do periodic review (usually once or twice a year) on client’s financial position to evaluate whether the ongoing recommendations and strategies still meet the client’s needs or any adjustment are required. The client also need to communicate with financial planner timely to ensure financial planner can fully understand the changes of their goals and the reasons (such as new liability generated, move to different life stage), so that the financial planner can revise the plan appropriately.

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