Accounting management report on: ASIC financial services in Australia
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Executive Summary
This report has been designed in order to know about the personal financial planning and its six steps or stages. It has been analyzed that the ASIC plays an important role in the regulatory framework of financial services in Australia. The approach has been mentioned taken by the ASIC to licensing providers of financial planning services. The risk and return relationship is described as the “first fundamental law of finance” and often considered as one of the central concepts of investment theory. ‘The risk-return trade off means that money invested can only generate higher returns if it is subject to the possibility of being lost. The relative merits of direct investing and managed funds have been mentioned. At last, examples of direct investment and managed fund opportunities have been mentioned which are available to Australian investors.
It can be analyzed that the financial planning considered as the financial means for fulfilling of personal objectives and objectives are taken into consideration over the time such as short term 1 year, medium term 1-5 year and long term comprises up to 40 years. Normally, personal financial planning consists of six steps such as
- Gathering of financial information
- Identification of goals
- Identification of financial issues
- Preparation of Advise Statement
- Implement the suggestions for the financial procedure
- Revision of Plan
In general, steps of financial planning referred as the effective approach because it helps the investor in collection of financial information including of primary and secondary market, helps the investor in identification of goals, helps the investor in searching of financial and legal issues, helps the investor in preparation of financial plan, helps in implementation of the recommendations for the financial plan and finally helps the investor in plan revision (Rubin & Rubin, 2004)
It has been analysed that the FPA considered as the professional body for the personal financial planning in region of Australia representing around 12000 business and individuals. The FPA and the members of the association attempt to enhance the financial wellbeing of the Australian individuals. It has been analysed that the FPA offers the professional framework and leadership which make the members to offer excellence financial suggestion to its clients. It can be seen that the members of the FPA comprise planners for finance from various disciplines and background comprising approximately 5500 financial planner. At last, all members of FPA are restricted by ethics code, standards of high professional and should meet requirements of professional education.
ASIC plays an important role in the regulatory framework of financial services in Australia. Discuss the approach ASIC takes to licensing providers of financial planning services.
It has been analyzed that the ASIC regulates the licensing system for the providers of the financial service under the Act of Corporation. This system implies a variety of requirements for the providers of financial services comprising:
It can be seen that the requirements of the gate keeping which financial providers should meet for obtaining the license. E.g. certified qualification certificates copies, checks of criminal history and bankruptcy and references of the business for each and every responsible manager proposed to licensing kit of ASIC.
Conditions for the standard license e.g. financial necessities for obtaining of licenses (Patton, 1987)
Ongoing obligations of consumer protection like risk management, financial and disclosure requirements, training and supervision under the Act of Corporation.
It has been analyzed that the licensing requirements are designed to make sure that the providers of financial services have adequate resources to transact the business and there must be financial buffer which minimizes the non complaint and disorderly risk if the business does not run successfully.
Question3 As a financial adviser, your client asks you whether $10,000 invested at an annual interest rate of 2.5% for 10 years will grow to a larger future value than $5,000 invested at an annual interest rate of 5% for 10 years. Show your calculations to support your response to your client.
Ist Alternative
A = p (1+r)^n
A = 10000 (1+ 0.025)^10
A = 10000 (1.025)^10
A = 10000 * 1.28
A = 12800.85
IInd Alternative
A = p (1+r)^n
A = 5000(1+ 0.05)^10
A = 5000 (1.05)^10
A = 5000 * 1.628
A = 8144.473
It can be seen that the investor has invested 10000 Rs with the interest rate of 2.5% for 10 years which gives the amount after the 10 years is Rs 12800.85 which is more than, if the investor has invested 5000 Rs at 5% in that case amount comes to be 8144.473. But if the investor invests 5000 with the interest rate of 5% then it has grown faster as compared to invest the 10000 Rs with the interest rate 2.5%. It has been analyzed that the when the investor invests 5000 at 5% for 10 years then it grows much faster as compared to invest 10000 at 2.5%. At last, it is advisable for the investor to invest Rs 5000 with 5% because it gives the benefit of Rs 3144.473 after 10 years, even with less investment (Levine, 1991)
Question4The risk and return relationship is described as the “first fundamental law of finance” and often considered as one of the central concepts of investment theory. ‘The risk-return trade off means that money invested can only generate higher returns if it is subject to the possibility of being lost’.
It has been analyzed that the return and the risk show the aspects of uncertainty and expectation. The tradeoff among risk and return are genuine and faced by business and individuals frequently. The choice to spend comprises the decision among the options having both estimated risk and return. Being risk averse, normally business and individuals decide the low risky investment for the given stage of estimated return and need a higher return when investment is risky. The investor prospect with consideration to risk becomes one of the matters with the level to that returns can vary from the anticipated level (Greenwood & Jovanovic, 1990). According to the risk-return tradeoff, invested money can render higher profits only if it is subject to the possibility of being lost. It is very clear that with the help of trade off among return and risk, investors should understand the tolerance of personal risk when choosing of the investments. It can be seen that taking of extra risk may be referred as the price of accomplishing higher returns; hence if the investor desires to have money then the individual cannot cut the risk. The trade off among the risk and return is to search out the adequate balance which creates profit and permits the investors to sleep well in night. It has been viewed that the trade off among risk and return is persistent throughout finance and economics. It can be considered as the major reason that risky bond pays higher rate of interest as compared to other bonds. It can also be the reason that bond pays lower return as compared to stock because bond is considered as the low risky investment (Boyd & Smith, 1998)
Question 5
Discuss the relative merits of ‘direct investing’ versus ‘managed funds’. Provide examples of the types of direct investment and managed fund opportunities available to Australian investors.
Direct Investing
It can be seen that the direct investing referred as the oldest technique implemented for the index investment. In general, direct investing has the possible benefit of low error of the tracking and the likelihood of spending in a board range of assets. It has been viewed that diversified portfolios comprises substantial cost and therefore it is not achievable for various investors (Bencivenga, & Smith, 1991)
Managed Funds
It has been viewed that the managed funds offer the cost efficient path for the investors for accessing the diversified mixture of investments in the professionally integrated package. In general, there are various advantages of managed funds such as professional management, diversification, accessing of worldwide investment opportunities, potential for long term growth, regular income and flexibility.
There are various types of managed funds which are available to Australian investors such as managed funds for single sector including cash, fixed interest, property securities, Australian shares, International shares and managed funds for multi sector including spending in more than one sector of asset and expanded approach that may lower the uncertainty. For e.g. Australian shares are applicable for long period investors who have potential for higher risk and return. Australian shares can be referred as the income potential through dividend payment and benefit of tax in the type of dividend imputation.
Conclusion
It has been analyzed that the financial planning considered as the financial indication for fulfilling of personal objectives. It can be seen that the objectives are referred over the time such as short term 0-1 year, medium 1-5 years and long term comprising of up to 40 years. In general, financial planning is considered as the six step process which includes gathering of financial information, identification of goals, identification of financial issues, preparation of advice statement, implementation of the recommendations for the financial plan and revision of plan. It can be analyzed that the return and risk shows the aspects of uncertainty and expectation. The tradeoff among risk and return are genuine and faced by business and individuals frequently. Direct Investing referred as the oldest method implemented for the index investment. On the other side, managed funds offer the cost effective path for investors for accessing the diversified mixture of investments in the professionally directed package.
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