CFP CERTIFICATION Assignment Overview - Microsoftmel0201cls2prod.blob.core.windows.net/uploads/fpa/trdoc/cfp-c... · CFP® CERTIFIED FINANCIAL PLANNERTM and are certification marks

Speaker:

Date:

Assignment Overview

Matt Accadia

CFP CERTIFICATION

Construction of a Comprehensive Financial Plan

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WELCOME

CONSTRUCTION OF A COMPREHENSIVE FINANCIAL PLAN

Construction of a Comprehensive Financial Plan


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Presenter: Matt Accadia CFP®

Disclaimer, Copyright & Certification Marks

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This document is of a general nature only and is not intended to be comprehensive, nor does it constitute advice. The material should not be relied upon without seeking independent professional advice and the Financial Planning Association of Australia Ltd is not liable for any loss suffered in connection with the use of such material. Any views expressed in the document are a reflection of the assessment panel’s considerations except where they are specifically stated to be the views of the Financial Planning Association

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The content of this document is copyright. Apart from any use permitted under the Copyright Act, no part may be reproduced by any process, or any other exclusive right exercised without the permission of the Financial Planning Association of Australia Ltd, Level 4, 75 Castlereagh St, Sydney, NSW, 2000.

© Financial Planning Association of Australia

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CFP® CERTIFIED FINANCIAL PLANNERTM and are certification marks owned outside the United States by Financial Planning Standards Board Ltd. Financial Planning Association of Australia Limited is the marks licensing authority for the CFP marks in Australia, through agreement with FPSB


Academic Misconduct

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Academic Misconduct

• Plagiarism – failure to cite a source used, thus disguising as one’s own work

• Collusion – submitting answers that are similar or identical to the work of others

• Cheating – attempting to cheat or cheating during an examination

There are serious penalties for Academic Misconduct

• Please refer to CFPC Assessment Handbook for further details


Presentation Overview

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Hints and tips to help construct a comprehensive Financial Plan, as required for CFP C

assignment

Not a technical session


Pass Requirements

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Pass mark: 75%

Marking guide has 15 sections, if lose 1.7 marks each section totals 25 marks

Common cause of failure: just aiming for 75%

Resubmission: $625 (GST exempt)


Page Length and Dimensions

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• Read the Assessment Handbook carefully

• 55 pages: excludes cover sheet; covering letter; ‘Interview – points of clarification’;

table of contents; appendices; assignment attachment sheet; statutory declaration;

bibliography

• Margins: 2.5cm only … ?

• Single line spacing

• Font size: 12 point

- Times New Roman

• Penalty: 10% over 60 pages – no conceded pass


Student Portal - Chat Rooms

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The Chat Room is a valuable Q & A resource to help with your assignment structure

• Research

• Essential component

• Dual purpose


Research and Definitions

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Both are fundamental to an acceptable assignment

• Adherence to templates can mean insufficient provision of independent research

• If need of research is replaced by referral to an accountant or solicitor a penalty will

apply

• Lack of research and definitions are major reasons for failure

• www.austlii.edu.au > All databases > Commonwealth Consolidated Acts

• Also: www.comlaw.gov.au

• CCH: Australian Master Tax Guide, Master Financial Planning Guide, Master

Superannuation Guide, Corporations & Securities Legislation, Superannuation

Legislation

• Thomson Australian Tax Handbook


FPA’s 6 Steps

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Step 1 – Collect data

Step 2 – Identify client’s goals / objectives

Step 3 – Develop strategy

Step 4 – Prepare recommendations

Step 5 – Implement plan

Step 6 – Ongoing review


15 Steps

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• Plan must be in accordance with these steps

• All must be accounted for

• No need for each to follow another consecutively in the plan

• Your strategy will decide their positioning

• 15 Steps in developing the plan in Assessment Handbook


Assignment Objective

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• Demonstrate your ability to construct a Comprehensive Financial Plan

• Demonstrate your ability to communicate to your client in a clear and easy to understand

manner

• Demonstrate your technical knowledge and ability to use this knowledge to develop

strategies to improve your client’s outcome

• Demonstrate knowledge of compliance requirements

• Demonstrate your ability to be CFP qualified


Comprehensive vs Commercial

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• Takes time to complete a comprehensive plan. Commercial Plan intended to be

quick and easy

• Welcome to use dealer templates but caution – use only as a basis to commence

plan. Just following your dealer templates and guidelines won’t demonstrate your

abilities of CFP standard and not likely to secure a pass

Important: Assignment requirement is to prepare a comprehensive plan that is pitched

at client and using language the client understands


Specific Criteria

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Sections and Indicative Mark Allocation

• Compliance 4

• Contents page 2

• Executive summary 5

• Present position 4

• Financial objectives 4

• Risk profile and concerns 8

• Investment strategies 18

• Insurance 8

Note: The mark allocations shown in this slide are indicative only and vary from semester to semester

• Estate planning 10

• Investment product selection 5

• Action to proceed 4

• Ongoing service and review 4

• Financial statements 8

• Assumptions 4

• Overall presentation 12


Interview – Points of Clarification

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• Clarifies Case Study points about which there is uncertainty – do not just repeat data

• Keep to the parameters of the case study – do not add unnecessary extra costs

• Place at front of assignment, as instructed

• Include financial assumptions in the Financial Plan, not this interview

• Do not resolve risk profile here!


Compliance

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• You are authorised to advise on and deal in all usual products including: personal risk,

general and health insurance; securities; derivatives, margin lending and credit etc

• Disclosure of capacity: adviser / licensee identified and relationship between them

• Disclaimer section

• Anti-Money Laundering & Counter-Terrorism

• FOFA: client’s best interest’s duty; conflicted remuneration etc. Opt-in. Reference to

these need only be made as appropriate


Compliance continued

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• Letterhead / coversheet:

- Dated the same

- ABN / AFSL / ACL

- Contact details: planner & licensee

What is wrong with a cover sheet that states? (clue: s911C(a) Corporations Act 2001)

“Statement of AdviceFor Mary and Brian Smith

by Joe BrownAuthorised Representative of Aztec Pty Ltd.”


Compliance continued

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• Disclose fees for initial advice / implementation / ongoing service

• Where commission is received for trails, or upfront for personal risk, it should be in $,

% and totals. Where fee for service is charged, the $ amount/s and totals are expected

• Soft dollar benefits and register

• Disclose whether you invest personally in the product

• Note any interests, associations or relationships that have the capacity to influence the

advice

• Declare referral payments

• Avoid overly lengthy fee disclosures that confuse clients


Contents Page

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• One - two pages of detail are ideal

• Number all pages, including appendices, consecutively

• Include page numbered appendix contents list as part of contents page


Executive Summary

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• Two typed pages: 500 words

• Four segments:

1) Statement of present position

2) Objectives

3) Strategies & recommendations

4) Projections


Executive Summary - Statement of Present Position

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• Names

• Dates of birth; ages

• Dependants

• Occupation

• Income – expenses = surplus

• Assets – liabilities = net worth


Executive Summary - Statement of Present Position

Example of incomplete Executive Summary

• Where are you now?

• Jim is a COO earning a gross salary of $205,000 plus a company car. Meredith is a full time mother. Your jointly owned home is valued at $950,000 and your current outstanding loan net of the offset account is $578,500. Meredith owns a $22,400 Investment Growth Bond

• Jim’s Australian Super balance is $227,800; the fund has life insurance of $1.2 million and Total and Permanent Disability of $540,000 with total annual premiums of $1847. Meredith has $62,300 in a BT Superfund with no insurance

• You have general insurances covering your motor vehicle with AAMI and home and contents with Allianz. You also hold NIB private health insurance

23CONSTRUCTION OF A COMPREHENSIVE FINANCIAL PLAN

Executive Summary – Objectives

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• Keep in dot point format but clear and specific;

• Ensure they are the client’s objectives – not yours (read case study);

In this section only we will accept if only 50 -75 % of client’s objectives are included as

long as all the key/main objectives are included


Executive Summary – Strategies and Recommendations

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• Ensure they are recommendations only

• Don’t include justification / explanations in this section

• Address all assets; personal risk; estate planning & general insurance

– whether a change is recommended or not

• Be clear, be specific. Don’t over summarise


Executive Summary - Projections

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As a minimum include the following:

• Age they can afford to retire

• Combined investment accumulation at retirement

• Retirement income they can achieve

• How long can they expect to receive retirement income

• Need of review

• No graphs, charts or tables

Include other key milestones, such as when you anticipate mortgage will be repaid,

education situation, if applicable


Current Situation

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• Personal details

• Balance sheet / net worth

• Insurance & estate position

• Income & expenditure


Current Situation - Income and Expenditure

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• Use current tax rates: state which year they apply to

• Check calculations

• Look for extraneous benefits such as low income tax offset and family tax benefits

• Assess for situation before you arrived


Objectives

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• Must have dedicated objective section in the plan;

• Unlike executive summary, this is not a summary, therefore be comprehensive to include

all objectives;

• You don’t need to discuss objectives or add your point of view but you can later add a

section such as “Concerns on Objectives” or “Issues and Problems” if you wish;

• Address insurance and estate planning;

• Identify their higher rated financial ‘concerns’ from the case study e.g. tax; inflation etc


Objectives - Scope of our Advice

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• Implies a limitation, whereas these clients have requested a full plan, not limited advice

• Delete ‘Scope of our advice’ – unless it states that a full Financial Plan has been prepared


Risk Profile

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• NOTE: the FPA does not endorse any particular approach or product for assessing

investment risk tolerance

• In assessment of a client’s risk profile you must:

- Have a duty of care to disclose risks

- Consider client tolerance to income and capital fluctuations over various terms

- Educate client’s to manage reasonable investment risks to achieve their

financial goals over realistic time frames

- Keep your best interests duty to the client in mind


Risk Profile continued

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• Clarify what is risk profile

• Discuss the clients investment objectives, financial concerns and their time

horizon and how these factors influence your assessment of their risk profile

• Discuss the need and benefit of diversification and different levels of

diversification

• Show the benchmark asset allocation for the risk profile assessment

• Offer opportunity for dissent i.e. to contact you if they do not agree with

your risk profile assessment


Risk Profile continued

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If client cannot reach their objectives, do not arbitrarily

increase their risk to the next profile


Investment Strategies

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• Use no more than 20% of space – guide only

• Be comprehensive, don’t limit to one or two strategies but think of varying possible

options

• Ensure the strategies address the clients objectives

• Don’t use jargon. Assume clients know nothing and explain in simple terms

• Consider best interest

• Include options considered in the Statement of Advice

• No right or wrong answer, what’s important is your reason and rationale of strategy,

how it is explained to client, and if it addresses their objectives

• Need to also cover likely future strategies,

i.e. super income streams, Centrelink, etc


Investment Strategies continued

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• Ensure you disclose both pros and cons including risk i.e. if recommending gearing

don’t just focus on benefits, clearly explain risks

• Ensure all their investment assets been addressed satisfactorily

• Ensure outcomes of strategies shown and reasonable – consider comparison tables

• Ensure debts been dealt with and rationalised

• Ensure surplus / deficit is addressed


Investment Strategies continued

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• Show existing asset allocation, compared to target allocation, compared to asset

allocation after recommendations are implemented, showing variance of

recommendations to target allocation.

• Ensure recommendations meet target allocation within variance +/- 5% between

- Each asset sector

- The growth / defensive/ asset balance

• Explain lack of variance


DAA

Insurance

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Include details of your accreditation to provide personal risk and general insurance

advice


Insurance continued

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Life Insurance

• Give outline of insurance types considered and why

• Provide details of the information used to establish needs for life insurances – rationale

must be reasonable. This is not an appendix item

• Discuss the key features you recommend with each policy and why e.g. premium

structure, disability definition, waiting period, etc

• Clarify the policy ownership recommended and why


Insurance continued

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General Insurance

You are accredited to provide advice so do not refer out in your assignment.

Key aspects to cover includes:

• Home and contents

• Motor vehicle

• Health insurance

• Other relevant insurance to case study e.g. business,

landlord, worker’s compensation


Insurance continued

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General Insurance – Home and Contents

• Accidental damage vs Defined Events

• Replacement vs Market Value

• Co-insurance (average)

• Liability

• Personal valuables

• Basis for valuations


Insurance continued

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General Insurance – Motor Vehicle Insurance

• Define cover

• Agreed vs market value

• Recommend agreed

• Exclusions

• Extras

• Premium reasonable


Insurance continued

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Health Insurance

• Define: compare with Medicare – what benefits does it provide?

• Define private health insurance rebate

• Define Medicare levy surcharge

• Define lifetime health cover


Estate Planning

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• Discuss Wills, what they are, but also personalise – what is client’s position in relation

to a valid Will

• Treatment of assets (estate and non-estate). If client has structure, elaborate

• Client’s estate planning goals or problems you identify, discuss and offer possible

solutions

• Taxation Issues

• Superannuation

• Insurance

• Testamentary trust

• Power of Attorney (including medical and general)

Ensure preparation of relevant legal documents and

legal advice referred to appropriate person


Estate Planning - Wills

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• Discuss estate planning problems; provide solutions, THEN refer the client to a

professional for confirmation

• Assist in formulating strategies and explain to client consequences of action or

inaction

• Include in discussion if Will is current, invalid upon marriage unless contemplated,

intestate, who is considered to die first, executor, beneficiaries, guardians, problems

with Will kits


Estate Planning - Superannuation

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• Binding and non binding nominations and trustee discretion

• Income streams; reversionary beneficiaries

• Taxation position upon claim re dependents and non-dependents

• Definition of dependants under SIS and TAX legislation

• Other relevant impacts


Estate Planning - Testamentary Trust

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• Ownership of assets

• Which assets are available and how do they reach the trust?

• Discretionary distribution

• Taxation

• Minors income

• Protection against creditors

• Provision for spendthrifts, those addicted

• Cost to establish and maintain


Estate Planning - Power of Attorney

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• Distinguish between General and Enduring POAs

• Jointly (together) and severally (singly)

• Who can make them?

• What can Attorney do?

• Define situation re medical treatment


Investment Product Selection

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• ‘Best interests duty’ s961B/RG175:

Make a reasonable investigation to obtain accurate data re client’s objectives,

financial situation and needs and relevant financial products. Does the investment

relate to what the client needs and leave them in a better position?

• Explanation of new product alone is not sufficient:

- Loss of benefits: fees, charges, loss of cover, tax: s.947D

- Advantages/disadvantages to replace or retain current assets?

- How does change meet client’s best interests?

• For replacement products, show replacement tables


Action to Proceed

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• List of cheques, payees or payment options if electronic

• Read Financial Plan and PDSs

• Non-investment / insurance aspects covered: solicitor re wills; HR re salary sacrifice etc.

• Ongoing service / follow up appointment

• Who is responsible?

• By what date?

• Authority to Proceed


ACTION PLAN

We have prepared the following action plan to ensure the necessary forms are completed

and actions taken, to enable the strategy and recommendations to be implemented easily

and efficiently:

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Date Action Who to action

Within 30 days Read this SoA and attachments and clarify any questions you may have

Jim and Meredith

Within 30 days Sign and return the Authority to Proceed andapplication forms

Jim and Meredith

Within 60 days Confirm recommended investments and insurance and strategy are in place

Adviser

6 months Review strategy and investments/insurance Adviser

Action to Proceed – incomplete example


Ongoing Service and Review

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• Need and justification for service

• Level of service: features and benefits

• Frequency of review

• Cost to client – in this section also


Financial Statements

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• Projections should include assumptions

• Do projections show goals achieved?

• Do super projections account for contributions and earnings taxes and cost of cover,

advice fees where applicable?

• Tables of annual $ cashflows and accumulations to retirement and drawdowns to life

expectancy and beyond


Assumptions

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• Financial assumptions must be in the Financial Plan

• Should include (note: Step 4 of 15 Steps):

- Current marginal tax rates

- Inflation and AWOTE (average weekly ordinary-time earnings)

- Use reasonable rates of return in projections

- Life expectancy tables employed: Australian Life Tables 2010 – 2012

• AWOTE is normally about 0.5% above CPI


Presentation

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• Assessment is primarily based on:

- Plan logical and easy to follow

- Explained at client level of sophistication

- Tables / diagrams clear / understandable

- Qualification of statements and data

- Appendices included are essential to understanding of plan


Presentation continued

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• Address the Financial Plan to the client as though you were talking to them

• Address to client, not assessor and assume they know nothing!

• Do not utilise industry jargon without definition

- If generic data mentions it, you must define it

• Define acronyms

• Include subject definitions first, then discussion / recommendations e.g. superannuation


Presentation continued

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• Eliminate incorrect names

• Recommending they ‘consider’ is a qualification

- Recommendations: clear and positive

• Avoid ‘I’ and ‘me’, use ‘we’ and ‘us’ – you and your licensee

• Proof read and spell check


Appendices

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• When the text refers to data in the appendices, is an appendix page number provided?

• Do they include data that should be in the plan?

• Is data linked to the client’s objectives, financial situation and needs – or generic filler?

• Note Certification Handbook for ‘Inclusions not required’ and include a list that would

normally be included

• Projections are best located in the appendices


References

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“The Corporations Act 2001[1] requires a warning that, before acting on our advice, you

consider its appropriateness to your objectives, financial situation and needs”

• Windows 2003: Format > font > superscript; Insert >footnote >insert

• Windows 2007: Home > Superscript; References tab > Insert footnote

[1] Corporations Act 2001: s.949A

[2] ITAA97: s.995 1(1)

[3] ITAA97: s.25-5(2)(e): No deduction for certain expenditure


Bibliography

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Must include at the end of assignment referencing your research


Other – Assignment and monthly quiz

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Assignment due before 3pm (AEST/AEDT) on the due date

• Submission - when uploading your final assignment please remember to submit before

the 3pm deadline - to avoid any last minute issues and/or submitting late (penalties for

late submission: see ‘unauthorised extension’ in CFP C Assessment Handbook)

Monthly Quiz

• A very useful resource provides you with practice monthly quizzes that reinforce learning

is available on the FPA website (www.fpa.com.au/cpdmonthly)


Thank You

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Thank you for your attendance and all the best with your Certification studies

Best wishes


Documents

CFP CERTIFICATION Assignment Overview - Microsoftmel0201cls2prod.blob.core.windows.net/uploads/fpa/trdoc/cfp-c... · CFP® CERTIFIED FINANCIAL PLANNERTM and are certification marks