Understanding IPS and SOA in Financial Advisory

ANSWERS BASED ON FLO SITE
Answer 1a)
i. The IPS statement is a customized guideline for the planning and execution of any
investment plan. It regulates all aspects such as asset management, the internal and external man-
agers involved in the plan, risk management, etc. But the IPS is considered only in the case of
accredited high net-worth individual investors. Statement of Advice is merely an advice state-
ment designed for any willing investor with all the concrete data relevant for business planning.
This is the reason why SOA is preferred over IPS. ("Australia's Relations with China: What's the
Problem? – Parliament of Australia", 2019)
ii. While preparing the statement of advice for the financial advisory firm or adviser in
Australia, various legislative bodies are consulted in order to prepare and deliver the best:
1. Consulting the financial advisory department to the Government, statement of advice
should be based on the business preference, models and the other client preferences. What is the
foremost idea to consider should be the clientele interests, their suitability standards and their
portfolio or funds planned for the investment. ("About us : IPS", 2019)
Example- Fuji Advisors advising Takesumi Family Accounts
2. The Australian Prudential Regulation Authority, being an industrial association is an inde-
pendent authority for advising in the statement of advice in regard to the banking, insurance, tax-
ation, and all other aspects relating to the stable financial system in Australia.
Ex: Welfare Trust Association

3. Ex-The Empire Consultancy Group of Australia for giving the best piece of advice against
the financial services. As per the group, focus and passion should be the primary objects in ac-
complishing the desired policies.
Answer 1b)
i. A fiduciary is any person or a legal identity such as brokers, banks, trustees, etc
and are normally referred to as beneficiary or the principal. They are the ones who are responsi-
ble for the ethical and legal role of the clients. They are appointed when dealing with the other
parties on the important matters relating to finance.
ii. 1. The Australian legislation governing the financial adviser in the best interests of
the clientele relationship is the Corporations Act, 2001, Chapter 7 and Section 961 B The act
states that the service provider is liable to act in the best interests of the client when asked to fi-
nancially advise about an investment plan or when writing through a statement of advice for any
individual investor or investment making organization. The finance regulations in Australia are
highly regulated by the Australian Securities and Investment Commission (AISC) and the Aus-
tralian Prudential Regulatory Authority (APRA).
2. The Australian legislations have been laid down for the protection of investors, the overall fi-
nancial environment and the community at large, which if not followed would create chaos
amongst the investors inviting more fraudulent practices to take place. In order to promote the
fair trade all over and the competitive practices, then adhering to the legislations of the affiliated
countries should be the primary agenda for any financial advisor. Considering the environmental
legislations, the privacy laws, consumer laws, and all the other liabilities, it is highly important to
stick to the legislation.

Answer 2a)
The said case clearly depicts the case of fraud committed by Mr. Menzies, with the charge of
market manipulation and inadequate record keeping. Credit Suisse MINIs were bought and sold
at the pre-arranged price. Mark Menzies, the Melbourne financial advisor had faulted $10,500 in
a span of two minutes in the year December 2012. He had bought 50,000 MINI warrants and the
BHP shares from Credit Suisse at a price of $2.60 and sold the same for $2.81. The phone call of
such dealing was recorded as well and presented later before the Australian Securities and In-
vestments Commission under the Administrative Appeals Tribunal, as a result of which Mr.Men-
zies was severely banned from for providing such financial services 4 years in the year July
2016.("Melbourne adviser claims ASIC chases 'little fish'", 2019)
Answer 2b)
MINI Warrants, characterized as the trading MINIs or installment MINIs which provide the po-
tential for higher returns on relatively small capital investments by enabling the leveraged expo-
sure to the components like shares, index, currencies, and commodities. These warrants account
for trading both in the hike and fall of the markets for a fraction of the underlying market price.
They offer long exposure to the rising markets and vice-versa. ("CommSec - Minis - Benefit
from rising and fall markets", 2019)
Answer 2c)
.i. The trade between Mr. Mark Menzies and the two Credit Suisse bankers met success after a
lengthy phone call sessions. These phone calls were recorded which were used as the prime evi-
dence by ASIC, as being the source of the market manipulation. The ASIC was of the opinion

that the trades in the market were manipulated to the extent that they had been prefixed by
Mr.Anderson and Mr.Menzies to transfer the profit or loss from the previous transaction. This
adjustment of the profit or loss was referred to as “netting-off” transaction by MINIs, designed to
be settled in cash consideration. Market manipulation is considered as highly offensive as per the
Government regulations.("ASIC Business Advisory Panel | ASIC - Australian Securities and In-
vestments Commission" 2019)
ii. The statement given in the first paragraph is actually not relevant since there are no clients in-
volved. The case is actually about Mr. Menzies and the two credit Suisse instead of the clients
mentioned. He had bought 50,000 MINI warrants consisting of futures contracts and BHP shares
from the credit Suisse and sold them at a price higher than the buying price.
Answer 3a)
The article given takes into account the dollar profits that are designed to be attained by execut-
ing a trading strategy by constructing a portfolio based on the stocks within the lowest market
capitalization. The primary anomaly of this article is to identify the existence of a size effect in
Australia. Also, the article is trying to decide on the attempts if a dollar profit can be obtained
from the execution of a trading strategy based on the small market capitalization stocks. In gen-
eral, all the stocks listed on the Australian stock exchange are considered in terms of liquidity
and the transaction costs. The analysis of the entire work is in conformity with the existence of a
size effect within the Australian equity market, being the sole authority for the same. The study
focuses on the actual volume of the stock traded, to account for the liquidity concerns in the
small size stocks. Bid and Ask prices are also accounted for in such transactions.
Answer 3b)