Economic, Legal & Ethical Context for Financial Planning Report

This report provides a comprehensive analysis of the economic, legal, and ethical considerations within financial planning. It begins with an introduction to financial planning and its importance, followed by a case study examining the financial planning of Jane and her investment strategies. The report delves into the impact of economic factors, such as rising US interest rates and global financial issues, on investment objectives and the Australian financial market. It then explores the regulatory framework, including the role of ASIC and obligations of financial service providers. The report also defines sequencing risk in retirement planning and analyzes its impact on Jane's parents' retirement goals, including changes to the superannuation system. Finally, the report explores the main sources of law and the regulatory structure of financial services law in Australia.

Economic, Legal
& Ethical Context for Financial
Planning

Table of Contents
INTRODUCTION...........................................................................................................................3
Section A..........................................................................................................................................3
Questions 1. ................................................................................................................................3
Question 2...................................................................................................................................4
Question 3...................................................................................................................................5
Question 4...................................................................................................................................6
Section B..........................................................................................................................................7
Question 1...................................................................................................................................7
REFERENCES..............................................................................................................................10

INTRODUCTION
Financial planning is an important aspects of an individual which helps in providing a
road map to provide which aims at achieve financial goals. It helps a person in making a strategy
or plan which helps in analysing the current situation and future plans. It also helps to provide
weakness and recommendation in improvements. The present case study will demonstrate the
financial planning of Jane and his investment plan. The study will help in understanding different
economic impacts on the Jane's financial objectives. Further, the different regulatory and law
structure will also explain the financial service law in Australia. The case study will also discuss
the impact of global financial market which will affect the retirement goals of the Jane's parents.
The legislative policies related to retirement planning are also includes in the report. The case
study than discuss the laws and regulation related to start a financial service company. Different
laws and act of financial service provider is present in this report.
Section A
Questions 1.
Discuss how a rise in US interest rates might affect Jane's three objectives:
In recent global economy, any change in countries economy can effect the economy
and financial market of countries connected to them. Every developed country are interrelated
and thus Australian shares no border with another nation, economic factors like international;l
shares price ans interest rates will affect the Australian investors. As Australia is an importer and
exporter of goods and services, tourism destination, buyers and seller of products and financial;l
products.
Interest rates are the price of money paid by borrowing money from bank. Interest rate
are an indicator of a sound financial system of Australia (Deininger and Byerlee, 2011). If USA
will raise its interest rates, the Australian Reserve bank will likely to cut down the rates if the
Australian economy slips. Higher interest rates in USA will put pressure on Australian interest
rate to raise . Interest rate change in USA will have a great impact on the Australian economy
and in investment of a person.
It will have a great impact on the investment decision of Jane's on the property. The
Jane's objectives. As US interest rates, the price of investment in buying the property will also
increase. The property which Jane's can earn in less investment, will now have to invest more
money as the prices of property will likely to jump because of high interest rate. The result is

higher interest rates for Aussies, losses in investment, and higher mortgage rates. With the
current economic condition, Jane's is recommended that she should hold her investment plan
until the RBS stabl4es in the interest rate and its affect on the investment plan. Rather than
investing money elsewhere, Jane should keep the money in bank as the increase in interest rate
may increased on saving deposits in bank.
Explaining two potential impact of current issues and key economic and financial indicators on
the Australian and global financial markets on each of Jane's objectives:
The current global issues has given rise to effecting the domestic economy and financial
market. The US inflation crises has given rise to instability in global economy that have directly
affected the Australian economic market (Summers, 2014). The goals of monetary policy are
very much domestic, in terms of inflation and employment. It leads to global economic growth
started falling gradually. The inflation crises in US has also affected the Australian economy,
but not that much. The level of GDP in Australia is 27 percent which was higher than it was in
2007. the influence of global economy crises has influenced the low level of corporate
investment over the
past decade. Australia has not experienced a large economic downturn or a financial crisis
during the GFC (UBS warns risk of Australian 'credit crunch' rising ,2018). However, the speed
of economic growth start falling gradually that leads to rose in unemployment rate. The lack of
monetary supply in USA leads to increase the export and import of goods. Australia imports
petroleum and oil from USA which tends to increases. It started affecting the economic stability
in Australia during the Global financial crisis.
Question 2
Identify four (4) obligations placed on financial services providers under the current legislative
and regulatory framework.
The regulatory framework like Australian Securities and Investment Commission(ASIC)
regulates registered companies, financial markets, and the providers of financial services and
credit services to the consumers (Bason, 2018). The ASIC aims to promote fair and efficient
financial markets, increased transparency and to support confident and informed participation by
investors and financial consumers.
The role of ASIC as a financial service provider in context to consumer like Jane to be
protected and receive appropriate financial advice:

 The regulatory ensures that consumer get effective, honest and fair services through
Australian financial services licensing system.
 It is responsible for the promoting investors and financial consumer trust and confidence.
 They provide appropriate fair advice to the financial consumer like Jane, so that their
investment will be safely invested where they can get the best profitable return
(Maditinos and et.al., 2011). ASIC are responsible to regulate the financial markets, financial services organisations
and professionals who deal and advice in investment in order to protect the financial
consumer like Jane in financial market.
Discuss the legislative and regulatory source of these obligations and how the obligations are
intended to protect consumers.
Australian financial regulatory framework is the main element that has introduced in
1998 in response to the recommendations of the financial system inquiry. Each of these consists
of three agencies, that have specific functional responsibilities:
 The Australian Prudential Regulation Authority, are responsible for prudential
supervision. It is an independent statutory authority that supervises institutions across
banking, insurance and promotes financial system stability in Australia.
 The Australian Securities and Investment Commission (ASIC), it is responsible for
market integrity and consumer protection across the financial system.
 The Reserve Bank of Australia(RBA), this authority is responsible for monetary policy,
overall financial system stability and regulation of the payment system in country.
The regulatory source of the obligations and their intended to protect financial consumers like
Jane, are like Corporation Act, which are responsible for regulation of financial advice.
Consumer outcomes may be improved through better or more intensive supervision or
enforcement of existing rule. The obligation that are intended to protect financial consumer are:
Disclosure:
To make effective decisions about financial products and services, consumers will collect
information from many sources and may be influenced by many factors. But the financial
consumer need to access the accurate information from product issuers only. The format and
source of information may influence the degree to which consumer can effectively use the

information for their investment decision purpose. The current regulatory regime requires all
financial service providers to give consumers their services through Financial Services Guide.
Accessibility:
Providing quality financial advice helps consumers make informed financial decision. It
is challenging to increase the quality of advice and make it more affordable and accessible for
financial consumer (Studer, Fateh and Seethaler, 2011). If the consumer are not getting the
quality financial advice, consumers make inappropriate investment decisions, or fails to make
effective planning regarding his financial decisions. The FOFA reforms was intended to
facilitates access to quality scaled financial advice to the financial investors and consumers.
Question 3
Define ‘sequencing risk’ in relation to retirement planning and describe how market conditions
over the accumulation phase of saving for retirement can affect retirement outcomes and risk of
Jane's parents retirement goals.
Sequencing risk: it is the risk that is involved in making withdrawal during or
immediately after periods of poor performance. The person who wants to get retire in coming
period will begun to withdrawing funds from a retirement account just after a market downfall
will impact the value of his account. It can mean that a retiree earn a much lower internal rate of
return than expected. To reduce this risk, the retiree may have to make smaller withdrawals than
planned during the early stages of retirement.
The ways to mitigate against sequencing risk are:
 To spend conservatively can be a way to reduce the consequences of sequence risk. The
spending of the retiree must be ensure a sufficient probability of success. Combining an
aggressive investment portfolio with concerns of outliving an assets means spending
must be conservative.
 Sequence risk is mitigating here by reducing spendings after a portfolio decline, in this
strategy of withdrawing a constant percentage of remaining assets eliminates sequence of
returns. It will help in volatile spending amounts that will lead to a balance between
reduced sequence risk and increased spending by partially linking them to portfolio
performance. Buffer assets can be a method to mitigate the risk of sequence is to have other assets
available outside the financial portfolio to draw from after a market downturn. Return on

this assets should not be correlated with the financial portfolio, since buffer assets is to
support spending when the other portfolio is down.
Analysis of Marcus and Jill’s financial situation.
Jane's parents Jill and Marcus Kurmond are possibly be retire in 4 years. They want to
put some strategies so that they would be enable them to achieve their retirement goals. Marcus
income before tax is $150000 per annum. Jill works as an administrative assistant and earns
$50000 per annum before tax. Marcus has a superannuation balance of $350,000 invested in a
high growth funds and Jill's superannuation balance is $120000 and is investing in a growth
fund. They have purchased their home 20 years ago and is currently worth $750000. they have
no dependents, no debt and have $ 150000 cash in the bank.
Question 4
Select and detail two recent and significant changes since 1 January2015to the superannuation
system.
The reason superannuation pensions were treated differently in terms of the Age Pension
income test was, firstly, to recognise that any payment from a super pension included a capital
component which was already assessed under the Age Pension assets test. The second reason for
excluding super pensions from the deeming rules, and allowing a deductible amount, was to
encourage Australians to take superannuation pensions rather than opting for lump sums and
spending the money.
The self-employed would be able to claim a full deduction for their superannuation
contributions as well as being eligible for the Government co-contribution for their post-tax
contributions.
 The ability to make deductible superannuation contributions would be extended up to age 75.
 It would be easier for people to find and transfer their superannuation between funds.
Section B
Question 1
Exploring the main sources of law and the regulatory structure of financial services law in
Australia.
There are two main financial regulatory body in Australia that would work with the
Reserve Bank of Australia and the Australian Competition and Consumer Commission are
responsible for prudential regulation.

The main sources of financial regulation and created the Australian Securities and
Investments Commission(ASIC) and the Australian Prudential Regulation Authority(APRA).
ASIC has the power to regulate the market integrity and is responsible for consumer
protection with the objectives of promoting market fairness and consumer confidence (Financial
services ,2018). APRA has the power to regulate the unsystematic information problems by
setting and enforcing standards of prudential behaviour on all institution.
There are three main types of power of APRA:
 Authorisations or licensing power.
 Supervision and monitor power.
 Power to act in circumstances of financial difficulties to protect depositors, policy holder.
The main powers of ASIC includes being able to:
 Investigate situations where a breach of its legislation might have occurred.
 Prosecute in a criminal court.
 Responsible bring a civil action.
 Apply for a civil penalty order Accept and enforce an undertaking to comply with the law.
The various obligations imposed on participants by financial services legislation.
A) What authorisations is Winsome likely to need in its AFS licence and why?.
Winsome to act like a stockbroker would require a Australian Financial service license to
conduct a financial service business. ASIC assess applications for AFC licences as part of our
role as regulator of the financial services industry (Why Australian investors are impacted by
international interest rates ,2018). Under section 923B AFC licensees are restricted from using
certain terms to express their financial services business unless they permitted from the authority
of AFC license to do so. These types of restriction are applied on following terms:
 Stock broker or share broker.
 Future broker
 insurance broker or insurance broking
 General Insurance broker.
 Life insurance broker.
Winsome can only be authorised to use the term share-broker, if he select the dealing service
authorisation and then the appropriate dealing activities and products.

B) i.) What training and competencies will Winsome need to demonstrate collectively in order to
obtain an AFS licence?
The AFS license will be given on the basis of skills and experience of the people who are
nominated as responsible manager. Bettina and Gordon have experienced of working in
Australian equities and international equities for 10 years and 15 years (Parkman and Peeling,
2017). They have maintained their skills through seminars and training. For attaining the AFS
license they have to full fill the five options ASIC set for demonstrating appropriate knowledge
and skills for all of your financial services and products.
ii).Is Winsome likely to have the expertise and experience required to obtain an AFS licence?
what additional information need to make a decision?
Bettina and Gordon have sufficient experience as required to get the AFS license. 5
options which the responsible manager is relying on and the responsible managers experience
and qualifications in relation to the financial services and financial products that they have
applied for as part of the licence application under ASIC set.
C).Assuming Winsome decided to expand their market to include retail clients before 31
December 2018, what will Winsome be required to do?
D).What obligations does the Anti-Money Laundering and Counter-Terrorism Financing Act
2006 (AML/CTF Act) impose on Winsome.
The Anti-Money Laundering and Counter-Terrorism Financing Act 2006(AML/CTF Act)
covers the financial sector, gambling sector, bullion dealers and other professionals and other
businesses that covered under this act (AFS licensees ,2018). It helps the Australia in providing a
part of legislative to deter money laundering and terrorism financing.
The obligation under (AML/CTF Act) on Winsome when they provide designated services,
includes:
 Customer identification and verification of identity.
 Record keeping.
 Establishing and maintaining AML/CTF program
Winsome has to determine the way to meet this obligation which are based on their
assessment of risk of whether providing a designated service to a customer facilitate money
laundering or terrorism financing.

E). what action will be taken if Winsome failed to comply with its obligation under the
AML/CTF act?
If Winsome failed to comply its obligation under AML/CTF act, the AUSTRAC Chief
executive officer may apply for civil penalty orders under the section 176 of AML/CTF act. If
the penalty specified in the infringement notice is paid within the requisite time frame (Scott,
2018). No liability in relation to the alleged contravention is discharged and no criminal or civil
penalty will be enforced. If the penalty specified in the infringement notice is not paid,
AUSTRAC may initiate action in respect of the offence.
CONCLUSION
By summing up the above report, it can be concluded that a proper and accurate financial
planning is essential for attaining the financial and investment goal of Jane. The present report
will help in understanding the ethical, legal and social impact on the financial planning of Jane.
Economic impact included the effect of global economic changes.

REFERENCES
Books and Journals
Deininger, K. and Byerlee, D., 2011. Rising global interest in farmland: can it yield sustainable
and equitable benefits?. The World Bank.
Summers, L. H., 2014. US economic prospects: Secular stagnation, hysteresis, and the zero
lower bound. Business Economics. 49(2). pp.65-73.
Bason, C., 2018. Leading public sector innovation: Co-creating for a better society. Policy
Press.
Epstein, M. J., 2018. Making sustainability work: Best practices in managing and measuring
corporate social, environmental and economic impacts. Routledge.
Maditinos, D. and et.al., 2011. The impact of intellectual capital on firms' market value and
financial performance. Journal of intellectual capital. 12(1). pp.132-151.
Studer, C., Fateh, S. and Seethaler, D., 2011. ASIC implementation of soft-input soft-output
MIMO detection using MMSE parallel interference cancellation. IEEE Journal of Solid-
State Circuits. 46(7). pp.1754-1765.
Parkman, T. and Peeling, G., 2017. Countering Terrorist Finance: A Training Handbook for
Financial Services. Routledge.
Scott, B., 2018. AUSTRAC v Tabcorp: A case study in enforcement action by Australia’s
financial crime regulator. Journal of Financial Compliance. 1(4). pp.373-380.
Online
UBS warns risk of Australian 'credit crunch' rising .2018 [Online] Available
Through:<https://www.afr.com/markets/ubs-warns-risk-of-australian-credit-crunch-rising-
20180705-h12asp>
Why Australian investors are impacted by international interest rates .2018 [Online] Available
Through:<https://www.modoras.com/why-australian-investors-are-impacted-by-international-
interest-rates/>
Financial services .2018 [Online] Available Through:
<https://asic.gov.au/regulatory-resources/financial-services/>
AFS licensees .2018 [Online] Available
Through:<https://asic.gov.au/for-finance-professionals/afs-licensees/>