FPC001B: Economic and Legal Context in Financial Planning Report

This report analyzes the economic and legal context of financial planning, covering key aspects such as the role of financial intermediaries, the impact of current economic issues and financial indicators on Australian and global markets, and the regulatory framework governing financial services in Australia. It explores obligations imposed by financial services legislation, including the roles of ASIC and APRA. The report also addresses market impacts on strategy, specifically sequencing risk and retirement planning, and offers methods to mitigate these risks. The analysis includes potential impacts of US interest rates on property purchase and investment decisions, making it a comprehensive resource for understanding the interplay of economic and legal factors in financial planning. The assignment is based on a case study about a 28-year-old solicitor, Jane McDonald, and her financial situation.

ECONOMICS AND LEGAL CONTEXT IN
FINANCIAL PLANNING

SECTION A
Question 1: Economic impacts on strategy
LO1. Explore the role of intermediaries in financial markets
A financial intermediary is an element that promotes the exchange of money between two
collections. Such a mediator or intermediary could be an organization or center. There are some
situations of average people associated with money banks, insurance agencies, social care stores,
bank profitability and the sky is the lowest of these. It can also be said that the essential objective
of the budget transition is to restore viability. These intermediaries charge a fee for their
administrations.
Role of intermediaries in financial market
Intermediaries connect a ceiling between speculators and account lenders in the currency
indicators their essential function is to collect assets with financial experts in general and to pass
through the funds of a wide range of lenders. As a result, they benefit to compensate for their
risk. Similarly, they overcome exposure deficits by reducing exchange costs within the currency
years made by buyers and traders. In addition, they also address the unity between buyers and
sellers in the budget markets. In addition, they offer some form of support to both meetings on
collecting items and administrative transportation methods to adequately address their problems.
LO2. Explain the impact of current issues and key economic and financial
indicators on the Australian and global financial markets.
Current Issues: Taxes, innovation theft, duplication and ownership of ships are on the rise in
money markets in Australia and worldwide from various governments. These problems have had
a tremendous impact on inclusiveness, exchange. Markets around the world must emphasize the
issue of exchange taxes imposed by different countries that remove facilitated trade from
different countries. In addition, exchange commission’s affect the assessment of items around the
world that interrupt exchange relationships. In addition, the issue of innovation theft is causing
problems for markets around the world, thus influencing the acquisition of these structures from

the business sectors. Third, the redistribution of loads by different governments affects universal
exchange.
Potential impacts of the US Interest Rate
Ability to purchase the property
Rising borrowing costs in the U.S. lead to a surge in the US currency against the Australian
currency. When lending taxes rise, this shows the development of the country's economy or vice
versa. By the time the US surge has raised loan taxes and outperformed Australia's financing
costs, the U.S. show is proving to be engaging with speculators around the world. and these
returns in the Australian dollar are losing respect to the US dollar. This can affect Jane's ability to
purchase her property with the money from her non-hardcore home. The loan rate would affect
the loan costs. An increase in loan rates would increase debt costs in currency markets. The
higher measures of the high price affect the progression of profitability starting from a region
and therefore on the expected level of negotiation, attracting higher estimates in US dollars in
several U.S. buyers of the property compared to residential buyers, it is increasingly expensive
for local buyers to acquire the property as the appreciation of money in this way damages the
purchase. An increase in loan commissions on money markets is impacting costs as it increases
and this could affect China's current purchases.
Timing of the property purchase
The time of purchase of the property depends on the rate of cost of the loan and the
reasonableness of the property. The best buying opportunity is the rate at which the loan costs
are low and small for the purchase. Extended US borrowing costs affect properties in Australia.
The more interesting the information, the higher the property costs. Jane has to consider it first as
it would cost the purchase. Rising expansion rates create borrowing costs in the budget market.
Extension of loan fees is affecting the extra cash on the back. The higher the financing costs, the
lower the additional cash that will be accessible to China, this would affect the time a property is
purchased.
US interest rates impact on Jane:
Objectives 1: Is she able to buy her own property?
Potential impact:
1. Due to increasing in the interest rate; she will not be able to purchase her own property due to
increase in the prices of real state.

2. The interest on loan will also get increased and tax on property will also get impacted.
Objective 2: Is it the right time to buy a property?
Impact:
1. Buying any property at this time will increase potential cost of owing it; due increased rates of
real state.
2. A high amount of tax has to pay if she purchases a property.
Objective 3: Should she invest her cash elsewhere?
Impact:
1. If she invests in bank; then she will get good interest rate at low risk as; there is increase in
interest rates by US government.
2. If she planned to invest in security market; then the return she will get will be higher than all
but at the same time sequential risk need to be mitigated.
Question 2: Regulatory framework
LO5. Explore the main sources of law and the regulatory structure of financial
services law in Australia
ASIC was established under the Australian Securities and Investment Commission Act 2001
(Cth) (ASIC Act) and controls financial administrations in Australia under the Corporate Act.
ASIC also has authorization controls under the Corporate Act and National Credit Act. APRA is
established under the Australian Prudential Regulation Authority 1998 (Cth) and directs the
Banking Act 1969 (Cth) (Banking Act), the Insurance Act, the Life Insurance Act 1995 (Cth)
and the SIS Act.
The intention and strength of the RBA are established in the Reserve Bank Act 1959 (Cth).
The sources of regulation include both domestic/national laws (laws that apply to activities
within the jurisdiction of a sovereign nation) and international laws (agreements between
sovereign nations).
Domestic law: Each country has an important set of laws. The constitution of the country is the
unparalleled rule that everyone must follow and is usually written in terms of the broad structure

and administrative commitments and benefits of the population. In the United States, the
government's administrative arrangement - that is, a framework in which control is divided
between focal government and regional departments - established a series of arguments based on
the ability to manage banks.
International law: Like a country's laws, the law is obtained worldwide from various sources.
The hypothesis is perhaps the most obvious source of global law. Negotiation is very similar to
an agreement between countries. An agreement can be called an exhibition or a convention or a
contract. Previously, these are basically all universal understandings. Under the 1969 Vienna
Convention on the Law of Treaties, a worldwide understanding is that which is "uniform
between states in a structure manufactured and administered by global law". Likewise,
international law can be established through universal practice. According to article 38 of the
statute of the International Court of Justice, the practice is "a declaration of general medicine
recognized by law.
LO6. Explain the various obligations imposed on participants by financial
services legislation
Administrative licensees have general obligations relating to cash in Australia which must be
approved under the Corporate Act. These obligations (discussed in detail in point 15) include
assurance that budgetary administrations are employed efficiently, sincerely and reasonably,
monitoring unsecured situations, complies with the terms of authorization and the laws on
money-related administrations, completes the administrative plans, maintains a picture of the
negotiation goals for retail customers and guarantees the authority's representatives adequately
and competently .
As identified by the 2001 ACT Corporations, each person who has the ability to offer the book
must offer financial assistance to all customers in addition to demonstrating the commitments.
The prerequisites or duties are performed in a manner that guarantees the customer's approach
and obtains the best quality piece in case a lawsuit pertains to the administrations and it lets them
choose celebrity options. The commitments continue to change and evolve as individual or
collective signals have been awarded.
1. To administer money-related administrations in a productive, sincere and reasonable manner
2. Ensure that sufficient game plans are in place for managing unforeseen circumstances

3. Ensure that delegates are adequately prepared and competent complies with administrative
laws relating to money.
4. Comply with the laws of monetary administrations.
Question 3: Market impacts on strategy
Sequencing risk: Sequencing risk is the risk that a drawing from a retirement chart will
adversely affect the speculator's overall rate of return. This can have a noticeable impact on a
retiree who relies on a donor's salary and who is made to contribute new capital that can
compensate for contempt. Profitability is also known as grouping risk.
Sequencing risk does not have the same impact on the safest retirement companies as US
Treasuries, which can lead to a surprising result if rates return unprecedented. Any profit that can
go here and there in a short time, from stocks to gold to earth, will be greatly affected.
One of the basic guidelines for addition is that an elaborate approach is being reviewed.
Continuing to send a steady amount of money well after a month and non-stop should be time
after year after year and normal returns should be strong.
Retirement planning: The biggest risks for retirees who have to create the retirement pension
from an unsustainable profit package are a big negative return immediately after retirement. We
often call this opportunity for success. The moment you withdraw money from a corporate
package, an immediate negative return out of the cash on retirement can make the package faster
than those similar negative returns that would occur later in retirement.
This risk of unfair pension terminations due to the poor results of a retirement campaign
was demonstrated by research conducted by Bill Bengen in the 1990s. His study showed that, in
reality, the volatile drawdown rate from the mix of US 50-50 mass stocks with bonds was only
4% over a 30-year period.
This surprised many people that the average returns over a 30-year period in the United States
would even exceed the average of 4%. What the study really reveals is that your average return is
not what you can spend on retirement, because a series of portfolio profits can drain quickly.
Many people are under pressure to run out of retirement money, so a retirement pay plan has to
deal with liquidating the risk of profit for corporate portfolios in one way or another. Here are a
couple of ways to manage the continuity of profit risk.
Mitigating sequential risk:

For retirement, withdrawal of ordinary capital may be required where the salary is not
satisfactory to meet lifestyle requirements. In the case of very low rates, the testing of an
appropriate wage is further tested. After all, the limited salary means many financial experts have
to settle for spending less or spreading the cash flow to meet their lifestyle needs.
For example:
Example 1: Assuming the two financial experts continue to be added for the 15 years, obviously
the demand for a return had no impact on their latest estimated balance: both companies grew to
$ 1,407,905. This is because after some time both positive and negative market developments
have come to the outside. Crucially, despite the volatility in annual output, the normal return is
assured.
Therefore, most who are setting aside something for retirement should not worry too much about
current instability in the business sectors, although this may cause some trends down over time in
estimating their profitability. Assuming that the standard processed product is guaranteed, their
profitability estimate is improved.
Example 2: With an all out returns speculation portfolio, a forceful resource allotment gives the
most noteworthy likelihood of accomplishment if the spending level is pushed past what bonds
can securely support and annuities are not in any case thought of.
When a speculator needs a standard withdrawal without much regard for the market rate,
the capital malfunctions acquired immediately after retirement can be harmful. The risk of
categorization, which reflects the example of inputs from financial experts, or the demand in
which they are obtained, poses a risk to retirees.
The effect of risk sequencing on the earnings of old age is the effect of the average cost in
dollars, which can be used to accumulate wealth. The average cost in dollars includes the
implementation of standard enterprises, while pensioners at the year-end are required to
withdraw normal allowances from their profit margin.
Average dollar cost models include a speculator that adds a fixed amount of liquidity to
standard predetermined runs, such as a regular $ 20,000. By setting the dollar amount, a check is
restricted to the financial expert. When the bidding costs are low, more units are purchased and
when the tender costs are higher, fewer units are purchased. For the average dollar cost system,

volatility turns into the closest buddy to a financial expert. As a net buyer of offers, the lowest
costs can be predicted willingly.
The extension is at least valid for the pensioner at the benefit level and must receive
standard lump-sum deductions or a rate from your wallet. For example, the mandatory
withdrawal from an annuity account goes from 4% for minors under 65, to 7% for mature 80-84
years, to 14% for more than 94. These rates ready to support consumption excellent resources for
the grant. retirement, don't go to campus.
A financial expert, who had to regularly withdraw a fixed dollar from his portfolio, would
find something that would offset the cost of an average "dollar". At lower costs, a retiree would
be forced to sell more units by default because more units are needed to obtain the basic
allowance. After these units have been sold, the rest of the package is smaller and, with fewer
units, more specific pressure is exerted on the rest of the package to compensate for accidents
back. It is therefore essential that mishaps in the initial phase of the enterprise are kept
strategically at risk or at least by risk.
Method of mitigation:
Reserving a cash allocation
One strategy that consultants use is to find the money needed for spending, lifestyle and
medical services needed to recover estimated time needed to recover business sectors. from
unstable sources.
Find a retired $ 2 million theoretical speculator who is motivated to set aside $ 300,000 to
cover three years of spending and add the remaining $ 1.7 million. What happens if the business
sectors decline by half near the end of the three years, when there is nothing left?
Remarkably, the agreement to ensure that $ 300,000 is regularly distributed and in this way
requires $ 100,000 to be withdrawn annually from the beginning of next year.
One option is to mitigate the expected instability by extending the portfolio to a set of
classes of benefits or assets in which the products do not match the supply market. However,
here again, the no-cost and QE approaches have ensured significant costs for all welfare classes,
expanding the degree of relationship between classes of benefits that may be insured offer.
Brief analysis of Marcus and Jill’s financial situation
The significant improvement over the profitability of stocks can be achieved by placing
resources in reserve that withdraw capital. The retired support speculator closes the campaign

period with an estimated package of just over $ 2.5 million and received premium annual
installments of $ 12.9 million. The dynamic reserve speculator package is worth 37% more than
the "file" finance expert and has gained an additional 28% in allowances.
A large part of the population is moving rapidly towards retirement or has recently joined.
The economic conditions, and in particular the extended market valuations, must pose a seizure
risk at the top of the management. Similar to these lines, finding a reserve with an upside /
downside acquisition approach should be important in negotiations between a retired client and
management.
Implications of market impacts on Marcus and Jills retirement age and funding
The market implications noted that dividend models would likely put pressure on the
development of existing pension structures. In particular, Marcus and Jills rely heavily on open
payments only when public pay-as-you go (PAYG) arise where retirees' old-age pension is
financed through commitments of those now dynamic in the workforce. The study noted that the
combination of rising confidence shares and authoritarian obligations to provide liberal benefits
in general needed to rise to ridiculous levels - can damage open assistance for such approaches.
To address the problem of unreasonable annuity accounting, the study recommended members to
consider extensive dependence on subsidized benefits. It has been proposed that member
countries create legal and institutional systems that allow organizations and / or people to put
benefits aside for show-based results and increase the amount of benefits over the years labor
and so on to add these benefits to the delivery of the salary.
Question 4: Legislative issues in retirement planning
The superannuation world is ever-changing, which is the reason it's so imperative to keep
awake to-date with all the guidelines, tops, rates and limits. While a significant number of the
progressions can be viewed as the administration tinkering with the standards or moving the goal
lines, numerous progressions can be sure.
Government strategy is rarely immaculate and enhancements can generally be recognized.
A few approaches are intended to be more attractive while others might be intended to boost
Australians to support their super, or for the business to cut their expenses.

The exchange balance account (TBA) should turn into a self-appraisal practice for SMSFs
as opposed to the mind boggling revealing at this point. The announcing isn't working and a
great deal of re-revealing is required and the ATO are encountering a ton of blunders. Numerous
SMSF counsels are having heaps of issues with the TBA revealing framework and discover this
most exceedingly terrible piece of the mid-2017 changes.
Commitment tops ought to be expanded. The concessional top should increment to
$50,000 per part and the non-concessional commitment top should increment to $150,000 per
money related year.
The productive work test ought to be expelled as it no longer has pertinence to the
advanced super framework. The progressions reported in the April 2019 Federal Budget ought to
go further and evacuate any connect to beneficial business by and large as opposed to only for
those under 67 years
The superannuation ensures (SG) rules need more prominent adaptability. At present the
multifaceted nature of getting the correct estimation for commitments to fulfill the base 9.5% of
common time income is amazingly unpredictable given Australia has the most intricate working
environment set of rules and the most prohibitive work rehearses on the planet where numerous
honors or mechanical understandings may apply to a similar representative and correspondingly
various groupings under these different honors may apply to a similar worker. Managers ought
not to be hit with such a devastating punishment system for committing genuine errors. The
punishment system needs to support intentional consistence. A SG pardon ought to be presented
for a multiyear least period so businesses can amend any past issues. Businesses ought to be
given a yearly compromise period as opposed to getting captured out if each quarter isn't exact.
There is a lot of work on SG that is required.
A certifiable exertion be made for ATO-Treasury-Industry to cooperate to eliminate
inefficient and wasteful practices to diminish any formality, eg, the TBAR framework which has
been and keeps on being a genuine issue for SMSF specialists. Further exertion is required in
lessening the formality and administrative work related with super which gobbles up retirement
reserve funds and is non-profitable.
The Government ought to continue with SMSFs having 6 individuals as quickly as time
permits.

That the super framework be treated 'with deference' and it isn't there for Governments to
promptly raise charge from, and that replacement governments must have respect to the drawn
out objectives of individuals and the super framework instead of making changes that cut across
individuals long haul retirement objectives for Government to remove further assessment to
adjust its financial plans from year to year.
Australia's retirement pay framework is fit as a fiddle. It is required to convey sufficient
livelihoods to Australia's resigned populace for a long time to come, with supportability
guaranteed notwithstanding a maturing populace.
Be that as it may, there is in any case a lot of opportunity to get better, so an extensive
audit is welcome. It's a chance to determine issues that have burdened the framework for a
considerable length of time.
At the ARC Center of Excellence in Population Aging Research (CEPAR), we directed our
own audit of examination into the retirement salary framework in a progression of Research
Briefs. These likewise recognize strategy holes that the Government's audit ought to return to.
Whatever structure the Government's audit takes, it is fundamental that it thinks about the
connection between various segments of the framework. Time after time before, one part of the
framework has been inspected without offering weight to the manner by which it meets with
different parts. An extensive audit gives a strange chance to take a gander at these together.
In doing so it ought to evaluate the current and anticipated sufficiency of the security net,
the requirement for higher commitments, the system that permits single amounts to be changed
over into retirement pay, and the propriety of tax collection settings.
While thinking about whether the security net is satisfactory, it is critical to envision future
patterns in the advantage property of the individuals who are less wealthy. Retirees without
lodging security are helpless under current approach settings, so we have to ensure that they are
enough upheld by open installments, for example, the Age Pension and Commonwealth Rent
Assistance. The job of lodging as a retirement resource all the more by and large will likewise
should be thought of.
The survey should consider the fitting commitment rate ordered under the Superannuation
Guarantee. Furthermore, progressively extensive components ought to be considered to draw
non-workers into the superannuation framework.

Retirement earnings cannot exclusively be expanded by higher investment funds, yet in
addition by improving the effectiveness of the framework and better drawdown procedures. The
Productivity Commission, in an ongoing audit, has just proposed a few arrangements that would
help minimizing expenses, and there are no uncertainty different prospects. A thorough survey
must give this issue genuine thought.
The drawdown period of retirement requires uncommon consideration. This ought to be a
significant piece of the audit – how to make drawdown’s productive, particularly the
administration and sharing of dangers individuals face in retirement.
At long last, the retirement salary framework sits inside a more extensive tax assessment
structure, and that structure should better suit settings that help the activity of the framework we
have embraced.
A far reaching audit gives the chance to evaluate the framework against the targets of
ampleness, manageability, effectiveness, decency, and effortlessness and to make Australia's
retirement pay framework far better.
Administering the destinations of the super framework was a key proposal of the 2014
Murray Inquiry and it was an incredible one. Sadly, the Superannuation (Objective) Bill 2016,
which tried to do this, was not passed during the life of the 45th Parliament. The significant
gatherings couldn't concur on the wording. This is a genuine piece of incomplete business for the
new Morrison government.
Super is social framework that changes a portion of the present wages into capital for
spending as 'retirement wages' far into what's to come. Along these lines, family unit utilization
can be streamlined over a lifetime. The primary dollar a specialist adds to super at age 25 may
stay in the framework for at least 50 years, until it is fit to be spent.
The sum that somebody spares in superannuation for their retirement is connected to their
wages. Wages by and large become quicker than swelling, so individuals' superannuation adjusts
at retirement will increment quicker than expansion after some time. Along these lines,
individuals' super adjusts at retirement will increment quicker than the breaking point will
increment. This will prompt increasingly more of individuals' superannuation reserve funds
when they arrive at retirement surpassing the breaking point.
The expense on profit that is applied to benefits accounts inside superannuation is nil,
while the duty on income that is applied to non-annuity accounts is 15%. The breaking point