Financial Planning 2nd edition has been thoroughly revised to reflect the changing legislative and professional regulations affecting the Australian financial planning industry, as well as capture the latest developments in teaching and learning design. Incorporated into this new edition is coverage of the Future of Financial Advice (FOFA),a new chapter on self-managed superannuation funds, and the hallmark strength of the comprehensive introduction to financial planning decisions, services and products, risk management, and the importance of long-term, strategic financial planning and lifelong management. As more and more Australians look to financial planners for information and guidance on investment opportunities, and both short-term and long-term financial planning goals, this new edition reflects the financial planning industry?s need to ensure that its members are accredited and comply with the industry-recognised professional and ethical skills. Financial Planning 2nd edition has been designed to equip students of higher education institutions with the knowledge, concepts and application required to successfully enter the exciting profession of financial planning.
Warren McKeown was the Senior Lecturer and Course Director of Financial Planning at RMIT University for 11 years, where he devised and taught a range of fi nancial planning subjects in the undergraduate Financial Planning degree program and also subjects in the Master of Financial Planning program. He is currently a Teaching Fellow in Financial Accounting at the University of Melbourne. He has degrees in economics and education and a business master?s degree by research. He has 25 years? experience in fi nancial planning as a Chartered Accountant and as a Certified Financial Planner. He maintains a small client base to ensure that his fi nancial planning skills are up to date. Warren prepared materials and presented workshops in fi nancial planning for the Personal Financial Planning and Superannuation segment of the CPA program for over 10 years. He was also a panel member of the Financial Industry Complaints Service (now Financial Ombudsman Service) and is currently a subject expert for CFP1, the Professionalism module of the FPA?s CFP program. Mike Kerry is currently the Director of Learning Services at Deakin- Prime. Prior to joining DeakinPrime he was a Senior Lecturer in Financial Planning in the Faculty of Business and Law at Deakin University. Mike has been instrumental in the development and growth of both the undergraduate and postgraduate Financial Planning programs at Deakin University. He has also been extensively involved in the development of fi nancial planning curricula for the university?s commercial clients. Mike?s research interests include retirement planning and the use of computerbased technology to enhance planner?lient communication. Mike has a Bachelor of Commerce and a Master of Finance (Honours) from the University of Melbourne. Mike is also a Fellow of the Certifi ed Practising Accountants of Australia and a Financial Planning Specialist. Marc Olynyk is a Senior Lecturer in Financial Planning at La Trobe University and has held various roles within both academia and industry in the areas of fi nancial planning, superannuation, and retirement planning and accounting. He has many years? experience in both teaching and program leadership positions and has played a key role in the development, growth and accreditation of the financial planning discipline at La Trobe University. Marc is a member of the Financial Planning Association and the Institute of Chartered Accountants, a foundation member of the Financial Planning Education Council and a member of the Financial Planning Academic Forum. Marc has published articles in fi nancial planning, superannuation and financial literacy.
Preface xiv Acknowledgements xvi 1 Personal financial planning 1 Introduction 3 What is personal fi nancial planning? 3 Why is personal fi nancial planning important? 4 The role of the fi nancial counsellor 12 The National Financial Literacy Strategy 12 Understanding risk 13 Features of the economic environment 16 The global fi nancial crisis and its impact on Australia 22 The evolution of the fi nancial planning environment 23 The regulatory framework that applies to fi nancial planning 24 What investors and fi nancial planners can learn from history 36 Appendix: The Financial Planning Association of Australia (FPA) 44 2 Financial planning skills 47 Introduction 48 Preparing personal financial statements 49 Financial mathematical skills applied in financial planning 56 Compound interest and the time value of money 57 Nominal and effective interest rates 64 Credit cards 67 Net present value 72 Further applications of the time value of money concept 73 The internal rate of return 73 Fixed-interest securities 75 Effect of tax and infl ation on the rate of return 77 Appendix: Financial modelling 85 3 Taxation planning 89 Introduction 91 The Australian taxation system 91 The components of taxable income 94 Calculation of net tax payable for an individual resident taxpayer 100 Impact of tax on investment income 103 Taxation planning 113 Income splitting 114 Income versus capital growth 115 Tax structures 115 Negative gearing 120 Salary packaging and remuneration planning 120 Goods and services tax 127 4 Investment choices 141 Introduction 142 General attributes of investors 143 Broad investment classes 144 The risk and return relationship 147 The benefits of diversification 151 Recent performance of asset classes 160 General investment strategies 161 Investor behaviour 166 Investment scams 169 Information sources for investment choices 171 5 Direct investment ? fixed interest and shares 177 Introduction 178 Cash and fixed-interest securities 179 The nature of and participants in the fixed-interest market 180 Different forms of fixed-interest investments 182 The nature of and participants in the share market 190 The influences on share prices 195 The capital asset pricing model (CAPM) 202 Basic valuation models ? the Gordon dividend discount model and the price?earnings ratio 204 Alternative direct investments 216 6 Direct investment ? property 223 Introduction 224 Qualities and characteristics of property 225 Different forms of property investment 226 Features and benefi ts of property funds 228 Taxation of property investments 233 Valuation of property investments 237 Advantages and disadvantages of home ownership 240 Financial implications of home ownership versus renting 244 Financing a house purchase 246 Taxation and housing 251 7 Managed funds 261 Introduction 263 Growth and characteristics of managed funds 263 The regulation and structure of managed funds in Australia 266 Investing into managed funds ? advantages, downsides and risks 270 Typical fee structures of MISs 275 Selecting a managed fund for investing 277 Management and investment styles 287 Taxation issues for investors in managed funds 291 Measuring returns and analysing the performance of managed funds 291 8 Leveraged investments 309 Introduction 310 Leveraged investing 311 Gearing 311 Income taxes and geared investments 313 Capital gains tax and geared investments 316 Mortgages 318 Margin lending 321 Benefits and risks of margin lending 325 Derivatives 329 9 Risk management and insurance 347 Introduction 348 Risk and risk management 349 Key concepts in insurance 350 Life, disability, trauma and health risks 357 House and contents risk management 380 10 Superannuation 395 Introduction 397 What is superannuation? 397 Why the need for superannuation? 398 The three pillars policy of superannuation 398 The legislative context for superannuation 399 Types of superannuation funds and who provides them 401 11 Retirement planning 441 Introduction 442 What is retirement planning? 443 Individuals? needs in retirement 443 The three phases of retirement 444 12 Self-managed superannuation funds 487 Introduction 489 The history and growth of small superannuation funds 489 Setting up a self-managed superannuation fund 491 13 Social security 533 Introduction 535 History of social security in Australia 535 Rationale underlying the provision of social security 536 Centrelink and the Department of Human Services (DHS) 536 The range of social security benefits 537 Pension and allowance benefit entitlements and eligibility rules 539 14 Estate planning 573 Introduction 575 Obligations of the financial planner 575 The role of a will within estate planning 576 Drawing up a valid will 576 Rights of beneficiaries 581 Contesting a will 581 Dying intestate 583 Estate planning and taxes 585 Capital gains tax 586 The 3-year rule 587 Stamp duty 588 Estate planning and trusts 588 15 Development of a statement of advice 613 Introduction 615 Disclosure requirements for the provision of a financial product 615 Appendix 15A: No advice statement 657 Appendix 15B: Confi dential client questionnaire 658 Appendix 15C: Risk tolerance classifi cations 669 Appendix 15D: Example Statement of Advice 671 Client information 671 Glossary 694 Index 703