Unit 3
Sources of financial advice; Laws that regulate and monitor the financial services industry; Investing money; Overview of investment options
This chapter focuses on how you’re probably not smart enough to not bankrupt yourself.
Table of Contents
Financial advice
If someone is in a pickle, there are some organisations that provide financial counselling include:
- Financial Counsellors’ Association of NSW (FCAN)
- Consumer Credit Legal Center
They offer free advice on how to manage financial issues and are staffed by financial counsellors and advocates.
Otherwise, there are many sources of financial advice. Licensed financial planners/advisers must be:
- realistic
- suit a borrower’s needs, including long-term goals and current financial position
- honest, fair and reasonable
- legal (e.g mandated cooling off periods)
All licensed financial advisers must:
- hold a licence from a ASIC or be employed by a licence holder
- inform a borrower on their product, and how their service operates
- be fully transparent about themselves and their product
- be ethical and professional
They can be advantageous by:
- interpreting and explaining financial issues
- identifying long-term and short-term goals
- preparing a financial plan for your needs
Debt collectors
Debt can be transferred to a debt collector who will attempt to recover money owed on overdue accounts.
Credit bureau
Credit bureaus are organisations that keeps on file the credit records of consumers, and hold details of people’s credit history. This means that failing to pay accounts at one business can result in credit being refused at another.
A credit file can contain:
- info on overdue or previously overdue accounts
- court judgements/bankruptcy orders
- info on current credit accounts
- previous applications for credit
- previous defaults
Legislation
The financial services industry is monitored by the Australian Securities and Investments Commission (ASIC). They are a consumer affairs regulator and enforce legislation within the financial services industry.
Financial Services Reform Act (FSRA) 2001 (Cwth)
This act resulted in the:
- mandatory provisioning of a product disclosure statement (PDS) which provides a summary of important information about an arrangement prior to a final agreement, including fair and accurate information on:
- risk
- fees
- the financial product being advertised
- tax
- licensing of, all financial organisations and financial planners
National Consumer Protection Act 2009 (Cwth)
This act resulted in state and territory adoption of the National Consumer Credit code which requires:
- standardised credit transactions and practices across Australia
- responsible lending, including accurate information to be clear and easy to understand
- exploitative practices by predatory lenders to cease (e.g household items as security for cash loans)
- full transparency regarding fees, commission and interest rates
- consumer protection in case of consumer difficulty (e.g if a borrower loses their job they can have their contract changed)
External dispute resolution (EDR) is managed by the ASIC.
Future of Financial Advice (FoFA)
A package of legislation known as FoFA was passed in 2012 which provides greater investor protection in regards to a financial planner’s responsibilities and obligations, including:
- duties and commission payments of financial planners
- products that financial planners can recommend to their clients
- the requirement of a renewal notice for clients every 2 years
- financial planners are required to act in the best interests of clients even if it is not the best interests of their own company
Investment
Investment is putting money into something in order to make a profit. It is the next step after saving as it is money that is working for you. People invest to:
- save for major purchases
- gain extra income
- secure their retirement
In investment, usually the higher return = higher of risk. A balanced portfolio allows someone to take risks in some areas and play it safe in others. Consumers have access to a variety of different investment options:
- Shares: a slice in ownership of a company that is paid in dividends
- Property: purchasing land or buildings in the expectation they increase in value over time
- Managed funds
- Superannuation: setting aside some of your income to contribute towards your retirement
Investments require careful consideration and planning, and many investments fail!