Asia Pacific Geographic Focus Group Topic: Financial Planning in Australia Presenters: Steve Helmich

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Asia Pacific Geographic Focus GroupTopic
Financial Planning in AustraliaPresenters
Steve Helmich Wayne LearOctober 2008
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Contents

• Key Statistics on Australia
• Political Structure
• Regulation of the Financial Service Industry
• Financial Planning in Australia
• Platforms
• Stock Market
• Taxation System

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Key Statistics on Australia
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Geography

• Total area 7,692,024 km2
• Coastline 34,218 km
• Capital city Canberra
• States and territories
• States
• New South Wales
• Victoria
• Queensland
• Tasmania
• South Australia
• Western Australia
• Territories
• Northern Territory
• Australian Capital Territory

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Key Demographic Statistics

• Language
• the national language is English,
• but there are a number of other languages also
  spoken at home
• English only spoken at home (78.5)
• Italian (1.6)
• Greek (1.3)
• Cantonese (1.2)
• Arabic (1.2)
• Mandarin (1.1)
• Residential Status
• Australian citizen 86
• Persons born overseas 22
• Average weekly earnings 1,132.20 (58,874 per
  annum)

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Key Demographic Statistics (cont)

• Population 21,463,180 (ABS - 31 March 2008)
• Gender split Male 49.4 and Female 50.6
• 483 000 (2.3) of the population is indigenous
  (Aboriginal and Torres Strait Islander)
• Australias Age profile
•   0-4 years 6.3
•   5-14 years 13.5
•   15-24 years 13.6
•   25-54 years 42.2
•   55-64 years 11.0
•   65 years 13.4
• Median Age is 37 years

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Key Demographic Statistics (cont)

• Life expectancy
• Male 78.5 years
• Female 83.3 years
• Religion
• Christianity 63.9
• Buddhism 2.1
• Islam 1.7
• Hinduism 0.7
• Judaism 0.4

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Australian values

• respect for the equal worth, dignity and freedom
  of the individual
• freedom of speech
• freedom of religion and secular government
• freedom of association
• support for parliamentary democracy and the rule
  of law
• equality under the law
• equality of men and women
• equality of opportunity
• peacefulness
• tolerance, mutual respect and
• compassion for those in need.
• Source Becoming an Australian Citizen,
  Australian Government, November 2007.

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Indigenous Australians

• Indigenous Australians have been here for between
  40 000 and 60 000 years. Their culture is one of
  the oldest in the world. Migrants started
  arriving in Australia from 1788, the first year
  of Australias European settlement.
• The indigenous population declined dramatically
  during the 19th and early 20th centuries due to a
  number of factors, including conflict with the
  new settlers and especially the impact of new
  diseases.
• Today, Australias Indigenous population is about
  483 000. Indigenous cultures today are diverse
  and a vital part of Australias national
  identity. Indigenous people contribute
  significantly across many fields, including the
  arts, media, government, academia, sport and
  business.

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Political Structure
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Political structure

• Australia is a democracy with a constitutional
  monarchy
• The six self-governing colonies of Australia came
  together in a federation on1 January 1901, with
  the creation of the Commonwealth Government
• Australias constitutional Head of State is Queen
  Elizabeth II. The Queen appoints the
  Governor-General as her representative in
  Australia. She does so on the advice of the Prime
  Minister. The Governor-General is not aligned to
  any political party and is Australias effective
  Head of State.
• Our Head of State / Monarch Queen Elizabeth II
• Governor General Quentin Bryce (first female
  Gov.General)
• Prime Minister Kevin Rudd

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Forming CommonwealthGovernment
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Three levels of Government and their
responsibilities
taxation the economy immigration and
citizenship employment postal services and
telecommunications
social security (pensions and family support)
defence forces trade airports and air
safety relations with other countries (foreign
affairs)
Commonwealth Government

• hospitals
• schools
• railways
• roads
• forestry
• police

State Government
noise and animal control libraries and
halls rubbish collection building permits
local roads, bridges and footpaths food and
meat inspection
street signs and traffic controls drains
child immunisation parks, playgrounds, swimming
pools and sports grounds
Local Government
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Regulation of the Financial Services Industry
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Regulatory control of financial services industry
Securities Industry Act - Licensing of persons
who carried on the business of dealing in or
advising on securities.
National Companies and Securities Commission
(NCSC) one system of securities law applied and
regulated in Aust
Corporations Act passed which transformed NCSC to
ASC (Aust Securities Commission). Which regulates
the dealing in or giving advice on securities
2 new regulators 1) ASIC responsibility for
consumer protection in the financial system. 2)
APRA regulator of deposit taking institution
As a result of CLERP6 Financial Services Reform
Act (FSRA) was introduced to create a consistent
regulation of financial markets and products
Trade Practices Act created for the promotion
of competition and fair trading and the provision
for consumer protection
Common Law Economic Reform Program (CLERP) Govt
intention to alter corporate regulation.
NCSC introduces the proper authority holder
regulation for securities dealers and investment
advisers
CLERP 6 consultation paper financial products,
service providers and markets an integrated
framework
Anti-Money Laundering and Counter-Terrorism
Financing Act 2006
ASIC Australian Securities and Investment
CommissionAPRA Australian Prudential
Regulation Authority
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Financial Services Reform Act (FSRA)

• Most participants in the financial services
  industry were affected by FSRA
• Banks, building societies
• General and life insurance
• Managed investment schemes and superannuation
  funds
• Australian Stock Exchange (ASX)
• Stockbrokers, advisers/personal investment
  advisers
• Financial product advice is a recommendation,
  opinion, interpretation of information or a
  report intended to influence a person in making
  decision about financial products
• Any entity or person that provides a financial
  service is required to have an Australian
  Financial Services Licence (AFSL)
• Licensees who provide services through Authorised
  Representatives must issue them with express
  written authority and have them registered with
  ASIC. An authorised representative may be an
  individual or a company.

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FSRA (cont)

• Authorised representatives must have a minimum
  level of training and competency, which is set
  out in ASIC Regulatory Guide 146 (Licensing
  Training of financial product advisers)
• Licensees are responsible for the actions of
  their authorised representatives

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Financial Planning in Australia
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History of Financial Planning in Australia

• Financial planning industry has experience rapid
  growth and change over the past 3 decades. Prior
  to 1990s advisers were primarily sales people
  selling insurance and investment. With the added
  regulation and closer scrutiny by the media the
  financial planning industry has had to become
  more professional and responsible toward clients
  and the community.
• Planners need to have a minimum level of
  competency as required by ASIC Regulatory Guide
  146 (Licensing Training of financial product
  advisers).
• The Certified Financial Planner (CFP)
  accreditation is the highest level of
  professionalism in the industry. To be a CFP a
  planner must pass a growing level of education as
  well as holding a formal degree. They also must
  be a member of the FPA.
• The industry promotes self regulation through
• Financial Planning Association of Australia (FPA)
• Investment and Financial Services Association
  (IFSA)

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Size of Australian Financial Planning Licensees
Source Money Management Dealer Group Survey June
2008
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Growth of Financial Planning in Australia

• The top 100 Licensees have grown strongly over
  the past 8 years.
• However there is continued supply constraint on
  growth in planner numbers (especially quality
  planners) providing advice to the mass/mass
  affluent segment.
• Almost every licensee in the market has ambitions
  to grow their planner numbers within their
  network.

• The Australian market has experienced a
  significant increase in MA activity, within the
  large Licensees.
• CFP numbers in Australia is approximately 6,000

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Scope of advice given by financial planners

• Investment planning and products
• Budget and debt management
• Salary packaging
• Superannuation planning and products
• Retirement planning and pension and annuity
  products
• Personal insurance and risk management
• Banking and lending products
• Social Security
• Estate planning

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Remuneration issues

• Financial planners are remunerated through
• Fee for preparing a Statement of Advice
  (Financial Plan)
• Product commissions only
• Advice fees commission
• Advice fees only
• Financial planners can be self employed aligned
  planner or a employed planner by a licensee.
• The majority of large licensees are owned by
  Wealth Management Companies or Banks.
• The industry operates under an open architecture
  model, where planners are not generally tied to a
  single product or platform provider.

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Superannuation

• Purpose of Superannuation is for individuals to
  self fund their retirement, through
  superannuation savings. When an individual
  reaches retirement minimum age of 60, they are
  able to draw an income stream or a lump sum from
  their super fund.
• Retirees, can in some circumstances supplement
  their superannuation income stream with the old
  age pension, if they are able to meet the asset
  and income criteria.
• Superannuation guarantee contributions was
  introduced in 1992, making it compulsory for
  employers to contribute a minimum of 9 of their
  employees salary to superannuation.
• Individuals can also make voluntary contributions
  to their super fund, up to an age based threshold.

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Superannuation (cont)

• The Commonwealth Government has been encouraging
  individuals to invest in superannuation through
  generous tax breaks, such as
• Individual contribution through salary sacrifice
  is taxed at 15, rather than at marginal tax
  rates
• Super fund earnings are taxed at 15
• Spouse contributions receive a rebate
• Government co-contribution scheme - individuals
  earning less than 29,000, who invest 1,000 into
  Super the Govt will contribute 1,500 to the
  fund. This reduces by 5c for each 1 of
  additional income and cuts out at 59,000
• Withdrawal from the super account for individuals
  over 60 years is tax free.

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Superannuation (cont)
Superannuation Guarantee Contribution
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Platforms
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Consumer without a platform product

• There is added complexity of managing different
  accounts, receiving multiple statements and
  paying higher fees.

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Consumer with a platform product

• Platforms offer choice, access, simplicity and
  value

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Stock Market
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Stock market

• Australian Stock Exchange (ASX) is the main
  exchange for securities and derivatives
• The market capitalisation is AUD1,288 billion
• Over 2,234 companies and securities listed on the
  ASX
• BHP is the largest company listed on the ASX,
  with a market capitalisation of AUD 83 billion

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Investment and Insurance market place

• Investment
• Size of the investment / super market Retail
  532 billion and Wholesale 273 billion funds
  under management
• There are a large number of fund managers in the
  Australian market, the top 10 managers account
  for 76 of the wholesale market and 57 of the
  retail market.
• Insurance
• Source Plan for Life June 2008

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Taxation System
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Taxation
Tax rates 2008-09

• Individual rates
• Dividends received from local companies, carry an
  imputation credit for the tax paid by the
  company, this is passed to the individual/entity
  to offset the tax on the dividend income.
• Capital gains from sale of assets are recognised
  in the tax return. For individuals there is a
  50 discount on gains for assets held for more
  than 12 months
• Fringe Benefits benefits received through an
  individuals employment is also taxed
• Company tax rate is 30.

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Source

• Australian Bureau of Statistics (ABS) 2006
  Census and current statistics. www.abs.gov.au
• Becoming an Australian Citizen booklet,
  Australian Government, November 2007.
  www.citizenship.gov.au
• Wikipedia www.wikipedia.org
• Department of the Environment, Water, Heritage
  and the Arts. www.environment.gov.au
• Entry Level Competencies for Financial Services
  Professionals, Kaplan Financial, December 2007.
• Australian Tax Office www.ato.gov.au
• Australian Stock Exchange www.asx.com.au
• Plan for Life 8 Sept 2008 media release for
  Wholesale Funds and Retail Funds in the June
  Quarter 2008 Life Insurance Premium Inflows for
  Year Ended June 2008.
• June 2008 Money Management Top 100 Dealer Group
  Survey