Challenge Pathway -Prep Book

["Disclosure Documents What information is a financial advisor required to disclose? As has been true with most topics in this course, the answer depends on rules and regulations in the territory or organization. Each regulator has its own requirements, and what is required in one territory may not be required in another. That said, there are similarities because of the overall interest in increasing and maintaining transparency. Disclosure is closely related to conflicts of interest, which must be disclosed Types of information that should be disclosed to clients: 1. Name, organization, address and other contact information, including, in some territories, who is responsible for the financial advisor\u2019s actions 2. Services provided and by whom, along with relevant qualifications and credentials 3. Methods of analysis, including investment strategies and risk of loss 4. Disciplinary actions along with current licenses 5. Fees and other expenses 6. Financial advisor compensation (not so much the amount as the source) and third-party payments (i.e., additional compensation arrangements) 7. Agency relationships and affiliations, including required brokerage agreements 8. Other relevant business arrangements 9. Code of ethics 10. Supervision 11. Conflicts of interest (covered below) 12. Additional information that may be relevant to the relationship International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 247","Potential Conflicts of Interest Three basic approaches should guide financial advisors acting in the best interests of their clients. Financial advisors should: 1. Be able to identify conflicts, even when they might be indirect and not obvious, especially to the client. 2. Understand how to manage their business so they can avoid conflicts wherever possible. 3. Ensure that where conflicts arise and are unavoidable, they are fully disclosed in a way that the client can understand and make an informed decision. While compliance is predominantly focused on responding to legal and regulatory requirements, professional ethics provides the framework for how financial advisors should carry out their compliance activities. The principles in FPSB\u2019s Code of Ethics and Professional Responsibility that guide financial advisors in the areas of conflicts of interest and disclosure are: -Principle 2 \u2013 Integrity and -Principle 4 \u2013 Fairness: Principles \/ Code of Ethics Principle 1: Client First Place the client\u2019s interests first. Principle 2: Integrity Provide professional services with integrity. Integrity requires honesty and candor in all professional matters. Financial professionals are placed in positions of trust by clients, and the ultimate source of that trust is the financial professional\u2019s personal integrity. Allowance can be made for legitimate differences of opinion, but integrity cannot co-exist with deceit or subordination of one\u2019s principles. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 248","Integrity requires the financial professional to observe both the letter and the spirit of the Code of Ethics. Principle 3: Objectivity Provide professional services objectively. Principle 4: Fairness Be fair and reasonable in all professional relationships. Disclose and manage conflicts of interest. Fairness requires providing clients what they are due, owed or should expect from a professional relationship, and includes honesty and disclosure of material conflicts of interest. It involves managing one\u2019s own feelings, prejudices and desires to achieve a proper balance of interests. Fairness is treating others in the same manner that you would want to be treated. Principle 5: Professionalism Act in a manner that demonstrates exemplary professional conduct. Principle 6: Competence Maintain the abilities, skills and knowledge necessary to provide professional services competently. Principle 7: Confidentiality Protect the confidentiality of all client information. Principle 8: Diligence Provide professional services diligently. Due Diligence Due diligence is defined as a: \u201cmeasure of prudence, responsibility and diligence that is expected from, and ordinarily exercised by, a reasonable and prudent person under the circumstances.\u201d For financial advisors, due diligence is the process of systematically verifying the accuracy of information provided by the client, ensuring that the requirements of relevant legislation have been International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 249","complied with, full disclosure had been made to the client, and that a full record of conversations and justification of decisions made by the financial advisor are recorded in the client file. Anti-Money Laundering Money Laundering Money laundering is the practice of making money gained through illegal activities appear to be legal. Most territories have anti-money laundering laws and regulations. Financial advisors should become familiar, and comply, with universal guidelines and relevant regulations in their territory. Financial advisors should understand money laundering, its implications, how to identify and avoid it, and how to comply with relevant regulations in a territory. The conversion or transfer of property, knowing that such property is derived from any offense or offenses or from an act of participation in such offense or offenses, for the purpose of concealing or disguising the illicit origin of the property or of assisting any person who is involved in the commission of such an offense or offenses to evade the legal consequences of his actions. The concealment or disguise of the true nature, source, location, disposition, movement, rights with respect to, or ownership of property, knowing that such property is derived from an offense or offenses or from an act of participation in such an offense or offenses. The acquisition, possession, or use of property, knowing at the time of receipt that such property was derived from an offense or offenses or from an act of participation in such offense...or offenses. Financial Action Task Force The Financial Action Task Force (FATF) is the recognized international standard setter for anti-money laundering efforts. It defines money laundering as the processing of criminal proceeds to disguise their illegal origin to legitimize the ill-gotten gains of crime. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 250","The Three Stages of Money Laundering In the initial\u2014or placement\u2014stage of money laundering, the launderer introduces illegal profits into the financial system. This might be done by breaking up large amounts of cash into less conspicuous smaller sums that are then deposited directly into a bank account, or by purchasing a series of monetary instruments (checks, money orders, etc.) that are then collected and deposited into accounts at another location. After the funds have entered the financial system, the second\u2014or layering\u2014stage takes place. In this phase, the launderer engages in a series of conversions or movements of the funds to distance them from their source. The funds might be channelled through the purchase and sales of investment instruments, or the launderer might simply wire the funds through a series of accounts at various banks across the globe. Identify global laws and regulations designed to counter money laundering Although anti-money laundering (AML) oversight is the responsibility of each territory, as previously discussed, international standards have been developed. Territories tend to adopt AML laws that are consistent with their own environment, and incorporate eight standard legal system requirements established by the World Bank to cooperate with the global community. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 251","Eight standard principles \uf0b7 1. Criminalization of money laundering in accordance with the Vienna and Palermo Conventions \uf0b7 2. Criminalization of terrorism and terrorist financing \uf0b7 3. Laws for seizure, confiscation and forfeiture of illegal proceeds \uf0b7 4. The types of entities and persons to be covered by AML laws \uf0b7 5. Integrity standards for financial institutions \uf0b7 6. Consistent laws for implementation of FATF recommendations \uf0b7 7. Cooperation among competent authorities \uf0b7 8. Investigations Recommendations on International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation FATF has developed and circulated \u201cRecommendations on International Standards on Combating Money Laundering and the Financing of Terrorism and Proliferation\u201d . Much of what follows is derived from FATF\u2019s 40 Recommendations. If money laundering is to be considered a criminal offense, it is important to identify the categories of underlying activities. They are as follows 1. Participation in an organized criminal group and racketeering 2. Terrorism, including terrorism financing 3. Trafficking in human beings and migrant smuggling 4. Sexual exploitations, including sexual exploitations of children 5. Illicit trafficking in narcotic drugs and psychotropic substances 6. Illicit arms trafficking 7. Illicit trafficking in stolen and other goods International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 252","8. Corruptions and bribery 9. Fraud 10. Counterfeiting currency 11. Counterfeiting and piracy of products 12. Environmental crime 13. Murder, grievous bodily injury 14. Kidnapping, illegal restraint and hostage taking 15. Robbery or theft 16. Smuggling 17. Extortion 18. Forgery 19. Piracy 20. Insider trading and market manipulation Definition of Financial Institutions FATF recommendations define financial institutions as any person or entity who conducts as a business one or more of the following activities, or operations on behalf of a customer : \uf0b7 Acceptance of deposits and other repayable funds from the public (including private banking). \uf0b7 Lending (including consumer credit, mortgage credit, factory, with or without recourse, and finance of commercial transactions\u2014including forfeiting). \uf0b7 Financial leasing (but excluding leasing for consumer products). \uf0b7 The transfer of money or value (including formal and informal sectors, such as alternative remittance activity). International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 253","\uf0b7 Issuing and managing means of payment (e.g., credit and debit cards, checks, traveler\u2019s checks, money orders and banker\u2019s drafts, electronic money). \uf0b7 Financial guarantees and commitments. \uf0b7 -Trading in: -Money market instruments (checks, bills, CDs, derivatives, etc.) -Foreign exchange - Exchange, interest rate and index instruments -Transferable securities -Commodity futures trading \uf0b7 Participation in securities issues and the provision of financial services related to such issues. \uf0b7 Individual and collective portfolio management. \uf0b7 Safekeeping and administration of cash or liquid securities on behalf of other persons. \uf0b7 Otherwise investing, administering or managing funds or money on behalf of other persons. \uf0b7 Underwriting and placement of life insurance and other investment-related insurance (this applies to both insurance undertakings and intermediaries, such as agent and brokers). \uf0b7 Money and currency changing. Detecting Money Laundering Money cannot be laundered, or terrorism financed, without the involvement of financial institutions, certain business entities and certain persons. As a result, the international community developed provisions that include requirements for: \uf0b7 Licensing and authorization to engage in business. \uf0b7 Evaluation (fit and proper determination) of directors and senior managers, with regard to integrity, expertise and experience. \uf0b7 Prohibitions against participation by directors and managers with criminal records or adverse regulatory findings. \uf0b7 Prohibitions against ownership or control by those with criminal records. Regulations address customer due diligence (CDD), which can directly impact financial advisors working with the public. Examples of CDD: \uf0b7 Identifying the beneficial owner, and taking reasonable measures to verify the identity of the beneficial owner such that the financial institution is satisfied that it knows who the beneficial International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 254","owner is. For legal persons and arrangements this should include financial institutions taking reasonable measures to understand the ownership and control structure of the customer. \uf0b7 Obtaining information on the purpose and intended nature of the business relationship. \uf0b7 Conducting ongoing due diligence on the business relationship and scrutiny of transactions undertaken throughout the course of that relationship to ensure that the transactions being conducted are consistent with the institution\u2019s knowledge of the customer, their business, and risk profile, including, where necessary, the source of funds. We can identify some points for general guidance to financial advisors: \uf0b7 Supervisors must have the authority to review and reject any significant change in ownership and set minimum capital requirements for banks. \uf0b7 Inter organizational lending and other transactions must be handled on an arm\u2019s-length basis. \uf0b7 Banks must have and adhere to a comprehensive risk management process. \uf0b7 Institutions must have strict \u201cknow your customer\u201d rules that promote high ethical and professional standards in the financial sector. \uf0b7 Supervisors must have a means of independent validation of supervisory information either through on-site examinations or use of external auditors. \uf0b7 Supervisors must practice global consolidated supervision. \uf0b7 Local operations of foreign banks must be conducted with the same high standards required of domestic institutions. It might be worth stating who the global community considers to be a customer. There are three points of criteria (Basel Due Diligence for Banks, provision 66): A person or entity who maintains an account with a financial institution or on whose behalf an account is maintained (i.e., beneficial owners). Beneficiaries of transactions conducted by professional intermediaries (e.g., agents, accountants, lawyers). A person or entity connected with a financial transaction who can pose a significant risk to the bank. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 255","It is important for financial advisors to have clear customer acceptance and identification procedures for clients. If the financial advisor operates independently, he or she must do this on their own. When working for a financial institution, the financial advisor must diligently maintain full compliance with all governing regulations. Not all potential clients will require high levels of investigation and security. However, for those who might be in that category, financial advisors and their institutions should develop specific guidance to address customers with high risk profiles. While each country or territory will have its own regulations, globally recognized standard CDD guidelines include: \uf0b7 Name and legal form of customer\u2019s organization \uf0b7 Client address \uf0b7 Names of directors \uf0b7 Principal owners or beneficiaries \uf0b7 Provisions regulating the power to bind the organization \uf0b7 Agent(s) acting on behalf of the organization \uf0b7 Account number (if applicable) In addition, when addressing insurance-related interactions, the file should include: \uf0b7 Client\u2019s financial assessment \uf0b7 Need analysis (to justify application) \uf0b7 Payment method details \uf0b7 Benefit description \uf0b7 Copy of documentation used to verify customer identify \uf0b7 Post-sale records \uf0b7 Information regarding any claim settlements International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 256","Enhanced Customer Due Diligence (CDD) Procedures For clients who are assessed as having higher ML\/FT risk, the financial advisor should follow enhanced CDD policies, procedures and controls. Customers and clients who fall into this category should be vetted using standard CDD procedures and be further investigated on topics such as personal background, country of origin, source of wealth, relationships with others in high profile positions (particularly governmental positions), linked accounts, and the purpose and nature of business activities. Beneficial Ownership Beneficial owner refers to the natural person(s) who ultimately owns or controls a customer and\/or the natural person on whose behalf a transaction is being conducted. It also includes those persons who exercise ultimate effective control over a legal person or arrangement. Reference to \u201cultimately owns or controls\u201d and \u201cultimate effective control\u201d refer to situations in which ownership\/control is exercised through a chain of ownership or by means of control other than direct control. Cross-Border Financial Services and Transactions When dealing with cross-border situations, a financial advisor will need to take additional precautions. Most of these involve learning about the respondent bank and its policies and procedures. It will also be helpful to have the respondent bank accurately identify the customer. Non-face-to-face customers present one area that can be especially difficult to monitor. With the increase of internet and\/or phone-based transactions, it may be difficult to accurately identify the customer to the degree that it mitigates potential risk concerns. While there is not a simple solution to this potential problem, senior management should be involved in helping to make the decision about whether to enter a business arrangement. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 257","Caveats to a Risk-Based Approach to AML Compliance The purpose of AML regulations in any country or territory is to mitigate the risks of money laundering and the financing of terrorism. The purpose of client due diligence is to aid the financial advisor or financial institution in making judgments on risk and concern, not merely to include an added layer of compliance. Not all clients (or even most) will be exposed or involved in money laundering, and it is important to ensure that AML policies and procedures do not by their nature exclude those who are socially disadvantaged. Policies should not restrict the general public\u2019s access to financial services. When complying with internal AML policies and procedures and external regulations and supervision, all parties must be careful to not to violate individual rights, including those that relate to privacy. In today\u2019s environment, money laundering is a fact of life, especially in the financial services sector. Every financial advisor has an individual responsibility to take all reasonable measures to work within the anti-money laundering arena. It may be that the problem will not be solved, but following prudent procedures will help. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 258","Regulatory System and Environment The financial regulation space in India is divided along the sectors with respective sector regulators overseeing the products and the industry players who issue such products. The credit and deposits are mainly in the domain of RBI; the issue of capital, related products and securities, except government securities, are regulated by SEBI; the insurance products are exclusively monitored by IRDA; and the National Pension System (NPS) in under the purview of PFRDA. Reserve Bank of India (RBI) India\u2019s financial sector is dominated by banks which manage more than half of the total assets of the financial system. Among the entities regulated by RBI are commercial banks, urban cooperative banks (UCBs), non-banking finance companies (NBFCs) and some financial institutions such as National Bank for Agriculture and Rural Development (NABARD) and National Housing Bank (NHB). NABARD, in turn, regulates other entities created for the specified purpose, viz. Regional Rural Banks (RRBs) and Co- operative banks. Similarly, NHB supervises the activities of housing finance companies (HFCs). The Department of Company Affairs (DCA) under Government of India regulates deposit taking activities of corporate registered under the Companies Act, other than NBFCs. The Registrar of Cooperatives of different states in the case of single state cooperatives and the Central Government in the case of multi-state cooperatives are joint regulators, with RBI regulating their banking functions. The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. RBI is banker to the Government in that it performs merchant banking function for the Central and the State Governments. It is banker to all scheduled banks in India by maintaining banking accounts. RBI is the monetary authority. It frames, implements and monitors the monetary policy with the objective of maintaining price stability while keeping in mind the objective of growth. It prescribes broad parameters of banking operations with the objectives to maintain public confidence in the system and protect depositors' interest. RBI is the issuer of currency and monitors it International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 259","along with other exchange mediums and payment systems. It is responsible for facilitating external trade through orderly development and maintenance of foreign exchange market in India. Securities and Exchange Board of India (SEBI) The history of securities markets in India dates back to the nineteenth century with the informal cotton trading, the main activity in the city of Bombay. The financing for this trading came to be formally provided initially by Bank of Bombay (1840) and later by many banking entities sprung up for the purpose. A landmark development in the Indian capital markets took place with the establishment of the Securities Exchange Board of India (SEBI) in 1988 to regulate the functions of securities market. With the passage of SEBI Act, 1992 along with the repeal of the Capital Issues (Control) Act, a journey began for the modernization of the securities market. Various reform measures undertaken since the early 1990s by SEBI and the Government have brought about a significant structural transformation in the Indian capital market. With the promulgation of various Acts such as the Depositories Act, 1996, the Securities Laws (Amendment) Act, 2004 laid the foundation for game changing mechanisms. With the establishment of the National Stock Exchange of India (NSE) in 1993 and the National Securities Depositories Limited (NSDL) in 1996 and the resultant trading in dematerialized securities, 98% settlement in demat form took place as early as in June, 2000. The improvement in stock market settlements (rolling settlements from T+5 in 2001 to T+2 in 2003), fully electronic trading in equity shares paved the way for Indian securities market to have an infrastructure on par with the best in the world. The speed of development in securities market had SEBI ramp up its activities to be up to the challenge with the main aim to protect the interest of investors, keep a check on malpractices, and promote orderly development in the stock markets and capital market. SEBI\u2019s objectives are to regulate the activities in stock exchanges and ensure safe investments as well as to prevent fraudulent practices by striking a balance between business and its statutory regulations, thus the triumvirate of protective, developmental and regulatory functions. The protective functions check price rigging, prevents insider trading and prohibit fraudulent and unfair practices. The International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 260","Developmental functions are geared towards an orderly enhancement of business in stock exchanges, promotion of training of intermediaries in the securities market, and increased use of technology to facilitate investments in primary and secondary markets. Forward Markets Commission (FMC) was set up as a statutory body under Forward Contracts (Regulation) Act, 1952 for commodity futures market in India. It functioned under the administrative control of the Ministry of Consumer Affairs till September 5, 2013. Thereafter the Commission functioned under the Ministry of Finance, Department of Economic Affairs5. On September 28, 2015 FMC was merged with SEBI. The functions of the erstwhile FMC were to keep forward markets under observation and to take necessary actions in exercise of the powers conferred under the Act. It collected and published information regarding supply, demand and prices of the applicable commodities; made recommendations generally with a view to improving the working of forward markets; undertook the inspection of the books of accounts and other documents of the registered associations, whenever necessary. India had a thriving commodity futures market in the 1950s and mid-1960s until the activity was banned in most of the commodities. The ban was gradually eased in 1980s in select commodities like Potato, Castor Seed and Jaggery. In 1999, the futures trading in various edible oilseeds was permitted. In 2000, the National Agricultural Policy recognized the positive role of forward and futures markets in price discovery and price risk management. The year 2003 saw lifting of the ban on futures trading in all commodities with the recognition of three electronic commodity exchanges: the Multi Commodity Exchange (MCX), the National Commodity and Derivative Exchange (NCDEX) and the National Multi Commodity Exchange (NMCE). During 2009 to 2012 three more exchanges were recognized, being Indian Commodity Exchange (ICEX), Ace Derivatives and Commodity Exchange (ACE) and Universal Commodity Exchange (UCE). Billion constituted the bulk of the traded commodities followed by energy, other metals and lastly agricultural commodities until 2016. During 2019, the commodity derivatives trading also commenced on the equity exchanges, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE). Crude oil is currently the highest traded commodity, though metals as a segment accounts for the biggest share of trading. There are over thirty commodity futures traded in all the exchanges put together, the largest being 19 in the agricultural segment followed by 6 in International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 261","metals. The aggregate turnover at all the exchanges in the commodity derivatives segment came at Rs. 74 trillion during 2018-19. MCX accounts for nearly 92% of the total traded volume6. Role of Regulators o Regulation-Making The regulation-making sets the standards of conduct amongst various stakeholders of the industry; how they interact with the regulator, with their peer bodies and the consumer. The regulatory guidelines also include the conduct of financial activities and the supervision of financial markets. Such supervision and\/or adjudication can be performed only after clear and explicit terms have been laid down for the required behavior by the stakeholders. This is akin to a system governed by the rule of law or the known standards against which the action of the regulated entities should be judged. o Executive Functions The executive functions of a regulator include issuance of licenses or permissions, enforcement of orders, processing of complaints, inspection of regulated businesses, investigation, alleged violations of the law, etc. The exercise of supervision and monitoring powers is fundamental to the effective enforcement of laws by the regulator. Under the extant legislations in India, the executive functions of regulator do not have standardized statutory checks. o Administrative Law Functions Regulators in India also have an administrative law function. In a quasi-judicial function, they have powers to award appropriate penalties and punishments in exercise of their supervisory and enforcement powers, if any breach in compliance with the provisions of financial laws by any regulated entity is detected. These wide ranging executive powers given to regulators akin to a State capacity have a balancing mechanism in the form of proper systems governing the application of administrative law. There is a mechanism to review the actions taken by regulators in exercise of their quasi-judicial functions. In one such efficacious procedure the International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 262","appeal against the orders written by SEBI, IRDA and PFRDA can be made to the Securities Appellate Tribunal (SAT). o Consumer Protection The function of consumer protection is at the heart of all financial regulation. The financial regulatory structure in India is divided along sectors. The regulatory treatment of financial products and services as also the protection that consumers afford therefrom is therefore defined by sector-specific guidelines and laws. o Micro-Prudential Regulation \u2013 Manage Systemic Risk The micro-prudential regulation in India is conducted by the sector-specific financial regulators. This poses the problem of regulatory gaps. Some unscrupulous financial firms can design products tweaking certain features to escape regulatory oversight. Also, conglomerates specializing in more than one service may be difficult to be categorized under sector allocation. The Code outlines separate insolvency resolution processes for individuals, companies and partnership firms. At present, India has a deposit insurance corporation, the Deposit Insurance and Credit Guarantee Corporation (DICGC). It deals only with banks, to the extent of insuring amount up to Rs. 500,000 in respect of savings, fixed, current, recurring, etc. per customer ownership across all her accounts across all branches of a failed banking entity. All commercial banks including branches of foreign banks functioning in India, urban cooperative banks and regional rural banks are insured under the DICGC. The deposit insurance premium is borne by the insured bank. o Financial Inclusion and Market Development Apart from strict regulatory framework, there are certain functions in which the State role vests, such as ensuring an equitable distribution of financial services and fostering the development of market infrastructure and processes. Financial inclusion imposes costs on society as a whole while benefiting a certain class. Opening bank branches in rural areas and providing rural population credit at reasonable cost is one such initiative. The development International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 263","includes modernization of facilities, embracing technology and absorbing international best practices. The outreach to a large percentage of population and encouraging their participation with a view to social enrichment is one important regulatory goal. o Capital Controls India\u2019s current account is fully liberalized. However, the movement of capital across borders is still under controls, as is with the majority of nations. The Foreign Exchange Management Act, 1999, codifies the existing approach to capital controls. It differentiates between current account transactions and capital account transactions. The Central Government makes rules in consultation with RBI for current account transactions, and the RBI in consultation with the Central Government makes regulations in relation to capital account transactions. o Public Debt Management The public debt management in India is a market driven process with well-developed market infrastructure having varied instruments, developed institutions and intermediaries for market making. Market borrowing is the primary source of financing of Gross Fiscal Deficit (GFD) of the Central Government as well as State Governments. The internal control mechanism is able to address the operational risk, legal risk, security breaches, reputational risk, etc. Some functions of public debt management are divided between the Government and RBI. Market borrowing program of the Central and State Governments is managed by RBI while the external debt is managed directly by the Central Government. The debt management is carried out by the RBI\u2019s Internal Debt Management Department (IDMD), which is functionally separate from monetary policymaking. The debt management strategy (DMS) is formulated by the Monitoring Group on Cash and Debt Management, which is the apex coordinating body between RBI and the Ministry of Finance. The primary objective of DMS is to secure the Government\u2019s funding at all times at low cost over the medium and long term while avoiding excessive risk. o Monetary Policy The Monetary Policy Committee (MPC) of India, which came into being on June 27, 2016 fixes the benchmark interest rate in India. The committee comprises six members - three officials of International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 264","RBI and three external members nominated by the Government. The Governor of RBI is the chairperson ex officio of the committee and has the casting vote in case of a tie. The committee is answerable to the Government. The meetings of the MPC are held at least 4 times a year. The monetary policy is the instrument which RBI uses to manage the supply of money in the economy by its control over interest rates. The price stability or an environment of stable inflation is maintained to sustain the value of money over a time period. The other objectives of the monetary policy are to ensure financial stability and adequate availability of credit for growth, e.g. the allocation of loans among different sectors. Thus, the triumvirate of supply of money, cost of money and the availability of money to achieve specific objectives is sought to be achieved through the application of monetary policy. The two components to this instrument of monetary policy by RBI are the Cash Reserve Ratio (CRR) and the Statutory Liquidity Ratio (SLR). CRR is the ratio of total deposit that banks need to keep as a reserve with RBI in form of cash not earning them any interest. This is a powerful tool to control the flow of money in the market. A high CRR decreases the capacity of banks to lend, thereby tending the interest rate to increase. This is how CRR ratio helps to reduce inflation. SLR is the ratio of a bank\u2019s net time and demand liabilities which it has to maintain in the form of cash, gold and other securities prescribed by RBI. This ensures that banks will have an adequate portion of liquid assets which can be used to handle a sudden increase in demand of amount from the depositor. It is used by RBI to limit credit facility offered by banks to borrowers in order to maintain the stability of the banking system. RBI uses the Liquidity Adjustment Facility (LAF), an indirect instrument for monetary control. It controls the flow of money through repo rates and reverse repo rates. The repo rate is actually the rate at which commercial banks and other institutes obtain short-term loans from RBI. Conversely, the reverse repo rate is the rate at which the commercial banks park their surplus money with the RBI. The reverse repo rate is usually lower than the repo rate, by at least 50 basis points. The reverse repo rate is maintained slightly lower than the repo rate, e.g. currently at 25 basis point below the repo rate of 5.15% (MPC Committee meeting on October 4, 2019). RBI maintains these rates over medium to long term to manage the flow of money in the market according to the economic situation. The banks can International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 265","also borrow overnight funds from RBI equal to 1% of their net demand and time liabilities at a rate which is pegged 100 basis points above the repo rate called marginal standing facility or MSF rate. Acts Relevant to Corporate Entities, Securities and External Trade The Companies Act, 2013 The Indian Companies Act 2013 (which replaces the Indian Companies Act, 1956) is a profound legislation to govern all listed and unlisted companies incorporated in India. It is replete with comprehensive provisions to empower shareholders, to drive corporate governance, and to rationalize compliance, audit and accounts. It provides greater power in the hands of shareholders in terms of approval that companies are required to seek for various significant transactions. The Act formalizes class action suits whereby any class of members or depositors in specified numbers may initiate proceedings against a company and its directors if they are of the opinion that its affairs are being carried out in a manner unfairly prejudicial to the interests of the company. It stipulates appointment of at least one woman director on the Board for certain class of companies. It stipulates the constitution of corporate social responsibility (CSR) committee for companies having a net worth of at least Rs. 5 billion, or a turnover of at least Rs. 10 billion, or net profits of at least Rs. 50 million, with utilization towards CSR at least 2% of the average net profits during the three immediately preceding financial years. The Act introduces National Company Law Tribunal (NCLT) and the National Company Law Appellate Tribunal (NCLAT), the quasi-judicial bodies specializing in the function of adjudicating issues related to companies in a speedy manner. The entire rehabilitation and liquidation process of the companies in financial crisis has been made time bound. The Act provides the formation of a company for a lawful purpose by seven or more persons to be a public company, two or more persons to be a private company, or one person to be One Person Company. It shall be a company limited either by shares, or by guarantee, or an unlimited company. The memorandum of a company shall thus appropriately have in its last word\/s, \u2018limited\u2019 or \u2018private limited\u2019. The memorandum shall mention the objects for the proposed incorporation, and the liability International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 266","of members of the company, whether limited or unlimited. The articles of a company shall contain the regulations for management of the company and the provision for entrenchment. Towards governance, the maximum number of directors in a company is increased to fifteen, with no director holding directorships in excess of twenty (ten in respect of public companies). Minimum seven days\u2019 notice is to be provided for Board meeting. Every director has to attend at least one meeting in twelve months, or else will have to vacate office. Participation through video conferencing is also considered for valid quorum. One board meeting in each quarter is mandated with two meetings not more than 120 days apart. A director, if resigning, shall forward a copy of resignation to the Registrar of Companies with detailed reason for resignation. Independent directors should constitute at least one-third of the Board of all listed companies, and no independent director shall hold office for more than two consecutive five-year terms. The roles, functions and duties including fiduciary duties of a director towards a company have been prescribed. There are provisions to prohibit forward dealings and insider trading by the directors and key managerial personnel having access to price-sensitive information. The public limited companies have to have audit committee, nomination and remuneration committee. Investors can claim damages against directors, auditors or experts (an engineer, a valuer, a chartered accountant, a company secretary, a cost accountant, etc.) who are legally authorized to issue a certificate. Exit option to dissenting shareholders is provided in case of mergers and amalgamations and in case where a company changes the objects for which the capital was raised. The number of shareholders in a private company can now be up to 200 as per the new Act, from maximum 50 earlier. A private company can accept deposits only from its members subject to certain compliances. The Act provides for the issuance of equity shares with differential rights as to voting or dividend, and that the voting rights of equity shareholders shall be related to total capital including preference share capital. The manner of fund raising shall be through private placement, bonus issue, rights issue for private companies, and additionally through a public issue for public companies. All preferential allotments shall require shareholder consent as also further issue of shares and stock options. Loans, investments, sale of undertaking and borrowings also require shareholders\u2019 approval. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 267","To improve compliance, audit and accounts in companies, it is mandatory to timely file financial statements, the cash flow statement is made an essential part thereof, along with annual returns. The Company Secretary is required to provide a report to the Board that compliances under all applicable laws have been made by the company. Director\u2019s responsibility statement shall reveal the adequacy and effectiveness of systems and compliance with all applicable laws. The related party transactions cover almost every contract for supply of goods, materials and services including property by lease or sale and require an approval from the Board of Directors and in certain cases special resolution. Two- third of the Board of Directors is liable to retire by rotation in public limited companies. Mandatory auditor rotation for listed and other prescribed companies is now every five years with the auditing partner and team to be rotated at regular intervals. The Act prohibits auditors from performing non- audit services to the company to ensure independence and accountability. An auditor will be required to immediately report to the Central Government upon reasonable suspicion of any offence involving fraud. The Act proposes a fast track and simplified procedure for mergers and amalgamations of certain class of companies such as holding and subsidiary companies. It permits cross border mergers, viz. a foreign company merging with an India company and vice versa with prior permission of RBI. The calling of creditors meeting is dispensed with if 90% in value agree and confirm to a scheme of amalgamation, though the prior notice of such scheme must be given to the Central Government, RBI and SEBI. The Indian Trusts Act, 1882 A trust is a structure created by way of a legal arrangement to hold assets on behalf of a beneficiary. The legal ownership of a trust is vested in a trustee, who may be a person or an institution and to whom the assets are transferred to hold the same in the trust structure. A trust must have lawful purpose, i.e. the premise on which a trust is created should not be prohibited by law or should not defeat any of its provisions, a public policy, an immoral or fraudulent act. The purpose of a trust should not be injurious to a person or an institution or the property of another. A trust which has any of its purposes unlawful, shall be void. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 268","The Indian Trusts Act, 1882 defines a trust as: \u201ca trust is an obligation annexed to the ownership of property, and arising out of a confidence reposed in and accepted by the owner, or declared and accepted by him, for the benefit of another, or of another and the owner.\u201d (Interpretation clause \u201ctrust\u201d; Indian Trusts Act, 1882;). A trust may be created by any person who is competent to contracts, and has the subject matter of the trust, called trust property, which he\/she reposes to a trustee, who accepts the same for the benefits of another person, called beneficiary. A trustee acts in a fiduciary capacity and takes all required steps to preserve the trust property, maintains and defends against law suits. A trustee protects the trust property and its title in the interest of the beneficiary, including a beneficiary who is not competent to contract, and in that a trustee may do all reasonable acts for the realization, protection or for the benefit of the trust property. A trustee cannot normally renounce the trust unless provided with such power in the instrument of the trust, or with consent of the beneficiary who should be competent to the contract, or with the permission of a principal Civil Court of original jurisdiction. A trustee cannot delegate the trust office in normal circumstances to a co-trustee unless provided for such arrangement in the instrument of the trust, or with consent of the beneficiary who should be competent to the contract. A trust which has been created by will can be revoked by the testator. A trust which is created on revocable basis has a provision towards the same expressly reserved to the author of the trust. The Securities Contracts (Regulation) Act, 1956 The Government of India, in order to prevent undesirable transactions in securities and to regulate the working of stock changes in the country, enacted the Securities Contracts Regulation Act (SCRA). The Act defined marketable securities which broadly include shares, stocks, bonds, debentures, government securities, similar securities of an incorporated company or a body corporate, derivatives on shares and debt, and units issued by collective investment schemes to the investors in such schemes. SCRA mandates that only recognized stock exchanges function which have public holding essentially of at least 51% of its paid-up equity share capital, with not more than 5% held by either a person resident in India, or a person resident outside India. However, this holding can go up to 15% in case of an Indian International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 269","stock exchange, a depository, or public financial institution. Similarly, the 15% maximum holding is also prescribed in case of a foreign stock exchange, a foreign depository, a Government of India approved bilateral or multilateral financial institution, provided that the combined such foreign holding shall not exceed, at any time, 49% of the total paid up equity share capital of any recognized stock exchange. All these holdings shall be considered to have been held directly or indirectly, either individually or together with persons acting in concert. SCRA further mandates that the recognized clearing corporation should be held to the extent of at least 51% of its paid- up share capital by one or more recognized stock exchange(s), provided further that no recognized stock exchange shall hold more that 15% of the paid-up equity share capital in more than one recognized clearing corporation. SCRA mandates that the infrastructure of a recognized stock exchange shall have: an established connectivity with the depositories, clearing banks, other stock exchanges and clearing members; The recognized stock exchange as well as the recognized clearing corporation shall establish a Code of Ethics to be followed by their directors and key management personnel. The code will focus on fairness and transparency in dealing with all matters relating to the respective entities and the investors. Additionally, the code will ensure complying with all rules established internally by the respective entities as well as with the regulations and other laws stipulated by regulatory agencies; exercising due diligence in the performance of duties; avoiding of conflict of interest between the respective entities and investors, and between self-interest of directors and key management personnel and the respective entities. A committee constituted specifically for the oversight shall monitor implementation of this code. SEBI is empowered to make or amend by-laws of recognized stock exchanges and recognized clearing corporations, issue directions in the interests of investors or securities market, or to any company whose securities are listed or proposed to be listed in a recognized stock exchange. Persons who intend to engage in the business of dealing in securities shall do so only after securing authority of an appropriate license from SEBI. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 270","The Securities and Exchange Board of India Act, 1992 The Securities and Exchange Board of India Act, 1992 was promulgated on 4th April 1992 to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith. SEBI\u2019s structure is a body corporate. It has perpetual succession. It has powers, subject to the provisions of the SEBI Act, to acquire, hold and dispose of property, both movable and immovable, and to contract, and shall, by the said name, sue or be sued. The Board of members of SEBI are vested with general superintendence, direction and management of the affairs, and they may exercise all powers and do all acts and things which may be exercised or done by SEBI. Functions of SEBI SEBI\u2019s foremost responsibility is to protect the interests of investors in securities, and toward that it may take such measures as it may deem fit to regulate the securities market and aid its development. To achieve this end SEBI\u2019s functions would span across \u2013 (i) regulating the business in stock exchanges and any other securities markets, and toward that registering and regulating the working of: (a) intermediaries like stock brokers, sub-brokers, share transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisers; and (b) market entities and institutions like depositories, depository participants, custodians of securities, foreign institutional investors, credit rating agencies, venture capital funds and collective investment schemes, including mutual funds. (ii) promoting and regulating self-regulatory organizations; (iii) promoting investor education and training of intermediaries of securities markets; (iv) prohibiting insider trading in securities, and prohibiting fraudulent and unfair trade practices relating to securities markets; International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 271","(v) regulating substantial acquisition of shares and take over of companies. Powers of SEBI SEBI shall have the same powers while trying a suit as are vested in a civil court under the Code of Civil Procedure,1908, in ordering the production of documents including the books of account, summoning and enforcing the attendance of persons and examining them on oath, inspection of any books, registers and other documents of any person, and issuing commissions for the examination of witnesses or documents. In the course of performing its duties, SEBI may undertake inspection, conduct inquiries and audits of all the intermediaries and entities\/institutions registered under the Act. In doing so, SEBI may call for information that it may deem relevant in respect of any transaction in securities from any person including any bank, authority, board or a constituted corporation under any Central or State Act. SEBI has the authority to furnish such information\/records, as it may deem fit, to other agencies engaged in the performance of like duties and functions. SEBI may take measures to undertake inspection of any book, or register, or other document or record of a listed public company if it has reasonable grounds to believe that such company has been indulging in insider trading or fraudulent and unfair trade practices relating to securities market. SEBI may, in the interests of investors or securities market, take any of the following measures, either pending investigation\/inquiry or their completion: (i) suspend the trading of any security in a recognised stock exchange; (ii) restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities; (iii) suspend any office-bearer of any stock exchange or self-regulatory organisation from holding such position; (iv) impound and retain the proceeds or securities in respect of any transaction which is under investigation; International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 272","(v) attach one or more bank account\/s of any intermediary or any person associated with the securities market if found in any manner involved in violation of any of the provisions of the SEBI Act, or the rules or the regulations made thereunder. The orders of the SEBI can be appealed before the Securities Appellate Tribunal (SAT), which shall consist of a Presiding Officer and two other members, to be appointed, by notification, by the Central Government. The presiding officer shall be a sitting or retired Judge of the Supreme Court or a sitting or retired Chief Justice of a High Court. The members shall be persons of ability, integrity and standing who has shown capacity in dealing with problems relating to securities market. The SAT shall not be bound by the procedure laid down by the Code of Civil Procedure, 1908, but shall be guided by the principles of natural justice and, subject to the other provisions of the SEBI Act, and of any rules, and shall have powers to regulate their own procedure. SAT\u2019s proceeding shall be deemed to be a judicial proceeding within the meaning of relevant sections of the Indian Penal Code, and SAT shall be deemed to be a civil court for all the purposes of the Code of Criminal Procedure, 1973. Any person aggrieved by any decision or order of the SAT may file an appeal to the Supreme Court within sixty days from the date of communication of the decision or order of the SAT on any question of law arising out of such order. The Foreign Exchange Management Act, 1999 The Foreign Exchange Management Act (FEMA) seeks to maintain the foreign exchange market in India, ensure its growth, make and amend laws governing foreign exchange with a view to facilitate transactions and external trade. The foreign exchange is defined in FEMA to be foreign currency which includes deposits, credits and balances payable in any foreign currency. It also includes drafts, travelers cheques, letters of credit or bills of exchange expressed or drawn in Indian currency but payable in any foreign currency. Conversely, it also includes drafts, travelers cheques, letters of credit or bills of exchange drawn by banks, institutions or persons outside India, but payable in Indian currency. A foreign security includes shares, stocks, bonds, debentures or like instrument denominated in foreign currency, and also includes such securities where cashflows and redemptions are made in Indian currency. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 273","The current account transactions include virtually all transactions other than those on capital account, e.g. payment due to foreign trade, banking and credit facilities, etc. The dealing in foreign exchange is only with general or special permission of RBI. Moreover, such dealings have to be through an authorized person, which can be an authorized dealer, a money changer, an off-shore banking unit, etc. registered with RBI and compliant with applicable guidelines. Thus, without RBI approval or without the channel of authorized person, no payments to any resident outside India can be made towards acquisition of assets and property, etc., and similarly no such payments can be received without a corresponding inward remittance from any place outside India. In respect of capital account transactions, RBI specifies the permissible classes, the admissible limits, and conditions for such transactions. However, RBI may prohibit, restrict or regulate the issue\/transfer of any foreign security by a person resident in India, or any security by a person resident outside India, or issue\/transfer of any security or foreign security by any branch, office or agency in India of a person resident outside India. Such restrictions and regulations will also apply to deposits between persons resident in India and persons resident outside India, export, import or holding of currency or currency notes, transfer of immovable property outside India, acquisition or transfer of immovable property in India, other than a lease not exceeding five years, by a person resident outside India. The Prevention of Money Laundering Act, 2002 (PMLA) Money Laundering generally involves tactics adopted to legitimize currency and assets acquired through illegitimate activities, often referred to as transmutation of illegal acquisitions. In some cases, this leads to setting up business streams to finance the very means which generated such illegal proceeds, thus building a chain. In most jurisdictions, money laundering includes other financial and business malpractices such as obfuscation of the source of illegitimate money and\/or the mode of its generation. The transfer of money outside the banking system to other jurisdictions to avoid scrutiny by the State, is generally outright illegal. The PMLA deals with the issues of money laundering, prevents and controls the same apart from confiscating and seizing the assets created out of laundered money. The adjudicating authority for PMLA is appointed by the Central Government with powers to decide confiscation or attachment of International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 274","assets involved in money laundering as well as powers to regulate its own procedure including inter- connected transactions. The Insolvency and Bankruptcy Code, 2016 (IBC) The Insolvency and Bankruptcy Board of India (IBBI) was established on 1st October, 2016. It is responsible for implementation of the IBC, a code that has consolidated all laws relating to the insolvency resolution. IBC is applicable to the corporate, partnership firms and individuals as well. It seeks to balance the interests of all the stakeholders in the ecosystem and incorporates feedback to amend the IBC. The central proposition is to conduct the insolvency resolution in a time bound and unbiased manner in order that the value of assets could be protected for a possible turnaround, and for ensuring the availability of credit in the ecosystem. IBBI shall oversee the functioning of infrastructure of IBC which includes insolvency professionals, insolvency professional agencies, information utilities, valuers and like institutions. The information utilities are tasked to build a storehouse of financial and other information on the corporate that will be supplied to the financial institutions providing credit to the corporate, to the insolvency professionals and the adjudicating authorities, and to the businesses themselves. IBC enforces the statutory rights of creditors and follows a quick and systematic pathway to revive a debtor company. It differentiates between financial creditors, whose relationship with the company is a pure financial contract, from the operational creditors, who provide goods and services to the company. A company which is unable to pay its creditors, can as well approach the National Company Law Tribunal (NCLT) to avail the mechanism of revival or liquidation. Negotiable Instruments Act, 1881 Negotiable instruments are of substantial advantage in commerce as they have several features to facilitate commercial activity, e.g. the advantage of negotiable instruments being used as a substitute for money, facilitates the very logistics of trade in size and turnover apart from sheer convenience and safety. Hence, they serve as a medium of exchange. Other important characteristic is the very negotiability which confers an absolute and good title on the transferee. Also, the transferability by International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 275","delivery, in case of bearer instrument, or by endorsement and delivery, if it is an instrument payable to order, makes a negotiable instrument amenable to indefinite transfers within the prescribed maturity period. The rule of evidence confers indebtedness, unconditional transfer and requires that negotiable instruments must be in writing and also signed by the maker or drawer. Negotiable Instruments Act which came into force from 1st March 1882 is still largely valid. It defines negotiable instruments to mean \u201ca promissory note, bill of exchange or cheque payable either to order or to bearer.\u201d A promissory note is an unconditional undertaking, in writing and signed by the maker, to pay a certain sum of money only to, or to the order of, a certain person, or to the bearer of the instrument. The bill of exchange however has the above feature except that it contains an unconditional order directing a certain person to pay a certain sum of money. The maker of a bill of exchange is the drawer and the person directed to pay is drawee. The drawer of a bill of exchange or cheque is bound in case of dishonor by the drawee, to compensate the holder. Every person capable of contracting may bind himself and be bound by the making, drawing, acceptance, endorsement, delivery and negotiation of a promissory note, bill of exchange or cheque. (The Negotiable Instrument Act; Chapter III, Section 26;). The person who endorses and delivers a negotiable instrument before maturity without expressly excluding or making conditional his own liability, is bound to compensate every subsequent holder for any loss or damage caused in case of dishonor by the drawee or maker of that instrument. The endorsee on delivery of the negotiable instrument is transferred the property therein with the right of further negotiation, unless expressly restricted or excluded thereto in the endorsement. Every maker, drawer, payee or endorsee of a negotiable instrument who is in lawful possession or is holder of the instrument, may endorse and negotiate the same, if the negotiability of such instrument has not been restricted or excluded. The maker, acceptor or endorser of a negotiable instrument is discharged from liability if a holder of that instrument cancels the acceptor's or endorser's name; releases the title; or makes the underlying payment to all parties thereto. A promissory note, bill of exchange or cheque is dishonored by non-payment when the maker of the note, acceptor of the bill or drawee of the cheque makes default in payment upon being duly required to pay the same. The holder of the instrument must give notice of such dishonor to some party it seeks to make liable, or to all parties to make them severally liable thereto. The Act maintains that if any International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 276","cheque is returned unpaid by a drawer bank due to insufficient funds maintained by the drawer of the cheque, provided that the cheque was presented within its validity period and the payment was towards any money owed to the payee towards a legally enforceable debt or other liability, deems the drawer of the cheque to have committed a cognizable offence. (The Negotiable Instrument Act; Chapter XVII, Section 138; ). The payee shall be required to give a notice in writing of such non- payment of the cheque to the drawer within thirty days of the receipt of information from the bank towards such non-payment. The court of jurisdiction will take cognizance of such an offence on a written complaint filed by the payee within one month of the expiry of the fifteen days afforded to the drawer by way of a written notice to make good the payment. If the person committing such an offence is a company, every person in charge of, or responsible for, conduct of the business of the company at the time the offence, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. The offence if so adjudicated, shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to twice the amount of the cheque, or with both. The Forward Contracts (Regulation) Act, 1952 The Forward Contracts Regulation Act (FCRA) provides for the regulation of commodity futures markets in India. It proposed setting up of a commission, the Forward Markets Commission (FMC) for the purpose of exercising specific functions and discharging duties assigned under this Act. It was considered vital for the development of futures trade. The Act sought to benefit various stakeholders including the farmers to take advantage of the price discovery in the commodities and manage the risk associated with price fluctuations. Several amendments have been carried out in the FCRA in the 2000s which included facilitating the entry of institutional investors, introducing Options, and permitting trading in these commodity derivatives, i.e. contracts that derive their value from the prices or indices of prices of underlying goods or in respect of such goods, services, activities, rights, interests, etc. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 277","The Indian Contract Act, 1872 A contract in many jurisdictions is a legally enforceable agreement made between two or more parties towards providing of a product or service, or towards performance of an act. The offer being made and accepted are critical elements of a contract, as well as the consideration involved in the contract. As per the Indian Contract Act, a person who makes a proposal to another signifying his\/her willingness to do or to abstain from doing anything, with a view to obtain the assent of that other person is called a promiser; and if such proposal is accepted by that other person, the subject matter becomes a promise and the accepter, a promisee. The acceptance must be absolute and unqualified for a proposal to be converted into a promise. Such act of doing is called a consideration for the promise. Every promise or a set of promises, forming the consideration for each other, is an agreement. Promises which form the consideration or part of the consideration for each other are called reciprocal promises. An agreement enforceable by law is a contract, and otherwise is said to be void. An agreement which is enforceable by law at the option of one or more of the parties thereto, but not at the option of the other or others, is a voidable contract. A contract which ceases to be enforceable by law becomes void when it ceases to be enforceable. The contract of indemnity is defined where a promiser in a contract promises to save the other from loss to be incurred in the performance of the contract. (Indian Contract Act; chapter VIII, section 124; ). A contract of guarantee however is to perform the promise or discharge the liability of a third party in case of the promiser\u2019s default. The promiser is called the surety, the promisee is called the creditor. The liability of the surety is co-extensive with that of the third party, unless otherwise provided in the contract. The surety has the right to revoke a continuing guarantee in respect of future transactions by due notice to the creditor. The Act defines contract of bailment as the delivery of goods by the delivering person, called bailor, to the person who is delivered, called bailee, in the course of a defined purpose which once accomplished, mandates that the goods be returned to bailor or otherwise disposed of according to the bailor\u2019s direction. (Indian Contract Act; chapter IX, section 148; ). The bailment of goods as security for payment of a debt or performance of a promise is called pledge. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 278","The Indian Partnership Act, 1932 Partnership is the contractual relationship among persons who agree to share the profits of a business. They are individually referred to as partners, and collectively a firm. The partnership does not arise out of a status, e.g. family business, or holding of a joint or common interest in a certain property or assets. The partnership determines whether a person is actually a partner in a firm, or the group of individuals is actually a firm. Owing to this, the consideration received by an outgoing partner due to sale of his\/her own share or goodwill, does not render him\/her a partner. By the same logic, the receiver\/s of annuity out of business proceeds by the dependent\/s of a deceased partner does not render them partner\/s with the persons carrying on the business. The same premise is extended to a minor and a transferee. However, a transferee has entitlement to the share of the assets of the firm to which the transferring partner is entitled when the firm is dissolved. The partners are entitled to share equally the profits of the firm after deduction of any interest on capital subscribed. Every partner is liable, jointly with all the other partners and also severally, for all acts of the firm done while he\/she is a partner. A firm is liable to the loss\/injury caused to any third party, or to any penalty incurred, to the same extent as the partner, if a wrongful act or omission is done by the partner acting in the ordinary course of the business, either solely or with the authority all the partners. The Limited Liability Partnership Act, 2008 A limited liability partnership (LLP) is a body corporate formed for carrying on a lawful business with a view to profit, and incorporated in the Act as a legal entity separate from that of its partners. It shall have perpetual succession in that any change in its partners shall not affect its existence, rights or liabilities. The LLP shall have at least two partners, who can be individuals or body corporate. The contribution of a partner may consist of tangible (movable or immovable) or intangible property or other benefit including money, capital, or agreement to contribute the same, and contracts for services performed or to be performed. Each partner\u2019s monetary value of contribution shall be accounted for and disclosed in the accounts. The nominee of a body corporate shall be the designated partner, who is responsible for the doing of all acts, matters, things, etc. in respect of compliance of filing of any International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 279","document, return, statement, etc. At least one of the designated partners of an LLP shall be a resident in India. An incorporated LLP shall, by its name, be capable of suing and being sued and do all acts in respect of acquiring, owning, holding, developing and disposing of tangible (movable or immovable) or intangible property. Every limited liability partnership shall conclude its name by such words or the acronym LLP. Every partner of a LLP for the purpose of its business is the agent of that LLP, but not of other partners. If the number of partners of a LLP is reduced below two, and the only partner carries on business, he\/she\/it shall be liable for the obligations and all liabilities of the LLP beyond a period of six months. The LLP is liable in the same way as its any partner for any wrongful act or omission on his\/her part of the partner in the course of its business or with its authority. The liabilities of the LLP shall be met out of its property. An obligation of the LLP whether arising in contract or otherwise, shall be solely the obligation of the LLP. A partner is not personally liable, directly or indirectly for an obligation solely by reason of being a partner of the LLP. This however shall not affect the personal liability of a partner for his\/her own wrongful act or omission, but a partner shall not be personally liable for the wrongful act or omission of any other partner of the LLP. Consumer Grievances Redressal Redress in Banking \u2013 The Banking Ombudsman Scheme The Banking Ombudsman Scheme was notified by RBI in 1995 under Section 35 A of the Banking Regulation Act, 1949 and has been revised over time, the last being in July 2017. The scheme covers scheduled commercial banks, urban co-operative banks, regional rural banks, apart from small finance banks and Payment banks. RBI administers twenty-one offices of banking ombudsman across India and bears the entire cost of running the scheme. A total of 163,590 complaints in the year 2017-18 were received which were 25% more than the previous year. The disposal rate of 96.5% was maintained. Nearly two-thirds of maintainable complaints were resolved by agreement i.e., through mediation. The major grounds of complaints received during the year were non-observance of fair practices code, ATM, debit and credit card issues, failure to meet commitments, and mobile and electronic banking. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 280","RBI also implemented in April, 2019 the ombudsman scheme for deposit taking Non-Banking Financial Companies (NBFCs) and those non-deposit taking NBFCs having customer interface, with assets size of Rs. 1 billion or above. Public grievances and complaints which are not covered by the Ombudsmen Schemes are managed by the Consumer Education and Protection Department (CEPD) of RBI and by such cells in its regional offices. CEPD focuses on reducing the information asymmetry while expanding disclosures and meting out fair treatment to the financial consumers. Moreover, the Charter of Customer Rights [RBI; December 2014] lays down broad guidelines and principles for banks towards protecting consumers from unfair treatment and conduct. The internal ombudsman mechanism implemented in 2015 in all public sector banks, select private sector and foreign banks serves as the first level to resolve customer complaints, before they could be escalated to the banking ombudsman. RBI has also implemented a technology enabled Complaint Management System (CMS) which will integrate the entire mechanism of Ombudsmen for banking and NBFCs, its nodal department CEPD and regional cells. Investor Grievance Redress Mechanism \u2013 SEBI Complaints Redress System (SCORES) platform SEBI notified ombudsman regulations in August 2003 which contained guidelines for appointing ombudsman. In March 2007 the proposal to introduce an ombudsman for capital markets was scrapped. SEBI reckoned that the then prevailing system of addressing investor grievances by stock exchanges was working. The bourses in their self-regulatory capacity were regarded as the first level of regulators for the corporate, and only unresolved complaints were escalated. SEBI issued a circular on December 18, 2014 regarding redressal of investor grievances through SEBI Complaints Redress System (SCORES) platform. This sought to strengthen the centralized web-based complaint redressal system launched in June, 2011 for investors whose grievances pertaining to securities market remain unresolved by the concerned listed company or the registered intermediary, all of which were mandated to obtain their SCORES authentication. The complaints against stock brokers, sub-brokers and Depository Participants continued to be routed through the platforms of the concerned Stock Exchange or Depository. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 281","The platform does not accept complaints against companies falling under the purview of other regulatory bodies viz. RBI, IRDAI, PFRDA, Competition Commission of India (CCI), etc., or under the purview of other ministries viz., MCA, etc. Such complaints may pertain to banks, NBFCs, Primary Dealers, insurance companies, insurance products and their intermediaries, pension products and their intermediaries, housing finance companies, unlisted companies, suspended companies, vanishing companies, sick companies, companies struck off from Registrar of Companies (RoC) or those under liquidation or insolvency proceedings. The platform enables online movement of complaints to the concerned listed company or intermediary and uploading of the Action Taken Reports (ATRs) by them, thus facilitating tracking of resolution status. SEBI retains the sole authority to close the complaints. Insurance Ombudsman Scheme The Insurance Ombudsman was created in November, 1998 with the purpose of timely settlement of the insured\u2019s grievances. In all, seventeen such ombudsmen spread geographically. An individual can approach ombudsman in the concerned jurisdiction for consideration of complaint\/grievance against an insurer, the major grievances being a partial or total repudiation of claim, dispute with regard to premium paid in terms of the policy, misrepresentation of policy terms and conditions, dispute with regard to policy wordings of claims, delay in settlement of claims, non-issuance of any insurance document, etc. The powers of an ombudsman are restricted to insurance contracts of value not exceeding Rs. 3 million. The insurance companies are bound to honor the awards made by an ombudsman within three months. A complaint can be filed with an insurance ombudsman after a representation made to the concerned insurer is either not resolved or is not resolved satisfactorily within a month, but not beyond a year after the insurer had replied, provided that the same complaint on the subject is not be pending before any court, consumer forum or arbitrator. The ombudsman shall pass an award within a period of three months. A policyholder, not satisfied with the award of the ombudsman, can approach Consumer Forums and\/or Courts of law. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 282","The Consumer Protection Act, 2019 The erstwhile Consumer Protection Act, 1986 sought to protect the interests of consumers by way of establishing consumer councils and other authorities for the settlement of consumer disputes. It provided for a three-tier system at the district, the state and the national levels along with detailed procedure for handling of complaints. It was felt in the 1980s that there was a drastic change in the perspective due to the industrial revolution and changed contours of commerce due to globalization. That resulted in a vast array of consumer goods and services including insurance, banking and finance. Hence, it became necessary to safeguard the interests of consumers and to protect them from exploitation and from adulterated and sub-standard goods and services. Similarly, the late 1990s and the following two decades have seen a sea change in the consumer goods industry and the nature of services offered to consumers. The digitization has been one single largest game changer. The ease and access to goods and services, the mechanisms to acquire\/avail them, to pay for them and the accompanying perception of service has created its own challenges. The e-commerce has blurred geographical boundaries and with them the liability aspect of goods and services. The securities have been almost entirely dematerialized. There is information overload especially in digital mode, scientific processing of huge databases, algorithmic trading, etc. The fintech has its role in almost every sphere with machine learning, internet of things, etc. The revised Consumer Protection Act, 2019 enacted on August 9, 2019 seeks to address this aspect along with improvement in processes and the mechanisms of enforcement. Other Acts, Statutes and Regulations Relevant to Financial Consumers Right to Information Act, 2005 (RTI) India is a democratic Republic. The democracy requires transparency of information which is vital to its functioning, notwithstanding the fact that the revealing of certain information may actually conflict with its very confidentiality and sensitiveness apart from other public interests and efficient operations of the governments. It is essential to manage these conflicting interests. RTI provides a mechanism for citizens to access certain information under the control of public authorities with the central purpose to infuse a degree of accountability in their functioning. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 283","Every public authority is required to maintain all its records systematically in order to facilitate the access to such records in a timely manner, and designate Public Information Officers in all administrative units to dispense information to persons seeking the same. A person who seeks information is not required to give any reason or details other than the contact details where the required information needs to be delivered. A request for information shall not be rejected unless there is reason to believe that the act of providing information would disproportionately divert the public resources or would be detrimental to the safety or preservation of the record demanded. In case a request for the information sought is rejected, the concerned Public Information Officer shall communicate the reason for such rejection, the period within which the appeal can be made against such rejection, along with details of the appellate authority. Certain information is categorized where the authorities shall not be under obligation to disclose. Such areas generally are the categorical records related to the security, strategy, economy, science and technology, space and nuclear research, etc. This may also potentially include areas where the disclosed information and facts could prejudicially impact the sovereignty and integrity of the State or its relations with a foreign State, or the disclosure could lead to provocation in a certain community or in general could give rise to offence. Such forbidden information can be so specified by any court of law or tribunal; can be part of cabinet papers including records of deliberations of the Council of Ministers, Secretaries; can be a breach of privilege of Parliament or the State Legislature. SEBI (Disclosure and Investor Protection) Guidelines, 2000 (DIP) The Disclosure and Investor Protection guidelines issued by SEBI in the year 2000 and amended from time to time are the most comprehensive compendium in respect of issuances to be made by companies and other corporate entities, the methodology to be adopted, the role and responsibility of various intermediaries such as merchant bankers and registrars, and most importantly the timely disclosures to be made at every stage for the benefit of investors and other financial consumers. Though it may seem that the guidelines in good part are applicable to the corporate and institutional entities in the ecosystem of securities market, the ultimate aim is to help discover the most appropriate market determined price that should be paid by the investor, who may have the entire channel to review and make an informed decision. The securities market regulator SEBI does not International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 284","engage directly or indirectly in fixing the price of an issue or any formula to purport the same. However, the guidelines in this regard are elaborate which the issuer has to follow and come to a price band in consultation with merchant bankers. The full disclosure of parameters adopted and process followed in this regard is to be made. Regulation of Market Intermediaries in Financial Products SEBI (Intermediaries) Regulations, 2008 The intermediaries regulations of SEBI includes under the broad definition of intermediaries: stock brokers and sub-brokers, trading members of derivatives segment of a stock exchange, merchant bankers and underwriters, bankers and registrars to an issue, share transfer agents, depository participants, clearing members, custodians of securities, trustees of trust deeds, portfolio managers, investment advisers, foreign institutional investors, foreign portfolio investors, credit rating agencies, asset management companies, and such other intermediaries who may be associated with securities markets in any manner. Associates of an intermediary are persons\/entities who are under common control with intermediary, either controlling the intermediary or being controlled by it, directly or indirectly, and include any relative, or companies under the same management. To carry on the activities of one or more intermediary activities, separate certificates need to be obtained. An intermediary is required to provide to SEBI every year a certificate of compliance with all prescribed obligations and responsibilities as well as fulfillment of the continued eligibility criteria, and maintain accounts and records as specified in the relevant regulations. A prescribed code of conduct needs to be abided by an intermediary and its directors, officers, employees and key management personnel, ensuring that sound good corporate policies and good corporate governance is in place. It shall redress investor grievances promptly (within forty- five days) and shall maintain records of all complaints received and redressed. It shall ensure that the recommendation made to a client is suitable, and that an investment advice issued in the publicly accessible media is with due disclosure of all interests. It shall refrain from engaging in price rigging, market manipulation, market distortion, fraudulent practices, self-dealing, front- running, and creating unfair competition or false market which may affect the smooth functioning of the market. It shall International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 285","make adequate disclosures of all interests, resolve proactively any potential areas of conflict of duties on an ongoing basis. An intermediary shall be transparent, fair, objective and unbiased in rendering services. SEBI (Investment Advisers) Regulations, 2013 SEBI adopted a consultative approach to construct Investment Advisers (IA) Regulations in January 2013. The investment advice as per these regulations is considered as advice towards all types of dealing in the securities or investment products, dispensed to a client either orally or in written form. The investment adviser engages with a client in a fiduciary capacity and seeks remuneration directly from the client advised, and not from any other sources. Financial Planning is considered to be investment advice as well. Intermediaries who are engaged exclusively dealing in insurance and pension products need not register as investment advisers, as also several other professionals who may dispense investment advice incidental to their main profession of tax, accounts, law and distribution of mutual fund products. In their subsequent consultation papers to amend the IA regulations, SEBI however proposed that such professionals offering advice for a consideration have to register as investment advisers as well. The proposals further recommended mutual fund distributors to choose between investment advice and distribution. The investment advisers as individuals cannot be on the execution side as well. The institutions and body corporate, which engage in both the activities of distribution and investment advice, are required to dispense investment advice through a separately identifiable department or division. In the subsequent consultation paper however, it was further proposed that such institutional entities would be required to provide investment advice through a subsidiary only. SEBI (Self-Regulatory Organizations) Regulations, 2004 A Self-Regulatory Organization (SRO) defined in the above regulations would mean an organization of intermediaries which is representing a particular segment of the securities market and which is duly recognized by SEBI under these regulations, but would exclude a stock exchange. Such an organization intending to be recognized as an SRO may apply to SEBI by forming a non-profit company with objective to promote a useful activity including commerce. Such a company shall have its main object as discharging the function of an SRO, shall have a net worth of at least INR 10 million, shall have International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 286","adequate infrastructure for the purpose, professional capability and experience. SEBI would ensure that grant of SRO status to the applying organization is in the interest of financial consumers and the securities market, in general. SEBI has mandated that overall governance and management of an SRO shall vest in its Board of Directors, a majority of which shall be independent directors. After an SRO of specific segment of intermediaries is thus recognized, the registration and renewal of intermediaries who would be its members, shall be made only through the specified SRO. The SRO will treat all its members in a fair and transparent manner and in their respect, collect membership fees, organize awareness and training programs as well as screening tests\/certifications, issue a code of conduct and monitor the same. It shall inform SEBI of any violations by its members of the provisions of the SEBI Act and rules and regulations, circulars and guidelines made thereunder, and shall take disciplinary action as directed. An SRO shall have approved governing norms to direct its various functions. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 287","International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 288","RETIREMENT PLANNING International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 289","International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 290","Retirement Principles Meaning of Retirement What does retirement mean? There are about as many answers as there are people. Determining what retirement means to your clients is not just an interesting conversation starter. A person\u2019s view of their retirement will provide the foundation for developing their retirement plan. A plan for someone who intends to spend most of retirement sitting at home and one who wants to get an advanced university degree or start a new business will involve different approaches. As a result, the first, and to some degree most important, retirement planning step is to gain a clear understanding of what retirement looks like to the client. Collect Qualitative Information 1. Determine the client\u2019s retirement objectives 2. Determine the client\u2019s attitudes towards retirement 3. Mutually agree on the client\u2019s comfort with retirement planning assumptions Determine the client\u2019s retirement objectives Let\u2019s look at a variety of activities clients may take up in retirement:1 Additional education: A person who wants to go back to university to continue education and perhaps get an advanced degree is likely to need quite a bit of money. Tuition varies, of course, but advanced degrees are seldom inexpensive. Giving back: More than one person who has spent a lifetime earning a living has decided they want to focus on giving back during retirement. Top executives may take the opportunity to coach International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 291","entrepreneurs or newly minted managers on how to succeed in business. Teachers may help educate children growing up in frontier territories and other newly developing nations. Healthcare professionals may join an organization to provide medical care for those who would otherwise have little or none. Travel and hobbies: People often look forward to traveling during retirement. There are many places to see and cultures to experience. Also, parents want to spend time with children and with grandchildren. Retirement seems the perfect time to travel, and it is, as long as the client\u2019s health and money are there to support this activity. In fact, there are a few activities that fit into this category. Working at a new job: People sometimes want to continue working, but not with their current employer or position. This is true, of course, with people of all ages, but perhaps even more so for those reaching retirement age. Executives and others used to working 50, 60, 70 hours or more each week may just want to cut back to part-time. While not guaranteed, a cut in cash flow would likely accompany such a change. Understanding Client Goals What does all this mean for the financial advisor? There are several implications, including those that specifically are financial and may impact funding for the individual\u2019s desired retirement choices. Roy Diliberto suggests the following to guide the process Begin the dialogue by reviewing clients\u2019 answers to preliminary questionnaires. 1. Ask about the future \u2013 not retirement. 2. Help them to discover what is important to them. 3. Uncover current and future transitions. 4. Ask about your clients\u2019 attitudes about charitable giving. 5. Be a biographer \u2013 ask about your clients\u2019 histories. 6. Discover your clients\u2019 values and attitudes about money. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 292","Value of Early and Consistent Planning for Retirement Do the Hard Work. The hard work to which we refer is helping clients realize they have to adjust current lifestyles to achieve future goals. For many people, current lifestyle choices inhibit their ability to save for their future. As a result, a big part of retirement planning must focus on current cash flow management. Bigger Picture There is more to retirement planning than the money. In fact, accumulating the required funds comes close to last on the list. Putting first things first requires understanding a client\u2019s goals. Doing this is not necessarily as easy as you might think. Unfortunately, many individuals have difficulty articulating future goals. Further, a large group of individuals, when asked to envision their retirement years, can barely bring to mind a vague picture of no longer working. Beyond that, they cannot envision, let alone state, concrete plans or future goals. However, until the advisor can help a client do this, retirement planning will only be nominally effective. Without clearly stated goals, you have no way to know the ultimate destination. Retirement Accumulation Investment Portfolio The client has at least 15 \u2013 20 years before beginning retirement. This time period is important, because when available time is much less, investment options narrow considerably, because of the inherent investment risk factors. With only five years in which to accumulate funds, the individual will mostly be limited to bank instruments such as certificates of deposit, savings accounts and money market accounts. Why have this limitation? Five years is too short a time to invest in any investment with normal volatility. There is a good possibility that the individual\u2019s portfolio will experience a downturn at the time he or she needs the funds. Since retirement lasts quite a few years, there\u2019s time to allow for greater investment diversity. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 293","Accumulation Strategies All the principles and guidelines that exist for asset management and investing remain in effect when retirement is the goal. The idea is to accumulate as much money as possible, while remaining true to the client\u2019s risk profile and money philosophy. Rather than focus only on pre-retirement accumulation, we will look at a few ongoing strategies that may be applied during the accumulation period, and throughout the retirement distribution period. An investment with high variability, the environment in which an individual deposits or withdraws money has a great impact on the size of the accumulated funds. Accumulation calculations are often based on straight-line, consistent returns. Further, forecasts are almost always based, to some degree, on historical returns. Historical returns are pleasant to review, but seldom represent present or future reality. Monte Carlo is a probability simulation model that, in simplified terms, attempts to analyze and synthesize a large number of prior-year investment returns. It then runs repeated simulations to determine how likely it is for a particular outcome to result from the inputs. The analysis includes a range of possible future outcomes based on a very high number of randomly generated processes, which explore quite a few different scenarios. When used with retirement planning portfolios, Monte Carlo analysis attempts to estimate not only how much money an investor\u2019s portfolio may accumulate, but also how long the money will last. Future Investment Goals Monte Carlo does help develop guidance as to probabilities that a client may or may not achieve future investment goals, especially when paired with historical return data. It will not accurately predict future investment results, though. Nothing can. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 294","\uf0b7 Monte Carlo assumes that the plan never changes during its full span. This is unlikely to happen, assuming the advisor does his or her job and includes annual reviews in the planning process. \uf0b7 Clients in retirement tend to become more conservative as they age. \uf0b7 The projection does not say anything about the degree to which the portfolio failed. A small shortfall is counted the same as a large one. Failure is failure to Monte Carlo. \uf0b7 The projections only consider whichever portion of a portfolio the advisor includes. Other cash flow sources will have an impact on the client\u2019s ability to maintain cash flow throughout retirement. Stress Testing Stress testing includes considering things like bad timing (e.g., sequence of returns). By this we mean that sometimes an investor may experience particularly bad results for an extended period of time, because of a certain economic cycle. If this happens at the beginning of retirement, it can cause long- term difficulties. Of course, the reverse is also true, and clients can sometimes experience results that are far better than they expect. When stress testing a portfolio, advisors can evaluate potential return scenarios, based on historical data, to show the impact of asset allocation, market returns, timing and amounts of deposits and withdrawals, and the like. Accumulation Strategies: A Glide Path A glide path suggests a portfolio that shifts from higher to lower equity exposure as the individual heads into, and lives in, retirement. 1. Equity exposure is greatest early in the process. 2. It never completely goes away. 3. Notice that the glide path suggests a reasonable approach to investing that focuses less on asset accumulation, and more on providing sufficient retirement cash flow. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 295","4. A retiree will likely reach a point where the portfolio should be largely in bonds or other fixed cash flow investments, along with cash and cash equivalents. 5. Maintaining purchasing power is an important retirement goal. This is why, unless the individual has a large enough asset pool to generate sufficient cash flow primarily through earned interest, the need for some equity investment will continue through the retirement period. Retirement Principles Planning for retirement is a long-term project, involving many steps and using a number of tools. The process, while multifaceted, can be simplified to relatively few steps: 1. Establish and define the relationship with the client(s) 2. Gather pertinent data 3. Analyze the data to determine the client\u2019s current status 4. Develop and present recommendations 5. Implement solutions (or provide guidance for implementation) 6. Monitor progress (depending on the nature of the engagement) RETIREMENT GOALS & ONJECTIVES As you discuss retirement with a client, it will be helpful to do so without preconceived ideas about their goals. However, there is one objective that is consistent for almost every retiree. Whatever the goal, retirees want enough funds to support their desired lifestyle. They do not want to worry about running out of money. They typically want to come to the end of life having had enough money to fund the entire journey \u2013 wherever it may lead. International College of Financial Planning \u2013 Challenge Pathway Prep Book Page 296"]