13) UNDERSTANDING AND SATISFYING CUSTOMER NEEDS

Question 1

How do fin needs change typically change over life cycle?

Answer 1

1. Children: acc usu opened by relatives to save money in child’s name with b’day gifts etc. Sometimes National savings, Premium bonds are taken. Stakeholder pensions can also be opened for children by relatives from birth onwards.
2. Students (16-20): Not much income, but may have PT job for car, holiday etc. Also may have loan for uni/collg
   3) Yg adults in employt: Save more, early career - rent or purchase - may be mortg - may thk pensions
3. Yg families (30-40): Less disposable inc if yg children - more outgoings, more thoughts abt protection against death/illness
4. Estd families (40-50): Grn up children - more borrowing for larger home - spends on cars and prop - may rec inheritance
5. Mature households (50-60): Probly highest earning potential - pension provision review - retirement plans
6. Retirement 60+): thoughts on converting/maximizing income from pension plans, plan for IT liabilities, long term health care

Question 2

What are some of the hard facts when collecting customer info?

Answer 2

Basic info such as Full name, address, tel no,
dob, place of birth (imp for underwriting and est domicile), Marital status, family details
*Finanl situation: Employt - FT, PT,temp/parma, self-emp, direc/partner in bus,
*income/benefits: breakdown basic, bonus, OT etc Ben pension, company car, Pvt Med Insu,
*Previous/addl employt - maybe share-option, profit-related pay schemes, copies of P60, tax coding etc
*Inc and expenditure: Regular income, addl income, reg expenditure, loans,
*Also est assets: all bank acc, investments - their size/ rate of return/type of return(cap gr or inc - fixed, guaranteed etc) -tax status - lives/sums assured - name of insti providing asset
*Liabilities: borrowing/s - lender - amt- bal outstanding - term and term remaining - ROI - repayment method - protection of cap or payments

Question 3

What other soft facts must a fin adviser find

Answer 3

• How the client feels abt current arrangements or lack of them
• Objectives now and for future
• Why they have certain goals/views
• willingness to take action
  likelihood of change in their situation
  *Reasons behind current arrangements may show level of finanl understanding of finances
  *det level of int in their situa will show likelihood/motivation to take action
  *Ascertaining client’s views on poss alt solns help to construct acceptable recommendations

Question 4

Why is it imp to understand a client’s attitude to risk?

Answer 4

How a client views risk will help adviser to provide explanations and distinguish between degrees of risk eg to explain if there is risk to capital, income, whether there it is low/high risk and how it reflects in income, bank acc/savings low/high cap gr higher risk etc
* Attitude to risk is often measured by psychometric testing, with a risk score allocated from the answers given.
Ano factor ‘capacity for loss’ - ability to absorb loss to their investment
Always cust preferences to shd be noted but it is also adviser’s duty to educate and explore finanl circumstances and help make right choices

Question 5

List five areas of financial need that shd gen be explored

Answer 5

1. Protecting dependants from fin effects of loss of inc or meet extra expen in the event of premature death
2. Protecting self and depndts from eff of losing ability to earn inc in long term
3. To provide inc in retirement sufficient to maint std of liv
4. Wanting to bld sav, and wanting to incr inc from existing sav or invst, wanting to incr and/or protect value of money saved or invested
5. Saving tax

Question 6

List explanations that shd always be given whn presenting recommendation

Answer 6

Give explanations/clear doubts when raised
If appln made on behalf of client - always w clt’s permission - must read it thoroughly and sign
Clt made aware that deliberate reckless misrepresentation will make contract void and may lose protection/premiums etc
Key info docu/key investor info to make decision+ key features/brochure illustrating product shd be given before sale is closed
explain cancellation notice and their rights to withdraw within a defined prd
Shd provide business card - clear route if any queries later on

Question 7

What if ‘capacity for loss’ and why is it imp?’

Answer 7

FCA describes ‘capacity for loss’ which is linked to risk as the client’s ability to absorb falls in the value of their investment. If any loss in capital would have detrimental effect to client’s std of liv this shd be taken into acc in assessing the risk that they are able to take

Question 8

Factors that shd be considered when a finanl adviser is deciding on an appropriate soln for a client

Answer 8

Eligibility for state benefit, existing arrangements, affordability, taxation, attitude to risk, capacity for loss, anticipated changes in circumstances, timescale, flexibility

Question 9

List five pts to be included when making a recommendation to a client

Answer 9

Purpose of pdt and the needs it will address
benefits to client
risks and limitations of pdt
any pdt options that might be appropriate
summary of reasons for recommending the pdt

Question 10

Diff betn proactive and reactive servicing

Answer 10

Proactive: instigated by adviser based perhaps on previous info obtained and reg changes, promotion of inheritance
Reactive: Instigated by client reg a need, or by client’s reps eg executors of an estate