2 retail customers copied

Question 1

Assessing needs and objectives

What 3 things should you consider regarding client needs before making a recommendation?

Answer 1

Areas of advice/need
Risk profile
Changes in circumstances

Question 2

Recommendations

5 things you should do when making a recommendation to a client

Answer 2

Ensure you have completed KYC information before making a recommendation

Consider affordability, debt repayment, impact on benefits and tax

Recommend a product/service matching their risk profile

Recommend the most appropriate product & provider and explain your decisions

Provide the level of service committed to in initial disclosure, outsource arrangements you can’t deal with

Question 3

Suitability Reports

7 characteristics

Answer 3

Tailored to client circumstances

Specifies their demands & needs

Clear & plain language

Explains reasons for recommendations and how they meet the needs

Explains disadvantages, including risks, costs, charges, potential penalties

Highlights client objectives not covered

Highlights implications of any ‘focussed’ advice provided

Question 4

Client Reviews

Who needs them?

Answer 4

Consider whether your client will benefit from them.

Can reduce risk of complaints.

Ensures recommendations remain suitable given changes in circumstances, market conditions and products available.

Question 5

Consumers’ main financial needs

List of 7

Answer 5

Budgeting
Managing Debt
Borrowing
Protection
Saving & Investment
Retirement
Inheritance

Question 6

Which type of mortgages is not regulated by the FCA?

Answer 6

Buy to let

Question 7

Types of Loan

Describe structured and unstructured loans

Answer 7

Refers to the interest rate and repayments etc.

In unstructured loans like mortgages and commercial property loans these can be varied. Usually they are secured and so have low rates.

Structured loans and usually smaller for things like sofas or cars, have fixed repayment schedules and high interest rates.

Question 8

Mortgages

2 types of home purchase plans

Answer 8

Ijara - Monthly payments are held by a firm and used to purchase the property at the end of the contract.

Diminishing Musharaka - Monthly payments used to buy an increasing share of the property from the firm, with rental payments decreasing over time in proportion.

Question 9

Mortgages

Difference between sale & rent back and home reversion

Answer 9

Sale and rent back (AKA flash sales) schemes are when a firm quickly purchases the property and rents it back to the customer for a short fixed period of time.

Home reversion schemes require the mortgage to be paid off in full. The customer receives some cash in return for selling their home, but is allowed to continue living in it.

Question 10

Life Assurance

Term Assurance

Nature

Life cover/investments split

Illness cover?

Answer 10

Is only in place for a fixed period of time.

Pays a lump sum (or several lump sums to members of a family) on death.

Does not pay out on illness

No savings/investments element.

Usually the cheapest method.

Question 11

Life Assurance

Endowment Policy

Life cover/investment split

Illness cover?

Answer 11

Pay a lump sum on death but they are primarily savings vehicles.

Can also include critical illness cover.

Not a great way of providing life cover since most of the premium is directed towards the savings element.

Question 12

Life Assurance

Whole of Life Policy

Nature

Life cover/investment split

Answer 12

Offer a guaranteed level of cover for the lifetime of the assured.

Usually a small element of investment, although this can vary, primarily these are for life cover.

Question 13

Life Assurance

Non-profit Whole of Life Policy

Answer 13

Guarantees a fixed level of life cover regardless of how long the assured lives for.

As a result it accumulates a surrender value, but this is likely to be quite low.

Question 14

Life Assurance

Flexible Whole of Life Policy

Answer 14

AKA: ‘Unit-linked whole of life’ or ‘universal life plans’.

These allow the policyholder to choose between minimum and maximum amounts of cover.

Over the life the policy holder can choose to purchase units as premiums are paid. The policy grows in value as the number of units accumulates.

Question 15

Life Assurance

Term Assurance

Level

Diminishing

Family Income Benefity policy

Increasable

Convertible

Renewable

Answer 15

Level term assurance has a fixed payout throughout the life, whilst diminishing assurance pays a lower payout as time goes by to match the profile of a falling liability (eg mortgage). Both have fixed premiums throughout the life.

Family income benefit pays out a series of regular payments instead of a lump sum, a type of diminishing contract.

Increasable assurance allows the customer to increase cover with no additional health checks in the future.

Convertible can be converted into an endowment or whole of life policy with the same sum assured.

Renewable policies benefit from a low initial premium but guarantee you can continue to be covered. Premia will increase in the future, but no need for future health checks

Question 16

Life Assurance

With Profit Whole of Life Policy

Answer 16

Guarantees a minimum level of life cover, but this amount increases each year by the addition of annual (or ‘reversionary’) bonuses (which may not be guaranteed).

Once added they boost the minimum level of cover.

Also there is likely to be an additional final bonus paid on death, especially if there has been a high level of reversionary bonuses.

Question 17

Sickness/Health Insurance

Income Protection

Payouts received - time period

Tax impact

Answer 17

Once the insured has been out of work for at least the ‘deferred period’ benefits are paid, continuing until they die, return to work or the contract ends (usually retirement).

Benefits from an individual policy are exempt from tax.

Question 18

Sickness/Health Insurance

Personal accident and sickness insurance

Payouts - time

Other comparisons to income protection

Answer 18

Pay regular benefits whilst the insured is unable to work, but also pay one-off lump sums for things such as loss of limbs, eyesight or becoming permanently disabled.

The deferred period is likely to be very short (1 to 14 days) but benefits are only paid for one to two years.

There will be fewer health and occupation questions compared to income protection and fewer occupations are excluded.

Question 19

Sickness/Health Insurance

Private Medical Insurance

2 types

Answer 19

Full Medical Underwriting requires questions about health of the insured. Based on the results the insurer decides the conditions of cover.

Moratorium basis doesn’t ask health questions but any health conditions suffered from in the last 5 years are automatically excluded.

Question 20

Sickness/Health Insurance

Critical Illness Cover

3 differences to income protection

Answer 20

Similar to income protection but:

Lump sum not regular income
Based on diagnosis of specific illnesses, not whether you are unable to work
Can be provided by stand-alone policies or incorporated in whole life, term or endowment policies