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R01 2023 > 2 - Serving the Retail Customer > Flashcards

2 - Serving the Retail Customer Flashcards

1
Q

How can expenditure be broken down

A
  1. Essential spending
  2. Everyday spending
  3. Non-essential spending
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2
Q

What is DMP

A

Debt management plan - to manage debt for individuals. Consolodiate all debts and place it into one monthly affordable payment with a fee

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3
Q

What is the transfer of property in exchange for a mortgage called

A

The assignment

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4
Q

Two main types of mortgage

A
  1. Capital and Interest Repayment
  2. Interest-only
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5
Q

Different mortgage types

A
  • Cap and Collar
  • Capped
  • Discount
  • Euro
  • Equity-linked (SAMs)
  • Fixed interest
  • Flexible
  • Green
  • Offset
  • Tracker
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6
Q

What are the 2 equity release schemes

A
  1. Lifetime Mortgage
  2. Home reversion plan
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7
Q

What is a lifetime mortgage

A

Roll up mortgage -> interest added to loan -> client gets a lump sum of money or regular income. Contract interest + loan paid when client dies.

Fixed repayment lifetime mortgage
Interest-only mortgage
Home income plan

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8
Q

What is a no negative equity guarantee?

A

guards against excess debt from lifetime mortgages. Lender promises that the client or beneficiaries will never have to pay back more than the value of the home even if debt has grown larger than this.

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9
Q

What is drawdown facility?

A

Drawdown facility -> taking out occasional small amounts than one big loan (cheaper as clients only pay interest on money they need).

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10
Q

Home reversion plan?

A

The client sells all or part of their home for a cash lump sum, a regular income or both. The home or part of its sold then belongs to home reversion provider. The client is allowed to carry on living in it under lease until they die or move into a long-term care facility

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11
Q

What are home purchase plans

A

Help to purchase home without paying interest

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12
Q

What are the two types of home purchase plans?

A

Ijara -
monthly payments made towards buying the property are held by firm and used to buy home at end of agreement

Diminishing Musharka
Payments buy an extra slice of firm share until entire share is bought

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13
Q

What is Sales and rent bank schemes

A

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.

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14
Q

Risks of sale and rent back schemes?

A
  • Could be evicted
  • Property could be repossessed
  • May have to leave when term ends
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15
Q

Two types of loan

A

Structured
Unstructured

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16
Q

Unstructured loans definition

A

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

You can repay the loan at any time without penalty

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17
Q

Structured loans definition

A

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

penalty for repaying the loan early

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18
Q

Financial protection factors

A
  1. Age
  2. Dependents
  3. Income
  4. Financial Liabilities
  5. Employment Status
  6. Existing cover
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19
Q

What is the amount of money needed to maintain standard of living when retired

A

2/3 of final year employment income

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20
Q

What are 3 main types of life assurance contracts

A
  • Term Assurance
  • Enowment Policies
  • Whole of Life policies
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21
Q

What are three stages of financial life cycle

A
  1. Vulnerable years
  2. Relaxed years
  3. Anxious years
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22
Q

Term Assurance

Nature

Life cover/investments split

Illness cover?

A

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.

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23
Q

Endowment Policy

Life cover/investment split

Illness cover?

A

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.

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24
Q

Whole of Life Policy
Nature
Life cover/investment split

A

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.

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25
Q

Non-profit Whole of Life Policy

A

The non-death whole of life policy guarantees to pay a fixed amount of life cover on the death of the life insured, whether this is 1 or 30 years later.

May accumulate a surrender value but likely to be low.

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26
Q

With Profit Whole of Life Policy

A

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.

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27
Q

What is a flexible Whole of Life Policy cover

A

“Unit-linked wol plans”

Allows you to choose between minimum and maximum level of cover. Can change this at any time within these limits.

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.

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28
Q

**
Term Assurance**

Level

Diminishing

Family Income Benefity policy

Increasable

Convertible

Renewable

A

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. Premium will increase in the future, but no need for future health checks.

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29
Q

Income Protection (IP)

A

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.

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30
Q

What are the common deferred periods for income protection

A

4, 13, 26 and 52 weeks

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31
Q

Personal Accident and Sickness Insurance

Payouts - time

Other comparisons to income protection

A

Regular benefit, can also pay one-off lump sum if disememberment occurs.

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.

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32
Q

Accident, sickness and unemployment (ASU) cover

A

Similar payouts to personal accident and sickness
Only pays for 1-2 years
Addition premium charge for unemployment

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33
Q

Sickness/Health Insurance

Critical Illness Cover

3 differences to income protection

A
  • 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
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34
Q

Private Medical Insurance two types

A

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.

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35
Q

Long term care Insurance two types

A
  1. Immediate care LTCI - bought when care is needed
  2. Pre-funded LTCI - Bought in advance, in case care is needed in future
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36
Q

PPI

Also known as

A

Usually only available in connection with a loan. Packaged to offer one or more of:

Accident benefit

Sickness benefit

Unemployment benefit

So known as ASU policies

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37
Q

Mortgage PPI

4 features

A

Must
* Provide ASU cover
* Payout after maximum of 60 days of work
* Provide cover of at least twelve months
* Pay out self-employed

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38
Q

Who is benefit Cap set by

A

DWP: Department for work and Pensions

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39
Q

What is the benefit cap for Couples/single parents with children?

A

Outside Greater London: £423.46 (per week)
Inside Greater London: £486.98 (per week)

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40
Q

What is the benefit cap for Single/no children

A

Outside Greater London: £283.71 (per week)
Inside Greater London: £326.29 (per week)

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41
Q

When does benefit cap not apply generally

A

If anyone in household qualifies for Working tax credit, gets Universal Credit

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42
Q

How is Universal Credit paid

A

Government includes standard allowance on claimants age and whether they make a single or joint claim.

Any extra amounts are called “elements” - dependent on circumstances e.g. children, disability

43
Q

State Benefits

7 Benefits for Parents

A

Child Benefit - Universal, non-means-tested.

Child tax credit - Paid to families with children regardless whether parents work. Integrated within tax system and administered by HMRC. New claims can only be made by those who already receive working tax credit. It has been replaced by Universal Credit for other new claimants.

Child trust fund - Ended in 2011, voucher to invest on behalf of children.

Statutory adoption pay - 39 weeks of pay at min(standard rate, 90% earnings).

Statutory maternity pay - 6 weeks @ 90% earnings, 33 weeks @ min(standard rate, 90% earnings).

Statutory paternity pay - 1 or 2 consecutive weeks at min(standard rate, 90% earnings).

44
Q

State Benefits

4 Benefits for Unemployed

A
  1. Income Support (Must apply for Universal Credit for new claims)
  2. Job seeker Allowance (eligibility depends on Class 1 NI contributions
  3. Statutory Redundancy Payments
  4. Working tax credit: Paid by HMRC to people on low incomes, can include a childcare element. If you’re over 25 you must work at least 30 hours per week.
45
Q

State Benefits

Mortgage Interest Support

Amounts, waiting periods, limits

A

Get help paying mortgage interest if you’re receiving certain benefits.

If you get State pension credit it’s on £100k of your mortgage with no waiting period.

Otherwise it’s on £200k but 39 week waiting period.

46
Q

State Benefits

6 sick and disabled benefits

A

Attendance allowance - Tax free for those over 65 years old who are disabled and need care.

Carer’s allowance - Taxable benefit to look after somebody disabled (don’t need to be related).

Personal Independence Payment (PIP) - Successor to DLA.

Disability living allowance (DLA) - Tax-free for disabled who have difficulty walking and so need care. Ending for those born after 1948 and over 16 years old.

Employment and Support Allowance (ESA) - Successor to incapacity benefit, paid to the ill or disabled but aims to get them into work.

Statutory Sick Pay - Standard weekly rate paid for up to 28 weeks if unable to work.

47
Q

State Benefits

3 pensioner benefits

A
  1. New/basic state pension
  2. Pnesion credit
  3. Additional state pension
48
Q

What is the annual allowance for pension contributions per year

A

£60,000

49
Q

What did pension act 2014 say regarding ages

A

Raise to 66 by 2020 and 67 between 2026 and 2028

50
Q

By how much is the annual pension contribution allowance reduced if you earn over £260,000

A

For every £2 over, the allowance is reduced by £1 to a minimum of £10,000

51
Q

How have pensions provided retirement benefits (Two forms)

A
  • Income
  • Tax free pension commencement lump sum
52
Q

Retirement

2 annuity types

Tax treatment

A

CPA (Compulsory Purchase Annuity) is bought from the proceeds of a pension. Income is taxed based on income paid at 20%/40%/45%.

PLA (Purchase Life Annuity) is purchased from other funds (usually get better rates) and income is separated into an income and capital element for tax purposes (capital is tax free).

53
Q

What is a UPFLS

A

Uncrystalised fund pension lump sum (UFPLS)
Take 25% tax free cash
75% TAXED AS EARNED INCOME

54
Q

What is the current maximum weekly state pension amount under the single tier state pension

A

£203.85 per week (2023/2024)

Old - £156.20

55
Q

What are the conditions for receiving the maximum state pension amount for single tier

A

35 year NIC contributions and haven’t been contracted out at any time

56
Q

What is the minimum years to work to receive any state pension

A

10

57
Q

Additional state pensions (for thoser who retired before April 2016

A
  • State Graduated pension - no inflation linked
  • State earnings
  • state second pension
58
Q

3 types of private pension

3rd sub-type

A

Occupational pensions are set up by employers, DC or DB basis.

Personal pensions are funded by savings of the policyholder.

Group Personal Pension

Stakeholder pensions are personal pensions which meet some additional requirements.

59
Q

What are: Career average revalued earnings (CARE) schemes

A
  • Still a DB scheme, but promises a proportion of salary averaged over a worker’s whole career rather than final salary at retirement. Much less pension paid out
60
Q

How are earnings usually calculated for DB pensions

A

1/60th of earnings per year or 1/80th

61
Q

What is it called when clients can see share of funds in DC schemes?

A

Earmarked money purchase scheme

62
Q

Providers of occupational pension arrangements

2 divisions

Further subdivisions

A
  • Public sector schemes (i.e. civil servants)
  • Private sector schemes

Private sector schemes can be either:

Self-administered schemes (managed by the company itself) or
Insured schemes (managed by a life assurance or pension provider)

63
Q

What are employer minimum contribution to DC scheme

A

8%

64
Q

What is the minimum earnings threshold above which employers have to pay into auto enrolment scheme

A

£6,240.00

65
Q

Savings and Investment

Definition of short, medium, long term

A

Short term: 0-5 years - accessible emergency fund
Medium Term: 5- 15 years
Long term: 15+ years

66
Q

3 Priorities of money

A
  1. Pay off debt
  2. Protect family
  3. Emergency fund
67
Q

5 types of saving products

A
  • Savings
  • Cash ISA
  • Notice
  • Fixed-rate bond (term accounts)
  • High interest regular savings
68
Q

Help to buy ISA

A

Get a £50 bonus for every £200 invested, up to a max of £3k on £12k saved.

Available for purchases up to £450k in London, £250k outside.

Maximum initial deposit is £1k, maximum monthly saving is £200.

69
Q

Tax on Savings

New policy on tax deducted at source

Tax payable on savings for different tax brackets

A

Since 6 Apr 16 banks, building societies and NS&I can pay interest gross.

Basic rate tax payers get £1k tax free interest, £500 for higher rate (after which 40% tax) and additional rate pay 45% on everything.

70
Q

NS&I

A

NS&I provide government-backed savings and investment products. Money invested is totally secure.
They are deposit based

71
Q

What are the 4 asset classes of investments

A
  • Shares (equity)
  • Bonds
  • Property
  • Cash
72
Q

Deposit products what are they suitable for

A

Suitable for emergency funds and for short term use, for which they are the only asset that can reliably maintain nominal value of capital and achieve a return.

For medium term use the impact of inflation can erode their value.:

73
Q

What are the layers of investments

A
  1. Underlying investment itself
  2. Pooled investments
  3. Tax wrapper
74
Q

Advantage of platform trading

A
    • Switch between holdings from different investment companies quickly and cost effectively
  2. Aggregate holdings from several different companies onto the same system.
75
Q

What is sustainable funds?

A

These funds pay specific attention to environmental or social issues and collectively referred as sustainable. Sustainability issues as fund manager considers contribute to where a fund will and not invest.

76
Q

What is ESG funds

A

Focus primarily on ESG risk and how business operate. ESG funds may invest in well-run but controversial and unsustainable companies.

77
Q

What is the most volatile of the 4 asset classes

A

Equity/shares

78
Q

What is investor sentiment

A

The perceived value of the shares often based on company performance or predictions on economic conditions

79
Q

What is the main factor affecting share price

A

Investor sentiment

80
Q

What is the short term use of equity investments

A

Speculation

81
Q

What is the medium term use of equity investment

A

Can provide an income via dividends

82
Q

What is the long term use of equity investments

A

Real growth and capital preservation

83
Q

Permanent Interest Bearing Shares (PIBS)

A

Fixed interest investments issued by building societies.

Similar to corporate bonds except they have no expiry date and interest payments can be missed in exceptional circumstances (don’t need to be caught up later).

If the building society demutualises they convert into Permanent Subordinated Bonds (PSBs).

84
Q

What are bonds also known as

A

Loan stock, fixed interest, debt securities

85
Q

How long do pooled investments have to delay payments in property investment

A

6 months delay payments

86
Q

Types of pooled investments

A
  • OEICs
  • Life and Pension
  • Endowment
  • Investment Trusts
87
Q

What is an index linked fixed interest investment

A

Usually gilts, where both the capital and interest is linked to RPI

88
Q

What is open-ended investments?

A

Open-ended investment funds (collective, pooled investment schemes) are run by fund management companies. unit trusts or as OEICs w

89
Q

What is close-ended investments?

A

Investment trusts:
These are closed-ended investment companies.

They are allowed to borrow money to invest (geared).

90
Q

Definition of Derivative

A

A derivitaive is typically a right or an obligation to buy or sell another type of asset – such as a share, a fixed interest investment or a commodity – at a specific price to someone else at a specific future date. Called options and futures.

91
Q

What is a CFD

A

Contracts stating that one of two parties will pay the other the difference between the current value of an asset and value at later date. CFD is spread betting.

92
Q

Different types of ISAS

A
  • Cash
  • Stocks and shares
  • Innovative Finance
  • Lifetime
93
Q

Whats the age cap of lifetime isa

A

Less than 40

94
Q

What is a tax wrapper

A

ISA and Pensions

95
Q

ISA limit per annum

A

£20,000

96
Q

JISA Limit

A

£9,000

97
Q

What is the aim of passively managed funds

A

To track the market

98
Q

What is the IHT limit at which nil rate band is reduced by £1 for every £2 over

A

£2million

99
Q

What is the nil rate band for IHT (NRB)

A

£325,000

100
Q

What is residence nil rate band (RNRB)

A

£175,000

101
Q

How to reduce IHT

A
  1. WOL Policy
  2. Lifetime gilts
  3. Allowances
  4. Property in trust
102
Q

What is PETs in IHT

A

Potentially exempt transfers - - no IHT if donor survives 7 years

103
Q

What type of life insurance policy should be used to cover IHT liability

A

Whole of life policy written on a last survivor basis under trust

R01 2023 (11 decks)

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