3 : 2a - Collecting the Client's Information

Question 1

Why is gathering information improtant?

Answer 1

Advisers who are unable to evidence the collection of sufficient ‘know your customer’ (KYC) records will find it difficult to show that, even if they have. Accurate and up-to-date client information is essential in putting together a financial plan.

Question 2

What types of information are required?

Answer 2

This information is likely to consist of a mixture of ‘hard facts’ (factual information) and ‘soft facts’ (emotional and aspirational information).

Question 3

Is there a set structure for collecting information?

Answer 3

As there is no set structure for obtaining this information, it is the skill of the adviser in ascertaining the client’s particular circumstances which is most important.

Question 4

Give examples of the minimum level of detail required: (8)

Answer 4

• Personal information - Employment - Income - Expenditure - Assets - Liabilities - Objectives - Attitudes to risk

Question 5

What ‘personal’ information is required?

Answer 5

Name, address, date of birth, marital status, dependants, health, knowledge and experience

Question 6

What ‘employment’ information is required?

Answer 6

Occupation, employer’s details and benefits or details of self-employment

Question 7

What ‘asset’ information is required?

Answer 7

Property, valuables, savings, investments

Question 8

How is information gathered?

Answer 8

While hard facts can be collected using a fact find or client questionnaire, soft facts are usually gathered by asking a series of linked questions and recording the client’s answers

Question 9

What happens after gathering info?

Answer 9

It is presented back to the client for verification. Many paraplanners and financial planners see it as good practice to include all collected client information in the financial plan (usually as an appendix) so that the client can point out any mistakes or ambiguities.

Question 10

EG Exam technique…

Answer 10

If you are preparing a financial plan for the Diploma in Financial Planning, we would strongly advise that you include all client data as an appendix.

Question 11

How can gaps in information appear?

Answer 11

During the course of the fact-finding and data collection process, it is not unknown for the financial planner or paraplanner to mishear or misunderstand some of the information that the client provides. It is also possible for the client to misunderstand a question that was asked and to provide the answer to a different question. While many of these types of mistakes may be corrected during the client meeting, some may not emerge until the information is analysed after the meeting.

Question 12

Whose objectives need to be considered?

Answer 12

Financial planning is about meeting a client’s financial and lifestyle objectives, not the financial planner’s objectives (or the objectives that the planner thinks the client should have).

Question 13

The financial planning needs of clients fall into the categories of: (3)

Answer 13

• The securing and protection of current and future living standards by protecting income against unexpected or potentially detrimental events such as illness, accident, redundancy, rises in the cost of debt, and death. - Saving for future aspirations, for starting a family, funding education or for retirement and old age, including possible long-term care implications. - Estate planning and tax-efficient savings.

Question 14

What is a limitation with perceptions of need?

Answer 14

It is important for an adviser to recognise that a client’s perception of their needs may be coloured by numerous factors such as limited knowledge of financial products that are available, previous personal experience and the experiences of family and friends. Perception changes with knowledge and understanding. The financial adviser plays a key role in both educating clients and, through effective KYC processes, building a holistic picture to identify real as opposed to perceived needs.

Question 15

What is a vulnerable consumer?

Answer 15

The FCA defines a vulnerable consumer as: “someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care”. This can be permanent or temporary.

Question 16

What actions can a firm take to protect consumer vulnerability?

Answer 16

• establish a high level policy on consumer vulnerability • make relevant staff aware of the policy • audit current practice, and continuously evaluate strategies • apply greater flexibility in the application of terms and conditions of products and services • establish a process for referring vulnerable consumers to specialist staff or teams • design products and services in an inclusive way.

Question 17

How does risk profiling work?

Answer 17

Typically, the higher the risk taken, the greater the financial rewards. However, the appropriate level of risk can only be realistically selected once a full account is taken of a client’s personal circumstances.

Question 18

What factors need to be considered for risk profiling?

Answer 18

These can include: age, level of income, protection needs, level of debt, their investment time horizons and future aspirations and capacity for loss.

Question 19

How do risk levels work?

Answer 19

Level of risk is relative to the length of time before returns are required. Eg: pension investments may be more exposed to growth stocks when the investor is far from retirement to maximise returns and move to greater exposure to income stocks as the investor approaches retirement.

Question 20

How is risk managed?

Answer 20

Diversification of investments is key to managing risk exposure, and this is relative to a client’s exposure elsewhere.

Question 21

What’re the consequences of a client declining to provide relevant personal/financial information?

Answer 21

That the product recommended is actually of no use and/or the client’s exposure to risk is magnified, and the client should be advised of this.

Question 22

What should be considered when choosing ethical investments?

Answer 22

There are two main considerations to bear in mind when advising a client about ethical investments. Firstly, the adviser should maintain a focus on what the investment plan is aiming to achieve in terms of capital growth and/or income provision: the more restrictions that are placed on what the fund can and cannot invest in, the higher the risk of underperformance. In the past, the level of risk was also a consideration as reducing investment options, potentially, reducing diversification and increasing risk. However, there are now several discretionary providers offering ethical portfolios.

Question 23

How are ethical investments evaluated in practise?

Answer 23

In practice, ethical funds operate by giving weightings to areas of corporate social responsibility and they rank companies according to those weightings.

Question 24

During the fact find, goals and objectives should be what?

Answer 24

Concise and accurate, but should also be qualified and quantified

Question 25

How should personal/financial issues or problems be listed?

Answer 25

Some issues and problems may appear in the plan as objectives, others may be noted for future action and/or information purposes. The key, again, is to ensure that this is stated for the record.

Question 26

How should recommendations be structured?

Answer 26

Action points should be SMART Specific, Measurable, Achievable, Relevant, Timescaled

Question 27

How should clients’ objectives be listed?

Answer 27

They should be prices and given a priority ranking. It will have to include monetary values and constraints such as ‘by when’ dates where they are known.

Question 28

EG: Exam tip…

Answer 28

When preparing the financial plan for the Diploma in Financial Planning, you must use the client objectives that are given to you and not change these, even if it means that the client cannot achieve all of their goals and objectives.

Question 29

What is the KYC record for?

Answer 29

The KYC record is not just about filling forms to satisfy regulatory bodies. It provides an ongoing and updated bank of information which helps to structure discussions and ensures that the adviser has a permanent record of the client’s financial position at the point in time when the advice is given.

Question 30

What is considered when evaluating a client’s knowledge and experience?

Answer 30

• the nature, volume, frequency of the client’s transactions in investments and the period over which they have been carried out • the level of education, profession or relevant former profession of the client

Question 31

What is prepared, to see the amount of investible capital and surplus income available to meet the client’s goals and objectives?

Answer 31

A net worth statement and an income and expenditure analysis

Question 32

EG:

An example of a net worth statement for a married couple…

Answer 32

Column titles:

First Named / Second Named / Total Worth

Row titles (egs):

Principal residence / Holiday home / Investment property / Personal possessions / Cash Savings / ISAs / Mortgage // TOTAL NET WORTH