5 - Client Advice Flashcards
What constitutes a ‘certified high net worth investor’?
A person with annual income of £100,000 or more and net investable assets of £250,000
What constitutes a sophisticated investor?
They have a certificate confirming they have been assessed by the firm as sufficiently knowledgeable to understand the risk of a particular investment
A retail investor can be a ‘self certified sophisticated investor’ if they can state at least one of the following …?
• Member of a syndicate of business angels 6 months prior
• Made one or more investments in an unlisted company in past 2 years
• Worked or work for 2 years prior in PE
• For 2 years prior a director of a company with annual turnover of at least £1million.
Promotion of high risk investments have restrictions in what two categories of investments?
Restricted mass market investments (RMMI) - non-readily realisable securities e.g unlisted shares and bonds, crypto assets
Non mass market investments (NMMI)
- non mainstream pooled investments
Speculative illiquid securities
What is principle 12 ?
Consumer principle- ‘firms must act to deliver good outcomes for retail customers’
4 outcomes of the consumer duty rules?
- Products and services
- Price and value
- Consumer understanding
- Consumer support
Consumer duty - 3 obligations?
- A firm must act in good faith
- A form must avoid causing foreseeable harm
- A firm just enable and support retail customers to pursue their financial objectives
Different types of investment risk?
Inflation
Interest
Capital
Shortfall
Credit
Operational
Market
Charges included in ongoing charges?
OCF (ongoing charges figure) includes AMC (annual management charge)
Trading costs - commission to brokers and stamp duty
Fund selection process - what to consider?
Charges
Financial stability of the provider
Past performance
DD in fund selection- stability, independence and standing of trustees, fund custodians and auditors
A review of portfolio is an opportunity to..?
Rebalance
Check for any changes in client circumstances
Monitor investment performance against objectives
Pension scheme tax relief?
Contributions made by individuals received income tax relief
Accumulated interest and gains in the fund are not liable to taxation and part of the proceeds are available as tax free PCLS
HOWEVER pension income is liable to income tax
Pension fund growth is exempt from… (tax)
Income and CGT
Pension act 2008 is?
All eligible job holders between age of 22 and pension age with annual earnings over 10,000 must be enrolled in a scheme
Difference between life assurance companies and pension fund? And how does this impact their investment strategy?
Investment returns are subject to CGT and income tax. They will adjust investment strategy to minimise tax
Primary objective of life assurance and pension funds?
Capital growth (due to long term liabilities)
Life assurance and pension funds also have liquidity requirements - these requirements will be…
greater for a mature pension fund as a greater proportion of members will be in receipt of a pension
AND
Need to be met by holding investments that are liquid by investing in assets that generate income such as fixed income securities
Would a UK pension fund be invested more in equities or fixed income securities and why?
Equities as they offer more long term capital growth ( match long horizon pension fund liabilities)
Why would a uk life assurance company be invested 28% in equities but also 46.5% in fixed income securities (particularly those with over 5 years to maturity) ?
Equities as like pension funds they have long term liabilities
Fixed income securities for a higher degree of certainty of cash flows to match cash flows needed for annuity liabilities
General insurance companies invest more in fixed income or equities and why?
Fixed income as they need short term assets to match the nature of their short term liabilities
Why might a pension fund not be ‘indifferent’ to high and low coupon fixed income securities?
As they can change their investment stances with dividend payments without having to sell existing assets
Fund objectives include :
Liquidity
Time horizon
Tax
Legal and regulatory
Which of the following is least likely to affect client risk profile?
a) Timescale of the investment
b) Whether their objective for investment is income or capital growth
c) If the client is basic or higher rate tax payer
d) The asset allocation of clients existing investments
C the rate of tax is unlikely to affect their risk profile
