Advice - Generic Flashcards
Benefits of receiving and acting upon advice from a qualified financial adviser
- financial goals and priorities will be identified
- benefit from adviser’s research
- will receive help with budgeting/cash flow
- assessment will be made of the suitability of existing arrangements
- tax planning, use of tax wrappers or tax efficiency
- assessment of ATR and capacity for loss
- receive recommendations/create a financial plan
- dealing with professional/knowledge/clarity of explanation
- ongoing service/reviews
- consumer protection/regulated advice
Describe the process that a financial adviser should follow when providing appropriate financial advice
- establish/define relationship/confirm scope of service/fees
- fact find/determine goals and objectives/confirm capacity for loss/ATR
- analyse current situation/existing investments/identify shortfalls
- develop financial plan/research
- present financial plan/recommendations/discuss
- provide key information documents/suitability report
- implement plan/obtain agreement
- monitor financial plan and review
Describe the process an adviser could use to ensure there are sufficient funds under an existing personal pension to provide the required level of target benefits at retirement
- establish the income required, allowing for inflation
- calculate the fund required based on assumed/agreed annuity rate
- allow for pension commencement lump sum requirement
- calculate existing benefits at NRD using assumed or agreed growth rate
- include ongoing funding
- calculate the shortfall and the increased contributions required
- ongoing reviews needed
Describe how cash flow modelling can be used to help plan future income needs
- identifies objectives/targets
- quantifies capital/income required to meet objectives
- identifies required/expected rate of return
- inflation assumptions
- likelihood of achieving objectives
- identifies when clients will run out of money
- structures finances/gives a plan
- use of tax efficient wrappers/pension/ISA
Explain the benefits of a current cash flow statement when devising a financial plan
- shows the difference between income and expenditure
- highlights areas of cost reduction
- identifies opportunities to fill gaps in planning/establish planning budget
- can be used for analyzing future cash flows/retirement cash flows and contingent cash flows/loss of income on ill health/death
- enables clients to understand the long term impact of large expenditure
Explain the limitations of cash flow modelling and why clients should not rely on this as the sole method of planning future income needs
- provides estimates only/snapshot of current situation
- inflation assumptions can be incorrect
- growth assumptions may not be achieved/investment returns not guaranteed
- personal circumstances/objectives can change
- tax rules may change
- ATR may change
- charges/fees can change
- regular reviews required
Factors and assumptions to use when formulating a cash flow model
- target for each objective
- current and future expenditure/income
- term of investment/NRD
- budget/affordability
- fees/charges
- inflation
- ATR/capacity for loss
- expected investment growth rates
- use of tax wrappers/pensions/ISAs
Explain how a lifetime cash flow model could be used to assist Jim and Sandra in meeting objectives
- identify shortfalls
- based on existing portfolio/contributions
- returns required/increased contributions required
- stress test existing portfolio
- apply range of growth rates/based on ATR
- show impact of inflation
- impact of withdrawals/sequencing risk
- can be adjusted/reviewed as circumstances change
Outline the key information that you should take into consideration when building a lifetime cash flow model to help with planning future income needs
- current income needs/future income needs
- planning capital expenditure/new capital
- current assets/current income/level of guaranteed income
- growth rate assumptions/interest rate assumptions/charges
- inflation assumptions
- attitude to risk/capacity for loss
- longevity/health
- market corrections/estimations of market falls/stress test
