Advice process Flashcards
Hourly fees Benefits
Easily understood, transparent, known cost.
Familiar/ same as other professions.
Based on actual work undertaken/amount invested is irrelevant/does not affect the investment value/cheaper for large sums.
A fee cap can be agreed.
Hourly fees Drawbacks
Can be seen as ‘inefficient’/ adviser could run up the clock.
May put off clients from making contact as extra cost involved.
Paid from personal funds/client must write a cheque.
Final costs are unknown can be high costs if small amounts are invested.
Charge may apply regardless of if the advice doesnt go ahead.
Fund based Benefits
May be able to negotiate lower fees. Payment via provider/ not from personal funds. Incentive for adviser to grown funds. Lower fees for lower investment amounts. No charge if advice doesn't proceed.
Fund based Drawbacks
Difficult to predict the costs incurred year to year.
May not reflect the advice provided/time spent by adviser/ could be excessive in relation to the work carried out.
Extra charges may be made for other work/services.
Reduces potential investment growth/fees may be deducted from tax efficient investments.
Higher fees for larger funds invested.
DB transfer process
Clients request for CETV, within 1 month scheme must advice to take financial advice.
Within 3 months of the initial request trustee must issue statement of entitlement which will include transfer value. Statement must be received by the member within 10 days of the GTE date.
Within 3 months of the GTE date the member must make an application to transfer.
The trustees must check advice from FCA authorised adviser has been received.
Transfer must be sent out within six of the GTE date.
Benefits to receiving advice to Nick and Jane
Help prioritise the objectives.
Advice on how much needs to invested to be able to retire at 60.
Use a cash flow forecast to establish the sustainability of their desired lifestyle and longevity.
Use of full tax exemptions and allowances to minimise tax now and in the future.
Review existing holdings and recommend changes in investment strategy - to ensure they meet the couples needs in short and long term.
Help decide if Nick should join employer CIC and PMI schemes and ensure there are sufficient funds to maintain desire lifestyle.
Help establish H&W LPA to help make medical decisions.
Provide advice on suitability of DB pension.
Mitigate IHT liability on second death.
Recommend how and where to gift the funds to son.
Regularly review finances and adjust plans to taken into account changes of circumstances and any changes in legislation
Benefits of using cash flow forecast
Can compare the income N &J will receive with either expected expenditure.
Can stress test different scenarios to illustrate the impact of various future events and the ability to cover their outgoings.
This will identified any potential shortfalls and put plans in place to avoid this occurring.
Cash flow allows various assumptions to be made, assumptions for inflation and growth.
These can be adjusted as circumstances change/based on actual inflation figures/growth achieved to ensure figures are meaningful.
Cash flow can help determine a suitable asset allocation for N & J investments.
Risks of relying on cash flow
Assumptions can be incorrect.
Requires regular reviews
Objectives and circumstances can change. Cash flow returns are linear.
Tax rules/rates are likely to change.
Doesn’t allow for market risk/systemic risk/ political risk.
Does not consider liquidly of investments. Liquidity risk.
Stress testing cash flow forecast
Permanent loss of income source/capital assets (market crash)
Future returns are lower than forecasted.
Income requirements are higher than forecast
Large unplanned capital withdrawal
Inflation higher than forecasted.
Living longer than expected.
Adverse change in personal circumstances. Death/Divorce.
