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AF7 > AF7 > Flashcards

AF7 Flashcards

To prepare for the CII AF7 examination

1
Q

What is the key documentation that an adviser should retain on file for compliance purposes in respect to defined benefit transfers?

A
  • Client Factfind
  • Defined benefit transfer specific client questionnaire
  • Disclosure documentation
  • TVAS Report
  • Statement of entitlement
  • Ceding scheme information
  • Recommended plan research
  • Suitability report
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2
Q

As per COBS 19.1.2 and regarding Appropriate transfer value analysis (APTA), the comparison must…

A
  • Ensure there is sufficient information for the client to make an informed decision.
  • Draw the client’s attention to the factors that do and don’t support the firms advice.
  • Be presented to the client in good time, and no later than when the key features document is provided.
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3
Q

The FCA rules do not stipultate a specific format of the comparison, however COBS 19.1.13 states that the comparison should….

A
  • Take into account all of the client’s relevant circumstances
  • Examine the benefits provided by the ceding scheme, and the effect of replacing them with the benefits of the proposed scheme
  • Explain the assumptions on which the analysis is based and the rates of return required to match the benefits being given up
  • Use rates of return to illustrate potential benefits which take into account the likely expected returns of the assets invested
  • Make a comparison with the benefits available from crystallisation at normal retirement age under that scheme where an immediate crystallisation of benefits is sought prior to that age.
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4
Q

If the ceding scheme is a defined benefit scheme the comparison must use assumptions as stipulated by COBS 19.1.14 what do the assumptions refer to?

A
  • Annuity interest rate
  • The Retail Price Index (RPI)
  • Average earnings index and rate for S148 orders
  • Annuity interest rate for post-retirement limited price indexation
  • Mortality rates
  • The Consumer Price Index (CPI)
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5
Q

While there are no specific rules regarding the format or contents of the suitability report it is expected to include…

A
  • A summary of the advantages and disadvantages of the personal recommendation
  • An analysis of the financial implications if the recommendation is to opt out
  • A summary of any other material information
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6
Q

The suitability of the advice should be…..

A

Based on the client’s entire personal and financial circumstances and make specific connections to their quantified needs and objectives

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7
Q

When a firm is identifying the risk factors that could be present with a client what risk factors is the firm looking to cover?

A
  • Client’s state of health
  • Loss of any guarantees
  • Whether the client has a partner or dependents
  • Inflation
  • Whether the client has a partner or dependents
  • Sustainability of income retirement
  • Tax implications
  • Charges
  • Impact of means-tested benefits
  • Debt
  • Investment scams
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8
Q

When is there no requirement for a firm to ask the client questions to identify whether any risk factors are present?

A

Where the client’s pension savings is £10,000 or less and there are no safeguarded benefits.

Instead the firm must provide risk warnings relevant to each pension decumulation product it offers.

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9
Q

If a client has decided to access their pension through the various decumulation ways, what next steps must the firm take?

A
  • Has the client received guidance or regulated advice?
  • What are the risk factors?
  • Provide the suitable risk warnings in relation to the risk factors identified.
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10
Q

How long should the firm hold records relating to pension transfer advice?

A

Indefinitely

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11
Q

With relation to the ‘Pension reforms and insistent clients’ factsheet published by the FCA, what three-step process must firms adopt when advising an insistent client?

A
  • Provide advice that is suitable to the individual client in line with the normal advice process
  • Make clear the risks of the alternative course of action
  • Make clear that their actions are against the advice provided by the firm
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12
Q

When seeking to draw conclusions about the suitabilty of the pension transfer, a pension transfer specialist should….

A
  • Review the proposed scheme and investment relative to both the client’s attitude to transfer risk and their attitude to investment risk.
  • Ensure that the potential returns and all relevant charges for the proposed scheme and investments have been appropriately taken into account in the APTA
  • Consider whether there are alternative solutions that could meet the client’s needs and objectives, either with less risk or without giving up the safeguarded benefit.
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13
Q

How are flexible benefits defined?

A

Money purchase benefits that can access pension flexibilties as defined within the Taxation of Pensions Act 2014

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14
Q

How are safeguarded benefits defined?

A

Benefits that are not money purchase or cash balance benefits. they include defined benefits, guaranteed pensions includiong guaranteed minimum pensions (GMPs) and guaranteed annuity rates (GARS)

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15
Q

If the scheme receives a member’s transfer request, how long does the scheme have to notify the member that they need to take advice?

A

1 month

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16
Q

When a member requests a transfer, how long does the scheme have to provide the member with a transfer value?

A

3 months

17
Q

When must the member be given a Statement of Entitlement?

A

Within 10 days of the guarantee date of the transfer value

18
Q

If the trustees are happy that advice has been given to the member then how long do they have to make the transfer?

A

Within 6 months of the guarantee date of the transfer value

19
Q

If a CETV is below £30,000 do the scheme timescales change when providing information to the client?

A

No there will be the same timescales although no advice will be required

20
Q

When must the scheme inform TPR with regards to a member’s pension transfer?

A

If the transfer exceeds the lower of £1.5m or 5% of scheme assets

21
Q

If the transfer has been instigated by the employer, who would pay the advice fees and how would the adviser be chosen?

A

The employer would be expected to pay and they can either arrange the adviser themselves or pay for the member’s choice of adviser

22
Q

When calculating a Cash Equivalent Transfer Value (CETV) what are the two methods that the scheme can choose to use?

A
  • The best estimate method

- An alternative method

23
Q

Who’s responsibility is it when calculating the CETV?

A

The trustees

24
Q

What is the best estimate method?

A

The scheme gives its best estimate of the cost of providing the member’s benefits under the scheme

25
Q

What is an alternative method?

A

The scheme trustees wish to pay a transfer value over the minimum amount

26
Q

What are the steps taken by the scheme when calculating a CETV using the best estimate method?

A
  • Calculates preserved pension entitlement at the date of leaving service
  • These benefits are revalued to the scheme normal retirement date
  • If the scheme gives the member ‘options’ these will need to be taken into consideration
  • If the scheme provides discretionary benefits the trustees need to decide whether to consider them in the CETV calculation
  • The resulting ‘pension at retirement’ is converted to a capital value
  • This is then rolled back to now using a ‘discount rate’.
27
Q

When could it be appropriate to use an alternative method when calculating the CETV and thus providing a higher value for the member?

A
  • The scheme rules require it
  • There is a surplus in the scheme
  • The employer asks the trustees to do it
28
Q

If an alternative method for calculating the CETV what should the trustees consider?

A

Whether doing the calculation on a more generous basis would prejudice the rights of the remaining members

29
Q

Why would the trustees decide not to reduce a CETV even though there is underfunding within the scheme?

A
  • The employee/employer covenant is so strong that it would not be appropriate
  • The employer wishes to encourage transfers out and is willing to make up the shortfall to keep attractive transfer values
  • The scheme is on a recovery plan and there is not long left on that plan
  • The underfunding is not that large and so it is manageable
30
Q

The international standards organisation (ISO) sets out a 6-step process for financial planners to follow in advising clients. What are the 6 steps?

A
  • Establishing and defining the personal financial planning relationship
  • Gathering client data and determining goals and expectations
  • Analysing and evaluating the client’s financial status
  • Developing and presenting a financial plan
  • Implementing the financial planning recommendations
  • Monitoring the financial plan and the financial planning relationship

AF7 (1 decks)

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