Case Study 1 Flashcards
1
Q
Target Date Retirement Fund - overview (7)
A
- Member selects fund that aligns with their retirement date
- first invests in riskier assets and then less volatile as approach retirement
- fund is actively managed (unlike lifestyle) so can account for market movements
- driven by target year and not by members age
- can switch fund if change retirement date
- Vidas likely in growth phase wherein target investment growth that covers inflation + 3% net of charges, has long term volatility of 10-12% and aims for steady real growth through diversification.
- moves into consolidation phase 10 years prior to retirement
2
Q
First time buyers (6)
A
- 0% stamp duty payable on purchases under £300k
- 5% if between £300k-500k
- should not exceed this otherwise will be taxed at normal rates
- their parents lending money for the deposit does not effect first time buyer relief
- can use LISA towards property if not over £450k - may want to consider this otherwise government bonus lost
- may be eligible for help to buy equity loan if purchasing new build (no charges due in first 5 years)
3
Q
JISA - Advantages (6)
A
- Tax efficient and gives potential for investment growth - £100 rule does not apply to income produced from JISAs
- Does not use their allowances
- Range of available funds they can invest in
- £9k per annum likely to be sufficient for further education costs
- Can contribute lump sum or via regular contributions
- anyone can contribute
4
Q
JISA - Disadvantages 6
A
- Children can choose funds from age 16
- No access to funds until child becomes 18
- Is child’s product and they may not use it for education when turning 18 (lack of control for parent)
- investment risk or inflation risk if invested in cash
- charges applicable may be high
- may require advice for investment and most appropriate provider etc
5
Q
Benefits of using a financial adviser (18)
A
- Help the client to identify financial problems and goals
- Identify financial strategies by showing and discussing options available
- Setting priorities in line with clients aims and objectives
- Researching the market for the best products
- Executing the planning as client may not have the time or knowledge to do themselves
- Wealth creation and preservation
- Helps clients to avoid common financial mistakes
- Adviser expertise and regulated advice
- Less admin for client
- they have an adventurous ATR therefore will be able to suggest higher risk investments
- charges review
- financial planning tools available to adviser
- likely to result in improved returns
- ongoing monitoring of investments
- diversification can be achieved
- Review the market for new products
- keep up with changes in taxation and legislation
6
Q
Multi-Asset funds (4)
A
- funds that invest across all asset classes including cash, fixed interest securities ad equities producing diversification
- can also be fund of funds
- tailored to specific risk profiles, here, 40-85% equities would be most suitable for Vatil’s ATR
- also include 0-35%, 20-60% and flexible (up to manager)
7
Q
Benefits of Family-Income Benefit (10)
A
- Tax free income paid out
- sum assured is not limited
- term can be set to match needs
- low cost cover
- can get guarantee premiums
- can be set up under trust
- indexation is available
- meets objectives
- simple underwriting as both in good health
- cannot be cancelled by insurer
8
Q
LISA - Drawbacks (9)
A
- max contribution of £4K
- early access leads to penalties
- penalty on withdrawal exceeds government bonus
- can only use for mortgage or retirement purposes
- investment risk or inflation risk
- may have high charges
- need for financial advice
- limited choice of providers
- add admin as may need to set up another S&S or Cash ISA to fulfil allowance
9
Q
What are advantages of making regular contributions into S&S JISA rather than cash JISA (7)
A
- no prospect for investment growth
- Juna young so long timescale for growth
- pound cost averaging
- benefit from investment volatility
- can stop and start contributions when they want
- assists with budgeting
- reduces risk of poor investment timing
10
Q
What are the risks of relying on death in service benefits for family protection (5)
A
- may lose cover if change/leave employment
- employer can change terms
- benefit level may not be right for requirements
- as based on income, if part-time, level of cover decreases
- only covers death and not long term or serious illness
11
Q
Recommend and justify suitable policies to provide protection in the event of long-term illness or disability (16)
A
- IP policies for both as this pays out tax-free regular income on the event of long term illness or disability
- these should be taken out as single life policies in order to maximise benefits and deferral periods will be different
- the sum assured will be 50-60% of their earnings
- the deferral period should be 6 weeks for Vidas as he receives SSP during this period, and 13 weeks for Viktoria for the same reason
- the term should be to their selected retirement ages
- indexation should be included to ensure benefits keep up with inflation
- the policies should be taken out on an own occupation basis as this increases the chance of a pay out
- guaranteed premiums should be selected in order to maintain certainty of costs throughout the term
12
Q
Recommend and justify suitable policies to protect the family in the event of the death of Vidas or Vik (12)
A
- both should take out level term polices as they provide a tax-free lump sum on their deaths
- these should be in the form of two single life policies, as the amounts needed on death may differ
- the sum assured should at a minimum cover any impending mortgage, and be sufficient enough to provide for the survivor and family
- the term should be until their retirement age, to ensure they are covered up to this point
- the policies should be put into discretionary trusts as this will avoid probate and keep the proceeds outside of their estate
- waiver of premium should be included so they are able to maintain cover in the event that they cannot pay their premium
13
Q
Recommend and justify suitable protection policies in the event of serious illness (16)
A
- they should take out level term standalone CIC for each of them as this will maximise benefits for little difference in cost and pays out a tax free lump sum on the diagnosis of a critical illness
- single life policies should be taken out as amount needed may differ
- the sum assured should be sufficient enough to maintain the families current lifestyle and pay off impending mortgage
- the term of the policy should be to their nominated retirement ages
- they should select premiums to be guaranteed as this allows for certainty of costs throughout the policy term
- waiver of premium should be included to maintain cover in the event that they are unable to pay premium
- should meet ABI best practice guidelines for CIC as this is the best level of protection available
- CIC policies may include child cover and will pay out if their children are diagnosed with a CI
14
Q
State the factors an adviser should consider when identifying a suitable sum assured for life cover and/or CIC (6)
A
- debts
- expenditure
- cost of adapting home for CIC
- childcare costs
- availability of state benefits
- income
15
Q
Assuming they are not yet married and have not drawn valid wills they will; (4)
A
- die intestate
- only inherit jointly held assets
- they are unmarried
- single owned assets will pass to child
