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CFP > CFP > Flashcards

CFP Flashcards

1
Q

6 steps financial planning process

A
  • establish / define client relationship
  • collect clients info
  • analyse and assess clients financial status
  • develop and present
  • implement
  • review
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2
Q

SMART objectives

A
  • specific
  • measurable
  • actionable
  • realistic
  • time-based
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3
Q

Conflicts x 4

A
  • financial gain or prevent loss
  • has an interest on outcome
  • incentive in favour of another
  • receives an inducement
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4
Q

Key reasons why markets and economy move independently x 2

A
  • relative size

- time lag

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5
Q

DOTAS

A

Disclosure of tax avoidance scheme’s

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6
Q

State triple lock

A
  • CPI
  • average earnings growth
  • 2.5%
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7
Q

Rule 72 - time to double

A

72/ rate of interest

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8
Q

Discounting formula

A

FV = PV x (1 + r)n

PV = FV / (1 + r)n

r = (FV/PV)1/n - 1

n = log(FV/PV)/log(1+r)

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9
Q

Fifth variable

A

FV= PV(1+r)n + PMT((1+r)n -1 )/r)

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10
Q

Debt to asset ratio

A

Liabilities / net worth

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11
Q

Current ratio (basic liquidity)

A

current assets / current liabilites

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12
Q

Liquidity ratio

A

Liquid assets / monthly expenses

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13
Q

Debt service ratio

A

Monthly credits payments/ take home

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14
Q

Savings ratio

A

Savings / gross income

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15
Q

Quick Succession relief

A

(Gross gift - tax paid on inheritance) / gross gift
X tax paid on inheritance x %

5 years

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16
Q

Furnished holiday let

A

Available 210 let 105

Over 31 long term no more than 155

UK/ EEA

Relevant for pensions
Cgt rollover, holdover and business asset relief. Defer gains. Iht bus relief after 2 years

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17
Q

Residence ties x 5

A
  • spouse, minor children in uk
  • available uk residence for 91 days stayed in 1
  • work 40 days in uk
  • spent more than 90 days in the UK in either of the past 2 tax years
  • spent more time in uk than other countries
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18
Q

UK domicile

A

15/20 tax years in UK

Remains after leaving UK
6 years for income and cgt
4 years iht

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19
Q

MPT

A
  • Max returns min risk
  • risk measured by standard deviation
  • diversification is key
  • combine negative correlated assets
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20
Q

Standard deviation

A

1 - 68%
2- 95%
3 - 99%

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21
Q

Sharpe ratio

A
  • compare fund managers
  • risk adjusted return
  • excess return for every unit of risk

R - rf / sd

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22
Q

Info ratio

A
  • Compare to benchmark
  • risk adjusted return
  • negative better in a tracker

Rp - Rb / tracking

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23
Q

Interest / running yield

A

(Coupon / price) x 100

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24
Q

Gross redemption yield of bond

A

Calculate interest yield

Then

(Profit (or loss) to redemption / years)/ clean x 100

Add together

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25
Q

Interest payment types for bonds

X 9

A
  • floating rate
  • step up
  • credit linked
  • payment in kind
  • differed
  • index linked
  • zero coupon
  • dual currency
  • fixed
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26
Q

AER of bond

A

AER =

[1+(flat rate/n)]^n - 1

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27
Q

Modified duration

A

Md = macaulay/ (1+r)

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28
Q

Costs of buying selling shares

A

Buying
Commission and broker
Panel and takeover levy £1 over 10k
Private equity paper Stamp duty 0.5% above 1k to nearest £5
SDRT on all to nearest 1p crest aim exempt

Selling
Commission and broker
PTM
CGT

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29
Q

Types of preference share x 4

A

Cumulative
Non Cumulative
Convertible
Participating

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30
Q

Dividend yield

A

Net div per share / current price

X 100

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31
Q

EPS Earnings per share

A

Profit to ordinary / no of shares

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32
Q

Dividend cover x 2 equation

A

EPS / div per share

Or

Profit to ordinary / total div paid

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33
Q

Price / earnings ration P/E

A

Market price / EPS

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34
Q

NAV

A

Net assets for ordinary / number of ord shares

Net assets = assets - liabilities - pref shares

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35
Q

Interest cover

A

Earnings before int and tax / interest

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36
Q

Price to book ratio

P/B

A

share price / equity book(assets - liab)

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37
Q

P/E to growth PEG

A

P/E / earnings growth

1 or below or over priced

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38
Q

EIS

A 
Tax free in product
Dividends taxable
CGT free if held 3 years
30% tax relief max cont £1mill
Relief carried back 1 year max
Unlisted
Qualifying trade
Gross assets must not exceed 15mill /16mill after
Fewer than 250 employees
IHT exempt after 2 years
Max raise 5mill py or 12 lifetime
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39
Q

SEIS

A 
tax free in product
Dividends taxable
CGT free after 3 years
50% tax relief up to £100k
Fewer than 25 employees
UK based
Under 2 years old
Trade in approved sector
Not raise note than 150k via seis
No more than 200k gross assets
Not controlled by investor receiving their capital
Investors can't have more than 30%
CGT - no deferral. 50% exempt
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40
Q

VCT

A

Income tax free
CGT free
30% tax relief on £200k
Held 5 years
- listed on stock exchange
- income must be from shares / securities
- 70% qualifying holdings
- not more than 15% in one company
- at least 30% of qualifying holdings must be new ordinary shares and at least 10% per company
- cannot invest more than £1m in any single qualifying conpany each year
- not exempt from IHT

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41
Q

What is an ETF

A
  • Trades like a normal share on LSE
  • invests in diversified mix
  • low cost
  • shares / commodities/ fixed income
  • liquid
  • diversification
  • no stamp duty
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42
Q

Types of etf

8 + 2

A
  • index
  • commodity
  • bond
  • currency
  • actively managed
  • hedge fund
  • leveraged
  • smart beta
  • physical / synthetic
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43
Q

Hedge funds

A

Unconventional investment styles

  • long / short
  • relative value - price anomalies/ arbitrage
  • event driven

High costs
Little regulation
High entry levels

44
Q

3 principles of money management

A
  • save and invest
  • plan for future
  • budgeting and debt man
45
Q

Market value of property equation

A

Value = NOI/(r-g)

NOI -net operating income
r - required return on real estate
g - growth rate applicable to NOI

46
Q

REITS

A
  • closed ended
  • listed on recognised exchange
  • uk resident
  • 1 class of share
  • 75% profits from rental
  • at least 3 properties
  • min interest cover 1.25

Ring fenced property let

  • exempt from corporation tax
  • 90% rental profits paid 12 months
  • payments paid net 20%

Non ring fenced
- subject to 19% corporation tax

47
Q

Property Authorised investment funds (PAIFs)

A
  • can invest in uk and non UK reits
  • rental income exempt from tax in fund
  • dist net basic tax
  • other income 20% Corp tax
  • OEIC
  • 60% from exempt property business
  • property must be 60% of assets
  • shares widely held and no corporate can own more than 10%
48
Q

IPS
Investment policy statement content
X5

A
  • clients background and circumstances
  • risk and return objectives
  • portfolio constraints
  • operational guidelines for constructing a portfolio
  • guidelines for monitoring and review
49
Q

Wol

X4

A
  • non profit
  • with profits - reversionary / terminal bonus , MVRs
  • low cost
  • unit linked - reviews 10 then 5
50
Q

Term assurance

X7

A
  • level term
  • increasing term
  • renewable- no more uw
  • convertible - wol / endowment
  • decreasing
  • family income benefit
  • unit linked - sell units to fund life
51
Q

Life assurance qualifying rules

X6

A
  • min 10 years or 3/4 term
  • premiums paid at least annually
  • min life assurance of 75% of premiums
  • no premium more than double any other
  • no premium more than 1/8 of total premiums paid
  • max 3600 per annum
52
Q

Quick Succession relief

A

(Gross gift - tax paid) / gross gift

X tax paid x %

53
Q

Business relief

A

100%

  • interests in unincorporated business
  • shareholding in unquoted or AIM

50%

  • shares controlling more than 50% voting rights in fully listed company
  • land, buildings, plant and machinery used for business controlled by donor

Needs to have owned for 2 years

54
Q

Discretionary trust tax

A 
£1000 standard rate
7.5 % / 20 %
38.1% / 45%
CGT £6,150
Expenses can be relieved
Must make sure enough in tax pool
30% of trust charge 20% = 6% 10 year
Exit x/40 3 month periods x 30% of effective rate
Stamp duty add 3%
Cost are grossed up
55
Q

Diff between financial and money management

A

Financial - management of financial assets

Money - involves managing both financi and non financial

56
Q

Networth statement

A

Summary of capital resources available to achieve goals

57
Q

Duty of care x 7

A

1- behave like a fiduciary - best interest
2- act in accordance with professional expectations
3- full and appropriate disclosure
4- act with transparency
5- manage conflicts of interests
6- secure fully informed client consent
7- communicate the remuneration model

58
Q

Risk profiling x 3

A
  • psychometric tests
  • stochastic modelling
  • scenario based models
59
Q

Objectives should be

X 2

A
  • quantified

- qualified

60
Q

3 financial management statements

A
  • net worth
  • income tax
  • income and expenditure
61
Q

Financial life cycle

A
  • wealth creation
  • retirement
  • legacy planning
62
Q

Conflicts of interest x 4

A
  • financial gain or avoid a lossat expense of a client
  • interest in the outcome of the service or transaction carried out distinct from clients interest
  • financial incentive to favour a or group of clients
  • relieves inducement such as money or services other than standard commission
63
Q

Lifetime isa

A
  • £4000 pa
  • 25% bonus annually
  • 18-39
  • receives bonus on contributions to age 50
  • retirement or first property
  • 25% penalty If withdrawn before 60
64
Q

Pension tapered allowance

A

Threshold income 200k

Adjusted income 240k

65
Q

Iht excemptions x 11

A
  • spouse / civil partner - unlimited exempt during life and death. Non domicile restricted to 325k. Could elect to be domiciled
  • 3k annual
  • 250 small gifts
  • 5000 parent wedding
  • 2500 grandparent
  • 1000 anyone else
  • gifts for maintenance/ education
  • normal expenditure from income
  • national benefits
  • armed forces
  • charity
66
Q

Business asset disposal relief / investors

A
  • sells shareholding in business min 5%
  • held min 2 years
  • £1,000,000
  • 10%
  • sells shares in unlisted companies
  • no employees or remunerated director
  • min years
67
Q

Benefits of financial planning x 10

A
  • peace of mind
  • security
  • clarity
  • organisation
  • professional relationship/ expertise
  • efficiency
  • improved knowledge
  • help with decision making
  • ongoing reviews
  • enhanced understanding
68
Q

Factors that affect emergency fund

X 7

A
  • security of income and ease to replace
  • expenditure levels
  • protection provisions
  • access to other capital or income
  • age
  • attitude to risk
  • level of income
69
Q

Processing data is lawful if at least 1 x 6

A
  • data subject has given consent
  • necessary for a contract
  • legal obligation or compliance
  • necessary for vital interests
  • to complete a task in the public interest
  • interest by data controller
70
Q

Ethical considerations x 5

A
  • conflict of interest
  • limits of authorisation
  • limits of competence
  • clients mental capacity
  • clients vulnerability
71
Q

Key points on net worth statement x 5

A
  • date
  • name of client
  • assets grouped to identify sow
  • liabilities are detailed
  • explanatory notes
72
Q

Factors causing increased financial planning x 8

A
  • increase longevity
  • lifestyle changes
  • pension complexity
  • legislation changes
  • need for care
  • generational planning
  • low return environment
  • financial awareness
73
Q

What hinders effective money management x 8

A
  • desire for instant gratification
  • present rewards more attractive
  • difficult to relate to future
  • lack of financial literacy
  • debt / overspending
  • no savings / emergency fund
  • not budgeting
  • no protection against catastrophic events
74
Q

What duty of care x 7

A
  • behave like a fiduciary
  • act to professional expectations
  • full and appropriate disclosure
  • transparent
  • manage conflict of interest
  • secure client consent
  • communicate charges
75
Q

Principles of processing data x 6

A
  • consent
  • accuracy
  • storage limitation
  • integrity
  • confidentiality
  • accountability
76
Q

3 principles of money management

A
  • save and invest
  • plan for the future
  • budgeting and debt management
77
Q

Financial planning if health deteriorated x 5

A
  • will
  • LPA
  • IHT planning
  • care fees planning
  • dispose of assets to reduce admin
78
Q

3 ways to manage a conflict of interest

A
  • open discussion about the conflict
  • provide options
  • resolve before proceeding
79
Q

Cognitive errors x 6

A

Arise from faulty thinking due to incomplete information, inability to analyse

  • confirmation bias - evidence
  • conservatism bias - new info
  • hindsight bias - false confidence
  • anchoring
  • mental accounting
  • framing bias
80
Q

Emotional biases

A

Personal feeling affect judgement

  • loss aversion - more risk to reduce loss
  • over confidence
  • anchoring - stick to original estimates
  • regret aversion
    , endowment - value more when we contril
81
Q

Investment policy statement x 7

A

Documents between portfolio manager and client outline general rules for the manager

  1. Understand clients circumstances/goals
  2. Purpose of portfolio
  3. Risk and return expectations
  4. Time horizon
  5. Diversification policy
  6. Rebalancing and review
  7. Investment philosophy
82
Q

UK residence test

A

No

  • less than 16 days or 46 if not been classed as resident for 3 years
  • work full time abroad, in uk less than 91 days and worked less than 30

Yes

  • 183 days or more
  • only home is in uk spent at least 91 days there of which 30 this tax year
  • work full time in the uk
83
Q

Purpose of a financial plan

A

Comprehensive picture of assets, goals , strategies

Road map, needs objectives, available resources, required risk and actions

84
Q

Characteristics of a financial plan

A
  • SMART
  • Written
  • identify obstacles and ways to overcome
  • time bound
  • regular review
  • dynamic / flexible
85
Q

Process of financial plan x 6

A
  • net worth statement
  • income and expenditure statement
  • rpq and cfl
  • cashflow modelling
  • recommendation
  • action plan
86
Q

3 stages of life

A
  • foundation
  • accumulation (early and late)
  • maintenance
87
Q

Domicile status

A
  • origin
  • dependency
  • choice
  • deemed
88
Q

Personal risk management x 5

A
  • human capital (present value of future earnings)
  • financial dependents
  • mortgage on family home
  • low financial resilience
  • asset protection
89
Q

Methods of life insurance calculation x 4

A
  • rule of thumb - multiple of earnings
  • human capital approach
  • capital retention (net worth)
  • needs approach
90
Q

3cmost important insurance fir family with dependents

A
  • term life insurance- debts
  • income protection
  • family income benefit
91
Q

Purposes of a trust x 4

A
  • safeguard wealth for minor
  • protection of assets ( separate, bankruptcy)
  • life policies pay out maximum
  • ensure benefactors wishes are done
92
Q

Child benefit

A
  • £21.15 21.05

- £14 13.95

93
Q

Married couples allowance

A

£353 - £912.50

94
Q

Purchased life annuity

A
  • must be grossed up

- then tax deducted as done from source

95
Q

Maximum interest that can be deducted

A

Higher of 50k or 25% net adjusted

96
Q

Key investment risks of AIM shares x 5

A
  • liquidity
  • diversification
  • event risk
  • regulatory risk
  • taxation / legislation - reliefs
97
Q

3 key areas in discovery meeting

A
  • whether financial planner can help
  • identify any conflicts of interest
  • scope of engagement
98
Q

3 types of savings

A
  • contractual
  • discretionary
  • residual
99
Q

Efficient frontier limitations x 5

A
  • assumes SD is sound risk indicator
  • difficult to consider SD with risk profile
  • assumes normally distributed returns
  • historic data
  • transactions cost excluded
100
Q

CAPM

Equation + 8 assumptions

A

R = Rf + B(Rm - Rf)

  • rational and risk adverse
  • decisions made on risk and return alone
  • all have same holding period
  • many buyers and sellers
  • noone can affect price
  • no taxes, costs or restrictions
  • info is free and widely available
  • unlimited funds can be borrowed at Rf rate
101
Q

Income protection types x 5

A
  • standard
  • limited term
  • day one / back to day
  • investment linked
  • unemployment policies
102
Q

Human capital

A

Present value of future earnings

103
Q

Utility

A

Satisfaction

U = Er - 1/2Aó2

O2variance
A Aversion factor

104
Q

Auto enrolement x 6

A
  • Enrol every 3 years
  • 22 years to state
  • trigger 10k
  • work in uk
  • can ask if earn above low earnings
  • 8 % (3 employer)
105
Q

AER equation

A

AER= (1+ r/n)n - 1

106
Q

Life cycle

A

Borrowing
Accumulation
Decumulation

107
Q

Fees x5

A
  • fixed/ flat fee
  • %
  • hourly
  • mix
  • commision

CFP (1 decks)

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