Chapter 1 - Financial Planning Fundimentals Flashcards
What does financial planning focus on
It focuses on individuals planning for the future.
What are the key principles of financial planning
Financial understanding
Managing budgets
Creating emergency fund
Protecting income
Protecting dependants after death
Choosing investments based off risk
Planning for retirement
Reducing tax liability
What is the planning process made up of
6 steps
Establish relationship
Collect information
Analyses current position
Develop recommendation
Implement
Review regularly
Planning vs advice
Planning is is a plan actions dover time with long term objectives in mind where as advice is about the now and what to do with the current situation.
Reason for the review
Make sure the objectives are still being met and also that any prevouise assumptions were true. Also lets clients explain any changes that might effect the plan.
What to give the client other than the plan
Client agreement
Suitability report
Product information
Costs
Key features
Illustrations
At a min there needs to be a summary to the client in writing.
What to give the client other than the plan
Client agreement
Suitability report
Product information
Costs
Key features
Illustrations
What are the key components of a financial plan
It should include
State current position
Evaluation of current solution
State the goals and objectives
Demonstrate any shortfall
Recommend solution
Highlight advantages and disadvantage
An in-depth plan will cover
Objectives and priorities
The assumptions made
Attitude to risk
Capacity for loss
Net worth
Income and expenditure
The reccomodation
Disadvantages
Other issues
Action plan
Reviews
And key contact for the client
Nature of the relationship a planner has
They are a qualified professional being paid for their skills so they have a duty of care. The two main areas are
Regulatory duty
Contractual duty.
FCA 12 principles of business
Integrity
Due silly and dudiligence
Organise its affairs responsibly
Have financial recourses
Standard of market conduct
Pay regard to the interest of its customers
Manage conflicts
Suitability of advice
Protecting clients
Deal with regulators openly
Deliver on good outcomes for customers
Senior managers regime principles
There are 5 of them
Integrity
Due still and attention
Be open
Pay regard to the interprets of customers
Observe proper standards of market conduct.
The financial planning standards boards code of conduct
Client interest first
Professional service with integrity
Service must be objective
Be fair and reasonable
Have professional conduct
Maintains their abilities
Protecting confidentiality
Provide their service diligently
CPD
All advisors must do 35 hours of CPD and pension transfer specialist must do an adiitioional 15 extra
Terms of business and their content.
This is what the client signs and agrees to the the firm doing for them.
It includes
Statutory disclosure
NatWest of service
Regeneration
Expections of the client
Frequency of reviews
Client categorisation
Complaints process
Protection
Conflicts
GDPR
Right to cancel
Gathering information on your customers
The GCA requires business to go through KYC and also regulated planners need this information to be able to make informaed recommendations. Both personal and financial information should be gathered.
Open vs closed questions
Open = this cannot be answered with just a yes or not and the client needs to provide some information on their answer. Ie what do you think.
Closed = this determines very straightforward information.
CIVS
Defined as
Someone because of their own personal circumstances is especially susceptible to harm partucualry when a firm is not acting with any appropriate levels of concern.
Key drivers of vulnerabilities
Health
Life
Resilience
Capability
Biases in finance
Hindsight
Regret
Loss aversion
Anchoring
Confirmation
Framing
Overconfidence
Herding
Risk profiling and its three aspects
Appetite for risk - this is the amount of risk someone is willing to take on.
Risk tolerance - this is the amount of variability in investment return can have for an investor before it is unsuitable
Capacity for loss - this is about how much an investor can afford to loose.
Financial planning falls into 4 areas
Protection
Pensions
Savings and retirement
Este planning.
Affordability and suitablitlity
This is about making sure investments are suitable for the investors needs and not just achieving their goals. But also are they affordable in line with the goals.
Cash flow forecasting is very important in this section.
ESG
A disclosure document will help and advisor when it comes to to ESG and help with achieving the investors goals with it.
ESG funds
These are funds that give weighting to companies and practises that support ESG. And are categorised in shaded of green based on their weighting. Light being the lowest.
Different types of advice
Regulated advice is by a qualified regulated under ideal
Guidance is where an investor is helped to make an informed decision.
Government bodies dealing with advice
The money advice service
Pension wise
Pension advisory service
These all merged into the temporary single financial guidance body. This body will deliver free and impartial advice in a streamlined service. In 219 the money and pension service replaced the temporary body.
Government bodies dealing with advice
The money advice service
Pension wise
Pension advisory service
These all merged into the temporary single financial guidance body. This body will deliver free and impartial advice in a streamlined service. In 219 the money and pension service replaced the temporary body.
The clients current circumstances
A key part of financial planning is the current situation ie
Assets
Liabilities
Income
Health
Attitude to risk
Capacity for loss
Also getting a net worth statement can be very helpful. Only including factors currently applicable to their net worth.
Income and expenditure
This is the incoming and outgoing of the client over the next 12 months. There is earned income and unearned income. You need the details of each.
This helps calculate tax position. Which is important when recommending investments.
Calculating cash flow at key life stages
Marriage
Children
Divorce
Retirement
Disability
Death
Time value of money
Trying to calculate the value of clients money in the future and how this factors into their plans.
SMART
Specific
Measurable
Achievable
Realistic
Timely
Establishing goals and objectives
This is the impart ant stage of the planning as it sets out what the plan needs to achieve. This is where you would use SMART
FCA breakers down expenditure
Essential
Lifestyle
Discretionary
Analysing excising financial arrangements
This is a key part of the planning, looking at excising arrangements and analysing there suitability in line with the clients objectives and investments.
This is where you would use gap analysis. To identify shortfalls in
Emergency fund
Protection
Long term savings
Retirement
Assumptions of a financial plan
Return
Future inflation
Earning growth
Tax status considerations to make
Income tax
National insurance
CGT
IHT
Annual allowence
