Chapter 1 - Financial Planning Fundimentals

Question 1

What does financial planning focus on

Answer 1

It focuses on individuals planning for the future.

Question 2

What are the key principles of financial planning

Answer 2

Financial understanding
Managing budgets
Creating emergency fund
Protecting income
Protecting dependants after death
Choosing investments based off risk
Planning for retirement
Reducing tax liability

Question 3

What is the planning process made up of

Answer 3

6 steps
Establish relationship
Collect information
Analyses current position
Develop recommendation
Implement
Review regularly

Question 4

Planning vs advice

Answer 4

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.

Question 5

Reason for the review

Answer 5

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.

Question 6

What to give the client other than the plan

Answer 6

Client agreement
Suitability report
Product information
Costs
Key features
Illustrations

At a min there needs to be a summary to the client in writing.

Question 7

What to give the client other than the plan

Answer 7

Client agreement
Suitability report
Product information
Costs
Key features
Illustrations

Question 8

What are the key components of a financial plan

Answer 8

It should include
State current position
Evaluation of current solution
State the goals and objectives
Demonstrate any shortfall
Recommend solution
Highlight advantages and disadvantage

Question 9

An in-depth plan will cover

Answer 9

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

Question 10

Nature of the relationship a planner has

Answer 10

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.

Question 11

FCA 12 principles of business

Answer 11

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

Question 12

Senior managers regime principles

Answer 12

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.

Question 13

The financial planning standards boards code of conduct

Answer 13

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

Question 14

CPD

Answer 14

All advisors must do 35 hours of CPD and pension transfer specialist must do an adiitioional 15 extra

Question 15

Terms of business and their content.

Answer 15

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

Question 16

Gathering information on your customers

Answer 16

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.

Question 17

Open vs closed questions

Answer 17

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.

Question 18

CIVS

Answer 18

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.

Question 19

Key drivers of vulnerabilities

Answer 19

Health
Life
Resilience
Capability

Question 20

Biases in finance

Answer 20

Hindsight
Regret
Loss aversion
Anchoring
Confirmation
Framing
Overconfidence
Herding

Question 21

Risk profiling and its three aspects

Answer 21

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.

Question 22

Financial planning falls into 4 areas

Answer 22

Protection
Pensions
Savings and retirement
Este planning.

Question 23

Affordability and suitablitlity

Answer 23

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.

Question 24

ESG

Answer 24

A disclosure document will help and advisor when it comes to to ESG and help with achieving the investors goals with it.

Question 25

ESG funds

Answer 25

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.

Question 26

Different types of advice

Answer 26

Regulated advice is by a qualified regulated under ideal
Guidance is where an investor is helped to make an informed decision.

Question 27

Government bodies dealing with advice

Answer 27

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.

Question 28

Government bodies dealing with advice

Answer 28

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.

Question 29

The clients current circumstances

Answer 29

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.

Question 30

Income and expenditure

Answer 30

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.

Question 31

Calculating cash flow at key life stages

Answer 31

Marriage
Children
Divorce
Retirement
Disability
Death

Question 32

Time value of money

Answer 32

Trying to calculate the value of clients money in the future and how this factors into their plans.

Question 33

SMART

Answer 33

Specific
Measurable
Achievable
Realistic
Timely

Question 34

Establishing goals and objectives

Answer 34

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

Question 35

FCA breakers down expenditure

Answer 35

Essential
Lifestyle
Discretionary

Question 36

Analysing excising financial arrangements

Answer 36

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

Question 37

Assumptions of a financial plan

Answer 37

Return
Future inflation
Earning growth

Question 38

Tax status considerations to make

Answer 38

Income tax
National insurance
CGT
IHT
Annual allowence