Chapter 11: Financial Advice Flashcards
what is involved in accidnt and sickness cover?
provides for income or some sort of lump sum in the event of an accident or some sort of illness.
what is medical insurance?
intended to cover the cost of medical and hospital expenses, may be taken out on individuals or provided as part of an individual’s employment. costs covered are closely defined, limits on payouts
what is long term care cover?
cover that provides the funds needed in later life to meet the cost of care, value depends on amount of state funding available. expensive and premiums will be paid as income that can be used to cover the expenditure#
what does business insurance provide?
cover for claims against faulty work/goods, protecting loans, providing income in case of lack of ability to work, payments if a key business member/ shareholder dies
what is compound interest?
interest on interest already earned
how dos the UK govt define ‘saving’?
putting money aside without risk
what investing involve?
committing money into an investment vehicle in the hope of making a financial gain, greater level of risk than saving. should be for the longer term, and suitable if the individual already has enough savings for 3-6 months of living expenses
what are the characteristics of later-life planning?
building up capital to have the ability to enjoy rather than endure retirement where a worthwhile income will be accessible
what is estate planning?
making sure that a client takes appropriate steps to ensure that their accumulated wealth passes to their intended beneficiaries. involves determining who will inherit the assets and capital left behind and steps that can be taken to reduce taxes
what is the definition of a will?
a legal document that specifies what is to happen to an individual’s assets on their death, if no will is made, the legal system decides who inherits
what is tax avoidance?
legal exploitation of the tax system to one’s own advantage to reduce the amount of payable tax
what is tax evasion?
effort by individuals and other entities to evade the payment of taxes by illegal means
what is the worldwide system of taxation?
residents of a country are taxed on their worldwide income and capital gains irrespective of where their income or gains arise e.g., UK, US, Germany
what is a territorial based tax system?
residents are only taxed on income and capital gains arising in that country
what is a legal person?
an individual or entity that is recognised as having legal rights and obligations
what is the definition of an individual?
acquire their status as legal persons when they are born
what does ‘executing power of attorney’ mean?
an individual has signed a legal document which authorises someone to act on their behalf
what is the ordinary power of attorney?
authorises one or more persons to make financial decisions on behalf of an individual
what is lasting power of attorney?
where an individual authorises one or more persons to make financial/ health and care decisions on their behalf. must be registered with the Office of the Public Guardian and then submitted to financial institutions to show the attorney’s authority
what is a deputy order?
where a LPA is issued as someone has become mentally incapable of managing their financial affairs
what is the role of a personal representative?
they collect the assets, settle any debts and distribute balance to whoever is entitled to the remainder. must apply for grant of letters of administration
what is a trust?
legal means by which an individual can give property to another person to look after on behalf of a third party, terms are set out in a trust deed
what are the roles of trustees and beneficiaries?
trustees are responsible for managing the trust and are the legal owners of its assets. the beneficiary is the person for whom the trust is intended for
what is the definition of a company?
legal entity formed to conduct business or other activities in the name of its members, separate entity from its shareholders
what is a conventional partnership?
one that is not seperate legal entity from it’s owners, partners are responsible for their own and each others debts
what is a limited partnership?
at least one partner must ahve unlimited liability
what is an LLP?
Corporate partnership, members may hold land/property in its name and there are designated partners who are the equivalent to company officers (C-suite)
what is the function of an agent?
create a contract between the principal and third parties or to act as a representative of the principal in other ways. if the agent goes beyond their authority, then the principal will not be bound, and the agent will be personally liable to the third party for a breach of warranty of authority
what is incolvency?
where the liabilities (debts) of a business or individual or business exceeds their assets or they’re unable to repay their debts as they fall due
how can an individual be declared bankrupt?
if they owe £5,000 or more to any creditor
what is liquidation?
the legal ending of a limited company
what are the five stages of the fianncial planning process?
determine requirements, formulate strategy, implement strategy, revisit investments, periodic revisiting
what must be established by a financial advisor in the client’s risk assessment?
risk tolerance, attitude to risk, capacity for loss. has a considerable impact on the financial planning and strategy an advisor recommends
what are objective factors of financial advice?
timescale, commitments, wealth, life cycle/ age
what are subjective factors to financial advice?
level of financial knowledge, level of comfort with risk, preferred investment choice, approach to bad decision
what must a firm do to ensure their recommendations are suitable and affordable?
determine the types of services and transactions with which the client is familiar, the nature/volume/frequency of the clients’ previous services, client’s level of education, profession or relevant former profession
what level of information needs to be provided to clients?
sufficient information about the firm and any proposed investments, must disclose any material information, must disclose how they will go about managing the clients’ money on an ongoing basis
how are consumer rights dictated in financial services?
in the contract drawn up between the client and the financial institution
