Chapter 11: Financial Advice Flashcards
What advantages can be expected when an individual undertakes a budgeting exercise ?
Less likely to end up in debt
Less likely to be caught out on unexpected costs
Good credit rating
More likely to be accepted for a loan
Able to save and plan for the future
What are examples of good debts and bad debts ?
A good debt would be a sensible investment in a persons financial future, leaving them better off in the long run.
A bad debt are those that drain their wealth and are not affordable.
Which types of protection should a consumer who takes a mortgage consider ?
Mortgage Payment Protection Cover and Household Cover
What is the difference between savings & investing ?
Investing involves committing money into an investment vehicle in the hope of making a financial gain. It involves a greater level of risk. Saving refers to putting away money each month for a guaranteed sum of interest aswell as capital sum return. Investing typically returns greater in the long run.
Why might a deputy act for an individual’s ?
When someone becomes mentally incapable of managing their financial affairs, and they have not made an LPA, a deputy needs to be appointed.
How does a joint tenancy differ from tenancy in common?
In a joint tenancy when one dies the assets get passed over to the surviving partner. In a tenancy in common the will of the deceased decides how the assets are distributed
What are the main stages of the financial advice process ?
- Determine the clients requirements
- Formulate the strategy to meet the clients objectives.
- Implement the strategy by selecting suitable products.
- Revisit the recommended investments to ensure that they continue to meet the clients needs.
- Periodically revisit the clients objectives and revise the strategy and products held if needed.
Which one of the FCA’s 11 Principles for Business require a firm to take reasonable care to ensure the suitability of its advice ?
Principle 9: Customers: Relationships of Trust
What is the difference between risk tolerance and capacity for loss ?
Risk tolerance is described as a clients willingness to accept a certain level of fluctuation in the value of their investments.
Capacity for loss is the clients ability to absorb financial losses that might arise.
What is the purpose of the information that firms must provide to clients before they enter into any contracts ?
The purpose of this duty to disclose material information is to ensure that rhetorical client has all the information needed to ensure they are in a position to make a full and informed decision about the suitability of the recommendations being made
