Chapter 11 - Financial Advice

Question 1

what are the different protection covers?
critical illness
income protection
mortgage payment protection
Accident and sickness cover

Answer 1

Critical illness insurance cover - pays lump sums for those suffering with critical illness. It ends after 70th, and is tax-free.

Income protection - pays out income benefits when someone unable to work, the regular income is 50-75% pre-tax.

Mortgage - designed to ensure payments can be continued to be paid. Provided on a level basis, so reviews are needed.

accident and sickness - provides income/lump sums. the waiting period may be 30-60 days.

Question 2

what are the two types of business insurance?

Answer 2

Liability insurance - protecting company from third-party
indemnity insurance - protects yourself.

Question 3

what are the key considerations when comparing accounts

Answer 3

• advertised rates are not always true
• tax treatments may differ
• penalty charges
• lower rates can replace.

Question 4

what is estate planning?

Answer 4

ensuring right steps are taken to ensure accumulated wealth passes to intended.

Question 5

what happens if assets are overseas?

Answer 5

separate wills will need to be made and drafted by a specialist in jurisdiction

Question 6

what happens if no will is made?

Answer 6

Legal system determines who inherits

If person dies without will - they are named dying intestate and a set of intestacy rules will determine.

Question 7

what is tax planning, tax avoidance, and tax evasion?

Answer 7

Tax planning = known as tax mitigation - minimising tax in legal way.
Tax avoidance = flouts spirit of law/unacceptable but is legal.
Tax Evasion = efforts to evade tax illegal.

Question 8

what are the two different tax systems called?

Answer 8

world-wide system = residents taxed on their worldwide income and capital gains
Territorial income = residents only taxed in that country

Question 9

what is a power of attorney?

Answer 9

legal document that authorises someone to act on their behalf

Question 10

what is an ordinary power of attorney

Answer 10

makes financial decisions on behalf of individual, this is more short-termed and used if individual is in hospital/on holiday

Question 11

lasting power of attorney? requirements?

Answer 11

used for both financial decisions and healthcare, used when the person no longer has capacity. They must be registered with Office Of Public Guardian and a stamped copy of LPA to be submitted to financial institutions.

Question 12

What is a deputy order? requirements?

Answer 12

This is created when someone has not made a lasting power of attorney and is mentally incapable. It requires an application to court of protection. The deputy order will then set out the powers agreed and will be shown to financial institutions.

Question 13

what is a personal representive?

Answer 13

collects deceased assets, settle debts and distributes balances.

Question 14

what are the two forms of personal representatives? what do each personal represented apply for?

Answer 14

executor - this is the person who is APPOINTED (APPLY FOR GRANT OF PROBATE)
Administrator - no will is left, no executor then this is appointed (APPLY FOR GRANT OF LETTERS OF ADMINSTRATION)

Question 15

what are trusts and names associated? where are terms set out?

Answer 15

creator = settlor, person who looks after = trustee , individual = beneficial owner

terms set out in trust deed , financial institutions need to see this

Question 16

what are the three types of parterships?

Answer 16

conventional partnerships - each partner is responsible for debts, unable to hold land in its name.
limited partnership = at least on partner must have unlimited liability
limited liability partnership - all partners have protection from any liability , can hold land.

Question 17

what are the two types of property?

Answer 17

personal property - anything that is tangible, such as furniture
real property - fixed to permeant location, such as land

Question 18

what happens in joint ownership if the other person dies?

Answer 18

the surviving owner takes shares automatically but will need to show bank death certificate.

Question 19

what is tenancy in common? what happens if they die?

Answer 19

an asset is owned by 1 or more individual who could own the assets in equal shares.

If the person dies, it does not pass to surviving owner and instead goes to whoever will name is.

Question 20

what is insolvency and bankruptcy?

Answer 20

insolvency = liabilities exceed their assets/unable to repay debts, financial failure.
bankruptcy = applies to individuals, not partnerships/limited companies. it is only declared if owe more than £5000 to creditors.

Question 21

what are the two main processes in companies?

Answer 21

Liquidation - legal ending of a limited company. Business will be removed from official company house register = struck-off.
Administration - an insolvency administration is appointed to take control either by: restoring company, pay creditors, sell business.

Question 22

what are things financial advisors need to know?

Answer 22

• life assurance
• protection products
• family circumstances
• health and future
• expectations

Question 23

what is the financial conduct principle needed to know about this chapter?

Answer 23

Principle 9 - relationship of trust

Question 24

what is the information needed to be gathered by financial advisor?

Answer 24

Personal details, financial details, objectives, risk tolerance, liquidity/time-horizon, tax status, investment preference, client knowledge

Question 25

what does risk tolerance, attitude to risk and capacity for loss mean?

Answer 25

risk tolerance = clients willingness
attitude to risk = client personal opinion with risk
capacity for loss = client ability to absorb any financial loss

Question 26

what are examples of objective factors and subjective factors?

Answer 26

timescale, commitment, wealth, life-cycle, and age

subjective - level of knowledge, client comfort, client preference, clients approach.

Question 27

what are the types of information a client should be made aware of?

Answer 27

charges, cancellation rights, penalties, risk warning, any other terms

Question 28

what is the “cooling-off” period known as?

Answer 28

when clients are entitled to a period of reflection to cancel