Chapter 11 - Financial Advice Flashcards
what are the different protection covers?
critical illness
income protection
mortgage payment protection
Accident and sickness cover
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.
what are the two types of business insurance?
Liability insurance - protecting company from third-party
indemnity insurance - protects yourself.
what are the key considerations when comparing accounts
- advertised rates are not always true
- tax treatments may differ
- penalty charges
- lower rates can replace.
what is estate planning?
ensuring right steps are taken to ensure accumulated wealth passes to intended.
what happens if assets are overseas?
separate wills will need to be made and drafted by a specialist in jurisdiction
what happens if no will is made?
Legal system determines who inherits
If person dies without will - they are named dying intestate and a set of intestacy rules will determine.
what is tax planning, tax avoidance, and tax evasion?
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.
what are the two different tax systems called?
world-wide system = residents taxed on their worldwide income and capital gains
Territorial income = residents only taxed in that country
what is a power of attorney?
legal document that authorises someone to act on their behalf
what is an ordinary power of attorney
makes financial decisions on behalf of individual, this is more short-termed and used if individual is in hospital/on holiday
lasting power of attorney? requirements?
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.
What is a deputy order? requirements?
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.
what is a personal representive?
collects deceased assets, settle debts and distributes balances.
what are the two forms of personal representatives? what do each personal represented apply for?
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)
what are trusts and names associated? where are terms set out?
creator = settlor, person who looks after = trustee , individual = beneficial owner
terms set out in trust deed , financial institutions need to see this
what are the three types of parterships?
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.
what are the two types of property?
personal property - anything that is tangible, such as furniture
real property - fixed to permeant location, such as land
what happens in joint ownership if the other person dies?
the surviving owner takes shares automatically but will need to show bank death certificate.
what is tenancy in common? what happens if they die?
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.
what is insolvency and bankruptcy?
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.
what are the two main processes in companies?
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.
what are things financial advisors need to know?
- life assurance
- protection products
- family circumstances
- health and future
- expectations
what is the financial conduct principle needed to know about this chapter?
Principle 9 - relationship of trust
what is the information needed to be gathered by financial advisor?
Personal details, financial details, objectives, risk tolerance, liquidity/time-horizon, tax status, investment preference, client knowledge
what does risk tolerance, attitude to risk and capacity for loss mean?
risk tolerance = clients willingness
attitude to risk = client personal opinion with risk
capacity for loss = client ability to absorb any financial loss
what are examples of objective factors and subjective factors?
timescale, commitment, wealth, life-cycle, and age
subjective - level of knowledge, client comfort, client preference, clients approach.
what are the types of information a client should be made aware of?
charges, cancellation rights, penalties, risk warning, any other terms
what is the “cooling-off” period known as?
when clients are entitled to a period of reflection to cancel
what is the important thing to consider when borrowing
Annual percentage rate
what do firms need to see from companies?
incoportation documents
what is an agent?
contract between the principal and third-party to act as a represented
what is the 5 process of financial planning process
1) determine 2) formulate 3) implement 4) revisit 5) periodontally revisit
