Chapter 2 Flashcards
What are three activities where solicitors could become involved with financial services and investment activities on behalf of their clients?
1) Arranging transactions
2) Giving advice
3) Referring clients to an independent financial advisor
What is conveyancing?
Conveyancing is the legal process of transferring the ownership of property from one person to another. It involves a series of legal and administrative tasks that ensure the transfer of property is legally binding and secure.
What are 7 areas where solicitors could potentially get involved in investment activities?
1) Conveyancing
2) Corporate
3) Tax
4) Employment
5) Matrimonial clients
6) Litigation
7) Trusts
In conveyancing, what three activities are considered investment activities?
1) Arranging an endowment-linked (life policy) or pension fund mortgage for a client
2) Obtaining advice for a client on which policy is most suitable
3) Advising and arranging for a client to enter into a regulated mortgage contract or even into a general (non-investment) insurance contract
What is a endowment?
An endowment is a financial asset or fund that is donated or set aside for a specific purpose, such as supporting a charitable organization, funding a scholarship, or providing income for a nonprofit organization.
Endowments are designed to be long-term investments, with the goal of preserving the principal and generating income over a period of many years. The income generated by the endowment can be used to support ongoing operations, fund new initiatives, or provide scholarships or other forms of support.
Endowments are often structured as permanent funds, which means that the principal is not intended to be spent, but rather is invested in perpetuity to generate income to support the designated purpose. However, some endowments may be designed to be spent down over time, such as to fund a specific project or initiative.
In corporate, what five activities are considered investment activities?
1) The sale or purchase of a company (dealings in company shares)
2) Arranging a deal with a view to your corporate client’s buying or selling investments - e.g,, instructing a stockbroker to buy shares for a client, or arranging with an insurance broker for a client to take out an endowment policy
3) Preparing the paperwork for a listing of shares or for the prospectus to a share issue
4) A corporate client might ask a firm to set up a personal pension scheme, ‘key man’ or permanent health insurance for each its executive directors
5) Client setting up in partnership may need advice on pensions, life insurance and permanent health insurance
What is a ‘key man’ insurance?
Key man insurance is a type of life insurance policy that is designed to protect a business or organization in the event that a key employee or executive becomes incapacitated or dies.
The policy is purchased by the business, which pays the premiums and is named as the beneficiary. In the event that the key employee covered by the policy dies or becomes unable to work, the insurance company pays out a lump sum to the business, which can be used to cover expenses related to the loss of the key employee, such as hiring and training a replacement or paying off debts.
In tax, what two activities are considered investment activities?
1) Assistance to clients approaching retirement age in the area of estate planning
2) Advice on the possibility of deferring or phasing the drawing down of pension rights to increase the pension annuities
3) Managing a client’s investments in a mutual fund
In employment, what two activities are considered investment activities?
Negotiating a dismissal package for a client who has been unfairly or wrongfully dismissed by his employer
Pension top-ups and transfers, when negotiating the terms of the settlement
With matrimonial clients, what three activities are considered investment activities?
1) Advice in connection with divorce settlements - dividing up the investments of the former spouses; which assets should be sold or transferred
2) A client who may instruct you to make a will may need pension advice
3) Giving a client advice on how to best invest money - or even advising a client not to sell some quoted shares (still advising)
In litigation, what activity is considered investment activity?
While in theory, litigation lawyers should not be involved in investment activities for a client, in practice litigation clients may well need advice on lump sum investments - what to do with damages checks and how to invest the money
In trusts, what activity is considered investment activity?
Managing a trust in the capacity of trustee that contains investments (unit trusts, gilts, company shares etc.)
What are gilts?
Gilts are a type of fixed-income security issued by the UK government. The term “gilt” is short for “gilt-edged securities,” which refers to the high creditworthiness of the UK government and the low risk associated with investing in these securities.
Gilts are typically issued with a fixed interest rate and a maturity date, and are backed by the full faith and credit of the UK government. They are considered to be a relatively low-risk investment, as the UK government is seen as a reliable borrower with a long history of repaying its debt obligations.
What four strategies can firms of solicitors use in regard to financial services?
1) Attempt to avoid carrying out any regulated activities and financial promotion altogether
2) Carry out regulated activities from time to time, taking advantage of exclusions in the RAO or exemptions under the FSMA. Most firms will choose that route.
3) Obtain authorization from the FCA (the normal route for businesses that exist to provide financial services - stockbrokers, mortgage brokers, insurance brokers, general financial advisers - also the most complex option)
4) Simply refer to independent financial advisors whenever any financial services or investment matter arises.
What 10 activities are prohibited under the Financial Services (Scope) Rules? (Rules 3.1 to 6.1)
1) Activities referred to in the Financial Services and Markets Act 2000 (Professions) (Non-Exempt Activities) Order 2001 (such as accepting deposits, dealing in investments as principal and in relation to regulated mortgage contracts)
2) Entering into a regulated credit agreement as lender or exercising, or having the right to exercise, the lender’s rights and duties under such an agreement
3) Entering into a regulated consumer hire agreement as owner, or exercising or having the right to exercise, the owner’s rights and duties under such an agremeent
4) Operating an electronic system in relation to lending
5) Providing credit references
6) Insurance distribution activities in relation to insurance-based investment products
7) Creating, developing, designing or underwriting a contract of insurance
8) Various corporate finance-related activities
9) Various credit-related regulated financial activities