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R01 > Chapter 2 > Flashcards

Chapter 2 Flashcards

1
Q

Know your customer?

A
  • financial situation
  • investment objectives
  • customer’s knowledge/experience
  • impact on customers of advice given
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2
Q

Assessing needs and circumstances

A
  • areas of advice/needs
  • risk profile
  • changes in circumstances
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3
Q

Sustainability report

A
  • provide background to an adviser’s recommendations
  • written in plain English
  • justified
  • disadvantages
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4
Q

Hierarchy of needs

A

1) Budgeting
2) management debt
3) borrowing
4) protection
5) saving/investing
6) retirement planning
7) estate planning
8) tax planning

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5
Q

Options for individuals with debt problems

A
  • debt repayment plans
  • debt management plans
  • debt consolidation
  • individual voluntary arrangement IVAs
  • bankruptcy
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6
Q

Individual voluntary arrangements IVAs

A
  • avoids long term effects of bankruptcy
  • negotiate the repayment of the loans with credits
  • typically 5 year period
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7
Q

Bankruptcy

A
  • typically discharged after 12 months
  • debt must be £5000+
  • official receiver/trustee takes control of assets
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8
Q

Bankruptcy

A
  • typically discharged after 12 months
  • debt must be £5000+
  • official receiver/trustee takes control of assets
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9
Q

Capital and interest loan

A
  • loan guaranteed to be repaid at the end of the term
  • each monthly payment consists of an element of interest and capital reduction
  • over time, interest element becomes less proportional
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10
Q

Interest only mortgage

A
  • only the interest is paid each month
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11
Q

Fixed rate

A
  • Rate of interest is fixed for a period of time
  • Borrowers who require monthly costs are within their budget
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12
Q

Discounted rate

A
  • Repayment vary but always at a rate this is a set % lower than the standard rate
  • borrowers who are looking for a lower IR but also benefit from future rate cuts
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13
Q

Capped interest rate

A
  • IRs are variable but will not exceed a pre-agreed rate
  • borrowers who need costs to not exceed a certain amount
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14
Q

Cap and collar interest rates

A
  • capped rate but will also not drop below an agreed figure
  • borrowers who need monthly costs to not exceed their budget
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15
Q

Equity release

A
  • appropriate for individuals aged 60+
  • lifetime mortgage
  • home reversion scheme
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16
Q

Lifetime mortgage

A
  • lump sum up front/drawdown facility
  • no negative equity = guarantee repayment of loan on sale of property
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17
Q

Home reversion scheme

A
  • % of the property is sold to the lender
  • typically between 20-60%
  • owner can live in the property for life, under a lease agreement
  • nominal rent is paid by owner
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18
Q

Sale and rent back agreement

A
  • typically for younger individuals who has financial issues
  • sell your home to the firm at a reduced price
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19
Q

Home purchase plans (Islamic law)

A

Ijara
- bank purchases property + lease is set up
- payment are fixed for 12 months

Murabaha
- bank purchases propriety + sells it to individual for a higher price
- individual pays bank this higher price in fixed instalments

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20
Q

Life assurance

A
  • pays out a benefit on an individual’s death
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21
Q

Term assurance

A
  • pay as you go insurance
  • lump sum on death
  • includes critical illness cover
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22
Q

Level term insurance

A
  • set term and sum assured
  • used for family protection + interested only mortgage
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23
Q

Decreasing term assurance

A
  • has a set term
  • sum reduces gradually
  • used for mortgage protection (capital and interest)
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24
Q

Family income protection

A
  • has a set term
  • pays out regular income
  • sum reduces in stages
  • used for low cost family protection
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25
Q

Increasing term assurance

A
  • sum to increase regularly
  • as sum increases, so does premiums
  • individuals concerned about possible future buying power (combat inflation)
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26
Q

Convertible term assurance

A
  • convert policy into a more permanent one
  • individuals concerned about future underwriting decisions
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27
Q

Renewable term assurance

A
  • option to renew policy
  • individuals concerned about future underwriting decisions
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28
Q

Endowment assurance

A
  • a savings plan which aims to pay a lump sum
  • pays out specified lump sum death benefit
  • provides an investment element
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29
Q

Whole of life assurance

A
  • pre agreed sum assured with no end date
  • pays our (E.g. death or critical illness)
30
Q

Income protection insurance (IP)

A
  • replaces income if individual unable to work
  • permanent cover
31
Q

Personal accident and sickness protection (PAS)

A
  • short term and cheaper version of income protection insurance
  • pays our regular benefit for 12 or 24 months
  • lump sum if significant event
32
Q

Accident, sickness and unemployment cover ASU

A
  • short term and cheaper than income protection insurance
  • pays out regular benefits for 12 or 24 months
  • if sick, accident or redundant
33
Q

Critical illness cover CIC

A
  • pays a pre agreed lump sum on diagnosis
  • ease the financial burden
34
Q

Private medical insurance PMI

A
  • private medical attention
  • treatment for short term medical conditions
35
Q

Long term care insurance LTC

A
  • pays towards the long term car
  • payments based on individual’s inability to carry out day to day tasks
36
Q

Payment protection insurance (PPI)

A
  • packaged with short term loans
  • inability to pay back their loans due to sickness/unemployment
37
Q

Mortgage payment protection insurance (MPPI)

A
  • cover mortgage if unable to work due to sickness/unemployment
38
Q

Help to buy ISA/

A
  • £200, government £50
  • max saved £15,000 + £3000 bonus
  • properties max £450,000 (LDN), £250,000 (other)
39
Q

Lifetime ISA

A
  • government adds 25% as you go along
  • £4,000 per tax year
  • aged 18-39
  • first home or retirement
  • stocks & shares
40
Q

Personal Savings Allowance (PSA)

A
  • low incomes = £5000
  • basic rate tax payer = £1000 tax free
  • higher rate = £500
  • additional rate = £0
41
Q

National savings & investment (NS&I)

A
  • government raise money
  • government backed savings and investment provider

E.g. income bonds

42
Q

Investments (risk order)

A

1) cash
2) fixed interest
3) property
4) equities

43
Q

Collective investments

A
  • unit trusts
  • OEICs

Held in tax efficient wrappers (such as ISAs)

44
Q

Actively managed portfolio

A
  • buys and sells investments to achieve the best return in line with the fund’s risk profile
45
Q

Passively managed portfolio

A
  • tracker funds
  • aims to match the value of the client’s investment to the performance of the selected market/index
46
Q

Discretionary fund management DFM

A
  • client sets up an agreement with an investment manager
  • risk and investment parameter agreed
  • managed do not need client permission for each trade
47
Q

Advisory fund management AFM

A
  • client sets up an agreement with an investment manager
  • risk and investment parameter agreed
  • manager needs client permission for each trade
48
Q

Derivatives

A
  • an option to buy/sell an asset at a set price within set dates (option)
  • an obligation to buy/sell an asset at a set price within set dates (future)
49
Q

State pension

A
  • pension age will rise to 67 by 2028
  • based on individual’s national insurance contributions (NIC)
50
Q

Private pensions

A
  • contributions of 100% of salary or capped at £60,000
  • lifetime limit £1,073,100
  • tax free lump sum up to 25%
51
Q

Annuities

A
  • purchased with lump sum for guaranteed income for life
52
Q

Single tier state pension

A
  • £185.15 weekly
  • 35 qualifying years of NIC for full amount
  • At least 10+ years for proportion
53
Q

Occupational schemes

A
  • generally set up by the employer

Define benefit (DB) scheme:
- calculated as a proportion of salary at retirement
- employer must put in sufficient money to meet liabilities

54
Q

Calculate a DB pension scheme entitlement

A
  • take the number of years’ service, multiply that by the scheme accrual rate + apply the resulting fraction to the final pensionable salary
55
Q

National Employment Savings Trust (NEST)

A
  • government’s workplace pension schemes
  • low cost
  • encourage employer/employee contributions
  • compulsory for employers to enrol eligible to holders into pension schemes
  • min 8% contribution between employer/employee
56
Q

Inheritance on estate

A
  • first £325,000 is 0%
  • max 40% on the excess

Main residence nil rate band = £175,000 (additional band to direct descendant)

57
Q

Protecting against IHT

A
  • organise the estate to reduce/remove the tax
  • provide the money to pay the tax
58
Q

Exempt transfers (IHT)

A
  • transfers not included when calculating estate
  • transfers between UK spouses and registered civil partners
  • gifts out of normal expenditure
59
Q

Potentially exempt transfers (IHT)

A
  • outright gifts (individual or trust)
  • donor must survive for 7 years
  • taper relief available if donor dies within 7 years of gifting
60
Q

Chargeable lifetime transfers (CLTs)

A
  • transfers into most trusts
  • if transfer is more than nil rate band = 20% tax + 20% (if donor dies within 7 years)
61
Q

State (DWP) benefits

A
  • provide bare minimum money to survive on
  • means testing/qualify (eg NIC)
62
Q

State (DWP) benefits

A
  • provide bare minimum money to survive on
  • means testing/qualify (eg NIC)
63
Q

Universal credit

A
  • creating an incentive to work
  • benefits
64
Q

Bring up children benefits

A
  • children benefits
  • child tax credits
  • maternity allowance
  • statutory maternity pay
  • shared paternal pay
65
Q

Benefits for unemployed/low income

A
  • income support
  • Jobseeker’s Allowance
  • statutory redundancy pay
  • working tax credit
66
Q

Mortgage interest support

A
  • Support for Mortgage Interest SMI
  • a loan (repayable when sell home)
  • unemployed for 39 weeks - eligible
  • up to £200,000
67
Q

Benefits for the sick/disabled

A
  • attendance allowance
  • carer’s allowance
  • personal independence allowance
  • employment & support allowance
  • incapacity benefit
  • statutory sick pay
68
Q

Benefits for pensioners

A
  • single tier state pension
  • basic state pension
  • additional state pensions
  • guaranteed pension credits
69
Q

Bereavement support payment BSP

A
  • lump sum + weekly payments

Children aged under 20 + education
- £3,500
- 18 monthly payments £350

No children aged under 20 + education
- £2,500
- 18 months payments £100

70
Q

Cold weather payments

A
  • £25 daily for each day of a 7 day period of winter (freezing temp)
71
Q

Winter fuel payment

A
  • annual payment between £250-£600 to help with increased fuel bills

R01 (5 decks)

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