chapter 4 Flashcards
power of attorney
donor, typically elderly relative, appoints a donee/attorney, e.g. son or daughter
enduring power of attorney has been replaced with
lasting power of attorney
property and affairs LPA and personal welfare LPA must be registered with
office of public guardian. (mental capacity act 2005)
when is lasting power of attorney valid until
death
donor revokes
bankruptcy
natural persons vs legal persons
natural = individuals
legal = companies
and they both have legal personalities
legally bonding contracts require
- offer
- acceptance
- consideration e.g. money
- intention e.g. you’ve deliberately agreed
clear terms and conditions
-not in writing necessarily unless property or tenancy
contract discharge
- performance (both parties do what they said they’d do)
- agreement (to end contract)
- frustration (now impossible to fulfil)
- breach (breached contract)
property ownership: legal vs beneficial ownership
M&G nominee for a share: M&G is legal owner but their client is the beneficial owner
property ownership: joint tenants
each tenant owns 50%. if one passes away, ownership goes to the other. can switch to joint + v.v. by giving notification to involved parties.
property ownership: tenants in common
if one of the tenants pass away, ownership passed to beneficiaries of C’s will. can switch to joint + v.v. by giving notification to involved parties.
insolvency vs bankruptcy
insolvency: state of being where cannot meet obligations
bankruptcy: state of law, final
insolvency for company
liquidation/winding up: end of company
administration: time and space to sort things out
voluntary agreements: renegotiate debts
bankruptcy of individual
bankruptcy order places assets in hands of official receiver: in court
debt >= 5,000
IVA (individual voluntary agreement): pay back portion of debt by reorganising. firm takes your salary and gives you a bit to live off
legally valid will
- in writing
- signed by two witnesses
- testator must be >18
- testator must have mental capacity to make will
- testator must not have been pressurised to make will
will beneficiaries
anyone except for witness + witness spouse
will: role of executor
legally responsible for paying beneficiaries
will: probate process
process that happens with a will = testate -> grant of probate
intestacy
process that happens without a will - letter of administration which says how your assets are spent i think
trusts: settlor, beneficiaries, trustee
settlor: person that sets up trust
beneficiaries: gets benefits from trust
trustee: people who control trust
bare trust
simple trust. sole beneficiary e.g. parent on behalf of child, for someone with disability or illness
interest in possession trust
- income or interest in possession beneficiary - have access but don’t own e.g. in divorce
- remainderman or reversionary beneficiary (can do whatever they like with it, they own the eg property)
charitable trust
tax free.
perc: poverty, education, religion, community
discretionary trust
trustees have authority to distribute income + capital
Used to mitigate IHT liabilities
types of investor
- institutional
- individual (certified high net worth investor, certified sophisticated investor)
firm obligations to retail clients
- tcf - treating customers fairly
- tcf aims to deliver 6 outcomes for customers: culture, marketing, clear info, suitable adult ?, fair product expectations, no post sale barriers
investors needs driven by 3 key factors
time horizon
return requirement (max returns, match liability: real (match inflation), nominal)
risk tolerance
other considerations: liquidity, tax, ethical
client typical objectives
protection borrowing savings and investment retirement estate planning
how do we understand client
understand what they can afford
- hard facts: can’t be debated e.g. salary
- soft facts: subjective, attitudes
- good/bad practice
- letters of authority - gives permission from client to investigate their current services?
types of investment risk
- inflation
- interest rate - IR change, IR goes up, bond prices goes down
- shortfall
- credit (if company defaults)
- market
- operational risk: people, systems, processes, external evening
ways to diversify
- different asset classes
- different stocks/companies
- different sectors/geographical
- different managers
risk profile factors
- risk required, risk capacity (max level), risk tolerance
- timescale, amount of risk capital, investment experience, psychology
most important decision for investing client money
asset allocation - accounts for maybe 90% of variation in performance between portfolios.
- strategic asset allocation - long term view
- tactical asset allocation - market timing = short term
fund selection process
- charges: one off, ongoing charges (AMC and OCF)
- financial stability of provider
- past performance
- due diligence
- benchmarks and reviews
active vs passive fund management
active - trading to outperform market
passive - track index eg ftse
hybrid - mix e.g. 80% passive, 20% active
