chapter 4

Question 1

power of attorney

Answer 1

donor, typically elderly relative, appoints a donee/attorney, e.g. son or daughter

Question 2

enduring power of attorney has been replaced with

Answer 2

lasting power of attorney

Question 3

property and affairs LPA and personal welfare LPA must be registered with

Answer 3

office of public guardian. (mental capacity act 2005)

Question 4

when is lasting power of attorney valid until

Answer 4

death
donor revokes
bankruptcy

Question 5

natural persons vs legal persons

Answer 5

natural = individuals
legal = companies
and they both have legal personalities

Question 6

legally bonding contracts require

Answer 6

• 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

Question 7

contract discharge

Answer 7

• performance (both parties do what they said they’d do)
• agreement (to end contract)
• frustration (now impossible to fulfil)
• breach (breached contract)

Question 8

property ownership: legal vs beneficial ownership

Answer 8

M&G nominee for a share: M&G is legal owner but their client is the beneficial owner

Question 9

property ownership: joint tenants

Answer 9

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.

Question 10

property ownership: tenants in common

Answer 10

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.

Question 11

insolvency vs bankruptcy

Answer 11

insolvency: state of being where cannot meet obligations
bankruptcy: state of law, final

Question 12

insolvency for company

Answer 12

liquidation/winding up: end of company
administration: time and space to sort things out
voluntary agreements: renegotiate debts

Question 13

bankruptcy of individual

Answer 13

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

Question 14

legally valid will

Answer 14

• 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

Question 15

will beneficiaries

Answer 15

anyone except for witness + witness spouse

Question 16

will: role of executor

Answer 16

legally responsible for paying beneficiaries

Question 17

will: probate process

Answer 17

process that happens with a will = testate -> grant of probate

Question 18

intestacy

Answer 18

process that happens without a will - letter of administration which says how your assets are spent i think

Question 19

trusts: settlor, beneficiaries, trustee

Answer 19

settlor: person that sets up trust
beneficiaries: gets benefits from trust
trustee: people who control trust

Question 20

bare trust

Answer 20

simple trust. sole beneficiary e.g. parent on behalf of child, for someone with disability or illness

Question 21

interest in possession trust

Answer 21

• 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)

Question 22

charitable trust

Answer 22

tax free.

perc: poverty, education, religion, community

Question 23

discretionary trust

Answer 23

trustees have authority to distribute income + capital

Used to mitigate IHT liabilities

Question 24

types of investor

Answer 24

• institutional

- individual (certified high net worth investor, certified sophisticated investor)

Question 25

firm obligations to retail clients

Answer 25

1. tcf - treating customers fairly
2. tcf aims to deliver 6 outcomes for customers: culture, marketing, clear info, suitable adult ?, fair product expectations, no post sale barriers

Question 26

investors needs driven by 3 key factors

Answer 26

time horizon
return requirement (max returns, match liability: real (match inflation), nominal)
risk tolerance
other considerations: liquidity, tax, ethical

Question 27

client typical objectives

Answer 27

protection
borrowing
savings and investment
retirement
estate planning

Question 28

how do we understand client

Answer 28

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?

Question 29

types of investment risk

Answer 29

• 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

Question 30

ways to diversify

Answer 30

• different asset classes
• different stocks/companies
• different sectors/geographical
• different managers

Question 31

risk profile factors

Answer 31

• risk required, risk capacity (max level), risk tolerance

- timescale, amount of risk capital, investment experience, psychology

Question 32

most important decision for investing client money

Answer 32

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

Question 33

fund selection process

Answer 33

• charges: one off, ongoing charges (AMC and OCF)
• financial stability of provider
• past performance
• due diligence
• benchmarks and reviews

Question 34

active vs passive fund management

Answer 34

active - trading to outperform market
passive - track index eg ftse
hybrid - mix e.g. 80% passive, 20% active