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IMC Unit 1 > Chapter 7 > Flashcards

Chapter 7 Flashcards

1
Q

what are the 2 different types of investor

A

individual
institutional

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2
Q

what are the categories for an individual investor

A

high net worth
sophisticated
self certificated sophisticated

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3
Q

high net worth individual requirements

A

income over £100,000
investable assets of £250,000

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4
Q

sophisticated investor requirements

A

an individual who has been certified by their financial service provider as understanding the products they are involved in

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5
Q

examples of institutional investors

A

pension funds
insurance companies
CIS
investments trust companies

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6
Q

what are the 6 outcomes of treating customers fairly

A
  • consumers are confident that they are dealing with firms where the fair treatment of customers is central to their culture
  • product/ services are marketed and sold are designed to meet the needs of customers correctly
  • consumers are provided with clear info and are kept appropriately informed
  • advice is suitable and takes into account client circumstances
  • consumers are provided with products that perform as firms have led them to expect and the service performs as expected
  • consumers do not face unreasonable post sale barriers
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7
Q

how are firms supposed to assess the needs of a client

A

the fact find process

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8
Q

what is a letter authority

A

a letter from a client which authorizes 3rd parties to release information regarding the client to the advisor

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9
Q

what does the IPS contain

A

it summarizes the clients investment needs and wants into clear objectives and details any investment constraints
it shows the rules that the investor needs to follow through the entire financial planning lifecycle

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10
Q

what should the sequence should the financial planning process involve

A
  • identify and quantify financial objectives
  • collect data to establish the clients current circumstances
  • analyse different options to meet shortcomings
  • prepare a report and arrange a meeting with the client
  • implement the plan
  • monitor and review regularly
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11
Q

what are the various risks to investors

A

capital risk
income risk
currency risk

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12
Q

what is capital risk

A

falls in the value of capital invested or less return than expected

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13
Q

which venue has no capital risk

A

bank accounts

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14
Q

which venue has high capital risk

A

bonds have moderate
shares have large

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15
Q

what has large income risk

A

shares risk if dividends stop

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16
Q

for which person is inflation risk good for

A

borrowers

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17
Q

who has large interest rate risk

A

bonds

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18
Q

who has positive investment risk

A

savings account

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19
Q

how can legal ownership of securities be confirmed

A

through registered securities
bearer securities

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20
Q

what is a registered securities

A

where the legal title is determined by the name of the register

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21
Q

what are the 2 types of joint ownership

A

joint tenancy
tenants in common

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22
Q

what is joint tenancy

A

where each owner has 100% interest
if one dies total ownership is transferred to the other party

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23
Q

what is tenants in common

A

each owner has specified % ownership
if one dies then the share is passed and distributed through the will

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24
Q

what is a void contract

A

when the contract in unenforcable

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25
Q

how can a contract become void

A
  • lack of intention to create a legally binding contract
  • unclear or ambiguous terms and conditions
  • no mutual consideration was included
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26
Q

how long does a contract remain in place

A

until they are discharged

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27
Q

what are the 4 ways in which a contract can be discharged

A
  • by agreement : both parties mutually agree to terminate
  • by performance : when t/cs have been met
  • by frustration : when external events prevent the contract to be fulfilled
  • by breach : where one party does not fulfil their side of the agreement
28
Q

what is a power of attorney

A

when the donor given a donnee certain powers to make decisions on their behalf

29
Q

what do the powers of attorney include

A
  • power to sign documents
  • power to make purchases
  • power to dispose of property
  • power to handle a financial transaction
30
Q

what is the lasting power of attorney

A

given by a person who is in sounds mind who is worried about a time that they become incapbale

31
Q

who is the power of attorney registered with

A

the office of the public guardian

32
Q

who has the ultimate say on when the powers of attorney come into affect

A

the office of the public guardian

33
Q

what is recievorship

A

receivers are appointed by the court to take control of the company to keep the company running it it then sold later on to pay the debts

34
Q

what are the 2 ways in which bankruptcy can occur

A
  • via debtors petitions : when a person voluntarily applies
  • via a creditors petition : when a creditor applies
35
Q

who carries out the will

A

the executor

36
Q

what happens when a person dies without leaving a valid will

A

the national intestacy rules come into effect

37
Q

what are the national intestacy rules

A

where the assets are attempted to be distributed among family members from the nearest to the most distant

38
Q

what is a trust

A

a legal settlement where a settlor who wishes to relinquish control of an asset place it into the trust and then the trust attempts to make profits for beneficiaries

39
Q

who is the legal owner of the assets in a trust

A

the trustee

40
Q

what are the trustees responsiblities

A

legal owner of the assets
they oversee the trust
make sure that the assets are made correctly in the way that the settlor wanted

41
Q

what is the trust deed

A

the document used by the settlor to create the trust
it spells out the assets, who is the trustee, who are the beneficiaries

42
Q

what are the different kinds of trusts

A

discretionary trust
interest in possession
bare trust

43
Q

what is a discretionary trust

A

where the trustee has absolute discretion to distribute the income to beneficiaries

44
Q

what is an interest in possession trust

A

where there are 2 types of beneficiaries
- life tenant who gets the income from the trust
- remainderman who receives capital when the life interest ends

45
Q

what is a bare trust

A

a bare trust obeys the instructions from the beneficiaries, the trustee is nominee only

46
Q

what does the trustee act 2000 do

A

it is a piece of governmental law which enables the powers of trust

47
Q

what does the trustee act 2000 force trustees to do

A

they should have a statutory duty of care in selecting investments
they should act with due skill and care

48
Q

what is country risk

A

being exposed to a countries civil unrest and government actions

49
Q

what are the major factors influencing a clients attitude to risk

A

objectives
timescale
existing assets

50
Q

is a fact find required by a government

A

no

51
Q

the trustees act 2000 gives trustees what investment powers

A

general: trustee may invest in any ordinary security (bonds and equities)
specific: allowing to invest in land in the UK

52
Q

if an individual dies interstate who will the court appoint to distribute the estate

A

the administrator

53
Q

what was there before the lasting power of attorney

A

the enduring power of attorney

54
Q

what is the different between the LPA and the EAP

A

the LPA has a wider power
they can make not only financial decisions (property and affairs LPA)
but also personal welfare decisions (personal welfare LPA)

55
Q

when was the LPA created

A

in 2007 under the mental health capacity act 2005

56
Q

can charities buy shares

A

no, charity portfolios should not be considered as trading accounts

57
Q

what can annual income be for a high net worth individual

A

salary, interest income

58
Q

when is the Trustee act 2000 relevant

A

only relevant where the trust deeds make no specific reference to investment policy

59
Q

who is the office of public guardian an agency of

A

the ministry of justice

60
Q

would a drop or rise in interest rates benefits bonds

A

drop

61
Q

would does a decrease in interest rates do for borrowers

A

increase the ability to borrow
- so better for property
- would increase share prices

62
Q

can a legal person be a company

A

yes

63
Q

what type of clients does the objective need to be determined for

A

retail
elective professional

64
Q

the investment provisions for the Trustee Act 2000 do not apply to which schemes

A

occupational pension, authorised unit trusts, certain scheme

65
Q

does tax affect a clients attitude to risk

A

no

66
Q

can a legal person be prosecuted

A

no

IMC Unit 1 (11 decks)

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