Chapter 7 Flashcards
What did the NSFC do?
National Strategy for Financial Capability - generic financial advice to all consumers
What is the single financial guidance body in the UK?
Money and Pensions Service
What is FTC and what are the outcomes?
Fair Treatment of Customers - customers at heart of their business model
Confident consumers
Products & Services meets needs
Clear Information
Suitable Advice
Product & Service Performance
No unreasonable post sale barriers
What is a vulnerable customer?
Someone who due to their personal circumstances, is susceptible to harm
Poor health, life events, poor literacy and numeracy skills
What is RDR?
Retail Distribution Review - increase professionalism and transparency of UK financial services industry and
1 - Professional Standards
Level 4 (Diploma in Financial Planning) to give life, investment or pension advice
2 - Adviser Charging
Adviser remuneration is the form of advice fee
3 - Sales vs Advice
Advice is independent
Restricted is sales advice or execution only
What was the Sandler Review?
Since April 2005 stakeholder products needed to be:
Straightforward
Flexible
Low Charges
Risk Controlled
What are stakeholder products and what basic advice process do advisors follow?
Basic advice products for ISAs, Pensions and Life Products
No qualifications required
Basic Disclosure - KFD Recommendation Summary Cancellation Rights
What are the 3 groups of stakeholder products?
1 - Short-term deposit-based products
16+
£10 minimum
2 - Medium-term investment products
Collective investments
£20 minimum
1.5% for 10 years then 1% after
3 - Long-term pension products
£20 minimum
1.5% for 10 years then 1% after
What is the maximum amount of earnings you can get tax relief on?
Either 100% of earnings or £3,600 gross annually
What did the FAMR produce?
Financial Advice Market Review produced the Financial Advice Working Group (FAWG) to improve the distribution of retail financial services products
28 recommendations intended to tackle the barriers to consumers assessing advice and create an innovative and affordable market
What types are clients categorised into for investment business?
1 - Retail
Most Common
Not professional or eligible
2 - Elective Professional
Professional due to knowledge, experience and expertise
Further analysis required - qualitative and quantitative (MIFID)
3 - Per Se Professional
Due to nature of role or organisation
4 - Eligible Counter-parties
Dealing on own account
Arranging, executing or transacting for orders - at request of clients
How do ICOBS and MCOB classify customers?
ICOBS - Customers
1 - Consumers - real people
2 - Commercial Customers - not deemed as consumer
MCOB - everyone as customers
What are the 4 types of business that can be transferred with a financial adviser?
1 - Execution Only
Completes transaction on behalf of client who does not want advice
2 - Best Execution
Direct Stocks & Shares
Best price for client in timely fashion
3 - Limited Advice
Specific areas of financial planning
Mortgage needs and not protection.
FOS do not like approach
Disadvantages explained
4 - Non-Advised
No personal recommendation is made
Sufficient information provided
Advantages and Disadvantages
What is an insistent client?
Insist on different course of action from one recommended by financial adviser in original suitability report
Follows process of:
1 - Initially followed usual advice process
2 - Explain risks with clients desired course of action
3 - Stating clearing that this is against firms advice
What are the 4 types of businesses?
1 - FCA Authorised
2 - Non FCA Authorised
3 - Members of Designated Professional Body
4 - Exempt Firms (AR)
What is a fiduciary duty?
Means the highest standard of care must be given by a financial adviser to a client
Avoid conflicts of interest, no contracts excluding liability, claim to be independent when not or offer inducements
How is the advice process broken down?
First or fact find meeting (SS & DC)
Second or presentation meeting (SKD)
Post advice (TO)
Reviews & Monitoring (U&I)
What is covered in an initial disclosure and what is the only exception?
Status Disclosure
Charges
Client Agreement
Direct promotions and execution only
How long must records of client agreements be kept for?
The longer of:
5 Years
Duration of Client Relationship
Indefinitely for pensions transfer, opt outs and FSAVCs
What areas are covered in a fact find?
Personal Details
Family
Employment History
Income & Outgoings
Assets & Liabilities
Policy Details
Objectives
Risk Attitude
What documents need to be provided at the point of sale?
KFD
Consolidated Life Directive Summary
Principles and Practices of Financial Management (PPFM) if a With-Profits Fund
What sections make up a KFD?
Generic - ARCTIC
Aims
Risks
Costs
Tax Implications
Cancellation Rights
Client Specific
Projection
Illustration
What is the regulators benchmark of a suitability report?
Independent party must see why advice is suitable
What does a suitability report consist of and when should it be received?
Clear Advise
Clients Needs
Risks & Disadvantages
Suitability
Personalised
Jargon-Free
SIPP & PPP must show why they are at least as suitable as stakeholder pension
No later than when they receive cancellation notice
What are the cancellation periods for products and transactions?
14 Days - Simple
ISAs
OEICS
Child Trust Fund
Enterprise & Collective Investment Scheme
30 Days - Complex
Life Policies
Pensions
Annuities
OEICS & EISs purchases as part of life policy
When do cancellation rights not apply?
Execution Only & Adverts
