Chapter 7 Qs Flashcards
Sam and Joe are both policyholders with a life office, however only Sam receives a copy of the company’s Principles and Practices of Financial Management with his annual statement. Why is this?
A. Because Sam has held his policy for more than 10 years
B. Because Joe receives his annual statement via e-mail
C. Because Sam’s policy has an element of with profits
D. Because Joe’s policy is due to mature within the next 12 months
C. Because Sam’s policy has an element of with profits
The Principles and Practices of Financial Management documents are produced by life offices carrying out with profits business. As only Sam’s policy has an element of with profits, only he will receive this document.
Which of the following statements regarding ‘best execution’ and ‘execution-only’ is true?
A. Best execution typically applies to firms dealing in cash and bonds
B. A suitability report would only be produced for execution-only
C. Both execution-only and best execution require the completion of a fact find
D. A fact find would not be relevant for execution-only
D. A fact find would not be relevant for execution-only
‘Best execution’ is the practice of obtaining the best prices for a transaction and usually applies to stocks and shares. ‘Execution only’ has a completely different meaning and relates to a sale where the customer has stated exactly what he or she wants, and no advice is required. Therefore, the adviser is not required to complete a fact-find or suitability report.
*What is the Money Advice Service?
A. A website and helpline offering clear and impartial information for consumers
B. A research website designed to assist authorised firms
C. A debt counselling service for consumers who face debt problems
D. A web based regulated firm for clients who do not want face to face advice
A) A website and helpline offering clear and impartial information for consumers
The Money Advice Service offers a website and helpline to offer consumers clear and impartial information. Answers b) and c) are false, as the Money Advice Service was set up for consumers (not for authorised firms) to help them to have a better understanding of their finances. It is an information service rather than a counselling service. The Money Advice Service is a service set up by the government to help the public. Answer d) is also false.
*Remuneration for financial advice is in the form of a fee and is structured as a customer agreed remuneration. This is commonly known as:
A. a disclosure document
B. terms of business
C. adviser charging
D. menu of charges
C) adviser charging
When charges for financial advice are set out in the form of a fee and is structured as a customer agreed remuneration, this is called ‘adviser charging’. The charges would normally be set out in a disclosure document and/or terms of business.
*Each of the following is classed as giving restricted advice with the exception of?
A. Whole of market adviser
B. Single-tied adviser
C. Independent financial adviser
D. Multi-tied adviser
C) Independent financial adviser
Single-tied, multi-tied and whole of market advisers are all examples of restricted advisers. From the options given, only an independent financial adviser does not give restricted advice.
*Which of the following statements regarding stakeholder products and basic advice is TRUE?
A. There is a short term collective or life stakeholder product
B. A full fact find is completed
C. The recommended product only has to be suitable, not the most suitable
D. Providers of the deposit-based product can charge an annual management
charge of 1.5% in the first ten years
C) The recommended product only has to be suitable, not the most suitable
The only true statement here is that the recommended product only has to be suitable, not the most suitable. The collective or life stakeholder product is a medium term product. There is no need for a full fact find to be completed. It’s the providers of medium and long-term stakeholder products that can charge an annual management charge of 1.5% in the first 10 years.
*What must a non-real time financial promotion include?
A. Past performance data for the past 5 years
B. That tax may be subject to change in the future
C. The shelf life of the promotion
D. Name of firm and address or contact point
D) Name of firm and address or contact point
A ‘non-real time’ promotion is a promotion such as written advertisements. All these types of promotions must include the name of the firm and an address or contact point. A shelf life is not required, but if it is included, it must be reviewed to ensure it is still compliant. Tax and past performance information does not have to be included but note: If past performance data is included it does not have to be over five years; although, the time frame should be sufficient to give a fair indication of the performance. If tax is included, it should state that the tax position would depend on individual circumstances and that it might change in the future.
(MA) *Which investments have a 14-day cancellation period?
A. Transferring a Child Trust Fund with face to face advice
B. Enterprise Investment Scheme with face to face advice
C. Opening any ISA with face to face advice
D. Personal pension contracts
E. Cash ISAs
A. Transferring a Child Trust Fund with face to face advice
B. Enterprise Investment Scheme with face to face advice
C. Opening any ISA with face to face advice
E. Cash ISAs
Many investments have a cancellation period, allowing the client to cancel after the sale. The cancellation period is either 14 or 30 days, depending on the product. Answers a), b), c) and e) all have a 14-day cancellation period, personal pension contracts have a 30-day cancellation period.
(MA) Which of the following financial planning opportunities can usually be addressed at the end of a tax year?
A. Re-assessing a client’s goals B. Using up ISA allowances C. Utilising the CGT exempt amount D. Reviewing a client’s protection arrangements E. Utilising pension contribution limits
B. Using up ISA allowances
C. Utilising the CGT exempt amount
E. Utilising pension contribution limits
There are many financial planning opportunities for existing clients, particularly at the beginning and end of a tax year. Some of the opportunities at the end of the tax year include using up ISA allowances, utilising CGT exemptions and utilising pension contribution limits. Re-assessing goals and reviewing protection arrangements are not necessarily linked to a specific time in the financial tax year but perhaps to an individual’s circumstance such as marriage, birth of a child etc.
What information should be re-checked at each client meeting? Tick all that apply.
A. Reviewing the fact-find to update any changes
B. Attitude to risk
C. Growth on investments and pensions
D. Financial dependents
E. State of health, financial aspirations and time horizons
A. Reviewing the fact-find to update any changes
B. Attitude to risk
C. Growth on investments and pensions
D. Financial dependents
E. State of health, financial aspirations and time horizons
It is important at client reviews that the client information an adviser holds (usually in the fact-find) is current and correct. All the answers here are therefore correct.
(MA) What are the main provisions under the E-commerce directive rules Tick all that apply.
A. FCA status disclosure and Financial Services Register number must be given
B. Orders have to be accepted
C. Customers must be told clearly how to place an order
D. Orders have to be acknowledged without delay
A. FCA status disclosure and Financial Services Register number must be given
C. Customers must be told clearly how to place an order
D. Orders have to be acknowledged without delay
The e-commerce directive rules apply to firms that do business online. Some of the main provisions include supplying FCA status disclosure and Financial Services Register number, customers must be clearly told how to place an order, and orders have to be acknowledged without delay. Orders do not have to be accepted.
(MA) What must be included within Key Information Documents?
Tick all that apply.
A. Personalised illustration B. Aims of the investment C. Cancellation rights D. Future benefit projection E. The principal terms of the investment
B. Aims of the investment
C. Cancellation rights
E. The principal terms of the investment
Under FCA rules, the key information document, produced by the product provider, must include the aims of the investment, cancellation rights and principle terms of the investment. (Note: It also must include compensation arrangements and complaints procedures and in addition, life policies require all the information as set out under the Solvency II Directive). A projection of benefits could be included within the key information document or could be a separate document. A personalised illustration can be provided but would not be included within the key information document.
(MA) Under the status disclosure rules, what should an adviser confirm to a retail client on first contact where advice or arrangements in packaged products are contemplated? Tick all that apply.
A. How to complain
B. The firm’s regulatory status
C. FSCS coverage
D. Basis of advice i.e. restricted (tied or multi-tied) or independent
A. How to complain
B. The firm’s regulatory status
C. FSCS coverage
D. Basis of advice i.e. restricted (tied or multi-tied) or independent
All the answers are correct and must be provided on first contact with a client when considering a packaged product. FSCS is the Financial Service Compensation Scheme. (Note: Other disclosure requirements are services provided, details of loans and ownership, and details of how the firm will be paid including commission and/or fee details).
(MA) What forms of remuneration must a firm disclose before selling a packaged product via its agent? Tick all that apply.
A. Any remuneration due to its agent
B. Proper value of the agent’s car
C. Any remuneration received by the firm
D. Proper value of the agent’s pension benefit
A. Any remuneration due to its agent
B. Proper value of the agent’s car
C. Any remuneration received by the firm
D. Proper value of the agent’s pension benefit
All the answers are correct. As well as the remuneration the agent and the firm receive, the firm must also disclose any benefits its agent receives and estimate the value of these benefits, e.g. use of car or pension benefits.
(MA) What are the differences between best execution and execution only sales? Tick all that apply.
A. Execution only cannot happen with stocks and shares, but this is where best execution is most likely to happen
B. With an execution-only transaction on a complex product, the firm is required to assess the appropriateness, but under best execution the firm is required to carry out the instruction
C. Best execution does not apply to life or pension contracts. Although rare, execution only can apply to this field
D. Best execution involves financial advice, but execution only is where the client has received no advice
B. With an execution-only transaction on a complex product, the firm is required to assess the appropriateness, but under best execution the firm is required to carry out the instruction
C. Best execution does not apply to life or pension contracts. Although rare, execution only can apply to this field
Execution only is where the client tells the adviser exactly what they want and does not request or receive any advice. It can apply to life and pension products, but normally applies to stocks and shares. When a client requests an execution-only transaction on a complex product, the firms must assess its appropriateness. Execution-only is not classed as financial advice.
Best execution is where the adviser/broker obtains the best possible deal when executing orders on behalf of a client. This normally applies to dealing in stocks and shares and does not apply to life and pension products.
