Establishing And Quantifying A Client’s Objectives

Question 1

A crucial step in the investment advice or financial planning process is to establish what the client wants to achieve.

A client’s objectives should be stated in financial times and should define how much is needed and when.

What are the typical objectives for a client?

Refer to table 5.1 page 210

Answer 1

1. Protection
   A. Clients need sufficient protection against financial risks such as illness, disability, or death.
   B. Also have the right level of insurance (e.g., life, health, and income protection).
2. Borrowing.
   A. Clients may need to finance major expenses (e.g., buying a home, business loans).
   B. Establishing objectives ensures debt levels remain manageable and aligned with income.
3. Savings and investment.
   A. Setting specific savings and investment targets helps clients achieve financial security.
4. Retirement.
   A. Precise calculations to determine how much should be saved to sustain a comfortable lifestyle.
5. Estate planning.
   A. Ensure assets are distributed according to the client’s wishes while minimizing taxes. E.g. reduce inheritance tax (IHT)

Note: After the client’s objectives are determined they need to be quantified.

Question 2

Define what Lump Sum is with regards to pension pots

Answer 2

1. A lump sum refers to a one-time withdrawal of a portion or the entirety of a pension pot, rather than receiving regular income payments.
2. Typically, 25% of a defined contribution (DC) pension can be taken as a tax-free lump sum when the individual reaches the minimum pension age (currently 55, rising to 57 in 2028).
3. The remaining 75% can be withdrawn as taxable income or left invested for future withdrawals.

Question 3

Affordability and prioritising objectives

Why is there a need to prioritise objectives in order to accommodate a client’s affordability?

Answer 3

1. Not all client objectives can always be met - financial resources are often limited.

2 Prioritisation is necessary - requires agreement on which objectives/ goals take precedence.

3. Affordability is a key constraint - clients must focus on the most critical financial goals first.
4. A cash flow statement - helps determine affordability by outlining income, expenses, and expected future changes.
5. A surplus - extra capital is available for savings, investments, protection policies, or debt repayment.
6. A deficit signals financial strain - requires significant reassessment of priorities and financial strategy.