Financial Advice Processes – General

Question 1

Outline the main factors that might affect Joshua and Amina’s capacity for loss. (10 points)

Answer 1

• Timescale/intended retirement age.
• Age.
• Their level of salary.
• Large emergency fund.
• Limited other assets.
• Large mortgage/no other apparent debts or liabilities.
• Three young financially dependent children.
• They are in good health/lack of protection products.
• Objectives.
• Employer sick pay/State benefits.

Question 2

Describe the process an adviser could use to ensure there are sufficient funds under an existing pension plan to provide the required level of target benefits. (7 points)

Answer 2

• Establish the income required, allowing for inflation.
• Calculate the fund required based on assumed/agreed annuity rate.
• Allow for pension commencement lump sum requirement.
• Calculate existing benefits using assumed or agreed growth rate.
• Include ongoing funding.
• Calculate the shortfall and the increased contributions required.
• Ongoing reviews needed.