Financial planning Flashcards
Steps in the fiancial planning process
- Define the client advisor relationship with Tom and Sally
- Carry out a factfind, deterimin Tom and Sally’s needs and objectives and establish their ATR, CFL and tolerance to risk
- Analyse and evaluate Tom and Sally’s financial position and situation and review suitability of existing investments and policies
- Research, formulate and present financial plan
- Implement the financial planning recommendations, fill out applications with Tom and Sally, provide documenation and suitability report to Tom and Sally
- Regular reviews with Tom and Sally to ensure needs and objectives are on track and take account of any changes
5 points
FCA five best practives for KYC
FCARD
- Take account of client’s Future goals and objectives
- Assess current cirumcumstances against goals and objectives over time
- Extensive information obtained checked bi-annually
- Recognise different couples have different ATR
- Discuss and record all existing plans in place and build in recommendation where possible
5 points
Identify reasons why a financial plan should be regularly reviewed
- Changes in ATR & CFL
- Changes in circumstances
- Review performance and rebalancing of investments
- Are the aims and objectives still being met
- Changes in legislations, taxation or economy
- Changes in financial circumstances e.g tax status, income, new monies
13 points
Areas a finacial planner should address at the review meeting
- Changes in Tom and Sally’s personal circumstances
- Changes in Tom and Sally’s health or changes in their wider family health
- Changes in their employment e.g new job, promotion or entitlement to employee benefits
- Assess performance their investments and rebalance asset allocation to align with ATR
- Changes in ATR, CFL or tolerance for loss
- Changes to Tom and Sally’s tax position
- Use of current year’s allowances and exemptions e.g ISA, CGT, pension contributions
- Analysis of Tom and Sally’s income or expediture or overall disposable income
- Changes in their aim and objectives and where they come in their priority scale
- Any new products that would be relevant to their needs and objectives that might be more suitable for them
- Take account of any changes in legislation
- Whether they have implemented any of the recommendations in the last meeting
- Any areas not discussed in the last review
10 points
Benefits of using an adviser
- Help Tom and Sally identify goals and objectives and priorites
- Consumer Protection/FCA regulated advice
- Anaysis of the suitability of existing arrangements
- Benefit from research and knowledge to formulate recommemdations
- Benefit from tax planning, use of tax wrapper and identifying tax efficiencies and exemptions
- Assess what the Tom and Sally’s ATR, CFL & tolerance to loss
and Sally - Benefit from budgeting and cash flow analysis
- Regular reviews and service would help ensure the needs and objectives are on track
- Benefit from professional advice, experience and clarifications and explanations on areas of financial planning that they may not understand
- Recieve recommendation through a formulation of a financial plan
Types of Advisor fees
Time based
Fix Fee
Percentage of assets/fund based
Financial Aims - Qaulities that define a well worded need
SMART
* Specific
* Mesurable - monetary value e.g £10,000 in retirement
* Agreed - aims agreed with clients
* Realistic - balance with budget and affordability
* Timebound - start and end date
Time based fees ADV/DISADV
Time Based
ADV
* Similar to how other professionals charge for their services and so client would be use to type of charging
* Easy to understand and compare
* Based on actual work undertaken, amount invested irrelevant
* Fee cap can apply
Disadv
* Can be seen as inefficient if fee is large, advisor seen as running up the clock
* May put clients off contacting adviser in case they will be charged
* Paid from personal funds
* unknown cost
Fund based/percentage of assets
Percentage of asset/fund based
ADV
* Can negotiate lower fees for larger funds
* Clients with small funds may be charged a low amount in relation to the large amount work done
* Incentive to grow funds
* Payment taken from fund
DISADV
* Difficult to predict fee each year
* Fee charge may not be inline with service given or time spent on work
* Extra charges may apply for other services
* Fees deducted from funds reduce potential investment growth
Fixed fee ADV/DISADV
Fixed Fee
ADV
* Fee known from the outset
* Client not worried about racking up fees to speak to adviser
* Easy to understand
* Amount invested is irrelevant
DISADV
* Unclear how the fee was arrived at
* Is the fee justifiable
* Paid from personal funds
List 8 Key issues that could trigger an adhoc review
- Changes in legislation or products
- Government budget, this could affect their needs and objectives
- Changes in income or expenditure such as Tom recieving a promotion at work and a payrise
- Changes is personal circumstances such as health issues or relationship or changes in needs and objectives
- Death in the family
- Changes in ATR, CFL or tolerance tol
- A large inheritance that has been recieved such as death of Tom’s mother
- Mortgage being paid off
- Changes in tax status
Advisory Vs Discretionary
Services
Advisory
* The advisor makes recommendation based on the Tom and Sally’s cirucmstances needs and objectives and ATR of the client
* * If changes are required in a portfolio such as change in an asset or purchase or sale of an asset the advisor must get expressed permission from the client before making any change
Discretionary
* The DFM makes a recommendations based on the clients circumstances, needs and objectives and ATR
* * DFM and Tom and Sally will agree boundaries for the type of changes allowed without expressed permmission by them for specific change
* * If any changes are required the DFM can make changes within the boundaries agreed without obtaining express permission from the client
Advantages
Advisory
* Greater level of client involvement
* Client gets the change to review the change and discuss the recommended change
* Supports client/advisor relationship development
* Client makes the final decisions
Advantages
DFM
* Investment decision are acted on in a timely manner
* Does not require client invovement
* Reduces time client needs to speak to DFM and allow client to concentrate on their day to day priorities
Disadvantages
Advisory
* Relies on client understanding before decisions can be made
* Can slow down decision making process
* Investment opportunities maybe missed
* Sale may take a long time and increase potential losses in market downturn
Disadvantages
DFM
* Clients less involved in detail of investment strategy
* Could affect DFM client relationship, decreases the ability build the relationship
