Financial Planning Fundamentals Flashcards
The key purpose of financial planning
- It’s an action plan evolving a cyclical process.
- Rearrangement of client’s affairs might be enough.
- Often involve financial advice.
- Involves give investment advice regulated by Financial
Sevices and Market Act (FSMA) 2000. - Producing a financial plan for people who are asset
and income or not have enough assets and income.
What is Financial Advice?
- Is a recommendation of a financial transaction at a
specific time. - May be restricted to one or two financial concerns.
Who is involved in the process?
- The financial planner and paraplanner.
What is the role of the paraplanner?
- To assist and support the financial planner.
- Analysing the client’s situation, research and draft of
financial plan.
What is the role of the financial planner?
- Responsible for client relationship.
- To deliver the financial plan.
The six step financial planning process
- Establish and define client-planner relationship;
- Collect client data, including personal and financial
objectives, needs and priorities; - Analyse and evaluate the client’s financial status;
- Develop and present a financial plan and
recommendations; - Implement the financial planning recommendations;
- Review the client’s situation.
Chapter 3 Section 1.1
List five areas a financial plan will generally cover.
The financial plan will generally include:
- Cover page.
- Contents page.
- Introduction.
- Objectives and priorities.
- Assumptions.
- Attitudes.
- Net worth (assets and liabilities).
- Income and expenditure.
- Areas chosen for recommendation.
- Other issues.
- Summary of recommendations.
- Reviews.
- Appendices.
Chapter 3 Section 1.2
Explain what is meant by a vulnerable consumer.
The FCA defines a vulnerable consumer as ‘someone who, due to their personal circumstances, is especially susceptible to detriment, particularly when a firm is not acting with appropriate levels of care’.
Chapter 3 Section 2.1.3
What process can be used to qualify and quantify objectives given to clients?
SMART: Specific, Measurable, Achievable, Relevant, Timescaled
Chapter 3 Section 2.1.7
What can time value of money calculations assist with?
Time value of money calculations can help to calculate:
- how much an investment will be worth after a certain
period of time
- how much is needed to save per month/year to reach
a target capital amount in the future
- the effective rate of return investments would need to
achieve to ensure a target capital amount was
achieved in the future
- how long it will take before an initial investment grows
to a target amount.
Chapter 3 Section 2.2.3
When a person dies without leaving a will, who cannot inherit from their estate?
The following people have no right to inherit where someone dies without leaving a will:
- unmarried partners
- lesbian or gay partners not in a civil partnership
- relations by marriage
- close friends
- carers.
Chapter 3 Section 4.3.5
What is the key to gaining and retaining client trust?
The key to gaining and retaining the trust of clients is to keep the client’s needs at the centre of all recommendations and to explain these in terms the client can fully understand, including the risks involved and to agree any plans with the client rather than dictate them.
Chapter 3 Section 5.2
What is the key to making effective recommendations?
The key to making appropriate recommendations is accurately assessing the client’s attitude to risk. Risk raises the possibility that the client may lose some or all of their investment, or that the growth rates that have been assumed do not materialise. Finding the correct options for diversifying risk whilst using products that deliver the best returns is the key to effective recommendations.
Chapter 3 Section 5.4.2
List the Statements of Principle for Approved Persons.
- Statement of Principle 1 – Act with integrity
- Statement of Principle 2 – Act with due skill, care and
diligence - Statement of Principle 3 – Observe proper standards
of market conduct - Statement of Principle 4 – deal with the FCA & other
regulators openly and cooperative. - Statement of Principle 5 – take steps to ensure
the business of the firm is organised and can
be controlled effectively. - Statement of Principle 6 – exercise due skill, care and
diligence in managing the business of the
firm. - Statement of Principle 7 – take steps to ensure that
the business of the firm complies with the
requirements &standards of the regulatory
system.
Chapter 3 Section 6.2.1
What are the reasonable steps to identify any conflicts of interest that firms are obliged to undertake?
Firms are therefore obliged to:
- maintain effective organisational and administrative
arrangements designed to prevent conflicts
- arrange for those producing external-facing
investment research to have appropriate barriers in
place to stop this information flowing to other parts of
the firm
- ensure that, when conflicts cannot be managed away,
they are disclosed
- have and maintain a conflicts policy
- provide clients with the description of that policy;
- keep records of where conflicts have arisen
Chapter 3 Section 6.3.1
Name the criteria in the quantitative test list for clients wishing to opt up.
If clients do wish to opt up, they must be able to meet two criteria from the quantitative test list below in order to become elective professional clients:
- average trade frequency of greater than ten trades per
quarter over previous four quarters - portfolio worth over €500,000
- has worked, or been involved, in financial sector for
more than one year in a professional capacity which
requires the knowledge of the transaction or service
envisaged.
Chapter 3 Section 6.3.1
Under the Training and Competence rules, which of the following factors need to be taken into account when reviewing an employees’ competence on a regular and frequent basis? Select ALL that apply.
A Changes in products, legislation and regulation
B Skills and expertise
C Technical knowledge and its application
D Succession planning strategy
A,B,C
The strategy for succession planning is not a key factor in maintaining an employee’s competence.
Chapter 3, Section 6.2.5
Which of the following are client categories under the Client Categorisation rules (COBS 3)? Select ALL that apply. A Professional counterparty B Retail C Eligible counterparty D Professional
See Chapter 3, Section 6.3.1
A,B.C
Which of the following are criteria of the quantitative test for a client to become an elective professional? Select ALL that apply.
A Involvement in the financial sector for more than one year in a professional capacity
B Portfolio worth over €500,000
C Extensive experience and knowledge of financial services
D Average trade frequency of greater than ten trades per quarter over the previous four quarters
See Chapter 3, Section 6.3.1
A,B,D
Ivor wants to cut down on his potential inheritance tax (IHT) liability and it has been suggested that he makes various cash gifts to achieve this. However, he only wants to do this if it ensures that there is no possibility of IHT on these payments. Consequently, he proposes to make gifts to the following recipients:
Gift 1 – to his son as a wedding present
Gift 2 – to his wife who is a non-UK domicile
Gift 3 – to a registered charity based in Scotland
Gift 4 – to the local university where he originally attended
Which of the following statements are FALSE? Select ALL that apply.
A Only Gift 2 will be free of any potential IHT
B Only Gift 3 is deemed to be an exempt transfer
C Only Gifts 1 and 2 are subject to a specified IHT-free limit
D Only Gifts 3 and 4 will be treated as potentially exempt transfers
See Chapter 3, Section 4.3.10
A,C,D
Which of the following are requirements of the financial promotions rules (COBS 4) in respect of complex investments? Select ALL that apply.
A If a firm’s regulator (FCA) is named and where matters are not subject to FCA regulation, this is clearly explained
B If the past performance is below average, this is clearly disclosed
C The complexity of the investment is clearly explained
D If the capital is at risk, this must be clearly specified
See Chapter 3, Section 6.3.1
A,C,D
The rules on suitability apply to personal recommendations (COBS 9) relating to: A MiFID investments B Designated investments C Retail investments D Regulated investments
See Chapter 3, Section 6.3.1
A,B,D
Which of the following elements is included in a key facts illustration (KFI)? Select ALL that apply.
A The adviser charge to be deducted from the policy
B A projection of the final benefits
C Material risks associated with the product
D The effect of charges
See Chapter 3, Section 5.2.1
A,B,D
Four employees all work for a regulated firm of independent financial advisers:
Alan is responsible for compliance oversight
Brenda is a financial adviser
Colin is a complaints officer
Denise is a director
In accordance with the Statements of Principles for Approved Persons, who must ensure that aspects of their business are controlled effectively? Select ALL that apply. A Alan B Brenda C Colin D Denise
See Chapter 3, Section 6.2.1
A,C,D
