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Financial Planning & Advice > Financial Planning Fundamentals > Flashcards

Financial Planning Fundamentals Flashcards

1
Q

The key purpose of financial planning

A
  • 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.
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2
Q

What is Financial Advice?

A
  • Is a recommendation of a financial transaction at a
    specific time.
  • May be restricted to one or two financial concerns.
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3
Q

Who is involved in the process?

A
  • The financial planner and paraplanner.
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4
Q

What is the role of the paraplanner?

A
  • To assist and support the financial planner.
  • Analysing the client’s situation, research and draft of
    financial plan.
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5
Q

What is the role of the financial planner?

A
  • Responsible for client relationship.

- To deliver the financial plan.

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6
Q

The six step financial planning process

A
  1. Establish and define client-planner relationship;
  2. Collect client data, including personal and financial
    objectives, needs and priorities;
  3. Analyse and evaluate the client’s financial status;
  4. Develop and present a financial plan and
    recommendations;
  5. Implement the financial planning recommendations;
  6. Review the client’s situation.

Chapter 3 Section 1.1

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7
Q

List five areas a financial plan will generally cover.

A

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

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8
Q

Explain what is meant by a vulnerable consumer.

A

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

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9
Q

What process can be used to qualify and quantify objectives given to clients?

A

SMART: Specific, Measurable, Achievable, Relevant, Timescaled

Chapter 3 Section 2.1.7

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10
Q

What can time value of money calculations assist with?

A

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

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11
Q

When a person dies without leaving a will, who cannot inherit from their estate?

A

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

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12
Q

What is the key to gaining and retaining client trust?

A

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

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13
Q

What is the key to making effective recommendations?

A

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

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14
Q

List the Statements of Principle for Approved Persons.

A
  • 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

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15
Q

What are the reasonable steps to identify any conflicts of interest that firms are obliged to undertake?

A

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

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16
Q

Name the criteria in the quantitative test list for clients wishing to opt up.

A

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

17
Q

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

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

18
Q 
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
A

See Chapter 3, Section 6.3.1

A,B.C

19
Q

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

A

See Chapter 3, Section 6.3.1

A,B,D

20
Q

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

A

See Chapter 3, Section 4.3.10

A,C,D

21
Q

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

A

See Chapter 3, Section 6.3.1

A,C,D

22
Q 
The rules on suitability apply to personal recommendations (COBS 9) relating to:
A MiFID investments 
B Designated investments 
C Retail investments 
D Regulated investments
A

See Chapter 3, Section 6.3.1

A,B,D

23
Q

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

A

See Chapter 3, Section 5.2.1

A,B,D

24
Q

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
A

See Chapter 3, Section 6.2.1

A,C,D

25
Q 
For how long must a firm keep records that relate to advice given in respect of MiFID business?
A At least three years 
B A minimum of five years 
C Indefinitely 
D At least seven years
A

See Chapter 3, Section 6.2.5

B

26
Q

Four clients have contacted you for financial advice.
Client 1 is an eligible counterparty.
Client 2 Is a retail client.
Client 3 is a retail client who wants to be treated as an elective professional client.
Client 4 is a per se professional client.

In respect of the services provided, which of the following statements are true? Select ALL that apply.
A Clients 2 and 3 will be given the highest level of protection
B Only Client 2 will be given the highest level of protection
C Clients 2 and 4 will be given the highest level of protection
D Clients 3 will no longer benefit from the highest level of protection

A

See Chapter 3, Section 6.3.1

B

27
Q

A client recently died and left a trading family business, which he had run for over 30 years, to his eldest son, who has since contacted you for advice. What are the inheritance tax (IHT) implications in this scenario?
A IHT will need to be paid on the value of the business in excess of the lifetime allowance
B IHT will need to be paid on 50% of the value of the business above the lifetime allowance
C No IHT will be due as he will be entitled to claim business property relief on 100% of the value of the business
D IHT will be levied at a rate of 20% on the value of the business that exceeds the lifetime allowance

A

See Chapter 3, Section 4.3.11

C

28
Q 
What is the FCA-prescribed minimum number of compulsory annual structured CPD hours required by retail investment advisers?
A 21 hours 
B 35 hours 
C 14 hours 
D 10 hours
A

See Chapter 3, Section 6.2.5

A

29
Q 
Which of the FCA’s Principles for Businesses is the basis for the Treating Customers Fairly initiative?
A Principle 1 
B Principle 7 
C Principle 6 
D Principle 9
A

See Chapter 3, Section 6.2.4

C

30
Q

What is the key difference between Enduring Power of Attorney (EPA) and Lasting Power of Attorney (LPA)?
A EPA is set up for property and affairs; an LPA can be set up for property and affairs and also personal welfare
B EPAs cannot come into effect until registered with the Office of the Public Guardian, whereas LPAs do not need to be registered
C Once the client is incapacitated, they can only choose an LPA
D EPA gives the attorney unlimited powers, an LPA limits the powers of the attorney

A

See Chapter 3, Section 4.3.14

A

31
Q 
In order for a potentially exempt transfer to be treated as fully exempt from inheritance tax, for how long must a donor survive after making the transfer?
A Six months 
B Two years
C Three years 
D Seven years
A

See Chapter 3, Section 4.3.10

D

32
Q

Bob has Enduring Power of Attorney (EPA) for his friend Gill, who suffers from a progressive degenerative disorder. Which of the following types of gift is Bob allowed to make from Gill’s property without approval from the Court of Protection? Select ALL that apply.
A Christmas presents for Gill’s grandchildren
B Marriage present for one of Gill’s nephews
C Donation to Cats Protection, which Gill has supported for 30 years
D Gift of a small holiday home to Gill’s daughter

A

See Chapter 3, Section 4.3.14

A,B,C

33
Q 
Which of the following funds have limited or no exposure to the oil, banking and pharmaceutical sectors?
A Engagement funds 
B Light green funds 
C Medium green funds 
D Dark green funds
A

See Chapter 3, Section 5.4.2

D

34
Q

Drew has told his adviser that he wants to opt up to become an elective professional client. Which of the following may mean that he can do this? Select ALL that apply.
A over the last year he has been a very active investor trading at least once on most working days in a month
B as a result of the profits he is made, his portfolio is now worth £500,000
C he used to work in the corporate finance industry providing mezzanine finance to companies
D he explained his understanding of the risks and the type of investments you will be making.

A

See Chapter 3, Section 6.3.1

A,B,D

35
Q

Case Study

Sandra Hogg, aged 50, earns £80,000 pa. She also receives a bonus of 55% of her salary. She contributes £800 net per month to a personal pension. She has no taxable savings or investment income. She plans to semi-retire in 15 years by working a three-day week for a further five years. Her attitude to risk is moderate.
Her husband owns his own business and doesn’t have a pension or any savings towards retirement.

Question 1

Based on the information provided, what is Sandra’s personal allowance in 2018–19?
A £0
B £5,850
C £6,500
D £11,500
A

See Chapter 3, Section 2.2

B

36
Q 
In addition to her current contributions how much would Sandra need to contribute (gross) to a pension to fully regain her personal allowance?
A £5,000
B £6,000
C £11,000
D £12,000
A

See Chapter 3, Section 2.2

D

37
Q

Why would a cash fund not be suitable for her to invest into? Select ALL that apply.
A It is not suitable given her attitude to risk
B Cash offers excellent growth potential
C Cash offers poor protection against inflation
D She has a long-term time horizon so should be investing in the markets

A

See Chapter 3, Section 2.1

A,C,D

Financial Planning & Advice (1 decks)

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