Funds And Investments

Question 1

Detirmining suitability of funds/investments

Answer 1

Income/Accumulation
FSCS
Making contributions
Asset allocation
Diversification
Risk and capacity for loss
Administration
Charges
Sutability for client

Question 2

UK equity fund

Question 3

Uk equity fund cons

Question 4

Global equity fund pros

Question 5

Global equity fund cons

Question 6

Additional information to assess fund sutability

Question 7

Additional information to determine sutability for tax puposes

Question 8

Benefits of OEICs

Answer 8

DIGITAC

Diversification
Inflation hedge
Growth potential
Income possible through Div/Interest
Tend to have low charges
Allowances can be used
Can bed and ISA

Question 9

Drawbacks of OEICs

Answer 9

MILD T

May need advice
Included in LTC assessment
Loss potential
Dividend not guaranteed

Taxable income and CGT outside ISA

Question 10

What information would you require to advise whether to hold, switch, or sell investments

Answer 10

Facts
B
A
-Original investment amount
-Asset allocation
N
-Sutability for the client
T
-Date of original investment
-Other capital sums invested
T
-Use of CGT exemption
-CGT losses to carry forward
E
-Details of previous encashments
-Charges
R
-Performance
R

Willingness
B
A
N
T
T
-Willingness to gift/use trusts for tax efficiency
E
R
R

Question 11

Active management

Answer 11

Objective to achieve returns above market
Fund managers buy and sell stocks or funds on how they believe they will perform in order to reach this goal.
Constant changes are made to the portfolio
High level of information required and complex selection and trading systems are used to choose stocks
Usually higher costs than passive investment
No guarantee of producing funds above the market
Many ways of running an active fund encompassing differing methods and types of analysis

Question 12

Passive fund massive

Answer 12

Does not seek to outperform market
Fund invests in a selection of assets that produce an average return for those classes
Periodically rebalanced to maintain asset classes
Does not look to select stocks or funds that appear or otherwise forecast the future price.
No active intervention is required
Does not require lots of information to drive the selection process
Usuallg costs less than active funds
Will often underperform the market average due to costs

Question 13

Investing in cash deposits

Answer 13

Protection up to £85,000 by FSCS
Protected up to £1m for 6 months, temporary high balances
Interest may not be competitive
Limited growth
Limited inflation protection
Real value of cash will fall
Can increase when rates are high
No CGT
Considered low risk
Taxed at marginal rate on interest over personal allowance

Question 14

What are the 9 forms of risk

Answer 14

Inflation
Taxation
Interest
Liquidity
Currency
Diversification/Concentration
Non-systematic
Market/systematic
Default/provider

Question 15

Explain the difference between attitude for risk and capacity for loss

Answer 15

Capacity for loss
-An individual’s perception of their ability to absorb losses should they occur

Attitude for risk-
-The amount of risk and individual is willing to take
-Whether they are comfortable investing their funds now and how prepared they are to see the value of investments fluctuate and see potential losses

Question 16

What are the features of using a platform

Answer 16

Offers access to a wide range of investment funds or collective investments
Different platforms offer access to different types of collective investments
Open architecture wrap platforms tend to offer unfettered access to OEICs, investments trusts, and ETFs
Wrappers can include ISAs, SIPPs, pension contracts, and investment bonds
Investors’ holdings are shown in a single account
Which is usually accessed online
Which enables investors to view their total assets and asset collections
And the up to date valuation of thier investments in one place

Question 17

Benefits of appointing a discretionary fund manager to look after investments

Answer 17

Profesional/active management
Potential for higher returns
Regular reviews
Will target objectives/bespoke service
No requirment for ongoing involvement
Consolidated tax statements/information
Wider investment options
Can utilise tax efficient allowances

Question 18

Drawbacks of appointing a discretionary fund manager to look after investments

Answer 18

Higher charges
No guarantee of performance
May not provide regular service
Lack of control
May invest in unacceptable sectors/unethical
May not provide tax advice/tax efficiency not always considered