General Flashcards
Describe the process for using a risk profiling software?
1) Clients complete a questionnaire that focuses on their priorities, timescales and circumstances
2) The answers are then fed in to the computer software
3) This then generates a score
4) The score then produces a recommended asset allocation, which often uses efficient frontier for investments
5) This result is then discussed with the client, to ensure it matches their interpretation of risk
Explain the difference between capacity for loss and attitude to risk
C4L - is an individuals perception of their ability to absorb losses should they occur
ATR - is the amount of risk an individual is willing to take, how prepared they are to see the value of their investments fluctuate and potential losses
State the process an adviser would use when providing investment advice
1) Establish goals, expectations and time scales
2) ATR
3) C4L
4) Identify levels of emergency find req’d
5) Establish current and future tax status
6) Full details of existing investments
7) Ethical, religious, social, responsible beliefs
8) Establish an appropriate asset allocation
9) Select the funds for new money
10) Allocate tax wrappers
11) Implement, monitor, review and rebalance
Explain the features of a platform
The core purpose of a platform is to offer access to a wide range of funds or collectives.
Different platforms offer access to different types
Open architecture wrap platforms tend to offer unfettered access to OEIC’s, investment trusts and ETF’s
Wrappers can include SIPP’s, ISA’s, bonds and pensions
The holdings are shown as 1 single account
Usually accessed online
Enables the investor to see their total assets and allocation and up to date values
Outline the 6 steps of the financial planning process
1) Establish and define the client relationship
2) Fact fine
3) Analyse & evaluate client financial situation
4) Formalise and present the plan
5) Implement recommendations
6) Regular reviews
Outline 2 benefits and 2 drawbacks of fixed fees
✅ know what they pay
✅ transparent and easy
✅ no worry about time spent every time they contact
❌may not be good value
❌client may not understand how the fee has been arrived at
Outline 2 benefits and 2 drawbacks of time based fees
✅ not linked to investment value
✅ familiar with this approach as adopted by other professionals which are perceived as fair
❌May feel promoted inefficiency/running the clock
❌ unknown cost/reluctant to seek advice
State 3 methods of fee charging
Fund based/% based
Time based
Fixed fees
State limitations to using an asset allocation model
It does not recommend an appropriate tax nor does it take in to account a clients tax status
Charges are not considered
Different models produce different results
Underlying assumptions are subject to change based on historic data
Needs to be reviewed as only valid at point in time
Describe the process to calculate the CGT if S&G sold some of their shares in the OEICs
1) The base cost of the shares to be established
2) This would be deduced from the sale value plus the value of the reinvested income
3) A deduction would be made for all costs incurred in the purchase and sale of the shares leaving the gain on the shares
4) Any same year losses must be deducted and then the exemption applied
5) If there is still a gain and they have registered previous year losses these can be applied to reduce or eliminate
6) If a gain remains, then Simon will pay tax at 20% and Grace at 10% (that falls within her BRB)
Describe the benefits to S&G if they each set up LPA’s
They can ensure their wishes are known
They can choose who will act as their attorneys and an also select replacement attorneys
They can set up health and welfare LPAs to provide guidance on future care although they cannot be used until they have lost mental capacity
They can also set up property and financial to allow an attorney to deal with their finances and these can be used before capacity is lost if they allow it
Having these set up saves the cost, complexity and lengthy time to set up if dealing with the court of protection
Explain the benefits of a current cash flow statement when devising a financial plan for Simon and Grace
Shows difference between income and expenditure
Highlights areas for cost reduction
Identifies opportunities to fill gaps in planning/establish planning budget
Can be used for analysing future cash flow
Enables Grace and Simon to understand the long-term impact of their expenditure
Simon and Grace will have a reduced disposable income when Emma goes to university
Explain the difference between negative and positive screening
Negative - a fund will not invest in certain industries; oil and gas, alcohol or a fund will not invest in certain countries
Positive - a fund will invest in companies that make a positive contribution to society, demonstrate better business practices
There may be a committee involved before the fund manager can make a particular decision
