Investment Flashcards
Factors to take into account when deciding the suitability of an investment (10)
MAKE IT RELEVANT TO CASE STUDY
- legal restrictions (age, amount etc)
- do the objectives of investment meet the clients needs (e.g. growth / investment)
- ATR/ CFL
- taxation
- timescales meet client needs?
- early death, inter-generational planning
- liquidity meet clients requirements
- clients investment experience
- clients assets v liabilities
- emergency funds
- Investment preferences e.g. ethical preferences
- costs/charges
- personal circumstances (age/health etc)
Considerations you would make before recommending a particular fund (10)
- financial soundness of the provider
- size of the fund
- costs/ charges
- style of fund management (active/passive)
- reputation of the fund manager
- risk profile of the fund
- asset allocation (top down /bottom up)
- past performance
- admin efficiency
- ratio data e.g. sharp ratio, volatility, information ratio
Reasons why a client may wish to replace an existing investment (7)
- IHT planning
- cost
- consolidation
- advice and service from SJP partner
- SJP IMA
- diversification
- past performance
Treatment of ISAs on death (6)
- if died after 6th April 18
- the investment has remained as an ISA / not become a unit trust
- it will continue to benefit from ISA tax advantages until the earlier of - probate or 3 years after death
-options for reinvestment of ISA after deaths of spouse (5)
- whole amount (including any growth) by can be invested into ISA
- this is in addition to the current annual allowance
- one can chose investments which match their ATR
- doesn’t need to be held in S&S ISA, can be held in cash ISA
- you can switch providers
Investment corridors for elderly client - amount of their investable assets the should invest up to
70-79 = 65-80%
- 80-84 = 50-75%
- 85-89 = 35-60%
- 90+ = 20-40%
Effect of inflation and interest rates on equities and bonds (6)
Equities
- prices of goods increase
- so price/demand for shares increases
- therefore equity returns increase
- and capital value of equity holdings increases
Corp bonds
- interest rate if current holdings will be lower than those in market place
- this reduces demand for units in the current holdings
- which reduces value of current bonds
- reducing their return
Why recommend the use of the four main assets classes (9)
Cash
- to allow for withdrawals to provide ad hoc income without suffering from market volatility
Fixed interest:
-interest from FI assets can be used to provide a known income
Equity:
- negatively correlated with FI
Property:
- rental income can help provide income
- not directly correlated to equities
General:
- to provide a diversified portfolio
- equities/ property have the potential for capital growth
- helps manage risk in a portfolio / matches ATR
Factors to consider (analyse) when selling another providers UT to fund an SJP ISA
SELLING UT:
- capital gain/loss created as a result of the sale
- have they used CGT exemption elsewhere?
- charges comparison
- performance of existing UT
- current income produced from the UT
Reinvestment in SJP
- CFL
- does it match ATR
- SJP Approach
- CYC should be within 1%
- cost of advice
Factors to consider when funding JISAs for uni fees (8)
- Do children already have JISAs?
- how much do they want to contribute
- expected length of uni course /target fund value
- funds could be used for other purposes when child reaches 18
- JISAs provide tax free growth and income
Detail and justify how the purchase of UT can provide a tax efficient income in retirement
- encashments from UTs each year can utilise CGT allowance and provide a tax-free ‘income’
- existing losses can be brought forward to increase the amount that can be encased with no CGT payable
- existing assets can be equalised using the inter spousal exemption to buy jointly held UTs and make use of both CGT exemptions
- an ISA feeder could be set up to utilise their ISA allowance in future years to provide tax free income
- equity based unit trust would allow the use of the dividends allowance with any excess taxed at just 7.5% as basic rate tax payer
- investing in corporate bond unit trusts will allow them to make use of PSA
Reasons to use an onshore investment bond in a DT
- there are XX number of years until XYZ
an IB is suitable for a long term investment
- there are a variety of funds to chose from
- which will allow the trustees to chose suitable funds to meet the trusts risk requirements
- IB is non income producing
- which reduces admin for the trustees
- BRT deemed to have been paid within the fund
- when funds are required policies can be assigned to children
- tax on encashment is based on their tax position
- up to 5% per policy year can be encashed by the trustees and paid to the beneficiaries
- with no immediate tax liability
What are the three SJP investment core principles (3)
- amount of EF needed
- do they want to use/ have they used their ISA allowances
- do they wish to maximise pension contributions
Factors to consider before offering investment advice (10)
- objectives (growth/income)
- willingness to get involved in management of capital
- investment timeframes
- health and life expectancy
- need for care
- ATR
- CFL
- suitability of existing investments to meet their objectives
- taxation (used isa allowances?)
- ethical requirements
- need to pass on assets to future generations
- investment corridors
- EF needed
- tax positions
- could use BR qualifying assets to mitigate IHT
Conditions for a property to qualify as a furnished holiday let?
- must be located in UK or EEA
- must be furnished
- must be commercially let (let to make a profit)
- must be available to let for 210+ days per year
- must be let for at least 105 days per year
- total of all lettings of 31+ days must not exceed 155 days in the year
- profit / losses must be kept separate from profit/loss of any other property owned
- all UK FHLs are group together as a single FHL business
- all EEA FHLs are grouped together as a single EEA business
- profit and losses of UK business can’t be used against those of EEA and vice versa
