Investment advice process

Question 1

5 stages of investment advice process

Answer 1

Client requirements
analyse position
formulate strategy
Produce recommendations and implement
review

Question 2

as well as objectives what 3 other areas must be considered for investment advice

Answer 2

risk tolerance
C4L
k and E

Question 3

what are the 4 areas fca want good outcomes for consumer duty

Answer 3

1. products and services;
2. price and value;
3. consumer understanding; and
4. consumer support.

Question 4

4 purposes of client agreement

Answer 4

• remuneration;
• the service that will be provided and the timescale in which it will be provided, e.g.
  quarterly valuations;
• the duration of the agreement; and
• the frequency of contact, e.g. not less than annual meetings.

Question 5

Differential risk profiles of funds within asset classes

Answer 5

Fixed-interest securities Equities
Lower risk * Gilt funds;
* global government bond funds; and
* investment grade corporate bond funds.
* Equity income funds; and
* income and growth funds.
Higher risk * Emerging market bond funds;
* high-yield bond funds; and
* tactical bond funds.
* Alpha funds;
* smaller company funds; and
* specialist funds

Question 6

Give 4 examples of positive screening

Answer 6

provide beneficial or useful products and services (e.g. waste management, water or
education);
* meet certain standards (e.g. international standards or norms);
* are regarded as having higher standards than their peers (e.g. best in sector); or
* fit within a named theme (e.g. renewable energy or nature).

Question 7

what is Responsible ownership (stewardship

Answer 7

asset owners encouraging
companies to have higher ESG standards

Question 8

What are the deadlines for consumer duty?

Answer 8

31 July 2023 for new and existing products or services that are open for sale or renewal;
and
* 31 July 2024 for closed products or services (those that are no longer marketed or
distributed to retail clients nor open to renewal).

Question 9

5 benefits of consumer duty

Answer 9

More likely to be suitable

Clear information increases consumer understanding

Focus on good outcomes means happier consumers

Increases accountability as firms are responsible for whole journey

Increased trust and reputation of FS

Question 10

3 cost cutting rules of consumer duty

Answer 10

• ‘A firm must act in good faith towards retail customers’
• ‘A firm must avoid foreseeable harm to retail customers’
• ‘A firm must enable and support retail customers to pursue their financial objectives’

Question 11

5 benefits of AI

Answer 11

Create targeted content
condense research
File reviews
automate compliance process
risk management data analysis

Question 12

5 risks of ai

Answer 12

must be compliant
Bias
Data security
Lack of transparency of sources
Over reliance on technology

Question 13

Under the IA framework for responsible investment what are the 3 firmwide definitions

Answer 13

1. Stewardship: ‘The responsible allocation, management and oversight of capital leading to sustainable benefits for the economy,
   the environment and society.’
2. ESG integration: ‘The systematic and explicit inclusion of material ESG factors into
   investment analysis and investment decisions.’
3. Exclusions: ‘Exclusions prohibit certain investments from a firm, fund or portfolio.

Question 14

Under the IA framework for responsible investment what are the 3 fund level definitions

Answer 14

1. Sustainability focus: ‘Investment approaches that select and include investments on the
   basis of their fulfilling certain sustainability criteria and/or delivering on specific and
   measurable sustainability outcome(s).
2. Impact investing: ‘Investments made with the intention to generate positive, measurable
   social and environmental impact alongside a financial return.’

Question 15

3 considerations choosing platform

Answer 15

Wrappers
Investments
Fees

Question 16

2 main client objectives

Answer 16

returns and risk tolerance

Question 17

What are the 4 return objectives

Answer 17

Capital
preservation - return that is equal to or above the
inflation rate.

Capital
appreciation
- This is usually for longer-term investors where growth in the value of the assets in real
terms is the priority,

Current income This is often for investors who are focusing on income rather than capital gains.

Total return - This is usually for long-term investors who are looking for growth in the value of a portfolio
to come from both capital gains and reinvestment of income.

Question 18

5 constraints on investment portfolio

Answer 18

• time horizon;
• liquidity;
• tax;
• legal and regulatory factors; and
• unique needs and preferences.

Question 19

2 ways to implement element of tactical AA

Answer 19

1. The proportions of capital to be invested in any one asset class are set as a band, say,
   10–20%.
2. At any time, more capital can be allocated to one class to take it to the top of its range,