Objective 8: General Areas Flashcards
(a) Outline the reasons why Alex should be treated as a vulnerable client.
5 marks
Alex has just lost his wife
He is now the sole breadwinner and caregiver to children
The children are still dependent and have just lost their mum
He has a lot of decisions to make about work to care for children and a greater degree of wealth than he was used to
He only help minimal investment previously - isa and work pension
Unlikely to have high level knowledge in financial matters
Solicitor is dealing with the estate administration, even though due to survivorship and the will is leaving everything to Alex, would have been a more simple estate to process
There are multiple administrations changes that Alex needs to make which may not be areas within his current knowledge and skill set as a senior project engineer
(b) Identify the actions that a financial adviser should take due to his vulnerability, whilst carrying out the advice process.
8 marks
Ensure records are updated in relation to Alex’s vulnerability - all staff are aware
Consider the circumstance changing/ unknown childcare costs/ possible change in work hours/ inheritance from Tanya’s estate
provide clear information/ in writing/ no jargon
Invite family members to a trusted friend to attend meetings
Alex may have limited financial knowledge - check understanding
Allow additional time for meetings
Allow Alex time to make decisions/ make no recommendations that require immediate action/ are time bound
All decisions must be flexible/ Alex may change his mind
Consider putting in place a no fixed term investments until he has adjusted to the loss of Tanya and understands income requirement better and what is required for childcare
With such a dramatic change to Alex and the children’s circumstances, Alex is keen to understand what support may be available to help them at this time.
Outline some of the resources the family could access.
6 marks
No details of Tanya’s illness - could be linked to a charity - the health professionals who cared for Tanya will know
When reporting death the government service is called “Tell us once” so PP, DL and vehicle registration etc sorted
Bereavement support charities - AtaLoss website can be used:
Info to manage grief
Info practicalities following death - registering - organising funerals
Community support
Practical support
Option to talk to others
Contact details for local charities and groups
How to access counselling
Children’s school will have support policies
Family and friends can often be called on for both practical and emotional support
Professionals such as solicitors and financial advisers can help to explain processes and procedures and enable Alex to understand the impact of the choices he faces
State seven key benefits to Alex of receiving ongoing financial advice.
10 marks
Financial objectives can be dentifrices /reviewed
Existing situation analysed/ shortfalls identified
Take into account changes in circumstance - income needs, less childcare support, change of work hours & receipt of inheritance
Given time to adapt to new situation
Can highlight decisions with tight timescales - claim APS, deed of var, Bereavement benefits
Tax allowances can be maximised
Cash flow and budget can be identified and assessed
ATR/C4L/ tolerance for risk can be reassessed
Plans can take account of new legislation/products
Full analysis of his sources of income to support the family
Performance of pensions and investments can be monitored
Monitoring of the estate value for IHT can be carried out and IHT mitigation strategies implemented
Peace of mind that he can discuss his and the family’s financial plans if needed
He will have consumer protection via FCA/FSCS
Processes can be explained and help signposted
Time based Charging - Benefits & Drawbacks
Benefits
Easy to understand
Removes product bias
Less arbitrary
Adviser cost comparisons easier
Drawbacks
Reward for inefficiency
Difficult to estimate final cost
Paid out of clients pocket
Fixed fee charging - Benefits & Drawbacks
Benefits
Simple
Encourages client contact as this does not increase any charge
Total known cost
Drawbacks
Could be poor value for work involved
little negotiation possible
Adviser could cut corners
Fund based charging - Benefits and drawback
Benefit
Adviser incentive to grow client wealth
Can be paid via provider
More negotiation scope
Drawback
May not reflect adviser work involved
Additional charges for extra services
Investment directly reduced by charges
Discretionary - Benefits & Drawbacks
Benefits
More personalised service
The DFM can respond more quickly to market opportunities
Risk can be limited to that agreed
More regular reporting undertaken by DFM
Drawback
Higher costs and charges
Usually a minimum investment entry level
Requires a inheritance degree of client trust in their adviser
Advisory - Benefits and Drawbacks
Benefit
Lower costs and charges
Greater client demand for this service so likely to be larger range of products with this service available for clients to choose from
Lower £ entry level due to cheaper costs
Drawback
Less specialised & bespoke service
Investment opportunities can be missed as service is less bespoke
One size fits all approach more likely to be taken
Explain to Alex why he should review his financial arrangements more than once in the following year.
8 marks
Recently bereaved - behavioural finance effects decision making
General income and capital needs currently unclear
Don’t know how much childcare costs will be, will be more apparent
Might decide to reduce working hours - need to see how things have been affected
Children’s reactions are unknown - may need to make changes to his finances/ work-life balances
Changes in earning could affect tax rates and allowances
ATR and or CFL may change as he receives further payments from Tanya’s estate/ make decisions on what is the best course of action with her work place pension
State eight issues that an adviser should take into consideration at his next annual review, when reviewing Alex’s plans for ensuring he can provide the right level of childcare for the children.
8 marks
Kind or childcare in place for children/ paid/ himself/ combination
Has he accepted the reduced hours
How is return to work going - stability
What support has he receive - healthcare, family, friends, charities
Points when he feels childcare will reduce
Status of Tanya’s assets/ no transferred?
Alex’s thoughts on deed of variation
Alex claimed APS for Tanya’s ISA
Has Alex amended the nominations on pensions
Family income/capital needs, monthly bills stabilisation
Eventual disposable income
Current tax status
ATR/CFL /Tolerance for risk
Economic/ market/ legislative changes/ new products
Alex’s state of health
Use of tax allowances/ isa/ cgt/ pension contributions
Alex potentially needs financial advice around a range of financial aims and objectives.
(a) Outline the four FCA outcomes in Consumer Duty requirements.
4 marks
Communications
Products and services
Customer services
Price and value
Alex potentially needs financial advice around a range of financial aims and objectives.
(b) Explain how these four outcomes could apply to Alex, and the responsibilities of a financial adviser bound by them.
8 marks
Communications
Alex to be given the right information at the right time
Wide range of professional advice should be communicated in the right way
Products and services
Any products recommended should be fit for purpose, perform as expected and meets his needs and be of benefit to him
Customer service
Should meet his needs throughout relationship
Meeting reasonable needs and expectations
Not be hindered from acting in his own best interest
Price & Value
Products must be fit for purpose and represent good value
Must be at the heart of his financial advisers business
Have a clear and consistent expectation in relation to assessment and value of products and services
The four key drivers of vulnerability
Health
Life events
Resilience
Capability
