Question Types, Acronyms & Relevant Info. Flashcards
Simple question types
State
Outline
Explain
Identify & explain
Recommend & justify
Calculate
State - List and comment on
Outline - link to case study and detail
Explain - detailed explanation using marks as guide
Identify & explain - identify then give detailed explanation using marks as guide
Recommend & justify - give a recommendation and justify each recommendation. E.g. if 8 marks then 4 recommendations and 4 justifications
Calculate - calculate and show workings
Additional information (3)
What do you need to happen or to have?
What have they got that can contribute to the solution?
How can we fill in the gaps between what you’ve got and what you need?
Financial advice process - 7 steps
- Discuss fees/IDD
- Fact find
- Establish views e.g. inflation, goals, risk
- Analyse
- Formulate advice
- Present advice
- Review and service
Discounted gift trust
Arrangement to put a lump sum into a trust for beneficiaries which is then invested, whilst settlor(s) keeps right to receive regular payments.
The gift is split in to two parts:
- The lump sum needed for the income.
the balance of the gift.
- The lump sum needed for the income is ‘discounted’, which simply means it immediately falls outside David and Ruby’s estate.
CLT IHT only on total gift - income lump sum
Loan gift trust
settlor(s) would set up a *discretionary trust
They would then lend the trust an amount of capital, interest-free
The funds loaned are then invested into an investment bond.
The loan would be repayable on demand
The settlor(s) could ask for repayment at any time, so would not lose access to their monies
Can have 5% of loan amount back each year tax free
Advisory fund management
Discretionary fund management
Advisory:
- The adviser makes recommendations based on the client’s circumstances needs and objectives, and attitude to risk.
- If any changes to the portfolio are appropriate, such as a change in asset allocation or a purchase / sale of an asset, the adviser must obtain express permission from the client before making the changes.
Discretionary:
- The adviser makes recommendations based on the client’s circumstances needs and objectives, and attitude to risk.
- The client and adviser agree boundaries for the types of changes that can be made without express permission for each specific change.
Key acronym for factfind and review questions:
PATHETIC WINE
Pension death benefits
Affordability or budget
Taxation: income tax, CGT, IHT
Health
Emergency fund
Trusts
ISAs and National Savings
Capacity for loss and attitude to risk
Wills and guardianship
Inheritances
Nomination forms for pensions
Ethical considerations
Key acronym for review and advice process questions:
RAPPORT RAKI
Recommendations
Analyse suitability of existing circumstances
Peace of mind/clarity of information
Protection
On-going service
Research
Tax planning
Risk - Attitude and capacity for loss
Affordability - budgeting
Knowledge - expert & professional
Identify - objectives, goals, shortfalls, problems
Active fund management (4)
Passive fund management (5)
Active:
- individual portfolio manager(s) actively making investment decisions for the fund
- Success depends on combining in-depth research, market forecasting, and the experience and expertise of the portfolio manager(s) pay close attention to market.
- Aim is to ‘beat the market’ the fund manager has to take on additional risk over and above the market risk.
- Securities will be traded frequently, which means that they incur higher expense ratios than passively managed funds
Passive:
- A portfolio is created that aims to track the returns of a particular market index or benchmark as closely as possible:
- full replication - all the shares within the index are bought
- stratified sampling - a sample of the shares are bought
- synthetically - no shares are bought but derivatives are used
- Can be structured as an exchange-traded fund (ETF), a mutual fund, or a unit investment trust
- Management fees of passive portfolios or funds are often far lower than active management strategies.
- Eliminates risk of human error in selecting stocks
- Index funds are traded less frequently, so they incur lower expense ratios and are more tax-efficient than actively managed funds
JISA
- Max age
- Annual limit
- Contribution calculation dates
- Pay tax?
- Can put money away ready for 18th birthday. Child can take control at 16 but cannot withdraw until age 18
- Max. age 18
- £9k annual limit
- Contributions per tax yr
- Free of tax
CTF
- Max age
- Annual limit
- Contribution calculation dates
- Pay tax?
- Gov. sent £250 vouchers out to parents as opening payments for the funds, which created a CTF account for the child.
- Max. age 18
- £9k annual limit
- Contributions per birth yr
- Free of tax
Benefits of JISA over a CTF (4)
Interest rates are often higher in JISAs
There is a wider choice of JISA providers
Many CTFs don’t allow new investments
CTF charges are often higher
Renewable term assurance
Renewable option on plan expiry date
No health evidence thus guaranteed insurability Premium increases due to age
Convertable term assurance
Level term with convertibility option
During or at end of current plan term
To whole of life or endowment plan
No health evidence thus guaranteed insurability
Term 100 assurance
Life assurance upto age 100
