Section B Explore The Personal Finance Sector

Question 1

What are financial institutions

Answer 1

Organisations that offer financial services to individuals and businesses. These services include the ability to deposit or withdraw money, obtain credit (borrow money) and make investments, as well as offering advice on matters of personal and business finance.

Question 2

What does the Bank of England do

Answer 2

• oversees payment systems and issues currency to UK
  -UK central bank and maintains financial stability
  -lends money to banks
• UK government is the only account that withdraws money from this bank

Question 3

Give pros and cons to the Bank of England as a type of financial institution

Answer 3

Pros
secure banknotes
Stable prices
Safe banking sector
Close watch on financial system
Lends to banks
cons
Lots of inflation
Higher interest rates making borrowing more expensive
Does not lend to public

Question 4

What is the role of (commercial) banks?

Answer 4

• accept deposits, make loans, offer savings accounts, etc.
• where most people do there banking

Question 5

Give pros and cons of (commercial) banks

Answer 5

pros
-easy and flexible source of accepting and withdrawing money
- money is protected against fraud
- you have proof of payments
cons
-more expensive than traditional banking
-can’t invest money
- savings are only protected up to £85,000. If a bank goes bankrupt savings above this will be lost

Question 6

What is the role of building societies?

Answer 6

-provide home mortgages to members
-offer same products and services as banks but with a focus on savings and lending
- these are organisations that handle financial transactions and store money on behalf of their members - who are part owners

Question 7

Give pros and cons of building societies

Answer 7

pros
-money deposited with the society is protected and safe
-owned by its members so costs can be kept down allowing for higher interest
-offer a range of services and account types
cons
-penalties for early withdrawal
-difficult to access your money in short term
-may lack business drive of commercial bank
- savings are only protected up to £85,000. If a bank goes bankrupt savings above this will be lost

Question 8

What is the role of credit unions?

Answer 8

-it’s a financial cooperative which provides savings, loans and a range of service to its members
-it’s owned and controlled by its members
-they are not-for-profit organisations

Question 9

What are the pros and cons of credit unions

Answer 9

pros
-better savings
-lower fees and loan rates
-offers range of services
-secure place to store money
-owned by members so costs can be kept down
Cons
-have fewer branches than traditional banks
-membership restrictions
-savings only protected up to £85000 if it goes bankrupt the rest can be lost
-

Question 10

What are national savings and investments (role)

Answer 10

-to cost effectively manage the national debt by contributing to the governments financing needs
-it’s a government owned bank and offers a secure way store your money away.

Question 11

Give pros and cons to national savings and investments

Answer 11

pros
-backed by HM treasury which gives a guarantee that your cash is safe
-no limit to the amount the government will protect
-better than normal savings account
cons
-for savings only
-does not lend money
-charges penalties if you cash out early
-often required to give notice on withdrawals

Question 12

What are insurance companies

Answer 12

Companies that sell insurance to safeguard you or your property against risk of loss, damage or theft
These are profit making organisations

Question 13

Give pros and cons of insurance companies

Answer 13

pros
-fewer financial losses
-creates motivation for savings
-protected against unexpected losses
-easy and regular monthly payments
cons
-additional fees
-does not cover every type of loss that can happen

Question 14

What are pension companies and its role

Answer 14

Business that sell policies to individuals to allow them to save now to fund retirement in the future
This lets you save money for retirement

Question 15

Give pros and cons to pension companies

Answer 15

pros
-provides a structure to help with financial security after retirement
-experts are imploded to make investment decisions
cons
-there is a lack of access
-money already invested cannot be invested prior to the date agreed in policy

Question 16

What is the role of pawnbrokers

Answer 16

Offer short term loans secured against the value of an item

Question 17

Give pros and cons to pawnbrokers

Answer 17

pros
-often a quick process and get money the same day
-interest is not charged
cons
You will lose your valuables if you don’t repay the loan.

Question 18

What are the five methods of communication for a bank branch

Answer 18

-Branch
-online banking
-telephone banking
-mobile banking
-postal banking

Question 19

Name the function, role and responsibilities for financial conduct authority FCA1

Answer 19

Function:
Regulates financial activities and sets rules
Role:
Protects consumers from misconduct, keeps industry stable, launches legal investigators, promotes healthy competition
Responsibility:
Responsible for the functioning of UK financial market

Question 20

Name the function, role and responsibilities for financial ombudsman service FOS2

Answer 20

Function:
An independent organisation that helps resolve disputes between consumers and financial companies
Role and responsibility:
Deal with financial complaints about things such as insurance and pensions

Question 21

Name the function, role and responsibilities for financial services compensation scheme FSCS3

Answer 21

Function:
Protect customers of financial services firms that go out of business
Role and responsibility:
Safety net that protects savings and investments, provides trusted service and raises public confidence.
Eg. Protects all savers in banks and building societies up to £85000 can be refunded

Question 22

Name the function, role and responsibilities for office of fair trading OFT4

Answer 22

Function:
Protects consumer interests throughout the UK
Role and responsibility:
Analysing markets, enforcing consumer and competition law, merger, control, supervisory work, advocacy, delivers information and education programs to businesses and consumers

Question 23

Name the function, role and responsibilities for legislation -consumer credit

Answer 23

Function:
Protects rights of consumers and sets out how most retails lending and credit is handled in the UK
Role:
Protect consumers and set out how certain credit commercial agreements should be conducted
Responsibility:
Requires creditors to provide statements to customers with outstanding balances and notify them if they fall behind with their payments

Question 24

Fiona decided to treat herself to a large TV. She signed a credit agreement amounting to £4600. The TV was due to be delivered in 10 days. When she got home she had a chance to think about what she had done and decided to cancel the agreement. Outline her rights

Answer 24

Fiona has some rights according ro the legioration. If you buy a product on credit you have the right to claim a refund if something goes wrong. This is according ro the consumer credit act 1974 under section 75. she has 28 days to return her item, and can cancel without any penalty within 14 days

Question 25

Name the function, role and responsibilities for citizens advice

Answer 25

Function:
Citizens Advice is an independent organisation that provides free and confidential advice and information to people in the UK.
Role and responsibilities:
Citizens Advice service provides advice on a range of issues, including:
Debt management and welfare benefits
Housing
Immigration and asylum
Employment
Consumer complaints
Landlord-tenant disputes
The roles and tasks leading up to giving full advice include:
Finding out the key points of a client’s problem
Finding out what a client’s problem is and helping them understand self-help information so the client can act for themselves
Helping a client with debts to work out a reasonable rate of repayment and supporting them to negotiate this with creditors

Question 26

Name the function, role and responsibilities for an independent financial advisor IFA

Answer 26

Function:
An Independent Financial
Adviser (IFA) is a
professional who offers independent advice on financial matters.
Role and responsibilities:
-Recommending investment services and products to clients and appropriate action to meet the client’s objectives
-Conducting a detailed survey of a client’s financial position, preferences, and objectives.
-Contacting clients and reviewing and responding to clients’ changing needs.
-Analysing information and preparing plans that will be best suited to the individual or corporate client’s requirements.

Question 27

Name the function, role and responsibilities for price comparison websites

Answer 27

Function:
Price comparison websites are online platforms that help users find the best deals for various products and services.
Role and responsibilities:
-Be clear on their policies, properly explaining how they work, and what part of the market they cover.
-Provide accurate data in listings, i.e. data that is up-to-date, correct, complete, and not misleading.
-Be responsible and law-abiding in all matters that deal with customers’ data, be it collecting reviews or handling complaints.
Comparison sites drill down the details of each product and consider the extras such as payment security, shipping cost, delivery speeds, and refund policies

Question 28

Name the function, role and responsibilities for money advice service

Answer 28

Function:
The Money Advice Service
(MAS) is a government body that aims to promote public awareness and understanding of financial services and enhance consumers’ ability to manage their financial affairs.
Role and responsibilities:
-Providing education and awareness to the British public on consumer finance issues.
-Offering advice on debt and borrowing.
-Enhancing the understanding and knowledge of members of the public about financial matters.
-Improving financial capability and reducing the likelihood of debt problems arising through financial education in schools.

Question 29

Name the function, role and responsibilities for debt counsellors

Answer 29

Function:
A person who offers professional advice on methods of debt repayment.
Role and responsibilities:
-Liaising with clients about their initial debt situation
-Assessing clients’ monthly income and expenditure
-Offering emotional support to clients
-Working with clients to determine priority payments
-Preparing monthly payment plans for clients to follow
-Communicating with clients as their debt situation change
-Talking with creditors and working out the best repayment pran
-Compiling financial statements

Question 30

Name the function, role and responsibilities for individual voluntary arrangements IVAs

Answer 30

Function:
type of debt solution designed for individuals struggling with repayments.
Role and responsibilities:
The payments are shared out between your creditors as agreed in your
IVA. The agreement allows you to make affordable payments to your debts, usually over five or six years. At the end of your IVA, any unsecured debt left is written off.

Question 31

Name the function, role and responsibilities for bankruptcy

Answer 31

Function:
Bankruptcy is one way for individuals to deal with debts they cannot pay.
Role and responsibilities:
-Disclosing all property (assets) in your possession and delivering non-exempt assets to the bankruptcy trustee.
-Handing over all credit cards to the trustee for cancellation.
-Providing any documents requested by the bankruptcy trustee including all forms, tax returns, insurance policies etc.
-Reporting your household income and expenses each month to the trustee.
-Attending the meeting of creditors, if one is held.
-Completing credit counselling.

Question 32

Give pros and cons to citizens advice

Answer 32

Pros:
-Free service
-Available face to face, online, and by telephone
-Volunteers gain new skills
Cons:
-Long waiting time to be seen
-No direct help with debt management
-Emotional and time-consuming process
-Low pay for staff
-Gap between national and local level of organisation

Question 33

Give pros and cons to an independent financial advisor IFA

Answer 33

Pros:
-Customized guidance based on your entire financial picture.
-Independent advisors are not tied to any particular family of funds or investment products.
-A relationship that’s responsive, attentive, and personal.
-A fee structure that is simple and transparent.
-A high level of expertise to support your complex financial needs.
-Independent financial advisors can offer guidance on investments, taxes, and retirement planning, and help you navigate major life transitions
Cons:
-Limited options for specialized advisors
-Lack of legal backing from -larger firms
-Conflicts of interest may arise, despite many advisors making decisions that will benefit the client
-May have less knowledge of available financial products or may not have access to the low-cost options that big firms do.

Question 34

Give pros and cons to price comparison websites

Answer 34

Pros:
-They provide easy and quick access to plenty of information.
-They offer a smooth buying process.
They help identify
notable sellers and give a bird’s-eye view of the market.
-They allow you to keep track of pricing.
-They help compare details.
-They provide user reviews and ratings.
-They help establish product weaknesses.
Cons:
-Comparison sites tend to focus entirely on price, and ignore quality.
-Not all providers are listed on comparison sites.
-Scammers can create convincing adverts which comparison sites don’t always pick up on.
-Imitation products might also be passed off as the real thing, or the condition of the product might not be as described.

Question 35

Give pros and cons to money advice service

Answer 35

Pros:
-Free and unbiased advice.
- Useful information for low income families and people dealing with consumer debt.
-support offered over the phone and online
Cons:
-The information on offer is designed to be simple, so some of the subtleties of financial advice are missed.
-Money advice may not fit your personal situation or goals, as it is based on general best practices.

Question 36

Give pros and cons to debt counsellors

Answer 36

Pros:
-They can reduce your debt repayments by up to 50% by negotiating with your creditors to lower interest rates and monthly instalments.
-They can protect your assets from being repossessed by your creditors.
-They can offer you financial and budgeting advice to help you manage your debt and avoid future debt problems.
Cons:
-You might not be allowed to get more credit.
-It could take longer than usual to pay off your debt.
-Some of your accounts, especially those which have been subjected to legal action, may be excluded.
-Debt review will be flagged on your credit report until the process is completed.

Question 37

Give pros and cons to individual voluntary arrangements IVAs

Answer 37

Pros:
-Legal protection from creditors Once an IVA has started, your creditors are no longer allowed to take any action against you to collect their debts.
-Interest and charges frozen
-HMRC Tax and VAT debts can be included
Cons:
-There is the chance that your creditors may not accept your proposal for an IVA.
-At the end of your IVA, only debts included in the agreement will be written off and you’ll still be liable to pay the rest.
-An IVA isn’t private and will be recorded on a public register.

Question 38

Give pros and cons to bankruptcy

Answer 38

Pros:
-Avoiding foreclosure or repossession of assets
-Relief from creditor harassment
-Providing a way for businesses to reorganize their debts and continue operations
-Writing off most of the debts
-Saving your home, business, or ability to function financially
-Bankruptcy exemptions
Cons:
-It destroys your credit score.
-It can be expensive.
-You may have to give up luxury items.
-It will be harder to borrow again.
-It can affect your finances.
-It lowers your chance of success.
-It does not help budgeting skills.
-It can result in a loss of privacy.