Serving The Retail Customer Flashcards
7 needs in hierarchy
- Budgeting
- Managing debt
- Borrowing
- Protection
- Retirement planning
- Savings and investing
- Estate and tax planning
6 signs of the start of a debt problem
- Using credit for everyday bills
- Considering a consolation loan
- Only paying minimum on credit card
- Using credit card for cash advances
- Using credit card to pay mortgage
- Borrowing without knowing how they’ll repay
5 reasons to avoid debt consolidation
- High fees
- Longer loan period, so can end up paying more
- Client may take more loans and end up in worse position
- Higher penalties for failure to service
- Could lose home if secured against property
10 types of mortgage
- Capped 2. Cap & Collar 3. Discount
- Equity 5. Fixed interest 6. Flexible
- Green 8. Offset 9. Tracker 10. Euro
2 types of equity release scheme
- Lifetime mortgage
2. Home reversion plans
4 types of lifetime mortgage
- Roll up
- Fixed repayment
- Interest only
- Home income plan
2 options for receiving lifetime mortgage payments
- Lump sum
2. Drawdown
Name of plan where all or part of home is sold in return for lump sum, with client allowed to continue living under a lease
Home reversion plan
4 downsides to sale and rent back
- Usually paid less than market value
- Rent agreement may not renew
- Could be evicted, e.g. if miss rent
- Firm could still be repossessed if buyer gets into financial difficulty
3 situations where a consumer buy-to-let mortgage may be appropriate
“Incidental landlords”
- Borrowers traveling overseas
- Borrowers who have inherited a mortgaged property
- Borrowers moving elsewhere who don’t want to sell
5 features of a structured loan
- Fixed interest rate
- Fixed repayment structure
- Higher risk
- Higher cost
- Usually a penalty for early payment
5 features of unstructured loans
- Can increase repayments
- Capital can be reduced quicker
- Interest paid will also be lower
- Can be repaid w/o penalty
- Interest rate based on risk of default
6 factors influencing protection options
- Age
- Dependents
- Income
- Financial liabilities
- Employment status
- Existing cover
6 financial liabilities affecting level of protection required
- Mortgages
- Bank loans
- Credit cards
- Other loans and hire purchases
- Normal living expenses
- Taxes
4 ways existing protection cover may be provided:
- Existing policies
- Lump-sum payments from private pensions
- An employer
- The state (benefits)
7 stages of life cycle
- Childhood
- Young single
- Young partnered
- Starting a family
- Family with older children
- Post-family/pre-retirement
- Retirement
3 retirement categories
- Low pension, little capital
- Relatively low pension, some capital
- Sufficient pension income, substantial capital
3 main types of life assurance policy
- Term assurance
- Endowment policies
- Whole of life policies
6 types of term assurance
- Level term
- Decreasing term
- Family income benefit policy
- Increasable term
- Convertible term
- Renewable term
4 features of term assurance
- Life assurance only - no savings element
- No surrender value for early cancellation
- Cheapest cover
- Premium affected by length of policy and age of policy holder
3 types of whole of life policy
- Non-Profit
- With-Profit
- Flexible (unit-linked)
Characteristics of with-profit whole of life policies (5)
- Pay a guaranteed minimum level
- Annual bonuses can be added to guaranteed minimum
- Terminal bonus often paid
- Accumulate a surrender value - though will be low in early years
- Higher premiums than non-profit
7 main types of sickness and health insurance
- Income protection
- Personal accident and sickness
- Critical illness
- Private medical insurance
- Long-term care insurance
- Payment protection insurance
- Mortgage protection insurance
3 differences between critical illness cover and income protection
- Pays a lump sum rather than regular income
- Made on diagnosis of specific illness
- Provided by stand-alone policies, or as part of whole-life, term or endowment policies
6 factors affecting a client’s pension needs
- Age
- Income
- Dependents
- Previous and current arrangements
- State provision
- Balance with other financial needs
2 main age considerations regarding pension planning
- How old are you?
2. What age do you want to retire?
Describe method of financial planning by assuming retirement date is tomorrow (4 steps)
- Benefits and costs expressed in today’s values
- Consider desired lifestyle, living costs, one-off costs, with reductions for mortgage and commuting
- Add in an inflation factor
- Consider alternative scenarios - different retirement age, lower income rises
3 potential sources of existing pension provision
- State provision
- Current membership
- Old pension schemes
How are Compulsory Purchase Annuities taxed differently to Purchased Life Annuities
CPA is taxed as earned income, while PLAs are separated into income and capital elements.
3 types of earnings-related State pensions
- State Graduated Pension
- State Earnings-Related Pension
- State Second Pension
2 main types are of private pension
- Occupational
2. Personal
2 types of funded pension scheme
- Self-administered
2. Insured
What are first three main priorities when getting to grips with money?
- Pay off any expensive debts
- Protect the family
- Have an emergency fund
8 potential features that distinguish savings accounts
- Interest rates
- Notice periods
- Minimum deposits
- Additional bonuses
- Restricted access
- Frequency of interest payments
- How account is accessed
- Tax-free savings
6 NS&I product types
- Tax-free investments
- Guaranteed returns
- Income products
- Simple savings accounts
- Investments for children
- Sustainable investing
4 uses of deposit-based savings
- Emergency fund
- Liquidity (preservation of capital and protect medium term investments)
- Provide opportunity for new opportunities
- Balancing asset classes
5 main asset classes
- Shares or equities
- Bonds
- Property
- Cash
- Alternatives
3 layers of investments
- Assets
- Pooled investments
- Tax wrappers
8 types of sustainable and ESG investments
- Positive screening
- Negative screening
- Norms-based screening
- Best in class
- Shades of green
- ESG integration
- Impact investing
- Thematic investing
6 considerations when constructing a sustainable portfolio
- Strength of client’s beliefs
- Incorporate values and views into process
- Recommend appropriate products
- Whether views restrict choice or potential for diversification
- Whether there are additional charges
- Volatility and performance differences
What are the short-term, medium-term, long-term uses of equities.
Short: pure speculation
Medium: dividend income, real growth, capital preservation, asset allocation (balance)
Long-term: same as medium, but with greater capacity for capital preservation as fluctuations iron out
5 other names for bonds
- Loan stock
- Fixed interest
- Debt securities
- Gilts
- Corporate bonds
5 benefits of pooled investments
- Professional expertise
- Spreading risk
- Reduced dealing costs
- Less administration
- Choice
4 main pooled investments
- Open-ended investment funds
- Life and pension funds
- Endowments
- Investment trusts
2 management types of pooled investments
Active and passive
5 features of endowments
- Have a fixed term
- Usually a fixed, regular premium
- Part of premium to buy life cover
- Rest is invested
- Amount of life cover dependent on age, premium, and length of policy
4 types of endowment
- Mortgage endowment
- Savings endowment
- Friendly society savings plan
- Friendly society children’s savings plan
2 basic uses of life policies in IHT planning
- Take value out of estate without giving immediate benefit to beneficiaries
- Provide a tax free lump sum on death to pay IHT liability
4 main approaches to tax planning
- Make the maximum use of tax allowances
- Choose the most suitable investments according to the investor’s tax position
- Choose investments with tax-free returns
- Choose investments which qualify for tax relief on initial amount invested
