Serving The Retail Customer Flashcards
What is the client information you should obtain as an advisor
Basic client details, financial situation, investment objectives, risk profile, understanding and experience
When making recommendations what must you ensure
You know your client
Recommendations match risk profile
Recommendation is the most appropriate and you explain why
Provide the level of service committed to at the initial disclosure
What should all communication be
Clear, fair and not misleading
What should the characteristics of a suitability report be
Tailored
Specific to demands and needs
Explain reasons and disadvantages of recommendation
Highlight needs not covered by recommendation
What is the main priority for financial needs
Budgeting and managing debt
What is debt consolidation
Negotiates a new loan to pay off others often with lower interest rates, however charging fees can be high
What is the transfer of property in exchange for a mortgage called
The assignment
What are the two main types of mortgage
Interest only
Capital and interest repayment
What are the different interest rate options (9)
Capped Cap and collar Discount Euro Equity linked Fixed interest Flexible reserve Offset
What are the 2 equity release schemes
Lifetime mortgage
Home reversion plans
What is a home reversion plan
Sell all or part of a home for cash lump sum, regular income or both and continue living in the home
What is a lifetime mortgage
Mortgage until you die. At which point in a roll up contract interest is repaid when house is sold or a fixed repay,net when you don’t pay interest but pay a fixed higher charge or finally a home income plan where the money you borrow buys a regular income for life
What are home purchase plans
Help to buy a home without paying interest
What are the 2 types of home purchase plan
Ijara and diminishing musharaka
What is the other name for sale and rent back
Mortgage rescue
What is the purpose of sale and rent back schemes
Allows the clearance of the mortgage but you can stay in your home
What are the risks of sake and rent back
You may have to leave when term ends
You could be evicted if breach the tenancy agreement
The property could be repossessed if the buyer falls into financial difficulty
What are the 2 types of loan
Unstructured and structured
What is an unstructured loan
You can repay the loan at any time without penalty
What is a structured loan
Fixed rate interest, high costs and penalty for repaying the loan early
What top priority protection products for most
Life insurance, health cover and pension provision
How can death benefit easily be calculated
10x salary
What is the most commonly used policy to account for INT
Whole of life policy written on a last survivor basis in trust
What are the three stages of the financial life cycle
The vulnerable years
The relaxed years
The anxious years
What are the vulnerable years in the lifecycle
Early years of family and marriage where there are high protection needs and relatively low incomes
What are the relaxed years of the life cycle
In the 40s when dependent are becoming financially independent and disposable income increases
What are the anxious years in the life cycle
50+ when earning power peaks, mortgage is paid off but more likely to become ill with little time to make up any pensions shortfall, cost of cover increases and IHT becomes a consideration
What are the 3 main types of life insurance
WOL
Term assurance
Endowments
What is term assurance
Lump sum on death if die during set term.. Can be level, increasing or decreasing, family benefit which pays an annual amount for remainder of term, convertible to wol and renewable
What is an endowment policy
Primarily savings vehicle which also pays lump sum on death (although not much as most incest net directed to investment). Option to add CI
What is wol
Guaranteed level of life cover for lifetime sometimes with investment element
What is the features of a with profits wol
Gives a guaranteed ,inimitable level of pay,met but increases by annual bonuses and often a final bonus. These can accumulate a surrender value
What is a flexible WOL
Allows you to choose between minimum and maximum level of cover. Can change this at any time within these limits.
What is flexible wol policy also known as and why
Unit linked as each month the insurer calculates the cost of insurance and deducts the charge by cancelling units.
What are the common deferred periods for income protection
4,13,26 and 52 weeks
What is personal accident and sickness cover
A regular benefit that may also include a lump sum. It has short deferred periods but only pays out for 1-2 years.
What is the benefit of personal accident and sickness cover over IP
Shorter deferred periods, less questions asked on application and more occupations accepted
What is PPI also known as
Accident sickness and unemploy,met benefit (ASU)
What are the minimum standards of Mortgage PPI
Must: Provide ASU cover Pay out after 60 days Pay for at least a year Pay the self employed
What is a good tool to support the explanation of the balance between risk and reward to a client
Use a attitude to risk questionnaire
What is the objective of regular savings
Turn small amounts on a regular basis into larger sums
What are the possible objectives of lump sum investments (3)
To maintain value over time in real terms, to provide potential for real growth or to provide an income
What is the definition of short term
Instantly accessible
What is the definition of medium term
5-15 years
What is the definition of long term
15+ years
What are the 3 priorities that come ahead of investing
- Pay off debts
- Protect the family
- Emergency fund
How does money in savings grow
Interest
What are the 5 main types of savings account
Savings Cash is a Fixed notice Fixed rate bond High interest regular savings
Over the short term, what is the only asset that can reliably maintain the nominal value of capital and achieve any kind of return
Deposit based savings
What is the downside of saving
Over the medium to long term can be affected by inflation
What are the 4 main uses of deposit based saving
Emergency fund
Liquidity
For future investment opportunities
As an asset class in its own right
What are the aims of investments
To provide capital growth, income or a combination
What are the 4 underlying asset classes of an investment
Shares
Bonds
Property
Cash
What is the 5th growing potential asset class of an investment
Alternatives
How can you reduce investment risk
Diversification eg through pooled investments
Give 2 examples of a tax wrapper
ISA
Pension
What is an investment platform
It provides access to a defined selection of collective investments
What is an investment wrap
A product that often contains its own platform buy allows investors to wrap other products into it
What are the 2 ways investors can invest in equity
Through pooled investments or directly in the stock market
What is the main factor effecting share price
Investor sentiment
What is investor sentiment
The perceived value of the shares often based on company performance or predictions on economic conditions
What is the most volatile of the 4 asset classes
Equity/shares
What is the short term use of equity investments
Speculation only
What is the medium term use of equity investment
Can provide an income via dividends
What is the long term use of equity investments
Real growth and capital preservation
What are bonds also known as
Loan stock, fixed interest, debt securities
What are government bonds called
Gilts
What can bonds be used for
A regular income
What is the nominal value of a bond
The amount returned to you when the bond matures
What is the main risk of bonds
The company will default
What is an index linked fixed interest investment
Usually gilts, where both the capital and interest is linked to RPI
What is a loan to a building society known as
Permanent interest bearing share
What are the features of loans to building societies and banks
Fixed interest
Undated
Payments can be missed and missed payments do not need to be made up later
What are perpetual subordinated bonds
Loans to demutualise building society
What is a strategic bond fund and why are IFAs likely to recommend them
Investment manager decides on the proportions of gilts, investment grade stocks and high held bonds to allow fund to adjust to market conditions
What are the benefits of investing in property
You can get an income from rent and capital growth on sale
What is the main risk of property investments
Illiquid
What are the benefits of pooled investments (5)
Professional expertise Spreading risk Reduced dealing costs Less admin Choice
What is the aim of passively managed funds
To track the market
Give 4 examples of open ended investment funds
Unit trusts
Open ended investment companies
SICAV
FCP
What are endowments
Regular premium policies which combine incest,nets and life cover, sometimes used to repay interest only mortgages
What is the limit for premiums for savings endowments
£3600 a year
What are investment trusts
Listed companies with a set number of shares
What does it mean if an investment trust is “trading at premium”
There’s high demand and the price exceeds the valuation of shares
What is the term used for an investment trust where demand is low and the price of shares is lower than valuation
Trading at discount
What is a derivative
The right to buy or sell another type of asset at a fixed price on a specific date in the future
What are the common types of derivative
Futures and options
What’s a contract for differences
A contract stating you will pay another person the difference between the current and future value of an asset
What is an ISA
A tax wrapper
What are the different types of ISA
Cash Stocks and shares Innovative finance Lifetime Junior
What is the ISA limit per year
£20,000
What’s the limit for a JISA
£4128 a year
What’s the age restriction on a LISA
Must be below 40 when take it out
How do you calculate the funding period for a pension
Difference between age and retirement age
What did the pension act 2014 set out regarding state pension age
Raise to 66 by 2020 and 67 between 2026 and 2028
What is the limit for pension contributions per year
£40,000
By how much is the annual pension contribution allowance reduced if you earn over £150,000
For every £2 over, the allowance is reduced by£1 to a minimum of £10,000
What are your options at retirement
Take 25% tax free cash
Flexi drawdown where you take one off or regular income
Uncrystalised fund pension lump sum (UFPLS)
If reaching state pension age after April 2016, what is the state pension called
Single tier state pension
What is the current maximum weekly state pension amount under the single tier state pension
£159.55 a week
What are the conditions for receiving the maximum state pension amount for single tier
35 year NIC contributions and haven’t been contracted out at any time
How are earnings usually calculated for DB pensions
1/60th of earnings per year
What are the current employerminimum contributions to a DC scheme
2%
What is the minimum employer contributions rising to in April 2018
5%
What is the employer minimum contribution rising to in 2019
8%
What is the minimum earnings threshold above which employers have to pay into auto enrolment scheme
£5876
What is the nil rate band for IHT
325,000
What is the IHT limit at which nil rate band is reduced by £1 for every £2 over
£2million
How much is added to nil rate band to a parent who leaves main residence to a direct descendent
£100,000
How can you reduce the impact of IHT
Use allowances
Lifetime gifts
Write property in trust
Provide money to cover the liability
How much IHT IS PAYABLE ABOVE THE NIL RATE TAX BAND
40%
What type of life insurance policy should be used to cover IHT liability
Whole of life policy written on a last survivor basis under trust
How long before death does a potentially exempt gift need to be made to become exempt
7 years
Why might you choose to use a life policy with increasing or reviewable cover when planning for IHT
To protect against inflation
What is benefit cap outside of London with and without kids
£20,000 and £13,400
What is the benefit cap inside of London
£23,000 or £15,410
What is the purpose of universal credit
To streamline and simplify the system
Are child benefit and child tax credit means tested
No
What is the statutory maternity pay
90% for the first 6 weeks and then a further 33 weeks at the lower of the standard rate or 90% of earnings
What are the conditions for receiving statutory maternity pay
Must have worked for at least 26 weeks without a break for the same employer by the 15th week before the baby is due
What is income support
Means tested for. Families on low incomes
Who is eligible for job seekers allowance
Anyone who is unemployed and looking for work, or who works on average less than 16 hours a week
What benefit. Is replacing the disability living allowance
Personal independence payment
How long does statutory sick pay last
28 weeks
