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R01 > Serving The Retail Customer > Flashcards

Serving The Retail Customer Flashcards

1
Q

What is the client information you should obtain as an advisor

A

Basic client details, financial situation, investment objectives, risk profile, understanding and experience

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2
Q

When making recommendations what must you ensure

A

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

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3
Q

What should all communication be

A

Clear, fair and not misleading

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4
Q

What should the characteristics of a suitability report be

A

Tailored
Specific to demands and needs
Explain reasons and disadvantages of recommendation
Highlight needs not covered by recommendation

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5
Q

What is the main priority for financial needs

A

Budgeting and managing debt

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6
Q

What is debt consolidation

A

Negotiates a new loan to pay off others often with lower interest rates, however charging fees can be high

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7
Q

What is the transfer of property in exchange for a mortgage called

A

The assignment

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8
Q

What are the two main types of mortgage

A

Interest only

Capital and interest repayment

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9
Q

What are the different interest rate options (9)

A 
Capped
Cap and collar
Discount 
Euro 
Equity linked 
Fixed interest 
Flexible reserve 
Offset
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10
Q

What are the 2 equity release schemes

A

Lifetime mortgage

Home reversion plans

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11
Q

What is a home reversion plan

A

Sell all or part of a home for cash lump sum, regular income or both and continue living in the home

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12
Q

What is a lifetime mortgage

A

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

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13
Q

What are home purchase plans

A

Help to buy a home without paying interest

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14
Q

What are the 2 types of home purchase plan

A

Ijara and diminishing musharaka

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15
Q

What is the other name for sale and rent back

A

Mortgage rescue

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16
Q

What is the purpose of sale and rent back schemes

A

Allows the clearance of the mortgage but you can stay in your home

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17
Q

What are the risks of sake and rent back

A

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

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18
Q

What are the 2 types of loan

A

Unstructured and structured

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19
Q

What is an unstructured loan

A

You can repay the loan at any time without penalty

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20
Q

What is a structured loan

A

Fixed rate interest, high costs and penalty for repaying the loan early

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21
Q

What top priority protection products for most

A

Life insurance, health cover and pension provision

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22
Q

How can death benefit easily be calculated

A

10x salary

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23
Q

What is the most commonly used policy to account for INT

A

Whole of life policy written on a last survivor basis in trust

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24
Q

What are the three stages of the financial life cycle

A

The vulnerable years
The relaxed years
The anxious years

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25
Q

What are the vulnerable years in the lifecycle

A

Early years of family and marriage where there are high protection needs and relatively low incomes

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26
Q

What are the relaxed years of the life cycle

A

In the 40s when dependent are becoming financially independent and disposable income increases

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27
Q

What are the anxious years in the life cycle

A

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

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28
Q

What are the 3 main types of life insurance

A

WOL
Term assurance
Endowments

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29
Q

What is term assurance

A

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

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30
Q

What is an endowment policy

A

Primarily savings vehicle which also pays lump sum on death (although not much as most incest net directed to investment). Option to add CI

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31
Q

What is wol

A

Guaranteed level of life cover for lifetime sometimes with investment element

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32
Q

What is the features of a with profits wol

A

Gives a guaranteed ,inimitable level of pay,met but increases by annual bonuses and often a final bonus. These can accumulate a surrender value

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33
Q

What is a flexible WOL

A

Allows you to choose between minimum and maximum level of cover. Can change this at any time within these limits.

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34
Q

What is flexible wol policy also known as and why

A

Unit linked as each month the insurer calculates the cost of insurance and deducts the charge by cancelling units.

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35
Q

What are the common deferred periods for income protection

A

4,13,26 and 52 weeks

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36
Q

What is personal accident and sickness cover

A

A regular benefit that may also include a lump sum. It has short deferred periods but only pays out for 1-2 years.

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37
Q

What is the benefit of personal accident and sickness cover over IP

A

Shorter deferred periods, less questions asked on application and more occupations accepted

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38
Q

What is PPI also known as

A

Accident sickness and unemploy,met benefit (ASU)

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39
Q

What are the minimum standards of Mortgage PPI

A 
Must: 
Provide ASU cover
Pay out after 60 days
Pay for at least a year 
Pay the self employed
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40
Q

What is a good tool to support the explanation of the balance between risk and reward to a client

A

Use a attitude to risk questionnaire

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41
Q

What is the objective of regular savings

A

Turn small amounts on a regular basis into larger sums

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42
Q

What are the possible objectives of lump sum investments (3)

A

To maintain value over time in real terms, to provide potential for real growth or to provide an income

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43
Q

What is the definition of short term

A

Instantly accessible

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44
Q

What is the definition of medium term

A

5-15 years

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45
Q

What is the definition of long term

A

15+ years

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46
Q

What are the 3 priorities that come ahead of investing

A
  1. Pay off debts
  2. Protect the family
  3. Emergency fund
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47
Q

How does money in savings grow

A

Interest

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48
Q

What are the 5 main types of savings account

A 
Savings
Cash is a
Fixed notice
Fixed rate bond
High interest regular savings
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49
Q

Over the short term, what is the only asset that can reliably maintain the nominal value of capital and achieve any kind of return

A

Deposit based savings

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50
Q

What is the downside of saving

A

Over the medium to long term can be affected by inflation

51
Q

What are the 4 main uses of deposit based saving

A

Emergency fund
Liquidity
For future investment opportunities
As an asset class in its own right

52
Q

What are the aims of investments

A

To provide capital growth, income or a combination

53
Q

What are the 4 underlying asset classes of an investment

A

Shares
Bonds
Property
Cash

54
Q

What is the 5th growing potential asset class of an investment

A

Alternatives

55
Q

How can you reduce investment risk

A

Diversification eg through pooled investments

56
Q

Give 2 examples of a tax wrapper

A

ISA

Pension

57
Q

What is an investment platform

A

It provides access to a defined selection of collective investments

58
Q

What is an investment wrap

A

A product that often contains its own platform buy allows investors to wrap other products into it

59
Q

What are the 2 ways investors can invest in equity

A

Through pooled investments or directly in the stock market

60
Q

What is the main factor effecting share price

A

Investor sentiment

61
Q

What is investor sentiment

A

The perceived value of the shares often based on company performance or predictions on economic conditions

62
Q

What is the most volatile of the 4 asset classes

A

Equity/shares

63
Q

What is the short term use of equity investments

A

Speculation only

64
Q

What is the medium term use of equity investment

A

Can provide an income via dividends

65
Q

What is the long term use of equity investments

A

Real growth and capital preservation

66
Q

What are bonds also known as

A

Loan stock, fixed interest, debt securities

67
Q

What are government bonds called

68
Q

What can bonds be used for

A

A regular income

69
Q

What is the nominal value of a bond

A

The amount returned to you when the bond matures

70
Q

What is the main risk of bonds

A

The company will default

71
Q

What is an index linked fixed interest investment

A

Usually gilts, where both the capital and interest is linked to RPI

72
Q

What is a loan to a building society known as

A

Permanent interest bearing share

73
Q

What are the features of loans to building societies and banks

A

Fixed interest
Undated
Payments can be missed and missed payments do not need to be made up later

74
Q

What are perpetual subordinated bonds

A

Loans to demutualise building society

75
Q

What is a strategic bond fund and why are IFAs likely to recommend them

A

Investment manager decides on the proportions of gilts, investment grade stocks and high held bonds to allow fund to adjust to market conditions

76
Q

What are the benefits of investing in property

A

You can get an income from rent and capital growth on sale

77
Q

What is the main risk of property investments

78
Q

What are the benefits of pooled investments (5)

A 
Professional expertise 
Spreading risk
Reduced dealing costs 
Less admin
Choice
79
Q

What is the aim of passively managed funds

A

To track the market

80
Q

Give 4 examples of open ended investment funds

A

Unit trusts
Open ended investment companies
SICAV
FCP

81
Q

What are endowments

A

Regular premium policies which combine incest,nets and life cover, sometimes used to repay interest only mortgages

82
Q

What is the limit for premiums for savings endowments

A

£3600 a year

83
Q

What are investment trusts

A

Listed companies with a set number of shares

84
Q

What does it mean if an investment trust is “trading at premium”

A

There’s high demand and the price exceeds the valuation of shares

85
Q

What is the term used for an investment trust where demand is low and the price of shares is lower than valuation

A

Trading at discount

86
Q

What is a derivative

A

The right to buy or sell another type of asset at a fixed price on a specific date in the future

87
Q

What are the common types of derivative

A

Futures and options

88
Q

What’s a contract for differences

A

A contract stating you will pay another person the difference between the current and future value of an asset

89
Q

What is an ISA

A

A tax wrapper

90
Q

What are the different types of ISA

A 
Cash
Stocks and shares
Innovative finance 
Lifetime 
Junior
91
Q

What is the ISA limit per year

92
Q

What’s the limit for a JISA

A

£4128 a year

93
Q

What’s the age restriction on a LISA

A

Must be below 40 when take it out

94
Q

How do you calculate the funding period for a pension

A

Difference between age and retirement age

95
Q

What did the pension act 2014 set out regarding state pension age

A

Raise to 66 by 2020 and 67 between 2026 and 2028

96
Q

What is the limit for pension contributions per year

97
Q

By how much is the annual pension contribution allowance reduced if you earn over £150,000

A

For every £2 over, the allowance is reduced by£1 to a minimum of £10,000

98
Q

What are your options at retirement

A

Take 25% tax free cash
Flexi drawdown where you take one off or regular income
Uncrystalised fund pension lump sum (UFPLS)

99
Q

If reaching state pension age after April 2016, what is the state pension called

A

Single tier state pension

100
Q

What is the current maximum weekly state pension amount under the single tier state pension

A

£159.55 a week

101
Q

What are the conditions for receiving the maximum state pension amount for single tier

A

35 year NIC contributions and haven’t been contracted out at any time

102
Q

How are earnings usually calculated for DB pensions

A

1/60th of earnings per year

103
Q

What are the current employerminimum contributions to a DC scheme

104
Q

What is the minimum employer contributions rising to in April 2018

105
Q

What is the employer minimum contribution rising to in 2019

106
Q

What is the minimum earnings threshold above which employers have to pay into auto enrolment scheme

107
Q

What is the nil rate band for IHT

108
Q

What is the IHT limit at which nil rate band is reduced by £1 for every £2 over

A

£2million

109
Q

How much is added to nil rate band to a parent who leaves main residence to a direct descendent

110
Q

How can you reduce the impact of IHT

A

Use allowances
Lifetime gifts
Write property in trust
Provide money to cover the liability

111
Q

How much IHT IS PAYABLE ABOVE THE NIL RATE TAX BAND

112
Q

What type of life insurance policy should be used to cover IHT liability

A

Whole of life policy written on a last survivor basis under trust

113
Q

How long before death does a potentially exempt gift need to be made to become exempt

114
Q

Why might you choose to use a life policy with increasing or reviewable cover when planning for IHT

A

To protect against inflation

115
Q

What is benefit cap outside of London with and without kids

A

£20,000 and £13,400

116
Q

What is the benefit cap inside of London

A

£23,000 or £15,410

117
Q

What is the purpose of universal credit

A

To streamline and simplify the system

118
Q

Are child benefit and child tax credit means tested

119
Q

What is the statutory maternity pay

A

90% for the first 6 weeks and then a further 33 weeks at the lower of the standard rate or 90% of earnings

120
Q

What are the conditions for receiving statutory maternity pay

A

Must have worked for at least 26 weeks without a break for the same employer by the 15th week before the baby is due

121
Q

What is income support

A

Means tested for. Families on low incomes

122
Q

Who is eligible for job seekers allowance

A

Anyone who is unemployed and looking for work, or who works on average less than 16 hours a week

123
Q

What benefit. Is replacing the disability living allowance

A

Personal independence payment

124
Q

How long does statutory sick pay last

R01 (10 decks)

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