Serving the retail customer Flashcards
What additional elements make up the hierarchy of needs for consideration when giving advice to a client, following Budgetingand Managing Debt?
Borrowing, including house purchase Protection Retirement Planning Saving and Investing Estate and Tax Planning
What are the two key pieces of information you need to determine a clients budget for spending on financial services?
Income and expenditure with a full breakdown of each
Why should an adviser exercise caution in recommending debt consolidation?
Debt consolidation companies often charge high fees
Whilst monthly payments may be lower, the overall cost over the term of the loan could be much higher
Clients with a history of running up debts, may continue to do so and result is a more serious problem
If the client cannot service the loan, it may result in higher charges and penalties
If the loan is secured on their property, they may lose their home if they default on payments
What is the correct term to describe a mortgage?
The security offered in exchange for a loan.
How is the security for a mortgage transferred over to a lender?
By assignment of ownership of the property.
What was the impact of MMR (mortgage market review) on the sale on interest only mortgages?
Lenders are now required to check that borrowers have a credible repayment strategy for the loan
What are the main features of an Equity-linked mortgage (also known as a SAM - shared appreciation mortgage)?
The lender takes a stake in the equity of the property in exchange for charging interest on a lower proportion of the loan. It may be possible for the borrower to aquire the lenders stake over time.
What are the two types of equity release schemes?
Lifetime mortgage or Home Reversion Scheme
What are the different types of lifetime mortgages?
Roll-up Mortgage
Fixed repayment lifetime mortgage
Interest Only
Home income plan
What is a home reversion plan
The client sells all or part of their home in return for a lump sum or regular income or both. The client continues to live in the property in exchange for a usually nominal rent.
What are the two home purchase plans that do not involve interest payments (special interest to the Muslim community)?
Ijara - payments made to a firm & house bought at the end of the agreement
Diminishing Musharaka - payments made buy slices of the firms share until owned. Rent is charged on the outstanding portion and reduces until fully owned
What are the risks associated with Mortgage Reduce/rent-back/selll to let schemes?
Clients likely to be paid less than full value of the home
They may have to leave the home at the end of the intial rental period
The could be evicted if they breach the tenancy terms of fall behind with rent
If the firm gets into financial difficulty, the property could be repossessed and the client would have to leave
Why does the Government consider that some landlords require FCA protection?
Some are considered to be ‘accidental’ landlords - where they have let out the home due to overseas travel, inheritance, borrowers moving elsewhere, as opposed to those who rent out specifically as part or all of a business
What are the types of existing cover a client may have?
Existing insurance
Lump sum benefits from private pensions
employer benefits - sick pay/death benefits
The state - bereavment payments, sick pay, employment and support allowance
Which type of loan would you expect to be more expensive in APR terms - a mortgage to buy a house or a loan for a car and why?
The car loan would be a structured loan and therefore;
It is a higher risk loan, with interest rates increased with a higher risk of default
It is unsecured
Interest rates tend to be higher for a structured loan
How does a family income benefit policy differ from a standard DTA?
The life office will make a series of regular payments (annually or monthly) rather than a one off lump sum
How does a convertible term assurance policy differ from both a Increasable or renewable term assurance policy?
A convertible policy can be changed to an endowment or a whole of life policy depending on whether the client needs savings or longer term protection. The others remain essential term assurance policies.
What would be the benefit of a whole of life, last survivor policy to heirs?
It may allow them to meet inheritance tax requirements after death of the assured without impacted on the remaining estate
What is the impact of a longer deferral period on an Income Protection plan?
A lower premium
Why do insurers restrict the level of Income Protection on offer (usually 50-60% of earnings)
So the claimant has an incentive to return to work, therefore avoiding the moral hazard of a claimant taking longer to return to work if they were better off being absent
What is the difference between how a life and an income protection policy is assessed?
Life assurance uses ‘Mortality’ - the length of time someone will live
Income protection uses ‘Morbiidity’ - the rate of disease or medical problems
What is the difference between income protection and personal accident and sickness insurance?
Personal accident and sickess insurance;
May pay a one off lump sum in addition to regular sums
Term - limited to 1,2 or 3 years with a short period of deferral
A greater range of occupations will be accepted ( limited with IPP)
Premium is likely to be a fixed rather than a % of earnings
Lower cost
In addition to repaying a mortgage or loan, Why might a person want a Critical Illness policy?
Provision of private healthcare treatment
Alterations to the home
Purchase of special medical equipment
Income replacement
What are the two types of Long Term Care Insurance?
Immediate Care - bought with a lump sum when the care is needed
pre-funded - bought in advance by a monthly premium
