The Advice Process Flashcards
Q: What are the five main stages of the financial advice process?
A: Establishing relationship, fact-finding, research and analysis, presenting recommendations, and review.
Term: Fact-Find
Definition: A structured data-gathering process used to understand a client’s financial position and goals.
Q: Why is establishing rapport with a client important?
A: It builds trust and encourages open communication.
Term: Risk Profiling
Definition: Assessing a client’s attitude to risk, capacity for loss, and investment objectives.
Q: What are the three elements of risk profiling?
A: Risk tolerance, risk capacity, and risk need.
Term: Attitude to Risk
Definition: A client’s willingness to take financial risk to meet their goals.
Q: What is capacity for loss?
A: A client’s financial ability to withstand investment losses without impacting their standard of living.
Term: Client Objectives
Definition: The specific financial goals a client wants to achieve.
Q: What is the role of cashflow modelling in the advice process?
A: To help forecast future financial positions and assess suitability of recommendations.
Term: Suitability
Definition: Ensuring recommendations are appropriate for the client’s circumstances and objectives.
Q: What must advisers consider when making a recommendation?
A: The client’s needs, objectives, financial situation, and risk profile.
Term: Product Research
Definition: The process of identifying appropriate solutions based on client needs and preferences.
Q: What is a suitability report?
A: A written explanation of why a recommendation is suitable for the client.
Term: Execution-Only
Definition: A transaction made without advice, where the client makes their own investment decisions
Q: What is the difference between independent and restricted advice?
A: Independent covers a wide range of products; restricted is limited to certain providers or product types.
Term: Demands and Needs Statement
Definition: A summary of a client’s goals and how the product meets them (common in insurance).
Q: Why is ongoing review important in financial planning?
A: To ensure the advice remains suitable as client circumstances change.
Term: Centralised Investment Proposition (CIP)
Definition: A standardised approach used by a firm to manage client portfolios.
Q: What is the purpose of a client agreement?
A: To outline services, responsibilities, charges, and client rights.
Term: Disclosure Documents
Definition: Materials provided to inform clients about services, costs, and any conflicts of interest.
Q: What is adviser charging?
A: The practice of charging the client directly for advice, rather than via product commission.
Term: Initial Advice Fee
Definition: A one-time fee for setting up a financial plan or product.
Q: How should advisers communicate complex information?
A: Clearly, using plain language, and confirming understanding.
Term: Key Features Document
Definition: A summary that outlines a financial product’s essential facts in plain language.
