Topic 14 Flashcards
List the 7 stages in life and their financial needs
School age young people - Somewhere to save their pocket money and gifts from relatives
Teenagers and students - Somewhere to put their earnings from a part time job borrowing to buy a car borrowing to fund education
Post education young people - Savings for a deposit for a house protection against loss of income due to illness loan to buy house
Young families - Protection against loss of income due to illness life cover protection for dependence bigger house provision for retirement
Established families - Planning for retirement. Protection against loss of income. Life cover protection. Savings or investments over long term for surplus income and/or inheritances
Mature households - Planning for retirement. Savings and investments over the medium term to be accessible at retirement
Retirement - Creating as much income as possible from pension plans and savings policies. Realising capital from property. Possible long term care needs
List the savings pattern
Cash
Current account
Instant access/ short-notice deposit account
Fixed-term bonds
Equity-based investments e.g unit trusts
What is a fact find
Advisers build a clear picture of a clients circumstances, experience, needs and objectives by obtaining personal and financial information about the client through a fact finding process
Advisers record the information they obtain from the client through the factfinding in a document often referred to as a factfind.
During a fact find, what areas is it necessary to ask questions around
Financial situation
Existing and future needs
Ability to provide for them
Attitude towards providing for them
Objectives
Knowledge and experience of investment. This will support an assessment of the clients ability to understand and accept investment risks.
This means in practice a fact-find should look at both the clients circumstances and their preferences
What personal and family details are required
Full name address and telephone number
Date and place of birth - Date of birth for all those included in the fact find the client’s place of birth may be important for underwriting or to establish domicile
Marital status
Family details - There may be family members who are or will be financially dependent on the client. The client may become the beneficiary of gifts or trusts. The client may wish to become a donor now or in the future. From a marketing viewpoint there may be an opportunity for referrals to family members
What financial situation details are required
Employment status - Is a client employed self employed unemployed or retired. If the client is a director a partner it may be necessary to delve deeper and establish basic information about their business arrangements
Income and benefits - It is often useful to establish an exact breakdown of income by its component parts e.g. Basic, commission, bonus and overtime, together with the average level of overall earnings.
Previous and/or additional employment - Details of previous employment, share option schemes, profit related pay schemes details of additional employment. It may be helpful to obtain copies of pay slips P60s, tax returns and notices of tax coding
Income and expenditure - Analysing a client’s income and expenditure makes it possible to identify more easily the implications of for instance premature death on the family income and spending patterns. It is also possible to identify any surplus income that could be used to fund the purchase of any additional products recommended
What assets information is required
Ownership e.g. Single ownership or jointly owned
Purpose of the investment
Type of investment e.g. Property deposit in a bank account pension policy or fund
Size of original investment and date
Current value and/or projected future value
Rate of return
Type of return e.g. Capital growth or income and whether that return is fixed guaranteed or variable
Tax status of the investment or other asset
Options available and or penalties
Sum assured and/or lives assured and maturity dates
Name of the institution providing the asset
What liabilities information is required
Lender
Amount of loan
Balance outstanding
Original term and term remaining
Type of loan eg secured or unsecured
Amount of monthly or other periodic payment
Rate of interest
Repayment method
Protection of capital or payments
What are key soft facts required in a fact find
How do clients feel about their current arrangements or lack of them
Objectives now and in the future
Why they have certain arrangements goals or views
Willingness to take action
Likelihood of change in their situation
How will knowing the client’s feelings about their situation there aspirations for the future and their existing arrangements help build understanding
Discovering the reasons behind the client’s existing arrangements may in turn indicate the client’s level of understanding of their finances
Determining the level of clients interest in the situation will indicate their motivation to improve their their situation and the likelihood of their taking action
Ascertaining the client’s views on a number of possible alternative solutions will help in constructing acceptable recommendations
What is a client’s ‘capacity for loss’
The clients ability to absorb falls in the value of their investment
If any loss of capital would have a materially detrimental effect on the client standard of living this should be taken into account in assessing the risk that they are able to take
What does the fca describe as a vulnerable customer
As someone who is especially susceptible to detriment as a result of their personal circumstances particularly when a firm is not providing appropriate levels of care
An individual may be vulnerable because of a wide range of circumstances including Physical or mental disability poor health or weak numeracy and literacy skills
Firms have a responsibility to identify and deal appropriately with vulnerable customers tailoring their service provision and the way they communicate to meet the specific needs of each vulnerable customer
What are the 5 areas of financial need
Protecting dependants from the financial effects of either a loss of income or a need to meet extra outgoings in the event of premature death
Protecting self and dependants from the financial effects of losing the ability to earn income in the long term
Providing an income in retirement sufficient to maintain a reasonable standard of living
Wanting to increase and/or to protect the value of money saved or invested, wanting to increase income from existing savings or investments, wanting to build-up some some savings in the 1st place
Saving tax
When seeking to assess the following areas
Ensuring there is adequate protection of their lifestyle in the event of death or illness
Retirement planning
Advisers should look for examples of typical things that clients either do wrong or fail to do at all they ll to do at all this may include the following
A young family with little or no savings rely solely on mortgage protection cover as their only form of life assurance. It would repay the mortgage but is not designed to meet the ongoing costs of running the house and bringing up the family
A low level of life assurance premiums being paid suggesting that cover might need to be increased for the required protection to be adequate
Unnecessarily large amounts being held on deposit in bank and building society accounts over the long term and so not gaining access to better returns available elsewhere
Substantial taxable savings/dividend income in excess of the allowances being received by an individual who pays higher rate income tax
A non taxpayer holding investments where tax is taken while funds are invested and where the tax deducted cannot be reclaimed
A client with many small holdings of shares over wide range of companies causing administration and monitoring difficulties
A married couple owning most of their assets in an individual’s sole name and pay more tax as a result
A client not making any pension contributions or making only very small pension contributions as a percentage of total earnings which will mean being dependent upon state benefits unless action is taken
People who have not made a valid will whose assets on death may therefore not be distributed as desired
Once an adviser has gathered all the necessary information about the client’s circumstances and preference has a clear appreciation of their ability to pay and has obtained agreement on priorities then what are the advisers objectives in summary
Put the right amount of money
In the right form
In the right hands
At the right time
