Topic 14: Understanding and satisfying customer needs

Question 1

Which of the following would usually be a priority need for a client taking out their first mortgage?

a) An emergency fund.
b) Income protection.
c) Medium‑term investments.
d) Pension planning

Answer 1

b) Income protection, to ensure that they can continue to make their mortgage repayments if they are unable to earn an income. An emergency fund would be useful but, at least at the beginning, would be unlikely to be big enough to cover mortgage repayments except in the very short term

Question 2

Why is it important to establish a client’s place of birth as part of the factfind?

Answer 2

It is important to establish the client’s domicile for tax purposes and it may be a factor in underwriting decisions.

Question 3

Which of the following would normally be regarded as the priority financial need for a client who has surplus cash for the first time?

a) A unit trust.
b) An emergency fund.
c) A stocks and shares ISA.
d) A pension plan.

Answer 3

b) An emergency fund. Once people have enough cash to cover their day‑to‑day needs, the usual approach is to build up savings in an easy‑access deposit account

Question 4

When completing a factfind for a client in relation to investment advice, which of the following should always be taken into account?The client’s:

a) levels of indebtedness.
b) employment details.
c) attitude to risk.
d) mortgage arrangements

Answer 4

c) Attitude to risk

Question 5

Which of the following ought to be the highest financial priority for a retired couple?

a) Pension accumulation.
b) Protection advice
c) Generating income.
d) Mortgage advice.

Answer 5

c) Generating income. It is not a) pension accumulation as this would take place before retirement

Question 6

What is meant by ‘capacity for loss’ and why is it important

Answer 6

‘Capacity for loss’ is the extent to which the client would be adversely affected should they make a loss on their investments. This must be taken into account when assessing attitude to risk

Question 7

List the factors that an adviser might take into account when deciding on an appropriate solution for a client

Answer 7

Eligibility for state benefit; existing arrangements; affordability; taxation; attitude to risk; capacity for loss; anticipated changes in circumstances; timescale; flexibility

Question 8

List five points that should be included when presenting a recommendation to a client

Answer 8

The purpose of the product and the needs that it will address;
the benefits to the client;
risks and limitations inherent in the product;
any product options that might be appropriate;
a summary of reasons for recommending that product.

Question 9

For how long must records relating to pension transfers be retained?

Answer 9

Indefinitely

Question 10

What is the difference between proactive and reactive servicing?

Answer 10

Proactive servicing is instigated by the adviser, perhaps on the basis of information obtained during the factfind about a forthcoming promotion or inheritance. Reactive servicing is instigated by the client in order to address a need, or by the client’s representatives, eg the executors of an estate.