Topic 14: Understanding and satisfying customer needs

Question 1

What are Hard Facts?

Answer 1

Tangible information that is factual, such as salary, date of birth, address etc.

Question 2

What are Soft Facts?

Answer 2

Intangible ‘facts’ - opinions, attitudes, objectives, feelings, etc.

Question 3

What is Attitude to Risk?

Answer 3

An individual’s understanding of financial risks and how prepared they are theoretically to take risk in order to achieve goals.

Question 4

What does Capacity for loss mean?

Answer 4

How much financial risk an individual can afford to take, irrespective of their attitude to taking risk. Looks at the consequences of losing money on their circumstances.

Question 5

What is the Financial Life Cycle?

Answer 5

The precise financial needs of clients vary from person to person, but it is possible to identify financial needs that are typically associated with the life stage that an individual is in, and from there to establish the type of products that might be relevant to them.

Question 6

What is a Factfind?

Answer 6

Advisers build a clear picture of a client’s circumstances, experience, needs and objectives by obtaining personal and financial information about the client through a fact-finding process. FCA rules do not prescribe the method by which advisers obtain information from clients. Firms design a process that meets the FCA’s requirements for assessing suitability, taking account of the market in which they transact business.

Question 7

What is the Retention of records?

Answer 7

Once arrangements have been put in place there is a regulatory requirement to keep records to demonstrate what advice and information was given and why.

Question 8

What is Proactive Servicing?

Answer 8

In after-sales care, instigating action by contacting the client to discuss further needs.

Question 9

What is Reactive Servicing?

Answer 9

In after-sales care, taking action as the result of a request from the client, for example a request to discuss the recommendation after comments made in the media or by competitors. The client’s circumstances might change unexpectedly, resulting in a request for advice. The request might not be received directly from the client.

Question 10

What information should be known about a clients assets?

Answer 10

• ownership, ie single ownership or jointly owned;
• purpose of the investment;
• type of investment, eg 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 (if any);
• type of return, eg 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.

Question 11

What information should be known about a clients Liabilities?

Answer 11

• lender;
• amount of loan;
• balance outstanding;
• original term and term remaining;
• type of loan, eg secured, unsecured (and if secured, on what);
• amount of monthly or other periodic payment;
• rate of interest;
• repayment method;
• protection of capital or payments.

Question 12

What is a vulnerable customer?

Answer 12

The FCA describes 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 (but not limited to) physical or mental
disability, poor health, or weak numeracy and literacy skills.
Their vulnerability might be short term, for example because
of a job loss, a recent bereavement or release following a prison
sentence.

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.

Question 13

What are the five areas of financial need?

Answer 13

1. Protecting dependents from the financial effects of either a loss of income or a need to meet extra outgoings in the event of a premature death
2. Protecting self and dependants from the financial effects of losing the ability to earn income in the long term
3. Providing an income in retirement, sufficient to maintain a reasonable standard of living
4. 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 savings in the first place
5. Saving tax

Question 14

What are the 9 steps to understanding and satisfying customer needs?

Answer 14

1. Beginning the process
2. Factfind- Establishing the customers situation
3. Understanding plans and objectives
4. Establishing attitudes and preferences
5. Identifying needs and objectives
6. Agreeing order of priority
7. Recommending solutions
8. Completing the sale
9. After-sales care