Topic 19 Gathering information from the client Flashcards
- What are the five broad areas of an individual’s needs and objectives?
We can categorise an individual’s financial needs and objectives into the following five areas:
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;
savings and investment – 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;
mitigating tax.
We can categorise an individual’s financial needs and objectives into the following five areas:
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;
savings and investment – 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;
mitigating tax.
- How are the FCA’s know your customer (KYC) requirements usually met?
KYC requirements are usually met by completing a fact find.
- What information should an adviser collect specifically in relation to a self employedcustomer?
If the client is self employed, information that should be gathered includes:
ownership of the business;
when it was established;
the accounting year end date;
financial information over two or three years, including balance sheet; profit and loss account; net profit;
future short and longer term plans for the business.
- Explain the difference between fixed and discretionary expenditure.
Fixed/essential expenditure is expenditure that must be met every month, such as food, heating, insurance, council tax and so on. The client cannot choose not to pay. Discretionary expenditure is spending that could be stopped or reduced if necessary, or some of the money could be diverted to other things.
- Having identified a customer’s needs and objectives, what should the adviser do next?
Having identified the customer’s needs and objectives, the adviser’s next step would be to prioritise them.
- What is the main way to demonstrate that the adviser has considered affordabilitywhen making a recommendation?
The income and expenditure record is the main way to demonstrate that affordability has been considered.
- Seve’s objective is to build up a lump sum of £20,000 in ten years’ time from aninvestment of £10,000 now, which would require an annual growth rate of 7.2 percent. His attitude to risk is quite cautious. What should Seve’s adviser discuss with him?
The adviser would need to discuss the fact that Seve is unlikely to achieve his objective by investing cautiously. He can either increase the level of risk he is prepared to accept or accept that it is unlikely that he will meet his target.
- What is the potential weakness of the ‘interview’ approach to assessing a customer’sattitude to risk?
The interview approach is potentially flawed because the result will always be very subjective and reliant on the quality of the questions, the adviser’s explanations and the client’s understanding of the process and the questions.
- Explain briefly what is meant by the psychometric approach to establishing acustomer’s attitude to risk.
The psychometric approach is where the adviser uses tools to assess the client’s psychological attitude to risk in general rather than their objective ability to cope with financial risk. Psychometrics assesses the client’s knowledge, experience, attitudes and personality rather than considering how much they are prepared to risk. The tests are validated statistically by using a large sample of the population. The questions will consider a number of aspects of the client’s approach, including:
their own feelings on their attitude to, and tolerance of, risk;
past financial decisions they have made;
how they would feel and react in a number of ‘what if?’ financial scenarios containing positive and negative outcomes;
how they would feel about a number of hypothetical events and outcomes in relation to their finances.
- What is the purpose of a review meeting with a customer?
The purpose of a review meeting is to ensure that previous advice and arrangements are still appropriate, and to make sure new developments are addressed.
