Topic 3 - Meeting customers needs and priorities Flashcards
What are the 3 broad categories of customers
- Personal
- Business
- Those who act on behalf of others
In terms of the ‘financial life cycle’, what is included for young adults in employment (20-30)
- More spending power
- Unlikely to have savings
- Often renting
In terms of the ‘financial life cycle’, what is included for the 2 stages for young families (30-40)
Stage 1
- Looking to rent/buy before making a family
- Savings and mortgage planning prioritised
- Consider assurances
Stage 2
- Starting family, often bought first house
- Income protection crucial
- Less savings due to 1 income (Maternity)
- Think about long-term savings (children)
In terms of the ‘financial life cycle’, what is included for established families (40-50)
- Better off financially
- Return of 2 incomes - increase mortgage
- Expenses at their highest - kids
- Priority of financial protection
In terms of the ‘financial life cycle’, what is included for mature households (50-60)
- Highest earning potential - more disposable income
- IHT & retirement planning
- Life assurance in place
In terms of the ‘financial life cycle’, what is included for retirement (60+)
- Converting income to lump sums
- ‘Asset rich, income poor’
- Downsize house to increase capital
What is include in the hierarchy of needs, from most to least important
- PIPSI - acronym
- Day-to-day living
- Protection
- Insurance
- Pension
- Savings
- Investment
Explain what a sole-trader is and what their business needs are
- Sole-traders run small businesses (typically their own) and sometimes employ others
- Banking
- Loans
- Protection
- Insurances (tools etc.)
- Pensions
Explain what partnerships are and what main protection they will need
- Two or more self-employed agreeing to work together formally
- Protection needed for death - life assurance taken out by all members
- Assurance pays out sum to buy out beneficiaries share of business
Briefly explain limited companies and their business needs
- From ‘one man bands’ to large corporations
- Banking
- Loans
- Protection
- Staff benefits
- Insurance
Briefly explain what a trustee is and their financial needs
- People who look after assets left in trust
- Trustee bank account
- Investment
- Deposit account
- Occasional mortgage and borrowing facilities
When creating a factfind, advisers should ask about the clients
- Financial & personal circumstances
- Priorities
- Capacity to absorb losses
- Attitude to risk
- Objectives & Needs
What are a firms obligations (set by the FCA) to its customers
- Act in best interest of customer
- Look after assets responsibly
- Not abuse their trust
- Be honest
- Investigate mistakes and make it right
- Ensure customer understanding of assets bought
- Ensure customer understanding of costs and charges
- Be sympathetic to customers regarding problems
What act from the FCA pushed for improving consumer knowledge to financial services, and what service did they create for this
- The financial guidance and claim act 2018
- Money and Pension Service (MaPS)
What areas do MaPS provide advice on
- Pensions - general information about workplace/personal pensions
- Money - enhance understanding of day-to-day money management skills
- Debt - information and advice
What does Life assurance provide upon death
- If regular premiums are paid, income and/or lump sum paid to family
What does insurable interest mean
- Applicant would suffer directly from the death or insured event
- Members of partnerships have II in each other, as well as creditors to a borrower
What are the 4 life assurance arrangements
- Single-life, own benefit
- Life of another
- Joint-life first death
- Joint-life second death
What is term assurance and what are its main features
- Form of life cover over agreed term
- Low cost
- Only payable if claim is during term
- Monthly or annual premiums
- No cash value built up - not an investment
- Single life or Joint-life first death available
What is whole life assurance and what are its main features
- Runs for whole life of the insured, paid on death
- Only cancelled if premiums not paid
- Premiums provide protection & investment
- 2 investment principles - unit-linked and with-profit
- Provides tax-free legacy & funds for IHT
Explain the difference between unit-linked and with-profit investments
- Unit-linked - Investment directly linked to stock that company is investing in themselves - volatile but chance for higher returns
- With-profit - Investment based on company’s performance - safer but potential lower returns
What are the key features of Critical Illness Assurance
- Tax-free lump sum paid on diagnosis - doesn’t need to be repaid if they survive
- Must meet strict definitions
- Same structure as Life Assurance plans, except paid on diagnosis not death
- Can be integrated with other insurance term
What are the main features of Income Protection Insurance (IPI)
- Replacement income (tax-free) for long-term disability or death
- Agreed term (usually to retirement date)
- Maximum usually 50-60% of pre-disability income
- Paid until recovery, end of term or death - whichever is first
- Cannot be cancelled unless premiums not paid
- Benefits paid after deferred period
What are the main features of Accident, Sickness and Unemployment insurance (ASU)
- Similar to IPI
- Tax-free income if unable to work (60-65% of income) - redundancy cover available
- Annually renewable - can be cancelled
- Maximum age to take out usually
- Deferred period usually 30 days
- Benefits stop after 1-2 years
What is the main effect of inflation on investments, and what type of return should investors look to receive to keep on top of this
- Reduced buying power of money
- Real return - making sure your investments are at least staying in line with inflation before profits
What is a structured deposit
- Savings account linked to index of measuring stocks - FTSE 100
- Account purchased through financial adviser usually
- Volatile due to performance of shares but higher return than traditional savings
What is a collective investment scheme
- Investors put money into a pool and expert fund managers invest in wide range of assets
- Diversification from spread of risk
2 categories of collective investments
- Unit-trusts and Open-ended investment companies (OEIC)
- Investment trusts
What are the key features of Unit-trusts and OEIC investments
- Done by lump sum or regular contributions
- Unit-trusts divided into units, OEIC’s into shares
- Value of unit/share is value of all of the company’s assets divided by number of units/shares
- Open-ended - new units/shares can be made
- obliged to buy shares back
Key features of Investment Trusts
- Public Limited Company that make revenue through trading
- Investors buy shares from stock market - shares limited
- Investors receive dividends
- Company not obliged to buy shares back
Benefits of collective investments
- Spread of risk
- Economies of scale and aggregation results in lower fees and requirements
- Professional management
What is an ISA and what are its main features
- Individual Savings Account
- Tax wrappers - growth is tax-free whilst inside the ISA
- Can hold deposits, shares and collective investments
- Annual limit on amount invested, no limit on total amount invested
What is a VCT and what are its main features
- Investment specialised in growing small, but established companies
- 30% tax relief up to £200k annually - relief scrapped if shares sold within 3 years
- No CGT
- Tax-free dividends
What is an Enterprise Investment scheme and what are its main features
- Investment specialised in new startup companies
- 30% tax relief up to £1 million annually - relief scrapped if shares sold within 3 years
- No CGT if shares are hold for 3 years
What are the basic pension rules
- Anyone under 75 can contribute
- Overall contribution limit
- Personal contributions eligible for tax relief up to annual limit
- ‘Lifetime allowance’
- Benefits can be claimed from 55, 25% tax relief
What is meant by ‘charge’ in terms of secured lending
- Lender has legal rights over property up to the value of the debt
- Ranked in order - first charge, second charge
- Registered with land registry
What is secured lending and what are its main features
- Mortgages
- Where the lender has a charge over the property (collateral)
What is the main features of a repayment mortgage
- Only interest is paid on the capital lent - repayment of capital comes from other means
- Typically used to buy a new house whilst waiting for the old house to be sold - risky
What is unsecured lending
- Money lent on personal promise - no charge on property
- High risk - higher interest rates and short-term
