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Flashcards in 2 - Serving the retail consumer Deck (24)
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Disposable income

- the difference between income and expenditure
- likely to be very approximate
- an advisor should know whether a client is living beyond their mans or whether there is surplus income


Unstructured loans

e.g. mortgages and loans on commercial property
- able to increase loan repayments at anytime thus reducing the interest
- overdrafts and some personal loans fall into this category
- interest rate on the loans varies in win its the risk of default
-- 1% above base rate = good
-- 4% above base rate implies lender feels there is a higher the average risk of default


Structured loans

e.g. smaller purchases such as buying a sofa
- has a fixed rate of interest payable over the term of the loan fixed repayment structure
- where the base rate changes the payment amounts
- falls at the higher risk end of the market and with no collateral to back up the loan, costs can be higher than the unstructured loan


Occupational pension schemes

set up by an employer and can provide benefits
- these benefits can be a defined benefit or contribution basis


Personal pension schemes

- set up between the policyholder on the scheme provider
- the policyholder decides how much they want to save


Main types of deposit based savings accounts

- savings
- cash ISA (individuals savings account)
- fixed notice
- fixed rate bond (term accounts)
- high interest regular savings


Pooled investment

where investors' money is pooled together into a fund which is then invested in one or more asset classes by a fund manager

- open ended investment funds
- life+pension funds
- endowments
- investment trusts


What are the benefits of pooled investments?

+ professional expertise - an expert picks investments for the fund and watches daily
+ spreading risk - even with a small amount of money they can spread across a range of funds
+ reduced dealing costs - effectively buying in bulk; direct investments aren't cost effective for diverse portfolios
+ less administration - fund manager manages the buying/selling/collecting dividends and income
+ choice - wide range of funds, choose one or several that suit you individually



- regular premium policies which combine investments with life cover
-- some of the premium is used to buy life cover and the remainder of the premium is invested; amount of life cover will depend on: premium paid, age, length of policy


Investment trust

- a listed company with a set number of shares
- it is allowed to borrow money to invest (this is called gearing)
- it is closed-ended


Closed-ended trust

- a set number of shares available & this will remain the same no matter how many potential investors there are
- cannot create/cancel units (e.g. unit trusts/OEICs) depending upon the amount being invested so the demand for their shares will have direct impact on the price



NOT an investment in its own right but one that derives its value from the price of an investment to which it is linked

A right or an obligation to buy or sell another type of asst at a specific price to someone else at a specific date



Inheritance tax
- nil rate band = £325,000
- residence nil rate band = £175,000

Taxed at 40% after this up to £2m then taxed @50%


Residence NIL rate band

- up to £175,000
- available when a parent leaves their main residence to a direct descendant
- also available to those who downsized or ceased to own their home after 7th July 2015


Main approaches to tax planning

1. make the maximum use of tax allowance
2. choose the most suitable investments according to the investors own tax position
3. choose investments that provide tax free returns
4. choose investments that qualify for tax relief on the initial amounts invested


What is the main difference between the underwriting considerations for income protection policy (IPs) vs life assurance policies (LAs)?

life assurance - based on the study of MORTALITY (the length of time someone is likely to live)

income protection - based on MORBIDITY (the rate of incidence/disease/medical problems)


Annual pension contribution allowance

- limit for registered pensions = £40,000 per annum in the current tax year, except for those with adjusted annual allowance of over £240,000
-- for every £2 of adjusted income over £240,000 the allowance is reduced by £1 down to a minimum of £4,000


What is term assurance?

the paying of a lump sum on the death of the life assured

2 kinds:
- level term assurance
- decreasing term assurance


Level term vs decreasing term assurance

Level term - level sum assured in return for a level premium throughout the term of the contract

decreasing term - the amount of the loan is constantly being reduced over the term by the borrow so the sum assured under the policy holder also reduces
- premium level remains the same throughout the term however premium n decreased term will be less than long term (with the same initial sum) as the amount of cover reduces over time


New state pension vs basic state pension

new state pension: retire on or after 6 April 2016
- £175.20 per week
- paid or created with 35 yers qualifying NICs
- not been contracted out (if so deductions are made)
- a minimum of 10 qualifying years is required in order to receive any state pension

basic state pension: before 6 April 2016
- £134.25 per week
- same guidelines apply


reviewable critical illness cover

premiums cheaper than those under a guaranteed contract
medical conditions of the policy holder are not reviewed just medical advancements considered


how often is the state pension age reviewed?

every 5 years


monetary gift - tax rules

- must be irreversible and can't maintain any benefit
- have to be alive for 7 years after giving the gift (IHT could be applied if not)
- no tax payable at the outset


definition of a debt management plan

an advisor negotiating with a clients creditors to consolidate the debt into one affordable payment which is distributed to creditors via the advisor
- these advisors must be licensed under the Consumer Credit Act