3. Customer Needs Flashcards
What is the hierarchy of financial needs? (6)
Investment
Savings
Pension
Income
Protection
Living today
What product are partnerships in particular interested in?
Partnership protection - life assurance taken out by each partner, in trust for the others
What are the 8 FCA expectations of financial institutions?
Act in best interests of the customer
Look after customers assets responsibly
Not abuse customers trust in the firm
Deal with customers open and honest
Investigate and promptly resolve issues
Ensure customers understand products
Ensure products are suitable and appropriate
Ensure customers understand costs & charges
Deal with customers sympathetically but fairly
What is insurable interest and the 5 main limits?
Necessary for policy - applicant would directly suffer financially
Individuals: unlimited on own life
Spouses/CPs: unlimited on eachother
Creditor: limited to debt owed
Employer: limited to value of services provided by employee
Partners: limited to value of deceased’s share
What are the 4 types of life assurance arrangements?
Single life, own benefit: one person, benefits paid into own estate
Life of another: one person, benefits paid to someone else
Joint-life, first death: 2 people covered, benefits paid on first death to survivor - common for couples to cover mortgage
Joint-life, second death: 2 people covered, benefits paid on second death to estate - IHT planning
Features of term assurance?
Runs for defined term then ends
Low cost
Useful for defined periods e.g child dependency, mortgage
Features of whole of life assurance?
No time limit, applies as long as premium is paid
Can include element of investments
Useful for protecting dependents, providing tax-free legacy, cover expenses & IHT on death
Features of critical illness cover?
Provides lump sum on diagnosis of specified serious illness or disability.
Can be integrated with term/whole of life policy
Features of income protection policy?
Provides replacement income for long term illness / disability
Agreed term, usually retirement date
Paid as regular tax free income
Max benefit 50-60% pre-illness income
Paid until earliest of recovery, end of term or death
Deferred period applies
Features of Accident, Sickness, Unemployment policy?
Similar to income protection but renews annually
Max benefit 60-65% of income
Deferred period usually 30 days
Benefits cease after 1-2 years
What is a structured deposit?
Cash deposit where interest linked to an index
Cannot lose initial deposit
No dividends
What are the 3 benefits of collective investment schemes?
More suitable for average investor due to:
Diversification
Economies of scale = lower fees
Investments managed by professionals
What are the 3 main types of collective investment schemes?
Unit trust: lump sum or regular investment into fund. Can provide capital growth and/or regular income. Fund managers can create more units and obliged to buy back
Open Ended Investment Companies: as above but issue shares, not units
Investment Trusts: PLCs that invest. Investor buys shares on stock exchange. Fixed no. shares (close-ended) so less liquid, and fund has no obligation to buy shares back
What is a Venture Capital Trust?
Invest in small companies
Tax incentives:
30% relief up to £200k p.a - clawed back if sold within 5 years
No CGT
No income tax on dividends
What is the Enterprise Investment Scheme?
Invest in small companies
Tax incentives:
30% relief up to £1m p.a (clawed back if sold within 3 years)
No CGT if shares held for 3 years
