Chapter 11: Financial Advice

Question 1

what is involved in accidnt and sickness cover?

Answer 1

provides for income or some sort of lump sum in the event of an accident or some sort of illness.

Question 2

what is medical insurance?

Answer 2

intended to cover the cost of medical and hospital expenses, may be taken out on individuals or provided as part of an individual’s employment. costs covered are closely defined, limits on payouts

Question 3

what is long term care cover?

Answer 3

cover that provides the funds needed in later life to meet the cost of care, value depends on amount of state funding available. expensive and premiums will be paid as income that can be used to cover the expenditure#

Question 4

what does business insurance provide?

Answer 4

cover for claims against faulty work/goods, protecting loans, providing income in case of lack of ability to work, payments if a key business member/ shareholder dies

Question 5

what is compound interest?

Answer 5

interest on interest already earned

Question 6

how dos the UK govt define ‘saving’?

Answer 6

putting money aside without risk

Question 7

what investing involve?

Answer 7

committing money into an investment vehicle in the hope of making a financial gain, greater level of risk than saving. should be for the longer term, and suitable if the individual already has enough savings for 3-6 months of living expenses

Question 8

what are the characteristics of later-life planning?

Answer 8

building up capital to have the ability to enjoy rather than endure retirement where a worthwhile income will be accessible

Question 9

what is estate planning?

Answer 9

making sure that a client takes appropriate steps to ensure that their accumulated wealth passes to their intended beneficiaries. involves determining who will inherit the assets and capital left behind and steps that can be taken to reduce taxes

Question 10

what is the definition of a will?

Answer 10

a legal document that specifies what is to happen to an individual’s assets on their death, if no will is made, the legal system decides who inherits

Question 11

what is tax avoidance?

Answer 11

legal exploitation of the tax system to one’s own advantage to reduce the amount of payable tax

Question 12

what is tax evasion?

Answer 12

effort by individuals and other entities to evade the payment of taxes by illegal means

Question 13

what is the worldwide system of taxation?

Answer 13

residents of a country are taxed on their worldwide income and capital gains irrespective of where their income or gains arise e.g., UK, US, Germany

Question 14

what is a territorial based tax system?

Answer 14

residents are only taxed on income and capital gains arising in that country

Question 15

what is a legal person?

Answer 15

an individual or entity that is recognised as having legal rights and obligations

Question 16

what is the definition of an individual?

Answer 16

acquire their status as legal persons when they are born

Question 17

what does ‘executing power of attorney’ mean?

Answer 17

an individual has signed a legal document which authorises someone to act on their behalf

Question 18

what is the ordinary power of attorney?

Answer 18

authorises one or more persons to make financial decisions on behalf of an individual

Question 19

what is lasting power of attorney?

Answer 19

where an individual authorises one or more persons to make financial/ health and care decisions on their behalf. must be registered with the Office of the Public Guardian and then submitted to financial institutions to show the attorney’s authority

Question 20

what is a deputy order?

Answer 20

where a LPA is issued as someone has become mentally incapable of managing their financial affairs

Question 21

what is the role of a personal representative?

Answer 21

they collect the assets, settle any debts and distribute balance to whoever is entitled to the remainder. must apply for grant of letters of administration

Question 22

what is a trust?

Answer 22

legal means by which an individual can give property to another person to look after on behalf of a third party, terms are set out in a trust deed

Question 23

what are the roles of trustees and beneficiaries?

Answer 23

trustees are responsible for managing the trust and are the legal owners of its assets. the beneficiary is the person for whom the trust is intended for

Question 24

what is the definition of a company?

Answer 24

legal entity formed to conduct business or other activities in the name of its members, separate entity from its shareholders

Question 25

what is a conventional partnership?

Answer 25

one that is not seperate legal entity from it’s owners, partners are responsible for their own and each others debts

Question 26

what is a limited partnership?

Answer 26

at least one partner must ahve unlimited liability

Question 27

what is an LLP?

Answer 27

Corporate partnership, members may hold land/property in its name and there are designated partners who are the equivalent to company officers (C-suite)

Question 28

what is the function of an agent?

Answer 28

create a contract between the principal and third parties or to act as a representative of the principal in other ways. if the agent goes beyond their authority, then the principal will not be bound, and the agent will be personally liable to the third party for a breach of warranty of authority

Question 29

what is incolvency?

Answer 29

where the liabilities (debts) of a business or individual or business exceeds their assets or they’re unable to repay their debts as they fall due

Question 30

how can an individual be declared bankrupt?

Answer 30

if they owe £5,000 or more to any creditor

Question 31

what is liquidation?

Answer 31

the legal ending of a limited company

Question 32

what are the five stages of the fianncial planning process?

Answer 32

determine requirements, formulate strategy, implement strategy, revisit investments, periodic revisiting

Question 33

what must be established by a financial advisor in the client’s risk assessment?

Answer 33

risk tolerance, attitude to risk, capacity for loss. has a considerable impact on the financial planning and strategy an advisor recommends

Question 34

what are objective factors of financial advice?

Answer 34

timescale, commitments, wealth, life cycle/ age

Question 35

what are subjective factors to financial advice?

Answer 35

level of financial knowledge, level of comfort with risk, preferred investment choice, approach to bad decision

Question 36

what must a firm do to ensure their recommendations are suitable and affordable?

Answer 36

determine the types of services and transactions with which the client is familiar, the nature/volume/frequency of the clients’ previous services, client’s level of education, profession or relevant former profession

Question 37

what level of information needs to be provided to clients?

Answer 37

sufficient information about the firm and any proposed investments, must disclose any material information, must disclose how they will go about managing the clients’ money on an ongoing basis

Question 38

how are consumer rights dictated in financial services?

Answer 38

in the contract drawn up between the client and the financial institution