Chapter 7 Flashcards
What are the 5 main things written in a client agreement?
1) remuneration
2) the service being provided
3) timescales involved in provision of services
4) the duration of the agreement
5) frequency of contact
What are the 6 steps of financial advice stated in ISO?
1) establish and define client and personal financial planner relationship
2) gather client data and determine goals and expectations
3) analysing and evaluating the clients financial status
4) developing and presenting the financial plan
5) implementing the financial planning recommendations
6) monitoring the financial plan and relationship
What are hard facts and soft facts?
Hard facts = factual information such as salary and occupation
Soft facts = needs, wants, desires and feelings
What are the 5 key fact find areas?
1) needs and objectives
2) assets and liabilities
3) income and expenditure
4) priorities
5) attitude to risk
What is attitude to risk?
The high level description of the degree of risk which is acceptable to the individual. It is subjective.
What is tolerance to risk?
The degree or amount of risk that an individual will stand. this is subjective.
What is capacity for loss?
How much a client can afford to lose before it impacts their life. This is objective.
What is negative screening?
Funds will avoid a certain unethical practice.
Eg avoiding any firms that are involved in the arms trade
What is positive screening?
There is a tolerance to unethical practice but the fund will actively seek our firms that make an effort to be as ethical as possible.
What is neutral approach?
Involves choosing firms that are considered socially responsible.
What are 6 things that a recommendation report should provide?
1) overview of clients circumstances
2) summary of needs
3) summary of recommendation
4) detailed sections of risk profile
5) details of asset allocation and wrapper selection
6) reasons why suitable
What are the two main investment types?
Those aiming to maximise returns for a given level of risk
- collective investments
- dc pensions etc
Those aiming to cover a future potential liability
- final salary pensions
- life assurance policies
What are the 5 generic risk categories?
1) no risk - no fall in investment is accepted. Cash or short dated bonds
2) low risk (cautious) - will accept a small amount of movements in value in exchange for growth. Gilts with equity exposure.
3) medium risk (balanced) - will accept movements in value in exchange for growth. Asset backed investments, collective schemes, diversified share portfolios
4) medium-high risk (adventurous) - will accept larger fluctuations in value and not concerned with giving up diversification. Minimum cash holdings. Global high risk funds
5) high risk (speculative) - happy to focus on growth aggressively. Direct holdings in shares. Highly geared products.
What is time horizon?
The shorter the time horizon the more need for capital preservation and the longer the time horizon the more importance to see growth above inflation.
What is strategic asset allocation?
The traditional approach to determining how much of a clients money should be where in order to achieve long term investment goals. For example, 60% shares, 30% bonds, 10% cash.
