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Flashcards in Section 11 Deck (17)
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First Communication with Client

•In person
o Provide business card
o Confirm identity of adviser
o Confirm identity of firm and status (independent or restricted)

•Establish client status (retail or professional client or eligible counterparty)
•By phone
o Name of firm and purpose of call
o Status of firm
o Basis of charges
o Confirm all above information will be provided in writing


Information About Recommended Products

•Recommended product information is sent in writing

- European Standardised Information Sheet (ESIS)
- Provides easy comparison of products
- Summarises most important features and costs

General Insurance
- What policy covers
- What it doesn’t cover (exclusions)
Limits or restrictions
- Other important features

- Key Information Document/Key Investor Information Document
- Aim of investment
- Client’s commitment
- How payments are invested
- Main risks
- Tax position
- Fees and charges/effect on investment



• FCA requires fact-find to be kept on file when first giving advice to client and where further advice given to ensure fact-find is updated and details remain correct

Part 1 Personal Details
•Basic information: residence and domicile, marital status, tax status, health and smoking status
•Family details - any dependants
•Employment details - earnings, pension information, employer benefits

Part 2 Financial Information
•Assets - used and invested
•Liabilities - mortgage, method of repayment and interest rate
•Net worth - deduct all liabilities from total assets
•Pension arrangements
- identify any shortfalls

Part 3 Planning and Objectives
•Existing arrangements: establish strengths and weaknesses of existing situation to establish appropriateness of restructuring and identify areas giving concern
•Financial objectives: views/hopes for the future
•Financial advisers: note other professionals used by the client


Summary of Fact-Find

•Provides key information to enable comprehensive recommendations to be made, should work in conjunction with supplementary questions


Identification of Demands and Needs and Possible Solutions

•Client’s needs:
o Protection - capital protection for dependants in event of death and to repay liabilities
o Income protection in event of accident/illness
o Pensions - provision of capital/income when paid employment ceases
o Savings - production of capital by regular investment of surplus income
o Investment - protect from inflation and increase value


Identify Potential Demands and Needs

Discuss Potential Demands and Needs

Quantify Potential Demands and Needs

Identify Potential Demands and Needs
•Will become apparent through fact-finding process

Discuss Potential Demands and Needs
•Encourage discussion to ascertain importance and whether or not client wishes to act

Quantify Potential Demands and Needs
•Ask appropriate questions and quantify in terms of actual income or capital required


Prioritising Potential Demands and Needs

•Considerable discussion usually required in order to achieve this
•If the client decides not to take action in respect of a need then record on fact-find
•Unlikely most people will have sufficient income/capital for all recommendations so prioritise in order of importance


Document Demands and Needs

•Work through steps in planned and comprehensive manner


Evaluating Attitude to Risk

•Need to clarify client’s
o Understanding of investment risk
o Ability and willingness to take on risk
o Understanding, knowledge and experience of investment types
o Capacity for loss on investments

•Careful questioning allows assessment of attitude to risk
•Client must understand potential for loss as well as potential for gain
•Use of questionnaires provides audit trail
•FCA wants to ensure risk assessment processes take into account tolerance and capacity


Ethical Preferences

•Important to take into account any ethical preferences


Assessment of Affordability

•If recommendation is for regular premium policy, then paramount it can be afforded on an on-going basis

•Consider waiver of premium if affordability is tight
o Although only covers cost if unable to work due to accident or illness
o Pays after deferred period
o Will also increase cost of policy


Assessment of Suitability

•Tax - appropriate for client’s tax position
•State benefits - complement eligibility and doesn’t affect entitlement
•Client’s needs - should fulfil a need
•Client’s objectives - financial or personal
•Affordability - on an on-going basis
•Term - must be appropriate
•Investment risk - take into account attitude to risk
•Ethical preferences - taken into account with provider and underlying investment
•Risk warnings - clearly explained to ensure acceptable


Communication Skills

•Efficient procedures and high ethical standards needed
•Be prepared to adapt style and content to client


Due diligence on products and tools

•A firm must carry out research and due diligence to assess the nature of investments it recommends or tools it uses
•Needs to consider risks, benefits and provider to judge appropriateness for firm’s clients
•Should rely on facts, not provider’s opinions


Oral Presentation

•Probably longer in length than written content
•Explains advantages and disadvantages of recommendations
•Two-way communication
•Use of open and closed questions


Written Report

•Simple language without over-use of jargon
•Short sentences and paragraphs
•Use of heading and sub-headings
•Present balanced view (advantages and disadvantages)


Suitability Report

•Start with client’s name and particular financial aspect being addressed
•Specify demands and needs
•Concentrate on priority needs that have guided recommendation
•Avoid replicating fact-find
•Specify needs not currently being met
•Outline any needs identified but not being addressed (and reason why)
•Make formal recommendations
•Specify cost of recommendations
•Report on benefit structure including tax treatment
•Document clear reasons why company was recommended e.g. financial strength
•Examine any risks within recommendation (make reference to client’s attitude to risk)
•Final section - summarise whole recommendation
•Provide comprehensive information in client-friendly format