Financial Advice chp 10

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What is the main purpose of financial advice according to the text?

To conduct face-to-face interviews with clients

To help individuals manage their finances based on their needs (correct)

To recommend specific products to individuals

To encourage people to buy more products

Which of the following is NOT mentioned as one of the main areas of financial advice in the text?

Budgeting

Investment and saving

Marketing strategies (correct)

Estate planning

What is a crucial step for a financial adviser before recommending products to an individual?

Conducting face-to-face interviews

Promoting the most expensive products

Suggesting multiple product options

Understanding the individual's financial needs and circumstances (correct)

How can financial advice be received according to the text?

Primarily via face-to-face interviews Signup and view all the answers

What must a financial adviser ensure when recommending products to an individual?

The products match the individual's specific needs Signup and view all the answers

Why is budgeting mentioned as an essential financial advice activity?

To help individuals manage their money effectively Signup and view all the answers

What is one of the main benefits of budgeting mentioned in the text?

Reducing the chance of unexpected costs Signup and view all the answers

What is the first step suggested in taking control of finances according to the text?

Creating a budget Signup and view all the answers

What is considered a 'good debt' as per the text?

A debt that is a sensible investment in one's financial future Signup and view all the answers

Why is it important to work out how much one can afford to repay each month before borrowing?

To select the best borrowing option based on affordability Signup and view all the answers

What type of insurance is designed to pay a lump sum in the event of suffering from critical illnesses?

Critical illness cover Signup and view all the answers

Which factor should be considered before choosing the right type of credit or loan according to the text?

The suitability for one's situation Signup and view all the answers

What should be done to set savings goals after identifying major areas of expenditure?

Creating an emergency reserve and developing an investment plan Signup and view all the answers

'Bad debts' as described in the text do NOT include debts that:

'are obtained at low interest rates' Signup and view all the answers

Which area requires protection according to the text?

'Personal and family' Signup and view all the answers

What does 'financial stability and protection' involve according to the text?

'Considering future events and preparing for them' Signup and view all the answers

What is one key feature of critical illness cover in relation to age?

Available for individuals aged 18 to 64 Signup and view all the answers

In income protection cover, what is referred to as 'incapacity'?

The illness or injury that prevents working Signup and view all the answers

Why might an insurance company extend the deferred period for income protection cover?

To lower the likelihood of claim approval Signup and view all the answers

What can cause a claim under income protection cover to be declined according to the text?

Following medical advice unreasonably Signup and view all the answers

What is the primary purpose of mortgage payment protection cover?

Ensure mortgage payments continue if unable to work Signup and view all the answers

Under mortgage payment protection cover, how are benefits affected by income from other sources?

Benefits decrease with other income Signup and view all the answers

What is a common feature of personal accident policies regarding coverage period?

Cover generally taken out for annual periods Signup and view all the answers

What is NOT generally covered under personal accident policies as per the text?

Protection against sickness or unemployment Signup and view all the answers

What factors could lead to the denial of a claim under personal accident policies?

Exceeding the set monthly salary percentage limit Signup and view all the answers

How do accident and sickness cover differ from other types of insurance?

They may provide income or lump sum payments due to accidents Signup and view all the answers

What term is now being used to refer to acceptable tax planning?

Tax mitigation Signup and view all the answers

Under a territorial-based system of taxation, residents are taxed on income and capital gains arising...

Only within the country Signup and view all the answers

What happens if a person dies without leaving a will?

The legal system will determine who inherits Signup and view all the answers

What does tax avoidance involve?

Legal exploitation of the tax system within the law Signup and view all the answers

Which countries have a worldwide-based system of taxation?

USA and UK Signup and view all the answers

Why is international cooperation increasingly used to counter tax avoidance and evasion globally?

To improve the exchange of information between countries Signup and view all the answers

What is the purpose of long-term care cover?

To cover the cost of nursing home care in later life. Signup and view all the answers

Which type of insurance may have limits on what will be paid out per claim or over a period such as a year?

Medical insurance Signup and view all the answers

What does compound interest refer to?

Interest that is reinvested and earns interest on itself. Signup and view all the answers

What are some key features of private medical insurance policies?

Exclusion of pre-existing conditions. Signup and view all the answers

Why might someone find the value of long-term care cover important?

To cover the cost of nursing home care in later life. Signup and view all the answers

What aspect of business insurance involves providing payments if a key member dies?

Indemnity insurance Signup and view all the answers

How are savings affected by reinvesting earnings according to the text?

$1,000 grows exponentially due to compound interest. Signup and view all the answers

What is a common exclusion in private medical insurance policies?

'Pre-existing conditions' coverage Signup and view all the answers

'House and contents insurance' are briefly covered because:

'House and contents' insurance are well-established and understood by consumers. Signup and view all the answers

'Business insurance protection' mainly consists of which two types?

'Indemnity insurance' and 'liability insurance' Signup and view all the answers

What is the main concern of estate planning?

Determining who inherits the client's wealth efficiently Signup and view all the answers

Why is making a will particularly important for a family with young children?

To address guardianship and financial support for the children Signup and view all the answers

In estate planning, what is one way to reduce estate taxes?

Identifying tax-efficient methods for asset transfer Signup and view all the answers

Why does starting to save early for retirement have a significant impact?

It allows for more years of compounding returns Signup and view all the answers

What is a key aspect of estate planning related to liabilities?

Taking into account protection policies and debts Signup and view all the answers

How does delaying saving for retirement impact the accumulated fund?

It reduces the final value of the accumulated fund Signup and view all the answers

What is a critical step in estate planning related to mitigating inheritance tax?

Taking action to reduce potential inheritance tax liabilities Signup and view all the answers

Why is it essential to consider specific gifts and beneficiaries in estate planning?

To specify how assets should be distributed among intended recipients Signup and view all the answers

What happens if estate planning is not done effectively before death?

There will likely be delays and legal complications in asset distribution. Signup and view all the answers

What is one downside mentioned about attractive accounts mentioned in the text?

They have high penalty charges for withdrawals Signup and view all the answers

Why is investing different from saving?

There is no guarantee of getting the money back in investing Signup and view all the answers

What is one reason why investments may outperform cash savings?

Investments generally have higher returns over the long term Signup and view all the answers

Why is relying on the state for retirement income not a viable option?

The cost of state pension provision is increasing Signup and view all the answers

What is highlighted as a potential issue with existing pension plans in the text?

They may fall short of providing the needed retirement funds Signup and view all the answers

Why does the text recommend starting to save for retirement early?

To have more time to build a substantial retirement fund Signup and view all the answers

Based on the example in the text, what annual return rate was assumed for the retirement fund?

4% Signup and view all the answers

What is meant by compound interest rates as mentioned in the text?

Interest that is paid on both the initial principal and on any interest from previous periods Signup and view all the answers

How does a simple estimate method suggested in the text help in planning for retirement?

It estimates what income needs to be generated for desired lifestyle in retirement Signup and view all the answers

Why might someone want to determine what rate of return their retirement fund can generate?

To plan and ensure that enough funds are available for retirement Signup and view all the answers

What is a legal person's ability to enter into contracts and be sued called?

Legal capacity Signup and view all the answers

When does an individual acquire legal person status according to the text?

At birth Signup and view all the answers

What limits a person's legal capacity to make choices and decisions according to the text?

Age and sound mind Signup and view all the answers

What term refers to the ability of a person to make their own decisions and enter into contracts?

Legal capacity Signup and view all the answers

What types of entities can be recognized as legal persons according to the text?

Various forms such as companies, partnerships, and trusts Signup and view all the answers

In what circumstances is an individual's legal capacity to make decisions limited?

In certain situations Signup and view all the answers

What happens if a minor decides to terminate a contract before they reach 18?

The contract becomes void. Signup and view all the answers

In the UK, what happens when a minor ratifies a contract after reaching the age of 18?

It becomes legally binding on both parties. Signup and view all the answers

What is the legal document that authorizes someone to act on behalf of another called?

Power of Attorney Signup and view all the answers

What type of Power of Attorney ends either at a specified time or upon the request of the donor?

General Power of Attorney Signup and view all the answers

What is the term for a person responsible for administering the estate of a deceased?

Executor Signup and view all the answers

What legal document confirms the appointment of an executor or administrator?

Grant of Representation Signup and view all the answers

In estate planning, what action can a minor take regarding a contract they entered into?

The minor can terminate it before reaching 18. Signup and view all the answers

What type of power authorizes someone to act on behalf of an individual who lacks mental capacity?

Lasting Power of Attorney Signup and view all the answers

Who needs to apply for a grant of probate in case of administering someone's estate who left a will?

Executor Signup and view all the answers

What is the term for a legal document confirming the appointment of an executor or administrator?

Grant of Representation Signup and view all the answers

What is the primary difference between liquidation and administration in the context of companies?

Liquidation involves selling assets to pay creditors and distribute remaining share capital, while administration aims to restore the company's viability or sell the business as a going concern. Signup and view all the answers

How does a liquidator contribute to the process of liquidating a company?

By selling the business' assets, paying creditors, and distributing remaining share capital. Signup and view all the answers

What action is typically taken by an administrator when a company is placed under administration?

Restoring the company's viability and negotiating with creditors. Signup and view all the answers

Which authority should be contacted in the UK to report instances of scams according to the text?

Action Fraud Signup and view all the answers

What is the primary objective of an insolvency practitioner or 'administrator' when taking control of a company?

Restoring the company's viability or selling it to pay off creditors. Signup and view all the answers

Why is it crucial for companies to differentiate between liquidation and administration processes?

To handle financial distress effectively by choosing between debt settlement or restructuring options. Signup and view all the answers

What is the function of the agent in the law of agency?

To create a contract between the principal and third parties or to act as the representative of the principal Signup and view all the answers

In a partnership agreement, who decides on the terms of the relationship?

Partners Signup and view all the answers

What distinguishes a limited partnership from other types of partnerships?

Unlimited liability for at least one partner Signup and view all the answers

Why might a financial institution require to see the incorporation documents of a company?

To ensure the trustees' authority to act Signup and view all the answers

What is one significant feature that distinguishes a company from its shareholders?

'Limited liability' protection for shareholders Signup and view all the answers

In a trust deed, what do trustees gain legal ownership of?

Land and property of the trust Signup and view all the answers

What defines a limited liability partnership (LLP) as a corporate version of a partnership?

'Limited liability' for designated partners only Signup and view all the answers

'Agency' in business refers to:

'Principal-agent' relationships in business Signup and view all the answers

'Partnerships' as discussed in the text are formed with the intention:

To conduct business and make profits together Signup and view all the answers

What types of property are recognized in most legal systems?

Real property and personal property Signup and view all the answers

In joint ownership known as tenancy in common, what happens if one of the owners dies?

The deceased owner's share passes to whoever is specified in a will Signup and view all the answers

What is the major difference between real property and personal property?

Personal property can be moved, while real property is permanently fixed Signup and view all the answers

What happens if an agent exceeds their authority in making a contract on behalf of a principal?

The contract becomes void and the agent is personally liable to the third party Signup and view all the answers

What does insolvency refer to?

Being unable to repay debts as they fall due Signup and view all the answers

What is the duration of bankruptcy if an individual cooperates with the official receiver or trustee?

1 year Signup and view all the answers

In tenancy in common, what happens to an owner's share of a property when they die?

It passes to a designated beneficiary or according to a will Signup and view all the answers

'Insolvency' and 'bankruptcy' differ primarily in that:

'Insolvency' is a broader term encompassing all financial failures, while 'bankruptcy' is specific to individuals Signup and view all the answers

'Real property' includes which of the following?

Crops and mineral rights Signup and view all the answers

'Personal property' differs from 'real property' mainly because personal property:

Includes movable items and can be owned by anyone Signup and view all the answers

What is the overall structure of the financial planning process, as described in the text?

Determine client's requirements, implement the strategy, revisit investments Signup and view all the answers

What is emphasized as crucial for financial advisers to consider before recommending products?

Client's affordability and their attitude to risk Signup and view all the answers

In the financial advice process, what is the key factor that determines the value of technical knowledge to the client?

Application within a structured advice process Signup and view all the answers

What distinguishes a structured advice process from just having technical knowledge of investment products?

Taking into account the whole of the client's circumstances Signup and view all the answers

Why is it essential for financial advisers to match solutions with clients' needs?

To ensure recommendations are suitable Signup and view all the answers

What role does monitoring and reviewing clients' circumstances play in the financial advice process?

Detecting changes that may require adjustments in recommendations Signup and view all the answers

What is a key step in the financial advice process that involves establishing an effective relationship with the client?

Conducting a thorough market analysis Signup and view all the answers

What is the primary role of a financial adviser in relation to a client's objectives?

Helping clients prioritize their objectives Signup and view all the answers

What is a fiduciary duty that financial advisers owe to their clients?

Respecting client trust and confidence Signup and view all the answers

Why is it important for an adviser to gather detailed information about a client's assets, liabilities, and family circumstances?

To tailor advice to the client's specific needs Signup and view all the answers

Which communication technique is essential for ensuring the quality of financial advice given to clients?

Honing the skill of establishing rapport with clients Signup and view all the answers

Why is listening considered a crucial skill for financial advisers?

To tailor advice to client needs effectively Signup and view all the answers

What principle requires firms to obtain sufficient information about customers to ensure suitable advice?

'Know Your Customer' (KYC) Principle Signup and view all the answers

Why is establishing an effective client relationship before giving financial advice important?

To gather all necessary information and gain client trust. Signup and view all the answers

What does an adviser's fiduciary duty require them to observe in their relationship with a client?

The highest standards of conduct and respecting client trust. Signup and view all the answers

What is one reason advisers spend time training in communication techniques?

To establish rapport and ensure quality advice. Signup and view all the answers

What is the purpose of gathering information about the client in the financial planning process?

To devise financial plans and make appropriate recommendations Signup and view all the answers

What is the key element in establishing a client's risk profile in financial advice?

Risk tolerance Signup and view all the answers

Why is the client's risk profile important in recommending financial planning strategies?

It affects the level of investment risk that can be borne Signup and view all the answers

What is 'capacity for loss' defined as in assessing a client's risk profile?

The amount of money the client can afford to lose without distress Signup and view all the answers

What is 'attitude to risk' based on when assessing a client's risk profile?

Their personal opinion on investment risks Signup and view all the answers

How does risk tolerance differ from attitude to risk in assessing a client's investment preferences?

Risk tolerance is objective while attitude to risk is subjective Signup and view all the answers

In financial planning, what factor determines what products are suitable and what level of risk should be adopted?

The timescale over which the client may invest Signup and view all the answers

'Capacity for loss' in assessing a client's risk profile relates to which aspect of the client's financial decision-making ability?

Their ability to absorb financial losses without distress Signup and view all the answers

What can be determined objectively when assessing a client's ability to take on investment risks?

Their wealth and income relative to liabilities Signup and view all the answers

Why is it mentioned that different people have varying levels of risk tolerance in investments?

To showcase individual differences in experiences, circumstances, and psychological makeup. Signup and view all the answers

What must a firm consider when deciding whether to offer investment advisory services or discretionary portfolio management to a client?

The nature of the relationship between the firm and the client Signup and view all the answers

In financial services, what is 'material information' that must be disclosed to clients?

Risk warnings and charges Signup and view all the answers

What does the 'cooling-off' period allow for in financial services?

Clients to change their minds Signup and view all the answers

What is the primary factor that dictates a consumer's rights in financial services?

Terms of the contract with the financial institution Signup and view all the answers

Why is it essential for financial advisers to provide sufficient information about proposed investments to clients?

To fulfill regulatory requirements Signup and view all the answers

What should a firm do before making a personal recommendation to a client?

Gather relevant facts and ensure suitability Signup and view all the answers

What do consumer rights in financial services depend on, apart from contractual terms?

Unfair terms in contracts Signup and view all the answers

Why should a firm provide a clear notice about a client's right to cancel after a sale?

'Cooling-off' period regulations Signup and view all the answers

What is one key aspect of maintaining consumer rights after purchasing financial products?

Ensuring that consumers can make informed decisions Signup and view all the answers

Why is it important for firms to agree with clients on conducting periodic assessments of their investments?

To keep track of whether financial goals are likely to be achieved Signup and view all the answers

What factor should determine the frequency of conducting a periodic assessment of a client's investments?

The risk profile of the client and recommended financial instruments Signup and view all the answers

Why is it mentioned that fairly small changes in financial behavior can have a cumulative effect on a client's finances?

To emphasize the importance of regular updates Signup and view all the answers

What guides firms in determining the content of a periodic suitability report for clients?

Client's preferences, objectives, and other characteristics Signup and view all the answers

In financial planning, why is it essential for clients to review their plans regularly?

To monitor progress towards objectives Signup and view all the answers

What is the purpose of providing clients with a periodic suitability report in financial planning?

To update clients on how their investments align with their preferences and objectives Signup and view all the answers

What does a young client investing for retirement in their 30s aim for primarily?

Long-term growth Signup and view all the answers

Which factor can significantly influence a client's risk profile according to the text?

Commitments Signup and view all the answers

What subjective factor can affect a client's risk attitude even if they are financially capable of higher-risk products?

Approach to bad decisions Signup and view all the answers

Why might a cautious client opt for lower-risk investments despite being financially able to invest in higher-risk products?

Fear of market volatility Signup and view all the answers

What is an important consideration when assessing a client's risk tolerance according to the text?

Client's comfort level with risk Signup and view all the answers

What aspect of a client's risk profile may change as retirement approaches according to the text?

Financial priorities Signup and view all the answers

How can a client's approach to bad decisions affect their willingness to take risks?

'Cautious' mindset Signup and view all the answers

What role does age play in determining acceptable levels of risk according to the text?

Used in conjunction with other factors Signup and view all the answers

How does financial knowledge impact a clients willingness to accept investment risk?

'Adventurous' investor status Signup and view all the answers