Financial Planning and Customer Needs

These flashcards cover essential concepts and questions related to financial planning, investment types, insurance, and customer needs as discussed in the lecture.

What is the first need typically addressed in the customer hierarchy of financial needs?

Living today.

Which type of life assurance provides financial security for children if the policyholder dies?

Whole of life.

What does a critical illness policy pay upon diagnosis?

The sum assured.

What is the maximum benefit payment period for ASU policies?

Usually 1 year.

Which type of insurance covers income if unable to work due to illness?

Income Protection.

What type of insurance is generally most suitable for short-term emergencies?

Savings.

What investment type has the potential for income through dividends?

Stocks and shares.

How is the real rate of return calculated?

Interest rate minus the rate of inflation.

What are structured deposits typically linked to?

Performance of an index, like FTSE 100.

What is a characteristic feature of fixed interest investments?

They provide fixed rates of interest.

What is the definition of 'gilts'?

Bonds issued by the UK government.

Which type of investment allows a company to raise funds over longer terms than conventional loans?

Corporate bonds.

What happens to a bond's market value when interest rates rise?

The bond's market price falls.

What is the maximum amount that can be held under an ISA, with no limit on contributions?

No limit on total amount held.

What tax relief is available on contributions to a personal pension plan for UK residents under 75?

Tax relief is received.

How much tax relief is offered for investments in Venture Capital Trusts (VCTs)?

30% tax relief on up to £200,000 per tax year.

What is the annual contribution limit for EIS tax relief?

30% tax relief on up to £1,000,000 per tax year.

What is an immediate advantage of collective investment schemes?

Reduced risk through diversification.

What does 'open-ended' mean in relation to unit trusts?

The manager can create more units.

How is the price at which investors cash in their units termed?

Cancellation price.

What type of loan requires an asset as security?

Secured loan.

What is a key advantage of a repayment mortgage?

The mortgage is fully repaid by the end of the term.

What is a significant risk associated with interest-only mortgages?

No guarantee of repayment at the end of the term.

What is the minimum pension age expected to rise to in 2028?

57 years.

What type of occupational pension defaults risk on the employer?

Defined benefit.

What is the role of the fund manager in a collective investment scheme?

To manage the investments and reduce risk.

What is the main principle behind diversification in investing?

Spreading risk across different assets.

What happens to gilts in terms of tax when held in an ISA?

Tax-free growth and income.

What is the tax status of dividends received from equity funds?

Subject to income tax.

Which characteristic of critical illness insurance is FALSE?

It is guaranteed to pay out on every diagnosis.

What happens to investments in a VCT if shares are sold within the first five years?

Tax relief is clawed back.

For what purpose are Individual Savings Accounts (ISAs) primarily used?

To save or invest without tax implications.

How are accounting gains from shares taxed upon investors cashing in their shares?

Subject to capital gains tax.

What is the annual management charge typically in Unit Trusts?

0.5% to 1.5%.

What group of the UK population is described as 'asset rich, income poor'?

Retirees.

What type of trust must pass on at least 85% of income as dividends to shareholders?

Investment trust.

Which option typically provides capital growth potential over saving accounts?

Stocks and shares.

What happens if a second chargeholder is not fully repaid in a repossession scenario?

They can sue for possession after the first charge is settled.

What do savings accounts offer in return for deposited money?

Interest payments.

Which need is prioritized for young families in financial planning?

Protection.

What should be the minimum withholding for a pension auto-enrollment?

8% of the salary.

What element of financial planning ensures wealth is transferred according to wishes?

Estate planning.

What is a primary benefit of collective investments for individual investors?

Professional investment management.

What happens to the bond price when market interest rates decrease?

The bond price tends to increase.

Which type of ISA is available for individuals aged under 18?

Junior ISA.

Which insurance provides a taxable lump sum if diagnosed with a serious illness?

Critical illness insurance.

Which type of investment involves split share pricing between offer and bid?

Unit Trusts.

What are gilts considered in terms of investment risk?

Very safe.

How are corporate bonds typically rated in terms of investment risk?

Higher risk than government bonds.

What is meant by 'life stage' in understanding financial needs?

The phase of life that influences financial priorities.

What is subject to tax relief for occupational pension plans?

Employer contributions.

Why might someone consider investing in equity or shares?

For potential real growth outpacing inflation.

Why would a firm avoid foreseeable harm according to Consumer Duty rules?

To ensure customer protection.

Which financial planning need is often linked to retirement age?

Pension planning.

What happens if the bonds are sold in a secondary market?

The yield on the bond is dictated by current market conditions.

What is the purpose of tax deductions in pension contributions?

To enhance future retirement savings.

What clause governs the capital repayment for interest-only mortgages?

Requires planned repayment methods.

What is required to ensure the full repayment of loans on properties under secured loans?

Legal charge.

What do VCTs primarily invest in?

High-risk start-up companies.

What is the typical term length for structured deposits?

Three to five years.

Why are fixed interest investment returns usually higher than deposits?

Higher risk involved.

What is an essential consideration for retirement planning?

Inflation's impact on purchasing power.

What plan might an employee contribute to alongside an employer for retirement?

Occupational pension plan.

What characteristic differentiates dividends from regular income?

Dividends are not guaranteed.

What role do ISAs play in financial growth?

They provide tax-favored growth.

What tax applies to income from typically risky investments such as corporate bonds?

Income tax.

What do funds within an ISA benefit from?

Tax-free growth.

In investment trust management, which activity comprises minimizing risk?

Diversification.

How many years might a defined benefit pension scheme be funded?

Pensions are typically funded for life.