IMC 1 10

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  1. RDR
    retail distribution review, initiative set up to increase consumers confidence
  2. Ethical framerwork for financial services 2002
    • -pro conduct and ethical behavior could strengthen the level of confidence
    • -on other hand, if consumers have a diminishing trust in the secot or in an individual firm, they will hesistate to use
  3. social exclusion
    growing awareness to increase positive sentiment in finance
  4. With FSAs outcomes focused regulation, they expect firms to focus on 6 consumer outcomes
    • 1. corporate culture
    • 2. marketing
    • 3. clear information
    • 4. suitability of advice
    • 5. fair product expectations
    • 6. absence of post sale barriers
  5. Unfair terms in cosumer contracts regulations 1999
    limits firms scope for excluding or restricting duties or liabilites to a consumer
  6. Discussion paper 07/01 3 components
    • 1. advice
    • 2. Sales
    • 3. money guidance
  7. 6 stages of financial planning
    • 1. obtaining relevant information "fact finding'
    • 2. establishing and agreeing on the clients financial objectives
    • 3. processing and analysing the data obtained
    • 4. formulating recommendations
    • 5. implenting the recs as agreed with the client
    • 6. reviewing the regularly updating
  8. requirements of clients fall into 2 categories
    • 1. maximize returns
    • 2. match liabilites
  9. Nominal liabilities
    • one that is fixed in monetary terms irrespective of inflation.
    • bank loan or mortgage, sum does not change and needs to be paid off
  10. Real liability
    • is one which changes in monetary terms as we experience inflation
    • in order to maintain standard of living, pension needs to pay out same amount each year in real terms to cover inflation
  11. present value analysis
    whatever the liability, thie analysis anticipates future liabilites that the fund is aiming to meet
  12. fact find process
    • need personal information and financial information
    • -may need letter of authority info from a third party
    • -hard objective facts, soft subjective facts
  13. hard facts
    objective facts
  14. soft facts
    subjective, found by talking to the client
  15. Main 4 risks that a client faces
    • 1. capital risk-variability of investments
    • 2. inflation risk
    • 3. interest rate risk
    • 4. shortfall risk-failing to meet liabilities
  16. 2 types of invetsment risk
    • 1. general market risk
    • 2. specific risk on any individual investment
  17. 3 types of diversification
    • 1. by asset class
    • 2. within asset classes
    • 3. by manager
  18. a clients attitude to risk may be influence by
    investment timescales
  19. Neglibile risk
    • NS&I deposit products
    • gilts (income)
    • gilts (redemptions)
  20. Low risk
    • Bank deposits
    • building societies deposits
    • cash isas
    • annuities
  21. Low/medium risk
    • gilts (pre redemption capital)
    • with-profits funds
  22. Medium risk
    • unit-linked managed funds
    • unit trusts and OEICs/ICVCs (UK Funds)
    • Investment trusts (UK)
    • REsidential and commerical property
  23. Medium/high risk
    • unit linked overseas funds
    • unit trusts and OEICs/ICVCs (overseas funds)
    • UK single equitiies
    • Commodities
  24. High risk
    • Venture capital trusts
    • unlisted shares
    • warrants
    • futures and options when used to speculate
    • enterprise investment schemes
    • enterprise zone property
  25. tilting the fund
    holding stocks in an index, but overweighting there favorits
  26. Fund performance should be reviewed no less than
    once a year
  27. Review should include 3 things
    • 1. client circumstances
    • 2. performance review
    • 3. portfolio rebalancing
  28. IMA
    Investment management association published sector definitions to classify unit trusts and OEICs
  29. Immediate income funds
    • UK Gilts
    • UK Index linked gilts
    • sterling corporate bond
    • sterling high yield
    • sterling strategic bond
    • global bond
    • uk equity and bond income
  30. Growing income funds
    • UK equity income
    • uk equity income and growth
  31. Capital protection growth funds
    money mrket protected/guaranteed funds
  32. Capital growth/total return funds
    • UK all companies
    • UK smaller companies
    • Japana
    • Japan smaller companies
    • Aisa pacific including/excluding japan
    • north america
    • north america smaller comapnies
    • europe x uk
    • europe w uk
    • europe smaller companies
    • cautious managed
    • balanced managed
    • active managed
    • global growth
    • global emerging markets
    • UK zeros
  33. Specialist funds
    • absolute return
    • property
    • specialist
    • technology and teclecomms
    • personal pensions
  34. 2 types of pension funds
    • 1. defined benefit/final salary scheme
    • 2. defined contirbution/money purchase scheme
  35. defined benefit/final salary scheme
    specific return based on the employees salary and number of years working
  36. defined contribution/money purchase scheme
    a general increase in value of the contributions paid on behalf of the employee
  37. occupational pension schemes
    set up by the employer
  38. personal pension schemes
    set up by individual
  39. longer term horizon =
    higher degree of risk
  40. pension funds generally invest in real assets such as
    equities and property
  41. pension funds will keep some money in
    liquid form and government bonds in which to invest money gaining a moderate but risk free return
  42. Contributions paid to a pension are
    tax free
  43. pension funds approved by the HMRC are
    gross funds, pay no UK tax on either fund income or capital gains
  44. pension funds are not able to reclaim 10% on
    income tax assumed paid on dividends
  45. only tax in relation to pension funds is
    when paid out on retirement
  46. 3 types of life assurance policies
    • 1. term assurance policies-life is insured for specific period of time (generally ten years or more)
    • 2. Whole of life policies-capital sum will be paid upon death
    • 3. Endowment policies-combines life insurance and savings
    • -associated with mortgages where the savings element is designed to pay off the capital borrowed at the end of the term of policy, and the life insurance will repay the mortgage should the policy holder die before the end of that term
  47. life assurance companies have reasonably long term liabilities thus
    they can take on higher risk
  48. IS there tax relief on the payment of life assurance premiums?
  49. proceeds from life policies are taxable unless
    it is a qualifying policiy in which the proceeds are tax free
  50. General insurance companies aim to
    match their liabilities
  51. general insurance companies are short term and thus
    invest in lower risk products
  52. 4 objectives asset allocation aims to meet
    • -matching liabilities
    • -meeting any ethical considerations
    • -remaining within risk tolerance
    • -maximising fund performance
  53. Young pension fund
    • long term
    • real liability
    • low liquidity
    • high risk
    • gross fund
    • 60-80% equitieis
    • 5-10% property
    • 15-25% bonds
    • 0-5% cash
  54. Mature pension fund
    • short term
    • real liability
    • high liquidity
    • low risk
    • gross fund
    • 20-30% equities
    • 0% property
    • 55-65% bonds
    • 15-25% cash
  55. lifer assurance fund
    • long term
    • nominal liability
    • low liquidity
    • medium/high risk
    • tax on income gains
    • 55-65% eq
    • 0-5% property
    • 15-30% bonds
    • 5-15% cash
  56. General insurance fund
    • short term
    • nominal liability
    • very high liqidity
    • low risk
    • tax on income gains
    • 100% cash and bonds
  57. trust deed
    binds investment manager to invest in certain securities
  58. information collected on a client should be recorded
    carefully and meticulously through a standard questionaire
  59. comprehensive information gathering serves 2 purposes
    • 1. helps generate business
    • 2. good from compliance
  60. Clients attitudes
    • existing arrangements sufficient?
    • suitable?
    • reviewed recently?
    • risk acceptable?
    • prepared to accept more or less risk?
    • any contraints on investments? ethical?
    • existing investments meed current needs?
    • meet current and existing needs?
  61. Client objectives
    • expected liabilities
    • expecting to buy property?
    • timespan for investment?
    • how acessible does $ need to be?
    • current and future tax position?
    • income or growth?
    • do they want to be personally involved?
    • ethical views or preferencs?
  62. surplus
    enables client to put into effect at least some of the recommendations for further investment
  63. shortfall
    reduce liabilites and take action
  64. Should adviser analyse changing circumstancs and lifestyle?
  65. advisor must give the client the following 3 things before dealing with the client
    • business card
    • a services and costs disclosure document or SCDD
    • terms of business letter
  66. discrtionary portfolio management
    manager makes decision
  67. non discretionary portfolio manager
    provides advice but client makes decisions
  68. Execution only customers
    no advice, just best execution
  69. 3 characeristics to of a client
    • 1. source of wealth
    • 2. amount of wealth
    • 3. stage of life cycle
  70. Passive wealth
    • through inheritance or gradual savings
    • -less experienced with risk
    • -greater need for security
  71. active wealth
    • earned there own wealth, often by risking their own capital
    • -more confident and risk savy
    • -dislike losing control
  72. Cautious investors
    • highly loss averse
    • need for security
    • want low risk investment with safe capital
    • do not like making decision and do not listen to others
    • tend not to use advisors
    • portfolios are low risk with low turnover
  73. methodical investors
    • analytical and factual
    • make decisions slowly
    • little emotioal attachment to investments and decisions
    • tend to be conservative in investment approach
  74. Spontaneous investors
    • high portolio turnover
    • do not trust advice of others
    • some are successful, but most do less well, particularly due to high transaction costs from high turnover
  75. individualist investors
    • self confident
    • prepared to do analysis and will expect to achieve their long term goals
  76. formulation of a plan should include
    • recs regarding action needed
    • current financial position
    • liabilities rearranged
    • how liquid are clients assets
    • current tax position
    • changing economic climate
    • full account of clients attitude and understanding of risk
Card Set:
IMC 1 10
2011-11-17 21:03:30
Client Objectives INvestment Advice

Client Objectives and INvestment Advice
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