What must you do before making PERSONAL RECOMMENDATION to clients?
‘KNOW YOUR CUSTOMER’ & understand ALL ESSENTIAL FACTS
What 4 areas must advisers focus on for ‘know your customer’?
- Financial situation (Income, expenditure, assets, liabilities)
- Investment Objectives (Risk profile & aims)
- What customer understands, their knowledge & experience to date.
- Impact of advice given on customers (Tax, entitlement DWP benefits).
What is cashflow modelling used for?
Analysis of clients situation throughout their lifetime.
Outline the hierarchy of client needs in order of importance
(KEY KNOW OFF BY HEART).
- Budgeting
- Debt Management
- Borrowing (including house purchase).
- Protection
- Saving & Investing
- Retirement Planning
- Estate Planning
- Tax planning
Which hierarchy need would you use an income & expenditure analysis for?
Managing debt
What 3 categories should you use to categorise expenditure?
Essential Spending
Day to Day Spending
Non-Essential Spending
What areas would you consider priority debts of a client & focus on first when assessing management of debt?
Mortgages (better rate on borrowing)
Utilities
Council Tax
Which types of debts are considered slightly less important than priority debts?
Credit Cards, Overdrafts, Personal Borrowing.
Explain what the terms 1. Debtor & 2. Creditor mean?
- Debtor is person/body owing the money
2. Creditor is person or body money is owed to.
What are the 5 options available to individuals with debt difficulty?
- Debt repayment plan
- Debt management plan
- Debt consolidation
- Individual Voluntary Agreements
- Bankruptcy
Outline a debt repayment plan
Informal self managed arrangement between debtor & creditors.
Outline a debt management plan
Involves adviser licensed under Consumer Credit Act to negotiate repayment to creditors on behalf of debtor.
Outline debt consolidation plans
Negotiating new loan or mortgage extension to repay debts reducing overall monthly expense BUT leads to longer repayment terms.
Outline key features individual voluntary arrangements..
KEY FOR R01 EXAM
Insolvency practitioner negotiates repayment of loans with creditors.
Repayments typically over 5 year period & creditor accepts getting less back than owed
Avoids debtor losing home & reviewed each year by practitioner
Outline key features of Bankruptcy…
KEY FOR R01 EXAM
Qualify if debt is at least £5,000
If accepted official receiver/trustee takes control of debtors assets.
There is set-order in which creditors are repaid.
Bankrupt individual could lose their home.
Outline in basic terms… what is a mortgage?
Security offered to lender in exchange for the loan (not the loan itself).
Once security is assigned to lender in exchange for loan security offered is either deeds to the property or a registered charge on property with Land Registry.
Borrower has ‘equity of redemption’ meaning when mortgage paid assignment ceases.
What are two methods of mortgage repayment?
- Capital & Interest 2. Interest only
What is a capital & interest mortgage?
- Loan guaranteed to be repaid at end of the term if the required repayments are made.
- Each monthly repayment has interest element & reduction in the payment of capital
- Early payments have high interest element & reduces overtime with capital element increasing.
What is an interest only mortgage?
- Only the interest is repaid each month.
- Separate savings plan set up with aim to use proceeds to repay loan at end of mortgage term (ISA’S/ENDOWMENT POLICIES USED AS SAVINGS VEHICLE).
What was the name of review carried out by regulator leading to tightening or rules surrounding mortgages?
Mortgage Market Review.
What is a buy to let mortgage?
Used to purchase second & subsequent properties as an ‘investment’.
