Chapter 8

Question 1

Name the two categories of guidance.

Answer 1

• Provider guidance
• Generic guidance

Provider guidance is supplied by a representative, while generic guidance is about a type of product.

Question 2

Since when has pensions legislation given people more choice on retirement benefits?

Answer 2

April 2015

This change has increased the number of individuals requiring guidance in this area.

Question 3

What is the Money and Pensions Service (MaPS)?

Answer 3

A single financial guidance body created from three existing providers of Government guidance

It focuses on improving financial capability and inclusion across the UK.

Question 4

In June 2021, MaPS launched its consumer-facing brand called _______.

Answer 4

MoneyHelper

As a result, the Money Advice Service and The Pensions Advisory Service ceased to exist.

Question 5

What is the statutory function of MaPS?

Answer 5

To develop a national strategy on financial capability, debt, and financial education

Its intent is to improve people’s ability to manage money effectively.

Question 6

What is Pension Wise?

Answer 6

A free, impartial, Government-funded service for individuals over 50 with defined contribution pension schemes

It helps individuals decide on how to take their benefits in retirement.

Question 7

What services does Pension Wise provide assistance with? (List at least three)

Answer 7

• What to do with their pension pot
• How to shop around and compare providers
• What to look out for with taxes and fees

It also covers avoiding pension scams and ensuring money lasts as long as they do.

Question 8

What must be carried out by a qualified and authorised financial adviser before giving financial advice?

Answer 8

A detailed analysis of a client’s personal and financial situation

This includes establishing a client’s objectives and providing personalised recommendations.

Question 9

Clients are not receiving financial advice when they gather information from _______.

Answer 9

off the shelf

This refers to general product information made for everyone, regardless of personal circumstances.

Question 10

The FCA’s review focuses on the boundary between financial advice and guidance for retail investments and pensions. What are the three high-level proposals?

Answer 10

• Further clarifying the boundary
• A targeted support regime
• A simplified advice regime

These proposals aim to bridge the gap between financial advice and information/guidance.

Question 11

What should the first action be when communicating with a client in person?

Answer 11

Provide a business card and confirm the identity of the adviser

This includes confirming the firm they work for and their status regarding independent or restricted advice.

Question 12

Firms describing their advice as independent must assess a sufficient range of relevant products that are diverse in terms of _______.

Answer 12

type and issuer

This ensures that the client’s investment objectives can be suitably met.

Question 13

What are the three categories of clients that an adviser must establish?

Answer 13

• Retail client
• Professional client
• Eligible counterparty

The requirements for disclosure and protection are higher for retail clients.

Question 14

If the first communication with a client is by phone, what information should the adviser confirm?

Answer 14

• Name of the firm and purpose for the call
• Whether the firm offers advice/products from the whole market or a limited number
• Basis on which the firm charges for services/advice
• Confirmation that all information will be provided in writing

This ensures transparency and clarity in communication.

Question 15

What is the purpose of fact-finding in the context of financial advice?

Answer 15

To gather relevant information about a client’s needs and objectives

This allows an adviser to recommend suitable products to meet those needs.

Question 16

Under the KYC rules, what must a firm ensure before making a recommendation to a retail client?

Answer 16

Possession of sufficient personal and financial information about the customer

This is crucial for the services the firm has agreed to provide.

Question 17

True or false: The FCA expects firms to have robust financial crime systems and controls at each stage of the customer journey.

Answer 17

TRUE

This includes conducting thorough money laundering checks prior to recommendations or transactions.

Question 18

What should be recorded on the fact-find if a client is not prepared to give information?

Answer 18

A comment indicating that all areas have been addressed

This demonstrates due diligence in the fact-finding process.

Question 19

What types of information does a typical fact-find seek to determine?

Answer 19

• Hard facts about the client’s financial situation
• Client’s attitudes and opinions regarding their finances
• Future hopes and aspirations

This helps advisers understand the client’s priorities, whether they are focused on protection or future savings.

Question 20

List the basic details considered in a fact-find.

Answer 20

• Age
• Health
• Relationship status
• Residence
• Long-term residence or domicile status for tax purposes

These details are essential for understanding the client’s situation.

Question 21

What family details are included in the fact-find?

Answer 21

• Financial dependants to whom benefits may be paid in the event of death/sickness

Understanding family details is crucial for financial planning.

Question 22

What employment details are assessed in the fact-find?

Answer 22

• Level and security of income
• Extent of cover provided by employer and the State to identify shortfall

This helps in understanding the client’s financial stability.

Question 23

What types of assets are considered in the fact-find?

Answer 23

• Used (e.g. house)
• Invested; investment requirements

Understanding assets helps in evaluating the client’s financial position.

Question 24

What is the significance of liabilities in the fact-find?

Answer 24

Emphasis on any mortgage to ensure liabilities could be met if earnings ceased; net worth = assets – liabilities

This assessment is vital for understanding financial obligations.

Question 25

How does the fact-find assess **life insurance**?

Answer 25

Determines the ability to meet financial protection needs from existing sources ## Footnote This is important for ensuring adequate coverage.

Question 26

What does the **regular saving** section identify?

Answer 26

* Purpose of existing regular savings * Whether regular savings need to be put in place to achieve future goals ## Footnote This helps in planning for future financial objectives.

Question 27

What are the **pension details** assessed in the fact-find?

Answer 27

Assesses current provisions and highlights areas of shortfall ## Footnote This is essential for retirement planning.

Question 28

What does the fact-find identify regarding **inheritances**?

Answer 28

* Whether a valid will is in place * Whether inheritances are anticipated * Need for IHT planning ## Footnote This is important for estate planning.

Question 29

What does the **attitude to risk** section assess?

Answer 29

The level of risk the client is prepared to take with their objectives, capacity for loss, and any views on ESG ## Footnote Understanding risk tolerance is crucial for investment strategies.

Question 30

What are the **five key demands and needs** related to key life stages?

Answer 30

* Protection * Income protection * Pensions * Savings * Investment ## Footnote These demands and needs are prioritized and can be remembered using the mnemonic PIPSI.

Question 31

What does **protection** refer to in the context of financial needs?

Answer 31

Capital protection for dependants in the event of death and to repay outstanding loans ## Footnote Especially important when acquiring assets and in the early stages of having a family.

Question 32

What do **pensions** cover?

Answer 32

Provision for income or capital for retirement or when paid employment ends ## Footnote Important for long-term financial planning.

Question 33

What does **investment** aim to achieve?

Answer 33

Protection from inflation and increase in value of lump sums ## Footnote Significant lump sums usually become available later in life.

Question 34

What is the **mnemonic** used to remember the key demands and needs?

Answer 34

PIPSI ## Footnote Represents Protection, Income protection, Pensions, Savings, and Investment.

Question 35

During the fact-finding process, what should the adviser establish about the client's situation?

Answer 35

* Strengths * Weaknesses * Areas of concern ## Footnote This helps in restructuring aspects of the client's finances.

Question 36

What are some questions an adviser might ask to identify a client's demands and needs?

Answer 36

* Are they expecting any inheritances? * Is there a need for future expenditure? * Satisfaction with current investments? * Level of risk for financial objectives? * Reasons for life and sickness cover? * Pension contribution decisions? ## Footnote These questions help clarify the client's financial situation.

Question 37

What is the process for addressing a client's demands and needs?

Answer 37

* Identified * Discussed * Quantified * Prioritized ## Footnote This methodical approach ensures comprehensive financial planning.

Question 38

What factors highlight potential demands and needs during the fact-finding process?

Answer 38

* Income and expenditure * Assets and liabilities * Commitment to dependants ## Footnote These factors help in identifying financial needs.

Question 39

What is the purpose of **quantifying** demands and needs?

Answer 39

To determine actual income or capital required ## Footnote Helps in understanding the financial implications of potential shortfalls.

Question 40

What should be recorded if a client chooses not to acknowledge a financial need?

Answer 40

The discussion about the need and the client's decision ## Footnote This protects the adviser in case of future claims about unaddressed needs.

Question 41

What is the importance of understanding a client's **investment risk**?

Answer 41

* Understanding of investment risk * Ability and willingness to take risk * Knowledge and experience of investment types * Financial capacity for loss ## Footnote Advisers should clarify these aspects to add value and work effectively with clients.

Question 42

What does **capacity for loss** refer to?

Answer 42

The customer's ability to absorb falls in the value of their investment ## Footnote If a loss of capital has a materially detrimental effect on their standard of living, it should be considered in risk assessment.

Question 43

What is **Socially Responsible Investing (SRI)**?

Answer 43

Investment strategies that consider ethical, social, and environmental factors ## Footnote Advisers should account for clients' strong views on SRI when presenting investment solutions.

Question 44

What does the **Environmental (E)** criterion examine?

Answer 44

* Waste and pollution * Greenhouse gas emissions * Climate change * Natural resource conservation * Treatment of animals ## Footnote These factors assess a company's environmental impact.

Question 45

What does the **Social (S)** criterion examine?

Answer 45

* Interaction with local communities * Working conditions * Employee relations and diversity ## Footnote These factors assess how a company treats people.

Question 46

What does the **Governance (G)** criterion examine?

Answer 46

* Transparent accounting methods * Corruption and bribery * Board diversity and structure ## Footnote These factors assess a company's governance policies.

Question 47

What are the **three main strategies** used by funds in sustainable investment?

Answer 47

* Positive selection * Negative exclusions * Responsible ownership ## Footnote These strategies guide fund managers in aligning investments with sustainability goals.

Question 48

What does **positive selection** involve in sustainable investment?

Answer 48

* Investing in assets meeting specific policy requirements * Selecting beneficial products and services * Meeting international standards * Higher standards than peers * Fitting within a named theme ## Footnote This strategy directs managers to invest in assets that align with sustainability goals.

Question 49

What does **negative exclusions** involve in sustainable investment?

Answer 49

* Avoiding particular sectors or behaviors * Excluding tobacco companies * Excluding weapons manufacturers * Excluding fossil fuel companies * Excluding companies with poor diversity practices ## Footnote This strategy directs fund managers to avoid investments that do not align with ethical standards.

Question 50

What is the purpose of **Sustainability Disclosure Requirements (SDR)**?

Answer 50

* Informing consumers * Enhancing competition * Improving trust in sustainable investment products ## Footnote The FCA published rules and guidance on these requirements to promote transparency in the market.

Question 51

What is the **anti-greenwashing rule**?

Answer 51

Sustainability-related claims must be fair, clear, and not misleading ## Footnote This rule is in force from 31 May 2024 for all FCA authorized firms.

Question 52

What are the **four sustainability labels** introduced by the FCA?

Answer 52

* Impact * Focus * Improvers * Mixed goals ## Footnote These labels help consumers navigate the investment product landscape and enhance trust.