CHP 5

Question 1

Products can be catagorised into:

Answer 1

• Benefits on events unpredictable in time
• Benefits on events predictable in time
• Benefits for immediate consumption
• Benefits from accumulation of disposable income and capital

Question 2

Main categories for financial products are:

Answer 2

2. Insurance products
3. Reinsurance contracts
4. Pension schemes
5. Investment schemes
6. Derivatives

Question 3

2. Insurance products

Answer 3

In return for a payment(s) the provider will pay an individual (or heirs) an agreed amount (or series of amounts) that start or end on a pre-specified event. This can happen to the individual, property or a third party.

Question 4

3. Reinsurance contracts

Answer 4

Providers of financial products can pass some risk to a third party through reinsurance.

Question 5

4. Pension schemes

Answer 5

This involves the accumulation of funds which are paid out on a later event, usually retirement but could be death or early withdrawal from the pension scheme.

Question 6

5. Investment schemes

Answer 6

Involves paying (SP or RP) to a provider with the expectation that a higher amount will be paid back later.

Question 7

6. Derivatives

Answer 7

Is a financial instrument whose value depends on the value of other investments or variables. This can be used to pass risk to a 3rd party.

Question 8

7.1. Logical or emotional needs

Answer 8

If a client’s emotional needs are met, they may get what they want but not what they really need.
Logical needs analysis involves looking at the client’s situation logically, prioritizing and fitting products or benefits to those needs. Thus a reconciliation between products and needs.

Question 9

A client’s logical needs can be analysed as follows:

Answer 9

• Protection (e.g. death, loss, illness, accident)
• Accumulation for a purpose (known, e.g. retirement, mortgage)
• Accumulation for a purpose (unknown, just saving income and capital for the future)

Question 10

7.2. Current of future needs

Answer 10

Current need: has an immediate effect on the client’s circumstances. E.g. become disabled and cannot work.
Future need: relates to future aspirations, e.g. pay off the mortgage at a certain date.
Some needs are both current and future, e.g. in retirement to protect capital (future inc) and maximize return (income).