Cemap - 1 - Revision Notes - 2019 - 2020

CeMAP© 1
Revision Guide 2019/2020
Paul Archer
High House Publishing

© Archer Training Ltd 2000 - 2019
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The Financial Services Industry
The Revision Guide’s Contents

1 The Financial Services Industry ....................................................................................... 9
Introduction .............................................................................................................................................................. 9
The Bank of England .............................................................................................................................................. 10
Proprietary and Mutual Organisations ..................................................................................................................... 12
Credit Unions.......................................................................................................................................................... 13
Retail and Wholesale Banking ................................................................................................................................ 14
Role of Government ............................................................................................................................................... 15
Residence and taxation .......................................................................................................................................... 17
Domicile and taxation ............................................................................................................................................. 19
Income liable to tax................................................................................................................................................. 20
The UK income tax system ..................................................................................................................................... 21
Categories of Income tax ........................................................................................................................................ 22
Benefits in kind ....................................................................................................................................................... 23
Steps in calculating a tax bill ................................................................................................................................... 24
Payment of Income Tax .......................................................................................................................................... 28
Capital Gains Tax (CGT) ........................................................................................................................................ 30
Avoiding Capital Gains Tax - Legally ...................................................................................................................... 32
Inheritance tax (IHT) ............................................................................................................................................... 34
Value Added Tax (VAT) .......................................................................................................................................... 36
Insurance Premium Tax.......................................................................................................................................... 37
Stamp Duty Land Tax (SDLT)................................................................................................................................. 38
Corporation Tax...................................................................................................................................................... 40
Update on National Insurance ................................................................................................................................ 41
Economic and Monetary Policy............................................................................................................................... 43
Inflation .................................................................................................................................................................. 44
Government Economic Policy ................................................................................................................................. 45
Welfare Benefits ..................................................................................................................................................... 46
2 Financial Products ........................................................................................................... 48
Deposits ................................................................................................................................................................. 48
National Savings and Investments .......................................................................................................................... 49
Offshore Deposits ................................................................................................................................................... 52
Money Market Instruments ..................................................................................................................................... 53
Fixed Interest Securities ......................................................................................................................................... 54
Government Gilts ................................................................................................................................................... 55
Corporate Bonds .................................................................................................................................................... 57
Local Authority Bonds ............................................................................................................................................. 57
Permanent Interest Bearing Shares (PIBS) ............................................................................................................ 58
Child Trust Fund ..................................................................................................................................................... 59
Government’s Help to Save .................................................................................................................................... 60
Annuities ................................................................................................................................................................ 61
Shares .................................................................................................................................................................... 63
Derivatives ............................................................................................................................................................. 66
Sharesave and Share Option Schemes .................................................................................................................. 67
Structured Products ................................................................................................................................................ 69
Enterprise Investment Schemes ............................................................................................................................. 70
Venture Capital Trusts (VCTs) ................................................................................................................................ 70
Stock Markets......................................................................................................................................................... 71
Real Estate............................................................................................................................................................. 72
Real Estate Investment Trusts ................................................................................................................................ 73
Foreign Exchange .................................................................................................................................................. 74
Unit trusts ............................................................................................................................................................... 75
Non-mainstream pooled investments ...................................................................................................................... 76
Investment Trusts ................................................................................................................................................... 77
Open-ended investment companies (OEICs) .......................................................................................................... 78
Individual Savings Accounts ISAs ........................................................................................................................... 80
Endowment Assurance ........................................................................................................................................... 84
Qualifying Policies .................................................................................................................................................. 88
2019/2020 5
CeMAP 1 Revision Guide
Investment Bonds ................................................................................................................................................... 89

Term Life Assurance Policies .................................................................................................................................. 91
Whole of Life Policies .............................................................................................................................................. 94
Income Protection Insurance................................................................................................................................... 96
Critical Illness Cover ............................................................................................................................................... 98
Private Medical Insurance ....................................................................................................................................... 99
General Protection ................................................................................................................................................ 100
ASU 2 - IPI 3 ......................................................................................................................................................... 101
Business Protection Insurance .............................................................................................................................. 102
Keyman Insurance ................................................................................................................................................ 104
General Insurance ................................................................................................................................................ 105
Types of General Insurance .................................................................................................................................. 107
Mortgages ............................................................................................................................................................. 109
Types of Mortgage ................................................................................................................................................ 110
Mortgage Payment Vehicles ................................................................................................................................. 111
Mortgage Product Types ....................................................................................................................................... 113
Releasing Equity for Elderly .................................................................................................................................. 120
Further Borrowing ................................................................................................................................................. 121
Pension Products .................................................................................................................................................. 122
3 The Financial Planning Process .................................................................................... 127
Financial Life Cycle ............................................................................................................................................... 127
Gathering Information ........................................................................................................................................... 129
Contents of a Factfind ........................................................................................................................................... 130
4 Financial Services Legal Concepts............................................................................... 131
Personal Representatives ..................................................................................................................................... 131
Wills ...................................................................................................................................................................... 132
Intestacy ............................................................................................................................................................... 133
Intestacy Rules for England and Wales ................................................................................................................. 133
Sole Traders, Partnerships and Charities .............................................................................................................. 134
Contract law .......................................................................................................................................................... 136
Trusts ................................................................................................................................................................... 137
Consumer Insurance Act 2012 .............................................................................................................................. 138
Agency Law .......................................................................................................................................................... 139
Financial Scams ................................................................................................................................................... 140
Ownership of Property .......................................................................................................................................... 141
Power of Attorney ................................................................................................................................................. 143
Insolvency and Bankruptcy ................................................................................................................................... 146
5 The Regulation of Financial Services ........................................................................... 148
Current Regulation ................................................................................................................................................ 148
The EU and FS Regulation ................................................................................................................................... 149
Main UK Legislation .............................................................................................................................................. 150
Regulatory Aims and Objectives ........................................................................................................................... 152
FCA Scope and Powers ........................................................................................................................................ 154
FCA Principles for businesses .............................................................................................................................. 155
Prudential Regulation............................................................................................................................................ 157
Treating Customers Fairly ..................................................................................................................................... 161
How Customers are Protected .............................................................................................................................. 163
The Senior Management and Certification Regime ............................................................................................... 165
FCA Principles for Approved Persons ................................................................................................................... 168
Authorising Firms .................................................................................................................................................. 169
Adviser Status....................................................................................................................................................... 171
Variety of Advice ................................................................................................................................................... 172
Retail Distribution Review ..................................................................................................................................... 173
Mortgage Market Review ...................................................................................................................................... 177
6 FCA Rules for Firms ....................................................................................................... 178
Financial Promotions ............................................................................................................................................ 178
Advertising ............................................................................................................................................................ 179
Reporting and Record Keeping ............................................................................................................................. 180
Training and Competence ..................................................................................................................................... 181
6 2019/2020
7 FCA Conduct of Business Rules .................................................................................. 184

Types of Client ..................................................................................................................................................... 184
Status Disclosure with clients ............................................................................................................................... 185
Client Money ........................................................................................................................................................ 187
Suitabilty Requirements ........................................................................................................................................ 188
Executions............................................................................................................................................................ 190
Cancellation ......................................................................................................................................................... 191
Product Disclosure ............................................................................................................................................... 192
Stakeholder Products ........................................................................................................................................... 193
Types of Advice .................................................................................................................................................... 194
Regulated Mortgages in Two Minutes ................................................................................................................... 195
Mortgage Disclosure............................................................................................................................................. 198
MCOBs................................................................................................................................................................. 200
Advising Insurance Contracts ............................................................................................................................... 207
How the Banks are Monitored............................................................................................................................... 208
8 Consumer Credit Regulation ......................................................................................... 210
FCA Regulation of Consumer Credit ..................................................................................................................... 210
Consumer Credit Sourcebook CONC ................................................................................................................... 211
Consumer Credit Acts .......................................................................................................................................... 212
Consumer Rights Legislation ................................................................................................................................ 214
9 Complaints and Disputes .............................................................................................. 217
The Financial Ombudsman Service ...................................................................................................................... 218
Ombudsman’s Rules ............................................................................................................................................ 219
Financial Services Compensation Scheme ........................................................................................................... 220
10 Money Laundering .......................................................................................................... 221
11 Data Protection ............................................................................................................... 225
Data Protection Act 1998 ...................................................................................................................................... 225
The General Data Protection Regulation - GDPR ................................................................................................. 226
12 Other Legislation ............................................................................................................ 229
The Pensions Act 2004......................................................................................................................................... 229
The Pensions Act 2011......................................................................................................................................... 230
European Union Directives ................................................................................................................................... 231
13 Specimen Exam .............................................................................................................. 233
2019/2020 7
8 2019/2020
1 The Financial
Services
Industry
Introduction
• The Functions of the Industry:
➢ Allows money to be a medium of exchange for
goods and services.
➢ Money acts as a measure of wealth, is portable,
acceptable by all and acts as a store of value.
Intermediation
• A financial intermediary is a firm, such as a bank,
which takes money from those who have it in surplus
and lends it to those who need it.
• Like a middleman that benefits both parties by being
able to attract depositors from all over the country,
pulling together smaller sums to provide large enough
borrowings for people, balancing their deposits so
long-term borrowing can be granted.
• Product Sale Intermediaries are brokers who bring
customers to the banks, building societies and
insurance companies.
Disintermediation
• Is the opposite and where providers deal directly with
the public without the need for a middleman.
• Many products which have been commoditised over
the years are sold on this basis.
• Crowdfunding and Peer to Peer lending are good
examples of disintermediation.
2019/2020 9
The Bank of
England
• The Bank of England has several roles within the UK
economy.
➢ The issuer of banknotes.
➢ Banker to the Government.
➢ Banker to the Banks.
➢ Adviser to the Government.
➢ Lender of the Last Resort – e.g. Northern Rock
in 2007.
• Controlling interest rates – the responsibility for
setting interest rates rests with the Monetary Policy
Committee (MPC).
• The MPC has to achieve a target of inflation set by
the government, and it uses interest rates to meet
this target.
• Foreign exchange market – manages the UK’s
reserves of gold and foreign currencies.
• Following the Financial Services Act 2012, the Bank
of England established:
➢ The Financial Conduct Authority (FCA)
➢ The Financial Policy Committee (FPC) to
monitor the financial sector
➢ The Prudential Regulation Authority (PRA) as a
subsidiary to regulate large players in the sector
10 2019/2020
2019/2020 11
Proprietary and
Mutual
Organisations
• Proprietary organisations are limited companies
owned by shareholders. These form the bulk of the
UK financial services market. Shareholders receive
dividends according to profits and control the
companies.
• Mutual organisations are owned by their members and
do not have shareholders. Most building societies and
friendly societies remain mutual, along with a few
• The trend in recent years has been for mutuals to
convert to proprietary companies with the previous
members becoming shareholders and receiving a
windfall of shares. This process is known as
demutualisation.
12 2019/2020
Credit Unions
• These are not-for-profit financial co-operatives that are
licensed to take deposits and grant loans.
• They are mutual societies owned and controlled by
their members, who must share a common bond.
• For example, members could be linked because they
live or work in a particular area, work for the same
employer or follow the same occupation.
• Due to changes to the Credit Union Act 1979, which
came into force on January 2012, Credit Unions can
now allow membership on wider criteria. This is
known as “field of membership” test
• Credit unions are run by elected volunteers and,
because they are member-owned, almost all profits are
distributed to members in the form of a savings
dividend.
• Some credit unions pay interest rates of up to 8% to
savers, but most pay 2-3%. Savers also benefit from
free life insurance.
• Credit unions also grant loans to members at
reasonable interest rates.
• British credit unions are regulated by the FCA and
covered by the Financial Services Compensation
Scheme, which also protects all banks and building
societies.
• Also, credit unions are members of the Financial
Ombudsman Scheme.
2019/2020 13
Retail and
Wholesale Banking
• Retail banks focus on private and corporate customers
and provide a branch network to service their needs.
• Internet banking is becoming their new branch
network.
• They collect deposits and pay interest and lend this
money out in the form of loans for which interest is
charged.
• Wholesale banks traditionally borrow large sums from
the wholesale money markets and lend these out to
other financial institutions or customers.
• Specialist finance houses operate in this way as they
do not have a branch network.
• Retail banks use a combination of retail and wholesale
methods to obtain deposits.
• Building societies also operate on the wholesale
market, but can’t raise more than 50% of their
liabilities this way.
14 2019/2020
Role of
Government
The European Union
• UK has been a member since 1973.
• The UK has not adopted the Euro – the European wide
currency.
• European laws and directives massively influence UK
legislation.
➢ Regulations bind the UK.
➢ Directives impose an aim and let us decide how
to achieve it.
• In 2016 the UK voted to leave the EU and Article 50
was triggered the following year and we now have a
deadline of March 2019 to negotiate our leaving the
bloc.
UK Regulation
1st Level
European Legislation
2nd Level
Acts of Parliament
3rd Level
Regulatory Bodies
4th Level
Compliance Depts
5th Level
Ombudsman's
2019/2020 15
Taxation
• Governments use taxation to obtain revenue.
• The taxation treatment of investments influences
investors’ choices in several ways. Relevant factors
include tax relief on:
➢ Money going into investments (e.g. pension
contributions).
• Tax-efficient growth and/or income, for instance:
➢ Pension funds.
➢ ISA’s.
• Tax-free investment proceeds, for instance:
➢ Tax-free cash from a pension scheme.
➢ Qualifying life policies.
16 2019/2020
Residence and
taxation
• Income Tax is normally chargeable on all income
arising in the UK, whether or not the person is resident
in the UK.
• People who are defined as resident in the UK are
normally liable to tax on their income, including that
which arises outside the UK.
Resident
• If you spend 183 days in any tax year, you are
automatically UK resident for tax purposes.
• , However, the new UK statutory residence test
(“SRT”) provides a comprehensive and complex set of
tests to determine residence for tax purposes.
• The legislation applies from 5 April 2013, and where
an individual has previously been treated as non-
resident in the UK or resident under the old rules in
the UK, there is a possibility that their residence status
may have changed.
Overseas income
• A UK resident working abroad could be liable to
income tax in that country and the UK.
• UK income tax on the overseas earnings of a UK
resident is due whether or not that income is remitted
to the UK (unless he is also not ordinarily resident, in
which case it is only taxed if remitted to the UK).
Offshore Accounts
• From 2016 British Crown Dependencies and overseas
territories exchanged information with HMRC under
legislation to support the implementation of the US
“Foreign Account Tax Compliance Act.”
• They must provide details of accounts including
names and other information.
2019/2020 17
Double taxation
agreements
• Double taxation agreements exist with most developed
countries, under which normally the tax:
➢ On earned income is collected in that country,
but not in the UK.
➢ On unearned income is waived in that country,
but collected in the UK.
18 2019/2020
Domicile and
taxation
• Domicile affects liability to Inheritance Tax (IHT).
• If a person is domiciled (or deemed domiciled) in the
UK at death, the estate on which IHT is charged
includes all assets wherever they are situated. If not,
IHT is charged only on assets situated in the UK.
• Domicile can be described as the country in which
someone treats as their permanent home base, to
which they would plan to return after every spell
abroad.
• For most people, their domicile (called domicile of
origin) is determined at birth as the domicile of their
father, or their mother if parents are unmarried.
• It is possible to change to a different domicile
(domicile of choice) by going to live in a different
country with the intention of settling there
permanently and severing all connections with the
domicile of origin.
• Deemed domicile in the UK relates to people who,
though not the UK domiciled, have lived in the UK for
at least 15 of the last 20 years.
2019/2020 19
Income liable
to tax
• Income assessable for tax includes:
➢ Salary/wages from employment.
➢ Profits from a trade or profession.
➢ Certain benefits in kind.
➢ Certain pension/retirement benefits.
➢ Gratuities.
➢ Bank/building society interest.
➢ Dividends.
➢ Income from gilts.
➢ Land/property rents.
• Some income is not assessable for tax, including:
➢ The first £30,000 of redundancy payments.
➢ Interest on National Savings Certificates.
➢ Income from ISA’s and JISA’s
➢ Proceeds of a qualifying life policy.
➢ Gambling winnings.
➢ War widows’ pensions.
➢ Certain welfare benefits.
20 2019/2020
The UK income tax

system
• The tax year or “fiscal” year in the UK runs from April
6th to April 5th of the following calendar year.
• Income Tax is based on the income received over the
whole year.
Employed
• Employed persons are taxed on the amount of income
in the current tax year (current year basis).
• Their tax is collected by their employer under PAYE.
• Each year they receive a P60 which details the total
amount of income, tax deducted and NI contributions.
• When they leave employment, they have their P45,
which gives the same year-to-date information.
Self-employed
• Income tax is on a “current year” basis, i.e., their tax is
based on the profits for their business year that ended
in the current tax year.
• It is payable in two instalments -- January 31st in the
current tax year, and July 31st in the following tax year.
• Class 4 National Insurance is taken at the same time.
• “Self-employed” includes sole traders and
partnerships.
2019/2020 21
Categories of
Income tax
• Income Tax Part One
➢ Employment income
➢ Pensions income
➢ Taxable social security benefits
• Income Tax Part Two
➢ Self-employed profits
• Income Tax Part Three
➢ Property income
• Income Tax Part Four
➢ Savings and investment income, including
interest and share dividends
22 2019/2020
Benefits in kind
• Employers must submit a form P11D to the Inland
Revenue detailing the nature and value of the benefits
received in respect of these employees.
• Most directors are also included in this category.
• The main taxable benefits are:
➢ Company cars and fuel.
➢ Private health care (e.g. BUPA): taxed on the
amount of the employer’s contributions.
➢ Living accommodation, unless it is required for
the employee’s duties (e.g. caretaker).
➢ Interest-free loans: taxed on the amount of
interest waived.
➢ Child Care Vouchers.
2019/2020 23
Steps in
calculating a tax
bill
Add all your income
• Earned and unearned.
• Include gratuities, bonuses, benefits in kind,
commission.
• Include all investment income and rental income.
Deductions and
allowances
• Personal allowance of £12,500; income limit £100,000,
where income above this slowly erodes the personal
allowance.
• Blind person’s allowance
• Marriage Allowance. This allowance lets you transfer
10% of your Personal Allowance to your husband, wife
or civil partner -
• Married couple's allowance. If you are married or in a
civil partnership and one of you was born before 6
April 1935, you may be entitled to married couple's
allowance.
• Resulting figure known as taxable income.
• Deductions are payments you make on such things as
Stakeholder Pensions or professional subscriptions.
Apply Tax
• Apply the current tax rates and bands.
• First £37,500 of taxable income – 20% (base rate).
• Between £37,500 and £150,000 – 40% (higher rate).
• All above £150,000 – 45% (additional rate).
24 2019/2020
2019/2020 25
26 2019/2020
2019/2020 27
Payment of Income
Tax
Personal Savings
Allowance
• A basic rate taxpayer will be able to earn up to £1,000
in savings income tax-free. Higher rate taxpayers will
be able to earn up to £500.
• This is called the Personal Savings Allowance. This
means that most people will no longer pay tax on
savings interest banks and building societies.
• You do not have to claim this allowance.
• Savings income includes account interest from:
➢ Bank, building society accounts, accounts with
providers like credit unions or National Savings
and Investments
➢ Interest distributions (but not dividend
distributions) from authorised unit trusts, OEICs
and investment trusts
➢ Income from government or company bonds
➢ Most types of purchased life annuity payments
Taxation of Dividends
• The Dividend Allowance means that you will not pay
tax on the first £2,000 of dividend income, no matter
what non-dividend income you have. This allowance
is available to anyone who has dividend income.
• You will pay tax on any dividends you receive over
£2,000 at the following rates:
➢ 7.5% on dividend within basic rate band
➢ 32.5% on dividend within higher rate band
➢ 38.1% on dividend within additional rate band
Order of Taxing Income

• The first slice of a person’s income comprises earnings,
pensions, taxable social security payments trading
profits and income from property.
• The next slice is savings income, and dividend income
is the top slice.
28 2019/2020
Taxation of
Life Policies
• Certain life policies such as bonds and endowment
policies produce a lump sum.
• The fund pays tax sufficient to satisfy the basic rate tax
liability.
• However, for non-qualifying policies, higher rate
taxpayers may be liable for the extra 20% high rate tax
on the proceeds.
• Additional Rate Taxpayers (above £150,000) may need
to pay an additional 25%.
Charitable Giving
• Gift Aid
➢ The charity can recover 20% as the donor is
assumed to have paid 20% tax on the money, a
gift of £80 can be grossed up to £100
➢ The gross gift also lifts the income tax threshold
for the donor, thus reducing any higher rate tax
liability further.
• Payroll Giving
➢ Employees make a charitable gift straight out of
their salary, which is deducted before tax is
applied.
➢ In this way, they receive the highest marginal rate
of tax relief at source.
Withholding Tax
• The Tech Giants have been rightly criticised for not
paying their share of taxes since they’re able to channel
revenue around the world to low taxing countries.
• The UK Government have a cunning plan, and they’re
going to use withholding tax to save the day.
• Withholding tax is a way that the government can
claim tax from the company paying the income before
the income is paid to the recipient. It is for non-
resident earners, entertainers and sports stars who are
resident in some other country. Effectively it means we
get the tax before the income is paid and shunted off to
a foreign country to be dealt with there.
• Hence the tech-giant connection, taking a 20% slice
from their earnings before they declare the income at
the country that they’re based in.
• It means the likes of Gareth Bale and Rory McIlroy are
whacked on their winnings, and Brian May taxed on
his Queen royalties.
2019/2020 29
Capital Gains Tax

(CGT)
The basics
• A taxable gain for CGT purposes arises when an item
is disposed of at a price/value higher than that at
which it was acquired.
• UK residents are liable to CGT on disposals of assets
anywhere in the world.
• If assets are bought and sold in the course of trade (e.g.
paintings by an art dealer), the gains will be treated as
revenue and subject to Income Tax or Corporation Tax.
• Capital losses can be offset against capital gains.
The main exemptions

• Transfers between spouses.
• Transfers on death.
• Annual personal exemption.
➢ Each UK resident is granted an annual
exemption of £12,000.
➢ This exemption cannot be carried forward if not
used. Use it or lose it.
➢ Husbands and wives can each claim the
exemption against their own gains, but cannot
transfer it if not used.
Exempt assets
• There is a long list of assets which do not attract CGT.
They include:
➢ Main private residence.
➢ Ordinary private cars.
➢ Goods and chattels worth less than £6,000.
➢ Government Gilts.
➢ National Savings Certificates.
➢ Gambling winnings.
➢ ISAs, JISAs,
30 2019/2020
Calculating CGT
• Firstly, you need to assess the price you paid for the
asset and the price you sold it for. This is the initial
profit.
• Then you add any buying costs to the purchase price
and deduct selling costs from the sale price.
• This will narrow the profit for CGT purposes.
• Any improvements, not maintenance, can now be
added to the purchase price, again narrowing the
profit.
• Gains made before 31 March 1982 are ignored. Take
the value for this date instead.
• Deduct your annual allowance, currently £12,000.
• Deduct any losses from other asset sales; this gives you
your taxable gain.
• Calculate the profit at 10% for basic taxpayers; 20% for
higher rate taxpayers.
• If the asset is a second property, CGT is payable as
above plus 8%
2019/2020 31
Avoiding Capital
Gains Tax - Legally
• It’s a favourite party trick of mine. Which is illegal?
Avoidance or evasion. Answer at the foot of this
article.
Private Residence Relief

• This is the ruling that allows people who own their
own home to avoid paying CGT on the sale profits and
saving a princely sum along the way. You have to use
it entirely for your personal use and not run a business
from the premises. You can “flip” the relief if you own
more than one property. The MPs were doing that in
2010 – many owned flats in London and homes in the
counties. They could nominate which one to claim the
relief on; quite legally.
Roll Over Relief

• If a business owns an asset and sells it, CGT can be
postponed by using the proceeds to buy a new asset
for the business. Ultimately CGT would be payable
when that asset is sold unless it’s also rolled over. Buy
to let mortgages are often arranged using SPV limited
companies. They can avoid CGT by rolling over the
sale proceeds to a new property.
Hold Over Relief

• This is where you hold the CGT bill until the recipient
of the asset sells it. It's only allowed for certain assets
though – agricultural assets, assets for a sole trader’s
business use, unlisted company shares are examples.
Losses
• Any capital losses made in a tax year can be used to
offset CGT on another asset sale. Typically a client
might sell some unit trusts at a loss and use this
amount to reduce the CGT on their second home sale.
32 2019/2020
Entrepreneur’s Relief
• Think Dragons Den and those inspirational types that
can’t stop creating companies and making money. This
is for them. A lower rate of 10% is allowed up to £10
million of gains made in their businesses. 5% is the
critical figure – at least 5% of the shares must be
owned by them with 5% voting rights and entitled to
5% of the dividends.
• The rest is evasion. Evasion is illegal, avoidance is ok
but frowned upon, look at what happened to our MPs
reputation in 2010.
2019/2020 33
Inheritance tax
(IHT)
• Inheritance Tax is payable on certain “transfers of
value” made during a person’s lifetime or on the value
of the estate passing on death.
• The taxable value of a transfer is the reduction in value
of the donor’s estate, not the increase in value of the
recipient’s estate.
• If the taxable estate is less than £325,000 (the nil rate
band), no IHT is payable.
➢ This nil rate band can now be shared amongst
married couples and civil partnerships,
effectively doubling the band to £650,000.
➢ Unused nil rate bands can be transferred to the
surviving spouse as a percentage of the unused
allowance. This ensures you benefit from
future nil rate band increases.
• If it exceeds the nil rate band, the excess is taxed at:
➢ 40% on death.
➢ 20% on chargeable lifetime transfers.
• If death occurs within 7 years of a chargeable lifetime
transfer, additional tax may be due.
• These are lifetime transfers - on a PET, no tax is due at
the time of the transfer, but tax becomes due if the
donor dies within 7 years of the gift.
• All is due up to 3 years; then the liability reduces by
20% each year until year 7.
34 2019/2020
Exemptions
• Spouse exemption
➢ There is no IHT liability on transfers between
spouses, during lifetime or on death.
• Small gifts exemption
➢ Gifts of up to £250 p.a. per person to any
number of recipients.
• Annual exemption
➢ Gifts totalling £3,000 in any one year.
➢ If not used, this exemption can be carried
forward by one year but no further.
• Gifts in consideration of marriage
➢ These are exempt up to:
− £5,000 from parents.
− £2,500 from grandparents.
− £1,000 from others.
• Normal expenditure
➢ Regular gifts made out of income are normally
exempt provided they do not affect the donor’s
standard of living.
• Other exemptions include:
➢ Gifts to charities and qualifying political
parties.
➢ Gifts for national and public purposes.
➢ Certain exemptions apply to allow businesses
to be passed on intact. These include business
property relief and agricultural property relief.
IHT and the family home

• Currently, inheritance tax is charged at 40% on estates
over the tax-free allowance of £325,000
• But from April 2017 everyone has an additional
"family home allowance" of £100,000, rising to £175,000
by 2020.
• It means that couples will soon be able to pass on
assets worth up to £1m to their children.
2019/2020 35
Value Added Tax

(VAT)
• VAT is an indirect tax levied on the sale of most goods
and services in the UK.
• The current standard rate is 20%, which came into
effect on 4th January 2011.
• Certain goods and services are charged at 5% such as
heating oil and child car seats.
• There is also a zero rate that applies to certain goods
and services. These include:
➢ Books and newspapers.
➢ Children’s clothes.
➢ Transport and medicines.
• Supplies of certain goods and services are exempt from
VAT. They include:
➢ Sale of land.
➢ Lending.
➢ Insurance.
➢ Health.
➢ Education
• Businesses with a turnover of at least £85,000 per
annum, are required to register for VAT, even if the
goods/services they provide are currently zero-rated.
• Businesses with a turnover below the threshold may
register if they wish.
• Broadly speaking, being registered adds to the
administration of the business, and of course, increases
the cost of what it sells, but it also brings the
advantage of being able to reclaim VAT paid on
certain purchases made in the course of business.
• The supply of financial advice is NOT exempt, and
advisers who charge a fee for their service are subject
to VAT just like, for instance, solicitors and
accountants.
36 2019/2020
Insurance Premium
Tax
• First introduced in 1994, Insurance Premium Tax (IPT)
is a tax on general insurance premiums, including
home insurance, car insurance and travel insurance.
• There are two rate bands, the standard rate of 12%,
and a higher rate of 20%, which applies to travel
insurance, appliance insurance and some car
insurance.
• IPT applies to most general insurance, but life
insurance and most other long-term insurance are
exempt.
2019/2020 37
Stamp Duty Land

Tax (SDLT)
Stamp Duty on Property
• Stamp duty land tax (or Land and Buildings
Transaction Tax in Scotland) is a lump-sum tax that
anyone buying a property or land costing more
than a set amount has to pay.
• The rate you'll pay the tax at varies based on the
price of the property and the type (we'll focus on
residential buildings, rather than commercial).
• Sweeping changes to stamp duty were announced
in December 2014. Stamp duty has been reformed -
the slab system (where you'd pay a single rate on
the entire property price) has been swept away,
and in its place is a more progressive system.
• From 1 April 2016, the rates for SDLT will be higher
if you buy an additional residential property for
£40,000 or more in England, Wales and Northern
Ireland. Currently, an additional 3%.
• You’ll also pay the higher rate if you buy a
residential property in England, Wales or Northern
Ireland and you already own one outside the UK.
38 2019/2020
Stamp Duty Rates
Other Stamp Duties

• The rate of stamp duty on shares is ½% unless
stamp duty is below £5
• The rate of stamp duty on bearer instruments is
1.5%
2019/2020 39
Corporation Tax
• Companies pay corporation tax. It is charged on the
profits (including chargeable gains) arising in each
accounting period.
• Self-employed, partners are charged income tax, not
Corporation Tax.
• Companies are charged Corporation Tax usually 9
months after their annual accounting period except
larger companies who pay in instalments.
• Rates charged for all companies are currently 19%
40 2019/2020
Update on National
Insurance
• This week, my partner and I spent a couple of days in
the New Forest with our bikes to celebrate my
birthday. I hired a van to transport the bikes down to
the forest, so I was officially a “White Van Man”.
• Chancellor Philip Hammond announced that he was
reversing the planned decision to cut Class 2 NI for the
2.7 million self-employed workers, the so-called
“White Van Man” Tax. Hence the uproar. But if you
look at the details, it’s quite fair to do so. Let me
explain.
• There are four classes of NI:
➢ Class 1 for both employed and your bosses. Both
pay a large percentage, and for the employed, the
highest rate is 12%. Class 1 also hits benefits in
kind, so your company car gets slapped NI on it
too.
➢ Class 2, the one in the news, weekly for all self-
employed.
➢ Class 3 is for those people who want to pay
voluntary contributions to get the most State
Benefits such as State Pension or Maternity
Benefits. Here’s an example I like. The minimum
contribution record to get your Basic State
Pension is ten years. During the War, armies of
women worked in the munition’s factories and
farms. They accumulated a record of 4 or 5 years,
not enough, so many contributed Class 3 to get to
the 10-year target and claim a small State Pension.
➢ Class 4 for self-employed again, but this time it’s
a percentage of their profits. The top rate is just
9%, lower than employed.
• You can see that the self-employed shouldn’t be up in
arms at the reversal, it’s only fair they pay the weekly
amount as they only pay at 9%. I think the newspapers
should check the facts. Originally the Chancellor was
going to increase their percentage from 9% to 11% and
abolish Class 2, to simplify things but last year
changed his mind.
• Let’s have a look at our modern workplace to see how
NI is paid or should be.
2019/2020 41
The Gig Economy

• We’ve all been reading about the so-called “Gig
Economy”, zero hours workers and such. Last night
we had a takeaway delivered via Deliveroo, a pleasant
young lad he was too. He’s self-employed so would be
liable to Class 2 and 4, if his profits are enough.
• I often catch an Uber; the drivers love the flexibility it
gives them; they are also self-employed and pay Class
2 and 4 NI.
Zero Hours Contracts

• My stepdaughter works in a restaurant in Edinburgh
where she is a bartender on a zero hours contract. She
is employed so liable to Class 1, and so is her boss.
Owner/Directors
• These people typically own a small limited company
so that they can provide their services to clients; many
IFAs work this way. They are employed thus pay
Class 1 NI, and so does the business. They also pay
themselves dividends, these don’t have NI slapped on
them, and the Chancellor is currently looking at this
closely.
Top CEOs
• These so-called “fat cats” earn a salary so pay NI, but
also have heaps of benefits in kind so their employer
will pay large NI too. They often own shares so receive
dividends, but the main issue here is salary sacrifice.
They give up large amounts of salary to have their
employer pay large sums into their pensions; this
avoids NI for both parties. Clever.
• But the cleverest thing is back to our “White Van
Man”. I read today that the Government wants them
to go green by driving more environmentally friendly
vans. We’ll have to call them Green Van Man from
now on.
42 2019/2020
Economic and
Monetary Policy
Government Aims
for the Economy
• Price stability.
➢ The measure is inflation, which is the price of
goods and services on the increase.
➢ It’s caused by too much money in the economy
chasing too few goods. This over demand for a
limited supply causes prices to go up.
• Low unemployment.
• Neutral balance of payments.
➢ Imports of goods and services are balanced
with equal export of goods and services.
➢ Traditionally the UK has had a negative
balance of payments for goods, and a positive
for services and the financial services industry
is a great source of foreign income.
• Satisfactory economic growth.
➢ The economy is growing, and people’s
standards of living have increased.
➢ It’s difficult to achieve all four objectives since
focussing on one can have a negative effect on
another.
➢ For example, raising interest rates, which will
reduce inflation, might well increase
unemployment.
➢ The Government has recently aimed for steady
inflation and steady economic growth but the
last economic recession has caused a very slow
growth in the upswing period, and the
economy is struggling to accelerate this above
2% per annum.
2019/2020 43
Inflation
Inflation Measures –
CPI/RPI
• This is a measure of the increase in price of goods and
services.
• The Government uses the Consumer Price Index (CPI)
now as a target. The annual target is 2% plus or minus
1%.
• The Bank of England is responsible for maintaining
this target and will increase interest rates if it is
breached.
• The Retail Prices Index (RPI) is still used as an index
but not strictly targeted.
• New CPIH – includes owner-occupier housing costs
Deflation
• A general decline in prices, often caused by a
reduction in the supply of money or credit.
• Deflation can be caused also by a decrease in
government, personal or investment spending.
• The opposite of inflation, deflation has the side effect
of increased unemployment since there is a lower level
of demand in the economy, which can lead to an
economic depression.
• The Bank of England will attempt to stop severe
deflation, along with severe inflation, in an attempt to
keep the excessive drop in prices to a minimum.
Disinflation
• A slowing in the rate of price inflation.
• Disinflation is used to describe instances when the
inflation rate has reduced marginally over the short
term.
• Although it is used to describe periods of slowing
inflation, disinflation should not be confused with
deflation.
44 2019/2020
Government
Economic Policy
Monetary Policy
• Monetarists believe that inflation is caused by an
increase in the supply of money into the economy.
• The availability of credit is the biggest culprit to
increase money supply.
• The main weapon to control money supply is,
therefore, interest rates.
• Alternatively, credit can be restricted in other ways.
• The Bank of England Monetary Policy Committee
(MPC) meets monthly to decide the Bank Base rate,
which influences all other interest rates.
• The popularity of fixed-rate mortgages, many for long
terms such as 10 years, is beginning to disarm the Bank
of England because their rate changes will only affect
people on variable rate or tracker mortgages.
Fiscal Policy
• Fiscal economists believe that spending by the
government controls the economy.
• The bigger the government spend, the more activity
the economy enjoys, and this increases employment
and growth.
• After the war, the UK adopted this approach and
nationalised many industries to create one of the
biggest public sectors in the world. The Coal Board,
the railways, the motor industry were all nationalised.
• These were known as the public sector.
• Then it would control the economy by spending
through the public sector, raising its money from
taxation and borrowing.
• Raising taxation would also dampen money supply.
• Government borrowing (through Gilts and National
Savings) creates the Public Sector Net Cash
Requirement (PSNCR).
• Fiscal policies lost their glamour in the 1970’s, and for
the next few decades, the public sector was slowly but
surely sold off to private hands to leave a small
compact public sector.
• Government spending on the NHS, for example, can
still generate a positive effect, but less impact.
2019/2020 45
Welfare Benefits
• Welfare benefits are an enormous expenditure by the
UK government, representing about 6% of GDP,
source - Office of National Statistics.
• The amount of savings is taken into account in
deciding on eligibility for Income Support and some
other benefits.
• Benefits are reduced when savings exceed £6,000 and
is disallowed altogether if savings exceed £16,000.
• These benefits should, therefore, be borne in mind
when assessing a client’s need to maintain an
“emergency fund”.
• Welfare Reform Act 2012 introduces a new State
Benefit called “Universal Credit”. This is a means-
tested credit for people of working age.
• A summary of the latest benefits is on the next page.
Universal Credit Revealed

• A perfectly decent law – that to increase costs of
probate – was postponed due to the backlog created by
Brexit. In the same way, Universal Credit has
languished since 2011 and is not due to fully be
implemented until 2021.
• Designed to make things simple, it has only
complicated matters. It’s main features are:
• To limit the maximum claim per household of all
benefit to the amount an average working family
would bring in.
• Provide additional amounts for those who need them
– Disabilities, child care responsibilities and caring
requirements.
• To replace the myriad of benefits available to those
under the age of 65 so that just one amount is payable
rather than several different amounts.
• The benefits it's supposed to replace are:
➢ Income support
➢ Job seekers
➢ Employment and Support Allowance
➢ Working and Child Tax Credits
➢ Housing Benefits
• The only exception are those benefits which require a
record in National Insurance – NI related job seekers
and employment allowance, child benefit.
46 2019/2020
Universal Credit Revealed

A perfectly decent law – that to increase costs of
probate – was postponed due to the backlog
created by Brexit. In the same way, Universal
Credit has languished since 2011 and is not due
to fully be implemented until 2021.
Designed to make things simple, it has only
complicated matters. It’s main features are:
• To limit the maximum claim per household of all benefit to the amount an average
working family would bring in.
• Provide additional amounts for those who need them – Disabilities, child care
responsibilities and caring requirements.
• To replace the myriad of benefits available to those under the age of 65 so that just
one amount is payable rather than several different amounts.
• The benefits it's supposed to replace are:
o Income support
o Job seekers
o Employment and Support Allowance
o Working and Child Tax Credits
o Housing Benefits
• The only exception are those benefits which require a record in National Insurance –
NI related job seekers and employment allowance, child benefit.
Who knows what will happen to this benefit?

It’s taken eight years to get here so I would
continue to focus on understanding the
individual benefits and where they will
supplement your work as a mortgage and Later
Life Adviser.
2019/2020 47
2 Financial
Products
Deposits
• Main characteristics: high liquidity, very low risk,
generally variable rate of return (not guaranteed).
• They include:
➢ Instant access accounts.
▪ Low minimum balance, low-interest rates.
➢ High-interest accounts.
▪ Minimum balance and/or minimum notice of
withdrawal.
▪ Higher rates for higher balances.
➢ Money Market deposits.
▪ Attractive to individuals with large amounts
to invest for a short term.
• Offshore deposits are available from branches outside
of the UK. Interest is payable gross but taxable if you
are a UK resident for tax purposes.
• Since April 2016, both standard and offshore savings
accounts pay interest without any tax deducted. There
is no advantage in using offshore accounts to avoid
paying tax.
Taxation on interest
• All interest from deposit accounts, current accounts
will be paid gross.
➢ The first £1,000 of interest for basic rate taxpayers
will be tax-free.
➢ The first £500 of interest for high rate taxpayers
will be tax-free.
➢ Nothing tax-free for additional rate taxpayers.
• All tax due on the excess over these limits is payable
via the self-assessment scheme.
48 2019/2020
Financial Products
National Savings
and Investments
▪ The product stable for National Savings
changes regularly but saying that the exam
asks that you’re aware of the basics of each
product.
▪ On the next page, you’ll find the latest
National Saving’s guide for Financial
Advisers.
▪ Check their website, www.nsandi.com, for an
updated list.
2019/2020 49
50 2019/2020
Financial Products
2019/2020 51
Offshore Deposits
• Applies to investments in banks based in other
countries, i.e. offshore.
• Known as a “tax haven” because they enjoy better tax
rates.
• Popular offshore venues are countries where pound
sterling is the currency, so avoiding currency
movements.
• Jersey, Isle of Mann are examples.
• Investor protection may be less than their UK
counterpart.
• Investment income is paid gross but will be liable to
UK income tax and must be declared by UK Residents.
52 2019/2020
Financial Products
Money Market
Instruments
Treasury Bills
• Short term redeemable securities.
• Issued by Debt Management Office (DMO).
• They are short term, usually 91 days.
• They do not pay interest, i.e. they are zero coupon.
• Profit is made by buying them at a discount to the
redemption value.
• Low risk.
• Secondary market provided by banks – no market
place.
• Held mainly by financial institutions seeking short
term home for excess money.
Certificates of Deposit
• Short term larger scale funding.
• 3 to 6 months terms.
• £50,000 or more.
• Issued by banks and building societies.
• Interest paid along with repayment of capital.
• Bearer securities which allows the payment to be made
to whoever bears the security therefore can be sold
before redemption.
Commercial Paper
• Issued by companies who want to raise money for
working capital purposes as opposed to issuing
corporate bonds.
• Large amounts issued.
• Purchasers being institutions such as pensions funds.
• Rates determined by credit rating of company.
• Issued between 5 to 45 days, on average there are 30 to
35 Days
• Companies with low credit rating can issue
Commercial Paper if it is backed by a Letter of Credit
from a bank.
2019/2020 53
Fixed Interest
Securities
• Bonds are one of the four main asset classes, the others
being cash, shares and property. At its simplest, a
bond is just a loan.
• If a government, company or financial institution
wants to borrow some money, one of its options is to
issue a bond.
• Typically, they'll pay interest (or a coupon) on a
regular basis and then repay (or redeem) the full
amount of the loan (the principal or nominal value) on
a pre-determined date (the maturity date).
• Bonds, which are also known as fixed-income
investments, are riskier than cash but less risky than
property or shares.
• Consequently, over the long term, you'd expect bonds
to return more than cash but less than property or
shares.
• Investors can buy and sell bonds, through a broker,
just like shares. The price of the bond depends on
many factors.
• The term 'bond' is widely abused by the financial
services industry. You may have heard of terms like
'savings bond', 'investment bond' and 'guaranteed
equity bond'.
54 2019/2020
Financial Products
Government Gilts
• Gilts are bonds issued by the UK government. Most
governments issue their own bonds.
• Most gilts pay a fixed rate of interest, known as the
coupon, every six months but you can also get index-
linked gilts where the interest paid and the final
redemption amount rise in line with the rate of
inflation.
• Gilts that are due to be redeemed within 7 years are
known as 'shorts'. Those redeemed between 7 and 15
years hence are known as 'mediums' while those over
15 years are known as, believe it or not, 'longs'.
• The 0 to 7 year period comes from the Debt
Management Office, but the “press” commonly use 0
to 5 years
• Then there are some gilts which are undated, meaning
that they have no redemption date.
• Gilts are usually sold in blocks of £100 nominal or par
value. You will, therefore, see prices for them quoted
in newspapers and on web sites at around this price.
• You'll see them listed as, for example, 8% Treasury
2022. The 8% is the rate of interest paid or coupon on
each block of £100. Because rates are lower than this at
moment, it will cost you more than £100 to buy this
gilt today.
• 2022 is the redemption date. The word in the middle,
such as 'Treasury' or 'Exchequer', is apparently to help
differentiate one gilt from another.
• From 6 April 2016, a basic rate taxpayer will be able to
earn up to £1,000 in savings income tax-free due to the
introduction of the Personal Savings Allowance. This
includes “Fixed Interest Securities”. Higher rate
taxpayers will be able to earn up to £500.
2019/2020 55
56 2019/2020
Financial Products
Corporate Bonds
• Corporate bonds are bonds issued by a company. They
can be split into two main classes.
• Bonds issued by large, reputable companies, such as
GlaxoSmithKline and BAA, are referred to as
investment grade bonds.
• Those issued by companies with less secure finances
are known as non-investment grade, high yield or junk
bonds.
• High yield bonds, as the name implies, offer a higher
rate of interest than investment grade bonds.
• But there is a significant risk that the company may
not be able to pay (or default) on the ongoing interest
payments or redemption payment.
• As a group, high yield bonds tend to behave more like
shares than gilt and investment grade bonds.
• Some companies issue convertible bonds. These are
bonds that can be converted into shares at a later date.
• As they offer extra upside if the share price does well
in the future, convertible bonds usually pay a lower
rate of interest than non-convertible bonds.
Local Authority
Bonds
• Issued by local authorities to help fund their spending.
• Secured on local authority assets.
• Guaranteed returns, income paid half-yearly, gross
• Not negotiable.
• On maturity, the capital is returned.
2019/2020 57
Permanent Interest
Bearing Shares
(PIBS)
• Some building societies have issued bonds, known as
permanent interest-bearing shares (PIBS).
• Unlike most bonds, PIBS have no fixed redemption
date.
• If a building society were to go under, PIBS investors
would only get their money after ordinary savings
account holders got theirs.
• PIBS can be difficult to buy and sell as there is only a
small market for many of those issued.
• In addition, you have to invest a minimum amount.
This is usually £1,000 for the smaller building societies
but can be up to £50,000.
• Payable Gross.
Tax and Bonds

• The interest on gilts, corporate bonds and PIBs is
subject to income tax although it is usually paid out
without any income tax being deducted.
• You can put gilts, corporate bonds and PIBS into an
ISA and thereby avoid paying any income tax on them.
• Any capital gains you make are free from tax.
• Unfortunately, you don't get any relief for capital
losses.
• Unlike shares, you don't have to pay any stamp duty
when you buy gilts, corporate bonds or PIBS.
58 2019/2020
Financial Products
Child Trust Fund

• A tax-free savings account for children born since
September 2002.
• Sponsored by the government but run by banks,
building societies and other savings companies.
• Child Trust Funds are no longer available, and the
government contribution ceased in 2011.
• Here are some more facts that related to the product
for existing holders.
➢ Originally a £250 voucher was given to start
each child’s account by the government, this
reduced to £50 in 2010, no new vouchers by
January 2011.
➢ Children in families receiving full Child Tax
Credit received £500, reducing to £100 in 2010
➢ Parents, family or friends can contribute £4,368
in the year between the child’s birthdays.
➢ Money cannot be taken out of the CTF once it
has been put in – once your child is 18, they will
be able to decide how to use the money.
➢ Children can start to make decisions about how
the money is managed when they are 16.
➢ Not just one type of CTF account – you choose
the type of account you want for your child –
deposit based, shares based or stakeholder.
➢ Stakeholder account invests in shares and has a
maximum 1½% capped annual management
charge.
2019/2020 59
Government’s Help
to Save
• The government’s new Help to Save scheme will give
people on low incomes the chance to receive a 50% tax-
free bonus on their savings.
• Eligible savers can put between £1 and £50 (maximum)
each month into their new account and collect the
bonus after 2 years.
• If they carry on saving in the same way for another
two years, they’ll claim another 50% tax-free bonus.
The account is then closed.
• The scheme is only available to UK residents who are
claiming universal credit or working tax credit, but
you could potentially be on for £1,200 government free
money – not too shabby.
60 2019/2020
Financial Products
Annuities
• Provided by life assurance companies, who pay out a
regular income for a specified period in exchange for
a lump sum from a private individual or from a
pension scheme. The person receiving the annuity is
known as the annuitant.
Taxation
• Annuities resulting from Money Purchase
Occupational or Stakeholder pensions are all taxed as
earned income in the hands of the annuitant. Known
as Compulsory Purchase Annuities.
• Annuities bought by clients with their own money
(Purchased Life Annuities or PLAs) have a capital
element which is deemed by the Inland Revenue to be
a return of a portion of the purchase price and is
therefore not taxable.
• The remaining interest portion is taxable at the
client’s top rate, and PLAs are normally paid net of
basic rate (20%) income tax on the interest portion.
• Immediate Needs Annuities, those bought with the
proceeds of a Long Term Care plan and used to
provide care, are tax-free, so long as the payment is
made directly to the care provider.
Interest rates and

annuity rates
• Clients lock into the current long-term interest rates
available when the annuity is purchased.
• Annuity rates increase when interest rates increase
and vice versa.
• Once purchased, the amount of annuity is fixed and
independent of interest rate changes.
• Most annuities are immediate annuities, i.e. they
begin payment as soon as the purchase price is
received. Deferred annuities begin payment after a
specified period or at a fixed date or age.
• Most annuities are life annuities, related in some way
to the survival of the annuitant. Only an annuity
certain (now very rare) is paid for a fixed period with
no reference to a life.
2019/2020 61
Types of Annuities
• Straightforward life annuities pay a level amount
each month (or quarter, half year or year) until the
death of the annuitant, or until the death of the
survivor of two joint annuitants, without any return
on death. There are, however, many varieties:
➢ Escalating annuities provide income, which
increases by a fixed simple or compound rate of
interest.
➢ Guaranteed annuities (usually guaranteed for 5
years) ensure that payments are made for a
minimum period even if the annuitant dies
before that period finishes.
➢ Capital protected annuities provide that if the
annuitant dies before the total gross payments
equal the purchase price, the balance is
refunded in a lump sum.
➢ Reversionary annuities provide an income
which commences on the death of one
individual and continues for the remaining
lifetime of another individual.
➢ Temporary annuities are payable for a specified
term but cease on the prior death of the
annuitant.
➢ With profit and unit-linked annuities. The
returns from these are linked to the
performance of the underlying fund.
62 2019/2020
Financial Products
Shares
Ordinary shares
• Holders of ordinary shares, or equities, are in effect
part-owners of a company.
• Ordinary shares normally confer the right:
➢ To receive a distribution of the companies’
profits as dividends.
➢ To have a say in the way the company is run,
by voting at shareholders’ meeting and electing
a board of directors.
• Investment in shares may be by:
➢ Purchasing them initially when a company
Raises capital by issuing them, or
➢ Buying them from existing shareholders on the
stock market.
• Investment in shares cannot be cashed in by selling
shares back to the company – they are sold to another
investor on the stock market.
• The price of ordinary shares can go down as well as
up, and depend on:
➢ The profitability and dividends of the
company.
➢ Other economic and market forces.
Taxation
• On April 2016 a new tax-free Dividend Allowance was
introduce.
• You will pay tax on any dividends you receive over
£2,000 at the following rates:
➢ 7.5% on dividend income within the basic rate
band
➢ 32.5% on dividend income within the higher rate
band
➢ 38.1% on dividend income within the additional
rate band.”
• Capital gains on shares are subject to CGT in the
normal way.
2019/2020 63
Preference shares
• Preference shares, like ordinary shares, are entitled to
dividends from the company’s profits.
➢ The dividends are often, but not necessarily,
fixed. The dividends rank after payment of
debenture interest etc., but ahead of ordinary
share dividends.
• Preference shares also rank ahead of ordinary shares
on the winding-up of a company, but behind loans.
• They, therefore, carry less risk than ordinary shares
but have less chance of high returns.
Convertible Shares
• Convertible shares carry the right to be converted later
to ordinary shares of the issuing companies.
• Convertible share prices tend to follow the price trends
of the shares to which they can be converted, but with
less marked swings.
Rights Issues
• Stock Exchange rules require that when an existing
company wishes to raise further capital by issuing
more shares, those shares must first be offered to the
existing shareholders.
• This is done by means of a Rights issue, offering, for
instance, one new share per so many existing shares,
possibly at a discount to the price at which the new
shares are expected to commence trading.
Scrip Issues
• A scrip issue (also called a capitalisation issue or a
bonus issue) is the issue of new shares to existing
shareholders at no charge, pro rata to their existing
shareholdings.
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Financial Products
Earnings per share

• This is the amount of net profit divided by the number
of shares.
Price/earnings ratio
• The returns from shares come from dividends and
from growth in the share price. These two items are
linked by the price/earnings or P/E ratio, which is
calculated as the share price divided by the earnings
per share.
• Shares with a relatively high P/E ratio are known as
growth stocks, and the greater portion of the returns
from them is likely to be obtained through increases in
the share price.
• A ratio of 20 or more indicates a share is doing well
Dividend Cover
• A coverage ratio that measures a company's ability to
pay off its required preferred dividend payments.
• A healthy company will have a high coverage ratio,
indicating that it has little difficulty in paying off its
preferred dividend requirements. Cover of 2.0 or more
is considered healthy.
Loan Stocks
and Debentures
• Owners of loan stocks effectively lend their money to
companies.
• Interest is paid not dividends
• Debentures are secured on company assets.
• Some allow conversion to ordinary shares.
2019/2020 65
Derivatives
Warrants
• Warrants give the holder the right to purchase a
specified number of ordinary shares of the issuing
company:
➢ At a specified price.
➢ On or between certain specified dates.
• They are high-risk investments because, if the ordinary
share price is less than the specified price on the
specified dates, the warrant will not be exercised and
therefore, becomes valueless.
• Warrants do not receive dividends or interest.
Options
• An option is the right to buy or sell an investment
(usually shares) at a specified price at a future date.
• An investor pays a price for the option and can choose
whether to exercise the option (and hopefully make a
profit on the share) or sell the option itself at a profit.
• Like warrants, these are high-risk investments, as
small changes in the share value can render the option
valueless.
Futures
• These are similar to options except that there is an
obligation to buy or sell at the specified price on the
specified date.
• Futures are available in a variety of financial products
as well as commodities, such as coffee, and even in
currencies, where they can be used as a hedge against
movements in exchange rates.
• Futures are also known as forward contracts. Forward
Contracts are made directly between two parties and
not traded
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Financial Products
Sharesave and
Share Option
Schemes
• Corporate Fat Cats earning enormous sums have been
heavily criticised as late, and much of the blame lies in
the Boardroom and shareholder reticence to combat
the rising salaries of CEOs.
• There’s a backlash, thank goodness; it goes against my
principles when a CEO of a housebuilding firm earned
£47 million in 2017.
• One answer is shareholder democracy and
empowering the workers to own shares and exercise
their rights in the Boardroom and Annual General
Meeting.
• The Labour party, to their credit, have jumped on the
bandwagon on this recently but there are already two
excellent ways in which workers can buy shares in
their firm.
Sharesave
• Also known as Save as You Earn (SAYE). Workers
choose a term to save their money into the scheme –
either 3 or 5 years. They invest between £5 and £500
each month. They also know the price of the shares
when they begin saving and its this price, less 20%,
that they have the option to buy at the end of their
term.
• There are two outcomes at the end of the term. The
pessimist says they might remain “underwater” and
when the time is up, the price of the shares is less than
the original price. So there’s no point exercising your
right to buy otherwise you’ll be sitting on a loss. You
might as well take your money out of the scheme.
• The optimist prefers to think that at the end of the
term, the share price has risen and can then be bought
for much less than the current value. So for example,
the cost of your shares less 20% was £5, and at the end
of the term, the price has climbed to £10. You’ve
accumulated the maximum, i.e. £30,000 and use this to
buy the shares at £5 – so you have 6,000 shares, result.
The shares are worth on the market £60,000, so you’ve
practically doubled your money with no Income Tax
or National Insurance charge.
2019/2020 67
• Cash them in, and you could be in for a Capital Gains

Tax charge so be careful. You’re better off popping
them into a pension scheme, best a SIPP – self-invested
pension, or at least an ISA to avoid the CGT.
Share Incentive Plans

• Workers can buy shares from their gross salary, before
tax is deducted, so very similar to paying into a
pension plan with full tax relief. Shares usually have to
be held for a minimum of five years before selling; this
avoids Income Tax and Capital Gains Tax
• Sometimes supermarket gambits are used to enhance
the number of share owned. BOGOF – buy one get one
free. Some employers give them away for free – up to
£3,600 per year.
• These schemes allow employees to invest a maximum
of £1,500 or 10 per cent of their salary (whichever is
lower) a year. However, the advantage of this scheme
is that it does shield savers from CGT on any
subsequent gain.
• There is a final scheme which probably pricked Jeff
Fairburn’s ears. The Company Share Option Plan.
CSOPs are not available to all employees and are used
to tie senior employees into a company. Employers can
give up to £30,000 worth of shares, which the
employee can buy at the original price after three years
of employment. Although with Jeff’s salary and
benefits package, £30,000 is mere pocket money.
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Financial Products
Structured
Products
• These offer a guarantee of original capital with
exceptional interest returns and have been actively
marketed by firms to investors looking for high
returns
• They have been popular with normal consumers who
don’t understand the complexities of the product, and
as a result, the FCA have issued some intense
guidelines to firms.
• The main premise of structured products is that you
receive a guaranteed amount of income with your
capital safe, except where certain parameters fall out of
place, e.g., markets fall dramatically, indices fall. The
guarantees can sometimes be provided by the use of
derivatives which put the fear of God into some people
Hence they are misunderstood by the average
consumer
• There are 3 types:
➢ Structured deposits – gives interest returns
which may vary around the performance of
shares or indices or other parameters
➢ Structured Capital at Risk Product – SCARPs –
these are products where both the income and
capital can vary against parameters.
➢ Non SCARP Product – where the capital is
guaranteed except where share firm goes bust.
Derivatives ensure this promise
2019/2020 69
Enterprise
Investment
Schemes
• Enterprise Investment Schemes (EIS) were introduced
by the government to encourage investment in small
unquoted companies.
• They involve a higher degree of risk than investments
in larger companies, such as those traded on the
London Stock Exchange.
• To encourage the investment, substantial tax benefits
are given, see table below.
Venture Capital
Trusts (VCTs)
• VCTs are listed in the London Stock Exchange and
provide finance for small, expanding companies with
the aim of generating returns for investors.
Comparison table
EIS 2017/18 EIS 2018/19 VCT 2017/18 VCT 2018/19

Maximum
£1,000,000 £2,000,000* £200,000 £200,000
investment
Tax relief 30% 30% 30% 30%
Holding
3 years 3 years 5 years 5 years
period
Dividends Taxable Taxable Exempt Exempt
Capital gains Gains exempt Gains exempt Gains Gains
tax after 3 years after 3 years exempt exempt
Capital gains
tax deferral Yes Yes No No
relief
Capital gains
No No No No
tax holiday
• * increased limit only if anything above 1 million is
invested in knowledge-intensive companies.
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Financial Products
Stock Markets
The Stock Exchange
• A full listing on the Stock Exchange is available only to
those (usually very large) companies who can meet the
stringent financial and other requirements laid down
in the Exchange’s rule book. In addition:
➢ They must have been trading for at least 3
years.
➢ At least 25% of their share capital must be in
public hands.
The Alternative Investment

Market (AIM)
• This market commenced trading in 1995 and is
intended for new smaller companies with potential for
growth.
• It effectively replaced the Unlisted Securities Market
(USM), which ceased trading in 1996.
• Rules are less strict than for the Stock Exchange.
• Investment in companies on the AIM should be
considered higher risk.
• The benefit of access to public finance and an
enhancement of the company’s profile are advantages
of a listing.
Off Market Trading

• Known as over the market trading or dark pools.
• Common with large institutions trading large blocks of
shares outside of the markets
Investing in shares
• An investor buys (or sells) shares through a
stockbroker.
• The broker acts in effect as a middle-man, charging a
fee for his services.
• The broker obtains the shares from market makers,
who are in effect, the wholesalers of stocks.
• They make their profits by trading in stocks and
shares.
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Real Estate
Residential Property
Investment
• Residential property investment is the growth area for
private individual fuelled by Buy to Let mortgages.
➢ Advantages include good rental yields and a
mature market.
➢ Disadvantages include prices can fall as well as
rise and large upfront costs.
• Income tax is due on the letting income, subject to any
allowable deductions, such as mortgage interest,
repair, and replacement and maintenance costs.
• A house, which is an only or main residence and has
been throughout the period of ownership, is exempt
from capital gains tax when it is sold.
• Property, which is not your main residence, is liable
for Capital Gains Tax.
• The greatest risk with Buy to Let is being unable to
find a suitable tenant.
Commercial Property
• Commercial property includes:
➢ Offices.
➢ Individual retail shops.
➢ Shopping malls and shopping centres.
➢ Industrial units, i.e. factories, workshops.
➢ Hotels and leisure resorts.
• Commercial property provides high rental income
together with steady growth in capital value.
• The main advantages are:
➢ Regular rent reviews.
➢ Long leases.
➢ Stable and longer-term tenants
• Commercial property does not show spectacular
growth in value.
• Interest rates on borrowing for commercial property
may be higher than for residential loans.
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Real Estate
Investment Trusts
• From 1st January 2007, listed UK Companies can elect
to join the UK Real Estate Investment Trust (REIT)
regime.
• The benefit to them is that any income or gains from
their investment properties contained in the REIT are
exempt from Corporation Tax.
• This creates a very exciting investment opportunity for
people, like you and I, who have smaller amounts but
would like to invest in a range of properties.
• For individuals wanting to invest in property in a tax-
efficient manner, the REIT is ideal, and also avoids
many of the disadvantages of direct property
investment.
• 20% withholding tax is imposed on any distributions
made to investors, subject to exceptions
• No one individual can hold more than 10% of the
value of the REIT.
• At least 75% of gross income must come from rent, and
at least 75% of its assets must be investment property.
• At least 90% of net profits must be distributed to
shareholders.
• No individual shareholder can hold more than 10% of
the shares, and they can be held in ISAs, JISA’s and
child trust funds, SIPPs.
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Foreign Exchange
• With countries, people use their own currencies to
purchase goods and services.
• Sterling in the UK, dollar in the US, Euro in Europe.
• When a person or company buys goods from abroad,
they must use that country’s currency to secure the
transaction.
• They would need to obtain the relevant currency
usually by using their bank to “buy” this currency
from the foreign exchange markets.
• The foreign exchange market is a 24/7 market relying
totally on technology to operate from all over the
market.
• As with any market, prices of different currencies will
vary with demand. For example, if there is a big
demand for people to buy US Dollars, this will
increase the price. In other words, you will need more
of your currency to buy US Dollars.
• Thus, we get currency fluctuations.
• Currency speculators are traders who make a living
buying and selling currency.
• Just like property speculators who make money
buying and selling property and just like car dealers
who do the same.
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Financial Products
Unit trusts
• Unit trusts are collective investments established
under a trust deed.
• Trustees oversee the running of unit trusts.
• They are unitised funds, with each unit representing a
proportion of the fund’s total asset value.
• Unit prices rise or fall, directly reflecting the value of
the underlying assets.
• Investments are made by buying units from the unit
trust managers (either directly or via an adviser) at the
offer price and cashed in by selling them back to the
managers at the bid price.
• Units are not traded on the Stock Exchange.
• Historic pricing is based on the price the night before.
Nowadays, forward pricing or real-time pricing is
used to reflect the most up to date unit price.
• Income received by managers on the underlying
investments is normally distributed to unitholders.
• Accumulation units aim to re-invest the dividends
back into the fund by allocating you more units
instead of cash.
• Some unit trusts aim for high-income distributions,
some for capital growth, and some for a balance of the
two.
• Charges are:
➢ Bid/Offer spread 3% to 5%
➢ Annual management charge 0.5% to 1.5%
• Taxation within the fund.
➢ Fund managers are subject to tax on their
income but not on capital gains. CGT is liable
for the unitholders.
• Distributions.
➢ Equity-based trusts are taxed in the same way
as dividends, using the Dividend Allowance.
➢ Distributions from unit trusts that hold more
than 60% of their assets in corporate bonds and
gilts are treated as interest for income tax
purposes.
➢ They, therefore, qualify for the Personal
Savings Allowance.
• Investors are liable for CGT in the normal way.
2019/2020 75
Non-mainstream
pooled
investments
• As the name suggests, these are the exception. They
are pooled investments that don’t adhere to the FCAs
rules on pooled investments.
• The FCA authorises these types of investments, and
they are therefore allowed to be sold in the UK. We’re
typically talking about unit trusts and OEICs.
• The non-mainstream investments, unit trusts, traded
life policies and such, have more investment freedom,
with providers based abroad and very little investor
protection.
• The FCA doesn’t deem them suitable to retail investors
and doesn’t allow them to be marketed accordingly.
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Financial Products
Investment Trusts
• Investment Trusts are collective investments, but they
are NOT unitised funds like unit trusts.
• They are public limited companies whose business is
investing in stocks and shares of other companies
(They are not trusts!).
• Investment in an investment trust is made by buying
and selling its shares on the stock market.
• Investment trust share prices are affected not only by
the underlying value of the company’s assets (as with
unit trusts) but also by other market forces.
• The share price can sometimes, therefore, stand at a
discount to the asset value.
• Charges tend to be lower than those for unit trusts.
• As public companies, investment trusts (unlike unit
trusts) are able to benefit from “gearing”, i.e. they can
also borrow in order to further their investment aims,
so they have greater flexibility to make use of
opportunities.
• Split-capital investment trusts allow investors to have
all of the income or all of the capital rather than having
smaller amounts of both.
2019/2020 77
Open-ended
investment
companies (OEICs)
• Open-ended investment companies (OEICs) are a form
of pooled investment which is popular in Europe.
• Under UK regulations, unit trusts are able to convert
into OEIC’s.
• Investors buy participating redeemable preference
shares in the company, which can issue an unlimited
number of shares. Shares are traded at a single price
(i.e. there is no bid-offer spread), but initial charges
will be taken.
• “Umbrella” funds are common, in which the company
invests in a variety of types of shares.
• New funds can easily be created, and switches
between funds are straightforward.
• The Depositary oversees the OEIC and is similar to the
trustee in a Unit Trust.
• An Authorised Corporate Director manages the
investments and buys and sells shares.
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Financial Products
Dilution Levy and Charges

• The Dilution Levy applies to OEICs and other ‘single-
priced’ funds.
• Remember that Unit Trusts are dual priced and have
an offer and a bid price for their units. The difference
known as the “bid-offer spread” and is a charge for the
investment.
• OEICs don’t have this so they can charge a Dilution,
Levy.
• Since the fund manager is still buying or selling the
underlying investments on a dual-price basis in the
market, they’re incurring a cost, and they would like to
pass this onto the investor, only fair really.
• As well as the bid-offer spread of the underlying
investments there are also other costs such as broker
dealing fees, foreign exchange dealing costs and Stamp
Duty Reserve Tax (SDRT) – or any equivalent charge
levied in foreign markets.
• Dilution is the effect all these costs have on the fund
when investors purchase or redeem units. Because
only a few investors are buying or selling their units,
compared to all the unitholders, the cost is diluted, like
you would an orange squash drink. Hence the term
dilution.
• However, to make this fair to those not engaged in
buying and selling their units, those that do, get
charged a dilution levy.
• Some fund managers cover this cost themselves from
cash in the fund; some feel that they have a good
balance of sellers and buyers anyway, meaning that
dilution adjustments are rarely applied.
• It is purely to protect existing investors in the fund
from bearing the transaction costs of other parties
choosing to buy or sell.
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Individual Savings
Accounts ISAs
• A government-backed savings initiative for the
masses, giving tax benefits.
• Maximum annual investment £20,000.
• Additional Permitted Subscription allows surviving
spouse or civil partner to make additional ISA
subscription to the value of the deceased’s ISA
holdings
• Individuals can split the annual allowance amongst
cash, equities or innovative finance ISAs
Equity ISA
• Includes shares, unit trusts, Gilts, OEICs, Investment
Trusts, REITs and Child Tax Funds.
• Minimum age 18.
• No CGT or income tax on dividends
• Individuals can invest in any combination of cash
and/or stocks and shares ISA
Cash ISA
• Building Society, Bank Accounts and National Savings.
• Minimum age 16.
• Tax-free interest.
Withdrawals
• Withdrawals at any time, and can be replenished
during the tax year.
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Financial Products
ISAs and Dying

• Death is a certainty; few people know what will
happen to their Instagram account on death and even
fewer what will happen to their ISA.
• Each year ISAs have the maximum investment
adjusted, but recently the main ISA has stuck to
£20,000. Many allow you to withdraw and then top up
to the same limit. Help to Buy and Lifetime ISAs have
strict maximum funding.
• Little is known what happens on death because we all
die at some point.
• On death, your ISA can benefit from Additional
Permitted Subscriptions which allow the survivor to
pump money into your ISA for up to three years. 180
days following the estate being wound up, if you have
stocks and shares ISA.
• The money invested is still protected from all income
and capital gains tax, so not too a shabby deal.
• However, I’m still not too sure what will happen to my
Facebook profile when I die.
Junior ISA
• Available to children under age 18 who didn’t qualify
for the Child Trust Fund, therefore, no government
contribution
• Anyone – family, friends – can contribute up to £4,368
per annum
• Invested in cash or equities in a similar manner to ISA
• Income tax-free but no withdrawals until aged 18
Innovative Finance ISA

• The new Innovative Finance ISA allows individuals to
lend money through FCA-regulated and approved
peer-to-peer lending websites
• Also known as peer-to-peer lending platforms.
• P2P is ‘crowdfunding’, a rapidly growing form of
lending.
2019/2020 81
Help to Buy ISA
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Financial Products
Lifetime ISA
2019/2020 83
Endowment
Assurance
Non-profit endowment
• Fixed premium for a fixed (guaranteed) sum assured
on death or at the end of the term.
• Very few investment policies are now issued on this
basis.
With-profit endowment
• For a higher fixed premium, the policyholder gets not
just a guaranteed minimum sum assured, but also a
chance to share in the company’s profits, by means of
added bonuses.
• Reversionary bonuses:
➢ Normally added annually, and, once added,
cannot be removed.
➢ Maybe simple (based on the sum assured) or
compound (based on the sum assured and
previously-added bonuses).
• Terminal bonuses:
➢ Added only at the point of claim, on death or
maturity.
➢ The rate can be increased or reduced to reflect
the success or otherwise of stock market
investment by the company.
• Neither reversionary or terminal bonuses are
guaranteed to be added
Principles and Practices of

Financial Management
• Sets out how a firm manages it’s with-profits business.
➢ Annual certification to FCA that adhering to
document
➢ Customer friendly document to be made
available.
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Financial Products
Low-cost with-profit
endowment
• The guaranteed sum assured is set at such a level that
the bonuses expected to be added would be sufficient
to raise the claim value to a certain level after a
specified period.
• This is normally used for mortgage purposes, with the
aim being that the final claim value should be equal to
the mortgage amount.
• Additional life cover is added so that the death claim
value is always at least equal to the projected final
value.
2019/2020 85
Unit-linked Endowments
• Unit-linked endowments are suitable for investors
who:
➢ Prefer a more direct link to stock-market type
investments;
➢ Are willing to accept more investment risk
(without guarantees) for the chance of making
greater gains;
➢ Wish to have control over the particular type of
investments for their policy.
• Premiums paid are (possibly after the deduction of
certain expenses) allocated to purchase units in a
chosen fund or funds at the appropriate offer price.
• A pool of units builds up, and these units are cashed in
at the appropriate bid price to:
➢ Pay the ongoing expenses of running the policy
as described in the policy details;
➢ Pay the costs of providing any life/sickness
cover which the policy provides;
➢ Payout the surrender, maturity, or death claim
value when the policy ceases.
• The level of charges to cover expenses is much more
visible on unit-linked policies than on with-profits
policies. They may include some or all of the
following:
➢ The bid-offer spread on the price of units;
➢ A regular monthly policy fee;
➢ An initial nil-allocation period during which
premiums are not allocated to purchase units;
➢ An initial period in which the units purchased
are “capital units”, which suffer higher annual
charges than the normal units (and therefore
are slower to increase in value).
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Financial Products
Unitised with-profit
endowments
• This product is suitable for clients who like the
guarantees provided by with-profits policies, but who
would like to explore the possibility of changing the
risk profile of the investment element of the policy.
• The concept of unitised with-profits lies somewhere
between with profits and unit-linked.
• The pricing structure is similar to that of unit-linked
policies, except that management charges are not
explicit.
• As with traditional with profit policies, unitised with-
profits contracts are entitled to bonuses which depend
on the performance of the company’s life fund:
➢ Bonuses are added either by increasing the unit
price or by allocating additional units to the
policy.
➢ Once added, bonuses cannot be taken away -
i.e. unit prices cannot fall except in the case of
surrender (see below).
• Unitised with-profit policies give a guaranteed
minimum amount payable on death or maturity.
• This amount is usually based on a minimum annual
percentage rate of growth on units of the unitised
with-profits fund.
• If the unit value is greater than this, the larger amount
is paid.
• However, on surrender, a deduction can be made from
the bid value of the units, to allow for the investment
conditions at the time.
• This is called the Market Value Adjustment, or MVA.
2019/2020 87
Qualifying Policies
• An endowment policy has special tax advantages.
• The funds grow, and tax is deducted at source. This
tax is equivalent to basic rate tax and capital gains tax.
• No further high rate tax is deducted from the gains
made so long as the policy is “qualifying”.
• Policies are "qualifying" provided they do not break
anyone or more of the following rules:
➢ Ten-year rule: premiums must be paid annually
or more frequently, for at least 10 years (some
term assurances are exempt from this rule).
➢ Two-times rule: premiums in any one year
must not exceed twice the premiums in any
other year.
➢ Premiums must be paid regularly. At least
annually.
➢ One-eighth rule: premiums in any one year
must not exceed one-eighth of the total
premiums due to be paid in the policy.
➢ 75% rule: the sum assured on death must never
be less than 75% of the total premiums due to
be paid on the policy (or, for whole of life
policies, 75% of the total premiums due before
the 75th birthday).
➢ Qualifying policies are treated as non-
qualifying if surrendered or made paid up
within 10 years, or ¾ of term if less.
➢ Since 2012, qualifying endowments premiums
cannot exceed £3,600 per annum
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Financial Products
Investment Bonds
• Investment Bonds are collective investment vehicles
based on unitised funds.
• They are unit-linked, single premium, non-qualifying
whole of life policies.
• Investment is achieved by paying a single premium for
the policy.
• The single premium nominally purchases units in a
specified fund or funds, and the subsequent value of
the policy is based on the value of these units
(although, unlike unit trust unit-holders, the
policyholder does not actually own the units).
• The investment is cashed in by surrendering the policy
for a value equal to the bid value of the units
nominally attaching to the policy.
• On death, the policy ceases, and a slightly enhanced
value (often 101% of the bid value) is paid out.
• Switching from one fund to another is often allowed
without charging the bid-offer spread.
• A form of “income” can be taken by making regular
withdrawals (small partial surrenders made by
cashing in units).
• These withdrawals are tax-free to basic rate taxpayers,
and up to 5% p.a. of the original investment may be
withdrawn each year (up to a total of 100%) without
incurring an immediate tax liability, even for higher
rate taxpayers.
• Unused 5% allowances can be carried forward.
• A tax liability may arise on death, maturity,
encashment, part encashment or assignment for
money. The system of calculating any tax due is
known as “Top Slicing.”
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Taxation
• Gains in the underlying funds are charged to income
tax, which eliminates any liability for basic rate tax and
capital gains tax for individuals.
• Neither is recoverable by policyholders who are not
taxpayers.
• An additional charge of 20% tax is incurred by higher
rate taxpayers on encashment of the Bond. 25% for
Additional Rate Taxpayers.
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Term Life
Assurance Policies
• The sum assured is payable only if the life assured dies
within a specified period.
• Premiums are normally level, even when the sum
assured varies from year to year.
• There is no maturity value and no surrender value at
any time.
• There is no return of premiums if the life assured
survives the specified term.
• The term can be anything from a few months to 40
years or more, but if the expiry date is after age 65, it
may be better to take a whole of life assurance.
Level Term
Assurance
• Sum assured remains level throughout; therefore, real
value may be eroded by inflation.
• Level annual/monthly premiums or single premium.
• Uses – family protection, key person insurance, cover
for loans, debts.
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Pension Term
Assurance
• Pension Term Assurance is virtually the same as level
term assurance except you can get up to 45% tax relief
on the premiums.
• In December 2006, the Government spotted this
loophole and blocked it.
• Policies written on or before 6th December 2006 still
attract tax relief at the policyholder’s highest marginal
rate.
Decreasing Term
• Commonly used to cover loans such as mortgages or
hire purchase.
• The sum assured decreases over the term, either:
➢ By equal monthly or annual amounts;
➢ By irregular amounts;
➢ For example, to cover the reducing inheritance
tax liability due to the tapering relief provisions
for a Potentially Exempt Transfer;
➢ In line with the reduction of the capital
outstanding on a repayment mortgage at a
specified rate of interest (often known as a
mortgage protection policy).
• Can be single life policies, or joint life first death.
• Premiums are lower than for level term assurance.
• Premiums are level even though the sum assured
reduces.
Gift Inter Vivos

• Rather fancy name for a decreasing term assurance to
cover the IHT liability left from a Potentially Exempt
Transfer (PET).
• 7-year term assurance altogether. 3 years level and
then drops by 20% each year for 4 years, just like the
liability of a PET.
• The policy is put into trust for the person who will
have to pay the liability.
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Family Income Benefit

(FIB)
• On the death of the life assured within the policy term,
the company will pay out a series of payments (usually
quarterly or monthly) from the date of death until the
end of the policy term.
• This method is suitable for dependants who might
have difficulty in coping with a lump sum and might
spend it all at once, leaving themselves nothing to live
on later.
• The payments are treated as instalments of capital and
are therefore not subject to income tax.
• The payments can be commuted into a lump sum,
which would be less than the total of the outstanding
instalments.
Convertible
• Life cover is the same as normal term assurance.
• Contains option to convert to permanent policy (whole
life or endowment) for up to the same sum assured
without further medical evidence.
• Premium after conversion is the standard rate for the
age at conversion.
• Useful for people who:
➢ Want to begin a policy taking advantage of
current good health;
➢ Want a more permanent contract but cannot
afford the premiums yet.
Renewable
• Typically 5 or 10-year policies.
• They can be renewed at the end of the term without
further evidence of health, i.e. a similar policy is issued
for the same sum assured, but the premium is now
that for the age at renewal.
• Again, useful for those wishing to keep initial
premiums to a minimum.
Increasable
• The option exists, without evidence of health, to
increase the cover on a specified date or dates, or when
extending the term under a renewability option as
described above.
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Whole of Life
Policies
Features
• Pays out policy benefits on the death of the life assured
whenever that death occurs.
• Single life or joint lives (first or second death).
• Premiums can be payable throughout life or limited to
a chosen age or term. Acquires a surrender value -but
it is not an investment policy.
With-profit Whole of Life

• Guaranteed minimum death benefit (sum assured)
plus a share of the investment profits of the life fund.
• Level premium, greater than for without-profit policy
with same sum assured.
• Reversionary bonuses.
➢ Declared annually (usually) as an addition to
the amount payable on death.
➢ Quoted as a simple or compound percentage of
the sum assured.
➢ Once declared, cannot be removed.
• Terminal bonuses .
➢ Allow for rises and falls in the fund's stock
market investments. Added only in the event
of a claim.
➢ Rates vary from time to time.
• Interim bonuses.
• Reversionary bonuses added to a claim arising
between bonus declaration dates.
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Unit-linked (or flexible)

whole of life assurance
• Policy returns are not guaranteed but depend on fund
performance.
• Premiums buy units at the offer price.
• The cost of policy benefits and the charges of running
the policy are met by cashing units in at the bid price.
• Different funds are available to meet the needs of
people with very different risk profiles.
• Policies are very flexible and allow for different levels
of cover to be chosen for the same premium amount:
➢ Minimum cover: low protection amount and
policy builds up an investment reserve (not
recommended as a pure investment policy).
➢ Balanced cover: the amount of protection
expected to be maintained throughout life by
that premium level, based on a stated assumed
growth rate (usually around 7% or 8%).
➢ Maximum cover: cover guaranteed to be
maintained for a stated time (often 10 years),
but unlikely to be sustained beyond that on
assumed growth rates - similar to a term
assurance and often cheaper.
• The level of cover can be changed.
• The initial cover level is often guaranteed for 10 years.
Thereafter, policies contain regular review dates, with
the opportunity to increase premiums or reduce cover
if growth rate has not matched assumptions.
• A wide range of other benefits in addition to life cover
can be added and paid for by cashing units at bid
price, e.g. critical illness, sickness cover. In that case, it
may be called universal whole of life.
Joint Life
2nd Death
• Usually, a whole of life policy in joint names will pay
out when the first person dies.
• 2nd death is where the second person has to die before
the sum assured is paid out.
• These are ideal to provide a lump sum in the event of
spouses both dying and leaving an IHT liability to be
paid.
• The policy is put in trust for the beneficiaries, so they
receive it immediately and pay off the IHT liability.
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Income Protection
Insurance
• IPI, also known as Permanent Health, provides an
income during disability caused by sickness or injury.
It is available to employees and the self-employed.
• ‘Permanent’ means that the policy cannot be cancelled
by the company.
• Deferred period (usually 4, 13, 26, 52 weeks) must
elapse from start of disability before benefits begin.
• Benefits are then paid until recovery, retirement or
death .
• Disability is defined in terms of being unable to work
(a typical definition might be: unable to follow own
occupation or any other for which suited by
training/experience ).
➢ Some companies offer limited benefits to
housewives.
➢ Proportionate benefit may be payable if a
lower-paid job is taken due to disability.
• Maximum benefit usually 50% to 60% of pre-disability
earnings and providers at the top end of the scale may
deduct state benefits.
• Protection is for a chosen term ending at or before state
retirement age.
• Premium levels are higher for some occupations.
• Policies can be pure protection, or on a unit-linked
basis, Benefits are tax-free for policies effected by
individuals.
• Types of premiums
➢ Reviewable – increase over the term
➢ Renewable – renewed periodically according to
market risks at the time
➢ Guaranteed – remain the same
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Taxation
• Individual plans are tax-free
• Company sponsored plans are taxable as earned
income when the employee receives the income, but
most are not treated as a benefit in kind although they
are charged as a tax-deductible business expense
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Critical Illness
Cover
• Unlike PHI/IPI, this pays a lump sum (not income) on
the diagnosis of one of a number of specified
illnesses/conditions.
• Payment of the sum assured is not delayed until death
from the illness.
• The list of illnesses usually includes heart attack,
cancer, stroke, coronary artery surgery, kidney failure,
major organ transplant, total and permanent disability
(but not AIDS).
• Uses of the lump sum:
➢ To help make the sufferer's last days/years
more pleasant.
➢ To enable them to move to more convenient
accommodation.
➢ To repay the mortgage in part or in full.
➢ To pay for medical treatment,
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Private Medical
Insurance
• Private Medical Insurance provides cover for
individuals who wish to use private medical
treatment facilities rather than the National Health
Service in order to:
➢ Speed up access to treatment.
➢ Obtain freedom of choice of hospital and
consultant obtain access to treatment not
available on the NHS.
• Cover normally includes:
➢ Hospital charges.
➢ Specialists' fees.
➢ Surgery.
➢ Nursing care.
➢ In-patient or out-patient facilities may be
included.
• The cost depends on several factors, including:
➢ The range of treatment covered.
➢ The choice of hospitals.
• Tax relief on premiums for those over 60 was
abolished from 2nd July 1997.
• Some employers provide this cover for employees
free or at a reduced rate. If so, the premiums paid for
the employee are taxed as a benefit in kind.
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General Protection
• The following products, which are similar in nature to
life assurance products, or are sold in conjunction
with life products, are provided by general insurance
companies:
Personal Accident and

Sickness Insurance
• Renewable annually – company can cancel.
• A lump sum is paid on death, loss of one or both eyes,
loss of one or more limbs, or permanent total inability
to work again.
• May also include cover for temporary disablement or
medical expenses.
• No tax relief on premiums.
• Benefits are tax-free.
Accident, Sickness
and Unemployment
• Bought alongside a mortgage with cover linked to the
mortgage and associated cost monthly repayment.
• Cover normally payable for one or two years
maximum.
Long Term
Care Insurance
• This product provides funds to meet cost of care.
• The amount of benefit paid is determined by the need
of the policyholder and how many ADLs (Activities of
Daily Living) they can’t do.
• Examples of ADLs are washing, feeding, dressing,
preparing food and using the toilet.
• Benefits are tax-free provided an immediate needs
annuity is purchased
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ASU 2 - IPI 3
• Accident, sickness and Unemployment insurance has
had a bad rap since the PPI scandal took hold.
Payment Protection Insurance is essentially the same
type of policy but can be used to cover any debt.
Hence many people with credit cards have claimed
for mis-selling PPI.
➢ ASU and IPI – Income Protection Insurance are
very different.
➢ ASU covers just the mortgage payment plus
associated insurances; IPI covers the salary.
➢ ASU typically protects for up to two years; IPI can
cover until retirement, mine takes me to age 70
➢ ASU has a standard deferred period of one month
before payments are made; IPI has options where
the customer can choose – anything up to a year
➢ ASU covers in the event of redundancy from
employment but has plenty of caveats – the
customer mustn’t have known of any impending
redundancy before they took out the plan, and
usually, they need to have a period of full
employment before claiming. Plus they impose a
period when the plan starts, where no customer
can claim at all.
➢ ASU are general insurance policies, so they renew
each year just like motor. IPI is permanent.
➢ ASU benefits are tax-free just like IPI, and both
don’t allow tax relief on premiums like pensions.
They are the same when employers take them out
for their staff — the costs are offset against
Corporation Tax for both plans.
• So it’s ASU 2 – IPI 5!
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Business
Protection
Insurance
Features
• The main aim is to protect businesses against the
financial consequences of the death or disability of a
partner, or director, or important employee.
• The type of cover used could be whole life, term
assurance, critical illness or permanent health
insurance as appropriate.
• The aim is to enable surviving partners to purchase a
deceased partner's share of the business. This is done
with life assurance policies, the precise means being
determined by the terms of an agreement between the
partners.
• There are three basic types of agreement which may be
used.
Automatic accrual
• The deceased partner's share is automatically shared
among the survivors (i.e. it does not pass to the
beneficiaries of the deceased's estate).
• Each partner is obliged to insure his own life, and the
proceeds of this policy, written in trust for his family,
compensate the family for the loss of the share of the
business.
• There is no IHT on the proceeds (in trust); premiums
are technically PETs but should avoid IHT due to the
"normal expenditure" exemption provisions.
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Buy and sell agreement

• This binds the deceased partner's estate to sell his
share of the business and binds the surviving partners
to buy it.
• Each partner affects a life policy to the value of his
share, in trust for the other partners. This provides the
funds to buy out his share on his death.
• Because it is a binding contract for sale, the deceased's
family are deemed to receive cash rather than business
assets, and business property relief from IHT is not
available.
Cross option agreement

• Similar to "Buy and Sell", except that each party has
the option of insisting that the sale to the surviving
partners takes place within a specified time.
• In practice the sale always takes place, but because it is
only an option, business property relief is still allowed.
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Keyman Insurance
• You’ve undoubtedly heard of the tragic story of
Emiliano Sala, the 28-year-old Argentinian footballer
who was sadly lost in a light aeroplane accident earlier
this year. Awful story, such a young life cut short by
catastrophe.
• Emiliano was sold to Cardiff City, a Premiership
football team here in the UK, for £15 Million and the
deal involved instalments of cash over time. Quite
normal.
• His death occurred two days after the transfer
completed and Nantes, his former club, were criticised
for making their first instalment demand whilst his
body was being searched for in the English Channel.
They had a right to do so, but their timing was a bit
awry.
• So what does this have to do with mortgages and
protection? Lots actually when we refer to Key Person
Insurance. Let me explain.
• Key Person Insurance is a commercial insurance policy
taken out by a company on the life of an employee,
whose death would cause financial calamity to the
firm. Typically the Sales Director, IT Director, is
chosen as the life assured, but in Cardiff City’s
position, it should have been Emiliano Sala.
• The sum assured would have been enough to
compensate them for the loss of the star player, the
impact his death would have had on the club.
• Whether Cardiff City has this insurance or not, I don’t
know, but if they did not, they’re inevitably going to
be out of pocket because they have to stick to the
purchase contract and pay Nantes their £15 million.
• Key Person insurance is a specialist contract most
mortgage advisers won’t get involved in, but you do
need to know about Insurable Interest. This principle
allows third parties to insure someone else's life and
receive the payout if they were to die. Other incidents
where Insurable Interest exists:
➢ Spouse to spouse
➢ Joint borrowers
➢ Partners in a business
• A young life cut short, friends and family members
distraught, you can’t imagine how people are feeling.
However, you can envisage the Cardiff City
Boardroom atmosphere when the Finance Director
reveals he hadn’t gotten round to arranging Key
Person Insurance.
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General Insurance
• Think general insurance – think car and home
insurance. General insurance is a branch that few
mortgage advisers dare to tread, and that’s a shame. It
covers risks that are more numerous than dying:
• Loss of property – cars, houses, diamond engagement
rings and moon rockets.
• Loss from others suing you by negligence on your part
– a loose slate that kills the postman or a faulty switch
in your new product that maims children. Known as
liability.
• For businesses, loss can be insured against:
➢ Employees being sick or dying
➢ Those who owe you money not paying up –
known as pecuniary
➢ Your business being non-operational because of
say, a flood or fire, known as business
interruption.
• Now for some technical terms
Indemnity
• The whole point about indemnity is that general
insurance puts you back to a place that you were
before you suffered a loss. This underpins all general
insurance. Recompence can be made by:
➢ Hard cash
➢ Repairing the item such as the car
➢ Replacing the said item, for example delivering
you a new TV that was stolen
➢ Reinstating the damaged building to what was
before
Double Insurance
• We moved house recently from a rented to a bought
home and kept them both on for two months to
unwind the tenancy agreement. We kept two contents
insurance policies alive, which protected the same
items. In this situation, the insurer would not pay out
twice but would share the damage. The plans
happened to be with the same insurer so they would
have figured this out – thank you Tesco Finest.
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Average
• The opposite is where people don’t insure their goods
for enough. The house has a reinstatement figure of
£100,000 but to save money, the person only protects
for £50,000. A claim for a damaged chimney of £1,000
would then be averaged down to half this – i.e. £500
Excess
• You lose your phone while on holiday and ask the
travel insurance company to compensate you for your
iPhone. They will, but you have to pay the first £100 of
the claim. This is known a the excess. Often
compulsory to deter claims but also voluntary to
reduce the premium. I pay the first £500 on my motor
policy to keep the premium low.
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Types of General
Insurance
Buildings Insurance
• Standard cover on a property insurance typically
includes the following:
➢ Fire, explosion, lightning, earthquake;
➢ Storm and flood;
➢ Subsidence;
➢ Escape of water, oil or frost damage;
➢ Riot and civil commotion;
➢ Malicious damage;
➢ Impact by falling trees, aircraft, vehicles,
animals.
Contents Insurance
• Provides cover for moveable items in a property
against the same perils as above.
• Also can include accidental damage to contents.
• All risks cover protects your personal items, such as
jewellery and digital cameras, when you take them
outside of your home.
Private Motor Insurance

• Third Party.
➢ The Road Traffic Act 1988 makes this cover
compulsory.
➢ Covers death or injury to third parties, damage
to property and legal costs.
• Third Party, fire and theft.
➢ Also covers fire damage to your car and theft.
• Comprehensive.
➢ Adds the benefits of accidental damage to your
car, loss of personal items and windscreen
damage.
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Travel Insurance
• Provides cover for holiday trips in event of:
➢ Cancellation.
➢ Missed flights.
➢ Medical expenses.
➢ Legal expenses.
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Mortgages
• Many people think the mortgage is the loan, but it is
merely the security for the loan.
• It is a legal contract that enables a borrower to offer a
property as security for a loan, thus enabling
ownership of the property to be acquired.
• The mortgage is the Legal Charge, or Mortgage Deed
agreed between the two parties, the lender and the
borrower. The Mortgage is the security for the loan
and gives the lender powers over the property whilst
the loan is outstanding.
• The two parties to a mortgage are:
➢ The borrower, known as the mortgagor.
➢ The lender, known as the mortgagee.
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Types of Mortgage
Repayment mortgage
• Monthly repayments to the lender consist of interest
charged on the amount borrowed, and also an element
of capital repayment.
• The capital outstanding decreases, slowly at first and
then more quickly, until it is fully repaid at the end of
the term.
• The interest content of the repayment gradually
decreases.
• If interest rates rise, the monthly repayment increases,
and vice versa.
• The loan is guaranteed to be repaid at the end of the
term, subject to all the correct repayments having been
made.
• An advantage to lenders of the repayment mortgage is
that the capital which is repaid each month is available
to use for new loans.
Interest only mortgage

• The borrower pays only the interest each month to the
lender, the agreement being to repay the capital in full
at the end of the term.
• Since no capital is repaid until the end, the interest
payments remain unchanged throughout, except of
course that they change when rates of interest change.
• Borrowers usually arrange to repay the lump sum by
means of an investment vehicle such as a life policy, or
the tax-free cash from a stakeholder pension.
• If the repayment vehicle is a life policy, lenders often
insist on it being assigned to them, although some
choose not to because of the extra administration
involved.
• Lenders must obtain evidence that the borrower has a
credible repayment plan in force.
• The regulator has defined a new type of Interest Only
mortgage for those in retirement which have no set
redemption date.
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Mortgage Payment
Vehicles
Endowment Policies
• The most common types of endowments for mortgage
purposes were the low-cost with profits version and
the unit-linked policy.
• The low-cost policy is made up of:
➢ A with-profits endowment on which the
estimated maturity value (based on a
conservative reversionary bonus rate, and not
allowing for terminal bonus) will repay the loan
at the end of the term.
➢ A term assurance (possibly decreasing term) to
ensure repayment of the full loan if death
occurs before the sum assured plus bonuses
have reached the loan amount.
• The unit-linked policy is made up of:
➢ A unit-linked endowment which would repay
the loan at the end of the term on a stated
assumed growth rate (with regular reviews to
help keep fund growth on target).
➢ A term assurance (as above) to cover early
death.
• There is no guarantee that the required value will be
reached.
• Problems can occur if interest and/or premium
payments cannot be maintained – endowments are
unlikely to have any surrender value in the first few
years, and this can make worse a situation where a
forced sale at a low price leaves a borrower in debt to
the lender.
• If the bonuses or the growth rate on the policy exceed
those assumed in the premium calculations, the policy
will produce more than required to repay the loan, and
the borrower will receive the surplus.
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Personal/Stakeholder
Pensions
• Personal pension are covered in more detail at the end
of this chapter.
• The mortgage is repaid out of the 25% tax-free cash.
• Unlike the endowment mortgage, pension
contributions obtain the benefit of tax relief, and the
investment grows virtually tax-free.
• Additional life cover is required on a level basis to
protect against the death of the borrower before the
loan is repaid.
ISA
• Repayment of the loan is through regular and
continuing (usually monthly) payments into stocks
and shares ISA. Allowing up to £20,000 per annum
investment.
• The tax advantages (and restrictions) are those which
apply to ISA’s.
• Additional life cover is required to cover the early
death risk.
• ISA mortgages bear the same mortgage costs as other
types.
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Mortgage Product
Types
Variable Rate
Mortgages
• Due to intense competition in the mortgage market,
very few new loans are taken out a pure variable rate
basis.
• They are usually taken out if a substantial discount or
cashback is available.
• Discounts allow a reduction in the lender’s normal
mortgage rate over a period of time.
• Nothing is owed at the end of the discount period,
unlike the deferred interest mortgage of the past.
Base Rate
Tracker Mortgage
• A variant of this mortgage is the Tracker loan. This
loan tracks or follows a set interest rate such as the
Bank of England base rate.
Fixed Rate
Mortgages
• The rate of interest is fixed for an initial period of the
loan.
• This is an advantage only if interest rates rise during
the fixed rate period.
• A booking fee or arrangement fee is paid by the
borrower (typically £800).
• This is to secure funds at a fixed rate of interest.
• After the fixed rate period, the loan reverts to a
variable rate of interest.
• The borrower will have to pay redemption fees in the
event of early redemption.
• These may be expressed as a number of months’
interest.
• Their purpose is to dissuade borrowers from
redeeming the loan if interest rates fall.
• The redemption fee period may be longer than the
fixed rate period.
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Capped Mortgages
• Similar to fixed-rate mortgages except the rate of
interest charged can fall below the capped rate, but not
go above during the capped term.
• Older style versions also had a collar which was a
lower rate which prevented the interest charged falling
below this figure.
• Have you ever bounced a really bouncy rubber ball in
between the floor and ceiling? Watch how it just goes
up and down but never above the ceiling or below the
floor. Same concept.
Cashback Mortgages
• A Cashback is a sum of money paid by the lender to
the borrower on completion of a mortgage.
• The amount offered may be anything up to around
£5,000. The factors which tend to lead to the larger
cashbacks are:
➢ Larger loans;
➢ Smaller loan-to-value ratio.
• Clawback
➢ In offering a cashback, the lender is effectively
discounting the product against its income-
generating potential over the whole term or a
large proportion of it.
➢ This is normally achieved by means of
clawback
➢ If a borrower redeems a cashback loan early
(normally within the first five years, though
periods vary), some or all of the cashback has to
be returned by the borrower.
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Flexible mortgages
• With the increasing popularity of the repayment
mortgage and the need to satisfy consumer’s demand
vehicles for the next century ensured we had flexible
mortgages.
• Their flexibility results from the following common
features.
➢ Interest calculated on a daily basis
➢ Irregular payments facility – including
overpayments, underpayments and payment
holidays.
➢ Additional borrowing facilities.
• Underpayments and payment holidays are restricted
by the amount of overpayments the borrower has
previously made. Additional borrowing facilities are
agreed in advance up to a mortgage to value limit,
often 75% to 80%.
• A key feature of flexible mortgages is their treatment
of interest, which is calculated on a daily basis.
Borrowers, therefore, benefit immediately when
overpayments are made.
• Competitive pressures have resulted in most lenders
providing flexible facilities with no early redemption
fees or charges.
Off-Set Mortgage
• A variation of the Flexible mortgage is known as the
Off-Set Mortgage. The current account and mortgage
account balances are offset against each other for the
purposes of calculating interest on a mortgage.
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Shared ownership
mortgage
• This effectively combines rental with owner-
occupation.
• The system is used extensively by housing associations
and enables people on lower incomes to progressively
become owner-occupiers.
• A borrower purchases a certain “stake” (often 25%) in
a property with the aid of a mortgage loan, whilst
renting the remainder.
• The borrower has the option to buy further stakes
later, thereby reducing the rental element. The process
of increasing one’s stake is known as “staircasing”.
Deferred mortgages
• Relatively popular in the early 1990’s when interest
rates hit a peak of 15.4%. They were designed to assist
the borrower to keep down costs in the early years,
often by deferring capital repayments during a
specified initial period.
• Unpaid interest was added to the outstanding capital
balance.
• Attractive to those who want to maximise the loan and
minimise the repayments in the early years.
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Buy To Let Mortgages

• Previously, buying a property to produce an income
was considered by lenders to be a commercial
undertaking.
• Therefore, mortgages on property intended to be let,
have attracted higher interest rates than those available
to owner-occupiers.
• Also, rental income was not usually allowed to be
considered in the assessment of a borrower’s ability to
repay the mortgage.
• Things changed in the late 90’s and 00’s, and many
lenders consider the buy to let market lucrative with
good loan to value lending and low repossession rates.
• Buy to Let mortgages are available for between 5 and
45 years and for up to 80% of the property value.
• Through a Buy-to-Let mortgage, the rental income you
get for the property is used to finance the mortgage.
• Lenders will expect landlords to use a letting agent to
manage the property and for the tenants contracts to
be drawn up as Assured Shorthold Tenancies.
• Your gross rents should be approximately 145% of
your monthly mortgage repayment.
• Single rooms being let in the main residence of the
borrower are usually of no concern to the lender. This
is known as lodging.
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Changes in Buy to Let

Lending
• Since 2015, the government has introduced a variety of
changes to the Buy to Let market to discourage small
landlords and encourage first-time buyers entering the
market.
• Before 2017/2018, you could use the interest you pay
on your mortgage each year to offset your tax bill.
Landlords could claim relief at their personal tax rate,
up to 45%
• In a nutshell, landlords will no longer be able to
deduct the cost of their mortgage interest from their
rental income when they calculate a profit on which to
pay tax.
• The Government will allow a tax credit equivalent to
basic rate tax (20pc) on the interest
• The tax increase, will be phased in from 2017 and fully
implemented by 2020 in a reducing scale
➢ 2017 – 2018 – loss of 25% high rate relief
➢ 2018 – 2019 – loss of 50% high rate relief
➢ 2019 – 2020 – loss of 75 high rate relief
• The 10% wear and tear allowance was removed and
replaced by “Furniture Replacement Relief.”
• Stamp Duty for second time home purchasers has
risen by 3% across all the bands, and the old higher
capital gains tax rates still apply to second properties.
• A continued attack on landlords has given rise to the
Limited Company route becoming popular with
landlords as this keeps some of the tax advantages.
118 2019/2020
Financial Products
FCA Regulation on Buy to

Let Mortgages
• Advising on, arranging, lending and administering
consumer buy-to-let mortgages is subject to a
legislative framework, as set out in the Mortgage
Credit Directive Order 2015.
• When determining whether a transaction is a
consumer buy-to-let, the key factor is whether the
client has ever lived, or plans to live, in the property.
• Inherited properties which are rented out are also
deemed consumer Buy to Let and regulated.
• If the buy-to-let loan is genuinely for business
purposes and a property has been purchased with the
sole intention of letting it out (and the borrower has
never lived in it), then the loan will remain
unregulated.
Guarantor Mortgages
• A shift recently has allowed many lenders to offer
Guarantee Mortgages.
• These simply add a guarantor to the mortgage deed,
which gives the lender someone else to call upon in the
event of the borrower’s inability to pay the monthly
instalments.
• In addition, lenders can offer larger income multiples
to enable the first time borrow to take a larger loan.
• Guarantors are normally relatives of the borrowers,
you can have more than one, but their age mustn’t be
more than 65. Affordability checks are made on them.
2019/2020 119
Releasing Equity
for Elderly
Lifetime Mortgages
• The client(s) take an interest-only loan secured on their
home.
• Usually, no repayments are made, and unpaid interest
is rolled up and increases the outstanding debt.
• On death (or second death of a couple) the loan is
repaid by the estate from the proceeds of the sale of the
house.
• In the meantime, the owners agree to maintain and
repair the property.
• Any increase in the value of the property between
affecting the plan and death accrues to the estate of the
deceased.
Home Income Plans

• Similarly, a loan is secured on a home.
• They use the loan to buy a purchased life annuity
providing income for life (or until the second death in
the case of couples).
• Part of the annuity income is used to pay the interest
on the loan.
• The remainder forms spendable income for the client.
• On death (or second death of a couple) the loan is
repaid from the proceeds of the sale of the house.
• Tax relief is still available but only from plans
arranged before 1999.
Home Reversion Schemes

• The company takes over ownership of the property
but permits the former owner to remain in occupation
until death, or second death of a couple (who in turn
agree to keep the property in good repair).
• In exchange, the company pays a lump sum (less than
the current value of the property) or an income for life.
• In this case, any increase in the value of the property
accrues to the company.
• Since April 2007, these have become regulated by the
FCA.
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Financial Products
Further Borrowing
Further advance
• A further advance from the existing lender.
• Usually over the remaining term of the existing loan.
• New plus existing may be restricted to, say, 85% of the
property value.
• Some lenders may offer further advances only for
improvements to the property.
Remortgage
• New lender takes over the existing borrowing and
lends an additional amount as well.
Secured second
mortgages
• People who require to release equity for a purpose not
related to the property (e.g. buy a car or to finance a
business deal) may choose a second mortgage.
• This is an additional loan from a different lender,
sitting on top of the original mortgage and secured by
a second charge on the property.
• Interest rates are generally higher than the other
methods, as the lender’s security is less.
• If the borrower defaults on this loan, the property can
be sold – the main mortgage would be redeemed first
out of the sale proceeds, then the second mortgage.
• Since 21 March 2016, second charge firms have had to
comply with the Mortgages and Home Finance:
Conduct of Business Sourcebook (MCOB).
Unsecured loans
• Involve no security, just a personal covenant or
promise to pay.
• Therefore higher risk for the lender who charge a
higher rate of interest.
• Known as personal loans
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Pension Products
Occupational Pensions
• Available to those in employment.
• A final salary scheme is based on the employee’s
salary on retirement. The longer they belong to the
scheme – the greater the fraction of their final salary
will be paid.
• A money purchase scheme involves contributions
from the employer and the employee (your boss and
you). The more money that is contributed, the bigger
the pension.
Nest – National
Employment Savings Trust
• The government has introduced new legislation,
which means all companies will have to automatically
enrol their eligible workers into a contributory pension
plan.
• This requirement will be gradually phased in,
beginning with the largest employers in 2012.
• NEST (National Employment Savings Trust) is a
pension scheme which has been designed to meet the
employer’s responsibilities. It has been designed to be
a low-cost option, simple and available to all
employers, irrelevant of their size.
• NEST has been designed to provide employees with
access to a pension plan. However, there may be other
pension schemes which are more suitable to an
individual’s circumstances.
• For high earners and others requiring more diverse
investment options, then NEST may not be suitable.
• From October 2012, employers will be required to
auto-enrol eligible employees into the NEST Pension
Scheme (unless you already have a company pension
scheme which meets all the qualifying criteria or you
have already set up a qualifying scheme).
• NESTs have low fees, a default investment fund,
limited choice of investment funds
122 2019/2020
Financial Products
Private Arrangements
• Private arrangements include:
➢ Additional Voluntary Contributions (AVCs).
➢ Free Standing Additional Voluntary
Contributions (FSAVCs).
➢ Personal Pensions or Stakeholder Pensions.
➢ Pension Term Assurance.
Additional voluntary
contributions
• These are paid by employees who belong to an
occupational pension scheme and are run by the same
people who run the main scheme.
• They provide extra income to the employee in return
for higher monthly contributions.
• Full tax relief is available at source.
Freestanding additional
voluntary contributions
• FSAVCs are provided by life offices and other pension
providers, rather than by occupational schemes.
• It is expected that FSAVCs will be phased out as
employees are now able to contribute to stakeholder
pensions, which are much cheaper.
2019/2020 123
Personal Pensions
• Where you read personal pensions you should be
thinking stakeholder pensions – they are broadly the
same.
• They are available to any UK Resident under the age
of 75. This is employed people, self-employed,
unemployed, children – anyone.
• The most someone can contribute to their stakeholder
pension is 100% of their annual income or £40,000
whichever is the higher figure.
• However, you can carry forward unused allowances
for up to 3 years.
• There is also a life allowance restricting the fund.
• The pension fund will accumulate free of income tax
and capital gains tax on investment gains.
• Contributions are paid net of basic tax for everyone,
whether they pay tax or not. Higher rate taxpayers
recover the balance through their self-assessment.
• Other Stakeholder features:
➢ An annual charge of no more than 1.5% of the
fund for the first ten years, then 1% thereafter.
➢ The minimum contribution to a stakeholder
pension cannot be more than £20 and
contributions can be weekly, monthly or at
other intervals, or can be single, one-off,
contributions.
➢ They have the ability to stop and start
contributions without penalty.
• You can take your benefits from age 55. You can take
up to 25% of your pension fund as a tax-free lump
sum.
• The rest of the fund can be used to buy an income (an
annuity) which will be taxable. You can use an Open
Market Option to buy the best annuity on the market.
124 2019/2020
Financial Products
Contributions
• You can pay 100% of earning into a personal pension
arrangement (£3,600 without evidence of earnings).
Although this annual pension contribution is capped
at £40,000, carry forward rules allow you to pay in
more than this (as long as you have enough earnings
in the current tax year). You can do this by carrying
forward unused allowance from the three previous tax
years and using it to make pension contributions in the
current year.
Fund Growth
• Growth of the fund is also capped. Called the Lifetime
Allowance, you can’t build up a pension pot of more
than £1,055,000 from April 2019.
• Although this seems like a huge sum it does have an
influence on the money at retirement.
Death
• If you die before age 75 and you haven’t taken your
pension, the fund is returned to your beneficiaries free
of tax.
• Dying after age 75 will incur a tax charge on the
remaining pension pot as it transfers to your
beneficiaries.
2019/2020 125
Options at age 55
• Tax-Free Lump Sum
➢ Up to 25% of the whole fund, can be taken as a
tax-free lump sum. Traditionally, this was the
amount that was geared towards repaying an
interest-only mortgage.
• Uncrystallised funds pension lump sum
➢ This means taking the whole pension pot as a
lump sum. How tempting is this, but you’ll need
to bear in mind that the whole sum (excluding the
25% tax-free part) is liable to your marginal rate
of tax. Remember it’s the whole sum, so this
would very easily push a non-taxpayer into high
rate or additional rate tax.
➢ Pension Linked Mortgages can now gear
themselves to the entire pot, not just the 25% tax-
free element, although the tax charge is quite
hefty. I can see a few people repaying their
mortgages in this manner.
➢ You can take smaller lump sums when you want
to, after age 55. These would also be taxable, but
with some careful planning, you might minimise
this.
• Flexi Access Drawdown (FAD)
➢ We live in a world with too many acronyms – I
mean, FAD!
➢ Here you can take your 25% tax-free lump sum,
and then draw off an income from the actual
pension pot. The income is taxable but the
pension pot remains invested, and you can still
contribute if you wish (up to £4,000 per year).
126 2019/2020
The Financial Planning Process
3 The Financial
Planning
Process
Financial Life
Cycle
• Children
➢ Under age 18. Normally dependent on parents,
who take responsibility for financial planning,
e.g. education costs, first car, wedding.
• Students
➢ Little opportunity for saving! May have to
consider how to repay student loans.
• Young adults in employment.
➢ First experience of regular income. Probably
few responsibilities. Save towards emergency
fund and/or house deposit? Insure against
inability to work due to sickness/accident.
• Young families.
➢ Mortgage costs: typically one-third of net
income. Need to protect income of both
partners. Many other costs of setting up home.
➢ Loss of one income. Cost of raising children
(£1,500 per child p.a.). Need to insure lives of
both parents. Planning for school or university
fees.
2019/2020 127
• Mature households.
➢ Family grown and left home. Maybe surplus
funds available after outgoings met. Possibility
of receiving inheritances. Pension planning
starts to become very important - and costly,
especially as a result of changing jobs often.
Mortgage may be paid off.
• Retirement.
➢ When to retire (can you afford to?). What level
of income required, what standard of living?
Need to convert capital into lifetime income.
The Modern Lifecycle

• My Dad, bless his soul, was 80 this year, has a
lovely fiancé called Carole and is languishing it up
in France drinking wine and living the high life. He
has a small pension, a bijou cottage near Cognac
and his full fitness.
• Now traditional life cycle profiling would have him
as a retiree looking to invest his thousands to
supplement his pension so he can relax by the sea.
How wrong could they be with my Dad, and he’s
not unusual.
• It's old fashioned and out of date. Instead, we
should be categorising customers by events such as
(in no particular order):
➢ Passing driving test
➢ Health issues
➢ Divorce
➢ Marriage
➢ New child
➢ Adopted child
➢ Mid-life crisis
➢ Purchase of 1000cc motorbike
➢ Entering University
➢ First job
➢ Redundancy
➢ Setting up own business
➢ Second marriage
➢ Semi-retirement
• And is my Dad happy? I think so, at least that’s
what his Tweets and Facebook profile keep telling
the world. He’s on this mailing list, so I better be
nice 😊
128 2019/2020
The Financial Planning Process
Gathering
Information
• Complete fact-find; view other financial documents;
determine client’s preferences; use pertinent
questioning.
• Identify customer’s needs and objectives.
• Agree customer’s needs and objectives.
• Agree order of priority for meeting needs and
objectives.
• Match solutions to needs and objectives.
• Present recommended solutions.
• Agree solutions with customer.
• Complete documentation.
• Client-specific illustration; application form; suitability
letter.
• Maintain appropriate records.
• For compliance auditing; to assist in the event of a
complaint or dispute.
• Review needs and objectives with customer at agreed
intervals.
• Good after-sales service. Opportunities for additional
business or introductions.
2019/2020 129
Contents of a
Factfind
• Personal details.
➢ Name, address, telephone number.
➢ Date and place of birth, also details of
domicile/residence if not UK.
➢ Marital status (or long-term relationship).
➢ State of health.
• Family details: (indicate what benefits might be
required).
➢ Spouse/partner.
➢ Children.
➢ Other dependants.
• Employment details.
➢ Occupation and employer.
➢ Basic income, other income, benefits in kind.
➢ Pension, life cover, sickness schemes, etc.
• Assets.
➢ Main residence and any other property.
➢ Personal belongings.
➢ Savings and investments.
• Liabilities.
➢ Mortgage.
➢ Other loans.
➢ Details of which are covered by
life/sickness/redundancy insurance.
• Life assurance and regular savings.
• Pension arrangements.
• Income and expenditure.
➢ A detailed summary of monthly income and
outgoings.
• Attitude and objectives.
130 2019/2020
Financial Services Legal Concepts
4 Financial
Services
Legal
Concepts
Personal
Representatives
• These are people who carry out the distribution of an
estate.
• The procedure depends on whether a Will has been
made or not.
• If a Will has been made, the Personal Representatives
make an application to the Probate Office. They are
given a Grant of Probate which details the Executor
who has power to distribute the estate according to the
terms of the Will
• Where there is no Will, the Personal Representative
makes the same application to the Probate Office but is
issued with Letters of Administration. The
Administrator must then distribute the estate
according to the Law of Intestacy.
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Wills
• A will is a declaration made by a person (the testator)
to state what they wish to happen to their property
after their death.
• Normally a will relates mainly to the disposal of assets,
but it may also give instructions as to burial.
• It should appoint executor(s) whose task will be to
carry out the deceased’s wishes.
• It must be in writing, typed or printed (not verbal).
• It must be signed by testator (or by someone else in his
presence and on his instructions if, for instance, he
cannot write).
• The testator’s signature must be witnessed by two
witnesses who must not be beneficiaries under the
will.
• A will becomes invalid if:
➢ It is destroyed by the testator with intent to
revoke it.
➢ The testator makes a later will.
➢ The testator marries or remarries.
• Deed of Variation
➢ Enables change of a Will up to 2 years after the
death of the testator (holder of the will)
➢ Normally used to avoid an excessive IHT from
a badly worded will
➢ All parties must be agreeable to the changes
132 2019/2020
Intestacy
• Intestacy results when no will has been made
• Disadvantages of intestacy include :
➢ Some or all of the estate may not go to those
whom the deceased would have wished to
benefit.
➢ It may take longer for the estate to be
distributed.
➢ There may be additional Inheritance Tax
liability due to less of the estate going to the
spouse.
Intestacy Rules for

England and Wales
• Revised by Inheritance and Trustees Powers Act 2014
2019/2020 133
Sole Traders,
Partnerships and
Charities
Sole trader
• Self-employed individual running own business.
• No distinction is made between the business and the
owner as far as income tax is concerned. Tax is
charged on the profits which the business makes, i.e.
sales and/or fees less allowable deductions, which
include:
➢ Raw materials and goods for resale.
➢ Wages, NI, and other staff costs of employees.
➢ Running costs: electricity, phone etc.
➢ Motor vehicle costs excluding private use.
➢ Capital allowances on a “writing down” basis.
• Tax is charged on the profit regardless of how much is
actually taken out of the business as “personal
drawings”.
• If the business has employees, they will pay tax under
PAYE, and Class 1 NI contributions will be due from
employees and employer.
Partnerships
• Partners are effectively self-employed, and each pays
tax on their own share of the partnership profits. Each
partner’s NI contributions are based on this amount.
• Under self-assessment, partners are individually liable
for the income tax on their share of the profits.
134 2019/2020
Limited Liability
Partnerships
• The Limited Liability Partnerships Act 2000 creates a
new type of business entity, the Limited Liability
Partnership ("LLP"). The LLP offers limited liability to
its members but is tax transparent and offers flexibility
in terms of its internal organisation.
• LLPs have been available for use since 6 April 2001.
• An LLP is a separate legal entity from its members.
Therefore, it may enter into contracts and deeds, sue
and be sued.
• An LLP has unlimited capacity. There is no
memorandum of association, as there is with limited
companies, restricting what the LLP may do.
• Members of an LLP have limited liability up to the
amount of their capital in the LLP.
• Provided an LLP carries on a trade or a profession and
is not simply an investment vehicle; it is tax
transparent – that is the LLP itself is not taxed on its
income or capital gains at all. Instead, the members are
taxed on their shares of the LLPs profits and gains, just
as partners in a partnership are currently taxed.
Charities
• Charities are exempt from income tax, corporation tax
and capital gains tax. They must pay VAT and cannot
reclaim it.
2019/2020 135
Contract law
• There are a number of requirements for valid contract.
These include:
➢ There must be offer and acceptance and
consideration.
• The contract must have a legal purpose:
• The terms of the contract must be certain, complete,
and free from doubt.
• For instance, if the subject matter of the contract did
not exist, the contract would be void.
• If one party fails to keep to the terms of the contract,
the other party has a number of possible remedies:
➢ He could simply choose not to perform his part
of the contract, although this is often not
possible (e.g. the payment has already been
made).
➢ He could seek damages, i.e. financial
compensation for his loss.
➢ He could obtain an injunction, which is a court
order compelling the other party to do
something - or refrain from doing it.
• Under most contracts the principle of “caveat emptor”
- let the buyer beware - applies. This means that there
is no duty of disclosure between parties to the contract.
136 2019/2020
Trusts
• A trust (sometimes called a settlement), is a legally
enforceable obligation placed by one person, the
settler, on persons called trustees, who must look after
and deal with certain specified money or goods (the
trust property) for the benefit of the beneficiaries, in
accordance with the terms of the trust deed.
• A trust, therefore, enables property to be held for the
benefit of others without giving them control over it.
• The settlor is the original owner of the property to be
placed in trust, and:
➢ Chooses the type of trust.
➢ Appoints trustees (the settlor can be a trustee).
➢ Nominates the beneficiaries and decides how
they are to benefit.
• Trust property can be more or less anything, including
life assurance policies.
• Trustees are the legal owners of the trust property.
They must:
➢ Be over 18, and of sound mind.
➢ Deal with the trust property in accordance with
the trust document .act in the best interests of
the beneficiaries.
➢ Act impartially where the interests of
beneficiaries may conflict.
• Beneficiaries can be named as individuals or as classes
(e.g. "my children").
• The Trustee Act 2000 requires that trustees are aware
of the need for diversification in investments, the need
for professional guidance and to keep investments
under review.
• There are two main types – bare or absolute trusts, and
discretionary trusts.
➢ A bare trust is a basic trust in which the
beneficiary has the absolute right to the capital
and assets within the trust, as well as the income
generated from these assets.
➢ Discretionary trusts are much more versatile,
allowing you to have a range of potential
beneficiaries as well as greater control over when
and even whether they receive any proceeds.
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Consumer
Insurance Act 2012
• The Consumer Insurance (Disclosure and
Representations) Act 2012 came into force on 6th April
2013. It removes the duty on consumers to disclose any
facts that a prudent underwriter would consider
material and replaces this with a duty to take
reasonable care not to make a misrepresentation.
• The Act does not currently apply to commercial
insurance but will nevertheless have a significant
impact on insurance distribution. The Insurance Act of
2015 takes care of the commercial insurance side.
• The Act will abolish the consumer's duty to volunteer
facts that an underwriter might consider material -
instead, consumers must take reasonable care to
answer questions that are asked by insurers.
• The onus now sits squarely with the insurer to ask you
the questions that they want to know information
about. Instead of a duty to volunteer material facts,
now the law requires you to answer the questions that
are put to you fully and accurately. You need to “take
reasonable care”, and one of the factors that will be
taken into account is whether the questions asked by
the insurer were clear and specific.
• So, forms may get a little longer because the onus is on
the insurer to ask you the right questions. Insurers
should no longer be making reference to a “duty of
disclosure”.
138 2019/2020
Agency Law
• An agent is a person who acts on behalf of someone
else (who is called the principal).
• A tied agent or company representative acts as the
agent of the product provider, whereas an
independent financial adviser (IFA) is acting as the
agent of the client.
• In law, the actions of the agent are treated as the
actions of (and are therefore binding on) the principal.
• It is therefore essential that the extent of the authority,
given to the agent to act on the principal’s behalf,
should be made clear.
Apparent Authority
• If an agent acts outside that stated authority, but it can
be shown that the principal has given the impression
that he has authorised what the agent has done, then it
will be binding on the principal.
• On the other hand, in order to safeguard the position
of the third party, if it can be shown that the agent has
exceeded his authority, then the agent may become
liable.
Ratification
• The principal could, of course, choose to agree after the
event to ratify what the agent has done.
2019/2020 139
Financial Scams
• We all know someone who has fallen foul to a scam, be
it a window’s operating system engineer wanting
access to your computer or a sophisticated email that
obtains the password and log in details to a customer’s
bank account.
• Up until recently, banks and other institutions have
refused to refund the money stolen as they have
deemed the customer to be negligent or careless. Now
sending £2,000 to a Nigerian Prince is one thing but
some of the latest scams are extremely clever so the
FCA via the Ombudsman, has tightened up the banks’
ability to refuse the refund.
• Now they have to prove that the customer is grossly
negligent, a subtle yet important different to being
careless.
• The FCA is helping customers further by creating
ScamSmart, an online tool that helps them avoid
investment and pension scams. Customers can check
the site to see if the scam they are being offered is
legitimate and report if it isn’t.
• We’ll never see the end of scams, but hopefully, we’ll
reduce them dramatically, and those African princes
will have to sit on their millions forever.
140 2019/2020
Ownership of
Property
Legal Types of property
• Realty is property that cannot be destroyed, and the
best example is land (unless a nuclear device goes off).
• Property is “real” if a court will restore it to a
dispossessed owner, rather than merely provide
compensation.
• The Americans use the term Real Estate for land and
buildings. In practical terms, the main property is also
realty.
• Personalty is all other property.
• Theoretically, leased property is personalty, but it is
generally regarded for practical purposes as real
estate.
2019/2020 141
Joint tenancy
• Two or more people own an asset jointly and
severally.
• On death, the whole asset belongs to the survivor and
none of it to the beneficiaries of the estate of the
deceased.
• Typically arranged for property ownership by married
couples.
Tenancy in common
• An asset is held on a split basis, usually - but not
necessarily - in equal shares.
• On the death of one party, their share of an asset held
on this basis passes to their estate, not to the surviving
person(s).
• Tenants in Common ownership tends to be for
unmarried couples such as brothers buying together.
Trustees
• Have the responsibility of dealing with trust property,
in accordance with the terms of a trust deed, in the
interests of the beneficiaries.
142 2019/2020
Power of Attorney
• It's worth noting LPAs replaced the previous Enduring
Power of Attorney (EPA) system. EPAs set up before 1
October 2007 will still be valid, whether or not they
have been registered, though they must be registered
when the person loses capacity. For more, see the
Government's EPA info.
The Health and Welfare

Lasting Power of Attorney
• In a nutshell, the health and welfare document sees a
nominated individual make decisions over day-to-day
healthcare and medical treatments, as well as deal with
any health and social care staff. It's also worth noting
these are two separate legal procedures that are
independent of one another.
• Just because you give the trusted person power of
attorney over your health, that doesn't mean they will
automatically gain control over your financial affairs
and vice versa. If you require the same individual to
have power of attorney over both aspects of your care,
then you will have to fill out the two forms separately.
• Another key difference is that the health and welfare
LPA can only be used after the person loses capacity,
not before. For more help on setting up a health and
welfare LPA, see the Government's health & welfare
LPA info. For those who want to decide any 'advance
decisions' – eg, you don't want certain types of medical
treatment in certain situations, if you lose capacity in
future – you can make a living will.
2019/2020 143
Power of Attorney Cost

• There's a compulsory cost of £82 to register a Power of
Attorney (in England and Wales – it's £77 in Scotland,
£127 in Northern Ireland). If you earn less than
£12,000/year though, you can provide evidence to
have a reduced fee of £41. Those on certain benefits are
exempt from fees.
• It's £82 each for the property and finance LPA and the
health and welfare LPA, so if you get both, that's £164.
• Above and beyond that, if you decide to use a solicitor
you'll also have to pay legal fees, though it's
• Why set up a Lasting Power of Attorney?
• If you lose mental capacity, unless you've already
filled in the Power of Attorney forms, your loved ones
will need to apply through court to become 'deputy', a
long and expensive process.
• Instead, you can nominate a trusted friend or relative
before you lose capacity, by setting up a Lasting Power
of Attorney (LPA). You can appoint one or more
representatives to act for you, and can determine how
they work together to make decisions on your behalf.
• You may be thinking "this doesn't affect us, we're
perfectly well". This is a common misunderstanding.
• The key thing to remember is you can only set up a
Lasting Power of Attorney when you have mental
capacity. Once you've lost capacity, it's too late.
• In Scotland, there are three Powers of Attorney: one
for financial matters, called a continuing Power of
Attorney; one for personal welfare, a welfare Power of
Attorney; and a combined POA that covers both
continuing and welfare, which is the most common.
• When you make a Power of Attorney in England and
Wales, a 'certificate provider' decides if you're capable
of making that choice. This can be someone you've
known for two years or someone with relevant professional
skills such as a doctor, lawyer or social worker.
144 2019/2020
Application
• This is the best time to act. If the person still has
capacity and would like to make arrangements in case
they lose mental capacity, they can set up a Lasting
Power of Attorney.
• Once submitted, it takes up to ten weeks to register.
The power will be effective as soon as the LPA is
registered, so the attorney will be able to start making
decisions straight away, unless they specify otherwise
on the application.
➢ Step 1. Decide whether to use a solicitor
➢ Step 2. Doing it yourself? Make your application
via an online form
➢ Step 3. Register the Power of Attorney
2019/2020 145
Insolvency and
Bankruptcy
Bankruptcy
• A person’s liabilities exceed his assets;
➢ A person cannot meet his financial obligations
within a reasonable period of their falling due.
• The order usually remains in force for 1 year under the
Enterprise Act 2002.
• During this time;
➢ The person is an un-discharged bankrupt.
➢ He cannot borrow more than nominal amounts.
• After that time;
➢ He can borrow if a lender is prepared to lend.
➢ Earlier bankruptcy must be declared.
Individual Voluntary
Arrangements (IVAs)
• An IVA is an alternative to bankruptcy.
• The debtor arranges with creditors to reschedule
outstanding debts over a certain period.
• Creditors who represent 75% of the debts must agree
to the arrangement.
• Persons subject to IVAs are a poor credit risk and
would find it difficult to borrow during the IVA
period.
Company Voluntary
Arrangements
• Known as a CVA.
• Route frequently taken by directors who feel their
company has a viable future.
• Directors keep control and trade as normal.
• Agreements made with creditors.
• All or part of the company's debts repaid over a period
of time from the trading profits.
146 2019/2020
Debt Relief Orders

• Brought in as a result of legislation, DROs allow
people in debt to receive years grace and then for the
loans to be wiped out. These people will have their
credit record tarnished for many years to come.
• People need to be struggling with debt, have limited
disposable income and no assets
• After a year of the lenders not being able to enforce
payments, so long as they have kept to the conditions,
the debts are written off.
• The Insolvency Service and approved advisers can
arrange DROs
• Conditions to apply are:
➢ Domiciled in England and Wales
➢ Owe £20,000 maximum
➢ Have assets of no more than £1,000
➢ Have a disposable income of no more than £50
➢ Not have applied for bankruptcy or a DRO in
the previous 6 years
2019/2020 147
5 The
Regulation of
Financial
Services
Current Regulation
• The Government has now given The Bank of
England wide powers to regulate the financial
services industry.
• The Financial Policy Committee (FPC) has been
created within the Bank of England to monitor the
economy and keeping a “big picture” overview.
• The Prudential Regulation Authority (PRA) reports
to the Bank of England and regulates banks and
other large institutions – those that offer a systemic
risk.
• The Financial Conduct Authority (FCA) reports
directly to the Treasury and is responsible for
protecting consumers and authorising firms
148 2019/2020
The Regulation of Financial Services
The EU and FS
Regulation
• In March 2018, the UK triggered Article 50, which
leads to our exit from the EU in 2019. In the
meantime, we are embedded within EU law.
• The EU issues regulations and directives which
form the backbone of all EU law and which the UK
must adhere to.
• The following graphic illustrates how these
combine with UK laws:
The EU’s system of

regulation
• The Systemic Risk Board identifies risks to the
financial system and issues warnings. Conducted
by the EU Central Bank and the EU Commission.
• The European Supervisory Authorities sets out new
rules. The Insurance and the Banking Authorities
conduct these.
• The National Supervisory Authorities then take
over. Our very own FCA and PRA.
2019/2020 149
Main UK
Legislation
Financial Services and
Markets Act 2000
• The aim of this Act was to bring together regulation
of the entire financial services market, which
previously, was rather fragmented.
• The Financial Services Authority (FSA) was put in
place as the single regulatory body.
• The Financial Ombudsman Service (FOS) was set
up dealing with complaints from across the entire
sector.
• The Financial Services Compensation Scheme
(FSCS) was set up to provide compensation.
• Over time, the vast majority of products became
regulated. Known as regulated activities, these
were:
➢ Deposits
➢ Stocks and Shares
➢ Gilts
➢ Futures
➢ Unit Trusts and OEICs
• Over the next 10 years, more were added:
➢ Funeral plans from 2002
➢ Mortgages from 2004
➢ General insurance from 2005
➢ SIPPS and home reversion plans from 2007
➢ Travel insurance from 2009
➢ Sale and rent back schemes from 2009
150 2019/2020
Financial Services Act

2012
• Commencing in April 2012 and significantly
reforming the system set up by the FSMA.
• Gives the Chancellor of the Exchequer powers to
direct the Bank of England.
• Gives the Bank of England macro responsibility to
oversee the financial system via the FPC and to act
upon systemic risks, i.e. those that can endanger the
whole financial services sector such as the banking
crisis of 2008.
• Dismantled the FSA and created the FCA to
supervise all firms.
Markets in Financial
Instruments Directive
(MiFID)
• Sets out detailed requirements for the organisation
and conduct of business of investment firms such
as investment banks, insurance brokers, futures
and options firms.
• Most IFA firms deal with UK customers only so fall
out of the remit of MiFID.
• The FCA has incorporated MiFID into its
Handbook of rules and guidance
• Provides single set of rules, making it easier to
transact business across the EU.
• Gives investment firms their Capital Requirements
Directive
MiFID II
• Revision to improve the functioning of financial
markets and to strengthen investor protection.
➢ Commodity Derivatives
➢ Transparency
➢ High-frequency trading
➢ Market structure
➢ Organisational requirements
➢ Trade reporting
➢ Conduct of business rules
2019/2020 151
Regulatory Aims
and Objectives
FCA principles of good
regulation
1. Efficiency and economy so it uses its resources
correctly
2. Proportionality to ensure a cost-benefit analysis
is used when proposing regulatory changes to
avoid a low return on investment.
3. Sustainable growth to ensure there is a desire
for sustainable growth in the economy of the
UK in the medium or long term.
4. Responsibility of consumers to ensure
consumers take responsibility for their own
decisions
5. Senior Management to be responsible for
regulation within their business.
6. Recognising the differences in the businesses
carried on by different regulated persons.
7. Openness and disclosure so that all information
is published openly and consumers are
educated if they desire.
8. Transparency
FCA – Three Objectives

• Consumer protection
• Integrity
➢ Soundness and integrity of firms
➢ Combating market abuse
➢ Addressing financial crime within the sector
• Competition
➢ Seeks to promote competition within the sector
to the advantage of consumers
➢ To encourage innovation, price
competitiveness, better products and services
152 2019/2020
PRA Objectives
• The PRA authorises banks, building societies, credit
unions, insurers and major investment firms.
• Its main objective is to promote the safety and
soundness of these firms to protect the consumer
ultimately.
• With a stable financial services, system creates a
constantly performing economy.
• Often called “Twin Peaks”, the PRA will work
closely with the FCA.
2019/2020 153
FCA Scope and

Powers
Authorisation
• Smaller firms will be authorised by the FCA and
must apply for direct authorisation unless they
remain exempt.
• Known as Part 4A permissions.
FCA Powers
• To authorise firms and grant permitted activities
• To approve individuals to carry out controlled
functions
• To authorise unit trusts
• To maintain a public record of authorised persons
• To supervise firms over their conduct of business,
client money, financial promotions.
• To fight money laundering
• To impose penalties for abuse
• To carry out investigations and take disciplinary
action
• To prosecute for insider trading as a result of inside
dealing, misuse of information, manipulating
transactions and misleading behaviour
• To levy penalties on businesses in breach of Money
Laundering Regulations
154 2019/2020
FCA Principles for

businesses
Integrity
• A firm must conduct its business with integrity.
Skill, care and diligence

• A firm must conduct its business with due skill,
care, and diligence.
Management and control

• A firm must take reasonable care to organise and
control its affairs responsibly and effectively, with
adequate risk management systems.
Financial prudence
• A firm must maintain adequate financial resources.
Market conduct
• A firm must observe proper standards of market
conduct.
Customers interests
• A firm must pay due regard to the interests of its
customers and treat them fairly.
Communications with
clients
• A firm must pay due regard to the information
needs of its clients, and communicate information
to them in a way which is clear, fair, and not
misleading.
2019/2020 155
Conflicts of interest
• A firm must manage conflicts of interest fairly, both
between itself and its customers and between one
customer and another client.
Customers – relationships
of trust
• A firm must take reasonable care to ensure the
suitability of its advice and discretionary decisions
for any customer who is entitled to rely on its
judgement.
Clients assets
• A firm must arrange adequate protection for clients
assets when it is responsible for them.
Relations with regulators

• A firm must deal with its regulators in an open and
cooperative way and must disclose to the FCA
appropriately anything relating to the firm of
which the FCA would reasonably expect notice.
156 2019/2020
Prudential
Regulation
Talk to Prudence?
• Nothing to do with the woman from the Pru.
Prudential regulation imposes standards that
require firms to control risks and hold adequate
capital, with the goal of protecting the markets
from the sort of meltdown that is currently
underway.
• Prudential rules contained in FCA Handbook
Capital Adequacy
• The point behind capital adequacy is that if you’re
going to take people’s money on deposit and make
money from this money via lending or other
investments, you need to have some of your own
money, or capital, just in case things go wrong.
Liquidity
• Banks need access to liquid funds to meet their
outgoings.
• Liquid funds are those that can be quickly turned
into cash.
• Managing your liquidity risk is the process of
predicting how much liquid funds are needed to
meet your expected outgoings and then matching
this prediction with the required liquidity.
• Banks commitments include depositors, pre-
arranged overdrafts and loans and credit cards
limits.
2019/2020 157
Credit Crunch
• September 2007 witnessed the first run on a British
bank in hundreds of years.
• The Northern Rock had a run on their assets and
without the required liquidity, went cap in hand to
the Bank of England for a loan as the lender of the
last resort.
• Throughout the decade there has been a shift from
retail funding to wholesale funding, and as a result,
much of the lender’s mortgage assets were secured
not by depositors’ money, but by a complex array
of wholesale loans, syndicated loans and
securitised assets.
• The credit crunch caused these assets to be
extremely non-liquid. As the wholesale market
dried up for future funding, the banks found
themselves in disastrous liquid positions which
were quickly remedied by Gordon Brown’s
initiative to pump billions of pounds into the UK
banking system, nationalising some of the banks
along the way.
158 2019/2020
Basel Committee
• Basel Committee on Banking Supervision sets
global standards for prudential regulation
• Basel I
➢ Published minimum set of capital requirements
for banks
• Basel II
➢ Details capital requirements for banks
➢ More effective supervisory tools
➢ Set of disclosure requirements.
• Basel III
➢ Phased in up to March 2019
➢ Banks required to have at least 7% of their own
money compared to loans outstanding.
➢ Different loans are weighted according to their
risk, i.e. unsecured lending and mortgage
lending.
• Capital Requirements Directives are how the
European Union have implemented the Basel
accords.
Solvency II Directive
• Legislation for insurance companies which goes
live in January 2016
• Directive that stipulates capital adequacy of
insurers
• Main aims:
➢ Reduce risk of not being able to cover claims
and protects customers
➢ Regular disclosure to the regulators
➢ Promotes confidence in the sector
• Solvency margin for insurance based investment
provider, e.g. endowment policies is 4%
2019/2020 159
FCA/PRA Prudential
Standards
• Already summarised in FSA Principle – a firm must
maintain adequate financial resources.
• GENPRU
➢ Requirements for all firms to hold capital
➢ The amounts of capital to hold
➢ Firms which cross the sectors, e.g. Bancassurer
• BIPRU
➢ Minimum capital requirements for banks,
building societies, insurers
• IFPRU
➢ Gives investment firms their Capital
Requirements.
➢ When dealing with private clients, they must
have €125,000 capital.
➢ When dealing with other businesses, they must
have €730,000 capital
• MIPRU
➢ Capital requirements and professional
indemnity requirement s for mortgage and
home finance firms.
160 2019/2020
Treating
Customers Fairly
• Treating Customers Fairly or TCF, which kind of
sounds like something you gurgle in your throat, is
making a massive impact to financial services
firms.
• In the past, establishing rules didn’t get to the core
of changing attitudes in financial services
companies.
• So the FCA are now focussing their attention on
making sure firms treat all their customers fairly.
What is TCF?
• The FCA refuses to define “fair” allowing firms to
make that definition
• TCF must be evident throughout the life cycle of a
product.
Design
Admin Marketing
Sale Advice
• Senior Management are responsible for TCF in their

firms.
2019/2020 161
The Six TCF Deliverables

1. Consumers must know that they are being treated
well.
2. Products are designed to meet the needs of
properly identified customer groups.
3. Customers get clear information all the time.
4. Customer’s situation has been assessed before
advice is given.
5. Products perform as customers expect them to
make it easy for customers to switch companies
and to make claims.
6. No unreasonable barrier to switching
162 2019/2020
How Customers
are Protected
• The financial services sector is one of the most
highly regulated areas in the UK, on par with the
pharmaceutical industry. That area can kill you;
financial services can only seriously wound you.
• Hence protection comes from a variety of sources:
The FCA
• The FCA’s main reason to be is to protect
consumers. Reams of rules and principles ensure
advisers do the job they should do, plus they make
it very simple to complain and seek redress for bad
advice.
HMRC and The Treasury

• These government departments run the economy
and do so in the best interests of consumers and
businesses. They also pull strings at the PRA and
FCA.
DWP – Department for

Work and Pensions
• This government body runs the welfare system
providing a financial safety net for UK consumers
The Claims Management

Regulator
• Looks after all those companies promising you that
they’ll get them to pay on your behalf, less an
attractive remuneration for themselves. Part of the
Ministry of Justice, they regulate claims
management companies.
2019/2020 163
National Crime Agency

• Oversees serious fraud and crime to protect the
population.
The Single Financial

Guidance Body
• The SFGB replaced the Money Advice Service, The
Pensions Advisory Service and Pension Wise and is
admirably funded by the financial services sector,
so it has clout.
• It aims to be a free adviser to consumers providing
advice and guidance on all areas of financial
services. It gives lots of information that can be
relied upon. I get my news from the BBC because I
can depend on it although the news is available all
over the internet. The SFGB provide the “BBC” of
information.
• They provide information and guidance on
pensions, money in general, debt, protection and
they work with younger children to inform and
educate them.
Which
• Famous for its magazine and web site that
champions the consumer.
Citizens Advice
• Provides help to the consumer in all legal affairs
online, over the phone or face to face. They have
“super-complaint” status like “Which”, and they
used it last year. A super-complaint goes straight to
the ombudsman and represents lots of people
complaining all at once. The complaint was
mortgage lenders and the high cost of their
standard variable rates that consumers drift into
when the fixed rate mortgage comes to an end.
164 2019/2020
The Senior
Management and
Certification
Regime
• The Senior Management and Certification Regime
(SM&CR) was a result of the financial crash and a
way to place direct responsibility on the shoulder
of senior managers.
• It was apparent that the old Approved Persons
system didn’t work.
• The FCA has seen that fining firms alone is not
enough, and consequently, those at the top will be
held more accountable for any failings.
• It’s was introduced in March 2016 for:
➢ Banks, building societies and credit unions
➢ PRA Designated Investment firms
• From 2018, the aim is to roll out the regime to all
firms and replace Approved Persons, the
Statements of Principle for Approved Persons and
the Fit and Proper test.
Senior Management
Regime
• 17 senior management functions and
responsibilities have been noted by the FCA.
• The holders of these positions will have to be pre-
approved by the FCA.
• Firms must adequately equip and train them.
• The firm must draw up a responsibility map of
their organisation.
• Severe penalties are imposed for any breach – up to
7 years in prison.
2019/2020 165
Certification Regime
• Beyond the Senior Management Regime, you have
certification which aims to capture others in the
firm who carry out a Significant Harm Function
such as financial advisers and overseers
• Fit and proper testing will continue for these
people:
➢ Honesty, integrity and reputation
➢ Competence and capability
➢ Financial Soundness
• They are not approved by the FCA; only senior
managers are pre-approved
Code of Conduct
• Replaces the old Statements of Principle for
Approved Persons.
• Rules for all covered by SM&CR:
➢ Act with integrity
➢ Act with due skill, care and diligence
➢ Open and cooperative with the FCA
➢ Treat customers fairly
➢ Have proper standards of market conduct
• Senior Management only Conduct Rules
➢ The business must be controlled effectively
➢ The business to comply with the regulator
➢ To delegate but not lose responsibility
➢ Must disclose all necessary to FCA
• Firms must train and monitor anyone covered by
these Conduct Rules and notify the FCA of any
breach
• Firms need to be able to show who was responsible
for many areas of the business, at any point in time,
through a Responsibilities Map. The
Responsibilities Map should be auditable,
comprehensive, and up to date.
166 2019/2020
SM&CR for Solo Firms

• As with all new regimes, it takes time to embed,
and the FCA have rightly staggered the
implementation of SM&CR for smaller or solo
firms.
• Solo firms represent a significant segment of the
financial services market. These are small firms
directly regulated by the FCA, extremely
professional, ethical and a low risk to the
consumer. We’re not talking about network
members or appointed representatives of larger
firms. These people fall under the rules that their
“principles” require and they would have adhered
to SM&CR a long time ago.
• The most crucial legacy rule is the Approved
Persons – known as APER – in existence since the
’90s this ruling ensures that specific individuals in a
regulated firm are individually approved and
registered with the FCA. To be approved, you need
to be deemed fit and proper, comply with the
Statements of Principle and Codes for the roles.
• The fit and proper rules are being cut and pasted
straight into SM&CR. Known correctly as fitness
and propriety, the FCA will test under:
➢ Honesty, integrity and reputation
➢ Competence or capability – Training and
Competence rules here
➢ Financial Soundness – think adverse credit on
their file
• Solo firms will come under SMCR late in 2019, and
this very similar set of principles will replace the
Approved Persons ruling. From then on, SMCR
will work with three sectors within the financial
services industry:
➢ Core firms
➢ Enhanced firms – higher risk and more
responsibility and rules
➢ Limited scope – plenty of exemptions to the
rules
2019/2020 167
FCA Principles for

Approved Persons
• Statement of Principle 1
➢ An approved person must act with integrity in
carrying out his controlled function.
➢ An approved person must act with due skill,
care and diligence in carrying out his controlled
function.
➢ An approved person must observe proper
standards of market conduct in carrying out his
controlled function.
➢ An approved person must deal with the FCA
and with other regulators in an open and
cooperative way and just disclose appropriately
any information of which the FCA would
reasonably expect notice.
➢ An approved person performing a significant
influence function must take reasonable steps
to ensure that the business of the firm for which
he is responsible in his controlled function is
organised so that it can be controlled
effectively.
➢ An approved person performing a significant
influence function must exercise due skill, care
and diligence in managing the business of the
firm for which he is responsible in his
controlled function.
➢ An approved person must take reasonable
steps to ensure that the business of the firm for
which he is responsible in his controlled
function complies with the relevant
requirements. Items 5 to 7 apply to senior
management only.
168 2019/2020
Authorising Firms
Permissions
• Smaller firms must apply to the FCA for permission to
carry out any regulated activities.
• Larger firms apply to the PRA
• Authorisation is not necessary if the firm is exempt.
Exempt Persons
• Appointed Representatives (ARs) are exempt so long
as the provider firm, known as the principle, takes full
responsibility for the representative
• AR’s can be introducers or able to give advice.
• Certain institutions such as local government and
central banks – Bank of England and the European
Central Bank.
• Exempt professional firms
➢ Members of professions such as lawyers and
accountants.
➢ They have to obtain permission from the FCA
to carry out any regulated activities if the
business is mainstream.
➢ They are exempt if the business is non-
mainstream.
➢ These firms are known as designated
professional bodies.
2019/2020 169
Responsibilities of
Regulated Firms
• Authorised firms are responsible for the conduct of
their employees, agents and ARs.
• Firms must have systems in place:
➢ Senior Management Systems and Controls
➢ Proper internal procedures are drawn up to
protect firms.
➢ Policies drawn up to describe how risks are
controlled.
➢ Audit systems and records in place.
➢ Whistle Blowing - firms must make it easy for
staff to blow the whistle on any suspicious
activities.
➢ Compliance Officers
▪ Firms must appoint someone to this role and
are a controlled function.
▪ Their responsibilities are:
• To maintain a compliance manual.
• Keeping records on financial promotions
and complaints.
• Deal with the FCA.
• Be responsible for the T&C Scheme and
selling practices of the firm.
170 2019/2020
Adviser Status
Independent advice
• An Independent Financial Adviser (IFA) represents
the client.
• Advice is “unrestricted and unbiased.”
• The IFA’s firm or network is responsible for their
actions.
• Many operate a “panel” of carefully chosen providers
• IFAs operate on a fee basis since 2012
Restricted advice
• Acts on behalf of the provider and can only advise on
one or a selection of provider’s own products.
• The firm is responsible for all actions of the adviser
2019/2020 171
Variety of Advice
• On TV last night, every advert was promoting an
online service, and Habito came up trumps. One of
the new breed of online robo-brokers encouraging
you to remortgage your home and promising not to
force you to talk to an adviser. Young people
addicted to phones will love it.
• However, my dad, aged 81, would die in his shoes,
having to remortgage via an app. Hence we have a
variety of methods of providing advice in addition
to the heavily regulated mortgage and full financial
advice which come under MCOBs or COBs.
• Basic Advice relates to Stakeholder products.
Remember stakeholder pensions? The Labour
Government’s early naughties experiment with
cheap and cheerful products. These were designed
to be so simple that advice wasn't needed, the
problem was that no provider brought them to
market since they provided no profits.
• Generic, focussed and simplified advice come in
next. All designed to provide more succinct and
brief advice. Generic is more guidance than advice
– for example, you need to look at your retirement
planning. Focussed works when a specific area of
need has been identified by the client, for example,
where to invest their SIPP. Simplified advice relates
to quick advice where little needs analysis is
conducted. Online is this one’s territory.
• Robo advise – ridiculous name since the advice is
not robotised but is run by software algorithms like
Amazon’s Alexa. This where Habito come in
although they do mix it with human intervention as
well. Nutmeg is a great app which invests your
money in a clearly defined risk category, and the
choice of investments is done by the algorithm, not
a human. This decreased the fund charges
enormously. The use of passive funds works well
here rather than active management, although the
robo investment firms do offer this as well.
• Hybrid is the way forward. Advisers can
communicate via Skype or video or even face to
face but use complex software to bring advice to
the table. The role of the adviser is to interpret the
often complex nature of financial terms to clients,
so they clearly understand.
• Someone once said it is easy to make something
sound complex, harder to make something that is
complex appear simple.
172 2019/2020
Retail Distribution
Review
Clarity of Service
• With effect from 2013
• Firms act in the best interests of their customers
distinguishing between selling and advising.
• Advice provided by Independent Financial
Advisers
• Advisers must choose between giving:
➢ Independent advice
➢ Restricted advice – ranges from single tie to
multi-tie
Remuneration
• Charges for advice are set with no provider
involvement
• The charging policy and "tariff" set and supplied to
customers before any meeting
• No variations dependent on provider although it
may be appropriate for some product types
Professional Standards
• Minimum level of qualification raised to QCA
Level 4
• Accredited bodies created to monitor and CPD
activities enhanced.
• Once exams have been passed, ethics tested,
advisers can apply for their Statement of
Professional Standing (SPS).
• This is effectively renewed once the CPD has been
achieved each year. CPD consists of 35 hours, of
which 21 must be structured.
2019/2020 173
Supervising Firms
• The previous regulator, the FSA, used the principle
of “risk-based” supervision, spending their time
and resources on firms who portrayed the highest
risk.
• Firms are categorised according to their potential
impact on the FCA’s objectives.
• The FCA will work closely with senior members of
management teams, get to grips with strategy and
direction and will make a judgement early on as to
whether the consumer is going to be adversely
affected.
• All authorised firms are allocated to one of two
conduct categories
➢ Fixed portfolio firms have a named supervisor
and are “hands-on” supervised using a
continuous evaluation approach.
➢ Flexible portfolio firms are supervised through
thematic and market-based work, along with
programmes of communication, engagement
and education activity aimed at the key risks
identified in the applicable sector.
• It uses three pillars:
➢ Preventative and proactive work with firms
➢ Event-driven and reactive work
➢ Issues identified before their impact
174 2019/2020
Compliance Monitoring
• The FCA receives a constant flow of information
from firms such as auditor statements, business
volumes, sources of business, complaints statistics.
• They will then react to these metrics.
• The FCA is also proactive and has a programme of
visits and contact via its enforcement officers.
• These visits look at business operations, personal
matters and customer matters.
• Mystery shopping activities are also conducted.
Financial Strength
• Measuring the strength of life offices and firms is
vital to the FCA.
• Banks and building Societies show their strength
via the returns they offer
• Life offices have free asset ratio, which is the
surplus assets held over the value of its liabilities.
• IFAs will look closely at this figure before
recommending an office to clients.
• Ratings, such as Fitch and Standard and Poors, are
also used to assess strength of offices and firms.
2019/2020 175
FCA’s Enforcement
Powers
• The FCA has powers to investigate any firm with
no barriers, known as enforcement.
• It can then impose disciplinary action in order of
severity:
➢ Restrict their product selling, a variation of
their permissions
➢ Stop them trading altogether.
➢ Injunction, i.e. freezes assets.
➢ Restitution, i.e. pass on profit to the FCA if this
was gained via a contravention of a regulation
➢ Redress - order the firm to compensate
customers, e.g. endowment mis-selling.
➢ Discipline them, i.e. publicise their wrongdoing
or fine them.
176 2019/2020
Mortgage Market
Review
• The first major change in the mortgage since 2005
brought upon by the Credit Crunch and the main
blame being laid against irresponsible lending.
• The main points are:
➢ Income will have to be verified in every
mortgage application – bringing an end to both
self-certification and to fast-track mortgage
products.
➢ The rules for determining disposable income, to
support affordability, are less prescriptive than
originally proposed, but guidance on what
lenders should consider is provided.
➢ Lenders will have to decide on the “stress test”
they wish to apply, to check that mortgage
applicants will be able to afford the payments
should interest rates rise.
➢ Interest-only mortgages will still be permitted,
but lenders will have to satisfy themselves that
the borrower has a credible strategy to repay
the capital at the end of the term.
➢ The vast majority of sales will have to be
carried out on an advised basis – all sales where
there is human interaction, face to face, phone
or email, will have to be advised.
➢ Mortgage Professionals and certified High Net
Worth individuals will be able to proceed on an
execution only basis.
➢ Certain mortgage applicants who pose a higher
risk to themselves, such as those consolidating
debts, will have to get explicit advice.
➢ And there will be special transitional rules for
borrowers caught by changes in rules – the so-
called “mortgage prisoners” – and both their
existing lender or a new lender can apply
transitional rules to ensure they’re not
disadvantaged if they wish to move home or re-
mortgage.
2019/2020 177
6 FCA Rules
for Firms
Financial
Promotions
• The rules regarding prospecting are entitled
“Financial Promotions”. They draw a distinction
between “written” and “non-written”.
• Non-Written financial promotions are a personal
visit, telephone conversation, or other dialogue.
Also known as real time.
• Written financial promotions are those made by
email, letter, appearing in newspapers, on TV or
website. Also known as non-real time.
• Unsolicited real time, known as cold calling,
mustn’t be conducted unless the customer has a
relationship with the firm or the promotion is a
low-risk product. The call must be made at an
appropriate time of the day, i.e. 9am to 9pm
Monday to Saturday.
• Mortgage advisers cannot “cold call.”
178 2019/2020
FCA Rules for Firms
Advertising
• Advertising rules cover publications, circulars,
catalogues, posters, radio, television, as well as
business cards and letterheads.
• Contents of all adverts must be approved by an
authorised person.
➢ A specific individual must be nominated to
assume responsibility for checking adverts.
• All advertisements must:
➢ Be clear and fair in what is stated and what is
implied;
➢ Have regard to the likely sophistication of the
reader;
➢ Observe the rules of the Advertising Standards
Authority;
➢ Clearly, state the tax implications;
➢ Show the name of the regulatory body (and for
tied agents the name of the company to whom
tied).
• If past performance is quoted, adverts must:
➢ Quote the source of the figures;
➢ State that past performance is not necessarily a
guide to the future, and that the value can go
down as well as up;
➢ At least 5 years of figures to be used.
• Business cards must show:
➢ Adviser’s name and company represented;
➢ Business address and telephone number;
➢ The regulatory body through which he/she is
authorised.
• All business documents and letterheads must show
clearly which regulatory body has authorised the
firm.
2019/2020 179
Reporting and
Record Keeping
Record keeping
• All records of pension transfers, pension opt-outs
and FSAVCs to be kept indefinitely
• All records for:
➢ Life and pension contracts – 5 years
➢ MiFID – 5 years
➢ All other contracts – 3 years
➢ Training and Competence Records - 3 years
after they have left the firm
• Advertising records to be kept:
➢ Pensions transfers, pension opt-outs and
FSAVCs – Indefinitely
➢ Life and pensions – 6 years
➢ MiFID – 5 years
➢ All other – 3 years
Reporting Rules
• Electronic reporting via GABRIEL
• Regular returns required by FCA
180 2019/2020
FCA Rules for Firms
Training and
Competence
The firm's
commitment
• The firm's commitment to training and competence
should be that employees:
➢ Are competent;
➢ Remain competent;
➢ Are appropriately supervised;
➢ Have competence reviewed regularly;
➢ Have level of competence appropriate to the
business.
Recruitment
• In recruitment for specified roles involving private
customers, including giving investment advice, the
firm must:
➢ Take account of an individual's knowledge and
skill for the role;
➢ Find out about the individual's previous
relevant activities and training;
Training
• For advisers and other employees involved with
private customers, the firm must determine
training needs and organise appropriate, timely
training.
2019/2020 181
Attaining
competence
• Employees must pass appropriate examinations
before being assessed as competent. Otherwise, the
employee may only engage in the relevant activity
under appropriate supervision.
• Employees permitted to work with private
customers under supervision must first have
passed the relevant regulatory module of an
appropriate examination. On-the-job training is not
sufficient.
• The time which may be spent under supervision
before taking the appropriate exams is 30 months.
• For certain specialist advice, such as advice on
pension transfers, these are specific exam
requirements before the employee can engage in
the activity.
Maintaining
competence
• Firms must ensure that employees maintain
competence in their activities, for example, through
Continuing Professional Development (CPD).
• Now prescribed at a minimum of 35 hours in each
12 month period, 21 of which must be structured.
Supervision
• Employees who are not yet assessed as competent
in an activity need to be appropriately supervised.
• Supervisors of those giving advice on packaged
products must have passed an appropriate
examination and must have the technical
knowledge and assessment and coaching skills to
act as a supervisor.
182 2019/2020
FCA Rules for Firms
Record keeping
• Appropriate records must be retained for at least
three years after the employee leaves the firm
although, for pension transfer specialists, records
must be retained indefinitely.
Appropriate
examinations
• The new regulatory regime covers a wide range of
activities within the financial sector previously
covered by different regulators, and lists of
appropriate examinations, apply.
• 'Back office' employees overseeing administrative
functions such as dealing with client money or
taking private customers through decision trees
must pass examinations within 30 months.
2019/2020 183
7 FCA Conduct
of Business
Rules
Types of Client
Know Your Client
• The rules require that all advisers must get to
“know their client”.
• The majority of companies use a factfind to
demonstrate this. Factfinds vary from firm to firm,
and as a guidance, the FCA distinguish types of
customer.
Retail Client
• Most clients.
• The man on the street who requires most
protection.
Professional Client
• This category provides some level of investor
protection where the firm feels it is better protected
by giving more advice .
• People expected to have a level of understanding.
Eligible Counterparty
• Institutions, banks, investment firms and
governments.
• Usually goes with execution-only transactions.
184 2019/2020
FCA Conduct of Business Rules
Status Disclosure
with clients
• All advisers must have a written agreement with every
client, setting out their business relationship.
Client Agreement
• Required when a firm provides high-risk investment
business such as discretionary fund management
• Not required with packaged investments and low
ticket items
• This must cover:
➢ Contact details and how the firm will maintain
contact
➢ The full name of the adviser’s regulator.
➢ Details of the investment services offered, in
particular, whether they handle client money.
➢ The status of the adviser – independent of
restricted – if restricted, the nature of the
restriction
➢ How the adviser is remunerated.
➢ Withdrawal rights.
➢ Complaints processes.
Discretionary Management
Agreement
• Some clients wish to give their advisers even more
discretion to invest on their behalf. In that case, the
agreement must set out, in addition to the above,
the limitations of discretion within which the
adviser/manager must operate.
2019/2020 185
Services and Costs

Disclosure Document
(SCDD)
• This document set out the key facts about the firm and
its services in a standard format.
• Includes
➢ The types of products offered;
➢ Whether the products are sourced from the
whole market;
➢ Whether advice and recommendation is
provided;
➢ Whether payment is required for the service;
➢ Details of ownership and regulation;
➢ How to complain to the company, and if not
satisfied, to the Financial Ombudsman Service;
➢ How to obtain compensation from the Financial
Services Compensation Scheme.
186 2019/2020
Client Money
Client Assets
• Rules to safeguard client assets from being mixed
with firm’s assets.
• Designed to prevent these being included in firm’s
assets, for example, in the event of insolvency.
Client Money Rules

• Apply to firms who receive or hold client’s money.
• They don’t apply to banks, Building Societies or life
offices.
• A firm must hold their client’s money separately in
a client bank account in the name of the client.
• Interest belongs to the client.
• Most IFAs receive cheques payable to the life office
so don’t fall under these rules.
2019/2020 187
Suitabilty
Requirements
• Back in the day it used to be called best advice, but
everyone kept debating what was best, how can
you prove it? After all, I’ve got the best phone in
my household. The FCA have tightened this up
considerably, now calls it suitability advice and
ensures the proof is in the pudding. The pudding is
the Suitability Report that clients receive after
guidance has been given.
• All advisers, whether independent or restricted, be
they in the mortgage market or investments, make
a suitable advice proposal and prove it.
• They do this by comprehensive factfinding with the
client. Establishing their needs, wants, desires and
assessing their personal and financial
circumstances. Currently, factfinding is migrating
to the cloud using technology and the clients’ “big
data”. Connecting the adviser’s factfind software to
the client’s bank account, credit file, provider data,
government census data, voter’s role and one
day…their social media – enables an almost instant
completion of the factfind.
• Factfinds must be kept for:
➢ Indefinitely if pension transfer or FSAVC
business was transacted.
➢ 5 years for life and pension business.
➢ 3 years for other products.
• You still can’t beat a one to one conversation with
the client spread over an hour or so, gathering this
information. The value of soft details is
immeasurable. The challenge is that modern
generations tied to their smartphones don’t have
the patience for this and providers are acquiescing.
• If I want to buy a car, the dealer needs to know the
budget I have, the mileage I’ll drive, who else will
be in the car, the purpose of driving, my feeling
around colour and comfort, my thoughts on
emissions and fuel. Am I electric?
• In precisely the same way, advisers need to
establish all the criteria to make a suitable advice
proposal.
188 2019/2020
Risk
• Risk is the number one concern; after all, the FCA’s
main reason to be is to protect consumers and to
ensure advisers assess their risk profile, enables the
right product to be selected. Risk attitude is the first
concern. What is their general feeling towards the
risk involved in the product?
• Tolerance to losing their money is another question.
Are they willing to lose the value of their
investment for a potential higher gain? My SIPP is
invested in an adventurous fund participating
overseas in foreign markets. One quarter it loses
£4,000, the next quarter it gains £10,000. It’s quite
exciting to watch. However, if this same concept
were attached to my mortgage, I might get a heart
attack if I lost money.
Suitability Reports
• The pudding is the Suitability Report, used to be
called a letter, but they have metamorphosed into
lengthy affairs. They must, however, be clear, fair
and not misleading – a principle embedded in
everything the FCA believes. The client must
understand them when reading.
• They must show why they have selected the
product, why the adviser has discounted
alternatives, the reasons, the benefits, the features,
any risks attached or contractual restrictions.
• They must be issued after advice but before the
contract starts.
• Mortgage advice doesn’t need one, but many
lenders do them. All the other products you’ve
studied in CeMAP are covered – life assurance,
pensions, unit trusts, investment trusts, OEICs and
pension transfers.
• All this ensures the advice is suitable for the client.
Moreover, I still think I’ve got the best phone in the
house, but I can’t prove it.
2019/2020 189
Executions
Best Execution
• Ensuring that a transaction for a client is done on the
best terms available at the time for transactions of that
nature and size.
• Applies particularly to buying and selling of stocks
and shares.
• Does not apply to life assurance and pensions, or to
unit trusts.
Execution-only
• An "execution only" transaction occurs when a client
instructs the adviser to carry out a specific investment
deal on his behalf without requiring or receiving any
advice of any kind.
• The client, therefore, acts entirely on his own
responsibility. The adviser's usual duty of care does
not apply.
• The adviser must obtain the client's signed
confirmation that a transaction is execution only.
190 2019/2020
Cancellation
• Known as the “cooling off” notice.
• The post-sale notice is accompanied by a slip or form,
or electronic equivalent, enabling the customer to
exercise the right to cancel.
• The cooling off period is normally 14 days from the
receipt by the client of a "cancellation notice" issued by
the product provider directly to the client. Products
which have a 14 day cooling off period are:
➢ Cash ISAs
➢ Unit Trusts/OEICs
➢ CTFs
➢ ISAs
➢ EISs
➢ Designated investments
• Products with a 30 day cooling off period are:
➢ Life policies
➢ Personal Pensions
➢ Stakeholder Pensions
➢ Pension transfers
• The client can withdraw from the contract at any time
during this period without any commitment or loss.
• The only exception is when a client has invested in a
unit-linked investment product where the value of
units has fallen during the cancellation period.
• This “fall” will be reflected in the cancellation value.
2019/2020 191
Product Disclosure
Key Features Document
• Product providers must produce a key features
document for each of its packaged products, the
exception being Gilts
• Hard copy or electronic.
• Given before the application is completed
• Contents of document:
➢ Nature of investment
➢ Risk of the product
➢ Cancellation rights
➢ Complaints procedure
➢ Product details – sums, premiums
➢ Surrender implications
Projection Rules
• When a projection is produced, the rules must be
followed.
• Based on reasonable assumptions
With Profits
• Life offices must have a Principles and Practices of
Financial Management document, which sets out how
they manage the with profit fund.
• Must be sent to policyholders annually
192 2019/2020
Stakeholder
Products
• The Government has striven to make financial
products easy to understand and good value.
• The suite of Stakeholder style products are:
➢ Cash deposit like an ISA;
➢ A collective investment like an OEIC;
➢ An “smoothed” investment similar to a With
Profits scheme;
➢ The Stakeholder Pension;
➢ The Child Trust Fund and Junior ISA;
• Many of the Conduct of Business Rules are greatly
simplified for Stakeholder products. This is known
as Basic Advice.
2019/2020 193
Types of Advice
Basic advice
• Basic advice is a limited form of advice focussing on
one or more needs.
• Doesn’t involve in-depth factfinding.
• Firm must provide a “basic advice initial disclosure
document.”
• The sales process must use only Stakeholder products
with pre-scripted questions.
• The client must understand the nature of the product
and records kept for 5 years
• Although many sales processes are automated, there
needs to be a competent adviser on hand to answer
questions.
Generic advice
• Covers advice on general matters without the
characteristics of basic advice
Focussed advice
• At request of customer, focusses on specific need area
Simplified advice
• Limited to one or two areas of need with a specific
factfind.
194 2019/2020
Regulated
Mortgages in Two
Minutes
• Few people can believe it, but the advice and running
of a residential mortgage was unregulated 15 years
ago. In 2004 they became regulated, the FCA provides
rules and guidance on how these are sold and run.
MCOBs rule the waves but not for every mortgage.
• Mortgages sold to individuals are regulated as are
loans to finance a property where more than 40% of
the property is being used as the main dwelling. You
may hear the word MCD – Mortgage Credit Directive
– which came In during 2016 and tightened up the
rules of mortgage lending and admin. Most mortgages
today are effectively MCD regulated because they
adhere to these new rules.
• MCD was renowned for bringing second charge loans
into regulation. These are loans secured on property
where the owner already has a first mortgage on it.
They are generally more expensive but readily
available compared to first loans.
• Loans not in the team are “buy to lets” unless they are
being granted to a consumer who didn’t want to let the
property, but have to because of the situation. These
are known as consumer buy to lets. Professional
Landlords who take our buy to let mortgages are not
regulated, the definitions are strict but usually
stipulate 4 or more houses to be owned or a landlord
that wants to become a full-time landlord, not
someone who just stumbled across a buy to let need.
• Corporate loans are excluded and well outside the
CeMAP syllabus.
• Lifetime mortgages are in the club of regulated loans,
and rightly so. Thes loans occupy the later life lending
market and include home reversion plans which are
not loans at all but regulated as such. Separate MCOB
rules must be adhered to for lifetime mortgages and
home reversion plans. Smart regulations to protect the
consumer, and keep them in their home until death or
moving into a care home.
2019/2020 195
• The newest member of the later life market is RIOs –

retirement interest-only mortgages – these are
regulated but are sold by standard mortgage advisers
– you need special permission and exams to advise in
the later life market. RIOs are interest-only mortgages
with no end date – they are repaid on death.
• Home purchase plans, also known as Islamic Finance,
are also regulated. To appreciate these products, an
understanding of Sharia or Islamic Law is needed.
Thou shall not receive or pay interest is the mantra,
and a traditional mortgage falls foul of this since
interest is both paid and received by the bank.
• Islamic loans involve the bank buying the property
and then “leasing” it back to the owner by 25 years or
so of instalments. Of course, it achieves the same aim
but doesn’t involve interest.
Buy to Let Mortgages

• Previously Buy to Let mortgages were not
regulated by the FCA since they fall outside of the
40% rule and are generally not lived in by family
members.
• This has now changed with the FCA preferring to
distinguish between:
➢ Buy to Let mortgages arranged by a business
and
➢ Buy to Let mortgage arranged by an individual
or consumer
• They’re regulating the one arranged by a consumer
but not the one organised by a business. The vast
majority of professional landlords who use Buy to
Let mortgages to build up their property portfolios,
do so via a company of some sort to minimise
taxation.
• The FCA recognises that some people inherit a buy
to let mortgage with a let to buy, where their
existing home is rented out on a temporary basis
whilst they live elsewhere. These people need
protection, and the mortgage needs to be regulated.
Providers of these will have to adhere to the
MCOBs from now on.
196 2019/2020
Second Charge Lending

• In a similar manner to Buy to Lets, 2nd Charge
Lending is now under the guidance of the FCA and
providers must adhere to the MCOBs.
• And rightly so. They are dealing with consumers,
often arranging large sums on the security of
residential homes. They offer slightly easier lending
terms with the ubiquitous higher interest rates.
• So rather than be regulated by the new CONC,
which provide the rules for firms involved in the
consumer credit market, providers are pretty much
on par with first charge mortgage lenders.
Unfair Practices
• Mortgage cold call selling will not be allowed.
• Excessive fees will not be permitted.
• Key Facts Illustrations must illustrate fees.
• All mortgage arrangement fees must be included in
APR.
Training & Competence

• Advisers must adhere to the normal T&C
requirements unless already competent.
• Additional training required for lifetime
mortgages.
Complaints and
Compensation
• Lenders and intermediaries fall under Financial
Ombudsman Service and Compensation Scheme.
2019/2020 197
Mortgage
Disclosure
• Customers must be in a position to make an
informed decision and have time to think it
through.
• Selling any product or service ought to adhere to
this – mortgage advice makes it mandatory and
requires that firms disclose information at various
points in the sales process.
Initial Disclosure
• Given out on the first client meeting and outlines
the services offered.
• No longer a requirement to issue a written IDD for
non-distance mortgage contracts such as face to
face sales, you have to give the “key messages”
verbally and document on the file that disclosure
has been given.
• You’ll hear about MCD mortgages and non-MCD
mortgages – this is just a technicality as disclosure
relates mostly to new mortgages which are all
MCD (taken out after 2016). The only exception is
where an existing mortgage is varied with a further
advance; this would be non-MCD.
198 2019/2020
ESIS – or European
Standard Information
Sheet
• Is required for all new mortgages, but lenders may
adapt their existing KFI and call it the plus version.
Plenty of information is needed to comply, and it
must be issued soon after the mortgage advice is
given; definitely, before the application is made.
➢ ESIS period
➢ Lender details
➢ The broker involved
➢ The loan – amount, currency, term, rate,
property value
➢ The interest rate in the form of the APRC –
Annual Percentage rate of Charge
➢ Payment frequency
➢ Monthly payment and warning around
affordability plus interest only repayment
vehicles
➢ Other obligations from the borrower
➢ Early repayment rights
➢ Flexible features
➢ Length of the reflection period
➢ Complaints
2019/2020 199
MCOBs
MCOB 1: Application and
purpose
• Explains the scope of the rules, i.e. to whom they
apply and for what types of mortgage.
MCOB 2: Conduct of
business standards
• Includes:
➢ the use of correct terminology (‘early
repayment charge’ and ‘higher lending
charge’);
➢ the requirement for communications with
customers to be ‘clear, fair and not misleading’;
➢ rules about the payment of fees / commission
and the accessibility of records for inspection
by the FCA.
MCOB 2A: Mortgage Credit

Directive:
• Includes rules on a range of matters that apply to a
lender classed as a Mortgage Credit Directive
mortgage lender, including:
➢ remuneration;
➢ the tying of products (making a mortgage
conditional on the purchase of other products);
➢ foreign currency loans; and early repayments.
200 2019/2020
MCOB 3A: Financial

promotions
• Distinguishes between ‘real-time’ promotions (by
personal visit or telephone call) and non-real-time
(by letter, email, or advert in newspapers,
magazines, or on television radio or the internet).
➢ Unsolicited real-time promotions are not
permitted.
➢ Non-real-time promotions must include the
name and contact details of the firm. They must
be clear, fair and not misleading. If
comparisons are used, they must be with
products that meet the same needs.
➢ They must state that ‘your home may be
repossessed if you do not keep up repayments
on your mortgage’. Records of non-real-time
promotions must be retained for one year after
their last use.
MCOB 3B: MCD general

information
• Specifies the requirements relating to information
that must be provided to customers, for lenders
who make mortgage advances regulated under the
Mortgage Credit Directive.
2019/2020 201
MCOB 4 and 4A: Advising

and selling standards
• It must be clear whether advice is based on the
products of the whole market, a limited number of
home finance providers, or a single lender.
➢ Independent advisers are not required to be
able to access all products from all providers:
they can source products from a panel of
lenders as long as the panel is representative of
the market.
➢ Any mortgage recommended must be suitable
for the customer and appropriate to their needs
and circumstances; records to demonstrate this
must be kept for three years. However, there is
no requirement to issue a suitability report to
the client.
➢ Special requirements apply if the mortgage will
be used to consolidate existing debts.
• On first making contact with a customer, certain
information must be disclosed prominently and
clearly to the customer. An initial disclosure
document (IDD) can be given to detail the required
information, but this is not a formal requirement as
long as the required information is clearly
communicated. The customer must be provided
with the following information:
➢ name and contact details;
➢ whose mortgages are offered;
➢ details of any limitations in service;
➢ details of any fee payable for the mortgage
advice;
➢ the firm’s FCA registration details;
➢ how to complain; and
➢ details of the compensation scheme.
202 2019/2020
MCOB 5 and 5A: Pre-

application disclosure
• Details the information that must be provided at
the point at which a personal recommendation is
made and before an application is submitted to the
lender. This must include:
➢ the annual percentage rate of charge (APRC),
which shows the interest rate with any fees
added;
➢ the amount of the monthly instalment; and
➢ the amount by which the instalment would
increase for each 1 per cent rise in interest rates
MCOB 6 and 6A:

Disclosure at the offer
stage
• If a mortgage offer is made, the lender must
provide a detailed offer document. This is based on
the information given at pre-application stage,
subject to any changes between application and
offer illustration. The offer is binding on the lender
but can be made conditional on the confirmation of
certain details. The offer must also:
➢ state how long the offer will remain valid;
➢ point out that there will be no right of
withdrawal after the mortgage has been
completed; and
➢ include or be accompanied by a tariff of
charges.
• The borrower must be granted a period of
reflection of at least seven days to consider whether
to accept the offer or not.
2019/2020 203
MCOB 7 and 7A:

Disclosure at start of
contract and after sale
• Before the first mortgage payment is made, the
lender must confirm:
➢ details of amounts, dates and methods of
payment;
➢ details of any related products such as
insurance;
➢ (for interest-only mortgages) the responsibility
of the borrower to ensure that a repayment
vehicle is in place; and what the customer
should do if they fall into arrears.
• Annual statements must be issued, showing:
➢ the amount owed and remaining term;
➢ what type of mortgage it is;
➢ for interest-only mortgages, a reminder to
check the performance of the repayment
vehicle;
➢ interest, fees or other payments made since the
last statement;
➢ any changes to the charges tariff since the last
statement
• If the mortgage is arranged on an interest-only
basis, then the lender must contact the borrower at
least once during the term to confirm that a credible
repayment vehicle remains in place.
• If a change is to be made to the monthly payment,
the customer must be informed of the new amount,
revised interest rate and date of the change.
MCOB 8 and 9: Equity

release
• Details the FCA’s requirements in respect of
lifetime mortgages and home reversion schemes.
Special rules apply to equity release in relation to
advising and selling standards, and to product
disclosure.
• The FCA Training and Competence rules require
that anyone giving advice on equity release must
hold a specialist qualification in this area of
business.
204 2019/2020
MCOB 10: Annual

percentage rate (APR)
• Describes how to calculate APR
MCOB 10A: Annual

percentage rate of charge
• Describes how to calculate APRC
MCOB 11 and 11A:

Responsible Lending
• Lenders must put in place a written responsible
lending policy and must be able to show that they
have taken into consideration a customer’s ability
to pay when offering a mortgage.
MCOB 12: Charges

• Excessive charges are not permitted. Early
repayment charges must be a reasonable
approximation of the costs incurred by the lender if
the borrower repays the full amount early.
• Similarly, arrears charges must be a reasonable
approximation of the cost of additional
administration as the result of a borrower being in
arrears.
2019/2020 205
MCOB 13: Arrears and

repossessions
• Firms must deal fairly with customers who have
mortgage arrears or mortgage shortfall debt. This
includes:
➢ trying to reach an agreement on how to repay
the arrears, taking into account the borrower’s
circumstances;
➢ liaising with third-party sources of advice;
➢ not putting unreasonable pressure on
customers in arrears;
➢ repossessing a property only when all other
reasonable measures have failed;
➢ only applying arrears charges that are a
reasonable reflection of the costs of the work
involved in dealing with the arrears.
• Records must be kept of all dealings with
borrowers in arrears.
• Customers in arrears must be given the following
information within 15 working days of the lender
becoming aware of arrears:
➢ Information sheet ‘Problems paying your
mortgage’;
➢ the missed payments and the total of arrears
including any charges incurred;
➢ the outstanding debt;
➢ any further charges that may be incurred unless
arrears are cleared.
MCOB 14 – Rules and

guidance for MCD
• Applies rules and guidance in MCOB
206 2019/2020
Advising Insurance
Contracts
• I’m always advising mortgage advisers to sell
insurance to their clients. It’s morally correct,
certainly needed by clients, not expensive and pays
a commission. However, to do so, you need to
ensure you’re trained with the relevant FCA
permissions.
• We’re talking life, income protection, critical illness,
and ASU policies. No hint of investment in these
plans.
• Also, you must follow COBs or ICOBS – Insurance
Conduct of Business Rules.
ICOBS
• Conduct of Business Rules are those for
independent investment advisers. Many IFA firms
already adhering to COBs just have to apply these
to the sale of insurance otherwise its ICOBS. Even if
you are a mortgage firm, you must subscribe to
ICOBS.
• So they’re important and what are they:
➢ Authorisation – the firm must be authorised
with the FCA
➢ Qualifications – you now need CPD –
continued professional development – 15 hours
in total plus be appropriately trained in the first
place.
➢ Eligibility – this one is a bit obvious really – if
you’re selling a plan you must make sure the
client would be eligible to claim
➢ Suitability – identified needs, factfinding,
suitability – say no more
➢ Statement of Demands and Needs – replaces
the need for a suitability report but much the
same thing
➢ Cancellation rights – 30 days; buildings and
contents have 14 days.
2019/2020 207
How the Banks are

Monitored
• Banks are deposit takers and handle billions of
pounds of our money. It's this area of their business
that we going to look at how they are monitored
not the other areas which fall under the Financial
Conduct Authority such as lending and financial
advice.
BCOBs
• Firstly the BCOBS – or Banking Conduct of
Business Rules – which work similarly to MCOBs
and COBS. BCOB 1 states that banks have to
adhere:
➢ BCOB 2 – Communications with customers
must be fair, clear and not misleading,
including adverts. It also restricts banks in
promoting “bolt-on” products for a fee.
➢ BCOB 3 – places more rules on how banks deal
with online customers.
➢ BCOB 4 – deals with how banks provide
information to customers who have deposits.
➢ BCOB 5 – handles post-sale aspects in a fair
manner, including product switching.
➢ BCOB 6 – deals with the cancellation of
products and customer’s rights.
➢ BCOB 7 – states how banks publish bank
account information.
• Nothing mind boggling and if you’re familiar with
COBS and TCF, now called fair treatment of
customers, nothing new.
• Something a little more shiny are the Payment
Services Regulations
208 2019/2020
Payment Services
Regulations
• We’re talking about the massive rise in payment
transfers from current and other accounts.
Contactless is ubiquitous and very few people carry
cash anymore preferring to use their card. The
Regulations named companies in the market,
Payment Institutions, and require that they seek
proper authorisation to transmit Euros or Sterling.
• PIs include banks, building societies, merchants,
money remitters, PayPal, and so on. A couple you
may not have come across before. Merchants are
firms who take card payments but are not banks
and remitters are firms who send money abroad,
also not banks.
• Payment Services Directive 2 is the Oscar winner
and is designed to increase competition and
enhance customer’s rights. The headline-grabbing
part is to do with credit card authorisation to
prevent fraud.
• The last new name for you is the Payment Systems
Regulator which governs all payment systems and
is a subsidiary of the FCA.
The Standards of Lending

Practice
• BCOBs from earlier only looked at deposits and
current accounts, this practice standard focusses on
lending. You’ve probably thought about CONC or
the Consumer Credit rules which allow the FCA to
govern this area, and you'll be right. Why they
need extra standards, I don’t know, but they do.
The spotlight is on loans, credit cards and
overdrafts and it self-regulates on six areas:
➢ Promotions and communications
➢ Product sales
➢ Managing and servicing customers
➢ Money management
➢ Financial difficulty
➢ Vulnerable customers.
• Very similar to BCOBs
2019/2020 209
8 Consumer
Credit
Regulation
FCA Regulation of
Consumer Credit
• Replaced the OFT – Office of Fair Trading – and has
wider enforcement powers.
• FCA authorises:
➢ Consumer credit lending
➢ Credit broking
➢ Debt counselling and collection
➢ Credit information services
➢ Credit reference agencies
• FCA now enforces Consumer Credit Acts
➢ FCA Conduct rules apply
➢ Treating customers fairly applies
➢ Authorisation process adapting
➢ Approved person regime applies
➢ Full investigation, enforcement and redress
210 2019/2020
Consumer Credit Regulation
Consumer Credit
Sourcebook CONC
Application and purpose and guidance on
CONC 1
financial difficulties
CONC 2 Conduct of business standards: general
Financial promotions and communications with

CONC 3
customers
CONC 4 Pre-contractual requirements
CONC 5 Responsible Lending
CONC 5A Cost cap for high-cost short-term credit
CONC 6 Post-contractual requirements
Arrears, default and recovery (including

CONC 7
repossessions)
CONC 8 Debt advice
CONC 9 Credit reference agencies
CONC 10 Prudential rules for debt management firms
CONC 11 Cancellation
Requirements for firms with interim permission

CONC 12
for credit-related regulated activities
Guidance on the duty to give information under

CONC 13 sections 77, 78 and 79 of the Consumer Credit
Act 1974
CONC 14 Requirement in relation to agents
CONC 15 Second charge lending
2019/2020 211
Consumer Credit
Acts
Consumer Credit Act 1974
• This Act regulated loan agreements, quotations and
advertisements, and other activities of lenders and
credit reference agencies.
• It applies to “Consumer Credit Agreements” which
are basically loans and other forms of credit with
no upper limit.
• Suppliers of credit as defined in the act must be
licensed by the Office of Fair Trading.
• Typical Annual Percentage Rate (APR) must be
shown. APRs include the interest charge plus all
the compulsory charges to give a balanced view of
the total charge.
• Clients must be made aware of :
➢ The nature of the contract;
➢ Their rights and obligations.
• Clients must receive a copy of a loan agreement for
their own records.
• Loan agreements must contain cooling off
provisions unless they are signed on the lenders
premises.
• Credit reference agencies must disclose information
held and must correct it if inaccurate.
Consumer Credit Act 2006

• Financial Ombudsman Service incorporates all
consumer credit disputes.
• Borrowers can now challenge credit agreements in
Court.
• No upper limit for the size of the loan – used to be
£25,000.
• Lenders to provide more information throughout
the term of the loan.
212 2019/2020
Consumer Credit
(Advertisement)
Regulations 2004
• Make things fairer for consumers and encourages a
more competitive market.
• Looks at:
➢ Advertisements for credit;
➢ Simpler agreements for customers to sign;
➢ More disclosure;
➢ Fairer early redemption charges.
The EU Consumer Credit

Directive
• The Directive has been implemented in the UK
under the Consumer Credit Regulations 2010.
These provide:
• Changes on the right to withdraw and providing
adequate explanations. A 14-day withdrawal is
allowed.
• New assumptions for calculating APR.
• Provides new and clearer information to be given
to consumers prior to entering an agreement
• New requirements of information to be included in
an agreement
• Sets out advertising requirements particularly how
the APR is quoted
2019/2020 213
Consumer Rights
Legislation
The Consumer Rights Act
2015
• Supersedes previous legislation.
• Gives enhanced rights to consumers with faulty
goods and services.
• Act covers:
➢ What to do when goods are faulty
➢ How services should be fit for purpose
➢ Faulty provision of goods and services
➢ Unfair terms in contracts
➢ How organisations can respond to breaches of
law
• The act aims to reduce time involved in dealing
with consumer disputes
• Third party arbitrator can be asked to make
decision about disputes, in a similar manner to
FOS.
214 2019/2020
Unfair Contract Terms

• Previous legislation has been revoked by Consumer
Rights Act 2015
• The following provisions are included in all such
contracts:
➢ The service will be performed with reasonable
care;
➢ The work will be done within a reasonable
time;
➢ A reasonable charge will be made.
• Affects contracts between suppliers and the
consumer where the contract used is a standard
one and not tailored.
• For example, a new home builder using their
standard contract for sale but not an individual
selling their own home where a tailored contract
would be used.
➢ The regulations covers fairness, usage of plain
language and good faith.
Advertising Codes and

Guidelines
• The Advertising Code
➢ This Code is prepared by representatives of the
various associations of advertisers, agencies
and media owners.
➢ All advertisements should be legal, decent,
honest and truthful.
➢ All advertisements should be prepared with a
sense of responsibility to the consumer and to
society.
• Advertising Standards Authority
➢ The ASA is financed by a surcharge on display
advertising and monitors compliance with the
British Code of Advertising Practice and the
Code of Sales Promotion Practice.
➢ Advertising must be legal, decent, honest and
truthful.
➢ The ASA receives complaints and ensures that
offensive, misleading or dishonest
advertisements are withdrawn.
2019/2020 215
Competition and Markets

Authority
• Independent body ensuring healthy competition in
the UK.
• They are responsible for:
➢ investigating mergers which could restrict
competition
➢ conducting market studies and investigations
in markets where there may be competition and
consumer problems
➢ investigating where there may be breaches of
UK or EU prohibitions against anti-competitive
agreements and abuses of dominant positions
➢ bringing criminal proceedings against
individuals who commit the cartel offence
➢ enforcing consumer protection legislation to
tackle practices and market conditions that
make it difficult for consumers to exercise
choice
➢ co-operating with sector regulators and
encouraging them to use their competition
powers
➢ considering regulatory references and appeals
216 2019/2020
Complaints and Disputes
9 Complaints
and Disputes
• The rules require firms to deal properly and
promptly with consumer complaints.
• The key requirements for firms’ complaint
handling procedures are that firms must:
➢ Have appropriate and effective internal
complaints handling procedures;
➢ Make consumers aware of those procedures;
➢ Ensure the complainant is kept informed
thereafter of the progress of the measures being
taken for the complaint's resolution
➢ Aim to resolve complaints within 8 weeks;
➢ Notify complainants of their right to go to the
Financial Ombudsman Service if they are not
satisfied;
➢ Report information about their complaints
handling to the FCA on a regular six-monthly
basis;
➢ Maintain records for at least 3 years. MiFID and
UCITs – 5 years.
2019/2020 217
The Financial
Ombudsman
Service
• The concept of an ombudsman, as a person (or
more often these days an organisation) providing
an independent facility for the resolution of
complaints and disputes relating to public bodies
and commercial organisations, has been with us for
many years.
• It has 3 divisions.
➢ Banking and loan division.
➢ Insurance Division.
➢ Investment Division.
• The Pensions Ombudsman is a separate concern.
➢ Deals with complaints about the running of
pension schemes.
➢ Complaints surrounding advice from an
adviser will go to the Financial Services
Ombudsman.
218 2019/2020
Complaints and Disputes
Ombudsman’s
Rules
• It is compulsory for all authorised firms to be
members of the FOS.
• Access to the FOS is open to all private individuals
and to small businesses (i.e. those with an annual
turnover of less than 2 million Euros).
• The Ombudsman can make awards of up to
£150,000 plus interest. The aim of the awards is to
put customers back in the position they would have
been in if things had not gone wrong.
• Individuals must first complain to the firm itself.
Only when a firm’s own internal complaints
procedure has been exhausted without the
customer obtaining satisfaction can the FOS be
approached.
• Complaints must be made to the FOS within 6
months of the customer receiving a letter from the
firm setting out its final decision on the complaint.
This is sometimes known as a “deadlock” letter.
• The Ombudsman’s initial approach will often be to
attempt mediation between customer and firm by
suggesting a way of resolution. Only if the parties
do not agree on this will a formal investigation be
commenced.
• Decisions and awards by the Ombudsman are
binding on member firms, but not on customers,
who are always free to go to court instead.
2019/2020 219
Financial Services
Compensation
Scheme
• The scheme is made up of a number of sub-
schemes relating to different default situations, as
follows:
Insolvency
• Loss due to insolvency of a firm carrying out
investment business – 100% of the first £50,000
• This also includes mortgage claims
Insurance Company
default
• Default of an insurance company: compensation of
90% of the value of the policy.
• Compulsory insurance ensures 100% of the value of
the policy i.e. motor third party insurance.
Loss of deposits
• Loss of deposited funds due to the default of a
bank or building society – 100 per cent of the first
£85,000 of each depositor's claim.
• Up to £1 million for temporary high balances such
as proceeds from a house sale or divorce
settlement.
Mortgage Firms
• Claims against mortgage firms for inappropriate
advice – 100% of up to £50,000; where the firm is
unable to pay claims against it.
220 2019/2020
Money Laundering
10 Money
Laundering
Introduction
• Massively high profile issue.
• Financial crime includes money laundering, insider
trading, funding of terrorism.
• Financial Action Task Force – international body
with 36 member countries.
• National Crime Agency is the UK intelligence
agency that looks after money laundering in the
UK.
Proceeds of
Crime Act 2002
• Now deals with all sorts of crime and consolidates
all previous legislation.
Terrorism Act 2000

• Act criminalises the holding of terrorists property.
Includes terrorist’s money, assets, and proceeds of
terrorism.
3rd Money Laundering

Directive
• Aims to define money laundering.
➢ Converting property into laundered cash
➢ Concealing true origins of cash.
➢ Acquiring property from financial crime.
➢ Participating with money launderers.
• Property is pretty much everything that you can
see and can’t physically touch, such as title deeds.
• Criminal property is defined, and property
knowingly derived from criminal activities.
2019/2020 221
4th EU Anti Money

Laundering Directive
222 2019/2020
Money Laundering
Rules for
Authorised Firms
• Establish procedures to deal with money
laundering.
• Appoint a Money Laundering Reporting Officer, a
controlled function who must report of all
suspicions reported and liaise with the National
Crime Agency.
• Train staff.
➢ Aware of procedures.
➢ Recognise money laundering.
➢ Knows the Money Laundering Reporting
Officer.
➢ Personal consequences if they don’t adhere to
the rules.
• Obtain Identification from customers, known as
customer due diligence.
➢ Include passport, driving license, utility bill.
➢ Customers without ID can be excluded from
the product purely because they don’t have
necessary ID. This is known as financial
exclusion.
• Report suspicious activity. Failure to disclose this
is a criminal activity.
• Not to alert suspicious customers or “tip” them off.
• Continually strengthen procedures.
2019/2020 223
Offences
• Concealing criminal property.
• Arranging, i.e. getting involved in the laundering
process.
• Acquiring or using criminal property.
• Severe penalties under Money Laundering
Regulations 2003.
➢ Unlimited fines.
➢ Up to 14 years in prison.
Record Keeping
• ID evidence kept for 5 years following the end of
the customer relationship.
• Any supporting evidence to be kept for 5 years.
Bribery Act 2010

• Made it an offence to bribe people or rewarding
improper performance in the UK and beyond.
• 10 years in prison or an unlimited fine.
• Active bribery relates to the individual giving the
bribe
• Passive bribery relates to the individual who
receives the bribe.
224 2019/2020
Data Protection
11 Data
Protection
Data Protection Act
1998
• This Act dealt with the control, handling and use of
information about individuals held on computer,
paper-based and other manually held information.
• All businesses holding information about
individuals on computer must register.
• It introduced the concept of “sensitive data” (about
race, sexual behaviour or physical or mental health)
and requires explicit consent to be given for the use
of such data.
2019/2020 225
The General Data

Protection
Regulation - GDPR
• From 25 May 2018, GDPR comes into effect in the
UK.
• It applies to ‘personal data’, both automated
personal data and to manual records
Data protection principles

• The data must be:
1. Processed lawfully, fairly and in a transparent
manner in relation to individuals.
2. Collected for specified, explicit and legitimate
purposes
3. Adequate, relevant and limited to what is
necessary
4. Kept accurate and up to date.
5. Kept in a form no longer than is necessary
6. Processed in a manner that ensures appropriate
security of the data
GDPR people
• Data subject – an individual whose personal data is
processed.
• Personal data – information about data subject that
identifies them
• Sensitive data – processed with specific consent –
race, religion, politics
• Data controller – who determines the purposes for
which data are processed
• Data processor – who processes personal data on
behalf of the data controller
226 2019/2020
Data Protection
Requirements for
processing personal data
• At least one of the following must apply when
processing personal data.
1. Consent – clear consent has been given by the
individual to process their personal data for a
specific purpose
2. Contract – the processing is necessary for a
contract between the organisation and the
individual
3. Legal obligation – the processing is necessary
for the organisation to comply with the law
4. Vital interests – the processing is necessary to
protect someone’s life
5. Public task – the processing is necessary for the
organisation to act in the public interest
6. Legitimate interests – the processing is
necessary for the organisation’s legitimate
interests
Data subject’s rights

• Data subject has the following rights – to:
➢ access personal data
➢ correct inaccurate personal data;
➢ have personal data erased, in certain cases;
➢ move personal data from one service provider
to another.
Compliance with the GDPR

• An organisation must:
➢ establish a governance structure with roles and
responsibilities;
➢ keep a detailed record of all data processing
operations;
➢ document data protection policies and
procedures;
➢ carry out data protection impact assessments
for high-risk processing operations.
2019/2020 227
Scope of GDPR
• The Information Commissioner is responsible for
overseeing in the UK
• The lead authority will be the DPA of the country
where the business has its main offices
• Covers all businesses that offer their goods and
services to EU customers
GDPR enforcement
• The Commissioner can:
➢ Require organisations to provide specified
information
➢ Conduct compulsory audits
➢ Commit an organisation to improve its
compliance
➢ Impose a temporary or permanent ban on data
protection
➢ Serve enforcement notices, ‘stop now’ orders
and monetary penalty notices
• The maximum fine for infringement offences is the
higher of €20m or 4% of an organisation’s
worldwide turnover
228 2019/2020
Other Legislation
12 Other
Legislation
The Pensions Act
2004
• Two major parts to this legislation:
➢ Pension Protection Fund;
➢ The new Pensions Regulator which replaces
OPRA.
The Pension Regulator

• The Pension Regulator has wide powers and will
take a proactive and risk-focused approach to
regulation.
• Statutory objectives are:
➢ To protect the benefits of members of work-
based pension schemes;
➢ To promote good administration of work-based
pension schemes;
➢ To reduce the risk of situations arising that may
lead to claims for compensation from the
Pension Protection Fund.
The Pension Protection

Fund
• Protects members of private sector final salary
pension schemes whose firms become insolvent.
• Compensates members’ schemes in cases of fraud,
misappropriation and insolvency.
➢ 100% for existing pensioners;
➢ 90% for pre-retirement members.
2019/2020 229
The Pensions Act

2011
• This Act confirms the auto-enrolment
arrangements for the new NEST provision which
begins in 2012
• It puts into law State Pension age changes
• Women’s retirement ages will equalise with men’s
at 65 by 2018
• Gradually increase to 66 by 2020.
• The 2013 Autumn Statement confirmed that the
state pension age rise to 68 to be brought forward
to the mid-2030s - and the age could rise to 69 by
the late 2040s.
230 2019/2020
Other Legislation
European Union
Directives
• They are issued by the European Union, and they
are binding upon each member state.
• The objectives have to be met, but the choice as to
how they are achieved is left to the authorities of
each state.
• It’s a bit like making a speed limit but leaving it to
the local authorities on which speed calming
measures to adopt.
Banking
• Second Banking Directive gave institutions the
freedom to establish credit institutions throughout
the European Union.
Investment
• Markets in Financial Instruments Directive
➢ MiFID right to operate throughout the EU on
the basis of home regulation.
➢ Products include shares, unit trusts, futures,
forwards and currency dealings.
Life Assurance
• The main objectives of the single market for
insurance are to provide all EU citizens with access
to the widest possible range of insurance products,
whilst ensuring them of the highest standards of
legal and financial protection.
• Second Life Directive gave freedom to provide life
assurance services across Europe.
• Third Life Directive gave additional protection to
consumers by tightening up the running of
• Fourth Life Directive – consolidated all previous
directives.
2019/2020 231
General insurance
• Second Non-Life Directive gave freedom to provide
general insurance services across Europe.
• Third Non-Life Directive stated that an insurance
company can establish branches and carry out non-
life business, in any other member state under the
supervision of the authorities of the member state
where the head office is located.
Insurance intermediaries
• The EU wants to ensure that retail markets in
insurance are accessible and secure. A Directive
was introduced on insurance mediation to establish
the freedom for insurance intermediaries to
provide services in all states throughout the EU.
232 2019/2020
Specimen Exam
Specimen
Exam
Unit 1 – Introduction to
Financial Services
Environment and products
1. The Bank of England is a central bank because
it:
a. deposits money with the International
Monetary Fund
b. Has been approved by the Treasury and
lends money directly to other banks
c. Holds reserves of foreign currency for other
banks and institutional investors
d. Acts as banker to the government supervises
the economy and regulates the supply of
money
2. Charlie is a US citizen but has been working in
the UK for the last 7 months of the tax year. He
will be regarded as UK
a. Resident
b. Ordinarily Resident
c. Domiciled
d. Deemed Domiciled
3. When a person dies without having made a will
and leaves surviving spouse and two children,
the surviving spouse has absolute title to:
a. the first £125,000
b. the first £250,000
c. the first £450,000
d. the entire estate
4. Which one of the following organisations issues
permanent interest-bearing shares?
a. Companies quoted on the London Stock
Exchange
b. Building societies
c. Local authorities
d. The Bank of England
2019/2020 233
5. Sian earns £40,000 and has no other pensions,

what is the maximum she can make this year
ignoring any carried forward arrangements.
a. £3,600
b. £10,000
c. £20,000
d. £40,000
6. What is MOST likely to happen when interest
rates rise?
a. Share prices will rise
b. With Profit, bonus rates will fall
c. Rates of guaranteed bonds will fall
d. Annuity rates will rise
7. What is the maximum amount of taxable income
which can be chargeable at 20% tax in England
and Wales for 2019/2020?
a. £8,500
b. £12,500
c. £20,000
d. £37,500
8. William is self-employed. He is likely to pay
which classes of NI?
a. Classes 2 and 4
b. Classes 1 and 3
c. Classes 3 and 4
d. Classes 2 and 3
9. An individual dies in December 2018 leaving an
estate of £550,000, which £425,000 is left to an
old friend, £100,000 to a registered charity, and
£25,000 to his political party. What will be the
inheritance tax payable?
a. £36,000
b. £40,000
c. £160,000
d. £210,000
10. If an individual makes a lifetime transfer to a
friend, full inheritance tax will arise if, after
making the transfer, the individual dies within
a. 3 years
b. 5 years
c. 7 years
d. 9 years
234 2019/2020
Specimen Exam
11. Mr. Trent will potentially incur an inheritance

tax liability if he disposes of his valuable Turner
painting in which of the following ways?
a. He gives it to his wife
b. He sells it to his daughter for a token amount
c. He sells it at auction when a local dealer
would have paid higher price
d. He leaves it in his will to an historic house
owned by the National Trust
12. Alan Smith is a basic rate taxpayer and has a
total capital gain on the shares he dabbles in of
£15,400. His tax in 2019/2020 on the gain will
be:
a. £0
b. £340
c. £680
d. £3,600
13. Which of the following is liable to income tax
but not to capital gains tax?
a. An art dealer’s profit from the sale of a work
of art
b. Antiques sold by an old lady to a dealer for
under £6,000
c. A holiday cottage in Cornwall sold at a profit
by a City business person
d. A win on the horses in a betting shop as
opposed to the tote
14. For an employed person, which one of the
following would NOT be classed as earned
income?
a. Salary.
b. Bonuses.
c. Company share dividends.
d. Taxable benefits in kind.
2019/2020 235
15. Mrs. Richards wishes to leave her estate, valued

at £600,000, to her three children. How might
she minimise the impact of the potential
inheritance tax liability?
a. By gifting £600,000 to her children so that
each receives £200,000 on her death
b. By selling her assets to her children at a
token price close to the time that she expects
to die
c. By effecting an own life whole of life policy
written under trust with her estate as
beneficiary
d. By effecting an own life whole of life policy
written under trust with her children as
beneficiaries
16. An employee earns £1,000 per week. His
employer will pay National Insurance
contributions as a proportion of what part of his
earnings?
a. His total earnings
b. His earnings between the upper earnings
limit and the Primary Threshold only
c. His earnings up to the upper earnings limit
only
d. His total earnings above the Primary
Threshold
17. Entitlement to Jobseekers Allowance in the first
six months of claiming is dependent on the
individual’s:
a. level of unearned income
b. amount of savings
c. National Insurance contributions received
d. length of time with the employer
18. Which of the following Social Security benefits
is means tested
a. Income support
b. One parent benefit
c. Child benefit
d. Statutory maternity pay
19. An employee who pays Class 1 National
Insurance contributions and who is off work for
more than four consecutive days because of
illness initially receives
a. Disability living allowance
b. Carers allowance
c. Attendance allowance
d. Statutory sick pay
236 2019/2020
Specimen Exam
20. John’s level of investment income is such that

the higher rate of income tax is payable. He has
been claiming Incapacity Benefit for 9 months,
what level of income tax will this benefit be
subject to?
a. No tax liability
b. Tax at the basic rate
c. Tax at the higher rate
d. Tax at the difference between basic and
higher rate
21. The income benefit paid out under a Permanent
Health Insurance policy is treated in which of
the following ways for income tax purposes
a. Completely tax-free
b. Taxed as earned income after the first 12
months’ payments
c. Taxed as unearned income after the first 12
months’ payments
d. Taxed in full from the first payment
22. An individual is likely to pay Class 3 National
Insurance Contributions to improve entitlement
to
a. Basic state pension
b. Severe disablement allowance
c. Income support
d. Attendance allowance
23. Social Security benefits
a. Are only relevant when the client is on a low
income
b. Can be disregarded in financial planning
because the benefits are negligible
c. Must be taken into account when assessing a
client’s needs, as some needs will be fulfilled
by these benefits
d. Should be taken into account when they are
currently being paid to a client
24. Stamp duty land tax is a tax imposed on:
a. Contracts
b. Documents
c. Property
d. Services
2019/2020 237
25. Alice earns £60 a week working in a bakery. She

has been told this amount is below the Primary
Threshold for National Insurance contributions.
That means:
a. She will have to pay 1% contributions
b. She will have to pay 10.6% and her employer
12% contributions
c. She will pay nothing, and her employer will
pay 12.8% contributions
d. Neither Alice nor her employer need pay
contributions
26. In advising self-employed persons on their
financial affairs, it should be remembered that
a. They can expect to receive enhanced sickness
benefit from the state
b. They can expect to receive the maximum
benefits available from State Second Pension
c. They can offset all their National Insurance
contributions against their income tax
liability
d. They receive their income without deduction
of income tax
27. Which of the following is potentially liable for
income tax?
a. The interest portions of a purchased life
annuity
b. National lottery winnings
c. Interest on national savings certificates
d. Income from ISAs
28. Someone claiming the Working Tax Credit
would need to:
a. Be working more than 30 hours per week,
unless they’re disabled, over 60 or have
children.
b. Already be in receipt of Income Support
c. Claim it through their employers’ payroll
d. Have a least 2 children
29. Which one of the following would provide a
guaranteed income to a client?
a. Blue chip shares
b. National Savings Certificates
c. A with-profits bond
d. A Government Gilt
238 2019/2020
Specimen Exam
30. Mr and Mrs Grey have a number of financial

needs but can’t afford to satisfy them all. They
ask you to advise them. What should you do?
a. Ensure their life assurance needs are satisfied
and then recommend products to satisfy
their other needs to the extent they can
afford
b. Prioritise their needs in consultation with the
clients and recommend products to satisfy
those needs in order of priority
c. Ensure adequate protection of income is
established before recommending policies to
satisfy any other needs
d. Prioritise their needs against criteria laid
down by the FCA and present them with
recommendations in order of priority
31. Which one of the following types of investment
is most suitable to a client with a lump sum who
does not wish to risk losing any capital?
a. Unit trusts
b. Unit-linked endowment
c. A REIT
d. National Savings Income Bond
32. An adviser should suggest that an existing
policy be surrendered only if:
a. It has only recently been taken out
b. The adviser has a new policy which better
suits the client’s needs
c. There are no tax advantages from the
existing policy
d. It is entirely inappropriate for the client’s
needs
33. What does an open market option allow
individuals to do?
a. Use the tax-free cash lump sum to buy a
purchased life annuity
b. Transfer the value of their pension fund to
another insurance company prior to selected
retirement age
c. To purchase a deferred annuity at
advantageous rates
d. Use the accumulated pension fund to buy a
pensions annuity from any insurance
company on retirement.
2019/2020 239
34. Miss Rowbottom has a £5,000 business loan

which is repayable in one lump sum in ten
years’ time from business profits. She needs a
policy with a sum assured of £5,000 at the
lowest cost to provide protection should she die
before the loan is repaid. The most suitable
policy will be a
a. Gift Inter Vivos policy
b. Decreasing term assurance
c. Level term assurance
d. Low-cost whole life assurance
35. The benefit under a family income benefit policy
is
a. Tax-free
b. Taxable at basic rate of income tax at source
c. Paid gross but must be declared for income
tax purposes
d. Paid gross but subject to income tax after 12
months payments
36. Brian requires a life policy to pay out a
guaranteed cash value at maturity and needs the
level of life cover and premiums to remain fixed
throughout the term. Which of the following
types of policy would be most suitable?
a. Non-profit endowment assurance.
b. Unit-linked endowment assurance.
c. Universal whole-of-life assurance.
d. With-profits whole-of-life assurance.
37. Which is NOT a feature of a critical illness
policy?
a. It provides a regular income
b. It is paid whether or not the assured
continues working
c. It can continue throughout the assured’s
lifetime
d. It can cover permanent total disability
38. There are three main elements that makeup
policy premiums for a term assurance, which of
the following would be the EXCEPTION?
a. Claims cost
b. Investment
c. Mortality risk
d. Expenses
240 2019/2020
Specimen Exam
39. Which of the following is correct when

considering Stakeholder Pensions?
a. Benefits can be taken from age 45
b. Non-taxpayers can get tax relief on
contributions
c. The annual allowance limit does not apply
d. Employees in occupational pensions cannot
contribute to a stakeholder pension
40. Susan has a part-time job and earns just enough
to pay income tax. She has decided to contribute
to a Stakeholder. How much tax relief will she
receive on her contributions?
a. 10%
b. 20%
c. 40%
d. None
41. Joanne was born on 1st July 1982, and her
income is £12,000. What is the maximum
contribution she can make into her Stakeholder
pension this year?
a. Nil
b. £3,600
c. £12,000
d. £50,000
42. Mr and Mrs Pope have a joint repayment
mortgage with £30,000 outstanding. They have
just had their house valued for £90,000. How
much equity do they have in their home?
a. £30,000
b. £60,000
c. £90,000
d. None
43. A capped rate mortgage is
a. A variable rate mortgage with a minimum
rate payable
b. A mortgage with a fixed rate for the whole of
the term
c. A variable rate mortgage with the option to
change to a fixed rate at some point in the
future
d. A variable rate mortgage with a maximum
rate payable
2019/2020 241
44. The contribution period for an ISA is based over

the period
a. 1 April to 31 March.
b. 6 April to 5 April.
c. 1 January to 31 December.
d. 31 January to 31 July.
45. The main purpose for which redundancy
protection is offered by insurers is
a. To provide a lump sum on redundancy
b. Contribution of pension contributions
c. Protection of mortgage and loan repayments
d. Continuation of National Insurance
contributions
46. A medium dated gilt has a coupon of 12%.
Current interest rates are 7%. Which of the
following will cause the market price of the gilt
to rise?
a. A fall in market interest rates
b. A rise in market interest rates
c. An increase in the basic rate of income tax
d. A decrease in the basic rate of income tax
47. Which of the following funds is likely to have
the lowest risk?
a. UK Equity funds
b. Gilt funds
c. Managed funds
d. General and international funds
48. An investment trust is
a. Another term for a unit trust
b. Subject to capital gains tax within the fund
c. Likely to be more risky than a unit trust
d. Designed with a single pricing structure to
be marketed across Europe
49. Which ONE of the following National Savings
products could not have a term of five years?
a. Fixed Interest Certificates
b. Income Bonds
c. Guaranteed Growth Bond
d. Children’s Bond
242 2019/2020
Specimen Exam
50. What is the main advantage of using a pension

plan to support an interest-only mortgage?
a. They often run over a longer term.
b. They are assigned to the lender.
c. They guarantee to repay the loan.
d. They benefit from favourable tax concessions
2019/2020 243
Unit 2 – UK Financial
Services and Regulation
51. Which one of the following is NOT a
requirement under the Financial Conduct
Authority Core Conduct of Business Rules in
respect of dealing for customers?
a. Sale of shares at the best price available.
b. Purchase of a term assurance at the lowest
rate available.
c. Dealing at prices which are advantageous for
the size and type of transaction.
d. Justification of switching from the customer's
viewpoint.
52. Under the Financial Services Act advising on
investments without proper authorisation or
exemption is a
a. Breach of contract
b. Breach of trust
c. Criminal offence
d. Civil offence
53. The Financial Conduct Authority
a. Regulates the majority of the financial
services industry, except banking
b. Cannot operate until after the Financial
Services Act is 3 years old
c. Is a statutory body
d. Intends to maintain the existing SIB
principles
54. The provisions of the Financial Services Act
don’t apply to articles in the press
a. Unless their principal purpose is to persuade
readers to invest in a particular investment
b. If they are only given in response to a
readers enquiry
c. If they have been authorised by the editorial
board
d. If they include recommendations for specific
investments provided the newspaper does
not hold such investments as a proprietor
244 2019/2020
Specimen Exam
55. Who is ultimately responsible for regulating

investment business as defined by the Financial
Services Act?
a. The Chief Secretary to the Treasury
b. The Secretary of State for Trade and Industry
c. The Chancellor of the Exchequer
d. The Governor of the Bank of England
56. Under the unsolicited non-written financial
promotion rules
a. A salesperson may cold call a prospect at any
hour provided that he desists if the prospect
does not wish the call
b. A salesperson may only call during socially
acceptable hours and must desist if the
prospect does not wish the call to continue
c. A salesperson can only cold call for
investment business the prospect is an
existing client and does not object to the call
d. A salesperson may only call upon a prospect
if he has previously sent him a pre-approach
letter
57. The FCA’s Statement of Principle concerning
relations with regulators requires that a firm, in
any dealings with the regulator, acts
a. In an open and co-operative manner
b. In a timely fashion answering enquiries
within 10 days
c. With reasonable care, skill and diligence
d. Without prejudice to its client’s interests
58. Where an independent financial adviser is
giving investment advice to a stockbroker, the
stockbroker will be treated as
a. An execution only customer
b. A business investor
c. A professional investor
d. A market counterparty
59. Full disclosure rules must be complied with
each time an adviser recommends
a. The purchase of a product covered by the
rules
b. The purchase or variation of a product
covered by the rules
c. The purchase or variation of a product
covered by the rules, but only where that
variation involves an increase in premium
d. Any advice on a non-packaged investment
product
2019/2020 245
60. Under what circumstances should a restricted

adviser recommend a client to an independent
adviser?
a. If another company offers the same product
with a lower premium.
b. If the client insists on best advice.
c. If the company they represent has no suitable
product.
d. Under no circumstances
61. The “know your client” rule requires
a. A face to face interview with a client
b. Completion of a limited financial
questionnaire
c. The advisor should obtain proper knowledge
of a customer’s financial circumstances and
needs
d. Completion of a detailed factfind for the
advisor’s records
62. Which rule comes into effect when it could be
inferred that an independent intermediary has a
vested interest in a product being sold?
a. Best advice.
b. Reason why.
c. Better than best advice.
d. Know your customer.
63. Who would be most likely to be affected by the
‘best execution’ rule?
a. Stockbrokers.
b. Independent intermediaries.
c. Company representatives.
d. Tied agents
64. The frequency of compliance visits by the FCA' s
officers to a particular firm depends on the:
a. A number of approved individuals
employed by the firm.
b. size of the firm, measured by its gross
income.
c. type of firm.
d. regulator's risk assessment of the firm.
246 2019/2020
Specimen Exam
65. As a restricted adviser, you find that your

clients need a product that your company
cannot provide. To ensure that our clients are
best served you
a. Refer them to a tied agent of a company who
have the right product
b. Offer the best alternative product you have
in your product range
c. Refer them to an independent adviser
d. Refer them to a tied representative providing
you have a formal referral agreement
66. James works as an IFA for Hedge Advisers and
is managed by Julie. Hedge is a member of
Hybrid, an IFA network. Who has to accept
ultimate responsibility for James’s
authorisation?
a. James
b. Julie
c. Hybrid
d. Hedge Advisers
67. In which document will a retail client find a
written explanation of advice and the possible
benefits and disadvantages of entering into a
transaction?
a. A cancellation notice.
b. A client agreement.
c. A key features document.
d. A suitability report.
68. When advising customers, a restricted single
tied adviser must
a. only provide information on products from a
panel of providers.
b. only provide advice on the products of the
provider she represents.
c. provide advice on all products, but can only
sell the products of the company she
represents.
d. provide advice on and sell all products from
the marketplace.
69. Under the Financial Services Act Cancellation
Rules, if a cancellation notice is completed and
returned within 14 days the client of; regular
premium unit-linked life policy is entitled to;
a. The bid value of units
b. The offer price, less any shortfall between the
investment and cancellation dates
c. A full refund of premiums
d. Nothing
2019/2020 247
70. An execution-only sale is one where

a. The adviser has to deal in investment at a
price that is no worse than the best available
for the size of deal
b. The client requests advice in a specific
investment are and instructs the adviser to
select the best product in that area
c. The adviser recommends the best policy
available, but the client requests that no
information on this circumstances is
documented
d. The client requests a specific product, and no
advice is requested or received
71. A large firm of advisers is required to have all of
the following EXCEPT?
a. Complaints officer
b. Training & Competence Scheme Officer
c. Compliance officer
d. Money Laundering Reporting Officer
72. Which of the following is NOT correct in respect
of client money
a. Is must be held in a separate bank account
b. It must be held at an approved bank
c. It must be held on trust for the client
d. It must be in the name of the firm but include
“trust account” in the title
73. “Better than best advice” must be given when
a. A restricted adviser recommends a product
of one company over another
b. Independent intermediaries recommend a
product with which they are a ‘connected
person.’
c. A tied agent introduces a client to an
independent financial advisor
d. An independent intermediary recommends
an insurer which has good investment
performance but poor administration
74. The requirement that an investment adviser
should not unreasonably churn a customer’s
investment or unnecessarily switch a customer’s
policies is
a. One of the FCA’s statements of principle
b. One of the FCA’s conduct of business rules
c. An ethical principle with no standing in law
d. A professional code of practice
248 2019/2020
Specimen Exam
75. Which one of the following criteria is not one

that must be satisfied by an advertisement in
order to comply with the Financial Conduct
Authority's guidelines on advertising?
a. It must be fair and not misleading.
b. It must be authorised by the Financial
Conduct Authority.
c. It must be tailored to the likely level of
sophistication of the reader.
d. It must clearly state the tax position in
respect of contributions and benefits.
76. An appointed representative gives bad financial
advice to a customer as a result of which she
suffers loss. To complain, she should approach
in the first instance
a. The company to whom the appointed
representative is tied
b. The Financial Services Compensation
Scheme
c. The Treasury
d. The FCA
77. The Financial Services Compensation Scheme is
available to investors who
a. Have suffered financial loss through adverse
movement in market prices
b. Have suffered loss from an authorised firm
which has ceased business or is likely to do
so
c. Have suffered loss due to receiving bad
advice from an unauthorised firm
d. Have received bad advice from an
authorised adviser who has no professional
indemnity insurance
78. Marcus is a financial adviser with an IFA firm.
Why is he NOT required to undertake a
programme of Continuing Professional
Development (CPD)?
a. The firm has nine or less designated
individuals.
b. The firm is the IFA arm of a building society.
c. He has yet to attain competent status.
d. He only advises on corporate products.
2019/2020 249
79. Which of the following complaint related

statements is NOT true?
a. Copies should be kept on file of all
investment complaint correspondence.
b. Telephone complaints are more serious than
written complaints.
c. Complaints must be acknowledged
immediately, dealt with promptly and
recorded.
d. The complaints record is examined as part of
compliance visits.
80. How are the costs of the Financial Services
Compensation Scheme funded?
a. A levy on authorised firms.
b. By contingency insurance arrangements.
c. By direct funding from the Treasury.
d. By levying a fixed charge on every policy
issued.
81. A client has invested £50,000 in the Insecure
Bank Ltd, which is now become unable to meet
its liabilities. What is the maximum he would
receive from the deposit fund of the Financial
Services Compensation Scheme?
a. £31,700
b. £33,000
c. £50,000
d. £85,000
82. Which of the following could NOT be used to
demonstrate an appropriate level of an adviser’s
generic knowledge?
a. The CeFA qualification
b. The CF qualification
c. A CPD log
d. The Institute of Chartered Accountants
qualifications
83. Under the Money Laundering regulations, it is
an offence to:
a. Accept any investment business without
proof of identity.
b. Make a malicious report on a suspect.
c. Tip-off a suspect that an investigation is
being held.
d. Appoint a money laundering officer with a
criminal record.
250 2019/2020
Specimen Exam
84. Under the Money Laundering regulations,

where a member of staff suspects a client of
money laundering he/she
a. Must immediately suspend activities on the
client's account.
b. Cannot take any action until firm evidence is
received.
c. Is obliged to investigate the matter further.
d. Has a legal obligation to report the details.
85. The money laundering regulations require all
life offices to put in place a money laundering
a. Telephone helpline.
b. Training programme.
c. Indemnity scheme.
d. Investigations department.
86. In pointing out the merits of an investment he is
recommending, a salesperson must
a. Explain every detail of the product he
recommends
b. Merely highlight the benefits of his proposal
and how they meet his client’s needs
c. Show how the benefits meet the client’s
needs but also make sure the client
understands the product
d. Gloss over the less attractive elements of the
product to his client
87. Jane is arranging a loan secured on her
residential property, post-October 2004, but
which is not subject to Financial Conduct
Authority regulation. This is because:
a. The loan is a business Buy to Let.
b. The loan is for a purpose other than house
purchase.
c. The security for the loan is a second charge.
d. The term of the loan is less than ten years.
88. To whom must the compliance manual be
available for inspection?
a. All employees.
b. All employed representatives only.
c. All employed and self-employed
representatives only.
d. All employees and representatives.
2019/2020 251
89. If you work for an insurance company and give

bad financial advice to Mrs Telford, as a result
of which she suffers loss, she should approach
in the first instance the:
a. Company that employs you.
b. Investors Compensation Scheme.
c. Insurance Ombudsman.
d. Trading Standards Office.
90. Under the Proceeds of Crime Act 2002, where
money laundering is suspected, disclosure must
be made either to the firm’s Money Laundering
Reporting Officer or to the
a. Department for Business Innovation & Skills.
b. Joint Money Laundering Steering Group.
c. National Crime Agency.
d. Treasury Select Committee
91. Mortgage 4 U Ltd has found that their primary
method of obtaining new business is NOT
permitted under Financial Conduct Authority
regulation. This means that they must have been
using which of the following methods?
a. TV Advertising.
b. Cold calling.
c. Mortgage Introducers.
d. Radio Advertising.
92. Sam has received a personalised key facts
illustration containing more elements than usual
relating to the specific nature of the product and
its additional risks. What type of mortgage
product must she be arranging?
a. A lifetime mortgage.
b. A cash-back mortgage
c. A re-mortgage.
d. A further advance.
93. When is a Council Tax bill acceptable as a valid
proof of address?
a. If it is accompanied by proof of payment.
b. If it is signed and dated by a current council
officer.
c. It is always acceptable.
d. If it is valid for the current tax year
252 2019/2020
Specimen Exam
94. The Financial Ombudsman Service

a. Has replaced the Pensions Ombudsman
b. Has replaced the Insurance Ombudsman
c. Can make awards binding on authorised
firms without limits
d. Can make awards binding on the
complainant
95. On what basis must an IFA report, to their
regulator, detail all sums of money received
from clients?
a. Daily
b. Monthly
c. Annually
d. Every 5 years
96. In relation to the Data Protection Act 1998,
which one of the following is INCORRECT?
a. It requires anyone holding computerised
data on individuals to be registered.
b. It gives individuals the right of access to data
relating to them.
c. It applies only to records held on computer.
d. It requires anyone holding data to have a
data protection policy.
97. In addition to the names and addresses of all
data controllers who have registered, what other
information is included in the Register of Data
Controllers?
a. Broad details of the data they process in
terms of type, purpose and the people to
whom they want to give information.
b. Specific details of the data they process in
terms of names, National Insurance numbers
and dates of birth.
c. Broad details of the data they process on
individuals’ credit rating and other personal
details.
d. Specific details of data they process on
individuals’ tax liabilities and bank deposit
accounts held.
2019/2020 253
98. Which ONE of the following contracts would be

subject to the provisions of the Unfair Terms in
Consumer Contracts Regulations 1999?
a. A contract between two businesses for the
supply of gas piping.
b. A contract for the sale of a house between a
private seller and private buyer.
c. An individually negotiated contract for the
sale of a fitted kitchen.
d. A standard service contract between an
electrical company and a consumer.
99. Kevin has approached Colin to discuss pensions
following a referral from Kevin's client Darren.
Colin asks who suggested that he might be
interested in pensions. What should Kevin do?
a. Decline to answer as he has been requested
not to divulge Darren's name
b. Give Darren's name having obtained his
permission at the outset to do so.
c. Give Darren's name and explain briefly the
nature of Darren's business with the
company.
d. State that he must first obtain the clients
permission to reveal his name.
100. What is 'better than best' advice?
a. Advice which shows a product to be better
than any other.
b. Advice for which an adviser shares his
remuneration,
c. A recommendation by a tied agent that a
client should consult an IFA.
d. Extra careful advice arising from a conflict of
interest.
254 2019/2020
Specimen Exam
Answers
1. D 41. C 81. C
2. A 42. B 82. C
3. B 43. D 83. C
4. B 44. B 84. D
5. D 45. C 85. B
6. D 46. A 86. C
7. D 47. B 87. A
8. A 48. C 88. D
9. A 49. B 89. A
10. A 50. D 90. C
11. B 51. B 91. B
12. B 52. C 92. A
13. A 53. C 93. D
14. C 54. A 94. B
15. D 55. C 95. C
16. D 56. B 96. C
17. C 57. A 97. A
18. A 58. D 98. D
19. D 59. B 99. B
20. C 60. C 100. D
21. A 61. C
22. A 62. C
23. C 63. A
24. C 64. D
25. D 65. C
26. D 66. C
27. A 67. D
28. A 68. B
29. D 69. C
30. B 70. D
31. D 71. A
32. D 72. D
33. D 73. B
34. C 74. B
35. A 75. B
36. A 76. A
37. A 77. B
38. B 78. C
39. B 79. B
40. B 80. A
2019/2020 255

Cemap - 1 - Revision Notes - 2019 - 2020

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CeMAP© 1

Revision Guide 2019/2020

High House Publishing

The Revision Guide’s Contents

Investment Bonds ................................................................................................................................................... 89

7 FCA Conduct of Business Rules .................................................................................. 184

The UK income tax

Order of Taxing Income

Capital Gains Tax

The main exemptions

Private Residence Relief

Roll Over Relief

Hold Over Relief

IHT and the family home

Value Added Tax

Stamp Duty Land

Stamp Duty Rates

Other Stamp Duties

The Gig Economy

Zero Hours Contracts

Universal Credit Revealed

Universal Credit Revealed

Who knows what will happen to this benefit?

Tax and Bonds

Child Trust Fund

Interest rates and

Earnings per share

• Cash them in, and you could be in for a Capital Gains

Share Incentive Plans

EIS 2017/18 EIS 2018/19 VCT 2017/18 VCT 2018/19

The Alternative Investment

Off Market Trading

Dilution Levy and Charges

ISAs and Dying

Innovative Finance ISA

Help to Buy ISA

Principles and Practices of

Gift Inter Vivos

Family Income Benefit

With-profit Whole of Life

Unit-linked (or flexible)

Personal Accident and

Buy and sell agreement

Cross option agreement

Private Motor Insurance

Interest only mortgage

Buy To Let Mortgages

Changes in Buy to Let

FCA Regulation on Buy to

Home Income Plans

Home Reversion Schemes

The Modern Lifecycle

Intestacy Rules for

The Health and Welfare

Power of Attorney Cost

Debt Relief Orders

The EU’s system of

Financial Services Act

FCA – Three Objectives