Learning Material Sample
Financial services, regulation and ethics2. Serving the retail consumerLearning outcome 2: Understand how the retail consumer is served by the financial services industry
1 Intr...
Shortened demo course. See details at foot of page. ... planning1.1 Budgeting Clients who know how they spend their money have better control of their finances than those who cannot or will not budget effectively Everyone needs to be able to pay their basic monthly outgoings, although not all will achieve this objective Ideally, there should be some money left over to cover large one-off expenses such as holidays and household and motor repairs, as well as Christmas and birthday presents Where one-off expenditure is financed through short-term borrowin... Shortened demo course. See details at foot of page. ... strike a balance between the identified needs and the budget availableWhere assumptions are made instead of full analysis, the client may find that they cannot continue with an important financial commitment If the client cannot continue with an important commitment, policies may lapse and value may be lost for both adviser and client It is better to fully analyse the situation and recommend a partial solution that the client can afford to sustain than the perfect solution which they cannot 1.2 Managing debt and borrowing
Working out total income and expenditure is the essential first step to managing debt Income may include earnings, benefits, pensions, income from savings and investments, maintenance and rental income Expenditure falls under essential spending, everyday spending and occasional or non-essential spending If money is tight, clients should reduce spending, espec... Shortened demo course. See details at foot of page. ...he client’s home if securedClients should be aware that some companies charge fees for debt help that charities offer for free Free expert help is available from organisations such as Citizens Advice, National Debtline, PayPlan and StepChange Debt Charity Final options include an individual voluntary arrangement or bankruptcy, which are formal legal processes and last-resort measures 1.3 Borrowing
Clients may borrow to fund home improvements, start a busines... Shortened demo course. See details at foot of page. ... cash or investments should consider using these to reduce their borrowings 2.1 Mortgages and loans – Basic terms
The term mortgage is commonly ... Shortened demo course. See details at foot of page. ...t lenders register a charge on the property with the Land Registry instead 2.2 Mortgages and loans – Method of interest repayment
There are two main mortgage repayment methods: capital and interest repayment, and interest-only In capital and interest repayment mortgages, monthly payments include... Shortened demo course. See details at foot of page. ...e to endowment mis-selling issues and the need for repayment certaintySince the Mortgage Market Review (MMR) in April 2014, lenders must verify that borrowers choosing interest-only mortgages have a credible repayment strategy 2.3 Mortgages and loans – Mortgage types
Both capital and interest and interest-only loans can be structured in several different ways Cap and collar mortgage – guarantees that the interest rate will not rise above a set level (cap) or fall below a minimum (collar), fixing the range for a defined period Capped mortgage – guarantees th... Shortened demo course. See details at foot of page. ..., often limited to new buildsOffset mortgage – links the mortgage to a current account, charging interest only on the net balance, reducing interest costs when account balances are positive Tracker mortgage – has an interest rate that moves automatically in line with an index, usually the Bank of England base rate, after a short delay period 2.4 Mortgages and loans – Other home finance products
Some home finance products are complex and may require specialist qualifications to advise on Advisers without the relevant permissions should refer clients to suitably qualified professionals Equity release products allow older clients, typically aged over 60, to release cash from the value of their home while continuing to live there Equity release... Shortened demo course. See details at foot of page. ...ncome, or bothThe client retains the right to live in the property for life under a lease agreement Typically, clients receive between 20% and 60% of the property’s market value depending on age at entry Older clients usually receive a higher percentage due to shorter expected lease terms Lease terms vary by provider and may include nominal rent or higher rent in exchange for greater upfront payment 2.4.2 Home purchase plans
Home purchase plans provide a way to buy a hom... Shortened demo course. See details at foot of page. ...’s remaining share and decreases as the client’s share grows 2.4.3 Sale and rent back agreements
Sale and rent back agreements involve a company buying a client’s home and renting it back to them for a fixed perio... Shortened demo course. See details at foot of page. ... client could have to leaveBe aware Advisers and clients should carefully consider such schemes and fully understand the consequences before proceeding 2.5 Buy-to-let mortgages
Buy-to-let ... Shortened demo course. See details at foot of page. ...the FCA, offering greater protection 2.5.1 Consumer buy-to-let
Consumer buy-to-let mortgages apply to lending ... Shortened demo course. See details at foot of page. ...o;accidental landlords” who require protection similar to consumers 2.5.2 Business buy-to-let
Business buy-to-let mortgages are not r... Shortened demo course. See details at foot of page. ...siness transactions that do not require consumer-level protection 2.6 Types of loan
There are two main types of loan: unstructured and structured Unstructured loans Include mortgages, commercial property loa... Shortened demo course. See details at foot of page. ...acts a penalty as lenders seek to maintain expected profitClients should factor in penalties when considering early repayment or loan rearrangement 3.1 Financial protection
Financial protection is a co... Shortened demo course. See details at foot of page. ...rm illness, accidents, redundancy, and business risks 3.1.1 Critical influences on protection needs
Age affects protection needs, with younger clients typically focu... Shortened demo course. See details at foot of page. ...otectionAll factors interact, so recommendations should consider them collectively rather than in isolation 3.1.2 Age
Protection needs change significantly through different life stages In ... Shortened demo course. See details at foot of page. ...uses less on income replacement and more on inheritance tax or estate planning needs 3.1.3 Dependants
The number and age of dependants are key factors influencing protection needs The more people reliant on one income and ... Shortened demo course. See details at foot of page. ...independent, so flexibility is importantDependency circumstances may change due to relationship changes or having children later in life 3.1.4 Income
Income determines both the amount of protection required and the ability to afford it Protection aims t... Shortened demo course. See details at foot of page. ...ainWhere income is limited, protection priorities must be set and compromises made between cost and long-term needs 3.1.5 Financial liabilities
Existing and future financial liabilities must be considered when assessing protection needs Liabiliti... Shortened demo course. See details at foot of page. ...distributedIf large tax liabilities exist, protection cover can ensure these are paid if the individual dies before settling them 3.1.6 Employment status
Employment status significantly influences protection needs Emp... Shortened demo course. See details at foot of page. ...elp the business continue and protect family interests in the event of death or incapacity 3.1.7 Existing cover
Existing cover must be reviewed when assessing protection needs t... Shortened demo course. See details at foot of page. ...ts are legitimate entitlements funded through tax and National Insurance contributions 3.2 Life cycles
The personal financial life cycle model shows... Shortened demo course. See details at foot of page. ...itable protection products that adapt as circumstances change 3.2.1 Childhood
Childhood is a period of dependency lasting until full-time educat... Shortened demo course. See details at foot of page. ...s and investments for children are managed by parents or guardians until adulthood 3.2.2 Young single
After childhood, young singles are partly dependent on parents before full independence With no dependants, ... Shortened demo course. See details at foot of page. ... vital for future financial securityEncouraging budgeting can help young people begin retirement saving even on limited income 3.2.3 Young partnered
Needs change significantly when formi... Shortened demo course. See details at foot of page. ...ting and saving together support stability and future goals 3.2.4 Starting a family
The arrival of children quickly changes ... Shortened demo course. See details at foot of page. ...lies cannot meet all financial goals, so starting early is vital 3.2.5 Family with olde...
Shortened demo course. See details at foot of page. ...ong-term objectives 3.2.6 Post-family / pre-ret...
Shortened demo course. See details at foot of page. ...preparing for retirement 3.2.7 Retirement
Most people aim ... Shortened demo course. See details at foot of page. ...nsion income, substantial capital 3.3 Relationship breakdown
Relationship breakdown... Shortened demo course. See details at foot of page. ...onal financial complications and responsibilities 3.4.1 Life assurance contracts – Term assurance
Life assurance policies are designed to provide financial protection for the assured and their dependants Term assurance pays a lump sum (or income series under family income benefit) if the... Shortened demo course. See details at foot of page. ...hout medical evidenceRenewable term assurance: allows renewal for a further term without medical evidence, though premiums rise with age Some contracts combine two or more of these variations for added flexibility, normally at higher cost 3.4.2 Life assurance contracts – Endowment policies
Endowment pol... Shortened demo course. See details at foot of page. ...ovide higher life cover and lower savings content to match loan amounts 3.4.3 Life assurance contracts – Whole of life policies
Whole of life policies provide cover for the entire lifetime of the assured Primarily designed to provide substantial life cover, though some hav... Shortened demo course. See details at foot of page. ...nits, with cover costs met by cancelling units; value depends on fund performance and cost of cover; reviewed periodically to ensure sustainability; offers greatest flexibility between protection and investment 3.5 Sickness and healt...
Shortened demo course. See details at foot of page. ...ete with each other 3.5.1 Income protection (IP)
IP policies replace lost income if the insured cannot work due to illness or accident Life assurance underwriting is based on mortality Income protection underwriting is based on morbidity 3.5.2 Personal accident and sickness insurance
Pays a regular benefit while the insured cannot work due to illness or accident ... Shortened demo course. See details at foot of page. ... limited to one or two yearsASU premiums are higher than standard accident and sickness cover but lower than income protection 3.5.3 Critical illness cover (CIC)
CIC policies are often combined with life cover Pay a lump sum rather than a... Shortened demo course. See details at foot of page. ... change over timeReviews occur every 5–10 years based on general medical advances, not individual health 3.5.4 Private medical insurance (PMI)
UK residents are entitled to free healthcare under the NHS PMI provides choice ... Shortened demo course. See details at foot of page. ...outine, dental, or experimental treatmentsMost exclude pregnancy, fertility, HIV, mental health, or cosmetic surgery 3.5.5 Long-term care insurance (LTCI)
LTCI supports clients needing help due to illness, disability, or old age Covers needs arising from conditions such as arthri... Shortened demo course. See details at foot of page. ... is requiredBenefits triggered when unable to perform ADLs or on mental incapacity No new pre-funded plans currently available, but some older ones still exist 3.6 Payment protection insurance (PPI)
PPI pays benefits if the insured ... Shortened demo course. See details at foot of page. ...arDemand has increased due to reduced State help with mortgage costs 3.7 Mortgage payment protection insurance (MPPI)
MPPI shares many features with standard payment protection in... Shortened demo course. See details at foot of page. ...ivelyMPPI can also cover premiums of related mortgage protection policies Cover is relatively expensive 4.1 State benefits
The UK welfare system provides a wide range of benefits for different circumstances Eligibili... Shortened demo course. See details at foot of page. ...ceive to avoid duplicationAwareness of benefit types and qualifying conditions is essential for accurate advice 4.2 Scope of State benefits
Wide range of State benefits administered mainly by the De... Shortened demo course. See details at foot of page. ...lely relied uponPrivate provision through insurance or pensions is often necessary 4.3 Benefit cap
A cap limits the total amount of benefits most working-age people can receive Applies across England, Wales, Scotland and Northern Ireland Ensures non-working househo... Shortened demo course. See details at foot of page. ...ty-related allowances, Carer’s Allowance or Support Payment, ESA (support component), Guardian’s Allowance, Industrial Injuries Benefits, PIP, or War/Widow(er)’s Pensions 4.4 Universal Credit
Introduced in April 2013 to simplify the benefit system by combining multiple benefits into a single payment Government t... Shortened demo course. See details at foot of page. ...rror normal wage patternsSupports financial responsibility and monthly budgeting; may also save money through cheaper monthly payment options 4.5 Benefits for families and children
Child Benefit is a universal, non-means-tested benefit for parents claiming for their children Tax charge applies if parent or partner’s i... Shortened demo course. See details at foot of page. ...p>Statutory Shared Parental Pay: parents can share up to 50 weeks of leave and 37 weeks of pay in first year after birth or adoption; leave may be taken together, in blocks, or staggered 4.6 Financial planning for families with State benefits
State benefits are gene... Shortened demo course. See details at foot of page. ...mily’s standard of living if illness, death or other adverse events occur 4.7 Unemployment and low income benefits
Income Support is means-tested and non-taxable 2025/26 rates: £... Shortened demo course. See details at foot of page. ...d at £719; maximum £21,570Amounts above £30,000 are subject to income tax and employer NICs 4.8 Support for mortgage interest
Provides help for homeowners with mortgages or loans for e... Shortened demo course. See details at foot of page. ...utive payments before qualifying for SMIPension Credit recipients have no waiting period 4.9 Disability and sickness benefits
Attendance Allowance is a tax-free, non-means-tested benefit for those over State pension age needing personal care due to disability Rates (2025/26): £110.40 per week higher rate; £73.90 ... Shortened demo course. See details at foot of page. ... earnings ≥ £125 per week, illness ≥ 4 consecutive days, and timely employer notificationPrivate insurance providers limit benefits so that combined State and employer payments remain at least 25% below pre-disability income 4.10 Retirement benefits
New State Pension is a taxable, contributions-based benefit for individuals retiring on or after 6 April 2016 who have made sufficient National Insurance (NI) co... Shortened demo course. See details at foot of page. ...(couple).A savings credit element of up to £17.30 (single) and £19.36 (couple) per week may apply but is generally unavailable to those retiring on or after 6 April 2016. 4.11 Other State benefits
Bereavement Support Payment provides a first payment of £3,500 (£2,500 if not eligible for Child Benefit or not pregnant when the partner died) followed by up to 18 monthly payments of £350 (£100 in the same circumstances). Claim must b... Shortened demo course. See details at foot of page. ...mes renting from private landlords.Winter Fuel Payment is a tax-free payment to help older people with winter heating costs; available to those born before a qualifying date that changes yearly; clawed back via HMRC for incomes above £35,000; different from Cold Weather Payment. 5 Retirement planning
Pension provision aims to avoid poverty in old age ... Shortened demo course. See details at foot of page. ...Sound professional advice is essential for effective pension planning 5.1.1 Factors affecting a client’s pension requirements: age
The basic factors determining pension requirements i... Shortened demo course. See details at foot of page. ...tion costsBy their 50s, many reach peak earnings, may have capital, and often have more surplus income for pensions 5.1.2 Income
Pension provision is influenced by the level of income desired in ... Shortened demo course. See details at foot of page. ...sess alternatives such as early retirement or lower-than-expected income growth 5.1.3 Dependants
Dependants and their costs influence pension priorities and the money available ... Shortened demo course. See details at foot of page. ...wn provision (reducing the member’s need) or be fully dependent (requiring joint provision) 5.1.4 Previous and current pension arrangements
A client’s existing pens... Shortened demo course. See details at foot of page. ...pare projected benefits with the target income to reveal any funding shortfall 5.2 Other methods of funding for retirement
Pensions are an effective retirement income source due to tax relief on contributions and tax exemption on fund growth ISAs are popular because, although contributi... Shortened demo course. See details at foot of page. ...unds pension lump sum (UFPLS)Flexi-access drawdown allows flexible taxable withdrawals after taking a tax-free PCLS An UFPLS involves taking a lump sum, usually 25% tax free and 75% taxed as earned income This revision test (opens in a new window). Estimated study time 7 hours
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