I have now finished all my training to be a financial adviser. My manager would like me to write a report to advise and suggest an integrated financial service package to two different customers. My first customer that I will be providing an integrated financial service package to is Ifter Ali who is 21 years old. Ifter is in his last year of university studying Business Studies whilst living at home with his mother. He has informed me that he would like to own property as soon as possible but has limited understanding of finance.
Ifter has a student loan of ?13,000 an overdraft of ?1,000. In 4 months he will be going onto the PWC graduate trainee programme with a starting salary of ?25,000. Firstly, Ifter already has a current account due to having an overdraft of ?1,000 and therefore I recommend that he keeps the account open. Once his first salary goes into his current account the overdraft will be automatically be paid off. However, Ifter should be aware that he will be getting paid a little over ?2083 a month and once the overdraft has been paid off he will only have a small amount of money left.
In addition to his overdraft he also has a student loan of ?13,000. Once Ifter starts work he will be required to pay off is student loan as he will be earning a salary more than ?21,000. To work out how much Ifter has to pay I took his salary of ?25,000 and subtracted ?21,000 which gave me ?4,000. I then found out 9% of this which is ?360 which I then divided by 12 to get a monthly payment of ?30. This is a small amount to be paid monthly and therefore Ifter can use his leftover money to save for his desire to buy a house.
Furthermore, having a current account also has many other benefits such as direct debits. I suggest that Ifter sets up any direct debits such as a phone bill or insurance to be automatically paid at the beginning of the month. This will be beneficial as he will not have to remember to pay the bills and also having it paid out on the first of the month will allow Ifter to see how much money he has left to spend on other items. Lastly, for retail banking services and products I suggest that Ifter applies for a credit card. This is because when making online payments it is safer to use a credit card.
If Ifter doesn’t receive the product the credit card company will then pay him back compared to a debit card where they won’t. But, it’s important that once he receives his items that he pays off the item in full as if he doesn’t he will have to pay large amounts of interest. Secondly, there are other financial services or products that I believe will be beneficial for Ifter. I recommend that he gets life assurance. Because he is living with his mother he may want to have extra protection In case something happens to him so his mother is left with some money.
Being young means that his monthly payments will be low as he is at low risk. If he wants to pay less monthly, I advise to take out a term assurance. Nevertheless, term assurance is only payable if the death occurs before the end of a specified term usually up to 30 years compared to whole assurance which is payable whenever the death occurs. Similarly, I suggest that Ifter gets insurance. He may want to have insurance such as car or phone insurance to make sure that he and his personal belongings are always covered if they get stolen or damaged. Another financial service Ifter can use is pensions.
When he starts his new job at PWC he will have the opportunity to join the occupational pension scheme. This is when money is paid into the pension usually from your salary and employer. I recommend to do this because although Ifter may qualify for the state pension, it’s a very small amount of money which is hard to live on. Therefore the earlier money gets put into an occupational pension the more money he will have in the long-haul thus letting him have a good lifestyle when he reaches a pensionable age. Lastly, although Ifter would like to get onto the property ladder as soon as possible, it isn’t reasonable.
You can only get a mortgage that is four time more than your salary and with the outstanding debt he has he will only be lent ?86,000 which isn’t enough to buy a property; he would also need to put down a deposit before getting a mortgage. Therefore I suggest that Ifter waits until his salary increases or finds somebody who he can have a joint mortgage with, in order to be able to borrow more money. As Ifter doesn’t have a lot of money currently it would be a good idea to look at savings products. One of the most secure savings products is premium bonds.
Ifter could win prizes from ?25 to ?1 million of tax free cash; this money doesn’t earn any interest. Ifter can withdraw his money at any given time with no penalties if he ever needed it back. So it is 100% risk free and he may win some money to put towards a deposit for a house. Ifter could also use Direct ISA’s. Alike to Premium Bonds, ISA’s are tax free, but in contrast they allow interest to be earned. The rate is variable but currently it is at 1. 25%. This money can also be withdrawn at any time and can save anything from ?1 to ?15,240 in a year.
ISA’s may be more useful for Ifter as he will get a guaranteed return. Ifter could also make use of investment products but I believe that at this time it would be unsuitable. I recommend that he should wait until his salary has increased and he has more disposable income. Once he has enough disposable income the products I would suggest would be shares or unit trusts. The other customer that I will be advising is David Vaz. Davis is educated to A level and owns and runs a plumbing business and employs one person full time and another on a part time basis.
He has been married for 6 years and has two daughters ages 6 and 6 months and he wants to have enough money to pay for their weddings in the future. David doesn’t believe in stocks and shares due to a lack of understanding. And lastly, he owns a property with a mortgage and would like to have a property abroad when he retires. David’s company has revenue of approximately ?100,000 per annum. He is the only earner in his household as his wife doesn’t work and he has young children. He has a property worth ?280,000 with a floating rate mortgage of ?150,000. He has no life assurance and has savings in a low interest company of ?5,000.
He has a credit card debt of ?1,000, no pension provision and ?5,000 worth of premium bonds but rarely wins. David already has a current account is which the money he earns through his business is deposited into his account. It would be a good idea to keep this account and make use of the features a current account has. David could make use of the overdraft services. He will need to contact the bank to see how much money he can take out. Overdrafts will be automatically repaid once his salary is paid in but he will have to pay interest. He can also make use of direct debits with his current account.
He can get direct debits on all his bills such as phone, electric and internet; they are very useful and you won’t need to worry about having to remember and having extra charges due to late payments. I would recommend David to have two separate accounts, one for his personal use and the other for business uses only. This will keep his finances separate and organised and will make running of the business easier. David also has a credit card with a debt of ?1,000. It’s important that he repays this in full as soon as possible because interest is high on credit cards and the debt will increase.
He should pay the card debt and only use it for items he buys online so that he is protected if the item doesn’t arrive. David could do this by taking ?1,000 out of his savings account because the interest rates in that account are very low compared to credit card interest which is high. He needs to pay it soon to avoid extra interest costs. David can also make use of other financial services and products. I am aware that David doesn’t have life assurance. Life assurance is very important and I strongly recommend that he gets it.
Life assurance will protect him if he unfortunately dies which means that his family will have money to live and pay off bills. David is still quite young and therefore his monthly payments shouldn’t be too high for whole life assurance. But if he would like a lower monthly payment he should consider term assurance which is cheaper. Yet it is only for a set amount of time unlike whole life assurance. I am also aware that he doesn’t have pension provision. David will have a state pension due to contributing to national insurance but this isn’t enough to live on.
Because David has his own business he will have a private pension which is a plan into which individuals contribute from their earnings, which then will pay them a private pension after retirement. It is an alternative to the state pension. This is important to ensure he has a happy life after work. Additionally, David also has a mortgage which he will need to carry on paying until all is repaid. Lastly, David needs to have insurance on items such as his phone and car and also should consider having contents insurance on the items in his house.
This will protect his belongings in case of damage or if they were stolen. David has a savings account which has ?5,000 but has low interest rates. I recommend that David tries different savings products in which could earn him more money. David has premium bonds worth ?5,000 but he rarely wins. I suggest that David puts his ?5,000 from his savings account into premium bonds to increase his chances of winning. Buying more bonds will make him more likely to win ?25 to ?1million pounds which he could use to buy a house abroad or put towards his daughters weddings.
If at any time he feels like he doesn’t want to have bonds anymore then he can get the money back at any time without any penalty. Alternatively, I recommend that David saves in children’s bonds for his two daughters. Children Bonds are a savings account made by the parents to save money until they are 16. Children’s bonds last 5 years and is tax free for the parent and child and interest of 2. 5% can be earned. ?25 to ?3000 can be saved online, through post or on the phone and can be withdrawn but a penalty of 90 days’ worth of interest will be lost.
Children’s bonds could be a way David saves for his daughter’s weddings, or provides them with money for university. There are also many investment products that could improve the income David gets. He mentions he doesn’t have any shares because he has a lack of knowledge on them. Shares are a unit of ownership interest in a corporation or financial assets. While owning shares in a business does not mean that the shareholder has direct control over the business’s day-to-day operations, being a shareholder does entitle the possessor to an equal distribution in any profits, if any are declared in the form of dividends.
People can buy existing shares which are already being traded on a stock market or new shares when a company first sells them to raise money for its business. Shares can be made online or through a stock broker through the London stock exchange. They can buy shares for the short or long haul. Short haul is when you buy shares to sell them in the hope for a higher return or the long haul which is gaining dividends when the company is successful. I recommend that David goes to a stockbroker to buy shares; as a first time buyer stockbrokers can give great advice that can aid David when buying shares.
Instead, he could buy Unit trusts. A unit trust is an unincorporated mutual fund structure that allows funds to hold assets and pass profits through to the individual owners, rather than reinvesting them back into the fund. The investment fund is set up under a trust deed. The investor is effectively the beneficiary under the trust. You can buy or sell unit trust units through the fund manager. Their value moves in line with the overall value of the fund, which in turn moves in line with changes to the underlying share prices in the fund.
Unit trusts are a very convenient and a low cost way of investing in markets which you otherwise would have found difficult to access. Also the average returns from unit trust companies compare very favourably with returns from more traditional investment products and highly qualified portfolio manager specialists make investment decisions, and manage the unit trusts so you do not have to do it. There is the advantage of liquidity and accessibility, because you can cash in all or part of your investment if necessary. Hopefully with better understanding on investment products, David will invest in shares or unit trusts to gain a better return.
Lastly, David is interested in purchasing a property abroad ready for his retirement. Although David currently doesn’t have enough funds to buy a house, there are ways in which he could. David has ?150,000 left to pay on his floating rate mortgage. If David would like to buy a house abroad then I suggest he gets a re-mortgage. This will then give him ?130,000 which he can easily buy a house abroad due to the low costs. If these two customers take my recommendations into consideration, they will be able to manage their finances well and be able to set out the things they want to achieve.